Go Directly To Probate: DO NOT Pass Go And Collect $200

Last time we focused on the question:  “What happens if I die with a Will?”  We discussed the fact that a Last Will and Testament is a “Ticket to probate.”  Some people see going to probate like going to jail in the game Monopoly.  That’s right:  Go Directly to probate and DO NOT “Pass Go and collect $200.”

I see lots of clients who want to “avoid probate.”  My first question is usually “Why do you want to avoid probate?”  There is quite a range of answers- some people don’t know why but know they don’t want to g

There are many reasons a person would want to avoid the probate process.  Probate is time consuming.  It takes from nine months to one year to fully probate an estate, sometimes it takes longer if your heirs are  not getting along.  This means that it takes a long time to get your assets into the hands of your heirs.  We all know  that “time is money” and when the process takes upwards of one year you can imagine how expensive it is to probate an estate.  Typically, the cost of probating an estate in Connecticut can range from 1-4% of the decedent’s gross estate. This means for a probate estate valued at one million dollars the fees can reach (and perhaps exceed) $40,000.

In addition to being time consuming and consequently expensive, the probate process lacks privacy.  Probate is a very public process.  Once your Will  is admitted to the Court it becomes a public  document.  Any person can take a look at your Will and see what you had and where it is going.  Many people want to avoid such attention.

As you can see there are some very good reasons why a person would want to avoid probate.  There are ways to avoid probate.  One way would be to not own anything at your death- spend the last dollar on the last day.  This is not as easy to accomplish as it sounds.  There are more sophisticated ways to bypass the process.  Next week we will discuss how Revocable Living Trusts can help to keep your assets out of probate and put them into the hands of your heirs in a timely matter.

CONTEST- What the heck is that lawyer trying to say?

Tuesday is always an interesting day in “Guertin Land.”  Tuesday is my work at home day.   One day a week I play lawyer and daddy from home.  My wife is off to her weekly meeting and its just me, my son, the dogs and client files.  Now I try to make this as legit a work day as possible- this means attempting to get up, awake and working long before my 20 month old wants to start his day ( which sometimes happens at 5 a.m)-  just last week at around 5:12 AM  Jeremy was belting out at an extreme volume “Allllllll Aboard!”  He hasn’t been the same since he took a ride on the Essex Steam Train.  So I parent and work my way through the day.  This morning I was working on a trust and I wrote this paragraph, that when I re-read I could not help think that if I get hit by a bus tomorrow and die- nobody,I mean NOBODY will know what the heck I was trying to say.  So, try to get into my mind-  read what I wrote and post a comment with what you think I meant- the person closest will get a copy of my book and something random from my office.

The term “Equally” when used in this agreement means that if one of the grantor’s issue receives any property because of the grantor’s death (including property not passing through the grantor’s estate such as real property, life insurance, joint bank accounts, investment accounts and all other non-probate assets), which when added to  the property passing by way of this trust equate to a greater total fair market value (at the time of the second death of me and my spouse) than the grantor’s other issue would receive.   The Grantor’s issue receiving the greater total amount, considering all of the above, shall be required to  pay to the issue receiving the lesser amount, an amount necessary to equalize the total amounts necessary to effectuate a 50/50 total distribution to both of the grantor’s issue, per stirpes. If either or both of the grantor’s issue has made a contribution to any property increasing the fair market value (exceeding $1,000), that amount will be subtracted from the fair market value before the above calculation.

Last Will and Testament = Ticket to Probate (enjoy the ride).

Last time we focused on the question:  “What happens if I die without a Will?”  We discussed that when you die without a will- you die intestate.  When a person dies “intestate” their property and assets are subjected to the one size fits all Connecticut Intestacy Statutes.  This week we will explore what happens if you die with a Will.

If you die with a Will your estate will go through the probate process.   Probate is the process of admitting your Will as a valid legal document, and then disposing of the property of the estate according to the guidelines set forth in the Will.  In a larger sense, probate is the process of gathering up your assets, paying your debts, expenses and taxes, and distributing property to designated beneficiaries.

The process begins when a decedent’s Will and an application for probate is filed with the Probate Court in the town where the decedent lived.  A hearing will be held, and absent objections, the Executor nominated in the Last Will and Testament will be appointed.

Once appointed, the Executor should secure the property of the estate.  This involves transferring bank accounts and brokerage accounts into an estate account.  Changing the names on stock certificates to the estate is also necessary.  If the decedent owned any real estate, the Executor must also file a Certificate of Notice on the land records in each town where the decedent owned real estate.

After the Executor takes possession of the assets of the estate they should inventory it.  Only property that is in the decedent’s name should find its way into the inventory.   You do not need to itemize household goods unless they are valuable.  After the inventory is complete it will need to be filed with the Probate Court.

The Executor is also responsible for notifying creditors to file claims.  The Executor should convert the property to cash as needed to pay claims against the estate, legitimate debts of the estate, taxes and administrative expenses associated with probating the estate.  The Executor must file state and, in some cases, federal estate tax returns, and pay any taxes due.

After all claims, debts, taxes and expenses have been paid the Executor must file a final accounting with the Probate Court.  It should detail the property received and expenses during the settlement of the estate.  The remaining balance is available to be distributed to the beneficiaries.  After the beneficiaries have been paid, the Executor may then file a closing statement with the Court ending the probate procedure.

In most cases the process takes up to a year.  Sometimes it can feel like a full-time job, although much of the time is spent waiting.  There are certain timetables built into the process that stretch it out.  These timetables are necessary to ensure creditors are given adequate notice to file their claims and for various other reasons.  The probate process can be expensive and cumbersome; however, there are ways to avoid probating your estate through the use of trusts.

Flashback: Intestacy Happens

We’re going to hit up the “way back machine” this week.  I’m going to take you back…way back.  Way back to a post I wrote in February of 2009 (okay- maybe we’re not going that far back).    Why you ask- well because I am currently writing a post on what happens if you die with a Will, and I thought that this would be a nice primer- showing what happens if you die without one.  So here goes..get ready to flashback… are you feeling tingly?

If a person dies without making a Will he/she dies intestate. Without a Will, a decedent’s property will pass according to the State of Connecticut Intestate Succession Laws. If you are thinking that “intestacy” sounds like some sort of sickness, you may not be too far off the mark. When you see how the state distributes the funds of those who die intestate… you may feel a little sick.

In Connecticut, State statutes provide that if a person dies intestate, and there are children that are the children of the decedent and the spouse, the surviving spouse will receive the first $100,000 plus one half of the balance of the intestate estate. The children will receive the remainder. For example, assume a $500,000 estate: The spouse will receive $300,000 ($100,000 plus half of the remaining $400,000) and the children will receive the remaining $200,000 in equal proportions ($100,000 each). Now let us suppose that there is only one child who is 18 years-old. Even a very mature 18 year-old may have difficulty handling a check for $200,000.

Typically, when most people plan out their estate, they want all of their assets to go to the surviving spouse and not to their children. The thought is that the surviving spouse is in the best position to use the assets wisely for the benefit of the children. In many scenarios it does not make sense to hand a large sum of cash over to a child or young adult. Imagine trying to convince an 18 year-old into investing his/her money in a college education — good luck.

The rules are different if the decedent had children that were not children of the surviving spouse. In this case, the surviving spouse would receive one-half of the intestate estate, and the children would receive the balance. This solution seems to be based in logic. The state wants to make sure that the step-children of the surviving spouse are not taken advantage of by a person who is not related to them by blood. While this plan works in preventing the aforementioned problem, it still puts money into the hands of people who may not be ready to handle it. With a Will based plan you can direct where your assets go, as well as direct appropriate measures to protect your children from the problems that come with receiving a large sum of money outright.

If there are no children of the decedent, but the decedent is survived by a parent or parents, the spouse does not receive the entire intestate estate. In this scenario the surviving spouse will receive the first $100,000 plus three-quarters of the balance, and the parents would receive the balance of the estate. Furthermore, if there are no heirs to the estate, the decedent’s money, property, etc., will escheat to the state and the state will become the owner. It’s probably not a coincidence that you cannot spell escheat without “c-h-e-a-t.”

As you can see from the above sampling from the Connecticut Intestate Succession Statutes, by not planning for the disposition of your property the state has a plan for you. It should be no surprise that control freaks hate the laws of intestacy. It takes control (albeit control that was never exercised) of a person’s hand and vests that control with the State, who then applies cookie cutter solutions for unique situations. The only way to avoid intestacy is to make sure that you have a validly executed Will. Any other plan will fall short.

Be nice to your kids…. They are going to pick out your nursing home.

Selecting a nursing home for a loved one is one of the most important and difficult decisions that you may be asked to make.  This decision is usually made during a time of crisis, frequently when a family member is ready to leave the hospital after a serious illness or operation.  It would be easier on everyone if this decision could be planned for.  However this is usually not the case.  Just remember, be nice to your kids…  they are going to pick out your nursing home.

The first issue to decide is whether a nursing home is necessary.  Would some type of home services be adequate?  This issue should be discussed with your health care providers.  There are many types of services available for people who choose to remain at home, such as home health care, adult day care centers, respite care and hospice in-home care.

Once it has been determined that an individual needs care in a nursing home you should allow that person, if they are able, to be a part of the process of selecting a facility.  Ask professionals in the field, friends or acquaintances who have been in a similar situation for information.  The Connecticut State Agency on Aging has an Ombudsman program that can provide information on particular nursing homes, however you should also visit different homes to see what they are like.  Talk to staff members, other residents and their families.  You should visit each home more than once and at different times of the day.  Ask if they have activities for the residents.  Ask to see menus for daily meals.  Also, ask what the costs are at each home.  Another thing you may want to do is to just walk around the home and observe the condition of the facility and the residents.

Nursing homes have their own doctors.  You should find out about the doctors, their credentials, how often they visit and if they are willing to meet with the family to discuss plans for treatment.

Federal law requires that residents have the right to be free from restraints administered for the purpose of discipline or convenience and not required to treat medical conditions.  If you see residents in restraints, you should question the facilities staff about the nursing home’s policy on restraints.

Be sure to visit more than one nursing home before you decide.  You can be on a waiting list at many homes and then choose the home you want.  A little advanced planning can save you from having to make a quick decision when you are forced to find a nursing home in an emergency.

I Learned Most of What I needed to Know about Will Contests from Jerry Garcia and the Grateful Dead.

Since it costs a lot to win, and even more to lose,

You and me bound to spend some time wondering what to choose.

Goes to show, you don’t ever know.

Watch each card you play and play it slow.

Wait until that deal come ‘round.

Don’t you let that deal go down, no, no.

-Deal written by Robert Hunter

Sure, I learned the law behind what is involved in a Will Contest in law school but the practical, nuts and bolts end of a Will Contest can be learned just by listening to one song.  A successful Will Contest has the effect of undoing a Will or proving that one Will is valid over another Will; or that the person making the will made some sort of unnatural disposition of assets that was procured by fraud, duress or mistake, among others.

Will Contests are almost impossible to win, largely due to the fact that the person with the best evidence as to whether or not the Will was improper is deceased.  I have never really seen anyone win a Will Contest.  Even if you “win” do you really “win”- after all it’s going to cost a lot to win and even more to lose (truer words have never been spoken).   Something to keep in mind:  your worst case scenario- a battle that goes on forever, is your attorney’s best case scenario-a “billable” battle that goes on forever- or at least until the money runs out.

Most of the time a Will Contest amounts to not much more than a common street level shakedown- I bother you until you give me money to go away.  Sometimes people use Will Contests not so much as a shakedown, but as an attempt to hurt others- now this is no good for the soul.  I propose a better (non legal solution):  Avoiding Will Contests is easy- work really hard to make things right during life and not after death by initiating a Will Contest. To paraphrase:  make peace with people during their lives not war after they are gone- after all world peace starts at home!

Title 19 Tidbit #32

The topic of gifting comes up often when discussing how to qualify for Medicaid (Title 19).  It usually occurs during a larger discussion on appropriate ways to spend a person’s assets in order to receive Medicaid.  A client’s child or children will often ask about the permissibility of making gifts to children, spouses, grandchildren and others.  After all, isn’t that allowed by the Internal Revenue Service?

First things first: What are we really talking about here?  Usually what the question means is:  Can mom and dad gift us money to shrink the amount of their assets in order to qualify for Medicaid benefits?  The answer is no.

The IRS does permit any individual to make gifts up to $13,000 per year to any number of people without incurring a gift tax or having to file a gift tax return- that’s the good news.  While everybody is in good health and flush with cash it is a great idea to make gifts (if you can afford to).  It is a great way to transfer wealth, tax free, as well as control the size of your estate in contemplation of estate taxes.

Usually we don’t talk about the “Good News” unless there is a little “Bad News.”  Okay, I know everybody was feeling good about hearing the IRS permits you to make these gifts.  Well, the bad news is that these gifts will not work under the Medicaid rules.  Eligibility for Medicaid is determined by the amount of assets an individual or couple has.  When assessing whether an individual is eligible for benefits, Medicaid looks back five years for transfers of assets.  If assets were transferred out of the applicant’s estate within the past five years those assets will be included to calculate eligibility- most of the time the effect of this is to disqualify the applicant from benefits for a certain amount of time (depending on the amount of the gift).

If you are contemplating making gifts, think twice, can you really afford to make the gift?  Understand the downstream consequences of that gift.  My best advice is to get in contact with a good attorney and/or a CPA to guide you through the tricky rules of making a gift.  Leave it to the IRS and Medicaid to suck all of the fun out of giving your money away.

What Grateful Dead “Heads” Need To Know About Life Insurance, Man!

“You know, the only people that are grateful when someone’s dead is the recipient of life insurance, man.”

-Phillip Morrow, Pan America Insurance, Salesman of the year

Okay, this cracked me up, but it also made me think.  “My name is Marc and I am a Dead Head who believes in the power of life insurance!”  Hi Marc!  I know many people both inside and outside of the Grateful Dead community who like to live in the moment and not think too much (or at all) about the future.  Don’t get me wrong,  it is completely alright to live in the moment.  Ram Dass put  it like this:  “Remember, Be here Now.”  While it is critical for everbody’s mental health to do a decent amount of living in the moment, it is equally important to take some mental trips into the future and to make some plans for that future.  It’s like doing future you a favor- you dig? I have seen the power of a good, properly placed life insurance policy.  The next time your taking a mental trip to the future- think about what life insurance could do for you and your family.  After all according to Mr. Morrow, after you purchase a life insurance policy “Your going to be so free man…You’re going to be like flying.”

Are you dying to GO GREEN?

I cam across this article on a clean/green energy website:  www.cleantechnica.com.  Enjoy!

Dead People Will Provide Heat to Crematorium Facilities

Written by Ariel Schwartz

If you’re dead and worried about the carbon emissions created from your cremation, relax. The Swedish town of Halmstad has a solution. After an environmental review showed that Halmstad’s crematorium was pumping too much smoke into the air, the facility’s director decided to re-use heat from the cremations to warm up the crematorium’s buildings.

The plan will both eliminate the crematorium’s heating bill and allow it to save money on cooling smoke before it is released into the air.

Locals in the town of 55,000 approve of the crematorium’s system, so it should be up and running soon. If the plan is successful, the crematorium eventually wants to pipe heat from its facilities to area homes. And while some may protest Halmstad’s plan on moral grounds, I’m sure that the potential monetary savings for the town will ultimately keep them quiet.

http://cleantechnica.com/2009/01/05/dead-people-will-provide-heat-to-crematorium-facilities/

Special Planning for Special Needs: Part Two

Planning for disabled and special needs beneficiaries:  “part two.” In “part one” I discussed programs available for disabled and special needs individuals.  This week I will focus on how people can protect and provide for special needs and disabled beneficiaries through their estate plans.

As I wrote in “part one,” although it may seem like a good idea, I strongly discourage people from establishing custodial accounts or leaving cash outright to special needs beneficiaries. The distribution of assets outright may disqualify the beneficiary from government assistance, which is means-based.

When the assets of an individual with special needs exceed the governmental financial resource limits, the individual may be disqualified from both Supplemental Security Income (SSI) and Medicaid.

A more appropriate way to pass an inheritance to a special needs beneficiary is to utilize a Special Needs Trust.  Special Needs Trusts can be either self-settled Trusts, or third-party Trusts.  A self-settled Trust is a Trust set up with the disabled persons own assets.  The disabled individual is the Grantor and the beneficiary.  A third-party Trust is created by one person (the Grantor) for the benefit of another, so long as the Grantor is not legally responsible for providing support for the disabled individual.

A Special Needs Trust containing certain provisions may be established to administer and distribute Trust assets to a beneficiary with special needs without otherwise disqualifying them from governmental benefits.  If drafted properly, the assets in the Trust are not counted for the purpose of determining eligibility for governmental benefits.  A properly drafted self-settled Special Needs Trust will require the Trust to pay back the government after the death of the special needs individual for governmental benefits provided to the individual.   If the assets are depleted then they do not need to be reimbursed.   Special Needs Trusts should be drafted with care.  The instrument should not direct the Trustee to make disbursements for a disabled person’s heath, maintenance or support as this will cause the Trust assets to be includable in determining eligibility for governmental benefits.  One way to accomplish this goal is to give the Trustee absolute discretion on disbursements.  When distributions are up to the Trustee’s sole and absolute discretion, the assets in the Trust are not counted when calculating eligibility for governmental benefits.

Special Needs Trusts can be a valuable tool in planning for disabled individuals.  The process requires consideration of many issues and should be approached with care by qualified professional.