Kansas & Missouri Estate Planning

Serving As Executor... Honor Or Horror Story?

For many folks, it is the highest honor to be appointed as executor (or, as "personal representative" in this era favoring a more gender neutral/political correctness title) under a Last Will and Testament. Beware, the what began as an honor may morph into a horror story once the job starts.

Choosing an executor can be a difficult task. Why? It means finding someone you trust to carry out your last wishes after you are gone.

Commonly, the appointment of an executor is a means to honor and a gesture of respect made to a friend or family member. Neither the estate planner nor the would-be executor ought to forget, however, that serving as executor can be a fairly difficult role to play. The Wall street Journal recently offered some practical insights and advice on the topic, noting that to be named executor is both "an honor… and a pain."

Simply put, the executor administers a decedent's Last Will and Testament through probate, navigating the many twists and turns of that court process. Administration involves accounting for assets, paying bills, and distributing assets in accordance with the terms of the Last Will.

The process typically takes time, too. It can mean up to several years for larger estates, and during that time the executor must keep up with the associated laws, tax code changes, and financial investments, or else intelligently delegate such responsibilities to professionals. It means that a "non-professional" can do the job, but perhaps not an "amateur"; you have to know your abilities and have confidence. To top it off, the compensation for being an executor is often meager, given the heavy workload, and is regulated by state laws.

The biggest challenge an executor will face, by and large, is a shifting relationship with the family. Money can make people antsy or even belligerent, even if the terms are clear in the Last Will, and that's something an executor might have to bear. This is especially true of family members turned executors who may face soured relationships at family functions. Accordingly, that can make for some awkward moments around the Thanksgiving table.

Practically speaking, to serve as an executor you must anticipate the challenges ahead of time, prepare for them, and remain organized. Indeed, organization is essential throughout the probate process, to include separating yourself into the two roles: executor and family member/friend.

While planning your estate and settling on an executor, consider alerting your would-be executor of your decision ahead of time. Doing so will allow them to prepare for the role, and perhaps even get special instructions from you personally. For more advice and anecdotes you can read the original article here, but to get a better idea of the challenges it is best to consult with your estate planning attorney for advice and counsel.

Back in March of 2003, Kiplinger's magazine ran an excellent article on this subject, but from the angle of serving as a "trustee." I would commend it to your reading (and to forwarding it to your trustees), as it provides some very practical pointers and points out some very hazardous pitfalls.

Reference: The Wall Street Journal (September 19, 2011) "Estate Executors: An Honor… and a Pain"

Reference: Kiplinger's (March, 2003) "In You They Trust"

Don't Trump Your Will (Unintentionally)

Got it. You have signed that newly-minted Last Will and Testament. It leaves everything to [fill-in-the-blank]. Are you sure "everything" will pass to [fill-in-the-blank] upon your passing? Really? Okay, let's consider a few very common pitfalls. Consider the following estate planning insight from none other that Robert Burns, Scottish national poet (1759 - 1796):

The best laid schemes o' Mice an' Men,
Gang aft agley,
An' lea'e us nought but grief an' pain,
For promis'd joy!
(The best laid schemes of Mice and Men
oft go awry,
And leave us nothing but grief and pain,
For promised joy!)

- To a Mouse (Poem, November, 1785)

In other words, even the bestest, most state-of-the-artest estate plan can be un-donne*. So, what is the quickest way to un-do an otherwise carefully planned estate?

Open a bank account, brokerage or retirement account.

Why? Because the beneficiary designations on these accounts override your Will. Yes, it's true – the beneficiary designation is the estate planning trump card. And many an estate plan has come undone because of carelessly named beneficiaries.

The Wall Street Journal last week issued a warning in an article entitled Beware the Beneficiary Form.

“People don’t realize the importance of this,” says Martin Shenkman, an estate planning lawyer in Paramus, NJ. A carelessly named beneficiary on a financial account can cause a loved one to be disinherited, a disabled child to lose government benefits, and heirs to be slapped with a big tax bill.

The Journal also offers a few tips to protect you from this type of estate plan destruction, to include:

Know what kinds of accounts have beneficiary designations. Did you know that U.S. Savings bonds have a beneficiary form? Other accounts for which you may have named a beneficiary include retirement accounts, life insurance policies, bank accounts, certificates of deposit, stocks, bonds and mutual funds.

Review your beneficiary designations regularly and certainly after any life-changing event such as a marriage, divorce, birth or death of a loved one. Also, job-changers and retirees take note: Beneficiary designations on retirement plans don't carry over when you roll a 401(k) to a new employer's plan or to an IRA, or when you convert a regular IRA to a Roth IRA. [Sidebar: Are you divorced? The U.S. Supreme Court ruled a few years ago that when it comes to ERISA retirement plans, the last beneficiary designation of record "trumps" state law. In that case, the State of Washington inheritance laws were trumped and an ex-spouse inherited a big retirement plan instead of the decedent's children!]

Learn more about beneficiary designations in the August 2010 issue of our newsletter, aptly titled Beneficiary Designations.

Reference:  The Wall Street Journal (July 6, 2011) "Beware the Beneficiary Form"

* A subtle tip-of-the-hat to John Donne, another of my literary favorites.

Selecting Personal Representatives For Your Estate

Next to selecting the guardians (i.e., "backup parents") for your minor children, selecting the personal representatives* to administer (i.e., "wrap-up") your estate is one of the most important legal (and financial) decisions you will ever make.

A poor choice of a personal representative can derail even the best planned estate plans, especially when a conflict arises. Case in point: Reuters offers one unfortunate beneficiary's troubles in a recent article on the topic and offers some solid suggestions to consider.

Enter Stephanie Stephens who discovered that her inheritance was short of her expectations by about $129,000. At first, she was surprised, then she was angry. Who does she blame for the loss? The personal representative.

Apparently, the estate suffered a $104,000 loss when the personal representative failed to pull the assets from the flames of the 2008 financial meltdown. Ouch! Adding insult to injury, that personal representative was nevertheless entitled to a fee of another $25,000. Yikes! Needless to say, Stephanie was more than just a few fries short of the proverbial Happy Meal.

Whether the personal representative was to blame is perhaps debatable. After all, the loss came at the beginning of the recession (I lost ground financially and, likely, so did you). That noted, there are a few other wrinkles to Stephanie's story. For instance, Stephanie hadn't met the personal representative of the estate until after her relative passed away and she only knew him as a somewhat disinterested party. Further, Stephanie had sticker shock over the personal representative's fees and considered them excessive.

In this case, the estate beneficiary was, at best surprised (and at worst, victimized) by a situation she did not understand. Her case offers an example of a kind of disconnect that can all-too-easily arise between personal representative, the estate, and a beneficiary.

So, what should you do now to avoid a Stephanie problem regarding your estate? Reuter's offers three general principles to bear in mind:

Know the estate. Choosing the right personal representative has a lot to do with the nature of your estate. Is it complex or simple? Are there a lot of moving parts and assets that may be at risk? While a family member likely can carry out a simple estate, a professional might be necessary for those more difficult ones.

Know the person. Just because someone is a "good person" does not mean they should be conducting business for you. Certainly, they need to be well-intentioned and interested in carrying out the tasks, but are they up to the tasks required? Do they have the proper skills and business mindset to carry out your estate plans and take over stewardship of your assets in your absence.

Let your family know - communicate. Talking about one's death with family members can be a difficult conversation. On the other hand, it may save a lot of heartache (and legal fees) later if your family understands your estate plans now. This includes letting them know about the personal representative's fees and even the services provided to "earn" such fees. Otherwise, unexpected fees for largely invisible services could make for an unpleasant surprise, as in Stephanie’s case.

Learn more about Probate and Estate Administration by visiting the Probate Practice Center on our website. While you are there, be sure to download some helpful (and practical) resources like the "Estate Organizer Kit" and our "Last Wishes" forms. Finally, sign up for our free monthly e-newsletter to stay informed about issues affecting you, your family and your estate.

Reference: Reuters (June 16, 2011) "Help! Our executor cost us $129,000"

* The term "personal representative" is the gender-neutral version of "executor" (i.e., male) and "executrix" (i.e., female). [Think "flight attendant" in place of "steward" or "stewardess."]

Family Feud: Avoiding Will Contests

Where there's a will, there's a way... to probate. This may come as a surprise to you, but some folks sure seem to get riled up when it comes to their inheritance, or lack thereof. Fortunately, if you want to reduce the likelihood that your family will feud over the terms of your will, then there are steps you should consider taking sooner rather than later.

We frequently read about the protracted, or particularly venomous will contests of celebrity families. But what about your will – and your family? Are you confident that you are leaving a family legacy of peace and harmony, and not a wake of destruction? Bernard Krooks of Forbes recently wrote about how to prevent will contests in your own family.

Simply put, a "will contest" is a lawsuit challenging the validity of a last will and testament. A contest may ensue if an heir or family member perceives some inequity or unjustness in the distribution of money or possessions. They may contest the will on a variety of grounds, to include that the willmaker "lacked mental capacity" to execute the will, was under the "undue influence" of another, or that there is some sort of "fraud" or "improper execution" of the will.

Proper drafting of the will can make these types of contests less likely to occur or to be successful if the do. Your will may include a "no contest" clause (also known as an "in terrorem" clause), which is a provision used to strip the inheritance from anyone who contests the will. These types of clauses often dissuade disgruntled heirs from pursuing a contest.

Some other tips include:

• Explaining the will to your heirs, or leaving a related letter to be read after your death to help explain some of your decisions.
• You may consider videotaping the signing of the will to help show the court that you signed freely and with the requisite mental capacity to agree.
• To remove the possibility of allegations of undue influence, meet with your estate attorney independently, and without the presence of other family members.

If you are the executor of a will and concerned about disgruntled heirs perhaps pursuing a contest, you may be well-advised to enlist an experienced estate attorney to assist you and ensure that the will is executed according to law.

National Health Care Decisions Day - April 16

On April Fool's Day, I devoted my blog post to some recent developments on the Advance Health Directive front. But did you know that an entire day is set aside to place a national spotlight on this important subject?

National Health Care Decisions Day is set for April 16. According to their website, this initiative is a collaborative effort of national, state and community organizations committed to ensuring that all adults with decision-making capacity in the United States have the information and opportunity to communicate and document their healthcare decisions. Learn more about National Health Care Decisions Day on their Facebook Page.

In addition, you can learn more about Health Care Documents – also known as advance directives or health care proxies – on our website. As always, we are here to help guide you through these critical documents and the decisions therein.

Estate Plan Fundamentals

Given the choice, would you rather plan your next vacation getaway or your estate? I thought so.

Let's face it... no one enjoys a conversation about death – especially their own! To paraphrase Woody Allen, most of us don't have a problem with death, but we just don't want to be there when it happens! And, with the estate tax exemption now set at $5 million for an individual and $10 million for a couple, many people may believe they have no reason to consult an attorney about their estate planning. Unfortunately, avoiding the topic of estate planning can mean unnecessary expense, confusion and conflict.

SmartBusiness last week highlighted the fundamentals of a "well-thought-out estate plan," with topics everyone should consider – whether prince or pauper.

• Why do you need an estate plan? A comprehensive estate plan ensures that your estate will be distributed according to your wishes, provides protection for you in the event of your own disability, and allows you to plan for loved ones, to include your spouse, minor children, pets, and charitable causes.
• Can I write my own will? You certainly can, and there are many online sites to help you! However, as in most things of life, you do "get what you pay for." Improperly drafted or last-minute, hand-written wills frequently are contested and invalidated in court. If you don't know what you're doing, the outcome could be much different than you expect.
• What should every estate plan have? SmartBusiness recommends two powers of attorney and a living will. I agree, but would expand the list to include a will, separate powers of attorney for financial affairs and for health care, and a living will/health care treatment directive.
• What about trusts? Many people choose to create trusts, not only to reduce estate taxes (remember, the "portability" provisions in the current law are set to expire on 12/31/2012), but also to help avoid probate. In addition, trustscan help shield assets from loss to due to unforeseen circumstances, such as the potential bankruptcies, divorces or lawsuits of your heirs.
• What mistakes do people tend to make in estate planning? The writer points out two common mistakes: failure to plan for their personal effects, and failure to review and update their plans over time.

You can learn more about comprehensive estate planning in the Fundamental Estate Planning Practice Center on our website. You also may want to review the November issue of our estate planning newsletter, Are You Ready?, which focuses on how to get (and keep) your legal affairs in order.

Cohabitating Complexities

Seems more and more folks are deciding to reside together without saying "I do" these days. While moving in may be easy to do, it is not without its legal issues.

The number of unmarried couples is on the rise. However, these couples may be unaware of a myriad of legal snarls and entanglements. In fact, if you are not married to your partner, but have shared assets or living arrangements, the Wall Street Journal article says you may experience a sort of (un)marriage penalty.

According to the Census Bureau, the number of opposite-sex unmarried couples living together in the U.S. jumped some 13% in 2010 from the previous year, to about 7.5 million. The bureau also estimates the number of same-sex couples living together rose roughly 30 percent, to about 620,000 this year from about 476,000 in 2009. Both of those totals are expected to continue growing, as some younger couples delay marriage, older couples choose not to remarry and most states continue not to ban homosexual marriage.

If you, or someone you love, are part of an un-married couple, consider some of these strategies to help mitigate the effects of the (un)marriage penalty:

• Proper Titling of Assets.  In the event of a break-up, there is no divorce process to realign the legal status of possessions, so expect the process to be messier. Of course, even without turmoil, movement of assets from one person to another may invoke otherwise completely unplanned gift taxes, unless there is some documentation verifying who “actually” owns what.
• Proper Estate Planning. Certainly, each person should have a Will to avoid their estate being distributed according to the state’s intestacy laws, which do not provide for un-married partners. Above that, one of the strongest estate planning tools can be a Trust, as this will allow a legal means of distributing assets according to your wishes, and in private manner.
• Health-Care Directives. Finally, draft appropriate health-care directives, designating the individual(s) you would choose to make your medical decisions should you be incapacitated. Without this, an unmarried partner has no legal basis from which to make health-care decisions for the other.

Avoid Probate... Or Not

One of your key estate planning issues is to what extent, if any, your estate should avoid probate.

If you have been reading my blog this year, you know that the federal estate tax was repealed for 2010, and that it is likely coming back in 2011. Regardless the legislative fate of the federal estate tax, there is another aspect of your estate that you will want to consider – your Probate Estate.

As was explained recently in Investing Daily, everyone has at least two estates. There is the Taxable Estate – the value of your estate that may be taxed by federal or state governments. The other estate is the Probate Estate. This is the part of your estate that must be processed through the state court system before assets can be distributed to creditors and heirs.

Probate can have some advantages, including the fact that because everything is reviewed by the court, there may be less of a chance for shenanigans. However, there also are disadvantages to probate, including the length of time required to complete the process and wrap up the estate, and the potential costs involved.

Visit our website to learn more about the Kansas and Missouri probate, and some useful Probate Avoidance strategies.