It’s a common situation. Your dad realizes he’s not getting any younger, so he adds your name to his bank account “just in case.” Or mom offhandedly tells you she “put you on [her] annuity,” though your name’s not on the statements. Maybe Mom’s not as sharp as she once was, and after requesting copies of her statements and faxing over your power of attorney as they asked, you find your name added to the account. Perhaps a decade ago your parents put away some college spending money for your son, and you’re listed as “Custodian under UTMA” on the bank statements.
If you have elderly parents, it’s likely you’ve come across one or more of these scenarios, and they tend to bring with them a bunch of questions, like:
- Does that mean it’s my money? Does half this interest go on my taxes now? Does all of it?
- Can I take out money if I want to?
- Does this mean I have to do anything? Will I get in trouble if I leave things as they are?
- Is this a gift? Can I take out money if I want to?
- What happens when they pass away? Can I just withdraw the money, or does it have to go through probate, or what?
The answers are fairly easy, yet it is a subject on which even veteran accountants and policy reps get their wires crossed. However, if you understand which of the three reasons has placed your name within your parent’s records, it’s easy to understand what is actually going on.
An article last week in the local lawyer’s trade paper, The Connnecticut Law Tribune, discussed the increasing prevalence of wills being delayed in the probate process through complaints, objections, and full-out challenging of wills admitted to probate.
It’s not surprising, given that the economy is at the lowest point most of us have ever and will ever see. There will always be maligned siblings looking for their fair share and suspicious later-in-life will changes, but in these tight times staying silent to keep the peace may not be the option it normally would be for some left-out relatives. At the same time, there’s likely a surge in opportunists who suspect (accurately, as it happens) that most legit beneficiaries would rather pay a small, quick settlement than see their own inheritances delayed and diminished by a protracted lawsuit.
It’s an unfortunate situation for those looking to plan for when they are no longer around. It’s also a good example of why it’s so important to have your will done by an attorney, in particular one who handles a great deal of wills and probate work.
If you’re looking to cut someone off because you question their responsibility or they have significant debts, several different types of trusts can be employed to address those concerns without completely disinheriting the person. If you just want someone out, the wording must be carefully chosen to meet legal standards. Depending on the situation, it may be better to employ a “carrot and stick” tactic, where the ousted person is actually given a small legacy under the will, but which is forfeited if he or she challenges the will in court.
Later-in-life will changes are particularly susceptible to challenge in court, as relatives may claim the author was not competent to make the will, or had been subjected to the manipulation and pressure of an overbearing child or confidante. An experienced estate planning or elder law attorney can take steps to help ensure the will will be upheld in court, such as careful selection of the location and people present at the execution ceremony (will signing), choice of witnesses, and videotaping the ceremony as future evidence.
For more information, feel free to call me at (203) 871-3830 or email firstname.lastname@example.org for a free consultation.
“EYELIDS? I DON’T SEE WHAT EYELIDS HAVE TO DO WITH IT.”
These exact words were directed at me a few years ago by my Trusts professor in law school. The professor is a very well-known scholar in the wills/trusts/probate field, but as someone who doesn’t practice he failed to recognize that I was saying “ILIT,” common parlance in the field for an Irrevocable Life Insurance Trust.
My professor’s problem illustrates a potential one for Estate Planning clients. Most attorneys realize that they are dealing with complex and often obtuse concepts that can make an uninitiated client dizzy, and do their best to explain things carefully and at a reasonable pace. However, it may still be a challenge to take in, particularly with terms that sound confusing (like ILIT) or are used interchangeably with other terms, so after the jump, a glossary of common terms likely to cause confusion:
Since 2005, one of the more annoying idiosyncracies of CT estate planning law has been the 2 million dollar cliff threshold for CT estate taxes. At the time it matched the federal estate tax exclusion, but that rate was set to rise to $3.5 million at the start of 2009, and was widely expected to stay in that vicinity.* The end result was that individuals could easily get wallopped over manners of poor planning** (as a “cliff tax”, you’re assessed on the full first $2MM if you’re over by even a dollar), and couples with a net worth over $4 million required multiple, layered trusts to maximize the tax credits offered, such as they were.
However, last month Gov. Rell announced she would allow the proposed 2010-2011 budget to pass into law, which modifies the estate tax to a flat tax of 25% on the value of estates over $3.5MM, similar to the federal taxes. Under this new system, modest individuals estates may no longer be blindsided, and couples with a net worth underneath $7 million can avoid estate taxes altogether with a common arrangement often referred to as an “AB Trust.” An AB trust simply takes the property from the decedent spouse(let’s say husband’s) estate and splits it into two piles: a “bypass pile” which could be taxed, but is valued to max-out his $3.5 million credit, and a “marital deduction pile,” which gives the property to his widow tax-free, and will fall within her $3.5 million credit when she passes. The trust allows the piles to be split up in whatever way will save the most taxes, and is now a very effective tool in CT.
*This is still in a state of legislative flux, however. Presently there is no estate tax at all for 2010 and a low $1MM exemption starting in 2011, but these are likely to change and should not be planned around.
**Because of the low threshold, holding a large life insurance policy on yourself, vacation properties, or even part of a small business could make an estate subject to tax. The change in the estate tax does not affect the assessment of probate fees on these assets, so it remains prudent to place substantial investments in trust, outside of your estate.