A Few Words on Disinheritance

Fight Over MoneyAn 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 scott@scottrosenberglaw.com for a free consultation.

Why the Best Wills are Boring

Last WillI recently had the opportunity to attend a lecture by a colleague discussing the benefits of certain will clauses as illustrated by notable wills in the public record. At one point we were discussing spendthrift clauses, a common technique to withhold a benefit from someone whose creditors would just end up with it anyways, using an excerpt from the self-written will of President (and attorney) Thomas Jefferson:

“Considering the insolvent state of affairs of my friend & son in law Thomas Mann Randolph, and that what will remain of my property will be the only resource against the want in which his family would otherwise be left, it must be his wish, as it is my duty, to guard that resource against all liability for his debts, engagements or purposes whatsoever, and to preclude the rights, powers and authorities over it which might result to him by operation of law, and which might, independantly (sic) of his will, bring it within the power of his creditors. . .”

The attorney noted how beautifully written the prose of those days went, how lofty and eloquent it was. I noticed something very different, though, and very disturbing. I saw precatory language.
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Healthcare Planning: Why Not to Wait

How a $75 piece of paper can save you a boatload of trouble.

I was recently hired by a gentleman who found himself in a difficult circumstance.  Not all that long after he and his wife had cashed their first Social Security checks, his wife had begun to show signs of forgetfulness, and in the span of just a few months had descended into moderate dementia.  I was consulted to help get her affairs in order while she was still able to participate in the process, and I recommended all of the things I would recommend to any senior: a Durable Power of Attorney, Appointment of Health Care Representative, Living Will, and Last Will, but I made one more suggestion that threw him for a bit of a loop:

I suggested that getting his own health care plans in order was more important.

That’s not to say that this was the more pressing issue, but a healthy spouse’s plan does have broader consequences than a sick one’s, and it’s not hard to see why.  In my client’s case, once the wife becomes unable to manage her finances and care, everyone – the hospitals, the family and the courts – will be looking to him for answers, and he’s more than capable of giving them.  Should the husband have an automobile accident, or a fall, or a serious illness, however, he’s asking for an express ride down the rabbit hole in the healthcare decision process.
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The Mess on Wall Street (or, Five Simple Rules for Finding a Fair Broker)

When it's time for a new broker...

With the House and Senate banging out the final version of the financial reform bill, it seems a fair guess that many people are wondering how the new law will affect their own investments, and that trustees are likewise concerned about what major consequences such sweeping legislation might have on the assets they are obligated to carefully manage. While a significant part of the bill is still up in the air, all possibilities seems to point to one answer:

None. Nada. Zilch.
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Debunking Wolf Blitzer: The Reality of 2010-2011 Estate Tax Changes

Wolf and Allan Chernoff discuss the changing estate tax landscape.

Wolf and Allan discuss the changing federal estate tax landscape.

In a December 17th segment on CNN’s The Situation Room, Wolf Blitzer and colleague Allan Chernoff began discussing the upcoming changes changes in the federal estate tax landscape.  They point out that in just a few short days the calendar will turn and the reign of EGTRRA (the Bush tax cuts) over the estate tax comes to a close.  No estate taxes will be owed on deaths occurring in the year 2010, but in 2011 the tax comes back at an even lower threshold, resetting to it’s pre-Bush rate of 41%-50% on assets over $1 Million.  While all of this is perfectly accurate and well worth knowing, much of the commentary surrounding it was murky at best, if not just plain wrong.  After the jump, some of the points that could use some tweaking:

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Estate Planning Vocab: A Primer

“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:

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New Research on Comas, and What It Means for Living Trusts

An article in Time Magazine this week tells the story of a man who was presumed brain-dead for nearly a quarter century, but as it turned out, had been alert and listening the whole time.

Rom Houben, a Belgian engineering student before his accident, was suffering from total locked-in syndrome, a condition which paralyzes all intentional body movement. His body could breathe, pump blood, and digest; he could watch, listen, and think just fine, but he did not have the ability to respond. It wasn’t until a neurologist on a quest to find misdiagnoses with an experimental new type of brain scan saw Rom that they discovered his mind was intact.

This might seem like a far-fetched aberration, but recent studies in the British Journal of Medicine and elsewhere show that incorrect diagnoses of a persistent vegetative state (or PVS) occur at an alarming rate – about 40-45 percent of the time. The reasons are several. Brain-scanning technology has not reached a level where it can clearly diagnose conscious from unconscious; the methods for diagnosis by observation all have serious flaws, and doctors can’t agree on which is best or how to make a better one; and reviews after an initial diagnoses are often too cursory to notice signs of improvement after the brain has had time to heal.

This reality creates a serious problem for the typical living will. The lion’s share of clients have them drafted to ensure they have a quick and peaceful passing instead of getting “Terry Schiavo’d,” and living wills often mention a PVS diagnosis by name as one of the triggers for the removal of life support. The result is that a person who could live a fulfilling life with quadriplegia (body paralysis) as so many others do may inadvertently be euthanized. Almost all misdiagnosed patients are completely paralyzed, and many suffer some loss of cognitive ability, so it is understandable that these new revelations may not prompt older clients to change their plans. For everyone else, though, it should be an important consideration in laying out your advanced healthcare directives.

Going forward, estate planning attorneys should keeping abreast of new developments in PVS diagnostics, to know the what/how often/for how long combination that best ensures a PVS diagnosis is accurate, and clients should strongly consider having those standards incorporated into the document itself.

CT Revamps Estate Tax Model; Saves Headaches

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.

Why Estate Planning is as Much Art as Science

I recently had a colleague contact me for some advice about a client. He didn’t need help with the legal aspects – redoing a trust – but he called because my parents grew up with the client and I know the whole family.

The situation was as unfortunate as it was typical. Client Cathy’s mom had retired to Florida, and though very self sufficient and active for a woman in her eighties, her mind was starting to slip, in particular when it came to sending gobs of money to the various cons and fake contests that prey on the elderly population of Ft. Lauderdale, and she was bouncing checks and overcharging her credit cards to do it. The family agreed that a conservatorship (called a limited guardianship in Florida) was not the best move, but that’s where the agreement ended. Cathy was willing to play a role in reviewing her mother’s finances, but thought her brother Joe in Florida would be better. Joe had the access and acuity, but didn’t want the responsibility. Sister Susan already had a power of attorney and was eager to take point as trustee of everything, but was a notorious meddler and bickerer and was liable to fight her mother tooth and nail over every indulgent expense. Rounding out the family tree was older brother Bert, who wanted to “put her in a home up North” to be safe.

Ultimately, the mom’s living trust, which contained the condo and her long-term investments, were put in a Medicaid planning trust with Susan as trustee, which was the bulk of the mother’s estate, but had minimal day-to-day responsibilities. Joe was given a power of attorney so he could open a new checking account for his mom’s pension and social security deposits, funnel a small allowance into the account she used, and buy her supermarket gift cards, while Cathy and her husband got the passwords so they could monitor her purchases and pay her bills online.

Cathy’s situation illustrates the realities of the impact that family dynamics can have on the crafting of estate plans. Planning for infirmity or drafting wills and trusts to maximize tax saving can be tricky, but they usually follow common, well-defined schemes. At the same time, the very meaning of “trust” can be a bit antithetical, as it is often a lack of trust that precipitates it. When deciding how to organize your estate, it is something you must consider carefully:

  • “Do I trust my daughter to give my diamond earrings to my granddaughter, or do I need to put that in my will?”
  • “Do I trust Bobby to use his college money wisely, or should I have his father hold it for him?”
    “Am I ready to give up control of my money, and can I trust my daughter to let me to still do what I want with it until I’m really unable?”

  • “If I die and my wife remarries, do I know that she’ll leave what I’ve earned for our children?”

Along with that, it’s important to consider the hurt feelings, anxiety, and jealousy that can occur when you make the decision to trust, not trust, or trust one person over another, and to decide whether it’s worth the risk to keep the peace. These are things I reccomend anyone consider when weighing the options as they document out their future, and it is something any competent estate planning attorney ought to ask you about.

While the law can be a science, blending it with a financial picture and family situation requires a bit of artistry. It’s also why my retainer agreement says that well-rounded estate planning does not necessarily guarantee a minimum tax burden…in bold, capital letters.

Welcome! (and a Disclaimer)

In honor of having hung up my shingle on the Connecticut Shoreline I’ve decided to start this blog in the hopes of sharing some of my thoughts and providing various insights on the practice of law as it is and developments in the area.  While much of the focus will be on CT estate planning, I hope to delve into other relevant professional observations as well.

Please note that this blog is offered as a primer to myself and my practice only.  The colloquial terms I use here may differ from technical ones, those used by the government, or those used by other practitioners.  My statements may reflect my opinion of the law rather than legal fact.  Some posts may be in need of editing or become outdated and, of course, the law varies from one state to another.  In short, all legal decisions should be made in consultation with an experienced, licensed attorney in the area where you live, and nothing on this blog should be taken to constitute legal advice, particularly as advice to avoid or evade taxes.