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Estate Planning Checklist

Everyone needs some degree of estate planning. Estate plans need to be tailored to the needs of the individual. The following estate plan checklist will explain various types of estate planning documents, and help you evaluate those that will be of value to you. Even if you decide to turn the matter over to an estate planning attorney, you should still have a basic understanding of what is involved.

1. Cover Estate Planning Basics

A comprehensive estate plan should consider what happens in the event of both death and disability. It should take into consideration what you want to happen to your property upon your death, the financial well-being of your family, the degree to which probate can be avoided, and how to eliminate or minimize estate taxes. These goals can be accomplished through various means, including properly setting up ownership of assets, designating beneficiaries where possible, and executing one or more estate planning forms. In addition to financial matters, an estate planning checklist should also consider the guardianship of any minor children, and medical treatment planning.

2. Plan Your Asset Ownership

Any asset that has title documents (real estate, motor vehicles, etc.) can be set up so that upon your death the title automatically passes to a co-owner. Most often this is a spouse. The title document must clearly indicate that ownership is held as joint tenants with rights of survivorship, as tenants by the entireties, or as community property.

There are two potential downsides to adding someone as a joint owner. First, you will need the joint owner to agree to any sale of, or loan secured by, the property. Second, if the value of the property exceeds a certain amount, it could trigger the federal gift tax.

3. Determine Beneficiary Designations

For some assets you can designate someone to receive the property upon your death, without giving them any current ownership rights. This is often done with bank and other financial accounts (usually called pay-on-death or POD). Designating a beneficiary is available in almost all states for brokerage accounts, and in some states for real estate, motor vehicles, and other assets with title documents (usually called transfer-on-death or TOD).

3. Cover Your Debts With Insurance

One way to ensure that all of your debts (including burial expenses) are paid in the event of death or disability, and that your loved ones are provided for, is through auto, homeowners, disability, and life insurance.

4. Get A Last Will and Testament

A last will and testament takes care of any property that must be probated. A last will can also deal with the care of any minor children (or adult children with disabilities). You designate who will get any property that hasn’t been handled through joint ownership or a beneficiary designation, appoint someone you trust as the executor of your estate, and appoint someone you trust to be the guardian or conservator of your minor or disabled children.

5. Consider A Living Trust

Especially if you have a large estate, or many beneficiaries, a living trust is usually the best choice for handling distribution of property, avoiding probate, and minimizing estate taxes. To avoid probate, most people create a revocable living trust (“revocable” since you may revoke the trust at any time). Property title is transferred from you to the living trust, and you become the trustee. While you are still alive, you control the property. You manage the property the same as if it was still in your name (sell or mortgage it, for example), and may acquire more property and add it to the trust. Upon death, a person you appoint as your successor trustee assures that the property is transferred to those you designate as trust beneficiaries. This transfer does not require probate. The successor trustee would also manage the trust if you become mentally incapacitated. People sometimes create an irrevocable living trust (most often for Medicaid planning), which also avoids probate, but requires the person creating it to give up the right to revoke it.

6. Consider A Financial Power of Attorney

A financial power of attorney authorizes someone you trust to act on your behalf in financial matters. The person who gives the authority is called the principal, and the person who has the authority to act for the principal is called the agent or the attorney-in-fact. Many states have an official financial power of attorney form.

Depending upon how it is worded, a power of attorney (or POA) can either become effective immediately, or upon the occurrence of a future event (such as your mental incapacity). If effective immediately, your agent may act even if you are available and not incapacitated. If a POA becomes effective upon the occurrence of a future event, it is called a springing power of attorney, because it “springs” into effect if the event occurs. The authority conferred by a POA always ends upon the death of the principal.

7. Consider A Health Care Power of Attorney

A health care power of attorney designates someone you trust to make decisions regarding your health care in the event you are mentally or physically unable to make decisions for yourself. You should discuss your desires for medical treatment with your health care agent (sometimes called a surrogate).

8. Get A Living Will

A living will, also known as an advance directive, sets forth your wishes regarding what types of life-prolonging medical treatment you do, or do not, want in the event you become terminally ill or injured and are unable to communicate your wishes. A living will goes along with a health care power of attorney, as it can serve as a guide to your agent, or can express your wishes in the event your agent is unavailable at a crucial moment.

9. Leave Information for Executor and Statement of Desires

This is not a legally binding document, but gives valuable information and guidance to your executor. It should include the information needed to clearly identify and locate all of your financial accounts, insurance policies, credit cards, vehicle loans, and mortgages. It should include contact information for relatives and close friends to be notified of your death; where assets are located (safe deposit boxes, storage units, etc.); and instructions regarding your desires for burial, cremation, funeral ceremonies, organ donation, etc.

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No-Contest Clauses in Wills and Trusts

 

No-Contest Clauses in Wills and Trusts

Is there a chance that any of your beneficiaries could be so disgruntled about what you’ve left them in your last will and testament or trust that they would bring a legal challenge against it?

If so, you may consider adding a “no-contest clause” to your will, which provides that anyone who disputes the validity of the document in court will end up inheriting nothing at all.

What exactly happens in the case of a contested will or trust, and can a no-contest clause really help you avoid that whole mess? Read on.

The Process of Contesting a Will or Living Trust

A last will and testament communicates your wishes regarding the distribution of your property after your death. A living trust holds your assets for your benefit during your lifetime and for transferring to your chosen beneficiaries at your death by the person you have designated as your “successor trustee.”

So what happens if someone wants to contest a will or trust?

Contesting a will requires that a beneficiary file a formal legal challenge against the validity of the will. A person must have standing to bring a will contest, which means he or she must have a financial interest in the estate, usually as a named beneficiary or someone who is entitled to inherit based on existing law.

Grounds for a will contest may focus on the testator’s capacity—that he or she was not of sound mind when the document was executed—or external forces such as undue influence, fraud, or duress, all of which allege that someone had forced the hand, so to speak, of the testator in drawing up the will.

Additionally, a will contest may seek to present a newer version of the document, alleging that it is the valid one.

Challenges to the validity of a trust are similar in nature and generally call into question whether the trust accurately reflects the trust creator’s wishes. As with a will, duress, fraud, undue influence, and even ambiguity in the trust’s terms may be alleged.

The process for disputing a will or trust can mean additional costs for the estate—and less inheritance for beneficiaries. And since we’re talking about court processes, it’s no surprise that all of this can take quite a bit of time—years even—to sort out.

None of these side effects of a will or trust contest are desirable for your beneficiaries, so it’s likely something you’ll want to try to avoid.

Enter the no-contest clause.

What Does a No-Contest Clause in a Will Do?

A no-contest will clause uses the threat of no inheritance at all—even what is bequeathed to the person within the document—to dissuade beneficiaries from challenging the validity of a will.

A sample no-contest clause in a will looks something like this:

“Notwithstanding anything herein to the contrary, if any beneficiary contests the terms of this Will, including, without limitation, filing a contest of admission of this Will to probate under [applicable section of the state Probate Code], that beneficiary shall not be entitled to any property under the terms of this Will, and for all purposes of this Will, that beneficiary shall then be deemed to have predeceased me.”

A no-contest clause in a trust would contain similar language, but remember that your state may have specific requirements, so it’s always best to consult a professional when incorporating legal language into your will or trust.

Pros and Cons of No-Contest Will Clauses

The main “pro” to including a no-contest clause is that it often does effectively deter beneficiaries from bringing a legal challenge to the will. On the flip side, however, if there actually were any errors in the will or trust, the existence of the no-contest clause leaves no recourse for that beneficiary.

Something else to keep in mind is that a no-contest clause doesn’t automatically mean there will be no issues or disagreements over the estate. One big caveat, for example, is that some states actually allow a beneficiary to bring a will contest—even in the presence of a no-contest clause—so long as she has probable cause to do so. And some states, such as Florida, will not enforce no-contest clauses at all.

Another important limitation of no-contest clauses is that they don’t apply to a person who is not a named beneficiary in the will. That is, even if there is a no-contest clause, a person omitted from the will who brings a contest will have no fear of repercussions of non-inheritance. He or she simply isn’t covered by the clause.

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A Lesson in Estate Planning

A Lesson in Estate Planning from David Bowie

Few pop stars have endured or left a legacy as diverse and successful as that of David Bowie. He died last week of liver cancer, just two days after his 69th birthday and the release of his latest album, Blackstar. He was inventive and cutting edge; the fans who transcended generations adored him. Those who didn’t know what to make of the androgynous pop star nevertheless remained fascinated by his ever-evolving, iconic personas. Over more than 50 years, he produced an extraordinary body of work that spanned music and film.

Bowie amassed considerable wealth

Bowie died a very wealthy man—his estate is worth an estimated $100M—and that’s before the inevitable spike in sales that will continue with his death. (In the 6 years since Michael Jackson’s death, his estate has grossed nearly $2B.) Yet in the 70s and 80s, Bowie struggled financially, reportedly nearing bankruptcy.

A brilliant plan for creating—and sustaining–wealth: Bowie Bonds

With the help of an investment banker, Bowie developed a brilliant plan for creating and sustaining wealth: Bowie sold a stake in his catalog of music. Instead of outright selling his songwriting, performance and licensing rights to his many successful songs, Bowie created “Bowie Bonds.” These allowed him to sell – for $55M– a 10-year investment, which operated like an annuity, providing a fixed-rate of return of 7.9%. The payouts were secured by all of his royalties and copyrights from the music. Prudential Insurance purchased the Bowie Bonds and was paid off in full during the 10-year timeframe. The Bowie Bonds transaction provided tax savings and ensured that his estate would benefit from his music catalogue.

Apparently Bowie was motivated by the desire to protect his family—his wife, Iman, their daughter, and a son from a former marriage. He had apparently always been interested in estate planning and wanted to make sure his assets passed on to his loved ones.

Bowie likely used one or more Revocable or Irrevocable Trusts

Given Bowie’s careful attention to financial planning, it’s likely that he used one or more Revocable or Irrevocable Trusts. In this way, he could have maximized the value of assets with the lowest tax consequences, but his assets could also pass privately, without the public scrutiny that accompanies Probate Court, which is the case with those who do not create a Living Trust.

Bowie’s final wishes

It was just revealed that Bowie’s $100M fortune will be distributed among his family and several loyal employees. Iman will receive half of his fortune as well as their Soho apartment; his children will each receive an estimated $25M. Bowie was a longtime Buddhist and requested that he be cremated in Bali in accordance with Buddhist rituals. He noted that if that was not practical, he could be cremated elsewhere, with his ashes scattered in Bali. The Bali cremation may have been problematic, for Bowie was cremated in New Jersey, but we can assume that his family scattered his ashes in Bali, according to Bowie’s final wishes.

A Living Trust ensures that your heirs will not have to deal with Probate and that your estate will remain a private matter. We assist our clients through every step of the Living Trust process.