Moynihan Lyons PC

No-Contest Clause Can Solve Issue and/or Create One

Will a no-contest clause prevent a challenge? That’s the big question.

The last will and testament is the key to the final wishes of the loved one. However, when charges of undue influence occur, problems can also arise that stall the end results, according to the Santa Cruz Sentinel in “No-contest clause throws kink into trust plan.”

The example given in the article is of a woman whose mother was in the care of her niece, who was also the trustee of her mother’s trust. The mother modified the trust to give the niece her home, which is estimated to be worth about a fifth of the total estate value. The daughter notes that at the time these changes were made to the will, her mother was in hospice care and being given morphine. It does sound as if it could be influence, because changes made to a will during a critical illness, especially in the presence of strong pain medication, are questionable.

Since the trust included a no-contest clause, the daughter wonders if it’s worth challenging the will for one-fifth of the estate to charge the niece with undue influence?

An undue influence claim needs to have three points:

• A confidential relationship — that between the grandmother and the grandchild;
• Active procurement — the granddaughter got her grandmother to amend the trust;
• Unjust enrichment — the granddaughter’s inheritance was increased to more than she would have otherwise received.

If all three elements are met, then the burden of proof shifts to the niece to show that she was not doing anything wrong.

There may also be a lack of capacity claim, based on the medication. It may be that the grandmother was too medicated to understand what she was doing.

The no-contest clause does present a problem. If the will is challenged, the daughter is disinherited — but only if she loses. If she wins, that no-contest amendment is invalid, and the trust returns to what it was before the changes were made.

At one point, no contest clauses were so powerful that there was consideration given to not allowing them to be used in wills. In California, as of Jan. 1, 2010, a person may file a contest and if the judge determines that they had probable cause, they are not automatically disinherited.

In this case, if the facts would lead a reasonable person to conclude that there was undue influence, it’s likely that the daughter in this example would win. It would be up to the court to determine whether she should be disinherited. No-contest clauses are strictly construed by the courts, so unless the no-contest clause says that it applies to amendments, she may be okay.

There is one fact that she needs to ascertain, before moving forward. If the estate planning attorney met with the mother and prepared the amendment, then the attorney will be a neutral witness who will be able to testify to her mother’s mental capacity and her wishes.

It is not uncommon for people to change their wills to favor the person who spends their last weeks or days with them, as they prepare to die.

An estate planning attorney can advise you on creating an estate plan that fits your unique circumstances.

Reference: Santa Cruz Sentinel (March 3, 2019) “No-contest clause throws kink into trust plan”

You Can Create Some Challenges with DIY Wills

You can save money now but leave some real problems for your heirs.

The complexities of today’s modern families in America, can make the creation of an estate plan a challenge and do-it-yourself wills and on-line wills can often create problems for families, according to Next Avenue in “The Problems With Do-It-Yourself Online Wills.”

The article reports that one DIY estate planning service had three different “packages” that consisted of the same document, just with different names. Those packages were also missing a key estate planning document that the average person would not know to ask about. Even attorneys who do not practice estate planning law, know to work with an estate planning attorney for their wills.

For those with complex financial and personal lives, a DIY service may not be able to address the estate planning issues. If you have over a certain level of assets, do you want to risk making a costly blunder that would easily be prevented by working with a skilled professional?

Think of it this way: there are some people who can have their taxes done online, because they receive simple tax forms from their employer. If there’s a mistake, the IRS sends a letter and they may have to pay a penalty or pay the taxes that were not paid properly. Simple, right?

If your estate plan doesn’t work, you’ll never know. However, your loved ones will, and they’ll be the ones to have to make things right.

Good estate planning is all about expressing our wishes. The documents that are prepared and the process of decisions about our wishes accomplish a number of tasks:

• Avoids court intervention in your family’s life,
• Reduces administrative confusion, and
• Reduces or eliminates unnecessary fees and delays.

The four basic planning documents are: a will, power of attorney for financial matters, an advance health care directive and if needed, a trust. If you expect to use any of these through a DIY website, expect to use a “fill in the blank” approach. Remember that every state has its own laws governing probate. Are you sure that the forms you are filling out are acceptable in your state?

Other DIY sites have some documents, but only if you purchase a high-end package. Others offer attorney consultations, but some consider an attorney consultation to be a series of questions and answers through an online app with pre-written responses, and not a real attorney.

The problem with DIY wills, is that we don’t know what we don’t know. We may know who we would like to receive our assets, but not what our state law requires to make that happen.

An estate planning attorney can advise you on creating an estate plan that fits your unique circumstances.

Reference: Next Avenue (March 29, 2019) “The Problems With Do-It-Yourself Online Wills.”

You Have Received an Inheritance but What Do You Do Next?

It is easy to spend a lot of money quickly, following an inheritance.

When a person receives an inheritance, there are some basic issues to be considered, according to The Rogersville Review in  “What should you do with an inheritance?” The amount of the inheritance means  that you might be able to retire earlier than planned, set up an investments and savings program or just end up spending a lot of money.

Here are some ways to consider using an inheritance:

Get rid of your debt load. Car loans, credit cards and most school loans are at higher rates than you can get from any investments. Therefore, it makes sense to use at least some of your inheritance to get rid of this expensive debt. Some people believe that it’s best to not have a mortgage, since now there are limits to deductions. You may not want to pay off a mortgage, since you’ll have less flexibility, if you need cash.

Contribute more to retirement accounts. If the inheritance gives you a little breathing room in your regular budget, it’s a good idea to increase your contributions to an employer-sponsored 401(k) or another plan, as well as to your personal IRA. Remember that this money grows tax-free and it is possible you’ll need it.

Start college funding. If your financial plan includes helping children or even grandchildren attend college, you could use an inheritance to open a 529 account. This gives you tax benefits and considerable flexibility in distributing the money. Every state has a 529 account program and it’s easy to open an account.

Create or reinforce an emergency fund. A recent survey found that most Americans don’t have emergency funds. Therefore, a bill for more than $400 would be difficult for them to pay. Use your inheritance to create an emergency fund, which should have six to 12 months’ worth of living expenses. Put the money into a liquid, low-risk account, so that you can access it easily if necessary. This way you don’t tap into long-term funds.

Review your estate plan. Anytime you have a large life event, like the death of a parent or an inheritance, it’s time to review your estate plan. Depending upon the size of the estate, there may be some tax liabilities you’ll need to deal with. You may also want to set some of the assets aside in a trust for children or grandchildren.

An estate planning attorney can advise you on creating an estate plan that fits your unique circumstances and may include handling an inheritance.

Reference: The Rogersville Review (March 21, 2019) “What should you do with an inheritance?”

No-Contest Clause Can Solve Issue and/or Create One

Will a no-contest clause prevent a challenge? That’s the big question.

The last will and testament is the key to the final wishes of the loved one. However, when charges of undue influence occur, problems can also arise that stall the end results, according to the Santa Cruz Sentinel in “No-contest clause throws kink into trust plan.”

The example given in the article is of a woman whose mother was in the care of her niece, who was also the trustee of her mother’s trust. The mother modified the trust to give the niece her home, which is estimated to be worth about a fifth of the total estate value. The daughter notes that at the time these changes were made to the will, her mother was in hospice care and being given morphine. It does sound as if it could be influence, because changes made to a will during a critical illness, especially in the presence of strong pain medication, are questionable.

Since the trust included a no-contest clause, the daughter wonders if it’s worth challenging the will for one-fifth of the estate to charge the niece with undue influence?

An undue influence claim needs to have three points:

• A confidential relationship — that between the grandmother and the grandchild;
• Active procurement — the granddaughter got her grandmother to amend the trust;
• Unjust enrichment — the granddaughter’s inheritance was increased to more than she would have otherwise received.

If all three elements are met, then the burden of proof shifts to the niece to show that she was not doing anything wrong.

There may also be a lack of capacity claim, based on the medication. It may be that the grandmother was too medicated to understand what she was doing.

The no-contest clause does present a problem. If the will is challenged, the daughter is disinherited — but only if she loses. If she wins, that no-contest amendment is invalid, and the trust returns to what it was before the changes were made.

At one point, no contest clauses were so powerful that there was consideration given to not allowing them to be used in wills. In California, as of Jan. 1, 2010, a person may file a contest and if the judge determines that they had probable cause, they are not automatically disinherited.

In this case, if the facts would lead a reasonable person to conclude that there was undue influence, it’s likely that the daughter in this example would win. It would be up to the court to determine whether she should be disinherited. No-contest clauses are strictly construed by the courts, so unless the no-contest clause says that it applies to amendments, she may be okay.

There is one fact that she needs to ascertain, before moving forward. If the estate planning attorney met with the mother and prepared the amendment, then the attorney will be a neutral witness who will be able to testify to her mother’s mental capacity and her wishes.

It is not uncommon for people to change their wills to favor the person who spends their last weeks or days with them, as they prepare to die.

An estate planning attorney can advise you on creating an estate plan that fits your unique circumstances.

Reference: Santa Cruz Sentinel (March 3, 2019) “No-contest clause throws kink into trust plan”

A Will Is Important with or without Assets

Helping the family to move forward during difficult times.

Estate planning basics such as a will, power of attorney, health care power of attorney and a plan to pass on assets to heirs, are beneficial to the family and set a plan to follow, according to WKBN 27 in “Attorney recommends everyone have a will in place to prevent avoidable issues.”

Think of the will as a way to speak for yourself, when you have passed away. It’s the instructions for what you want to happen to your property, when you die. If there’s a will, the executor is responsible for carrying out your requests. With no will, a court will have to make these decisions.

Many people believe that if they don’t have a will, their spouse will simply inherit everything, automatically. This is not true. There are some states where the surviving spouse receives 50% of a decedent’s assets and the children receive the rest. However, the children could be offspring from outside the marriage. Not having a will, makes your estate and your family vulnerable to unexpected claims.

A will must contain certain elements, which are determined by your state’s laws and must be signed in the presence of two witnesses. Without the correct formalities, the will could be deemed invalid.

Lawyers recommend that everyone have a will and an estate plan, regardless of the size of your estate.

Young parents, in particular, need to have a will, so they can name a person to be guardian of their child or children, if they should both die.

Details matter. In some states, if you make a list and neglect to name specifically who gets what, using the term “children” instead of someone’s name, your stepchildren may not be included. State laws vary, so a local estate planning attorney is your best resource.

You should also be sure to talk with your spouse and your children about what your intentions are, before putting your wishes in writing. You may not feel totally comfortable having the discussion. However, if your intention is to preserve the family, especially if it is a blended family, then everyone should have a chance to learn what to expect.

Wills do become binding, but they are not a one-time event. Just as your life changes, your estate plan and your will should change.

Don’t neglect to update your beneficiary designations. Those are the people you named to receive retirement accounts, bank accounts or other assets that can be transferred by beneficiary designations. The instructions in your will do not control the beneficiary designation. This is a big mistake that many people make. If your will says your current spouse should receive the balance of your IRA when you die but your IRA lists your first wife, your ex will receive everything.

Here are the four estate planning documents needed:

• A will;
• A living will, if you need to be placed on life support and decisions need to be made;
• A healthcare power of attorney if you cannot speak for yourself, when it comes to medical decisions;
• A durable power of attorney to make financial decisions, if you are incapacitated.

An estate planning attorney can advise you on creating an estate plan that fits your unique circumstances.

Reference: WKBN 27 (March 14, 2019) “Attorney recommends everyone have a will in place to prevent avoidable issues.”

LLCs Work for Intra-Family Gifts

LLCs and FLLPs require minimum reporting at the state level.

The IRS is taking a fresh look at LLCs and Family Limited Partnerships, which are easy to work with and understand, following recent court decisions, according to Financial Advisor in “Use Caution With Gifts Of LLC Interests.”

There have been a few changes that have made this a little more complex, most notably the Powell v. Commissioner decision from 2017. As a result of that decision, the IRS can attempt to include the value of the transferred FLLC units in the parent’s taxable estate. Powell is not the first judgment to give families and estate planners some concern over using FLLCs. Here’s a look at two Tax Court decisions to bear in mind, when considering a FLLC and Gifts of LLC interests.

The Powell v. Commissioner decision was the result of a case where the mother owned a non-controlling 99% limited partnership at the time of her death. Her sons owned the 1% controlling general partner interest. The Tax Court held that despite being the limited partner, the mother could act in conjunction with the general partner either to make distributions or liquidate the partnership. This caused $10 million of partnership assets to be included in her taxable estate at the fair market value. The Tax Court focused on the fact that the son-general partner held his mother’s durable power of attorney and had a fiduciary duty to her as a result. This constrained his independence as the general partner.

Another decision, Senda v. Commissioner, arose from a situation where parents created an LLC to hold highly appreciable marketable stock. On the same day the LLC was created, the parents gifted some of the LLC units to their children (or trusts for their benefit). The parents tried to extract a little more value out of this strategy, by claiming valuation discounts because the subject of their lifetime gifts were minority non-controlling interests in the LLC, which were not readily marketable, due to transfer restrictions contained in the LLC’s operating agreement.

The Tax Court found that the interests were transferred at the same time the LLC was funded with marketable securities. By collapsing those two steps, the Tax Court found that the subject of the gift was not the LLC units, but the appreciated marketable stock. The Tax Court supported the IRS’s position that the underlying asset in the LLC, appreciated stock, was the actual subject of the gift, and not the “discounted” LLC units. The Tax Court ignored the application of the valuation discounts and assessed a gift tax, penalties and interest in the underpayment of the gift tax, caused by the gift of appreciated marketable securities.

These are just two of several cases, where the FLLC strategic planning went bad. There are safeguards to put into place to maximize the interest of the FLLC, without putting it at risk.

An estate planning attorney can advise you on creating an estate plan that fits your unique circumstances and may include LLCs and FLLPs.

Reference: Financial Advisor (March 25, 2019) “Use Caution With Gifts Of LLC Interests”

Understand the Value of Supplemental Insurance

Additional insurance can go a long way in protecting you and your family.

There are some basic insurances, such as life insurance and long term care insurance, that are easily understood, because they are commonly made available by employers but there are others, including critical illness insurance, that should be considered, according to the balance in “What Is Critical Illness Insurance.”

Critical illness insurance, which is also known as critical care insurance, is a type of insurance policy that pays insurance policyowners with a lump sum payment after they are diagnosed with a specific type of illness that is listed on their insurance policy. This insurance may also be structured to make serial payments, based on the policyowner’s ongoing medical treatments or condition.

Some critical coverages are very limited and only cover a handful of illnesses, while others can provide coverage for as many as thirty different conditions.

Like any kind of insurance policy, it’s important to read the fine print. There will likely be conditions attached to getting a cash payout. Do the research before signing up.

Some critical illness policies cover the portion of the cost of any diagnostic or screening tests for a condition. If you have regular colonoscopies, for instance, and you own a cancer policy, it is possible that the unreimbursed portion of your procedure could be covered by the critical illness policy. A good policy could work for you during your entire healthy life, as well as during a critical illness.

Some of the critical illness policies provide an option to combine critical illnesses coverage with additional life insurance, accident or disability insurance. If you want to maximize coverage and avoid having to manage a few different insurance policies, this may work for you. Again, read the fine print. You don’t want to put all your insurance eggs in one basket, only to find that the conditions are counter-productive to your coverage goals.

Critical illness insurance usually comes with a list of illnesses that are included in the policy. Each one will have very specific criteria that will define whether you qualify for a benefit payment. There are cases where people may think they have coverage because of a diagnosis, only to learn that they have not met the specific criteria.

Deciding whether you need critical illness insurance, in addition to your employee benefits, is a personal decision. If you are paying several hundred dollars a month for many years and never become ill, then you may not consider the money well spent. However, if you receive a diagnosis of a critical illness and you receive a large payout, you’ll be glad to have the coverage.

Reference: the balance (March 11, 2019) “What Is Critical Illness Insurance”

No End to the Social Security Scams

Social Security Administration launches new awareness program to combat scams.

Someone calls from the Social Security Administration and asks you for your Social Security number, bank account numbers and birthday date. What should you do? Hang up, according to KKTV’s report “Social Security officials hope to combat scam.” The administration reports that scammers have become more aggressive. A frightening tone has gotten more than one otherwise sensible person embroiled in the mess.

In addition to the aggressive angry voice, is the fact that the caller ID has been “spoofed” or made to appear that the person is actually calling from the Social Security Administration or another government agency.

Nancy Berryhill, Acting Commissioner of the Social Security Administration, advises people to be very cautious and not to provide anyone with information like their Social Security number or bank account information to unknown people, either on the phone or over the Internet.

The SSA has launched a public service campaign warning about these calls, in the hope that consumers will realize that the SSA never makes threatening phone calls and never asks for gift cards in payment. The campaign is being run in conjunction with the Office of the Inspector General.

The scamming calls are nationwide. The message is clear: if you get this kind of a phone call, hang up.

While the SSA does occasionally call people, it’s usually someone who is working with the agency on an on-going matter, so that the call and the agent making the call is not a stranger.

Berryhill advises people that if they are contacted by someone claiming to be from the Social Security Administration or the Office of the Inspector General, they should get the person’s name, their phone number and then hang up. If the same person calls again, hang up. It is more than likely to be a thief.

Contact the local Social Security office and find out if a call has been made to you. Never provide a caller with your Social Security number.

Some of the crooks are able to get information about people, including part of their Social Security numbers. They call stating that they are asking only to verify the entire Social Security number.

Reference: KKTV (March 22, 2019) “Social Security officials hope to combat scam”

Just a Few Assets? You Still Need a Will and Estate Plan

Your family has a better chance of a strong future, if you leave behind a plan.

Without a will, the distribution of someone’s assets gets pretty difficult, pretty quickly, according to The Advertiser in “Where there’s a will, there is a plan in place.” Without one, the settling of an estate can be delayed for quite a long time.

Here are certain things that need to be included:

Identification of the person making the will, also known as the testator. The will must contain the person’s name, address, state their intention to create a distribution process for assets and the statement that this will is intended to be their last will and testament and all other wills are revoked. The will must also be dated to be sure to know hold old it is, with regard to other wills.

Outstanding debt payment. The will needs to explain how any outstanding bills will be paid, including funeral costs, medical costs, taxes owed, and any other expenses that a person may have at the time of their death. This may vary by state, so speak with a local estate planning attorney to find out what your state’s laws are.

Name any heirs and what they are being given. You may give your property to whomever you want, or to a charity. The bequest needs to be carefully written, so it is very specific and there are no misunderstandings. Since it may be hard to know what will be left after final expenses are paid, it may be wise to give percentages of assets, rather than specific figures. An estate planning attorney will know how to best handle this aspect of a will.

Chose an executor and name them in the will. The executor is responsible for carrying out the wishes of the testator and is in charge of paying debts, taxes, distributing assets and any tasks assigned in the will. Choosing the right person for this task is very important. They need to be able to handle the responsibility and be able to execute your wishes without being bullied by family members or friends.

Name a guardian for minor children. This is why parents of young children must have a will. If there is no will, the court will determine who should raise the children, following the laws of kinship of your state. You may not agree with the court’s decision. Select a person (or couple) you believe will raise the children, as close as possible to how you would raise the children.

Plan for your funeral. This is a kindness to your loved ones. If you don’t plan in advance, your loved ones may spend more than you would wish on an elaborate funeral. The opposite may also happen. A simple paragraph may do the job, or you could visit the local funeral home and prepay, selecting everything so that it will be done according to your own wishes.

In addition to a will, you’ll want a power of attorney and health care power of attorney in place to protect you, in case of incapacity. This way, someone will be able to take care of your finances and someone else will be able to make health care decisions, if you can’t.

Reference: The Advertiser (March 10, 2019) “Where there’s a will, there is a plan in place”

Planning for Retirement? Study Your Expectations Carefully

Look over your finances and be careful of credit card debt.

When planning retirement, a person must be very careful, if part of the plan is inheriting from an estate or selling a business, according to an article in Hometown Life “Playing off charge card debt a major priority.”

The first sentence in the article tells the entire story: “I…have never taken an active interest in my finances.” The person never had his business evaluated by a professional and learned at age 60 that his business had no resale value. In addition, he learned that his parents were supporting a sister and any inheritance he was anticipating would not be enough to live on.

Making matters worse, he has more than $80,000 in credit card debt on various cards, at interest rates between 18% and 21%. With next to no equity in his home and a home equity loan and a mortgage, this person has only one asset: an IRA worth around $100,000.

At some point in their lives, most people realize that they must be active participants in their financial lives. They need a budget to contain spending and a savings plan, so they can enjoy their retirement and control of their credit card debt. It sounds like this man just got a wake-up call.

He wonders how to resolve his credit card debt, but it seems there are a number of other issues that need to be addressed.

First, he should pay off his credit card debt. At 18% to 21%, there is no investment he could make that would come near that rate. One way to do this, is to increase his monthly payments. It may take many years to knock down such a large debt, so another option is to use his IRA to pay off the money immediately.

Equally important is for him to commit to use the money he would have otherwise used to pay off credit card debt and invest that into a retirement fund. It doesn’t matter if he uses an IRA, a SEP or a Roth, but he needs to be disciplined and start putting money away for his retirement.

Potential inheritances are troublesome for people who count their chickens before they hatch. Until the inheritance is safely in your own bank account, you cannot count on it. In a time where living expenses are high and people are living longer, fewer and fewer people are expecting to receive inheritances. Basing a lifestyle around an expected inheritance, can only lead to financial disaster.

Preparing for retirement and taking an active role in managing your finances, is a life-long task and part of our responsibility as adults. It is also wise to have an estate plan in place.

Reference: Hometown Life (March 3, 2019) “Playing off charge card debt a major priority”