How Would Cinderella’s Story Be Different, if Dad Did Estate Planning?

The story never really focuses on why Cinderella is placed in such a dire position in the first place. However, The National Law Review article titled “A Cautionary Fairy-Tale–If Only Cinderella’s Father Had An Estate Plan” does. It starts with a light-hearted tone, but the details quickly move to how many different ways that this family situation could have been prevented with proper estate planning.

To refresh your memory: Cinderella’s mother died, her father remarried and then he died. She is basically a slave to her evil stepmother and stepsisters, in her own home.

Let’s start with what would happen, if there had been no estate plan. If the family lived in Missouri, half of her father’s estate would go to her stepmother, and half of the estate would be split between Cinderella and her stepsisters. As a minor, her portion of the estate would be placed in an UTMA account–Uniform Transfers to Minors Act. There would be a court-appointed custodian, who would be required to use these funds for her health, education, maintenance and support. The court would have likely appointed the Evil Stepmother, who would not likely have complied with the guidelines. A second option would have been for the money to be placed in a trust for Cinderella’s benefit, but the Evil Stepmother would likely have been named a trustee, and that would not have worked out well either.

What Cinderella’s father should have done, was to create a Revocable Living Trust Agreement, stating that certain assets are the separate property of the father (Schedule A), that certain assets are the property of the Evil Stepmother (Schedule B) and that certain assets are community property of the father and the Evil Stepmother (Schedule C).

A neutral successor trustee would have been named—a friend, fiduciary, corporate trustee or perhaps the Fairy Godmother—to oversee the trust. At the death of the father, the trust should have directed that the trust be divided into two subtrusts, known as an A/B split trust.

The Survivor’s Trust (Trust A) would have gathered all the Evil Stepmother’s separate property and one half of the value of the community property assets. Trust B (The Decedent’s Trust) would have all of the father’s separate property, as well as half the value of the community property assets. The trust could have been structured, so that the Evil Stepmother could use the Survivor’s Trust assets as she wanted and could only receive income, if the assets to the Survivor’s Trusts were depleted.

The neutral successor trustee would either work with the Evil Stepmother or make sure that Cinderella’s share of the Decedent’s Trust was not being improperly depleted. At the death of the Evil Stepmother, the assets in the Decedent’s Trust would go to Cinderella.

Cinderella’s father could have also taken out a large life insurance policy to ensure that she was cared for, with the proceeds to be distributed to an UTMA account, with a neutral custodian or to a support trust with a neutral trustee.

The only way Cinderella could have recovered any assets would have been through litigation, which is the likely way this story would have turned out, if it happened today. It’s not ideal, but if a child has been left with nothing but an Evil Stepmother and two nasty stepsisters, a lawsuit is a worthwhile effort to recover some assets. Assuming that the Evil Stepmother either adopted Cinderella or was appointed her guardian by the court, there would be a fiduciary obligation to protect her, and an accounting of assets at the time of her father’s death would have been prepared.

Estate planning would have preempted the story of Cinderella. It does serve as a clear example of what can happen with no estate plan in place. Whether your blended family enjoys a great relationship or not, have your estate plan created, so that if things turn wicked, your beloved children will be protected.

Reference: The National Law Review (Jan. 16, 2019) “A Cautionary Fairy-Tale–If Only Cinderella’s Father Had An Estate Plan”

 

If you liked this blog post, check out these:

Include a Letter with Your Estate Plan

Am I Too Young to Think About Estate Planning?

Stressed About Estate Planning? We’ve Got You Covered!

Why Do I Need a Will?

Many celebrities die without wills. This past year saw a host of celebrity estate snafus. It’s as if they were sending a message from beyond that they didn’t care about how much turmoil and family fights would take place over their money and assets. Some of these battles go on for decades. However, as reported in Press Republican’s article “The Law and You: Important to make a will,” even if you think you don’t have enough property to make it necessary to have a will, you’re wrong. It’s not just wealthy or famous people who need wills.

Do you really want other people making those decisions on your behalf? Would you want the laws of your state making these decisions? Your family will do better, if you have a will and an estate plan.

For example, in New York State, if you don’t have a will, your surviving spouse will receive the first $50,000 plus one half of remaining property. Your children, whether they are minors or adults, will get an equal share of the other half.

If you have a spouse but no children, your spouse will inherit everything. If you have children and no spouse, then the children get everything, divided equally.

If you have no spouse, no children and living parents, then your parents will inherit everything you own.

If your parents are not alive, your siblings will get it all.

Adopted children are treated by the courts the same as biological children, when there is no will. Stepchildren and foster children do not inherit, unless they are specifically named in the will.

If you have been in a long-term relationship with someone and never married, even if they qualify for health care benefits from your employer under the “domestic partner” provision, they are not considered a spouse when it comes to inheritance. At the same time, if you are not legally married and your partner dies, you have no legal right to inherit from your partner’s estate. No matter how long you have been together, how many children you have together, if you are not legally married, you have no inheritance rights.

Check your state’s laws for the rights of “common law marriages;” New York State does not recognize these as a legal union. In very limited cases, New York State has been known to recognize common law marriages from other states where they are legal, but that is the exception and not the rule. There are limits here as well: both parties will have to agree to be married, must represent to others that they are married and may not be married to anyone else.

If you want someone who is not your legal spouse to receive your assets, you need to meet with an estate planning attorney and have a will drawn up that meets the requirements of the laws of your state. An estate planning attorney will be able to explain how your state laws work and what provisions are and are not acceptable in your estate.

An estate planning attorney will also help you consider other issues. Do you want to leave anything to a charity that matters to you? Do you want anyone else besides your children to receive something after you pass? Is there anyone who needs a trust, because they are unable to manage their finances, or you are concerned about their marriage ending in divorce? Making these decisions in a properly prepared will, can protect your family and lessen the chances of your wishes being challenged.

Reference: Press Republican (Dec. 18, 2018) “The Law and You: Important to make a will”

Stressed About Estate Planning? We’ve Got You Covered.

Valentine’s Day is all about showing the ones you love how much you care about them. In many ways, the same goes for estate planning. The purpose of this process is mainly to establish how your money and assets will be divided and where that capital will go when you pass away. This can be a daunting task when you begin to think about it, but we are more than willing to aid in making the process a lot less stressful and a lot more simple. Here’s how the process works.

We’ll start by scheduling a free consultation with you to determine what kind of legal documents you need. Mr. Banton will meet with you and walk you through an estate planning packet; the questions will be relatively simple and should help clear some things up. This is where you will decide where you want your money to go. Keep in mind any children, spouses, family members, close friends and charities you might want to include. Make sure to ask us about including a letter to your loved ones in your estate plan. If at any moment during this consultation you have a question you may ask him and he will do his best to answer all of your questions.

If you decide that you want to go through with your estate plan, we will request a retainer fee before we begin working on it and should have a draft out to you within a week. After you’ve looked over the document and the correct changes have been made, we will schedule a date and time for you to come in and sign your documents with our notary. After the signing we make copies and package the original. When this is complete you can either pick it up at our office or request that it be mailed to you.

With time comes change, and that change can ultimately effect your estate plan, meaning you will have to update it. That can end up costing a lot of money in the long run and you might want to consider our maintenance plan that is included with our VIP Client Care Package. To go into more depth on why it’s important to maintain your estate plan, click here.

For more information about an estate plan, call us at (636)259-3350.

Who Will Cover My Debt When I Die?

Did you know that we’re dying in this country with an average of $62,000 in debt? What happens to that debt?

Fox Business recently published an article that asks “What Happens to Your Debt When You Die?” As the article explains, the answer depends on a few different factors, including the type of debt, whether there was a cosigner and the value of the deceased person’s estate. Let’s look at some possible outcomes:

In many cases, any debt you owe during your lifetime will have to be paid by your estate when you pass away. Creditors can make claims against your estate during the probate process. If you died with a will and named an executor, he or she will usually use the assets you left behind to pay off your debt. If you don’t have enough assets, creditors are typically without recourse, if you had unsecured debt without a cosigner. However, if you had a secured loan, like a mortgage or a car loan, the debt would need to be paid for your family to keep the asset. For instance, if you leave your home to your family, they’d have to pay your mortgage to keep the house.

Creditor claims take precedence over your instructions as to what happens to your assets. If you stated in your will that your bank account is to pass to your children, but you owed money to a creditor, the money in the bank would first be used to pay the creditor, before your children could inherit.

If your estate doesn’t have enough assets to satisfy your debts, creditors may seek the payment from any cosigners on the loans. Cosigners share legal responsibility for debt and will be held 100% responsible for paying the remaining balance.

One potential exception to this general rule, is for certain types of student loans. For example, a Parent PLUS loan can be dischargeable due to a student’s death, and some private student loans offer a death discharge. However, it is rare. If the primary borrower on student loan debt dies, the surviving cosigner should read the loan terms to determine if he’ll still be held responsible for paying it. Federal student loan debt is typically forgiven, when the borrower dies.

Creditors can also attempt to collect from co-borrowers, if you had a joint account. Therefore, if you and your spouse had a mortgage together or shared a credit card, your spouse would be expected to continue paying the bills after your death.

However, if there’s no cosigner and not enough assets in the estate to pay the bills, creditors will charge off the debt because there’s no way to collect. Beware that creditors may attempt to guilt family members into paying after their deceased loved one’s death. However, generally there’s no requirement that you pay debt that belonged to a loved one. An exception is in states with community property laws that require spouses to pay off debt belonging to a deceased spouse using community property.

If your loved one has already passed away and you’re worried about what will happen to their debts, speak to an experienced estate planning attorney.

Reference: Fox Business (December 27, 2018) “What Happens to Your Debt When You Die?”

Legacy Planning for Farm and Ranch Families

An inheritance is more than money or property, especially when it comes to family farms, ranches and businesses. Many survive for multiple generations, says the Woodward News in the article “Plenty to consider in legacy planning,” but it takes planning.

Knowing that one day your grandchildren, and hopefully their children, will walk the land their great-grandparents did, and take the same satisfaction in knowing that the work they do, is a part of our country’s economy. Every family’s situation is different but one thing they all share in common, is that succession goals need to be evaluated critically, even though there is great emotion involved in passing on a legacy.

Dividing assets, sharing control and management decisions and transferring ownership are all things that must be examined and formalized as part of a succession plan.

For starters, determine the overall goal. Every family’s goals are different. Should assets be held for end-of-life-care for aging parents, passed on to children, donated to charity or are they needed to ensure the successful transition of the business to the next generation?

People work hard their whole lives to accumulate assets, so it’s important to have a legacy plan.  In this way, everything you’ve worked for is preserved for the next generation or available for your needs as you age.

In 2019, gift and estate tax exemptions are up dramatically, but strategic planning still needs to be done.

For farm families, the Farm Journal Legacy Project offers printable downloads, including a succession planning action guide, family meeting agenda, conversation starters and a goals clarification worksheet.

Family meetings will need to tackle some topics that may benefit from the presence of an estate planning attorney, who is experienced with family farms and succession planning.

  • How will the transfer of property, including farm equipment, property, and livestock, be done with minimal taxes due?
  • How can the non-farming members of the family receive their fair share of their inheritance, without taking away valuable resources needed to keep the farm or ranch going?
  • What resources will be available for the older parents to live on, when they retire?
  • Can the farm support multiple generations?

Succession planning that works best, begins long before the farm family is thinking about retirement. Determining roles and responsibilities and setting accountability for those roles must start happening long before the oldest generation steps away from the day-to-day operations of the farm or ranch.

Reference: Woodward News (Jan. 2, 2019) “Plenty to consider in legacy planning”

Thinking about Giving It All Away? Here’s What You Need to Know
Taking care of the next generation.

Thinking about Giving It All Away? Here’s What You Need to Know

There are some individuals who just aren’t interested in handing down their assets to the next generation when they die. Perhaps their children are so successful, they don’t need an inheritance. Or, according to the article “Giving your money away when you die: 10 questions to ask” from MarketWatch, they may be more interested in the kind of impact they can have on the lives of others.

If you haven’t thought about charitable giving or estate planning, these 10 questions should prompt some thought and discussion with family members:

Should you give money away now? Don’t give away money or assets you’ll need to pay your living expenses, unless you have what you need for retirement and any bumps that may come up along the way. There are no limits to the gifts you can make to a charity.

Do you have the right beneficiaries listed on retirement accounts and life insurance policies? If you want these assets to go to the right person or place, make sure the beneficiary names are correct. Note that there are rules, usually from the financial institution, about who can be a beneficiary—some require it be a person and do not permit the beneficiary to be an organization.

Who do you want making end-of-life decisions, and how much intervention do you want to prolong your life? A health care power of attorney and living will are used to express these wishes. Without these documents, your family may not know what you want. Healthcare providers won’t know and will have to make decisions based on law, and not your wishes.

Do you have a will? Many Americans do not, and it creates stress, adds costs and creates real problems for their family members. Make an appointment with an estate planning attorney to put your wishes into a will.

Are you worried about federal estate taxes? Unless you are in the 1%, your chances of having to pay federal taxes are slim to none. However, if your will was created to address federal estate taxes from back in the days when it was a problem, you may have a strategy that no longer works. This is another reason to meet with your estate planning attorney.

Does your state have estate or inheritance taxes? This is more likely to be where your heirs need to come up with the money to pay taxes on your estate. A local estate planning attorney will be able to help you make a plan, so that your heirs will have the resources to pay these costs.

Should you keep your Roth IRA for an heir? Leaving a Roth IRA for an heir, could be a generous bequest. You may also want to encourage your heirs to start and fund Roth IRAs of their own, if they have earned income. Even small sums, over time, can grow to significant wealth.

Are you giving money to reputable charities? Make sure the organizations you are supporting, while you are alive or through your will, are using resources correctly. Good online sources include GuideStar.org or CharityNavigator.org.

Could you save more on taxes? Donating appreciated assets might help lower your taxes. Donating part or all your annual Required Minimum Distributions (RMDs) can do the same, as long as you are over 70½ years old.

Does your family know what your wishes are? To avoid any turmoil when you pass, talk with family members about what you want to happen when you are gone. Make sure they know where your estate planning documents are and what you want in the way of end-of-life care. Having a conversation about your legacy and what your hopes and dreams are for family members, can be eye-opening for the younger members of the family and give you some deep satisfaction.

Reference: MarketWatch (Oct. 30, 2018) “Giving your money away when you die: 10 questions to ask”

Include a Letter with Your Estate Plan

You have your vital documents in order, and you keep them current. You have a will or trust. Your living will, also called health care power of attorney is complete, and you have spoken with the person you have named as your health care decision-maker about your end-of-life wishes. You have taken care of all your legal and financial issues, including final instructions and a list of who will receive particular items.

While your loved ones will appreciate that you have thoughtfully taken care of these essential issues and will not leave them with a mess to clean up one day, there is one more thing you should do. You need to sit down and create something your family members and close friends will treasure for the rest of their lives. You should write and include a letter with your estate plan.

Words are Important

People can carry sadness for a lifetime because a parent never said “I love you” to the child. The parent might be shocked that the child felt unloved. Some people think they do not have to tell someone they love them, because they show their affection in the daily tasks of providing a home and upbringing for the child.

In addition to the worldly goods that you give to your loved ones, leaving a “last letter” behind can help them deal with their grief at losing you. You can use the letter to accomplish things you might not have done as much as you wish you had. You can write one letter that speaks to several people or write multiple letters.

What to Put in the Letter

You can begin by telling the people in the letter that they are important to you. You should tell them that you love them and let them know in writing how proud you are of them. No matter how many times you have spoken these words to them before, they can hold a letter in their hands for years and read it over and over.

Sometimes people write letters of apology to those they have hurt at some point in their lives. Apologies are helpful in making peace with one’s life. If you cannot bring yourself to say the words during your lifetime or you anticipate that the person would respond in an unacceptable manner, you can do your part by putting the apology in a letter.

If you can forgive someone who did something wrong to you, it can be cathartic to write a letter of forgiveness. These letters take great care, as they can be interpreted as sanctimonious or judgmental.

What Not to Put in the Letter

While it might be tempting to take one last jab at someone you feel wronged you, the last letter is no time to be spiteful. If you cannot write something kind to a person, do not write anything.

What to Do with the Letter

All you need to do is tuck the letter in with your legal papers. One day, when your loved ones go through your will or trust, they will get a pleasant surprise and something to cherish.

You should talk with an elder law attorney near you about the ways that your state rules might vary from the general law of this article.

References:

AARP. “How to Write a Last Letter to Your Loved Ones.” (accessed January 8, 2019) https://www.aarp.org/retirement/planning-for-retirement/info-2018/letter-to-remember.html