Tag Archives: Probate

Separate Assets, Joint Problems

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Some married couples enjoy living together while keeping their financial assets separate. Separate ownership of assets can be advantageous in some instances, but oftentimes loving couples misunderstand the results of holding separate assets.  The Wall Street Journal recently highlighted four potential pitfalls for couples maintaining separate accounts:

  1. The assets are not necessarily separate under Nevada law.

Simply having your name on an account does not mean the account is yours alone.  Under Nevada law, pursuant to community property principles, all of your earnings and wages after marriage are the property of both parties.   This is true even if you have your paycheck deposited into a separate account.

Nevada inheritance laws can surprise couples. If you die without a will and leave a surviving spouse, no children and surviving parents, your parents are entitled to a portion of your estate.  Many spouses intend for their entire estate to go to a surviving spouse.  However, unless that desire is set forth in a will or trust, the state may direct otherwise.

  1. Separate accounts most often mean lack of communication.

Communication between spouses is critical.  Many spouses have separate retirement accounts and manage those accounts in isolation.  This isolated planning can undermine the couple’s financial objectives and their combined risk tolerance.  Regularly, I meet with clients where both spouses are unaware of accounts or policies that one spouse possesses.  These omissions could cause the account proceeds to go missing or remain unclaimed for long periods of time.

In addition, holding similar investments in two separate accounts can be more costly.  Combining the separate holdings may result in lower advisory fees.

  1. Separately-owned property may be at greater risk in bankruptcy or a lawsuit.

Nevada has very liberal exemptions for bankruptcy purposes.  These protections can be utilized best by conferring with an attorney who focuses on asset protection planning.

Joint ownership can make your assets less appealing to creditors.  Creditors loathe joint assets in which they will hold only a one-half interest.  Separately-owned property is less-protected from creditors.  The home is the primary asset to hold jointly or through a trust.

  1. Separate accounts are more difficult to administer.

The death of a loved one causes plenty of heartache.  Maintaining separate account causes needless headaches too.  The time delay in accessing separately-owned accounts can lead to draining financial stress.  Many financial institutions demand formal court orders before allowing access to financial accounts, even when such orders are not necessary.  At a minimum, couples should maintain a joint checking or savings account to make sure the day-to-day expenses can be satisfied.

Careful with Deathbed Planning

As death looms, people become much more focused on arranging their affairs.  Even those with few assets will develop a laser-like focus on leaving a suitable legacy.  There are pitfalls to death-bed estate plans or revisions to existing plans.  In a perfect world, an estate plan is constructed carefully after much thought and revisions are made regularly.  However, lawyers and financial advisors are often solicited to make changes when a client fears an imminent demise.

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Recently, I helped clients update their revocable living trust after the wife was diagnosed with terminal cancer.  They created their trust 20 years ago and had not made any updates since that time.  In the intervening years, one of their five children had passed away and numerous grandchildren had been born.  The prior version of their trust provided that if one of their children predeceased them, the surviving children would receive the estate equally.  The clients instead wanted the trust share that would have passed to the deceased child to be held in trust for the deceased child’s children or the clients’ grandchildren.  If nothing had been done, the clients would have disinherited their grandchildren.

When making near-death amendments or creating new estate plans, advisors and clients must consider the income tax ramifications. A common mistake is to transfer a home or real property to children or grandchildren prior to death.  Such a transfer results in loss of the step-up in basis of the property to the date-of-death fair market value.  The child or grandchild receiving the property steps into the shoes of the transferring parent or grandparent and takes the transferor’s basis in the property.  Usually, the basis is much lower than the present day fair market value.  When the child or grandchild sells the property, he or she will incur a much higher capital gains tax than necessary.

Finally, to avoid a contest, a medical or mental competency examination can assure that the client is competent to make the change.  These exams can be administered by the client’s regular physician.  By using their normal physician, the client will feel more at ease and the physician will already have a history with the client and be able to differentiate whether the client lacks capacity.

Death-bed planning can be done effectively but there are numerous considerations and precautions to follow.

To Do List Upon Death of Family Member

The October 2012 issue of Consumer Reports highlights numerous steps one can take upon the passing of a family member or loved one.  Among the listed items, some steps are overlooked and cause greater anguish and financial difficulty for those who survive the decedent.Image 

While many employers receive word that an employee has passed, few surviving family members contact human resources or employe benefits coordinators.  Employer specialists can quickly begin the process of obtaining benefits and providing any pay due.  Certain financial institutions “drag their feet” when it comes time to pay out benefits so starting the pay-out process sooner is always beneficial.

Many family members fail to look for prepaid burial plans or other arrangements made by the decedent during lifetime.  If the decedent already paid for funeral services, the mortuary will pick-up the body and assist the family members with the completion of vital tasks. The mortuary or funeral home will help obtain death certificates and can assist in the coordination of the memorial or funeral service. As with many industries, the costs of these services have risen such that a prepaid plan can result in significant savings. 

Hopefully, you are well aware of your loved ones’ wishes such that you will know whether a prepaid plan is in effect.  If not, you should at least know where the decedent kept important documents such as a trust, will, and financial documents.  If you have no idea where such important information is kept by your loved one, you should discuss the matter soon.  For assistance discussing these sensitive matters, you can contact an estate planning attorney today.

Jason C. Morris, Esq.

 

Joe Paterno’s Will Reveals Little More Than Revocable Living Trust

Today, closing arguments are being held in the jury trial of accused sex offender Jerry Sandusky.  His former boss, legendary Penn State football coach Joe Paterno, has created intrigue in an unrelated legal matter.  Paterno’s family sought court protection to seal Paterno’s will from public disclosure. After a local newspaper filed a motion to unseal the will, Paterno’s family made public his 1997 will and 2010 codicil to the will. 

ImageAfter reviewing the contents to the will and the codicil, there is nothing surprising or notable about their contents.  The family’s efforts to seal the testamentary documents seem unreasonable and misguided.  Typically, wills must be lodged with the county court or probate department before the decedent’s assets may be distributed.  Paterno’s will is a pour-over will meaning it directs any probate assets to be poured over to a revocable living trust.  Most likely, the Paterno revocable living trust specifies the distribution of Paterno’s assets. 

A revocable living trust is advantageous because you do not need to lodge the trust with the court.  The administration of the trust and distribution of the estate can take place outside of public review and records.  In addition, with advances in medicine and technology, individuals are living beyond their ability to manage their financial affairs.  Revocable living trusts allow successor trustees to take over and manage the financial affairs of those suffering from diminished capacity. 

Living trusts are only effective insofar as you title the assets properly.  Your assets should be titled in the name of the trust.  The Paterno will, a pour-over will, acts as a backstop in the event that an asset is not titled properly in the name of the trust.   Any asset that is not transferred into a living trust must pass through probate first prior to its distribution.  Oddly, the Paterno family has not filed a petition to initiate a probate of any assets.  The family efforts to seal the will and codicil appear unnecessary and unusual. As with the Sandusky trial, the Paterno will story may end this week. Or, future court proceedings may loom ahead. 

Upside Down and Topsy Turvy

It is unfortunately all too common these days that a house or other asset is worth less than the mortgage owed on it. What happens if the owner dies, leaving the upside down asset to a spouse or children?

There’s good news and bad news. The good news is that the heirs of the deceased can still inherit title to the asset via probate (if it is held in the deceased’s name) or via a deed from the successor trustee (if it is held by a trust). The bad news is the lender will not simply allow the heirs to make payments on the same mortgage. The lender’s agreement to loan was with the deceased, based on his or her credit history and income. Any heir would have to pay off the debt or obtain a new loan; and the trouble is, of course, that a lender will not want to lend more than the asset is worth.

Is there a solution? If the asset is significantly over-encumbered, it doesn’t make sense to bother transferring title to the heir. Instead, you can just allow the asset to be foreclosed upon or repossessed. If the asset has some sentimental value and is not significantly over-encumbered, you can pay off the debt, or pay it down to an acceptable level and borrow the rest—if your credit is good and you are able to get a loan. I had a client whose mother died, leaving a luxury car worth about $39,000 with a debt of $42,000. My client was herself wealthy and decided simply to pay off the debt and take title to the car. Not many people can afford to do this, however.

If you are confronting this issue, you should contact a qualified Nevada probate attorney.

By Sharon M. Parker