Child turning 18? Be prepared – Managing Your Money

Child turning 18? Be prepared – Managing Your Money

Once your child turns 18, you lose all legal control over their affairs. If there was an emergency, you would have no right to access their educational, medical or financial information without their express written permission. For a modest fee, parents and their young adult children can purchase the peace of mind that comes with making sure that the right legal documents are in place for just such an unforeseen occasion.

Pet Trusts in Massachusetts

For those who share their lives with pets, the human-animal bond is life-long. Unfortunately, thousands of pets each year are surrendered to animal shelters because there plan for them or no funds available for their care. As of April 7, 2011, Massachusetts residents will be able to make sure that their furry companions will have long-term financial protection.

Under the terms of the new Pet Trust law, “pet parents” can create and fund a trust for the benefit of Fluffy or Fido (or an entire menagerie) during lifetime. Unless the trust says otherwise, the trust lasts until the last of the animals named in the document passes away. The trustee must use the assets for the sole benefit of the animals, although the trustee can pay herself for administrative expenses and reasonable trustee fees. The trust creator can transfer custody of the pet to the trustee during the creator’s lifetime.

The law anticipates a “Leona Helmsley” situation, in which a trust is given vastly more funds than an animal will actually need. Thus, “a court may reduce the amount of property held by the trust if it that amount substantially exceeds the amount required for the intended use and the court finds that there will be no substantial adverse impact in the care, maintenance, health, or appearance of the animal or animals.”

If the trust fund is reduced or the trust terminates, the remaining funds must be distributed as directed in the trust instrument. If there is no direction, the money goes back to the trust creator, if living. If the creator is dead and there’s no direction, then disposition of the remaining assets will depend on whether the trust was created in a will — if it was, the funds will be transferred according to the residuary clause in the will. Otherwise, the funds will pass according to the Massachusetts intestacy law.

A pet trust is critical, but you still must designate who will have care and custody of your furry friend in the event of your incapacity or death. I recommend that you find someone who will agree to take in Tabby or Tuffy while you are well, then provide written directions to that person, your executor and attorney-in-fact and the pet trustee identifying who will care for the pet, the contact information for the pet’s veterinarian, information about the pet’s medical needs, behavioral issues (if any) and anything else which you think someone would need to know about your pet.

Denial

Incapacity and death are scary prospects for most of us. As an elder law attorney, I see the consequences of failing to cope with the fear. Not facing your fears and meeting with an elder law or estate planning attorney can result in a lot of stress for your family — and a lot of expenses for you and your family when I get hired to clean up the legal and financial mess that didn’t have to happen.

If you’re incapacitated and don’t have a durable power of attorney, someone will need to go to court for a conservatorship appointment in order to manage your finances. This can get pricey. Not only will there be legal fees and court costs, but the would-be conservator will need to get a surety bond. Depending on the amount of assets you have (aside from real estate), the cost of a surety bond can run from several hundred to several thousand dollars — every year. If your house needs to be sold or a mortgage obtained, there will be legal fees and court costs for that. If a trust needs to be set up to help manage your assets — yep, more legal fees and costs.

And let’s not forget the amount of time it can take from when the paperwork is filed to the day a court order is actually issued — often 8 to 10 weeks or more.

All this lost time, money and work… it’s all avoidable with a durable power of attorney.

Today’s Annals in International Estate Administration

This is why I love the kind of work I do…. you can’t make this stuff up.

In a small town in central Italy, Luciano Visocchi grew up with stories about Boston, where his mother and aunt had lived for many years.

When Visocchi died this past summer at the age of 62, he honored the city his family loved. In his last will and testament, he named Boston as the heir to his estate, which an Italian newspaper estimated at $700,000 plus a house and other property.

Good news, right? But there’s a catch.

“The City of Boston, MA, USA, is obliged to look after the old dogs Argus and Jak,’’ Visocchi’s will decrees, according to an English translation. “To feed the cat Rossina, easily recognizable from her great size, as well as the cats: Giacchino, Rossino, Pasquale, Francesco, and others as well….’’

Reverse mortgages — trouble for surviving spouses??

If you’re married and got a reverse mortgage, check your paperwork. Did your spouse also sign the loan paperwork?

If the answer to the question is “no,” you may have a problem if your spouse outlives you and your house is worth less than the loan balance.

HUD sets the rules for nearly all reverse mortgages issued in the US. One of the attractions of a reverse mortgage is supposed to be that even if your loan is for more than the value of the house, the most the lender can collect in a foreclosure is the proceeds from the sale of the house. When the borrower dies, the survivor has twelve months to pay off the loan — but every borrower I have worked with is told that the payoff is not supposed to be for more than the value of the house. Further, there are HUD rules which are supposed to protect the surviving spouse living in the home even if that spouse is not on the mortgage, so that the potential for forced sale is abated until the surviving spouse either permanently moves out or dies.

Somewhere along the line, the rules got changed.

Now, AARP has brought a class-action suit against HUD alleging that the changes in the rules allow underwater homes with reverse mortgages to be sold to strangers in arm’s-length transactions for less than the full mortgage balance, but require some spouses or heirs who were not co-signers on the loan to pay the full amount. Not only that, Finally, the suit says HUD is ignoring its own provisions against displacing a surviving spouse.

Here’s a quote from the New York Times article illustrating the problem:

One plaintiff, Delores Jeanne Moore of Covington, Ind., was not on the reverse mortgage because her husband had owned the house before they married. He died in 2008. Under the new HUD rules, the suit says, if Mrs. Moore wants to keep the house, she must pay the balance of the loan, $91,000. But a third-party buyer could get the house for 95 percent of its appraised value, or about $81,000.

What’s the moral here? Reverse mortgages can be a real lifesaver, especially if you’re a senior facing foreclosure on a conventional mortgage which is “underwater.” But you MUST read the fine print in the loan. Weigh carefully whether both spouses should be on the loan. And consult with an attorney who is experienced handling these deals to be sure you know what you’re getting yourself into.

For further discussion on this important topic, go here.

The hidden dangers of joint bank accounts

Putting your child on your bank account is easy, right? The two of you go to a bank, sign a few forms, and now your child can help you pay the bills or monitor your spending activities.

No worries, right?

Wrong.

Let’s put aside the scary — but real — possibility that your child might take the opportunity to raid your account. There are other issues which many elders do not think about when setting up a joint bank account which need to be considered.

Under Massachusetts law, the act of adding someone to your bank account is considered to be a gift the moment the two owners sign the bank’s paperwork. That means that the money is considered to belong 100% to each owner. Each owner has the right to control the asset and use it for whatever purpose he may wish.

So, a jointly owned asset is always subject to attack by the creditors of either owner. If your child is sued for some reason, your bank account could be tied up and possibly drained by someone with whom you have no legal relationship. You would be forced to go to court and hope that you can prove that the money was really yours.

Second, ownership of the account will pass to your child outside of probate. Maybe this isn’t really an issue — for example, if your child is an only child, or you REALLY want to be sure that the money goes to that child at death. But if you have more than one child and you intend your estate to be evenly divided, the fact that the account is not included with the rest of your assets may result in an uneven distribution of your assets.

In other words, let’s say you have $50,000 in your joint bank account with your daughter, Sarah. Your Will splits your estate evenly between Sarah and your son, David. Since the estate passing through the will does not include jointly held accounts, that means that Sarah would get $50,000 more than David as a result of your death.

If access by your child’s creditors or unequal distribution of your assets isn’t what you had in mind for your money, make sure that your child is listed on the bank account as a co-signatory, not a co-owner. If your child has signatory authority, then he can access your account, but does not have ownership interest. You need to be very clear with the bank that you do not want your child to own the account. You will have an easier time defending the account from your child’s creditors, because she will not be an owner and will not have the right to use the funds for herself. At your death, the account will be part of your probate estate.