A different kind of graduation present

Congratulations! It’s graduation season!

Before you get too misty-eyed wondering when your baby turned into the lovely young woman or man standing on stage getting a diploma, you may want to consider a different kind of graduation present for the new graduate.

An estate plan.

The hard, cold reality is that once your child turns 18, you have no legal right to access your child’s medical, financial or academic information unless your child has given you such powers in writing. If your child does not have a Durable Power of Attorney (DPOA), Health Care Proxy (HCP) and HIPAA Release granting such powers over such information, you may have a crisis on your hands if your child becomes seriously injured or incapacitated and cannot care for himself.

If your child is seriously injured or decides to study abroad, you would need a DPOA to make sure that his bank account is managed, the lease on his apartment is cancelled, get access to his mail if he forgets to change his address, deal with his car insurance, control his student loans, and otherwise control all those matters which may require his signature. The DPOA would also allow you to bring suit on your child’s behalf if he is seriously injured in an accident and is unable to direct a lawyer. The DPOA also should give explicit authority to access academic records, so that you can deal with the college or university. Without a DPOA, you will need a conservatorship from the Probate Court to manage an incapacitated child’s affairs, which is never a quick-and-easy process due to procedural requirements and the cutbacks in staff at the courthouses.

The HCP and HIPAA Release grant you access to your child’s health and medical insurance information. This access would be crucial if your child is seriously injured and unable to speak for himself. Without that access, you would be forced to seek temporary  guardianship in the Probate Court. Even though Massachusetts has an after-hours emergency system so that there is always a judge on call, precious time can be wasted while trying to get all the paperwork in place for a temporary guardianship.

And if (God forbid!) your child should die, having a basic will which nominates you as personal representative of his estate and leaves specific direction about to whom he may want to give his possessions.

The cost of a basic estate plan is usually modest, and well worth the peace of mind which it will give you once you drop off your child this fall at his dorm.

The Rosa Parks Estate Mess — an exercise in needless litigation

When Rosa Parks died in 2005, she left no children, but she did have a will, a revocable trust, and a priceless collection of memorabilia. First, a lawsuit was brought in 2007 challenging the will on the grounds of lack of capacity when Mrs. Parks signed it and her revocable trust in 2000. Now there’s more litigation over the disposition of the collection and the conduct of the trustees who were appointed to take over from the trustees Mrs. Parks had appointed. Depending on which side’s attorneys you believe, there’s either been $595,000 or $150,000 spent on legal fees relating to how to sell off the assets and dispose of the profits — so far.

I have to believe that a lot of this mess would have been avoided with more appropriate estate planning that could have occurred at a younger age. Title to this collection and the intellectual property — her image and words  – could have been transferred at that time to her institute, which is now facing a significant loss of value as a result of the litigation. No one is going to look good coming out of this case.

Are you sure you want to be a fiduciary?

I regularly counsel my clients to be careful about who they name as fiduciaries — personal representatives, trustees, attorneys-in-fact and health care agents. Many reflexively name a spouse. Some of my clients want to name their oldest child, thinking that this is “naturally” the role for that person. Others may want to name their favorite son or daughter.

Naming someone as your fiduciary is not doing them any favors — you are asking a loved one to take on what may be an time-consuming, thankless task — usually for no pay. I always tell my clients to talk to that person long before they ever sign the documents to be sure they are willing to take on the job.

I’ve learned from experience that sometimes does not happen.

Every estate planning and elder law attorney will sooner or later have a case where a named fiduciary elder turns out to be unsuitable for the task or simply did not want the job. That’s one reason why well-drafted estate planning documents name back-up fiduciaries. So what if you’re one of those reluctant or unwilling fiduciaries?

First,do you have difficult feelings about the person naming you? Be honest about this. No matter how well equipped you may be to handle the mechanics of the job, you may not be the right person if you harbor significant anger or resentment. This is particularly an issue where the person is still alive and you will have ongoing contact with him — for example where there is a familial history of alcoholism or emotional abuse by the parent. There is nothing shameful about admitting that you’re just not the right person for the job. Give yourself permission to say “no” if you believe you will not be able to remove your unresolved feelings from the tax at hand.

Second, understand what is being asked of you. Ask to see the document naming you as fiduciary and read it. Can you candidly say that you understand the demands which will be made of you? Do you have a good, unemotional, understanding of your parent’s situation and what the future may hold for her? Do you have the time and energy to do the job properly? If you understand the task and are truly able to do it, are you willing to identify and  delegate tasks to appropriate helpers?  Will you consult paid professionals to provide you with guidance and service as appropriate?

If you learn that a relative is thinking about estate planning, discuss your thoughts with her about who would be an appropriate fiduciary for them. If you don’t think you’re up for the task, say so. If there is no back-up and the relative no longer has capacity to nominate a new fiduciary, you may need to go to court to ask that someone else be named in your place.

In a second marriage? Then you REALLY need an estate plan.

More people than not die without having ever making a will. The reasons vary — a belief that estate planning costs too much, that somehow their assets will be divided “fairly,” that they don’t own enough to need an estate plan, etc., etc.

These people have done a form of estate planning — they just don’t realize it. They’ve unwittingly chosen to fall back on the intestacy statute, which determines distributions of assets if someone dies without making a will. If you are in a second marriage, this can be a really bad choice.

Under current Massachusetts law, if you are married and have kids and die, one-half of your estate would go to your widow(er) and the other half would be divided between your kids. As of January 2, 2012, this law will change. If you die married and have children after that date, EVERYTHING will go to your spouse.

Now, that may be a fine arrangement under many circumstances, but what if you are in a second marriage? Your children from Marriage #1 will probably be none too happy about your unintentionally disinheriting them.

Then there’s the problem of whether you’ve updated the beneficiary designations on your life insurance policies and retirement plans. Spouse #2 can receive an unpleasant surprise after your death when she finds out that you never got around to removing Spouse #1 as a beneficiary of those plans. Under Massachusetts law, Spouse #2 will be out of luck, because the beneficiary designations in place as of your death govern.

A proper estate plan can make sure that both your spouse and the children from the first marriage are all provided for. You can think about having a trust which pays income to your spouse for life, and then leaves the assets to your children. If you name a neutral party as trustee, you will reduce the potential friction that can come as a result of putting Spouse #2 in charge of what will be your children’s inheritance. Your attorney will also discuss updating your beneficiary designations, and can even complete the paperwork for you.

So, if you’re in a second marriage, give us a call at 781-433-8665 and take the first step to make sure that your second spouse and your children will all be properly looked after.

Children of boomers — don’t count on your inheritance

Here’s an interesting story — a survey by a unit of Bank of America of 457 baby boomers (born between 1945 and 1964) with at least $3 million just aren’t very interested in leaving an estate for their children. Only 49% felt it was important to leave an inheritance. The rest planned to spend their savings on themselves.

Part of the reluctance to pass along their money may be that the survey respondents -– many of whom described themselves as self-made -– don’t trust their heirs with it.

Barely one-third of those surveyed expressed confidence that their children would be able to “handle” an inheritance. And 45% doubt their progeny will have sufficient financial maturity until they’re at least 35 years old.

Granted, it’s a small sample, and certainly the vast majority of Americans don’t have $3 million to leave to anyone. Still, I wonder if this is indicative of a real generational shift, or will the survey participants change their minds as they and their children age?

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?


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.

Steve McNair — a likely estate administration mess.

Most readers know by now that Steve McNair, the former Tennessee Titans QB, was killed in a murder-suicide by a woman who was not his wife. McNair left no will. Hoo boy….Now his widow has mess that could make the Michael Jackson estate look like a piece of cake to administer by comparison.

During his football career, McNair earned over $75 million in NFL salary alone — never mind the millions earned from endorsements, licenses for the use of his name and likeness, personal appearance fees, etc. He and his wife had two children. There are also two older (minor) children who may or may not be his, but for whom he was paying support.

According to The Tennesseean, since there was no will, under Tennessee law, 1/3d of the estate will go to his wife and the remaining share will be divided among his children. Mrs. McNair has stated that she does not know whether the two older children are McNair’s biological children. You can bet that those boys’ legal guardians have hired lawyers by now to protect their claims. You can also bet that Mrs. McNair’s lawyers will demand proof of paternity before these children see a dime.

Then there’s that pesky matter of failing to plan for federal estate taxation. That 2/3ds of the estate which doesn’t go to the wife will be subject to a maximum 45% federal estate tax, since the value of the estate is over $3.5 million. If we assume that the estate was worth $50 million, and if 1/3d passes tax-free to the surviving spouse under TN law, then that’s $33.34 million. Subtract the $3.5 million exemption for deaths in 2009, multiply by 45% for the tax bracket– or $13.49 million in possible estate tax!

This could have all been avoided.

A good estate planning attorney would probably have set up the estate to postpone a significant portion of the estate taxes until after the death of the second spouse. There probably would have been an irrevocable life insurance trusts established so that an insurance policy would pay the millions of dollars which will be owed to the Federal government in estate taxes. He might have set up a charitable remainder trust, which would have created an annuity for the widow and then left the remaining funds to charity without any estate tax.

I can safely predict that a number of Tennessee lawyers and the IRS will make a lot of money off of this case because of a lack of any estate planning. I also expect that the court may order trusts created for the benefit of the children (once it determines how the 2/3ds of the estate get divided), as a judge will not like the idea of young children receiving millions of dollars without any professional supervision over the funds’ use. Saddest of all, there are two (or four) children who will have to grow up without their father’s love while almost certainly overhearing other family members arguing over his money.

Don’t take your passwords to the grave with you.

There’s a terrific post at Bankrate.com on a subject most folks don’t think about when creating their estate plan — who will know what your passwords are so they can access your accounts? There is now a service called Legacy Locker which will store them on-line for $30 per year. Whether that service is right for you may depend on how squeamish you feel storing your passwords somewhere out in the cosmos.

Of course, you could do things the old-fashioned way — write down a list of all your passwords, along with a list of your accounts, life insurance policies, safe deposit boxes, etc., etc., and give them to your attorney or someone else you absolutely trust to safely store the information. If you do that, you and your lawyer should have an agreement describing the circumstances upon which that list will be released and the person(s) that it may be released to.

Estate Plan Messes — Outdated Documents

When was the last time you actually LOOKED at your Will? That’s right — the one stuck in the back of your filing cabinet, along with the receipts for stuff you bought in 1991. Are the kids who were then in kindergarten now out of the house and have babies of their own? Does it still name your brother — the one who has since developed a drinking problem — as the executor? If you have $1 million or more worth of combined real estate, investments, and other assets (and despite the recession, there are still folks who do), and you live in a state which still has a separate estate tax (like Massachusetts), does it have any provision for how the taxes might get paid?

I encourage my clients to take their wills out of the file for ten minutes every year or so and just look them over. If the situation hasn’t changed, fine — put them back. But if there are now children or grandchildren, or a change (for good or bad) in their financial lives or their health, or it’s been five years or more since you and your lawyer have talked, then it’s time to come in for an estate plan check-up. Maybe the Will just needs a small tweak, which can be done with a codicil — an amendment to the Will. Maybe it’s time for a new Will. But a few minutes of review and a possible update can save your estate thousands of dollars in the future, and give you peace of mind that your plan will work the way you intend.

Estate Plan Messes — Naming the Wrong Fiduciaries

A fiduciary is someone you’ve placed in a position of trust to act on your behalf. In estate planning, the fiduciaries are the executor (or personal representative) of your will, the trustee of your trust, the attorney-in-fact for your power of attorney, and your health care agent for your health care proxy.

Most of the time, my clients want to name one or more of their children as their fiduciary. They come in thinking that “Joe” should be a fiduciary because he is the oldest or the child holding the “most important” job or some other reason. I tell the client two important things. First, being a fiduciary is usually a thankless job — and it can be a JOB. There is no honor or glory in running from one bank to another to close out accounts or paying the bills or getting a house cleaned out and sold. It takes time, energy and organizational skills. The client needs to be sure that the proposed fiduciary is cut out for the job.

The second thing I tell — or ask — the client is how well does Joe handle his own money? Does he have a drinking problem? Can he hold down a job? A good fiduciary needs to have good character. If Joe is not responsible in his own life, the client shouldn’t assume that Joe will somehow be more careful with the client’s affairs.