Good book. Books really help, but for folks with blended families and complex estates, it really helps to have a locally licensed estate lawyer look at their situation.
of course, in this country one can sue for practically anything. And every state law is different. But generally, a PoD/ToD account is not considered part of the estate; they are not part of the will, which is why they bypass probate. After eliminating PoD/ToD accounts, there is little left in the estate to sue for. Of course, that does put the estate & Executor in a quandry since the remaining estate has little assets but might have to defend a law suit.
As an example, a Florida appellate case which clearly determined that Florida law separates PoD accounts from the estate:
But, yes, the estate was first sued, lost, and then appealed to win. So, it did cost the estate legal fees.
https://www.wealthmanagement.com/estate-planning/pay-death-accounts-not-part-estate
Also do a health care directive. In this you specify your care level wishes. Leave a copy with each son and your physician, perhaps the hospital if you have been there. In this you make known your wishes. Ask your estate lawyer about forms, ours had an extensive wish list for us with all sorts of scenarios.
I found “Beyond the Grave” helpful too. It goes over so many different scenarios and so many potential pitfalls that are useful to know. I took notes when I read it and brought them to our lawyer for the first meeting.
Too many people I know have seen estate lawyers that just don’t have enough imagination, or don’t warn clients of potential trouble down the line.
Give even the most loathsome a token. This addresses a couple of bases for challenge and is the most minimal inoculation for your estate. Payment or vesting over time or on performance is another strategy. Forfeiture or diminishment for challenge is another.
“Accordingly, the magistrate’s finding, by clear and convincing evidence, that Elizabeth intended for her accounts to be divided among her six children was critically important for purposes of determining whether the joint accounts were assets of the estate”
Each case is different, in your case, there was no intent to disinherit some of her children, thus the ruling. It might be different in another case if she is trying to devide her assets unevenly to the extent of disinheritance.
There are no stats about disinheritance success rate, but I am sure it happens every day in the US court system.
Lots of different states represented here. Different states have different laws. Been at this for 30 years and have seen MANY unintended consequences due to people not putting their plans in motion (or not planning in the first place). Most people spend more time thinking about where they want to go for dinner or planning a family vacation than all this stuff. Take some time and think through how you want your stuff handled and then meet with the appropriate people to make that happen.
I define estate planning as getting your stuff to who you want, how you want, and when you want in the most cost (including tax) and time efficient manner.
Speaking not as a lawyer (I am one, but not an estate lawyer, so I’m a total layman in this area) but as the administrator of my mom’s estate and as the husband of a co-administrator of another:
Do NOT make a trust the beneficiary of any retirement accounts (401K, IRA, etc.) unless you have a specific reason to do so. It creates several major pains in the buttocks of the survivors, unless it is very carefully written (my in-laws’ trust was not).
@rickle1 has it exactly right above: decide exactly what you want to happen, and meet with experts in the field for advice on how to make that happen.
poblob14
Could you explain more?
Yes, please. Ours are in the trusts that will be created when we pass on.
If poblob doesn’t, come back soon to clarify, you could google. I vaguely remember that if you put IRAs in a trust, you lose some privileges of IRA. I don’t remember exactly what it was. I think it has something to do with passing it on. Like passing it on to your spouse is treated not as passing it on to your spouse. That makes sense since it’s your trust, not you, passing it on.
I can talk a little about how it works when the retirement plans are not in a trust (specifically IRAs): [Please note that there are some new laws in progress that aim to change this handling]. When my mom passed, with an IRA, it was not part of her trust or will. My siblings and I were named beneficiaries on the account. So, it was us and the financial institution. No lawyers or the trustee were involved. We each had the option to take a lump sum, or roll it into an inherited IRA and spread distributions out over multiple years or our life expectancy, known as a stretch IRA (this is the bit that Congress is potentially changing). This allows us some control over when taxes due. (I.e. we can spread the taxes out over years instead of being bumped up to a higher (highest?) tax bracket the year of total distribution. )
Talking about this to H, he was under impression that putting assets in trust means your heirs don’t get a stepped up basis which could make a big impact of how heirs use inheritance. Is he correct or does it vary?
Here’s a good article on trusts and retirement accounts (although written before the elimination of stretch IRAs was contemplated):
@notrichenough Thanks for the article. S1 has estranged himself and his family from us so we are now in the process of rewriting all of our documents. He had been executor and in the POAs. We do not want to disinherit our grandson however so are having to do some of these distributions into trust. Our attorney is being very thorough in this but the article is very helpful for me to understand more of what he is doing.
Not a big issue, if the trust is worded correctly. Also true of IRA’s put into the trust after death. The IRS has some buzz words that are required if one is gonna use the Stretch IRA (lifetime of beneficiary today, or 10 years under new legislation).
A competent estate attorney should do it correctly.
"Talking about this to H, he was under impression that putting assets in trust means your heirs don’t get a stepped up basis which could make a big impact of how heirs use inheritance. Is he correct or does it vary? "
That is true if it is a “Residual Trust” or an “Irrevokable Trust”, Living Trust has no problem on step up. I was the victim in this:
At the time of my Dad’s passing, the Estate Tax exclusion was only $1M. The lawyers, at that time, in their infimite wisdom, decided to splite his estate into two parts, to protect the decendents (That is us, the kids) from inheritance tax. So they created a “living Trust” for mom and a “Residual Trust” for the kids. His total estate was stepped up on his death. But the Residual Trust portion has been ear marked for the kids, although my mom will continuely receive income from it. The residual trust is excluded from the mom’s estate, OTOH, when mom die, 10 years later, the residual trust value cannot be stepped up, because it was considered being “distributed to the kids”.
Well, you can guess what happend. In the 10 years span, the exclusion of estate tax has risen from $1M to $5M(now is $11M) when mom died. And we would’ve avoid estate tax had the “residual trust” was not created. In the mean time, we are holding the tax basis of the property in the “residual trust” and must pay capital gain tax if we sell the property in it.
BTW, based on our estate lawyer, the “Residual Trust” or “Irrevokable Trust” could be voided by court petition BEFORE mom’s death, on the grounds of necessities, such as my mom needed to liquidated the assets from the trust for living expenditures. We did not discover this until after her death, so it is not possible to get out of it for the reason just to get a stepped up basis.
Yes the living trust has essentially no bearing on taxes (income or estate) because assets remain in the estate. It’s primary function is to avoid probate. Irrevocable trusts, on the other hand, are a whole different ball game.
Be careful with IRA’s… See the article posted earlier in #53: