I receive lots of questions on a daily basis. I am the token family attorney so I get lots of questions covering broad areas of law. I don’t always know these answers, but I can answer most of the questions regarding estate planning. By and far the most the questions I receive about estate planning are about trusts. Revocable trusts are the most common and preferred trusts. I have taken my most frequently asked questions about revocable trusts and answered them here.
WHAT DOES A REVOCABLE TRUST DO?
A revocable trust, like any trust, holds an asset and determines to whom or where that asset goes, when it goes there and how it goes there.
ARE REVOCABLE TRUSTS NECESSARY IF I DO NOT HAVE AN ESTATE TAX PROBLEM?
Yes. Only irrevocable trusts can reduce estate taxes. Revocable trusts, however, still have the following very important purposes:
- all assets in the trust avoid probate
- trusts help avoid accidental disheritances with second marriages and blended families
- trusts hold and distribtue money for minor children and grandchildren
- the management of assets in the event of a disability
DO I LOSE CONTROL OF MY ASSETS?
No. You are still in control of your assets so long as you name yourself as trustee and are competent. You can also determine who the trustee will be in the event of incompetency or death.
ARE THERE ANNUAL COSTS OR CHARGES ASSOCIATED WITH A REVOCABLE TRUST?
Not usually. There are no fees if you are serving as your own trustee. A corporate trustee does charge a small fee. Trusts, like all estate planning documents, should be reevaluated every 5-10 years to determine whether or not they are still in accordance with local laws and statutes and to ensure they still do what you want them to. Additionally, you need to update your documents, including trusts, anytime there are changes in your family’s circumstances.
WHAT OTHER DOCUMENTS USUALLY ARE PREPARED WITH A REVOCABLE TRUST?
- documents transferring your property into your trust
- a pour-over will
- durable financial power of attorney
- durable medical power of attorney
- living will
IS A POUR-OVER WILL NECESSARY IF I HAVE A REVOCABLE TRUST?
Yes. A pour-over will directs that any assets not placed in your trust should be distributed into the trust upon your death. The pour-over will is a safety net. This safety net ensures that all assets get into trust. Sometimes assets are forgotten and not transferred into the trust or an asset in the trust (such as a home) is replaced and new asset does not get transferred.
This is the fifth entry in a series I will be featuring about celebrity estate planning mistakes and what they could have done to prevent the problems that arose.
Name: Heath Ledger
Age: 28
Died: January 22, 2008, New York City
Cause: Probable drug overdose
Family: Daughter
Estate Mistake: Ledger had a will when he died of an overdose in 2008, but it was drafted in Australia before he found huge success and fathered a child in the United States.
His will did not reflect any of this, so a reported $20 million went to his parents and siblings. His family said they would give the entire estate to Ledger’s former girlfriend, Michelle Williams, and their daughter.
This is the fourth entry in a series I will be featuring about celebrity estate planning mistakes and what they could have done to prevent the problems that arose.
Name: Anna Nicole Smith
Age: 39
Died: February 8, 2007, Hollywood, CA
Cause: Probable drug overdose
Family: Daughter
Estate Mistake: The model turned “public curiosity” left a will, but it was apparently a poorly drafted document that accidentally disinherited her daughter. Her will had specified leaving out any “spouse and others’ heirs, including future spouses and children.” Her 20-year-old son had died shortly before Smith’s death. A court eventually made Smith’s daughter the sole beneficiary and named a guardian, which Smith did not do in her will.
Another estate case Smith was involved in still lives. Smith had married 89-year-old billionaire J. Howard Marshall II shortly before he died in 1995. Her claim to the estate made it all the way to The United State Supreme Court and is still bouncing in appeals.
A person executing their Last Will and Testament (the testator) can prevent their will to succumbing to attacks by “self-proving” their will when it is signed. Heirs and other family members can challenge the validity of a will in Arkansas. Will contests often occur after an heir or family member perceives some inequity or unjustness in the distribution of the assets of the estate. Heirs and family members can challenge a will by filing a Petition to Contest the Will for some very specific reasons: the testator was under the age of 18, the testator was under the influence of a drug or intoxicant that clouded their decision making, the testator lacked mental competence to sign the will, the testator was under undue influence or constraint of another party or there was fraud involved in the execution of the will.
Testators in Arkansas can prepare for a potential will contest during the execution phase. As with any area of law, there is nothing to completely prevent a lawsuit or will contest no matter how frivolous it may be. However, ensuring a will is properly executed can severely limit the ability for a will contest to succeed. An experienced elder law or estate planning attorney can assist with this process and verify that a will is executed according to the law.
Estate planning attorneys often place clauses within the Will to discourage a heir or family member from challenging the will. These clauses, commonly referred to as “no contest clauses”, are provisions which would elimintate the inheritance from anyone who contests the will. This usually prevents a disgruntled family member from challenging the will if there is a chance they would lose their inheritance.
A Proof of Will Affidavit is the best way to prevent challenges to a will as the testator and the witnesses each sign an affidavit swearing the will was properly executed. The testator will affirm that he/she is over the age of 18, that he/she was not under the influence of a drug or intoxicant that clouded their decision making, the he/she was mentally competent to sign the will, that he/she was not under undue influence or constraint of another party and there was no fraud involved in the execution of the will. An estate planning attorney may even enlist the help of a physician to assure competency if there is a chance the testator may lack mental competence. The Proof of Will Affidavit needs to be witnessed by at least two disinterested parties just as the will does. The Affidavit is made part of the will and is introduced into probate just as the will is.
This is the third entry in a series I will be featuring about celebrity estate planning mistakes and what they could have done to prevent the problems that arose.
Name: Jerry Garcia
Age: 53
Died: August 9, 1995, Forest Knolls, CA
Cause: Heart Attack
Family: Four daughters, three wives and a long-time girlfriend
Estate Mistake: Jerry Garcia of The Grateful Dead left a proper will when he died of heart failure in 1995, but an ex-wife said Garcia made unfulfilled promises to her. That and many other issues involving the administration of his estate are still under contention.
Garcia and his band lived by ’60′s rules, or the lack of rules, and that has led to a difficult situation in courts, not just with potential heirs, but also with property. Although Garcia willed several guitars to the man who made them, his band contends the instruments were communal property and hot his to give away.
This is the second entry in a series I will be featuring about celebrity estate planning mistakes and what they could have done to prevent the problems that arose.
Name: Marilyn Monroe
Age: 36
Died: August 15, 1962, Brentwood, CA
Cause: Drug Overdose
Family: Three Ex-Husbands
Estate Mistake: Marilyn left much of her estate to her acting coach, Lee Strasberg. The estate itself was not huge, about $800,000.00, but Strasberg claimed a right to her image. That has led to at least a $30 million dollar payout to a woman Marilyn never met – Anna Strasberg, Lee’s third wife. Marilyn’s case is often cited as an instance in which a trust would have been best to carry out a client’s wishes.
This is the first entry in a series I will be featuring about celebrity estate planning mistakes and what they could have done to prevent the problems that arose.
Name: Elvis Presley
Age: 42
Died: August 16, 1977, Memphis, TN
Cause: Drug overdose
Family: daughter
Estate planning mistake: Elvis is probably the most notorious example of a porrly planned estate. Of his $10 million estate, about 73% was lost in the probate process to estate taxes and other settlemtn costs. His case illustrates why a trust is often the best way to protect an estate.
A revocable living trust can be used to avoid the costs and delays associated with the probate process and in most states keeps the disposition of the estate out of public view. The estate plan must also focus on estate taxes in order to not only minimize them, but also to avoid the untimely liquidations in order to pay the tax. Of course, Elvis did get the last guffaw because he has earned far more money dean than alive.
Aaron Skloff of the Skloff Financial Group recently shared a shocking inheritance situation with some of his clients. The question posed was this:
“Q: My husband of 20 years passed away earlier this year. Even though we updated our wills just before his passing, his ex-wife now claims she owns all the assets in his IRAs and 401(k)s, totaling $3 million. Is that legal?”
The short answer is, unfortunately, yes. The husband had named his ex-wife as beneficiaries while they were married and never did a beneficiary audit once he was remarried. The husband and new spouse did update their wills, however, insurance policies and investment accounts are contractual. They will pass outside of a will and probate to whomever is named as the beneficiary. The beneficiary designations will trump the language of the will.
A proper estate plan is not just a will. A proper estate plan will include trusts, power of attorneys, living wills, beneficiary audits with your life insurance agent and financial advisor, business entity formations if that is appropriate and transfer of death designations on your bank accounts. Be sure all your needs and goals are taken care of. We will meet with you at any time, free of charge, to ensure you are properly planning for your future. Call us at (501) 372-1616.
Here is a great objective article about wills, doing it yourself and whether you need a trust or not.
http://bucks.blogs.nytimes.com/2010/08/26/getting-a-will-six-common-questions/
Deborah Jacobs is an estate planning attorney and journalist for Forbes.com. She examines the inevitable problems with DIY will and trust kits.
As Timothy E. Kalamaros, a lawyer with his own practice in South Bend, Ind., says, using a DIY will is like “pulling your own tooth with a pair of pliers instead of going to the dentist.”
