Volume 14 Issue 4 -- July/August 2010
Volume 14 Issue 4 -- July/August 2010
Why "Listen"? Many individuals go to the trouble and expense of creating Wills and Trusts to carry out their post-mortem intentions, but then fail to complete an equally important part of the estate planning process. For example, they might create a revocable living trust (RLT) but then fail to title their assets, such as brokerage accounts, in the name of the RLT. The consequences of not correctly titling assets can lead not only to additional probate costs but also to unintended consequences.
Note, this newsletter does not address avoiding or reducing estate taxes. As many know, this year - 2010, there is no Federal estate tax, yet. What Congress will do about the scheduled increase in likely estate taxes is anyone's guess as we go to press. There has been much conjecture about the likely increase in the estate tax life-time exemption scheduled to be $1,000,000 in 2011, rising to between $3.5 to $5.0 million. With the estate tax lifetime exemption likely to rise in 2010 or 2011, the situation of incurring estate tax is lessened for many estates. Even though the estate tax may be eliminated for many moderate size estates, there are still many aspects of estate administration that bear serious consideration.
Consider a typical example: Ada Born, age 89, lives in an assisted living facility near her son, Stu Born. Ada, who also has a daughter Star, who lives far away, has approximately $1 million of brokerage accounts, bank accounts and CDs titled in various ways. Some accounts are joint with rights of survivorship (JTWROS) with her son Stu. Approximately 15% are JTWROS with her daughter Star. Since Ada's late husband did virtually no estate planning, there was an unnecessary probate of assets left in his individual name. Stu handled his father's intestate probate and does not want to have to go through probate again when Ada dies.
Stu and Ada paid an attorney to prepare a Will, RLT, and Durable and Medical Powers of Attorney for Ada. The attorney discussed the need to retitle Ada's accounts. It was always Ada's intent that her two children share equally in her assets. The attorney pointed out that the JTWROS accounts, if not retitled in the name of the RLT, would pass to the named beneficiary by virtue of the terms of the account. Assets pass to beneficiaries in one or a combination of the following methods: (1) by Will or intestacy, both of which require probate; (2) deeds and contractual arrangements such as the bank and securities accounts of Ada described above; and (3) trusts, such as Ada's RLT. For example, if Ada had a home in her name alone at her death, the home would pass by Will through probate. But if the deed was in the name of Ada, Stu and Star with rights of survivorship then, after Ada's death, Stu and Star would be the owners of the home.
One of the many problems with such joint ownership, which is pointed out in other newsletters on our website, is the fact that should Stu or Star die unexpectedly young, not only would they not receive anything from such assets, but their families - the grandchildren of Ada - would potentially receive nothing as well. That would not have been what Ada intended.
For various reasons, sometimes associated with advancing illness or debility, people completely forget about retitling their assets and accounts so they are in their RLT. What is the end result?
Suppose Stu and Star survive Ada. With the JTWROS accounts, Stu gets 80% of the accounts and Star gets 15%. Unfortunately, the remaining 5% is held in an account in Ada's name only, which goes through probate and then eventually pours over to the RLT based upon the wording of the pour-over Will. This remaining 5% after various fees and probate costs passes to Stu and Star. As a result, Stu gets 82.5% of the estate and Star gets the remaining 17.5%, after probate expenses. Is this what Ada wanted? Clearly not. The RLT states that the two children are to share equally. Could Ada's intentions have been achieved? Yes, easily. How? Retitle the assets in the name of the RLT! As simple as that sounds, this advice is too often ignored.
It is hoped this newsletter causes those in the position of the Borns to get their assets retitled so their planning objectives are accomplished.
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