October 10

The 23-Word Coolidge Will — A Blunt Disinheritance

President Calvin Coolidge, a man known for brevity, wrote a total of 23 words of dispositive instructions in his will, which was handwritten on White House Stationary:  “Not unmindful of my son, I give all of my estate, both real and personal, to my wife, Grace Coolidge, in fee simple.”  Mr. Coolidge could have shortened the instructions to 18 words by cutting out the phrase, “not unmindful of my son.”  However, he might have feared that his son would challenge his disinheritance in court:


Had the President omitted the “not unmindful of my son” phrase, his son might have argued that his father had grown senile and forgotten that he had a son, meaning that he lacked testamentary capacity to sign a valid will.  The “not unmindful” language was likely meant to show that the disinheritance was intentional.  In US states (except Louisiana), parents are generally free to disinherit children.  However, doing so often invites legal challenges from children.  Judges and juries are often sympathetic to disinherited children arguing that their parents lacked mental capacity or were under undue influence when signing their wills.

Courtesy Daily Illini Archives at http://idnc.library.illinois.edu/

Whether or not you wish your children to take any part of your estate, do not attempt to follow President Coolidge’s example by drafting a 23-word will.  First, a handwritten note like Mr. Coolidge’s may be invalid in some states (handwritten wills can be deemed “holographic,” and face a highly uncertain road in probate court).  Second, the President’s will fails to name an executor (and successor executors) to probate the will, a serious oversight.  Third, the will leaves many basic questions unanswered, like where the President wishes his property to go if his wife predeceases him.  Additionally, if one of the goals of an estate plan is disinheritance of a wayward child, it would be worth strongly considering a living trust as a will substitute, as the terms of the trust are not public and are generally more difficult to challenge in court.


Published by Ian Holzhauer, Esq. of Nagle Obarski PC in Naperville, IL.  

Note:  The information above is not legal advice and is not the basis of an attorney-client relationship.  If you need assistance, you can hire an attorney to assist you with your individual legal needs. 

October 9

Blended Family Estate Planning

Imagine two separate trees growing feet apart from each other for many years.  These trees have grown numerous intertwined branches, but they still maintain separate trunks.  Like the trees in this image, many blended families today have functioned together for decades, sharing close family bonds and lots of common history, but still maintain separate family trees.
Traditional estate planning assumptions come from a time when blended families were far less common than they are today.  A common estate plan for a non-blended family (where all children have the same parents) is for the spouses to have reciprocal wills, with each spouse leaving all property to the other spouse, and if the other spouse is not alive, then all property to the children.  However, indiscriminately applying this estate plan to a blended family can lead to many difficulties down the road, as the children of the first spouse to die may not inherit if the other spouse changes his or her will.  To avoid future hardship, it is essential that parents in second marriages and/or parents with stepchildren hire a qualified attorney to craft an estate plan appropriate to their family situation.  Blended family estate planning is a very complex subject; this article will briefly touch some of the most common strategies:

Using a Joint Living Trust

Both spouses may wish to enter a living trust, which remains revocable (can be changed or cancelled) while both spouses are alive.  The trust may specify that after one spouse dies, some amount of property be held in trust, with an amount going to provide for the remaining spouse every year until his or her death.  The amount could be set at a defined percentage, or keyed to certain criteria, including health costs of the remaining spouse.  The trust might require that the remainder in the trust be distributed to the children of both spouses (including children from prior marriages).  On the other hand, the trust could also provide for some immediate payment to the children.  There are numerous possible combinations.  The key is that once one spouse dies, the revocable trust must become irrevocable, so that the other spouse may not change it to the detriment of the other spouse’s children.

Leaving a Portion of Property Outright to the Children

Another option is for each spouse to leave a portion of the spouse’s estate outright to his or her own children by will or living trust.  However, estimating the right amount can be tricky, as it is hard to predict a spouse’s future needs.  Few people would want their spouse to risk running out of money during his or her life due to unforeseen health expenses, possibly making a trust (like the one described above) a more flexible option.  Additionally, a spouse must leave enough property to the surviving spouse to satisfy state spousal elective share laws.

Lifetime Gifts

Sometimes one of the simplest estate planning strategies is also one of the easiest to overlook.  If you are concerned that your children receive certain pieces of property, family heirlooms, or financial assets, consider giving them away during your life.  This may avoid future uncertainty over what you would have wanted to happen, particularly for items carrying high sentimental value.  If you are giving away substantial assets, this strategy may also decrease your need to provide for your children in your will and/or trusts.  By giving away less than the annual gift tax exclusion amount (not the focus of this article), you may also reduce future estate taxes.  However, as with the option of leaving property outright to children in a will or trust, there can be drawbacks to the lifetime gifts approach as well.

Life Insurance

Particularly if a family’s assets are illiquid (difficult to split up or sell), life insurance can be a good option for ensuring an equitable distribution of wealth in a blended family. Guaranteeing that each child receives a set life insurance payout may be preferable to granting them a share of the estate in a will, which might require a rushed sale of family cars, land, personal property, etc.  While we are on the subject of life insurance in blended families, it is imperative that people who have been divorced ensure their life insurance policies (and all death beneficiary elections on IRAs, pensions, etc) are up to date.  It is hard to think of a worse “estate plan” than having an ex-spouse as the primary recipient of one’s money!

Wealthy Spouses and Spouses with Substantial Age Differences

The techniques above are commonly used in blended family estate planning for people of modest to comfortable means, and for spouses of a similar age.  The higher the net value of the estate, the more complex the estate planning can be.  Many wealthy spouses rely on more complex devices, such as Qualified Terminable Interest Property (QTIP) trusts, Family Limited Partnerships (FLPs), Marital Deduction Power of Appointment Trusts, and Charitable Trusts.  These are commonly used by people whose individual estates top the $5.34 million estate tax exemption ($10.68 million per married couple).  Additionally, in marriages where one spouse is much older and expects the other to remarry after the older spouse’s death, there may be further estate planning considerations requiring specialized estate planning tools.

Conclusion

Blended families are very common, but the estate planning process for these families is surprisingly complicated.  Talk to an experienced estate planning attorney to tailor an estate plan to fit your family’s individual needs.

Published by Ian Holzhauer, Esq. of Nagle Obarski PC in Naperville, IL.  
Note:  The information above is not legal advice and is not the basis of an attorney-client relationship.  If you need assistance, you can hire an attorney to assist you with your individual legal needs. 



October 8

Casey Kasem’s Burial Still on Hold as Legal Battle Continues — Don’t Let this Happen to Your Family

Legendary radio personality Casey Kasem passed away this June at the age of 82.  Upon his death, media outlets across the country paid tribute to his illustrious career, including 40 years of hosting “American Top 40.”

Photo by Alan Light

Unfortunately, four months after Mr. Kasem’s death, his burial is still on hold as relatives argue in court over the proper disposition of his remains.  Sadly, Mr. Kasem’s family could not agree on his health care or burial wishes, as he did not express these in writing.  While the level and length of disagreement in his case is unusual, family strife over end-of-life decisions is certainly not unusual.  However, this type of uncertainty about end-of-life wishes is entirely preventable.

As the last two posts on this blog discussed, you can easily clarify your end-of-life wishes in writing.  Work with an attorney to accomplish advance health care directives and documents regarding disposition of remains.  Doing so can allow your family to focus on properly grieving, and moving on after your death, instead of being mired in uncertainty.

Published by the Law Office of Ian Holzhauer in Naperville, IL.  
Note:  The information above is not legal advice and is not the basis of an attorney-client relationship.  If you need assistance, you can hire an attorney to assist you with your individual legal needs. 




October 7

“Green” Burials, Scattering Ashes in a Special Place, and Other Advance Funeral Planning

An article in today’s Washington Post describes the increasing trend toward “green” burials, which decrease the impact of the burial process on the environment.  This reflects a growing consciousness that we can plan for the handling of our remains even during our lifetimes, in a manner tailored to our personal values and beliefs.  Many of my previous clients have expressed a desire in their estate plans to have their ashes spread over a particular body of water or special place from their past.  In a creative approach, some people are now opting to have their ashes buried in a biodegradable urn, with a seed inside, so that a tree may grow out of their final resting place, as described in the article.

Whatever your wishes for the handling of your remains, an estate planning attorney can help you ensure they are conveyed in the appropriate manner.  In some states, giving a family member a durable power of attorney for the handling of your remains will help smooth the process.  Many estate planners include funeral instructions in a will, but that can be problematic if the will is not read immediately upon your death.  As an Air Force JAG, it was important that my clients’ families be instructed to promptly contact the VA National Cemetery Administration for potentially free burial in a national cemetery and/or an official headstone,  flag, and full military honors.  Whatever your plan, it is important that you tell your family about your funeral wishes and where to find the documentation of your wishes.

More information is available at the nonprofit Funeral Consumers Alliance.

Published by the Law Office of Ian Holzhauer in Naperville, IL.  
Note:  The information above is not legal advice and is not the basis of an attorney-client relationship.  If you need assistance, you can hire an attorney to assist you with your individual legal needs. 



October 6

Document your Wishes for End-of-Life Care

When a family member becomes permanently incapacitated, it can be one of the most emotional and difficult decision-making periods for a grieving family.  If family members disagree about what a terminally ill and permanently unconscious patient would have wanted, the result can be years of gut-wrenching intra-family fighting.

Terri Schiavo entered a persistent vegetative state in 1990, when she was age 26.  Her family could not agree on whether she would have wanted to be kept alive artificially by machines.  It took 15 years and many public legal battles before she passed away.  Fortunately, some basic advanced planning can remove uncertainty about your end-of-life wishes and prevent this type of family strife. 

Two relatively simple legal documents–a living will and a durable power of attorney for health care are invaluable.  The first expresses your wishes in the event of permanent unconsciousness, and the second appoints a healthcare agent (typically a spouse or close family member) to tell your doctors about your medical wishes in the event you cannot do so.

As an Air Force JAG preparing estate plans for deploying servicemembers and families, I prepared hundreds advanced medical directives where my clients expressed their wishes not to have their lives artificially prolonged in the event of permanent unconsciousness.  Some requests were specifically tailored to individual medical needs, a desire to be seen by a certain physician, etc.  Interestingly, in years of practice, I don’t recall a single client asking to be artificially kept alive if they entered a persistent vegetative state, though that is certainly a desire that could be expressed through a living will and durable power of attorney for health care

The State of Illinois has statutory short forms for both the living will and the durable power of attorney for health care (thanks to Chicago-Kent College of Law and the State of Illinois for the links).  Both short forms should be recognized in Illinois if prepared properly.  Consult an attorney in your state to prepare advanced medical directives that comply with your laws.

Published by the Law Office of Ian Holzhauer in Naperville, IL.  
Note:  The information above is not legal advice and is not the basis of an attorney-client relationship.  If you need assistance, you can hire an attorney to assist you with your individual legal needs. 



October 2

A Royal Estate Plan

Diana, Princess of Wales was known for her kindness, decency, substantial charitable work, and her devotion to her children.  Her untimely death was a reminder to us all that life can be fragile, but her legacy of good works lives on.

Even royals have to worry about estate planning issues.  Fortunately, Princess Diana established a very well-tailored estate plan to care for her children in the event of her death.  This article shows how, through the use of basic testamentary trusts, she provided income for her children until their 30th birthdays, and then turned over full control of the property to them. 

Testamentary trusts for children are a standard part of many American estate plans as well, and are typically not overly difficult to administer.  If you read the article about Princess Diana’s estate plan, you may notice the reference to owing Capital Gains Tax, which can be avoided in the United States under the IRS loophole known as the automatic step-up in basis, covered by a prior blog post.

Consider how Princess Diana’s careful estate planning provided for her children after her death, and ensure your family is also protected in the event of a tragedy.

Published by the Law Office of Ian Holzhauer in Naperville, IL.  
Note:  The information above is not legal advice and is not the basis of an attorney-client relationship.  If you need assistance, you can hire an attorney to assist you with your individual legal needs. 



October 1

Storing Your Estate Planning Documents

As a society, we have grown accustomed to electronically filing and accessing important documents, including bank statements, health records, and tax returns.  In my years of litigation as an Air Force JAG (a worldwide practice), we relied almost exclusively on digitally-submitted court documents.  Indeed, in most areas of the law, a digital (or paper) copy will now be a sufficient substitute for an original document.  However, when it comes to your estate plan, it is crucial that you preserve your original, signed will in order to ensure a smooth probate process.  The following are some basic tips:

First, make sure your family members know where to find your estate planning documents.  I cannot emphasize this enough.  Historically, many clients opted to store their will in a bank safe deposit box.  However, if the family did not know where to look for the will, it was lost forever.  Also, in many states it takes a court order for a family to open a safe deposit box after the owner’s death. 

Filing the original will in your attorney’s safe may be another option.  As an additional benefit, your attorney may be willing to periodically check in with you to make sure the document is up to date.  But it is again crucial that your family know where it is.  It is also worth considering the possibility that you might move in the future, and the family may forget to look for your will with your prior attorney.

A popular option today is for people to store their wills at home in a fireproof and waterproof safe, bolted into the house.  Of course, it is important to ensure that your family knows where to look for your estate planning documents.  And you should give a sufficient number of trustworthy people the safe combination.

If you grew up in the digital age, it may seem strange to worry about things like water damage, mold, fire, or physical destruction of your vital documents.  However, in the area of wills, families need to think about ways to protect original paper copies, potentially for decades, from degradation, loss, theft, or alteration. 

I recently read a fascinating article about a technology startup in my hometown of Naperville, IL.  The company’s founder, Adam Justice, is pioneering using cloud-based WiFi-enabled sensors throughout the home or office.  These sensors can alert the owner to potential physical security threats like moisture, fire, intruders, etc.  Even in the seemingly low-tech topic of original will preservation, technology can have a role.

Published by the Law Office of Ian Holzhauer in Naperville, IL.  
Note:  The information above is not legal advice and is not the basis of an attorney-client relationship.  If you need assistance, you can hire an attorney to assist you with your individual legal needs. 

 

September 30

How Joan Rivers Provided for her Pets

Check out this DailyFinance.com article about how animal lover Joan Rivers used a pet trust to take care of her dogs after her passing this month.  In doing this, she made sure her four dogs (including rescues) will be cared for the way she would have wanted.  Think a trust is too complicated for someone of modest means?  Think again; almost all states now have straightforward laws about forming pet trusts, and you don’t have to be wealthy to benefit from one.  A qualified attorney can advise you on these trusts and prepare one for you if appropriate.  The Illinois State Bar Association provides some useful guidance for attorneys on pet trusts here.

Published by the Law Office of Ian Holzhauer in Naperville, IL.  
Note:  The information above is not legal advice and is not the basis of an attorney-client relationship.  If you need assistance, you can hire an attorney to assist you with your individual legal needs. 



September 30

Evolving Law for Blended Families and Adopted Children

Many blended families and families with adopted children face unfortunate (even shocking) consequences when a family member dies without an estate plan.  This article discusses unique issues applicable to these families:

Intestacy Law

In the absence of a will or trust, a state’s intestacy laws control how someone’s property is divided upon his or her death.  Different states have starkly different laws.  In Illinois, for example, if one spouse dies without a will, the estate is divided 50/50 between a surviving spouse and the deceased’s descendants (755 ILCS 5/2-1).  In Florida, in the same situation, if all descendants are descendants of both spouses, the spouse takes 100% of the estate, with nothing going to the children (Florida Statute Section 732.102).  These are vastly different consequences for the same situation (50% to the descendants in Illinois; 0% in Florida), and every state’s law is different.  Further, state law could change at any time, meaning you cannot count on these intestacy rules applying to you at the time of your death.

Blended Families

For these and other reasons, relying on state intestacy law is a bad plan for any family.  Relying on state intestacy law is an especially bad plan for blended families or families with adopted children.  During my estate planning time as an Air Force JAG, I assisted a lot of these families.  With the young family population in the military and the frequency of moves, it was very common to see a family where a husband and wife were raising children from each other’s prior marriages.  Often, the parents in the blended family would either formally adopt their stepchildren or treat them as their own.  These blended family arrangements could create very difficult situations if  state intestacy law comes into play.

Equitable Adoption

The Illinois Supreme Court recently heard a case where a stepfather raised his stepson from a very early age.  The stepfather treated the child as his son, called himself his “father”, provided for his son throughout his childhood, and told his son he had been legally adopted.  Under Illinois law, an adopted child in this situation has the same intestate succession rights as a natural born child.  However, after the father died, no records could be found to show a legal adoption had actually occurred.  This left the child in an awful predicament, apparently unable to assert his rights as an heir under Illinois law.  Ultimately, the Illinois Supreme Court decided to recognize the family’s arrangement as an “Equitable Adoption”, granting the child the rights of a legally adopted child.  But not all states agree with this interpretation of the law.  And if your family has to go to court and hire lawyers to argue for years over who in your family is really your child, does anyone win?

Published by the Law Office of Ian Holzhauer in Naperville, IL.  
Note:  The information above is not legal advice and is not the basis of an attorney-client relationship.  If you need assistance, you can hire an attorney to assist you with your individual legal needs. 


September 29

Will I be Subject to the Estate Tax? What About Other Taxes?

Much attention has been devoted to the Federal Estate Tax (a/k/a “Death Tax”) over the past 15 years.  After much uncertainty, a December 2012 political compromise made permanent the current version of the tax.  This brief post does not delve into the complexities of the estate tax, but deals with two common questions:

1)  Am I likely to have to pay the federal estate tax?

2)  If I don’t have to worry about the federal estate tax, are there still other death-related tax rules that might apply to me?

1) Am I likely to have to pay the federal estate tax?

In 2014, individuals with estates up to $5.34 million are not subject to the federal estate tax.  This exemption amount is indexed to inflation, so it should go up over time.  For married couples, if the first spouse to die does not use the $5.34 million exemption, the second spouse can combine it with his/her exemption for a total of a $10.68 million exemption for the couple.  However, a couple must follow applicable formalities, such as filing an estate tax return after the first spouse’s death.

Additionally, transfers from one spouse to the other are also generally exempt from estate taxation, regardless of their amount.  For example, a wife could give $600 million at death (or during her lifetime) to her husband without federal estate tax consequences.  There are exceptions to these rules, perhaps the most prominent being property passed to a spouse who is not a United States citizen

If your net worth is even close to the estate tax exemption amounts, or you have special circumstances (like a non-citizen spouse, prior gifts of large value, etc.), it is imperative that you discuss possible estate tax-avoidance strategies (such as lifetime gift-giving or QDOTs, respectively) with an estate planning attorney.

2) If I don’t have to worry about the federal estate tax, are there other death-related tax rules that might apply to me?  Answer:  Yes.

If you only remember one point from this blog post, remember this:  Estate tax (the tax on transfer of your wealth at death) is only one form of taxation that impacts estate planning.  Although the vast majority of Americans pay no federal estate tax, most Americans do pay federal income tax (which includes investment gains).  In my last blog post, I discussed an enormous income tax loophole, known as the automatic step-up in basis at death.  Taking advantage of that income tax benefit alone can easily save a family hundreds of thousands of dollars in income tax, even if they have nowhere near the net worth to worry about the estate tax.

Also, be aware that many states have estate tax exemption amounts that vary from the federal rates.  For example, the 2014 Illinois estate tax exemption is $4 million for an individual, where the federal exemption is $5.34 million.  So, for example, a Naperville resident who dies with $5 million in property would owe Illinois taxes (on $1 million that is above the $4 million exemption) but no federal taxes (because the value of the estate is below the $5.34 million federal exemption).  Every state’s rules are different.

In conclusion, tax planning is a crucial component of a solid estate plan.  An estate planning attorney can help tailor an estate plan to your family’s needs, incorporating the latest information about federal and state tax laws.

Published by the Law Office of Ian Holzhauer in Naperville, IL.  
Note:  The information above is not legal advice and is not the basis of an attorney-client relationship.  If you need assistance, you can hire an attorney to assist you with your individual legal needs.