Can Family Court Trump Your Clear Wishes?

Last week, the Minnesota Court of Appeals ruled in a case, brought as a part of a divorce, that may have major implications for estate planning.

In re the Marriage of Angell, A09-349, the Court reviewed a family court decision to split insurance and survivor's benefits between parents of soldier killed in Iraq, even when the beneficiary designation clearly named only the mother as beneficiary. Generally, survivor benefits, inheritances, insurance proceeds and the like are considered non-marital property. This designation ends up following the probate courts' rule of thumb, to follow the decedent's wishes.

In this case, the family court used a family law statute which allows the court to award non-marital property, if in the interest of fairness, and split the proceeds. Court of Appeals remanded, or gave it back the lower court, on the basis that the court couldn't apply the Minnesota statute to federal benefits because federal law prohibits attachment to federal benefits and the federal law trumps. However, the ruling leaves open the question of whether the family court can go against a decedent's wishes and give some assets to a beneficiary's spouse when a federal statute is not involved.

It looks likely that this will be appealed to the Minnesota Supreme Court, which may or may not give more guidance.

You can find the case here,
http://www.lawlibrary.state.mn.us/archive/ctappub/0912/opa090349-1229.pdf

The Dark Side of POAs.

CNN is reporting that the Anthony Marshall trial is entering the sentencing phase.

http://www.cnn.com/2009/CRIME/12/18/new.york.astor.marshall/

Mr. Marshall is the son of New York socialite, Brooke Astor. Mr. Marshall was convicted of grand larceny and scheming to defraud his mother's estate. During his mother's life, he used his power as Ms. Astor's power of attorney to take money out of her estate for himself. Ms. Astor's will left most of her estate, upon her death, to various charities.

This case illustrates the need for caution when executing power of attorneys. POAs are useful tools to make sure your financial affairs, like paying for the heating bill to keep your pipes from freezing... (can you tell I'm writing this in Minnesota, in January?) etc, are taken care of if you are alive, but incapable of doing it yourself. POAs are extremely helpful in a majority of circumstances and everyone should consider executing a POA.

However, care should be taken when choosing who will have that power. A POA is like giving someone a blank check to your entire financial life. If you don't have someone you trust to act in that capacity, it may be better not to execute a POA.

This is especially true in states, including Minnesota, where durable POA's (those which are effective when someone does not have the capacity to make financial and legal decisions) are effective from the moment they are signed. That means that the person you name in your POA, has the blank check even before you are incapacitated.

All the caution in the world may not have prevented the Astor tragedy, but everyone should carefully consider who they name in their POA.

The Never Ending Uncertainty of the Federal Estate Tax

Oh, the federal estate tax issue. The House recently voted to extend the current tax rate.

http://www.washingtonpost.com/wp-dyn/content/article/2009/12/03/AR2009120304433.html

What does this mean for you? First, a little background. Gifts and estates are taxed by the federal government, and by many states. However, there is generally an exemption allowing estates under a certain amount to be transferred tax free. The exemption from the federal estate tax was, for many years, $1 million dollars. That meant that your estate did not have to pay tax unless your estate was over the $1 million mark. Eventually, this limit didn't only impose tax on the very wealthy, but also on small family farms and businesses, as the entire estate, for tax purposes, includes things like real property, business interests, some types of trusts and life insurance. Congress, taking the position that the estate tax was crippling small farms and businesses, increased the exemption, to $1.5 million in 2004 and 2005, $2.5 million in 2006 - 2008 and $3.5 million in 2009. That legislation had a sunset provision which basically repealed all federal estate tax for 2010 and returned the exemption to the $1 million mark in 2011. This system created a level of uncertainty because it was nearly impossible to predict what exemption would be in place at death. Additionally, the 2010 repeal with the 2011 exemption leads to an absurd result, which the darker humored among estate planners called, the "unplug grandma" rule.

The House bill would keep the 2009 exemption in place for the foreseeable future. However, the uncertainty under the prior system becomes even more unpredictable because the Senate has yet to move on the bill. It seems extremely unlikely that the Senate will touch this issue before 2010, in light of their current fight over health care. What may likely happen, is that the Senate will take a look at the issue sometime in 2010. If they follow the House's lead, and the President is on board, the 2009 exemption may be extended and applied retroactively for all of 2010.

So what should you and your planner be doing? We are in uncertain times when it comes to the estate tax and uncertainty is no friend to a planner. One way to approach the issue is plan for the $1 million exemption which is the likely worst case. Here in Minnesota, that is a common approach, as our state estate tax exemption has remained at the $1 million mark. Also, if this affects you, keep informed. If legislation is enacted that brings some certainty, it would be time to call up your planner and evaluate whether your plan should be changed accordingly.

Common Pitfalls for even the Rich and Famous

Forbes online has collected an interesting array of estate planning mistakes the rich and famous have made.


http://www.forbes.com/2009/11/24/princess-di-heath-ledger-brando-personal-finance-investment-guide-2-09-celebrity-estate-mistakes.html



Even if you aren't famous, or rich, some of these same mistakes can pose a big problem for those you leave behind. If you don't have an estate plan in place, meet with a licensed attorney so that your estate doesn't repeat other's mistakes.

Was Oilman "Manipulated" to Give to Charity?

Bloomberg.com is reporting on VERY messy battle on a probate involving a Texas oilman's estate. http://www.bloomberg.com/apps/news?pid=20601103&sid=auPHfoPfzSHA

The gist of the fight revolves around whether the deceased was manipulated into giving to charity, instead of his kids. Perhaps tellingly, only one child is arguing that the deceased was manipulated.

There are some things you can do to lessen the impact of later fights about your will. No-contest clauses and self-proving affidavits help. Also, if a messy probate court battle seems likely, a living trust (as much as I might disparage them in other contexts) may be a good idea. If a family fight sounds less than theoretical in your situation, contact a licensed attorney who can assist you in creating an estate plan that can limit or prevent those fights.

Beware of Trust Mills

The Law.com is reporting on a bust up of a trust mill in Ohio.

http://www.law.com/jsp/article.jsp?id=1202434692692

What's a trust mill and why are they so bad? A trust mill is a derogatory term we in law land give to business who scare people into paying fees for a living trust, without correctly evaluating whether a living trust is appropriate for the clients needs. The mills overstate the problems of probate and taxes and overstate the role a living trust can have in remedying those problems. They crank out form trusts without legal review, or very cursory review. Most estates will have little to no problems with taxes and probate. In most cases, a living trust is more of a cost and hassle than benefit.

However, it should be stated that in some, specific, circumstances, a living trust may be beneficial. Don't be intimidated by salesmen into paying for an estate plan that may not be beneficial for you. Contact a licensed attorney who can meet with you, review your specific needs and craft a plan that meets them.

Providing for your parent without providing for your siblings... or allegedly abusive stage dad.

TMZ is reporting that Katherine Jackson, matriarch of the Jackson family, will receive 40% of the Michael Jackson estate. However, she does not get the 40% outright. Rather, the amount is held in trust. The trustees have control of how much is distributed to Kathrine, and upon her death, any remaining funds go to Michael's children.

http://www.tmz.com/2009/10/12/michael-jackson-katherine-jackson-kids-inheritance-trust/

This actually isn't that uncommon. Although there are many reasons to structure a testamentary dispositon (gift through a will) that way, one obvious reason is to protect those assets from other family members. If Katherine received 40% outright, Katherine would have 100% control over what happens to it, both during her life and after her death. Upon Katherine's death, any remaining amount would be part of her estate and go through intestacy or by the provisions of her will. This could result in family members who were specifically excluded from Michael's will receiving assets through Katherine.

Putting estate assets going to Katherine in a testamentary trust (trust set up through provisions in the will), prevents such an occurrence and helps assure that Michael's wishes as to who exactly benefits from his estate remain intact.

If you have specific wishes as to who, and who cannot, benefit from your estate, a testamentary trust may meet your needs. Contact a licensed attorney who can craft a will and testamentary trust that can help assure your wishes also remain intact.

How controlling can I be from the grave?

A recent Illinois Supreme Court case upheld a will provision which disinherited descendants if they did not marry a fellow Jew.

http://www.google.com/hostednews/ap/article/ALeqM5j8QwP4ZvRjh-5EDghmS7q9wwP_DgD9ATRI300

As in this case, most American jurisdictions follow the general rule that a testator, or one writing the will, has (almost) free reign to dictate how their assets are disposed of upon their death. However, most jurisdictions limit this free reign by allowing courts to strike provisions that are "against public policy". That was the argument in the Illinois case. The descendants argued that the provision amounted to religious intolerance, which they argued is against public policy. The Court demonstrated just how much leeway a testator can be given, stating that the Court was not in a position to ensure that a grandparent treats "grandchildren who reject his religious beliefs and customs in the same manner as he treats those who conform to his traditions".

Minnesota courts have not spoken on whether such religious clauses would be upheld. However, two cases give guidance on how a Minnesota court might evaluate a questionable clause. In its 2008 ruling, In re The Estate of Peka, the Minnesota Court of Appeals upheld a provision that prohibited an ex-wife from living in the testator's house, which was placed in trust for the benefit of the parties' minor child, rejecting an argument that the provision was against public policy in promoting separation between parent and child.

The Minnesota Supreme Court, all the way back in 1897, showed that they are willing to strike down a provision as being against public policy. In Morse v. Blood, the testator stated in his will that his spouse would inherit his estate, but that she would be prevented from giving, either during her life or through her will, "one cent" to either her relatives or his. Among the issues created by this clause, the Court pointed out that if the spouse invited her family over for dinner, she would run the risk that the entire estate would be forfeited. The Court called the provision "mischievous and technical" and struck it down as against public policy.

If you're thinking of putting a ... creative... provision into your will or trust. Remember that, although you will enjoy a certain amount of leeway, you run the risk that a court could strike the provision. Make sure that you meet with a licensed attorney who can draft the provision, which could increase the chances that it would later be upheld by a court.

For a good chuckle....

CNN recently posted a collection of odd will provisions. Take a look at it when you need a good laugh.

http://www.cnn.com/2009/LIVING/wayoflife/08/31/bizarre.will.stipulations/index.html?iref=mpstoryview

If you're contemplating a will, including if you're thinking of leaving your fortune to your dog Gunter or want to leave your birthday to your friend... as always, talk to a licensed attorney.

Comment Moderation Policy

This blog is implementing a policy regarding comments... which I'm taking as a sign that at least someone out there is looking at the blog.

Comments will be reviewed before being posted to the blog. Any comments that attach links to commercial sites or are otherwise off topic will not be posted. Comments and links to facillate the sharing of information will be welcomed and appreciated.

I got what? From who? From where??

Every once in a great while you may find yourself on the receiving end on an estate. Whether it's your beloved grandmother's doll collection or an interest in property worth millions from your distant bachelor farmer great-uncle, there are certain things to keep in mind.

First, you likely do not need to worry about taxes. Taxes on the transfer of the property would have been dealt with through the estate tax, paid before you received the property. If you receive an inheritance that doesn't create income, you will not need to include it in your personal income taxes. However, if your inheritance generates income, for example if your uncle's farm is rented and you receive monthly checks, or if you sell that doll collection, you may have personal tax liability. In that case, you should work with an accountant to properly report that income or gain.

Second, you likely do not need to worry about debt from the estate. In the United States, debt cannot be inherited. Additionally, if the estate was administered through a probate process, debts should have been taken care of through that process. However, if a lien or other debt exists on the property and it wasn't paid off by the estate, you could run the risk of taking the property subject to that debt. If you believe this is the case, you should contact a licensed attorney in order to explore the possibility of disclaiming, or declining, that inheritance.

Finally, and this doesn't come up often but when it does it's extremely important, if you inherit from a distant relative in the old country, you need to contact a licensed attorney who is familiar with international estate planning. Unlike the United States, some other countries allow debts to be inherited. Most countries allow for a limited period to disclaim that debt, but only for a LIMITED period. You need to act quickly in determining whether you are inheriting debt and to disclaim that inheritance. If you don't, what you think will be a golden egg from Opa Fritz could turn out to be a major liability.

If you have received an inheritance and have any questions, including whether you will have a tax liability or whether you should disclaim the inheritance, contact a licensed attorney.

The Power of Joint Tenancy

One of the many vehicles to transfer real property, or real estate, outside of probate is through owning the property in joint tenancy.

There are two forms of real estate ownership in Minnesota when there are multiple owners. The first is tenants in common. In this form of ownership, the parties each own a distinct percentage of the total ownership in the property. For example, if a husband and wife own property, husband owns 50% of the total property and wife owns 50% of the total property. In this form, if one of the parties dies, their distinct percentage transfers through probate.

The other main form of ownership in Minnesota is joint tenancy. In this form, the parties have an undivided interest of the total ownership of the property. In this case, both husband and wife each own 100% of the total property. This may seem like a minor distinction, but it has a big effect. Upon the death of one party, the other party automatically owns the entire property without the probate process.

In order for the property to be owned in joint tenancy, the deed must specifically state that the property is owned as such. For example, "Property X is granted by Mr. X. to Husband and Wife, as joint tenants." If the deed does not specifically state that it is in joint tenancy, then it is owned as tenants in common.

If you own property with another person, and both of you intent that the other should automatically receive your interest without the probate process, review your deed. If the deed does not state "joint tenancy", contact a licensed attorney to execute and record a deed that does.

Can't stress it enough... if you have kids, you MUST have a will.

The recent passing of the King of Pop, raises an issue that comes up again and again in estate planning, those with children need to have a will in place.

http://www.cnn.com/2009/SHOWBIZ/06/26/jackson.children.will/index.html

Not only can a will deal with some financial issues, as blogged in my July and August 2008 posts, but it can also be a vehicle to name who you want to serve as guardian for your children. A court may ignore a provision naming a guardian, if it does not serve the best interests of the child, such as if the other parent is living and fit to parent or if the named guardian poses some threat of endangerment. However, if you fail to prepare a will naming a guardian, you leave it entirely up to a judge who is a stranger to your family and may not place your children with the most appropriate caregiver.

If you have children and do not have a will, contact a licensed attorney.

Special Needs and Supplemental Needs Trusts

I realized I skipped last month. I'll try not to do a cop-out by talking about two, very related, topics: Special Needs Trusts and Supplemental Needs Trusts.

Typically, state and federal governments will ignore trusts and include amounts in trusts as an asset of the beneficiary for purposes of determining eligibility for state benefits. Two exceptions are Special Needs Trusts and Supplemental Needs Trusts. Both trusts are vehicles to allow a person who is recieving disability benefits, additional income and assets to meet needs beyond what the government benefits cover. Essentially, these trusts allow disabled persons to have a lifestyle beyond what the government benefits provide, without jeopardizing their ability to receive those benefits.

Special Needs Trusts are funded by the individual’s own assets. Supplemental Needs Trusts are funded by a third party’s assets. There are strict rules on how these trusts are established, funded and what types of expenses can be paid for by the trust. If you fail to meet these rules, the trust will be disregarded and the trust assets could be counted against the beneficiary. The rules surrounding these trusts are very specific, ridgid and highly technical. If the trust provisions violates an applicable federal or state law, the trust is disregarded. If a Special Needs Trust or Supplemental Needs Trust might be right for your loved one, it is very important that you work with a licensed attorney.

Life Estates

Something that I've referred to in previous posts is a form of ownership called a life estate. Life estates occur when an owner sells or gives away real property to another, but reserves the right to live on the property for the remainder of his or her life. The person who receives the property has, what's known as, a remainder interest.

Life estates can be useful tools in the estate planning process. This type of ownership can allow the property to be transferred upon death without going through the probate process, because the person who has the remainder interest already owns the property.

Life estates can also have tax benefits. The basis of the property will be the market value at the death, rather than at the time of the gift, which will generally result in a tax savings when the property is later sold.

Life estates can have some benefit for medical assistance planning. Theoretically, medical assistance liens placed on the property for benefits expended for the grantor should disappear upon their death. However, the Minnesota legislature enacted a statute in 2003 which allows medical liens to remain on the property after the grantor's death. Life estates no longer allow property to pass free and clear from any medical liens. However, a life estate may reduce the amount of value of the property that a medical can attach to.

If a life estate seems like a form of ownership that may address some of your estate planning concerns, contact a licensed attorney.

Estate Planning Documents and HIPAA Waivers

As a part of many estate planning documents, individuals are called on to get medical information about another. The main example is a health care directive which states who is to make health care decisions for you in case you're incapacitated. That person will need to have full access to your medical records in order to make an informed decision. Another document is a trust that states that a certain action will be triggered upon disability as decided by a medical doctor. In order for the trustee to know if the individual is disabled, they will need to have access to medical records and information from the individual's doctor. However, HIPAA can impede these individuals from getting access.

HIPAA, or Health Insurance Portability and Accountability Act of 1996, is a federal law that was enacted to standardize data gathering and sharing in the medical field. A part of this act protects an individuals' health care information from being disclosed. Individuals acting in the capacity as a "personal representative", such as under a health care directive, are specifically allowed to have access to medical information. However, there have been many anecdotal reports of medical providers refusing to release information to the personal representative, citing HIPAA concerns, even in spite of what the federal regulations state. Additionally, there is no exception for trustees, attempting to determine the status of an individual for purposes of the trust.

These problems can be avoided through a HIPAA waiver, signed by the individual. It is a single page document that need not be made a part of the trust or directive, but can be provided to a trustee or personal representative to prevent HIPAA issues.

If you are contemplating a trust or health care directive or already have one in place, which doesn't address HIPAA, contact a licensed attorney.

Will the Nursing Home Take My Farm? The role of medical assitance planning.

As we get older, the possibility of entering a nursing home, and the concern for how to pay for it, becomes an increased worry for many people. If one requires medical assistance from the state to pay for nursing home care, the state can recuperate what they can by placing liens on certain assets held by the individual, including homestead and farm property. Accordingly, many people worry about what the government can or cannot take and how they can go about it.


First, the state government evaluates whether someone is eligible for medical assistance both by looking at their monthly income and the amount of assets they have. If the state determines they are eligible, the state will pay for the nursing home care. If individuals have made prior gifts during what's called the look back period, the state will "look back" and impute the income to the individual. The state won't go to the recipients of the gifts to recuperate the costs, they just may not find the individual eligible for assistance. Additionally, in many instances, if the individual is otherwise eligible but owns real property, the state may find that person eligible and give assistance, but will place a lien on the property to recuperate the money spent on the care.


Planning ahead is the key for medicare assistance planning. Working with both a licensed attorney in the state that you plan to receive care in and a financial advisor can help you prevent a situation where you need assistance, but either are found ineligible or have your real property incur a state medical lien.

What happens if I don't have a will?

I'm often approached by people who say they want a will so their property doesn't go to the government. While there's many reasons to have a will (probably a smoother probate and smoother family relations is just one of many reasons), the risk of having the government "take" your stuff merely because you don't have a will is very unusual. So, what happens when there is no will?

When someone dies without a will, it's stated that the individual died "intestate". All states, including Minnesota, have intestacy laws which give a specific order as to who gets how much of the estate. In general terms, a spouse gets first. If there's no spouse, then the children get and so forth. If the decedent died without a spouse or descendants, the parents get first and if no parents, the siblings get and so forth. If there is no spouse or descendants, parents or siblings, then the grandparents get or aunts and uncles if no grandparents and so forth. The main point is that the state of Minnesota is the last resort. If there are no relatives around to claim the estate, only then does the estate go, or escheat, to Minnesota.

There are many reasons to have a will, but probably one of the most minor reasons is to prevent Minnesota from getting your stuff.