Writing Your Tulsa Estate Planning Blog

Improperly doing the little things in estate planning, often end up costing families the most money.

Talk about estate planning mistakes often focuses on the big picture things that people get wrong. Thousands of articles are written, whenever a celebrity or wealthy person makes a big estate planning mistake, such as failing to update an estate plan or not having one at all.

You can find article after article about complex trust provisions that are improperly drafted.

All of those things are important. We can and should learn from them.

However, it is important to understand, that for most people, small errors are the biggest problems in their estate plans, as the Pauls Valley Daily Democrat points out in “Oversights can cost your heirs money.”

For most people, minor mistakes like not having enough witness signatures on a will or not having the magic legal words in a trust document are what makes estate planning go awry. The law can be extremely formal at times and minding all of the little details matters.

If things are not done precisely right, then all the proper planning in the world can be undone with the stroke of a judge’s pen.

Fortunately, there do not have to be any minor oversights in your estate plan.

You can go to an experienced estate planning attorney who will make sure that every little, formal detail is taken care of.

Reference: Pauls Valley Daily Democrat (Jan. 25, 2017) “Oversights can cost your heirs money.”

It is every parent’s worst fear. A child will agree to give away their inheritance for far less than it is worth for quick money.

Recently, MarketWatch published an advice column with the following question as its title: “My drug-addicted friend signed away his $800,000 inheritance to his brother — now he’s clean, can he get it back?”

The title is an almost complete description of what happened. A reader wrote in with a story about his friend who inherited $800,000 from his father’s will. The friend was addicted to drugs and agreed to sign his rights to the inheritance away to his own brother for only $10,000.

Now, that the friend is sober, the reader wonders whether there is any way to get the inheritance back.

The column writer suggests that the friend hire an attorney and sue the brother for fraud based on the premise that he knowingly took advantage of someone who was mentally incapacitated. That might work in some cases.
But not so fast.

There are some states and courts that are not quick to undo agreements that drug addicts voluntarily enter into, especially if it cannot be proven they were high at the time of making the agreement.

This is the type of scenario about which many parents have nightmares, when it comes to their addicted children. Leaving the child an inheritance outright can quickly be lost.

Fortunately, there are ways to avoid the problem altogether without disinheriting the drug-addicted child. A trust can be used to protect the inheritance with a trustee who is granted the discretion to only distribute money when the child is able to handle it.

Reference: MarketWatch (Jan. 24, 2017) “My drug-addicted friend signed away his $800,000 inheritance to his brother — now he’s clean, can he get it back?”

Some experts believe that equities and bonds are about to undergo a dramatic shift in their relationship. That could have an important impact on how trustees invest trust assets.

For approximately 30 years, many types of investors have enjoyed a luxury that many of them did not know was unusual. The equity and bond markets had a negative correlation. That made maintaining a diversified portfolio relatively easy.

Prior to the last 30 years, the two markets had been positively related. Some experts believe the change was brought about because of the relatively low inflation rates in recent decades. They believe that inflation rates will rise in the near future and cause a return to the more historical positive correlation between equities and bonds.

This is reported by Financial Advisor in “Forget 30 Years Of Stock And Bond Divergence, Bernstein Says.”

If this shift does occur, trustees will need to pay attention. Trustees are required to invest trust assets by following the prudent investor rule. For the last 30 years, that has meant following modern portfolio theory and diversifying assets between different classes of investment. However, a return to bonds and equities having a positive relationship will make diversification of investments more difficult.
Trustees’ jobs will become much more difficult.

Of course, this shift has not happened yet and might never happen. Most market predictions never come to fruition. However, trustees should pay attention and make sure that they are following the best advice about investing trust assets.

Reference: Wealth Management (Jan. 10, 2017) “Forget 30 Years Of Stock And Bond Divergence, Bernstein Says.”

Deciding what should go into your trust and what should not, can sometimes be complicated. However, it is not complicated when talking about your investment accounts.

Once you get a proper trust drafted by an experienced estate planning attorney, you then need to start funding the trust. You need to start adding your assets into the trust.

That can sometimes be difficult, since you might not want everything to go into your trust right away. Your estate plan might be created so that it keeps certain assets out of the trust for various reasons. You might not want to wait to put some things in the trust until after you pass away when your will directs that it is where they should go.

One class of assets, however, should almost always go into your trust as The Herald Bulletin discusses in “If you have a trust, that’s where your investments should go.”

Any investments that you have should almost always go into your trust. This is done for tax reasons most of the time, but it is a clear call.

That does not mean, however, that you should put your IRA into a trust. That is a complicated decision that you will want to talk to your attorney about.

However, any other investments should be put into the trust.

Whenever you have questions about what should or should not be placed into your trust, the best thing to do is to ask your estate planning attorney.

Reference: The Herald Bulletin (Dec. 17, 2016) “If you have a trust, that’s where your investments should go.”

It is sometimes beneficial to bring a lawsuit in federal court instead of a state court. One example would be if you want to sue a trust and fear that the state courts will have prejudice for a home state trust.

Trusts are ordinarily a matter of state law. They are created under the laws of a state. That would normally mean that to sue the trust, you have to go to the courts of the state it was created in. However, there are times when it might be better to sue a trust in federal court.

This might happen if the plaintiff is from out of state and has a legitimate fear that the state courts will favor the trust and its local trustees.
The Wills, Trusts & Estates Prof Blog wrote about one such case in “Trustee Citizenship Regulates Federal Diversity Jurisdiction.”

The plaintiff was a citizen of Taiwan suing a trust that her ex-spouse set up. She was seeking to recover assets from it. While it is not clear why she did not want to sue in state court, she did choose to file suit in federal court.

However, federal courts have limited jurisdiction. Not every case can be heard in federal court.

One way to get jurisdiction in federal court is called diversity jurisdiction. In order for it to apply, the plaintiff and the defendants have to be residents of different states or countries. In this case, the court decided that diversity jurisdiction was appropriate because the trust was a traditional trust not capable of suing or being sued on its own.

The citizenship of the defendants was thus the home states of the trustees.

Reference: Wills, Trusts & Estates Prof Blog (Dec. 14, 2016) “Trustee Citizenship Regulates Federal Diversity Jurisdiction.”

When you go to an estate planning attorney you expect that what you tell the attorney will be protected by attorney-client privilege. However, that might not always be the case.

Attorney-client privilege is one of the most important legal doctrines in the U.S. It allows people to be open and honest with their attorneys without fear that the attorney can later be forced to use any information obtained against the client. This doctrine even has an important place in estate planning.

To properly plan an estate a client needs to be able to tell the attorney what his assets are. The client would not be willing to do so if the attorney could later be forced to testify in a different legal dispute about those assets.

However, there are exceptions to attorney-client privilege as the Wills, Trusts & Estates Prof Blog reports in “Treasure-Hunter’s Documents Might Be in Deep Water.”

In the case discussed, a former treasure hunter hired an attorney to create an offshore trust. The client then got financing for an expedition in which he recovered gold from a sunken ship. However, he refused to pay the people who had financed his treasure hunt.

They are asking the judge to force the attorney to reveal the trust documents so that they will have an easier time recovering the money.

The judge in the case, while not making a decision, has acknowledged that the crime-fraud exception to attorney-client privilege might apply in this case. In other words, if the attorney’s services are knowingly used to commit a crime or a fraud, attorney-client privilege does not apply.

Reference: Wills, Trusts & Estates Prof Blog (Nov. 17, 2016) “Treasure-Hunter’s Documents Might Be in Deep Water.”

President Trump’s choice for Treasury Secretary has created some controversy as ethics disclosures have revealed that he has placed assets into a dynasty trust.

President Obama has repeatedly asked Congress to address dynasty trusts. These are trusts designed to keep wealth in one family for many generations. Properly designed and administered, these trusts can help to legally avoid paying estate taxes for generation after generation, while continuing to generate wealth.

Some lawmakers view this as taking advantage of tax loopholes, while others believe that allowing dynastic wealth for generation after generation is bad in itself.

For his part, President Trump would make such trusts a thing of the past. He has said that he would eliminate the estate tax entirely, which makes dynasty trusts unnecessary.

His choice for Treasury Secretary Steven Mnuchin, however, has brought the issue to the forefront, since it has been revealed that Mnuchin created a dynasty trust for his family.

This is reported by Financial Advisor in “Trump’s Treasury Pick May Have Used Tax Loophole Obama Attacked.”

It is actually true that dynasty trusts exist because of something of a loophole.

Congress never intended for them to be created. For centuries, the English common law inherited by the U.S. prohibited trusts that violated the rule against perpetuities. This rule is extremely complicated and limits the duration of trusts.

When Congress last worked out the basic structure of the federal estate tax, it assumed the rule would be in place. At the time, the rule was the law in every state.

Over the years, however, several estates have repealed the rule against perpetuities in an effort to entice trust business into their states.
That made dynasty trusts possible.

Reference: Financial Advisor (Jan. 12, 2017) “Trump’s Treasury Pick May Have Used Tax Loophole Obama Attacked.”

Relatively recent changes to federal estate tax law have made bypass trusts less popular than they used to be. However, they are still good in many circumstances.

It used to be a complicated process for a married couple to get the most out of the estate tax exemption. When one spouse passed away his or her estate tax exemption could be useless if all of the assets went to the other spouse directly. When the second spouse passed away all of the couple’s assets would be considered part of his or her estate and the individual estate tax exemption would be applied.

To get around this couples had to get a “bypass” trust of which there were many types. Essentially, the surviving spouse was bypassed in the estate plan.
The relatively new federal law of spousal “portability” changed this and made bypass trusts less necessary. Now, if the paperwork is properly filled out, a surviving spouse can elect to carry over the deceased spouse’s estate tax exemption and use it along with his or her own later.

This move essentially doubles the estate tax exemption.

However, there are some situations where a bypass trust is still a good idea as discussed by the Poughkeepsie Journal in “Bypass trust works better for many families.”

Many states have estate taxes of their own and they do not all allow spousal portability. Thus, in some states a bypass trust is still necessary to take full advantage of estate tax exemptions. A bypass trust can also be used to protect against a surviving spouse getting remarried and having all of the couple’s property eventually ending up in the new spouse’s family. They can also be used as a great way to include other family members in the estate plan, especially grandchildren.
If all this sounds a bit confusing, do not worry. That is why there are estate planning attorneys.

Tell the attorney what you want done with your possessions after you pass away and let the attorney worry about the best way to accomplish that while minimizing the estate tax burden on your estate.

Reference: Poughkeepsie Journal (Nov. 4, 2016) “Bypass trust works better for many families.”

One of the first things that people have to decide when they start thinking about estate plans is whether they want to use a will or a trust. Both have their advantages.

If you start asking your friends and family or look on the Internet for estate planning advice, then you are likely to receive a lot of conflicting advice. Should you get a will or a trust? Nearly everyone seems to have an opinion one way or another.

Normally, the opinion of non-attorneys is rooted in which of the two options was best for the person giving the advice. It may or may not be the best advice for you.

To help decide the better option to use as the primary legal instrument in your estate plan it is helpful to know the basic differences between the two.
This was the subject of a Motley Fool article titled “Wills vs. Trusts: Which Are Better?”

A will determines who gets your possessions after you pass away. It has no legal effect until then. It is a roadmap for what you want to happen later. The rules for wills vary from state to state, but they need to go through probate court and the details are made public. For people with small estates they can be cost-effective.

Trusts, on the other hand, have legal effect as soon as they are executed. Property is placed in the trust while you are still alive. While trusts can be more costly to obtain and maintain, they do not ordinarily have to go through probate after you pass away and the details are not made available to the public. Trusts are normally preferred to wills for larger estates.

If you are uncertain whether a will or trust is a better option for you, that is okay. You probably should not decide between the two before talking to an estate planning attorney who can help you make the decision. To learn more about trusts versus wills, sign up for one of our upcoming workshops.

Reference: Motley Fool (Nov. 8, 2016) “Wills vs. Trusts: Which Are Better?”

When you get a living trust from an estate planning attorney you will likely also get a pour over will that is designed to bequeath any assets you have when you pass away into your trust. It is important not to rely on that will as the sole means of funding your trust.

Getting a trust to avoid having your estate go through probate is only effective if you fund the trust. That means your assets need to be transferred into the trust. Any assets held in the trust when you pass away will then be used and distributed according to the terms of the trust instead of having to go through probate.

At the same time, you will also likely get a pour over will.

These are simple wills that dictate that any assets you had at the time of death that are not in the trust should be placed into it via probate.

Do not let that fool you into thinking you do not need to transfer assets to the trust now and just rely on your will as the Green Bay Press-Gazette points out in “Estate Planner: Importance of funding your trust.”

While the exact rules vary from state to state, it does not take a lot of assets to require an estate to go through probate.

If all of your assets remain outside of your trust, then your executor has to probate your pour over will. By relying on the will you would have essentially defeated the purpose of getting the living trust in the first place.

If you do not know how to transfer assets into your trust or need assistance doing so, then talk to your estate planning attorney to get more information about what you need to do.

Reference: Green Bay Press Gazette (Oct. 31, 2016) “Estate Planner: Importance of funding your trust.”