Lexington Family Law

A story out today revealed that Heath Ledger’s minor daughter, Matilda Rose, was not included in his last will and testament. The will was drawn up before Heath had any children and left everything to his parents and three sisters (Herald-Leader story from March 11, 2008 on page A2). Heath’s immediate family issued assurances that Matilda Rose would be provided for. If I were advising Matilda Rose or her mother, I would express my appreciation, but I would point out that many states have statutes (and common law) covering “pretermitted heirs”. A pretermitted heir is a child who was accidentally or inadvertently omitted from a will. That describes Matilda Rose. I have not looked up the statute or common law in New York where Heath’s will would be probated, but it most likely has such a provision protecting pretermitted heirs. Therefore, I would insist that she receive the inheritance due to her. In many states with there being only one child, that may be the entire rest and residue of the estate (roughtly everything except for specific gifts to particular persons). Hopefully, Matilda Rose’s mom, Michelle Williams, will obtain legal counsel that will point this out to her.

If I had been advising Heath Ledger, I would have talked to him about having a will that covered many contingencies. One of those contingencies would have been the likelihood of having children and how he wished they were to be treated. Generally, even if a person has no children, it is wise to draft the will as though he or she would have them before they die. This would even be true for elderly persons because of the possibility of adopting a child. One can disinherit their children or a specific child, but to do so requires a provision drafted to address this particular wish rather than silence. It is important to carefully approach such an action and never disinherit a child lighlty because of both the moral consequences of such an action and because of the possibility of a court reforming the will under a few different doctrines.

Here is an overview of an estate planning tool known as a Living Trust. It is often referred to as an inter vivos trust. Such estate planning tools target one or more of three issues in estate planning with the overall goal being wealth maximization. Those target areas include: minimizing estate and gift taxes, providing for long-term nursing care, and eliminating probate costs.

Those with individual estates in excess of one (1) million dollars need to plan to minimize or eliminate the federal estate and gift tax. I say one (1) million because that will be the exemption amount in 2011 unless Congress extends the repeal of the tax. Currently, the exemption is at two (2) million and increases to three and a half (3.5) million in 2009. In 2010 there will be no federal estate and gift tax. A married couple can plan carefully to combine their exemptions, but for those with smaller estates, planning around this issue is unnecessary.

Providing for long-term care takes two forms: obtaining long-term care insurance or decreasing assets and income so as to qualify for medicaid funding. Obtaining long-term care insurance can be too expensive to achieve if one waits until they are of an advanced age. Decreasing assets involves navigating complex and changing medicaid regulations which go beyond the scope of this overview.

While expected probate costs are often exaggerated, avoiding them and especially avoiding the aggravation for family members who are still grieving can be achieved at low cost. The most used tool for avoiding probate is the Living Trust. Where there are no estate and gift tax concerns, using a revocable trust is preferred. A trust is a legal vehicle where an individual transfers the ownership of their assets. The trust then owns the persons stocks, bonds, bank accounts and other property. Since it is revocable, the person setting up the trust (the grantor) can take those assets back out of the trust and cause the trust to no longer exist. The grantor can still receive the income and have use of the assets and property. Typically, when a person is using this as an estate planning tool they are becoming older or have health concerns and they will designate a trusted loved one to be the trustee who will manage the assets.

The difference between a trust and a will is that a living trust becomes effective immediately, while the grantor is still alive. A will, however, has no effect until the individual passes away. This is how a living trust bypasses probate. The assets are already transferred. When the grantor dies, the trustee has the power distribute the income or assets of the trust in the way the trust document prescribes. In that way, it serves the same function as a will. There is no need for court involvement or probate fees.

Changes made to Medicaid from the Deficit Reduction Act of 2005 closed off significant estate planning routes. This excerpt from Kentucky’s Medicaid manual detail the changes:
MS 99753 TRANSFER OF RESOURCES

Most significantly, the look back period for ALL transfers from the date of application for Medicaid coverage for nursing home care is five years (60 months) for any tranfer made after 2/8/20067. Previously, you could transfer assets to a friend or relative and have only a three year (36 month) look back. So, if you owned a $200,000.00 house outright and wanted it to remain in your family, you could deed it to that person and hold your breath for three years, hoping you did not need long term care during that time. Two years have now been added on to that period. Since long term care averages around $4,500 per month (about $150 per day) in Kentucky, any substantial time in long term care could exhaust the estate you have worked your entire life to obtain.

Another significant change is that the transfered resource factor applied to transfers within that look back period will be a daily rate instead of monthly. This factor is based on the average private pay cost of nursing home care in Kentucky and is $4,584 per month for Kentucky in 2007. In previous years, any transfer within the look back period would be divided by the factor and rounded down. So, if you transferred $8,700 to a relative, then that would have been about 1.9 times the factor. Your penalty would be denial of Medicaid coverage for 1 month of care because the 1.9 would be rounded down. Now, with the factor being applied as a daily rate of $150.71, the same transfer would be 57 days. This overlaps with the final significant change. All transfers during the look back period are aggregated as a total amount prior to applying the factor. Careful giving to maximize that rounding down no longer works to shorten your penalty period.

What this all amounts to is that estate planning must be done relatively early in life and revisited with significant changes to Medicaid and to the tax code. However, even into ones 70s, 80s and beyond, estate planning can make differences. Essential to the process is holding in reserve enough assets to pay for private care during any penalty period expected from transfers of assets.

It may be tempting, in dealing with a relatively small estate of a loved one who has passed away where there is no will, to avoid probate. This is especially tempting when the only asset of value is a piece of real estate that is passing to the children of the deceased. It is tempting because real estate, unlike some types of property, passes directly to intestate heirs. All that is necessary is for an affidavit of descent to be filed in the county clerk’s office. However, there is one caution. If there are any creditors of the deceased remaining that could file a claim against the estate, avoiding probate prevents the time limitation on such claims from running. So, if the heirs then try to sell the property a few years down the road, that creditor could make a claim on the property and complicate or ruin the sale. Probate provides a six month time limit for creditors to file their claim leaving, no doubt as to clear title on the property.

If you are a parent, you have thought about what would happen to you child should he or she be left parentless. For many single parents, they are skeptical of the other parent’s ability to care for your child in the way you hope. What you want is a standby guardian. The good news is that in Kentucky, you can nominate the person you wish to be your child’s guardian, in the event of your death, through a clause in your will. While this is not binding in the sense that the court has to honor your nomination, they nearly always do honor it absent some clear reason the person you named would not be in the child’s best interest.

The bad news, if the other’s parenting ability is questionable, is that this nomination has no effect if the other parent remains alive and wishes to assume care, custody and control of his or her child. Unless that parent seriously endangers their wellbeing, they will have custody. The best hope here is to try and talk with the other parent and come to an agreement about the guardian for your child should you pass away first. At the very least, try to reach an agreement, and have it reflected in each parent’s will, who the guardian will be should you both predecease the child.

I was recently asked if a wife, married only two months prior to her husband dying, and where his will left everything to others, could still claim a share of the inheritance? Happily for the wife, I could answer “yes”.

Occasionally, a person with a last will and testament, inadvertently forgets to revise that will to include a new spouse. Perhaps the elation of the new love overrides that depressing realization of mortality or perhaps obtaining new spouses has become so common an occurrence that they just do not bother. Sometimes, the testator becomes so fed up with that special someone that they write them out entirely.

Fortunately (or not, depending on whose perspective you take) the surviving spouse can renounce the will and still get a piece of the action. KRS 392.080 provides for the surviving spouse to still take a share but limits interest in real estate to one-third rather than the one-half under intestacy law.

If you are determined to lock out your beloved, a will simply will not suffice.

I found this post by Pennsylvania attorney, Neil Hendershot, to be give an intriguing insight into how people approach (or fail to approach) estate planning. He notes that 55% of all adults in the U.S. do NOT have a will. He lists the top reasons for this as:

“Ignorance is bliss: One in ten (10 percent) American adults who do not have any elements of an estate plan say it’s because they don’t want to think about dying or becoming incapacitated.

“Where to begin?: Similarly, nearly one in ten (9 percent) adults say they don’t have an estate plan in place because they don’t know who to talk to about creating such documents. This percentage nearly doubled from 2004 (5 percent).

“But I don’t need a will: Nearly one in four (24 percent) of adults say their biggest reason for not having an estate plan is a lack of sufficient assets. This was also the top reason cited in the 2004 survey (21 percent).”

Source: 2007 Estate Planning Survey.

Whether you have millions or merely thousands, not writing a will lets the default provisions of your state’s law kick in and decide what to do with your wealth. This is called dying intestate (no testamentary or will). In Kentucky, intestacy involves some fairly convoluted statutes found in Chapter 391 of the Kentucky Revised Statutes.

Many people may assume that if they die and have a living spouse, that spouse gets the estate. Actually, spouses are fourth in line (with a $15,000 exception on personal property) after siblings of the deceased. To find the spouses inheritance, we have to skip over to Chapter 392 for dower and curtesy rights. Both are arcane terms that now just mean the spouses share. As an oversimplification of the statute, the spouse gets 1/2 of the estate.

So, trusting your estate to the wisdom of the State, if you die with a spouse but no children, but with one of your parents still alive, your spouse would be stuck sharing all your worldly goods and the old home place with that mother-in-law or father-in-law he or she never got along with. Not exactly the best gift to leave behind. You might end up in Paradise but your spouse could be living in hell. Wealth planning is worth the investment.

Many people want to DIY (do it yourself) their estate plans. That is fine as long as you are willing to do the research necessary to have your plan do exactly what you want to do. I suggest that if you are a DIYer, invest at least a little money to come in an have an attorney review your draft documents and provide written feedback to finalize your will, trust, or power of attorney. It is well worth the investment to be sure you are saying what you want in the documents and that the formalities are satisfied, and yet it is still less expensive than having the attorney do all the work.

A fairly common practice in writing wills has been promising a care provider that, “If you continue to take care of me in my old age, I will leave you such and such property.” The will itself may or may not get changed to reflect the gift (devise, bequest) of that property. The will may or may not reference the promise in connection with that gift. Even if the will expressly gives the promised property, wills have no legal effect until the testator dies and the will is probated. So, a later change to the will can erradicate that promised gift.

However, even if the will is later changed or never makes the promised gift, that is not the end of things. An express or implied contract was created. Depending upon the details of the circumstance, a cause of action on that contract arises and the person who provided the care for the testator as promised can at least recover quantum meruit damages. This is a legal term that basically means the value of your services. This may end up being less than the promised property, but it is better than a bag of bitterness.

The statute of limitation for a contract not in writing is 5 years under KRS 413.120 and KRS 413.090 gives a 15 year statute of limitation on written contracts. If you believe the above situation applies to you, seek the counsel of an attorney to see if you do, in fact, have a cause of action and to see how the statute’s of limitation apply to your particular situation.

If you have an estate approaching $1 million dollars that you will be leaving to loved ones, it would be wise to investigate estate planning approaches to minimize any Federal Estate and Gift taxes that may take a bite out of that estate.

In 2007, 2008, and 2009, the estate and gift tax will exempt the first $2 million of an individual’s estate using (combining lifetime gift exemptions and bequests at death). There are various other additional exemptions such as an annual exemption of gifts to children that is currently at $12,000. In 2010, there will be no federal estate and gift tax.

No, don’t worry too much about a spate of deaths among the Bill Gates’ and Donald Trumps of the world in 2010. I am confident they have found ways to bypass much of the sting of “death” taxes. Besides, I think Donald Trump enjoys seeing himself on TV too much to die that soon. Of course, if Rosie O’Donnell beats him in the ratings, things may change.

In 2011, however, unless Congress acts first, the estate and gift tax will be resurrected with a lower $1 million exemption. Because of these revenue acrobatics, an estate plan that is good for this year may leave your estate unnecessarily exposed in just a few years. Now is a good time to get out your will and other estate planning materials and see if they will continue to be adequate into 2011.

Anna Nicole Smith (Vicki Lynn Marshall) had the resources to hire the best lawyer around to draft her will. I would guess that she paid the lawyer drafting her 2001 will very handsomely. However, the language of the will would get a failing grade. Check out this critique by a law professor. Price does not guarantee quality. Interview attorneys before giving them your business and make sure they will give personal attention to the details whether you have many assets or few to leave behind. A few words can make a world of difference.