Pennyborn Estate Planning Blog Archives January 2010
January 4, 2010
The Cost of Not Having a Will
In the 1960’s, Kathleen “Kitty” Tipton Oakes and well-known jazz musician, Billy Tipton, brought three infant boys into their home and raised them as their sons. The three boys, Jonathan, Scott, and William, were told they were adopted. Billy Tipton died in 1989. After Billy’s death, Jonathan, Scott, and William learned they were not legally adopted. In 2007, Kitty died without a will.
After Kitty’s death, her three sons were advised to hire probate attorneys to file claims against the estate. While Washington law was not in their favor because their adoptions were illegal, with Kitty’s estate valued at approximately $300,000 at the time of her death, each of her sons could potentially have inherited almost $100,000.
However, there was no will and a bitter court battle ensued. One of the sons, William, claimed he was Kitty’s only biological child and that the entire estate should be awarded to him. William submitted a birth certificate that was later declared to be fraudulent and DNA testing proved he was not Kitty’s biological child. A potential fourth child also surfaced during the probate when the birth certificate of a woman was found in Kitty’s possessions. Kitty also had other heirs, including many uncles and cousins, whom could have inherited a portion of her estate. After a bench trial, in December of 2008 a Spokane County Superior Court judge applied the doctrine of equitable adoption and ruled the three sons shall inherit equal shares of Kitty’s estate.
Did Kitty want her three sons to inherit her estate? Testimony given at the trial indicated Kitty and her sons were estranged at the time of her death. In fact, there were allegations of child abuse and Jonathan and Scott moved out of the family home at a young age. Kitty’s wishes regarding her estate remain unknown. Unfortunately, after payment of fees to attorneys and other professionals, probate court costs, and other expenses arising from the various claims against her estate, each son reportedly only received about $35,000. The majority of these fees and expenses could have been avoided if Kitty had made a simple will letting her wishes be known.
Also, those who read about this case know how much of the family’s private turmoil became very public. Especially after the publicity that surrounded Billy Tipton after his death, Kitty’s estate could have been passed much more privately through a living trust.
For more information about the Kitty Tipton Oakes case, visit the website InvestigationDiscovery.com. For information on the impact these types of disputes could have on your estate, visit our will and trust disputes page.
January 11, 2010
Using a Living Trust to Provide for a Child with Drug Problems
In 2008, an estimated 22.2 million people age 12 or older were classified with substance dependence or substance abuse, according to results from the 2008 National Survey on Drug Use and Health. An increasing number of parents find themselves providing financial support and paying for rehabilitative care for their adult children that are addicted to drugs. Recent surveys have also shown parents are paying off debts for their adult children, including credit card bills, loans, and medical expenses.
If you are the parent of an adult child that has a history of drug addiction, you may worry about your child’s financial security. If your adult child has relied on you for financial help from time to time, you may want to leave money in your estate for him or her, but may also be concerned your child will spend any inheritance very quickly. Perhaps your current estate plan leaves all or a portion of your estate to your child with no limitations. Maybe you named your child as beneficiary of your IRA, 401k or other retirement accounts, bank accounts or other investments. Unfortunately, when making their estate plans, too many parents fail to acknowledge their adult child’s inability to manage money. If your child has a drug problem and you leave money or other property outright to such child in your estate, how long will it be before your child has nothing left? Many parents in this situation are not aware there is a better way to leave an inheritance that will provide long-term financial security for their child.
One of the best methods to provide financial security for an adult child with a substance abuse problem is a living trust. As part of an estate plan, the parent can leave money and other property in a living trust to be used for the child’s benefit, such as providing a limited amount of money to the child on a regular basis throughout the child’s lifetime. The parent names a successor trustee to manage the trust assets after the parent’s death. The trust document can also specify that trust funds may be used to pay for certain other expenses of the adult child, such as education, or for health care expenses such as drug rehabilitation.
There are many advantages to using a living trust if you have an adult child that is not good at managing money. The child’s creditors cannot get access to the principal of the trust. Rather than leaving your child one lump sum inheritance that can be wasted on a quick spending spree, by using a living trust, you can spread out the payments to your adult child over a much longer period of time and allow the principal to continue to be invested. You can name an individual or a financial institution you trust to manage the trust assets and make decisions from time to time on whether the trust funds should be used to pay an expense for your child.
This type of living trust was used by Farrah Fawcett to provide for her son, Redmond O’Neal. At the time of her death, Redmond was incarcerated on a drug-related offense. In her living trust, Ms. Fawcett made a bequest upon her death of $4.5 million to be allocated to a trust for Redmond’s benefit. Rather than leaving a lump sum of money to her child, she named a trustee to manage the trust funds set aside for Redmond’s benefit. Under the terms of Ms. Fawcett’s living trust, the net income from the trust for Redmond shall be paid to him “in monthly or other convenient installments” during his lifetime.
Ms. Fawcett’s living trust was also drafted very effectively to allow the trustee to use the principal of the trust to pay for health care for Redmond if necessary. Her living trust states that the trustee may also use as much of the principal held in trust for Redmond as the trustee “deems necessary or advisable for REDMOND’S health”. If Ms. Fawcett’s son needs any type of rehabilitative care in the future, the trustee has discretion to invade the principal of the trust to pay for expenses such as medical or mental health services, substance-abuse program services, detoxification services, accommodations in any health care facility or other health-related expenses for Redmond, as outlined in the living trust. A copy of Ms. Fawcett’s living trust was obtained by Radar Online.
If you are a parent struggling with the difficult challenge of helping a child with a history of drug problems, a living trust with these types of provisions is one way to provide greater financial security for your child as part of your estate plan. It’s important that such a trust be carefully drafted, so consult an estate planning attorney for more information.
For more information on estate planning strategies to deal with a financially dependent adult child, visit our Dependent Adult Child page.
January 19, 2010
Essential Estate Planning Documents for Domestic Partners
If you are part of a domestic partnership, it’s no secret you need to take extra steps to protect your partner and ensure your estate is distributed according to your wishes. Domestic partners also need to execute legal documents to ensure their partners can legally be involved in their medical decisions and health care. Even matters such as owning pets should be addressed in writing by domestic partners.
The following is a list of essential estate planning documents for every person in a domestic partnership:
2) Living Trust;
3) Pet Trust if applicable;
4) Durable Power of Attorney for Finances;
5) Living Will or Health Care Directives;
6) Durable Power of Attorney for Health Care;
There are also other important steps you can take to protect your domestic partner and ensure your estate passes in accordance with your estate plan. These steps include: (a) changing how you hold title to property such as real estate, vehicles, bank accounts, and investments; and (b) completing beneficiary designations and transfer-on-death or pay-on-death forms for all bank accounts, brokerage accounts, retirement accounts, annuities, and life insurance. Properly changing title to assets and naming primary and contingent beneficiaries are quick and easy steps you can take to pass your assets to those you consider the rightful beneficiaries of your estate.
In addition, you should consider entering a Domestic Partnership Agreement with your partner and registering the Domestic Partnership Agreement with your state, if your state allows registration. Domestic partnership laws vary dramatically from state to state, so start by becoming informed about the current status of domestic partnerships in your state.
Estate planning for domestic partners is an evolving area of law. New domestic partner legislation is being introduced in state legislatures across the country. Consult an estate planning attorney licensed in your state to ensure all estate planning documents you execute will be enforceable and that you have taken advantage of any tax planning strategies that may be available.
January 25, 2010
How Much Do You Know About Conservatorships?
The conservatorship of Britney Spears has made headlines repeatedly since it began in 2008. While anything involving Britney is usually deemed newsworthy, these tabloid stories provide the public valuable insight into the financial perils of a rarely discussed estate matter known as conservatorship. While it is unusual to see a conservatorship granted over someone as young as Britney, conservatorships are often granted over the elderly. What may stand out to those who read about the conservatorship of Britney is how costly it has been to her estate, with large fees being paid to two conservators and many attorneys. While perhaps on a smaller scale, the same thing can happen to senior citizens who become the ward of a conservator.
If you read about the conservatorship of Britney, you may have been surprised by the strict limits placed on her credit card or that despite her undisputed financial success, she has no authority over her finances or property while under the conservatorship. Meanwhile, her father, Jamie Spears, is reportedly being paid $16,000 a month from Britney’s estate to serve as conservator, and a co-conservator was reportedly paid $174,569.10 for his duties as conservator for a five-month period.
It may be hard to feel sympathy for Britney, but have you ever imagined what it would be like to watch your property be turned over to a conservator, who is then given authority to write checks out of your accounts and make all your financial decisions for you, including how to spend your money? This is what happens in a conservatorship.
Conservators are appointed to protect an incapacitated person (called the conservatee) who cannot make informed decisions or manage his property without assistance. Who decides if you are unable to make these decisions? The decision of whether a person needs a conservator, and the extent of the conservator’s authority, is decided by a judge and applicable state law. Depending on the type of conservatorship granted, a conservator can have control over things such as: (i) your income, investments, real estate, and other property; (ii) your health care; (iii) the amount of money you can spend on food, personal care, and clothing; and (iv) where you live. Because a conservatorship can extend to all your property, a conservator can even be granted authority over your pets and whether you can keep them. When a court grants a conservatorship, the “conservatee”, loses the right to make his own decisions on those matters the court assigns to the conservator.
It is a reality of human nature that another person is unlikely to treat your money as carefully as they would their own. In fact, state court audits of conservatorships have repeatedly found instances of conservators failing to properly account for assets and income of the conservatee, improperly managing estate assets, and self-dealing with the estates they are appointed to represent. The findings of these audits also demonstrate that courts generally do a poor job of monitoring conservators.
Whether the subject of a conservatorship is young or old, conservatorships are supposed to protect a person in his most vulnerable state. But in the case of the elderly in particular, conservatorships too often result in the conservatee being subjected to fraud, theft, neglect or mismanagement by the person being paid to protect them. Many seniors have found themselves the victim of a court-appointed conservator that frittered away their life savings.
Even if a conservator is prudent with your money, a conservatorship can be very costly to your estate. Because the conservator must frequently submit accountings, inventories, and other reports to the court, the expenses of a conservatorship add up quickly. The conservator also has the right to consult a lawyer throughout the conservatorship and these legal fees are your responsibility. For example, the conservator may be concerned about being sued for breach of fiduciary duty or mishandling assets. This may lead the conservator to consult an attorney or financial advisor, thus increasing the cost to your estate. All court costs, attorneys’ fees, conservator fees, medical report fees, and fees for other advisors are paid from your assets.
While a conservatorship can sometimes be very beneficial and necessary for someone that is unable to manage his own affairs, there are plenty of reasons to plan ahead to avoid a conservatorship. There are several estate planning steps that can be used as alternatives to a conservatorship and allow you to name the person you trust to manage your affairs if you become incapacitated. These include:
Granting a durable power of attorney for finances to someone you trust;
Putting your assets into a trust and appointing a successor trustee to manage the trust in the event of your incapacity; and
Making a living will and durable power of attorney for health care to appoint an agent to make health care decisions for you in the event of incapacity.
If you have questions about conservatorships, consult an estate planning attorney. If you cannot afford an attorney, contact the legal aid office in your area for assistance.
To read current posts from our blog, go to our Estate Planning Blog page.