Paul O. Dillon, Attorney at Law

Is It Common for Siblings to Fight Over Inheritance?

Unfortunately, siblings refusing to speak with other siblings about their late parent’s estate matters is a fairly common occurrence. A recent article from Morningstar, “My brother won’t tell me anything about our mother’s $1.6 million estate. Can I remove him as trustee?” provides a good example of how things can go wrong.

According to a letter to the publication from one brother, a mother was the second to die and the brother who knows about her will has not yet filed the will with the court. To make matters more complicated, he explains that the father had created a trust before he died in 2000, which was never funded. Medicaid paid for $150,000 in nursing home costs, and at the time of her death, the mother owned a 1.6-million-dollar property.

While the best resolution is almost always simply to have a direct conversation, this doesn’t seem likely to occur in this situation. The controlling brother may be doing precisely what is necessary. However, since the brother won’t tell the other brother what is happening, the only way forward may be to go to court.

If a trust was created, it’s entirely possible it was a Medicaid Asset Protection Trust (MAPT). This trust is created to remove assets from being countable for Medicaid purposes. If the trust wasn’t funded, the $1.6 million property may never have been retitled and placed in the trust. This is the second most common estate planning mistake seen by estate planning attorneys; the first is not having an estate plan.

If the trust was never funded, the family home is considered an asset by Medicaid and could be “clawed back” by Medicaid to cover the medical expenses. If the $150,000 were the father’s nursing home costs, the father’s estate would have owned this amount, which should have taken place after the father’s estate was settled. There is a statute of limitations, however, and depending on the rules of the father’s state, this may be a moot point.

Since the house was the primary residence of a well-spouse, it may not have been countable for Medicaid. If the father had no other assets, there may be no debt to Medicaid. It's entirely possible all this was dealt with. However, the brother wasn’t told the details.

This leaves the question of what the brother is doing with the mother’s estate. If no will has been filed, it might be because the estate plan was designed to avoid probate. Assets held in trusts and passed through beneficiary designations don’t go through probate. If the house was placed in a trust, it would not go through probate either.

However, since the sibling is an heir, he has the right to an accounting report or a report from the brother as the trustee and executor. The report should contain information on how assets were owned, and distributions were made.

This is a lesson for parents who know their children don’t get along. If they don’t get along while you are living, don’t expect this to change after your death. If one is given power of attorney, serves as a trustee and executor, and the others are left out of any decision-making, your estate may shrink because of litigation, and the family may fracture. Talk with your estate planning attorney about naming a neutral person for all or some of these roles to avoid adding the stress of an estate battle to your family’s grief.

Reference: Morningstar (Aug. 3, 2024) “My brother won’t tell me anything about our mother’s $1.6 million estate. Can I remove him as trustee?”

Another Celebrity Estate Dispute: Tony Bennett

The velvety-smooth voice and charm of Tony Bennett will long be remembered by several generations, since it spanned nearly eight decades. Hopefully, the estate battle now underway, reported in a recent Kiplinger article, “What We Can learn from Tony Bennett’s Estate Dispute” won’t take as long.

In 1994, Tony Bennett created a trust, naming himself and his son Danny as co-trustees. The trust was partially funded. His wife, Susan, and children, Antonia, Danny Dae, and Johanna, were all listed as beneficiaries. Upon his death in 2023, Danny became the sole trustee.

In June 2024, Johanna and Antonia filed a lawsuit saying Danny didn’t account for all trust assets and sales or other transactions about the trust assets. They also said he received personal benefits from these transactions.

Danny was more than a trustee—he was also his father’s manager. Benedetto Arts, LLC was formed to hold certain properties and estates. Danny was named manager of the LLC, and all of the children and the family trust held membership interests.

According to Tony Bennett’s will, any tangible property not transferred to the trust was to be distributed to his children equally. This included property, pictures and assets bearing his likeness.

The lawsuit alleges that before Tony Bennett died but after he was diagnosed with Alzheimer’s, Danny sold items of his father’s memorabilia as well as his name and likeness. He received large commissions through RPM Productions, a separate company Danny owned. The lawsuit further alleges that Danny received loans of $1.2 million from his father.

Transparency among siblings is critical. Especially when large amounts of money are at stake, siblings need to be able to communicate with each other openly and honestly. Once litigation begins, it has a way of growing, leading to expenses and family discord.

Professional or corporate trustees should be considered with large estates. A professional, non-family member with no personal stake in the estate would have been a better option to manage the complex structures involved in the Bennett estate. Having one child serve as personal manager, trustee, LLC manager and also being a beneficiary made it next to impossible to avoid any conflict of interest.

As Tony Bennett’s competency decreased, the potential for conflicts of interest increased. Even if Tony Bennett was competent for some transactions, he may have been susceptible to coercion or undue influence.

Even if you’re not a world-class singer and entertainer, working with an experienced estate planning attorney and other impartial professional advisors is necessary to prevent litigation and family fractures.

Reference: Kiplinger (Aug. 2, 2024) “What We Can learn from Tony Bennett’s Estate Dispute”

Celebrity Estate Planning Mistakes to Avoid

It’s hard to miss the major mistakes celebrities make—their lives and deaths are public and not always pretty. Expensive mistakes on a grand scale aren’t what most of us deal with, but there are good lessons to learn from their mistakes, says a recent article from Market Watch, “Sharon Stone’s missing $18 million, Prince’s estate back in court: what to learn from celebrity estate mistakes.”

Eight years after Prince’s death, his estate is back in court, while Sharon Stone was in the news when she revealed $18 million in savings disappeared while she suffered a life-threatening illness more than two decades ago. For conservatorship stories, while we aren’t hearing much about Britney Spears anymore, Jay Leno has filed for conservatorship for his wife Mavis, who has dementia, and musical legend Brian Wilson of the Beach Boys faced conservatorship issues when his caretaker wife died, and another caretaker had to be named.

We expect people with great professional success to be surrounded by a small army of trusted caretakers, estate planning attorneys, accountants, managers, and others. And we’d also expect them to want to keep as much of their lives private as possible. But as headlines show, people who are incredibly talented performers aren’t necessarily skilled in the legal and business aspects of their lives.

In 2001, Sharon Stone suffered a stroke. It took seven years for her to overcome the effects of the stroke, and she counted on others to manage her affairs. When she was finally able to start taking control of her life, she found everything had been put into someone else’s name, and $18 million was missing from her bank account.

While she’s not forthcoming with details, this was likely a trusted person abusing their role as Power of Attorney, where a fiduciary was appointed without enough oversight. For regular people, an estate planning attorney could create a plan where, in addition to a Power of Attorney for certain accounts, like running the household, more considerable assets are placed in a trust, and the trustee is not the same person as the POA. Checks and balances need to be built into an estate plan to protect individuals in case of incapacity.

In cases where the fiduciary has performed poorly, and a family member challenges the results, the results are common. When the court reviews the matter, changes can be made to appoint another person to the POA. Courts can also step in to take over another person’s finances, but it usually doesn’t happen until after significant damage has been done.

A meeting with an estate planning attorney should include discussions about who is qualified to serve as a Power of Attorney and how their actions may be reviewed. In many instances, trust is not the issue, but competence is. Are they capable of managing the affairs of an incapacitated person? If not, another person should be selected, regardless of whose feelings might be hurt by the decision.

Reference: Market Watch (July 13, 2024) “Sharon Stone’s missing $18 million, Prince’s estate back in court: what to learn from celebrity estate mistakes”

Do Single Parents Need an Estate Plan?

Raising a child or children by yourself is challenging on many levels. Single parents have very little spare time or resources, making planning for the future even more important than if another parent was involved. This includes estate planning, as discussed in a recent article from The News-Enterprise, “Single parents must be deliberate in estate planning.”

Two key decisions to be made with minor children are who to name in a will as their guardian, the person who will raise them if the parent dies or is incapacitated, and who will be in charge of their finances. If another biological parent is involved in their care, things can get complicated.

Whether or not the other parent will be named as a guardian who will take custody of the child(ren) depends on whether or not they have any legal custody of the children. If the parents were married at one time but the marriage ended after the child was born, there is likely to be a separation agreement addressing custody.

If both parents share custody, the surviving parent would take custody of the child. This is standard practice, regardless of who has primary custody.

But if the parents never married and no one pursued an order of paternity or entered a custody order recognizing the legal rights of the noncustodial parent, or if a parent has lost any legal rights to the child, the parent needs to name a guardian and an alternate guardian.

Even if there is a surviving parent, you’ll want to name at least one guardian and one contingent guardian. There are instances when the noncustodial parent prefers not to become the custodial parent, even if the child’s other parent has died. There are also cases where the noncustodial parent is not fit to raise a child, so having other potential guardians named is a better idea.

Separate from the guardianship issue is the decision of who should manage the assets left for the child. You have a right to name the person of your choice to oversee these funds, regardless of whether or not the other parent is living. In most cases, there are two general options:

Conservator: This is a court-appointed person who is responsible for any assets left outside of a trust or any income received by the child. The conservator can be the same person as the guardian, but it does not have to be the same.

Trustee: A best practice in estate planning for a child is to leave the property in trust to be distributed for specific purposes, like education, health care, and general support. Assets can be left in trust through a last will and testament or through a trust set up while the parent is living to benefit the child.

An estate planning attorney should be consulted to determine how best to structure planning when there is only one parent. This protects the child and gives the parent peace of mind.

Reference: The News-Enterprise (July 5, 2024) “Single parents must be deliberate in estate planning”

Top Myths of Estate Planning

There are far more than five myths about estate planning. However, the article “5 common myths about estate planning, debunked” from Utah Business examines the most common ones. Estate planning is crucial to safeguarding your financial future and asset disposition and ensuring that the right people are involved in caring for you in case of incapacity. Estate planning is for your life and your legacy.

Biggest myth of all: You only need a Will for estate planning. Your estate plan begins with a Last Will and Testament. However, a comprehensive estate plan addresses more than the distribution of assets. Trusts are used to ensure that assets are transferred to the right beneficiaries in a timelier manner than they would be if passed through your will. Your estate plan should include a Power of Attorney, Health Care Directive and a Living Will.

Myth 2: Only seniors need estate plans. Anyone of legal age who has a family and owns property needs a will. Young families need an estate plan to protect their children and ensure that the parent’s assets and any life insurance proceeds are managed and distributed to their children according to the parent’s wishes. Parent’s wills need to include naming a guardian to raise children in the unlikely event of both parents dying while the children are still minors. Without naming a guardian, a court decision will determine who raises your children.

Myth 3: Only rich people need wills. An argument could be made that estate planning is more critical for people who aren’t rich, protecting and growing more modest estates. A well-crafted estate plan will protect the estate from creditors, deter litigation between family members and minimize tax liabilities so wealth can be passed to the next generation.

Myth 4: Estate planning is only about what happens after death. Estate planning addresses what should happen in case of incapacity because of illness or an accident. If you can’t communicate your wishes, these documents allow others to act on your behalf. A Power of Attorney appoints someone to handle your financial and legal matters. Standard POAs aren’t the best option, since they may allow someone too much or insufficient control. You’ll also want a Health Care Power of Attorney so someone you name can take over your medical care and talk with your doctors and health insurance company. Another reason for placing assets into a trust is that the successor trustee may manage assets in the trust if you are incapacitated.

Myth 5: Once your estate plan is created, you’re all set. Your car and home require ongoing maintenance—and so does your estate plan. Life and laws change, and your estate plan won’t work if it’s outdated. Triggering events like marriage, divorce, birth, relocating, or big changes to your financial situation require a review of your estate plan.

Consult an experienced estate planning attorney to create or review your estate plan. You’ll breathe easier knowing you’ve taken steps to protect yourself and your loved ones.

Should I have an Irrevocable Trust?

You may have heard the terms “revocable trusts” and “irrevocable trusts.” Both are created to hold assets for different purposes. The differences are explained in a recent article from Kiplinger, “With Irrevocable Trusts, It’s All About Who Has Control.”

Both types of trusts are separate legal entities created through contracts. They name a trustee who is in charge of the trust and its assets. The trustee is a fiduciary, having a legal obligation to manage the assets in the trust for the beneficiaries. Depending on how the trust is structured, these are the people who will receive assets or income generated by the assets in the trust.

With the revocable trust, the grantor—the person who creates the trust—can be a trustee and maintain total control of the trust. They can change the terms of the trust, beneficiaries, and successor trustees at any time. In exchange for this level of control, however, come some downsides. The revocable trust doesn’t have the same level of protection as an irrevocable trust while the grantor is living.

The irrevocable trust trades control for benefits. The grantor of an irrevocable trust can’t change the trust once it’s been created, nor can they move assets in and out of the trust at will. Beneficiaries may not be changed either. However, when the irrevocable trust is properly created with an experienced estate planning attorney, they achieve many estate and tax goals.

Your estate planning attorney will be able to explain which irrevocable trust suits your situation, as there are many different kinds.

An irrevocable trust where the grantor is also the beneficiary is referred to as a Domestic Asset Protection Trust or DAPT. The grantor is allowed to be the beneficiary of the trust, but it has to be created in one of the 20 jurisdictions where the grantor is allowed to be the beneficiary. You can have a trust created in a jurisdiction other than your own.

The first step is to determine how to fund an irrevocable trust, where assets are transferred into the trust. There are fine points here. For instance, you can’t fund an irrevocable trust if there are issues with the IRS or the threat of litigation from a creditor. If the dispute goes to court, a judge can set aside the transfers into the trust as they were made with the intent to circumvent a creditor’s claim under fraudulent transfer laws.

Creating irrevocable trusts, like much of estate planning, needs to be completed before issues arise. Decisions about naming trustees, successor trustees, beneficiaries, and funding sources should be discussed with an experienced estate planning attorney first.

Reference: Kiplinger (April 28, 2024) “With Irrevocable Trusts, It’s All About Who Has Control”

Good News about Social Security

The simplest explanation is that Social Security is paying out more than is being collected and going into the trust funds to make up the difference. If this were to continue, the trust funds would be exhausted at some point, and the only money for benefits would be revenue being collected at the present time. However, there is no need to worry, says this article “Social Security Retirees Just Got Some Good news About Future Benefit Cuts” from yahoo! finance.

While future cuts are a possibility, there’s also good news, according to the 2024 Social Security Trustees Report. The Old-Age and Survivors Insurance (OASI) Fund will be able to continue to pay full benefits until 2033. If nothing changes, there must be a 21% benefit cut. The Disability Insurance (DI) Trust Fund is anticipated to be able to pay benefits until at least 2098.

What would happen if the OASI Fund were emptied? A few things could happen. A law change could combine the OASI and DI funds. Because this is a real possibility, the trustees share data on when the combined funds might be emptied.

In 2023, the Trustees Report said the combined funds would pay full benefits until 2034, but this year’s report shows there’s enough money to pay full benefits until 2035. It also notes that if any cuts were to go into effect, the money coming into Social Security from the combined funds would be able to pay 83% of promised benefits, up from 80% in 2023.

These may sound like small improvements but indicate a trend in the right direction. Much of this is due to stronger-than-expected economic growth, which has led to improved labor productivity and lower projections for long-term disability insurance benefits. Taken together, Social Security’s long-term stability is looking good.

The additional year means any benefit cuts will be smaller than previously anticipated. If needed, Congress could also act to fund the trust funds. There’s still reason to worry about what might happen in 2035, since many seniors count on Social Security to fund most of their retirement.

Lawmakers will unlikely allow this program to be defunded, since seniors continue to be a major voting bloc. Similar situations occurred in the early 1980s, and Congress passed amendments to protect the program.

The new issue? Those amendments from forty years ago included a change to Full Retirement Age, when a person may collect an unreduced benefit. They also imposed a tax on some benefits for high-wage earners. As a result, there may be changes in the future.

Overall, though, the news is good. Hopefully, the good economic news will keep coming to protect Social Security, giving lawmakers more time to figure out ways to fund this vital program.

Reference: yahoo! finance (May 16, 2024) “Social Security Retirees Just Got Some Good news About Future Benefit Cuts”

What Information Should Be in a Will?

While it’s clearly more fun to plan for a baby shower than to contemplate your own mortality, making arrangements for the eventualities of life as we age—including incapacity and, yes, our own passing—does bring peace of mind. It’s necessary for everyone 18 and older, says a recent article from BestLife, “The 10 Most Important Things to Include in Your Will, Experts Say.”

The reason is simple: if you are incapacitated and cannot speak for yourself regarding healthcare decisions or your financial life, you need someone to do so for you. This is as much a part of your estate plan as asset distribution.

Planning for incapacity includes having a Power of Attorney (POA) and possibly a lifetime or revocable trust. The POA assigns someone else to manage everyday financial matters. The Healthcare POA is used to designate someone else to make medical decisions on your behalf if you can’t do so. You’ll need to discuss these roles with the person or people being named to ensure that they are comfortable with the responsibilities. Be sure that your Healthcare POA knows your wishes regarding medical directives and will carry them out, even if they feel differently about your wishes.

Your Last Will and Testament is part of a group of documents, including the POAs mentioned above. A will is used to name an executor who administers your estate. The executor has a large task, including gathering information for all assets, filing final taxes and estate taxes, paying off debts, notifying family members and distributing assets. Your executor should be someone you trust and who has the financial acumen to take on all these tasks, as well as managing heirs who don’t always appreciate the executor’s responsibilities.

You’ll need backups for all the people in all roles. Let’s say you chose a respected friend of many years to be your executor. If they become ill or die themselves, who will oversee your estate? You need a second, or even a third, backup executor to be named in your will. The same goes for trusts. A successor trustee is necessary to be sure that your trust and its assets are in good hands.

Minor children or dependents are protected through a will that is used to name a guardian (and a backup guardian) for minor children. If no one is named, the court will decide who will raise your child(ren). Similar issues need to be addressed, such as when you would want your children to receive an inheritance—all at once or when they reach legal age. Could it be specific percentages based on age? Picking the right person and creating a plan will ensure that the children have a good life, even in your absence.

Keeping wills up to date is critical to ensuring that your wishes are followed at every stage of life.  Everyone involved should know where the original copy of the will is located. Some estate planning attorneys will safeguard your will, while others recommend keeping it at home in a fire and water-proof safe. Whichever route you take, tell your executor and family members where it can be found.

Discuss the use of trusts with your estate planning attorney. Using trusts can minimize the amount of your estate needing to go through probate, which can be time-consuming and costly.

Don’t neglect your furry or feathered friends. If your lifestyle includes companion animals who are dear to you, consider who would take care of them if you became incapacitated or died. You can use a pet trust to provide assets for their care and name a caretaker, so they don’t end up in a shelter.

Avoid family battles by including your wishes for personal possessions with special meaning in your will. Family heirlooms, artwork and jewelry are among the items families fight over. Spare your family this stress by naming them in your will or gifting them while you are still living.

Digital assets have become a part of our modern lives. Suppose you leave a list of accounts, usernames, passwords and specific directions for your wishes. In that case, your executor will need to be able to manage your digital assets, including financial accounts, photos, subscriptions, airline miles, email and social media accounts.

If you wish to leave assets to a charity, you can do so in your will or make gifts before you die. Speak with your estate planning attorney about how to bequeath assets to a charity, which should be done in alignment with your overall estate plan.

Reference: BestLife (May 3, 2024) “The 10 Most Important Things to Include in Your Will, Experts Say”

Who Is the Best Choice for Executor?

Creating an estate plan includes assigning a person (or persons) to three different roles: one to oversee financial affairs if you are incapacitated—Power of Attorney—the second to be the successor trustee of a trust and the third to be the executor of your will. According to a recent article from Kiplinger, these people are critical to caring for you while you are living and after you have passed. The title says it all: “How to Choose Your Trustee or Executor of Your Will.”

The person managing your estate and the Power of Attorney may have broad discretionary powers, so you’ll want to be sure they are prepared to follow your wishes, even if they aren’t the same as their own. All three are considered fiduciaries and have a legal duty to put your interests above theirs.

Trustee duties depend upon the directions in the trust. If a trust owns a family business, farm, or a portfolio of investments, you’ll want a trustee who understands your family’s business, farm, or investments. The trustee should know they can hire advisors and others who help them if they are unfamiliar with the assets in the trust and recognize a need for professional help.

Trustees need to read the trust and its provisions and understand its requirements. An estate planning attorney can help the trustee become more comfortable with their role. A letter outlining the grantor’s intent, the reason for the trust and desired goals will also be helpful.

Many people choose their child or the guardian of a minor child to be their successor trustee. Taking on this role should be discussed with the individual before the trust is finalized. If the trustee is asked to oversee assets for a minor child until they turn 30, it’s a long-term commitment. If the trustee is also the guardian of a child, the trust language should clarify if the assets are to be used for the child’s maintenance.

A non-family member is sometimes better if the family can pay the fees. An estate planning attorney or a professional trustee can take on this role. The professional trustee typically charges a percentage based on the value of the trust assets. Fees based on the value of the entire taxable estate may not make sense if the trust is simple and doesn’t require a lot of management.

A consultation with a skilled estate planning attorney should include discussions of who is available to serve as a successor trustee. There are very few situations that estate planning attorneys haven’t seen. They can help determine even the most complicated family dynamics to name a trustee.

Y Reference: Kiplinger (April 25, 2024) “How to Choose Your Trustee or Executor of Your Will”

Can Estate Planning Address ‘Third Generation Curse?’

Have you heard of the “Great Wealth Transfer?” It’s the period when Baby Boomers are projected to pass trillions of dollars to the next generation, according to a recent article from Kiplinger, “How Estate Planning Can Thwart the ‘Third-Generation Curse.’”

The anticipated $84 trillion expected to be bequeathed to Generation X, Millennials, and Gen Z beneficiaries sounds enormous, but the third-generation curse may leave heirs with far less than expected. Often, wealth is earned by one generation, grown by the second generation who witnessed firsthand how hard their parents worked to maintain their wealth, and mismanaged or wasted by the third generation members, who are too far from the original wealth creation to respect it.

Creating or updating an estate plan to protect family wealth from the third-generation curse requires communication between generations centered on the values leading to wealth creation and a financial education on how to preserve and grow wealth.

Many estate plans are structured to address tax planning, but that’s only one aspect of estate planning. Communicating the “why” of the estate plan, including where the money came from, how it has been stewarded over the years, and what needs to happen to protect it, will help beneficiaries have a deeper regard for their inheritance.

Boomer values may differ from their heir’s values, but they may also be similar, as they use different language to describe the same thing. Clarifying these values and communicating with heirs may help to give context to their inheritance and its importance.

Understanding your priorities and values should ideally lead to an estate plan reflecting your wishes. For instance, if the family prizes education, your estate planning attorney may advise you to create a trust to fund advanced education. Such a trust should be accompanied by a letter of intent explaining your wishes and values to both trustees and heirs.

If you’re unsure about mandating the use of funds, you may have your estate planning attorney create a discretionary trust with a similar letter explaining what you’d like them to use the funds for and why it’s important to you. Because circumstances change, the trustee will have the flexibility to distribute the funds as they see fit.

When the estate plan is completed, have a series of conversations with family members about what’s in the plan and why. They don’t need to know every detail, but broad strokes will go a long way in letting them know what you’ve done, your wishes, and your hopes for their future.

Reference: Kiplinger (March 12, 2024) “How Estate Planning Can Thwart the ‘Third-Generation Curse’”