JTWROS: Don't Take This Perilous Estate Planning Shortcut!

You've probably heard the term "Joint Tenants with Rights of Survivorship," or "JTWROS" for short.

The term essentially means a method of joint ownership by more than one person or entity whereby one owner's interest in the property automatically transfers to the other owner(s) upon his or her death.  I'm climbing on my soapbox today because the common misuse of this ownership arrangement as a "bootleg" or "DIY" estate planning tool is a personal pet peeve of mine, and another instance of it recently came across my desk.  A prospective client explained that he or she "added" a child to one of his or her accounts so that the child would be able to help the parent with banking tasks as the parent ages. This is not ALWAYS a bad idea, but it does come with some very serious risks.

So, why do I freak out when a client says:

"I put my daughter's name on my account so she can help me with my banking."

Here's why:

1. The statement above that the parent "put daughter's name on the account," is legally vague.  This could potentially be interpreted to mean that the daughter has been given signature privileges, has been made a Joint Owner with Rights of Survivorship, or has been designated as a authorized signer pursuant to a valid Power of Attorney.  Most commonly, in my experience, the client means that he or she has added the child as a Joint Owner with Rights of Survivorship.  Regardless, it becomes incumbent upon us to investigate to determine what "putting daughter on the account" really means.

2. Adding a child as a joint owner on an account places the assets in that account at unnecessary risk in that a joint owner of an account could simply empty the account on a whim leaving the parent with little, if any, recourse.  Taking into account the obligatory, "my child would never do that to me," statement from the client, and assuming that the child in question is a pillar of moral rectitude as parent asserts, then we move to the next set of risks...

3. Adding a child as a joint owner of an account potentially subjects the account to the claims of child's creditors.  This doesn't just mean that the funds might be attached by a traditional "creditor" like the child's credit card company or mortgage lender should the child default on a loan.  Maybe the child causes a car accident which result in damages exceeding his or her policy limits, or maybe the child gets a divorce and the "in-law" spouse claims the account funds should be split off to him/her. Do you know what happens when an account with the child's name on it as a joint owner is discovered by any of these aforementioned parties?  Often a discovery request is sent to the financial institution and the account is immediately frozen with little or no notice.  How upset would you be if you were unable to access your funds because one of these adversarial parties had the account frozen?

4. Making someone a joint owner of an account can foul up your previously executed estate plans.  Even if you've already made a will or a trust designating a particular distribution of your assets upon your death, making one child a joint owner (JTWROS) of an account or other property will result in that particular account or property automatically passing solely to that child upon your death. That will or trust that you went to the effort and expense to have prepared just became completely ineffectual with regard to that particular JTWROS account or asset. There's no automatic "reallocation" of assets from a will or trust to compensate the other child(ren) for not receiving the assets in that JTWROS account.  It usually just ends in a lopsided division of the assets and an awkward feeling amongst all the parties involved.  

All of these scenarios are easily avoidable through the use of proper estate planning methods instead of trying to take the JTWROS shortcut.  Your banker might be very knowledgeable and helpful, but it's not likely that he or she is also an attorney experienced in estate planning matters.  For this reason, it is imperative to seek the assistance of experienced legal counsel before attempting to add anyone to an account as a joint owner.  I assure you, there are almost always much safer ways to accomplish your goals without placing the assets in peril, and without costing an arm and a leg.  

If you have questions or concerns about this or other legal matters, please see our website at www.halcombsingler.com, or contact us at (317) 575-8222.

President Obama's 2014 Budget Proposal Calls for Estate Tax Hike

Casting aside the many other tax tweaks in the President's new proposed budget, I scoured the document for any proposed changes to the Federal Estate Tax.  It appears that, although he recently signed into law an increase in the Federal Estate Tax exemption amount allowing the first $5 million to pass tax-free, the new budget proposal ratchets that exemption back to $3.5 million.  Specifically, the budget calls for a return to the "2009 estate tax parameters," which leaves me wondering whether they intend to repeal the portability of the exemption between spouses, and whether there will be any attempt to curb the use of FLP's, LLC's and other business entities for minimizing the estate tax.

Here's the actual language used in the budget summary:

              "Return Estate Tax to 2009 Parameters and Close Estate Tax Loopholes.
The Budget returns the estate tax exemption and rates to  2009 levels beginning in 2018.              
Under 2009 law, only the wealthiest 3 in 1,000 people who die would owe any estate tax.
As part of the end-of-year “fiscal cliff” agreement, congressional Republicans insisted on permanently cutting the estate tax below those levels, providing tax cuts averaging $1 million per estate to the very wealthiest Americans. It would also eliminate a number of  loopholes that currently allow wealthy individuals to use sophisticated tax planning to  reduce their estate tax liability. These proposals would raise $79 billion over 10 years."

This may be much ado about nothing, as many are saying the proposal is dead on arrival in Congress, but it does indicate a desire to take back the estate tax concessions that were granted in the fiscal cliff deal.  Stay tuned.

Do You Need to Probate a Will?

Most folks, regardless of the value of their assets, will have made a Will at some point in their lives.  I'm often asked by family members after a loved one has passed whether it is necessary for them to probate the decedent's Will.  As with most legal questions, the answer is "it depends."

First, I should quickly explain what it means to "probate the Will." In Indiana, "probating" a Will, means to formally petition the Probate Court in the county in which the decedent resided at the time of his or her death to admit the Will into probate.  An Indiana estate attorney can prepare the necessary "Verified Petition to Probate Last Will and Testament," as well as the necessary proposed orders and Letters Testamentary that will be executed by the Court and the County Clerk, should the Court find in your favor that the Will should be admitted to probate.  Only then can the probate administration process actually begin.

The general rule in Indiana is that formal probate administration can be avoided if "the value of the gross probate estate, wherever located (less liens and encumbrances), does not exceed fifty thousand dollars ($50,000)." (See Indiana Code Section 29-1-8-1)

In estates where the value is under this $50,000 threshold, most of the necessary transfers of property can be conducted using what is commonly referred to as a "small estate affidavit."  An experienced estate attorney can prepare these affidavits for you, and more importantly, can evaluate the estate situation as a whole to determine whether the use of a "small estate affidavit," even if allowed by statute, is appropriate or advisable under the circumstances.

One should tread carefully, for example, if one of the estate assets happens to be real estate.  Even if the real estate value (less liens and encumbrances) is less than $50,000, it may be necessary to probate the Will and transfer the real estate through traditional probate administration to ensure that clear (and insurable) title to the property passes to the intended beneficiary.  

Also, it may be the case that even though the estate does not exceed $50,000 in value, the Will should be "spread of record."  This allows the Will to be admitted to probate without actually requiring a probate estate to be opened and without the need for formal estate administration.  One reason to file the Will with the Court to "spread the Will of record," would be to avoid the potential problems that can arise if additional assets are discovered later.  If a will is not offered for probate within three (3) years of the date of death, then it is not entitled to be admitted to probate, and the heirs will be stuck with passing the property according to the Indiana Laws of Intestacy.  In other words, it will be as if the decedent had never executed a Will at all.  Thus, if the will is admitted to probate without administration, and assets are discovered several years later, the Will can still be used as the mechanism to pass the property to its intended beneficiaries.

These are just a few of the many criteria that  your estate attorney will consider when helping you to make the decision as to whether to probate the Will of a deceased loved one.  The most important lesson is to always consult with experienced counsel before making any such decisions, as there are many pitfalls to which the "do-it-yourself-er" may succumb.
If you have questions about Wills, Trusts, probate issues, or other legal matters, please feel free to contact me at (317) 575-8222, or visit our website for more info at www.halcombsingler.com. 

How to get Guardianship / Letters of Guardianship

I've stressed in previous blog postings the importance of having an experienced attorney prepare valid Power of Attorney documents so that your designated family member or loved one can step in and legally manage your affairs should you ever become incapable of doing so. What happens if your loved one has (1) failed to take this advice, (2) is no longer capable of executing a Power of Attorney document, (3) needs someone to take over financial and/or medical decision making and (4) there is no valid written Power of Attorney document to be found?

If this has happened to you, then it's likely that the only solution to the problem is to have a probate court in the county of residence of the incapacitated person appoint someone to be a legal guardian.

In a nutshell, here's how the process works:

First, a determination must be made that the prospective ward is no longer able to manage his/her own affairs. It is helpful is this determination is made in conjunction with the prospective ward's treating physician or family doctor.

Second, after consulting with a qualified attorney, the attorney representing the prospective guardian will draft a Petition for Appointment of Guardian to file with the appropriate probate court. The court will then set the matter for a hearing at which the prospective guardian, the attorney, and the prospective ward (if he or she is able to attend) will appear before the court. The attorney will examine the relevant witnesses and enter their testimony into evidence so that the Court can make the necessary findings to enter a guardianship order.

Finally, If the Court finds that the legal standard has been met, then the Court will enter an order appointing guardian, and ordering that the County Clerk issue Letters of Guardianship. These Letters of Guardianship are the documents that banks, investment brokerages, and other institutions will require to prove that the guardian has legal authority to act on behalf of the ward.

If there are time-sensitive issues that must be addressed before it is practical to obtain a court hearing, then the prospective guardian may also petition the Court for emergency temporary guardianship which will give the guardian the authority to act in the interim until a formal permanent guardianship hearing can be held.

While this process may seem cumbersome, it is usually relatively easy to navigate so long as you are represented by experienced legal counsel. If you are struggling with these issues on your life, I urge you to contact an attorney and discuss your options and potential strategies before acting on your own and potentially creating unnecessary problems. If you are in Indiana, and have questions about guardianships, power of attorney, estates and estate planning, or other legal matters, please feel free to contact us at (317) 575-8222, or visit our website for more information at www.halcombsingler.com

So the Bank says you need "Letters Testamentary"...

The following scene is commonplace: a grieving, surviving loved-one goes to the bank to collect funds from a decedent's bank accounts, only to be told by the banker that it's necessary to obtain Letters Testamentary (or Letters of Administration). If you've never gone through the process of administering the estate of a loved-one, you probably have no idea what these documents are, or how one goes about obtaining them.

Here are some quick answers:

Letters Testamentary:

Letters Testamentary are simply a (usually) one-page document issued by the Clerk of the Probate Court of the county in which the decedent resided, stating that the Probate Court has appointed the person bearing the Letters as the Personal Representative (or Executor) of the decedent's estate. These are issued when the decedent has passed leaving a validly executed Last Will and Testament (hence the term "Letters Testamentary.")

Letters of Administration:

Letters of Administration are very similar to Letters Testamentary, and perform the same function, but are issued by the Clerk when the decedent passes away without leaving a validly executed Last Will and Testament, and the Personal Representative is left to administer the estate not pursuant to the terms of a Will, but instead pursuant to Indiana's laws of intestacy.

How does one obtain Letters?

A prospective Personal Representative or Executor should quickly contact an experienced estate attorney to prepare the necessary pleadings to file with the appropriate Probate Court. The attorney will prepare a document called a "Petition" asking the Probate Court to appoint the client as a Personal Representative or Executor. Sometimes, depending on the county, both the client and the attorney will be required to appear before the Judge or Probate Commissioner. If the Petition is approved, the Court will then, enter an Order appointing the client as the Personal Representative of the estate. The Court's Order should also include instructions to the Clerk of the Court to issue the Letters Testamentary or Letters of Administration.

The main point to take away is that when it becomes clear that "Letters" are necessary, it is important to contact an estate attorney so that you can be adequately advised and represented before the Probate Court that must enter the Order to appoint a Personal Representative and issue the "Letters."

If you need representation in obtaining Letters Testamentary or Letters of Administration, or simply have questions regarding these or other estate administration or estate planning issues, please feel free to contact me at (317) 575-8222, or visit our website for more information.

How do I get a Power of Attorney?

In this entry I'll attempt to address some common questions regarding Power of Attorney documents, as there seems to be a vast sea of misinformation about them confronting the general public.

I often get calls with the question: "How do I get Power of Attorney for my mother/father?"

What has usually happened is that mother or father is either in failing health, or has started exhibiting signs of dementia or other loss of cognitive abilities, and son or daughter is attempting to manage the parent's financial affairs.

First, to answer the initial question, a Power of Attorney must be granted by mother or father to the person designated as the "attorney-in-fact," through a validly executed Power of Attorney document drafted by qualified counsel. You can find additional information about the different types of Power of Attorney documents and their benefits at our website, at www.halcombsingler.com. However, this answer raises follow-up questions of its own:

1. Does mother/father currently possess the necessary mental competency to execute the document?

2. Does mother/father truly understand the implications of granting Power of Attorney? When, and to whom, does he or she feel comfortable granting that authority?

Mental capacity:

It's important to note that when an attorney drafts and prepares a Power of Attorney document, it must be after careful consultation with the principal, and that the principal (usually mother or father) fully understands the authority he or she is granting, and that he or she possesses the capacity to execute the document(s). It is sometimes the case that mother or father's mental capacity has already deteriorated to the point that it's no longer possible to have them grant a power of attorney. If that's the case, then the only option may be to petition a probate court for formal guardianship over the parent. Whether a power of attorney or guardianship is the appropriate course of action should be determined through consultation with a qualified attorney.

Principal's desire to grant authority:

A Power of Attorney document generally conveys broad authority to the attorney-in-fact, and should not be granted lightly. Principal should have a thorough consultation with counsel regarding the authority granted, and when the documents should become effective. Powers of Attorney may become effective either (1) immediately upon execution, or (2) only after the Principal's treating physician confirms in writing that the Principal is no longer able to manage his/her affairs. The principal should discuss the pros and cons of each of these alternatives with the attorney before the documents are drafted, so that an informed decision is reached.

Whether your situation calls for a Power of Attorney document, or a formal guardianship proceeding, we can offer legal guidance and support. If you have questions about any of these issues please feel free to contact me at (317) 575-8222. For additional info, please check out our website at: www.halcombsingler.com

Avoid common pitfalls when a loved one passes

When a loved one passes away it is not a natural reaction to immediately begin thinking of the administrative issues that result from the death. A period of reflection and grieving is a normal part of the human response to loss. I'm not writing this blog entry in an attempt to advocate that those normal emotional responses should be downplayed or abbreviated in any way. I do, however, want to convey the importance of consultation with an estate professional within a reasonable amount of time after the loss in order to avoid larger problems that can result from inaction.

Even surviving spouses need to consult with an attorney.

It's often thought that when a spouse dies, the surviving spouse, who may be a joint owner of nearly all of the couple's property, doesn't need to seek counsel or carry out any type of estate administration. This is, unfortunately, a misguided belief. While it's possible that no formal probate administration is necessary, there are still many tasks that must be completed in order to completely resolve all the asset and tax issues that may arise from one's death. Affidavits of survivorship should be completed in a timely fashion to transfer property solely to the survivor. In addition, there may be federal estate tax, state inheritance tax, or other tax issues that arise which will be spotted by a qualified attorney. While transfers to spouses are generally not taxable, there may be other issues that require the filing of a return. These tax issues come with strict filing deadlines, which can carry penalties for delay.

Don't delay in probating a will.

If a decedent dies leaving a last will and testament, it is imperative to offer it for probate with your county's probate court soon after the death. In Indiana, a will cannot be admitted to probate if it is not offered for probate within 3 years of the date of death. I have, unfortunately had clients bring in a decedent's will well over 3 years after the date of death, and ask how they can get the decedent's property legally transferred to the persons designated in the will. The excessive delay in offering the will for probate can result in the will no longer being admissible into probate, and the decedent's property will then pass NOT according to the decedent's wishes as set forth in the will, but will pass according to Indiana's laws of intestacy. Talk with an attorney soon after the death to ensure that all of these administrative tasks, including the probating of the will if necessary, are completed in a timely fashion.

Even if there's not a will, there's still a way.

While it is certainly my advice that a will is a mandatory piece of almost any estate plan, if your loved has passed without leaving a will it's not "the end of the world" for purposes of administering the estate. There are many things that a good estate attorney can do to help with the administration process regardless of whether there is a will. Indiana's laws of intestacy still allow the probate court to appoint a Personal Representative for purposes of administering the estate, and the attorney can guide that Personal Representative through the process.

Don't be an ostrich.

While the administrative burden of estate business may seem overwhelming, especially in tandem with the emotional strain of losing a loved one, ignoring these issues will only exacerbate the problem. Sticking one's head in the sand and hoping that the issues resolve themselves is not an acceptable strategy. When the loss of a loved one strikes you or someone you know, please seek qualified estate counsel immediately to ensure that you don't fall victim to the many pitfalls that can result from inaction or delay.

If you have questions about any of these topics, or regarding estate planning, estate administration, probate, guardianship or other related matters, please feel free to contact me at (317) 575-8222.

Also, check out our website at: www.HalcombSingler.com