Caution: Writing Your Own Deed to Avoid Probate Can Lead to Unintended Consequences

One common way to avoid probate of real estate after the owner dies is to hold the title to the property in joint names with rights of survivorship with children or other beneficiaries.  This is accomplished by adding the names of the children and certain legal terms to a new deed for the property and then recording it in the applicable public land records.  

Many people believe that they do not need to pay an attorney to help them prepare and record the new deed.  Instead, they think that a deed form can simply be downloaded from the internet or obtained from a book that can then be easily filled out and recorded.  But deeds are in fact legal documents that must comply with state law in order to be valid.  In addition, in most states, property will not pass to the other owners listed in a deed without probate unless certain specific legal terms are used in the deed.

How is a Defective Deed or an Invalid Deed Corrected?  

If the problems with a defective deed or an invalid deed are discovered before the owner dies, then the problems can be addressed by preparing and recording a “corrective deed” in the applicable public land records.  This should only be done with the assistance of an attorney.

Unfortunately, many times the problems with a defective deed or an invalid deed are not discovered until after the owner dies.  If this is the case, then the problems cannot be fixed with a corrective deed since the deceased owner is unable to sign the corrective deed.  Instead, the property will most likely need to be probated in order to fix the problems with the title.  Aside from probate taking time and costing money for legal fees and court expenses, until the problems with the title are sorted out in probate court, heirs will not be able to sell the property.  Or, worse yet, the property may be inherited by someone the owner had intended to disinherit when they prepared and recorded their own deed. 

What Should You Do?

If you want to add your children or other beneficiaries to your deed in order to avoid probate, and you think you can save a few bucks by using a form you find on the internet or in a book, think again.  Deeds are legal documents that have very specific requirements and are governed by different laws in each state (in other words, a deed that is valid in New York may not necessarily be valid in Florida).  

If you want your home or other real estate to pass to your children or other beneficiaries without probate, then seek the advice of an attorney who is familiar with the probate and real estate laws of the state where your property is located. This will insure that the deed will be valid and your property will in fact avoid probate and pass to your intended heirs.

Contact Bobby Sawyer at (704) 944.3275 or bobby@csjlawonline.com with any questions or issues, or if you would like to discuss some strategies for addressing this topic.  

Should You Disinherit a Child?

Most parents choose to leave their estates equally to their children. But sometimes, parents intentionally choose to not leave anything to a child. There may be what the parents consider to be a legitimate reason: one child has been more financially successful than the others; not wanting a special needs child to lose government benefits; or not wanting to leave an inheritance to an irresponsible or drug-dependent child. Sometimes a parent wants to disinherit a child who is estranged from the family, or to use disinheritance as a way to get even and have the last word.

Regardless of the reason, disinheriting a child is hurtful, permanent, and will affect that child’s relationship with his or her siblings. The courts are full of siblings who sue each other over inheritances but even if they don’t sue, it is highly unlikely they will be having family dinners together. Money aside, there is symbolic meaning to receiving something from a parent’s estate. 

Disinheriting a child may be short-sighted and even completely unnecessary. For example:

• A child who appears to be more successful financially may have trouble behind the scenes. The inheritance may be needed now or in the future: finances can change, marriages can collapse, and people can become ill. And unless specific provision is made for them, grandchildren from this child will also be disinherited.
• A spouse, child, sibling, parent or other loved one who is physically, mentally or developmentally disabled—from birth, illness, injury or even substance abuse—may be entitled to government benefits now or in the future. Most of these benefits are available only to those with very minimal assets and income. But you do not have to disinherit this person. A special needs trust can be carefully designed to supplement and not jeopardize benefits provided by local, state, federal or private agencies.
• A child who is irresponsible with money or is under the influence of drugs or alcohol may not be the ideal candidate to receive an inheritance of any size. But this child may need financial help now or in the future, and may even become a responsible adult. Instead of disinheriting the child, establish a trust and give the trustee discretion in providing or withholding financial assistance; you can stipulate any requirements you want the child to meet.

How we choose to include our children in our estate plans says a good deal about our values and faith. Not disinheriting a child who has caused grief and heartache can convey a message of love and forgiveness, while disinheriting a child, even for what seems to be good cause, can convey a lack of love, anger and resentment.

If you have previously disinherited a child and you have since reconciled, update your plan immediately. If your decision to disinherit a child is final, your attorney will know the best way to handle it. Consider telling your child that you are disinheriting him or her so it doesn’t come as a complete surprise. Explaining your reasons will allow for honest discussion, may help deter the child from blaming siblings later and may prevent a costly court battle.

Contact Bobby Sawyer at (704) 944.3275 or bobby@csjlawonline.com with any questions or issues, or if you would like to discuss some strategies for addressing this topic.  

Is a Revocable Living Trust Right for You?

Revocable Living Trusts have become the basic building block of estate plans for people of all ages, personal backgrounds, and financial situations. But for some, a Revocable Living Trust may not be necessary to achieve their estate planning goals or may even be detrimental to achieving those goals.

What Are the Advantages of a Revocable Living Trust Over a Will?

Revocable Living Trusts have become popular because when compared with a Last Will and Testament, a Revocable Living Trust offers the following advantages:

1. A Revocable Living Trust protects your privacy by keeping your final wishes a private family matter, since only your beneficiaries and Trustees are entitled to read the trust agreement after your death.  On the other hand, a Last Will and Testament that is filed with the probate court becomes a public court record which is available for the whole world to read.
2. A Revocable Living Trust provides instructions for your care and the management of your property if you become mentally incapacitated.  Since a Last Will and Testament only goes into effect after you die, it cannot be used for incapacity planning.
3. If you fund all of your assets into a Revocable Living Trust prior to your death, then those assets will avoid probate.  On the other hand, property that passes under the terms of a Last Will and Testament usually has to be probated. A probate could add thousands of dollars of costs at your death.

Why Shouldn’t You Use a Revocable Living Trust?

Although Revocable Living Trusts offer privacy protection, incapacity planning, and probate avoidance, they are not for everyone.

For example, if your main concern is avoiding probate of your assets after you die, then you may be able to accomplish this goal without the use a Revocable Living Trust by using joint ownership, life estates, and payable on death or transfer on death accounts and deeds.  However, those strategies aren't a perfect fit for everyone.

In addition, if you are concerned about protecting your assets in case you need nursing home care, then an Irrevocable Living Trust, instead of a Revocable Living Trust, may be the best option for preserving your estate for the benefit of your family. The rules governing Irrevocable Living Trusts can be very complex, and you should only create an Irrevocable Living Trust after a thorough discussion with a qualified trust attorney.

Do You Still Need a Revocable Living Trust?

While some estate planning attorneys advise their clients against using a Revocable Living Trust under any circumstance, others advise their clients to use one under every circumstance.  Either approach fails to take into consideration the fact that Revocable Living Trusts are definitely not “one size fits all.”  Instead, your family and financial situations must be carefully evaluated on an individual basis and the advantages and disadvantages of using a Revocable Living Trust must be weighed against your personal concerns and estate planning goals.  In addition, these factors must be re-evaluated every few years since your family and financial situations, concerns, and goals will change over time.

If you have a Revocable Living Trust and it has been a few years since it has been reviewed, then we can help you determine if a Revocable Living Trust is still the right choice for you and your family.

Contact Bobby Sawyer at (704) 944.3275 or bobby@csjlawonline.com with any questions or issues, or if you would like to discuss some strategies for addressing this topic.  

Three Liability Planning Tips for Physicians Anyone Can Use

Whether you are a physician or not, you probably know that the practice of medicine is a profession fraught with liability.  It’s not just medical malpractice claims either – employment related issues
, careless business partners and employees, contractual obligations, and personal liabilities add to the risk assumed by a physician in private practice.  Unfortunately, in our litigious society, these liability risks are not unique to physicians.  Business owners, board members, real estate investors, and retirees need to protect themselves from a variety of liabilities too. 

Below are three liability planning tips anyone – physicians and non-physicians alike – can use to protect their hard earned money.

Tip #1 – Insurance is the First Line of Defense Against Liability

Liability insurance is the first line of defense against a claim.  Liability insurance provides a source of funds to pay legal fees as well as settlements or judgments. Types of insurance you should have in place include (as applicable):

• Homeowner’s insurance
• Property and casualty insurance
• Excess liability insurance (also known as “umbrella” insurance)
• Automobile and other vehicle (motorcycle, boat, airplane) insurance
• General business insurance
• Professional liability insurance
• Directors and officers insurance

Tip #2 – State Exemptions Protect a Variety of Personal Assets From Lawsuits

Each state has a set of laws and/or constitutional provisions that partially or completely exempt certain types of assets owned by residents from the claims of creditors.  While these laws vary widely from state to state, in general you may be able to protect the following types of assets from a judgment entered against you under applicable state law:

• Primary residence (referred to as “homestead” protection in some states)
• Qualified retirement plans (401Ks, profit sharing plans, money purchase plans, IRAs)
• Life insurance (cash value)
• Annuities
• Property co-owned with a spouse as “tenants by the entirety” (only available to married couples; and may only apply to real estate, not personal property, in some states)
• Wages
• Prepaid college plans
• Section 529 plans
• Disability insurance payments
• Social Security benefits

Tip #3 – Business Entities Protect Business and Personal Assets From Lawsuits

Business entities include partnerships, limited liability companies, and corporations.  Business owners need to mitigate the risks and liabilities associated with owning a business, and real estate investors need to mitigate the risks and liabilities associated with owning real estate, through the use of one or more entities.  The right structure for your enterprise should take into consideration asset protection, income taxes, estate planning, retirement funding, and business succession goals.

Business entities can also be an effective tool for protecting your personal assets from lawsuits.  In many states, assets held within a limited partnership or a limited liability company are protected from the personal creditors of an owner.  In many cases, the personal creditors of an owner cannot step into the owner’s shoes and take over the business.  Instead, the creditor is limited to a “charging order” which only gives the creditor the rights of an assignee.  In general this limits the creditor to receiving distributions from the entity if and when they are made.

Final Advice for Protecting Your Assets

Liability insurance, exemption planning, and business entities should be used together to create a multi-layered liability protection plan.  Our firm is experienced with helping physicians, business owners, board members, real estate investors, and retirees create and—just as important—maintain a comprehensive liability protection plan.  Please call our office if you have any questions about this type of planning.  

Contact Bobby Sawyer at (704) 944.3275 or bobby@csjlawonline.com with any questions or issues, or if you would like to discuss some strategies for addressing this topic.  

How to Easily Integrate Asset Protection Trusts into Your Estate Plan

Asset protection has become a common goal of estate planning.  Asset protection trusts come in many different forms and can be used to protect property for your use and benefit as well as for the use and benefit of your family.  

What is An Asset Protection Trust?

An asset protection trust is a special type of irrevocable trust in which the trust funds are held and invested by the Trustee and are only distributed on a discretionary basis.  The purpose of an asset protection trust is to keep the trust funds safe and secure for the benefit of the beneficiaries instead of having the funds be an available resource to pay a beneficiary’s debts.  

Asset Protection Trusts Equal Inheritance Protection

Leaving an inheritance outright to your child or grandchild without any strings attached is risky in this day and age of high divorce rates, lawsuits, and bankruptcies.  Aside from this, your beneficiaries may not have developed the financial skills necessary to manage their inheritance over the long run.  There is also the very real risk that an outright inheritance left to your spouse will end up in the hands of a new spouse instead of in the hands of your children or grandchildren.  Finally, a beneficiary may be born with a disability or develop one later in life that will end up rapidly depleting their inheritance to pay for medical and other bills. 

There are a number of different types of asset protection trusts that you can establish to insure your hard earned money is used only for the benefit of your family:

• Trusts for minor beneficiaries – Minor beneficiaries cannot legally accept an inheritance, so a discretionary trust for a minor is a necessity.
• Trusts for adult beneficiaries – Adult beneficiaries who are not good with managing money, are in a lawsuit-prone profession, have an overreaching spouse, or have an addiction problem will benefit from a lifetime discretionary trust.  
• Trusts for surviving spouses – If you are worried that your spouse will not be able to manage their inheritance, will remarry, or will need nursing home care, you can require your spouse’s inheritance to be held in a lifetime discretionary trust. 
• Trusts for disabled beneficiaries – Disabled beneficiaries who receive an inheritance outright run the risk of losing government benefits and will need to spend down the funds to requalify, but an inheritance left to a special needs trust can be used to supplement, not replace, government assistance.

Drafting an Asset Protection Trust Your Way

Asset protection trusts designed for inheritance protection can be as rigid or as flexible as you choose.  For example, a beneficiary can be added as a co-trustee at a certain age or after the beneficiary reaches a specific goal such as graduating from college.  Another option is to name a corporate trustee, such a bank or trust company, but give the beneficiary the right to remove and replace the corporate trustee with another one.  

You can also make trust distributions as limited or as broad as you choose.  For example, you can state that the funds can only be used to pay medical bills or for education, or the Trustee can be given broad discretion to make distributions in the best interests of the beneficiary.  You may also want to require the Trustee to take into consideration the beneficiary’s income and other assets before making distributions.  Alternatively, the Trustee can be given the authority to deplete the trust for one of the beneficiaries to the detriment of the remainder beneficiaries.  If there are multiple beneficiaries, such as a trust for the benefit of your spouse and your children, the Trustee can be directed to give preferential treatment to one or more beneficiaries over the others. 

The Bottom Line on Asset Protection Trusts

Asset protection trusts offer a great deal of planning opportunities for people of even modest means.  We are available to answer your questions about asset protection trusts and help you integrate this type of planning into your estate plan. 

Contact Bobby Sawyer at (704) 944.3275 or bobby@csjlawonline.com with any questions or issues, or if you would like to discuss some strategies for addressing this topic.  

Blended Families and the Need for Estate Planning

Anyone with children or modest assets should seriously consider some minimal estate planning, but the increasing number of blended families underscores the need for proper estate planning.

Blended families can involve children from a prior marriage as well as joint children, sometimes joking referred to as “his, hers and theirs.”  And blended families involve both younger and older couples, and nearly everyone in between.

When the new spouse is significantly younger, this sometimes means that the older spouse’s children are close in age to the younger.  These relationships can cause more than friction between the step-parent and step-children.

Most parents want to ensure that their assets will pass to their children, not their stepchildren.  However, absent good estate planning, there is no guarantee that their children will inherit their assets.  In fact, if the couple creates common “I love you” wills such that their assets pass to the survivor of them, there is a significant likelihood their children will be totally disinherited.

This is because all of their assets will pass to the surviving spouse to do with as he or she pleases. More often than not this means excluding the stepchildren, who then receive nothing. 

The fact that Americans are living longer, and sometimes remarrying much later in life, means that blended family issues come into play there too. A recent USA Today article, titled With more blended families, estate planning gets ugly, highlights some of these issues.  The full article is available online.

As this article states, “[a]dd the gaping generational divide between Depression-era parents, who valued frugality above all else, and their Baby Boomer children, who relish self-reward, and the dynamics can be explosive.”

Thus, baby boomer children expecting an inheritance may have to wait much longer than expected. But perhaps more difficult, who should pay for the cost of the surviving spouse’s care? Should the stepchildren be forced to use their inheritance to pay for an aging step-parent’s care, particularly after only a short-term marriage?  Or should this burden fall on the children?

There is no one right answer here, but these questions epitomize the many questions that arise with blended families. These questions should be answered with the help of counsel and proper planning.

Contact Bobby Sawyer at (704) 944.3275 or bobby@csjlawonline.com with any questions or issues, or if you would like to discuss some strategies for addressing this topic.  

Why Does a Living Trust Cost More than a Will?

It will probably cost more initially to set up a well-drafted living trust than to have a will prepared. A true cost comparison should include not only the expense to establish the will or trust, but also what it will cost should you become incapacitated and after you die.

The Key Takeaways:

• A living trust document has more provisions than a will because it deals with issues while you are living and after you die, while a will only deals with issues that occur after your death.
• A properly prepared and funded living trust will avoid court proceedings at incapacity and death. A will provides no such protection and can, in fact, ensure court intervention at both events, which can be very costly (in time, privacy and dollars) to your family.

Instructions at Death and Incapacity

Both a will and a living trust contain instructions for distributing your assets after you die. But a living trust also contains your instructions for managing your assets and your care should you become incapacitated.

A Living Trust Avoids the Costs of Court Interference at Incapacity and Death

A properly prepared and funded living trust (one that holds all of your assets) will avoid the need for a court guardianship and/or conservatorship if you become incapacitated. The person(s) you select will be able to manage your care and your assets privately, with no court interference.

A will can only go into effect at your death, so it can provide no instructions regarding incapacity. In that case, your family would almost certainly have to ask the court to establish a guardianship and/or conservatorship for your care and your assets—a process that is public, time consuming, expensive and difficult to end.

What You Need to Know.  The same living trust document that can keep you out of a court guardianship at incapacity can also keep your family out of probate court when you die. But a will must go through probate. Depending on where you live, this can be costly and time consuming.

                                                        

Costs to Transfer Assets…Pay Now or Later

There may be some minor costs to transfer assets into your living trust when you set it up, and then from your trust to your beneficiaries after you die. But these will be minimal if you and your successor trustee do much of the work yourselves. With a will, the probate court (with its costs and attorney fees) is the only way to transfer your assets to your heirs after you die. So you can pay now to set up your trust and transfer titles, or you can pay the courts and attorneys to do this for you after you die.

Actions to Consider

• Find out what probate costs are where you live. If your state has a fee schedule based on the value of probate assets, this will be fairly easy. If it has “reasonable” fees, ask an attorney to estimate what these fees would be if you die tomorrow and, if you are married, if your spouse dies the next day.
• Similarly, ask your attorney to estimate what the costs would be if you become incapacitated tomorrow and, if you are married, if your spouse becomes incapacitated the next day. (Practically speaking, this will be impossible to estimate because no one will be able to predict how long the incapacity will last or what complications might arise. The mere uncertainty of these costs should give you pause—and propel you to plan for incapacity.)
• Add these estimates to the cost of having a will prepared—and compare that to the cost of a living trust. When you make a true comparison, you may conclude that having a living trust actually costs less than a will.

Contact Bobby Sawyer at (704) 944.3275 or bobby@csjlawonline.com with any questions or issues, or if you would like to discuss some strategies for addressing this topic.