Law News and Tips
Fred L. Vilbig © 2019
Many years ago the firm I was with was approached by a Chicago law firm about merging. I admit the managing partner of the firm (I’ll call him Joe) at a wedding in my wife’s hometown. He seemed nice enough, but pretty intense.
The next week he called me. We started the process of investigating a possible merger. This is called “due diligence.” There were meetings between the partners, financial records review, and overall philosophies to consider and compare. It takes a lot of time and effort to think through something like that. You don’t want to make a mistake since undoing a merger is even worse than doing one.
We were almost done with all of that due diligence at the beginning of summer. Joe told us that we would need to take a short pause because his partners were making him take a vacation. Evidently, he hadn’t taken a vacation in years, and his partners were concerned about the amount of stress in his life. He and his family were going to Florida. He said he’d be in touch when he got back.
I was expecting a call after about two weeks. Nothing. Three weeks went by, and there was still nothing. Soon a month had passed, and still nothing. Finally, I called to see what was going on. I got his secretary, and in a very somber tone, she said that she would have someone call me back.
A day or so later I got a call from one of Joe’s partners. He told me that while sitting on the beach on vacation, Joe had suffered a massive heart attack and had died. We were stunned, to say the least. Evidently, the stress of taking a vacation had been too much for him and his heart.
Vacation season is one of those times of the year when people need to think about estate planning. If parents with small children are traveling alone, they need to make sure that everything is in order. When kids go on vacations alone or study abroad for the summer, they at least need to have a power of attorney - to handle financial matters when they are out of town or unconscious - and a medical directive - so someone can make medical decisions when they can't.
There is an old saying - "An ounce of precaution is worth a pound of cure." So a little planning can go a long way. Give me a call.
Fred L. Vilbig © 2019
Mary’s husband Joe died over a year ago. They had a simple estate. Everything was owned jointly. They had done some estate planning by signing “I-Love-You” wills, durable powers-of-attorney, and medical directives. An “I-Love-You” will is one that says everything goes to the surviving spouse, but if they’re not alive, then everything gets divided equally among the kids and distributed outright. Nothing fancy, but it covers the bases.
Since everything was held jointly, Mary didn’t bother to file the will with the Probate Court. She didn’t think it was necessary. Although it’s not important to our story, the law does say that if you have a decedent’s will, you are supposed to file it. If you don’t, the court can order you to file it. It’s kind of serious business. Now back to our story. As I said, Mary didn’t file the will.
Time passed. Mary had a hard time going through Joe’s stuff. They had been married for a long time, and Mary missed him terribly. But after almost 2 years, she started going through all of his papers to sort through them and throw out things she didn’t need or want. And as sometimes happens, she found an old life insurance policy. Joe had been in the military before they had married, and he had taken out a paid-up life insurance policy. He named his parents as the beneficiaries, but they had died a long time ago. There wasn’t a backup beneficiary, so the life insurance proceeds would have to be paid to Joe’s probate estate. But that was the problem.
Since Mary didn’t file Joe’s will within a year of his death, the will could not be filed. To be valid in Missouri, a will must be filed within a year of a person’s death. In addition, without a filed a will, you can only open an intestate estate (an estate without a will) within one year of the person’s death. So even though Mary had Joe’s will and the insurance proceeds were payable to Joe’s “estate,” Mary couldn’t get to the insurance proceeds … at least not that way. So what to do?
When a person has been dead for over a year and no will was filed, in order to “probate” a decedent’s assets, you have to petition the court for a determination of heirship. To determine heirship, you have to petition the court to determine who are the heirs entitled to the assets. It’s a little more involved than probate in some ways, and it requires a hearing with a court appearance. Most people dread court appearances for some reason.
So for Mary, we had to proceed with a determination of heirship. Not the worst thing, but then I won’t be the one on the witness stand.
The moral of the story is that if a person dies with a will, you need to file the will with the Probate Court. If you discover an asset more than a year after their death, you can probate it. Believe it or not, under these circumstances, probate is probably the preferred solution. Who’d of thunk it?
HOME FOR THE HOLIDAYS
Fred L. Vilbig © 2018
The holidays are great. The food, getting together with family, other people’s decorations. Yes, I said other people’s decorations. We have a peak on our roof that is about 30 feet up, and it must be at least 100 feet down. Yes, I’ll get the decorations up, but it is a death defying feat if I say so myself.
So where was I? Oh, yes: the holidays. My wife’s favorite holiday is Thanksgiving because it just involves cooking a big meal, and she’s a great cook. That’s lucky for my kids since I am not such a great cook, and it really stresses me out trying to get everything on the table at the same time while it is still hot.
But either at Thanksgiving or Christmas, the family gets together for a big meal. The out-of-town kids fly or drive in, and the in-town kids come over for a full house like it used to be. It seems that our holiday dinners last a long time with people staying around the table reminiscing about things. My wife and I often listen to the stories about what the kids did when they were young. Later we’ll check with each other and find out that neither of us knew anything about those things. Often we’re surprised, but at least no one got seriously hurt.
In addition to all of the good times that we have at the holidays, they are also a good time to check up on family members, particularly our parents. For some, we see our parents on a regular basis. We may not notice the little, subtle changes that may be taking place. For others who see their parents only once or twice a year, the accumulation of these little changes can be shocking.
When you’re home for the holidays, you may want to pay attention. Are they eating right? Are they dressing appropriately for the weather? As we age, we all get a little forgetful, but are they getting forgetful to the point that it is a problem? Have they gotten lost when going to the store? Do you see big changes in habits that seem to be ways of compensating for something? Did they use to be social, and now they are a homebody? Do you see big changes in their personality?
As we age, there are changes, but the question is whether they are creating problems. If not, it might still be a good idea to check to make sure that everything is in order. Do they have a will and/or a trust? Do they have a durable power of attorney? Do they have a medical directive that includes a medical power of attorney and a living will? And it’s important for the children to know who is going to be primarily responsible if something happens.
These may be tough, maybe even awkward questions to ask, but they are important. Surprises are not welcome, particularly when it is too late to fix things. In prior columns, I have written about times we have fortunately discovered problems before it was too late. And in other columns, I have written about those times we were too late to fix the problem directly, but we were able to find ways to work around the problem. But there are times when we discover the problems too late to fix other than by going to court, and the client ends up paying a lot of money in legal fees. So even though the questions may be tough and awkward, not asking them can end up costing a lot of money and aggravation.
So enjoy your holidays, but you might want to ask some questions … before it’s too late.
PLANNING FOR YOUNG CLIENTS
A friend recently called me. He has two daughters in their 20’s. They recently got jobs, and they were in the process of applying for benefits. They were asked about whether they had a will, whether they had a power of attorney, and who should be called to handle medical emergencies. That got them thinking, and they turned to their dad for advice. That was nice.
It may seem strange that a 20-something single person needs to think about a will. At that age, dying is one the last things people think about, but it makes sense. With a will, you get to say where your property goes when you die. You can cover that with pay-on-death and transfer-on-death beneficiary designations, but those can be of limited value, and people miss things. So a basic will makes sense.
In addition to saying where things should go, you get to pick who is going to go through your stuff and administer your estate. Even a 20-year-old (or maybe particularly a 20-year-old) doesn’t want just anyone going through their stuff, even when they’re dead.
So even if you think you’ve done all of your planning, it is possible to have missed something, and will is a good safety net. If you don’t have kids, the will can be very simple, but if you have kids, you want to say who is going to be their guardians, and you probably want to avoid having the court administer their money sort of like in a Dicken’s novel.
In addition to a will, a young person certainly would want to have a durable power of attorney. Maybe it’s just my job, but I constantly run into situations fairly regularly where someone is in an accident or gets ill and can’t handle their business affairs. A durable power of attorney (and the word durable needs to be in it) allows someone to handle these things when you can’t.
And finally, a young person needs to have a medical directive of some sort. These do several things. First, they are a medical power of attorney that authorizes someone you name to make medical decisions whey you can’t. Second, they need to include HIPAA authority so that a doctor can talk to your family about your condition. I recently reviewed a medical directive that did not have HIPAA authority. Fortunately, we caught it before they needed to use it because, with that authority, doctors and hospitals won’t talk to anyone about anything.
The last thing that a medical directive should include is a living will. If someone is in a car accident, close to death, with no hope of improvement no matter what is done, do they want to be kept “alive” on machines or just allowed to die a natural death? It’s not a pleasant thing to think about, but it is so important when the time comes.
So when my friend called and asked what his daughters should do, I told them they needed to do some planning. It can make a lot of difference if the unthinkable happens.
Fred L. Vilbig © 2018
Two recent high profile deaths highlighted one of the reasons people should consider using a trust for their estate plans.
On June 8th, Anthony Bourdain died.He was 61. He has been described as one of the most influential chefs in the world. Mr. Bourdain’s death was tragic because it was a suicide which is so tragic for everyone involved, but particularly for those who were close to the decedent. You always question whether there was something you could have done. It’s very difficult.
But very soon after his death, there were reports in the press about how he had taken care of his daughter with his estate. It’s not that it was a fortune, but it was just a discussion of how he took care of an important person in his life.
The second high-profile death was that of Richard “Old Man” Harris on June 25.He was the patriarch of the family on the TV show “Pawn Stars.”His death wasn’t necessarily a surprise. He was 77 and had battled Parkinson’s disease for some time. Still it’s always sad to lose someone you love.
Much like in the case of Anthony Bourdain, soon after his death, articles began to appear in the press regarding his estate plan. Evidently in 2017, he amended his will to cut his son, Christopher (and his children!), out of his will. We don’t know why, but that didn’t stop the press from speculating. Who needs those kinds of things aired in the press for the vultures to pick at?
And that brings me to my point: privacy. Apparently both Anthony Bourdain and Richard Harris planned their estates using wills. When a person dies, his or her will has to be filed with the local probate court. With a little ingenuity, people (such as reporters) can get a peek at it, and then what should be private becomes public.
With a trust, everything is private unless a lawsuit makes it public. The trust beneficiaries are given a copy of the trust and accountings, but the only people who are in the know are the ones who have a need to know. That way all of the family business is kept in the family where it belongs. That’s a better plan!
To talk about planning your estate using a trust, feel free to contact me to take a closer look.
Want to avoid problems with your estate? Estate planning can avoid this type of situation.
AFTER MOM DIES?
Fred L. Vilbig © 2018
I recently met with a client whose mom had died. I’d written his mom’s trust almost 20 years ago, and now we had to administer it.
The first thing I always want to do is I want the named trustee to find out what assets were actually in the trust.When we do a trust plan, I always give clients a funding letter explaining how to transfer assets into their trust, but things get missed.This may or may not include joint assets which automatically pass to the surviving joint owner, if there is one.We are only interested in those assets that were only in the decedent’s name or where the decedent was the last surviving joint owner.
If there are assets outside the trust, then we need to determine whether we can do a small estate or we have to do a full estate. For instance, many people overlook their cars, as this client had, but as long as the total value of the probate assets is less than $40,000, we can administer those assets by simply filing an affidavit and the original will (if there is one). It’s simple and easy to do.If the probate assets are over $40,000, then we will need to do a full probate, and that discussion is beyond the scope of this article.
I always recommend that we file a decedent’s will. In addition to a trust, I always have my clients execute what we call a “pour over will.” This works kind of like a safety net for probate assets. If we had to open a full probate estate, the pour over will would simply scoop up those assets and pour them over into the trust. Even when we think that there aren’t any non-trust assets, we file a will in case assets are discovered later. A will is void if it isn’t filed with the probate court within a year of a person’s death, so we want to just be careful.
I also suggest that we publish a notice of trust. This is a notice published in a legal paper just saying that the client died, and there is a trust. What that does is it notifies creditors that if they have a claim, they need to file it with the trustee within six months of the publication of the notice. Without a notice, the claims period is one year. If anyone has a claim against the decedent, they would have to file within six months (or one year without the notice) of the notice publication date or be barred from filing the claim.
We then talked about taxes. If there is a surviving spouse, then he or she just files a tax return including all of the couple’s joint income. If there’s not a surviving spouse, then the fiduciary has to file a tax return for the decedent reporting income and paying taxes incurred up to the date of death. That is filed using the decedent’s Social Security number. Whether there is a surviving spouse or not, if there is real estate to be sold or if it is anticipated that the trust or estate will earn more than $600 before things get wrapped up, the fiduciary needs to get an employer identification number (and “EIN”). Any amounts held by the trust after death will need to use that EIN. And when real estate is sold, the title company is going to insist on having an EIN. And if the trust has more than $600 of taxable income, then a Form 1041 will have to be filed.
One of the more complicated things in administering the trust is the need for an accounting. Missouri law requires it if a beneficiary asks for it, but it just makes sense anyway. You need to start with the date of death value on all of the assets; show all of the income, payments, and adjustments made during the course of administration; and then come up with the remaining balance at the end showing who gets what. A thorough accounting can avoid a lot of problems at the end.
As you can see, there is a lot to administering a trust. If you want some direction, give us a call.
HIDING THE WILL
Fred l. Vilbig © 2017
Sarah (not her real name) has had a rather difficult life. She married a guy who turned out not to be Prince Charming. He divorced her and left her in financial difficulties. She’s had a number of jobs, but none of them really paid well.Just enough to pay her bills. She’s had a tough time.
When mom and dad were getting older, Sarah volunteered to move in to help them continue to live at home for as long as they could. Like most of us, mom and dad did not want to go into the nursing home. Sarah’s siblings were okay with this arrangement. It meant that someone would be in the home at least part of the time to help take care of their parents.
None of the other siblings know if Sarah had any conversations with their parents regarding compensation. She did get free room and board while she was living there, but there doesn’t appear to of been anything in writing with regard to any further arrangement. I think the siblings thought that Sarah was doing it to help out, but also to help her get back on her feet.
Dad died a few years ago, and mom died recently. After the funeral, Sarah’s siblings began asking some questions about what was going to happen to the house and their parents other assets. Sarah has suggested that it should all be hers since she took care of her parents. Her siblings are okay with Sarah getting something, but all? The siblings think that Sarah had her name added to their parents’ accounts, but we know that the house is in their parents’ names. Sarah says there’s a will, but she seems to be giving everyone the runaround regarding producing it. It probably says something that she doesn’t want it to say. The siblings now want to talk to an attorney.
If the will of a Missouri resident is not probated within a year of that person’s death, it cannot be admitted to probate. Filing a will for probate is important.
If anyone has the will of a Missouri decedent in their possession, the law says that they “shall” file it with the proper probate court. If the person having custody of the will doesn’t produce it, then the heirs need to petition the court to open an intestate estate – that is, an estate without a will. They then need to file a motion with the court to issue a summons and compel the person to produce the will. That means a visit by the sheriff. And if the person still refuses to produce the will, it could mean a stay in jail.
Needless to say, it’s not a good thing to hide a will.
SUCCESSOR TRUSTEE BOOT CAMP
Fred L. Vilbig © 2017
Maybe it’s a sign that my clients are “maturing.” I’m getting more calls now from their children. Mom and dad or both are acting a little strange; their bills are not getting paid; they have to go into the hospital or nursing home and decisions need to be made; or they have both died. Typically these calls come from the child who has been put in charge of things. Mom and dad may have written a will and/or a trust, and that child has been named as the person in charge (the “fiduciary”). And they don’t know what to do.
The duties of a fiduciary vary widely depending upon the situation. Mom and dad may just be losing mental capacity. We can all be forgetful, but sometimes people get dangerously forgetful. Bills can become seriously delinquent. They may get lost when out driving or walking around. They may not know how to dress for the weather. Prescribed medicines may become too complicated to administer. Although everyone wants to maintain their own independence, there comes a time when that isn’t reasonable. So what do you do?
And when mom and dad get to the end of their lives, someone may need to make difficult medical decisions. People cavalierly say, “just go on and pull the plug,” but actually doing it is another matter entirely. And then there is the funeral to handle.
After mom and dad have died, there is an asset cleanup to do. What do you do about jointly held assets? What about insurance policies, brokerage accounts, or bank accounts with beneficiary designations? What about the IRA? What about jointly held real estate? We’ve had clients ignore these things for years, and fixing them later can be a lot of work.
If a person only has a will and dies owning property in his or her name alone, then probate is necessary. Even when mom and dad have created a trust, assets sometimes get overlooked. Probate can be a scary idea for people, but sometimes it’s a necessary evil. One of the things that the fiduciary needs to do after mom and dad have died is to determine whether all of the assets were properly put into a trust if there was one. If any assets were held in a decedent’s name alone, then those assets are going to have to be probated. That can be overwhelming for some people.
If mom and dad did create a trust, there are a lot of questions that come up regarding trust administration. Under the law, a trustee has to provide beneficiaries with an accounting. The trustee needs to start with a beginning balance which requires an inventory. Most people don’t have an accounting background, so this can be quite a challenge. Just preparing the inventory can be overwhelming.
There is a lot involved when a son or daughter is named as the trustee, personal representative, or attorney-in-fact, under mom or dad’s estate planning documents. As I often tell clients, these are not normal things to deal with, although in our practice they tend to happen on an almost daily basis.
For that reason, I am putting together a seminar to discuss what’s involved in being a fiduciary. We are calling it the “SUCCESSOR TRUSTEE BOOT CAMP” (although we’ll cover other fiduciary roles as well). The seminar will be held on JUNE 15 at 7 PM at the SCHNUCKS MARKET on Kehrs Mill at Clarkson in Ballwin. Click here to register for the free Successor Trustee Boot Camp.
This seminar should be of interest to anyone who is named in estate planning documents as a personal representative or a successor trustee. We look forward to seeing you there.
Many baby boomers are finding themselves stuck between their children’s generation and that of their parents. We were recently caught in that dilemma with my in-laws. It turned out that the amount of their Social Security checks roughly equaled the premiums on their Medicare insurance. That didn’t strike me as such a good deal.
I think a lot of people are getting stuck in this conundrum. It’s a difficult place to be, and the rules governing Medicare and Medicaid are impossibly confusing. The US Supreme Court once referred to the Medicaid rules as “Byzantine construction… almost unintelligible to the uninitiated.”
Those are pretty harsh words from the Supreme Court. In my career I have done a lot of tax law. I can say that the Medicaid rules make tax law look fairly simple. However, without getting into the deep thicket of Medicaid details, I think we can break Medicaid down into two general categories.
When most people think of Medicaid, we think of the program implemented to assist financially distressed individuals to pay for their medical needs. It covers a limited number of treatments. In order to qualify, the applicant has to be financially needy in one of two ways.
The first classification of qualified applicants is those individuals who are “categorically needy.” People are “categorically needy” when they have less than $1,000 of “countable assets.” In addition, they cannot have monthly income equal to or greater than $834. Individuals who fall into this category are the people we would typically think of as Medicaid qualified.
There is, however, a second class of Medicaid beneficiaries. These individuals are referred to as “medically needy.” In Missouri (and the laws vary somewhat from state to state), “medically needy” applicants must have less than the $1,000 of countable assets. However, with regard to income, “medically needy” individuals simply must not have enough income to cover their qualified medical expenses. For instance, if the cost for a person in a nursing home is $6000 per month and they only earned $3,000 per month, Medicaid can make up the difference. That person would fall into the “medically needy” category.
In both of the classifications, there is a limitation on what are “countable assets.” Countable assets are any assets an applicant owns (or owned during the five years immediately preceding the application for Medicaid benefits where the assets were not exchanged for something of value – that is, gifts), but it excludes certain assets. For instance, a person’s house is not included in “countable assets” for qualification purposes, but the State will put a lien against the house for any Medicaid benefits paid. When the house is sold after the recipient’s death, then the State will collect any Medicaid amounts it paid out of the sales proceeds. So the exclusion of the house from countable assets is only temporary.
People for years have been trying to get around the Medicaid rules to have the government pay for their nursing home costs. When I started practicing law 35 years ago, it was pretty simple. Congress caught on, though. First, they made it illegal for grandma to transfer assets to qualify for Medicaid. If she broke the law, surely they’d put her in one of those nice prisons with good medical care. That seemed like a good option to some clients.
Congress caught on, though. So they made it a crime for family or advisors to help mom or dad plan to qualify for Medicaid. As you can imagine, this was disturbing to a lot of influential people. The concern was that it would paralyze legitimate planning for fear of violating the law. So once again, Congress caught on.
Beginning in 2006, when an individual applies for Medicaid, he or she has to add back the value of any assets transferred for less than fair market value during the immediately preceding five-year period (the “look back.”). If an asset was transferred for less than fair market value during the look back period, then the government calculates a penalty by dividing the value of the gift by a Medicaid factor. This calculation determines the number of months that the applicant will be disqualified. The disqualification basically runs from the date when the value of the applicant’s countable assets drops below the maximum permitted amount. It turns out that the disqualification can run for longer than five years. Timing an application is critical!