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June, 2018 | The Sheppard Law Firm

The Pain of Loss

One never knows whether something written in social media was fabricated or is actually attributed to the correct party. Nevertheless, I came across this post in Facebook about the loss of loved ones that I thought was both insightful and poignant:

“Alright, here goes. I’m old. What that means is that I’ve survived (so far) and a lot of people I’ve known and loved did not. I’ve lost friends, best friends, acquaintances, co-workers, grandparents, mom, relatives, teachers, mentors, students, neighbors, and a host of other folks. I have no children, and I can’t imagine the pain it must be to lose a child. But here’s my two cents.

I wish I could say you get used to people dying. I never did. I don’t want to. It tears a hole through me whenever somebody I love dies, no matter the circumstances. But I don’t want it to “not matter”. I don’t want it to be something that just passes. My scars are a testament to the love and the relationship that I had for and with that person. And if the scar is deep, so was the love. So be it. Scars are a testament to life. Scars are a testament that I can love deeply and live deeply and be cut, or even gouged, and that I can heal and continue to live and continue to love. And the scar tissue is stronger than the original flesh ever was. Scars are a testament to life. Scars are only ugly to people who can’t see.

As for grief, you’ll find it comes in waves. When the ship is first wrecked, you’re drowning, with wreckage all around you Everything floating around you reminds you of the beauty and the magnificence of the ship that was and is no more. And all you can do is float. You find some piece of the wreckage and you hang on for a while. Maybe it’s some physical thing. Maybe it’s a happy memory or a photograph. Maybe it’s a person who is also floating. For a while, all you can do is float. Stay alive.

In the beginning, the waves are 100 feet tall and crash over you without mercy. They come 10 seconds apart and don’t even give you time to catch your breath. All you can do is hang on and float. After a while, maybe weeks, maybe months, you’ll find the waves are still 100 feet tall, but they come further apart. When they come, they still crash all over you and wipe you out. But in between, you can breathe, you can function. You never know what’s going to trigger the grief. It might be a song, a picture, a street intersection, the smell of a cup of coffee. It can be just about anything…and the wave comes crashing. But in between waves, there is life.

Somewhere down the line, and it’s different for everybody, you find that the waves are only 80 feet tall. Or 50 feet tall. And while they still come, they come further apart. You can see them coming. An anniversary, a birthday, or Christmas, or landing at O’Hare. You can see it coming, for the most part, and prepare yourself. And when it washes over you, you know that somehow you will, again, come out the other side. Soaking wet, sputtering, still hanging on to some tiny piece of the wreckage, but you’ll come out.

Take it from an old guy. The waves never stop coming, and somehow you don’t really want them to. But you learn that you’ll survive them. And other waves will come. And you’ll survive them too. If you’re lucky, you’ll have lots of scars from lots of loves. And lots of shipwrecks.”

© 2018 Craig R. Hersch. Originally published in the Sanibel Island Sun.

Reasonably Ascertainable Creditors

When a loved one dies, whomever you name as the personal representative (executor) under the will or the trustee under a trust will be charged with the responsibility of ensuring that your estate or trust satisfies any outstanding creditors upon your death. Creditors might appear in the form of credit cards, hospital or medical bills, car payments, mortgage payments or a host of other debts you’re responsible for.

If, after your death, your loved one simply distributes the assets without satisfying your creditors then the law holds that loved one personally responsible for your debts. It’s therefore important for your loved one to follow the legal process. That process provides that he or she must search for “reasonably ascertainable” creditors. Usually this is accomplished with the assistance of your estate planning attorney.

It’s fairly simple to find most “reasonably ascertainable” creditors since they typically invoice periodically. With electronic communication and payments becoming more common, your loved one not only should search through the mail for these invoices, but also through email as well as review automatic payments generated from the decedent’s bank accounts. If you have a significant amount of electronic payments, then you should speak to those that you have named in your legal documents about this and perhaps give them access to your electronic accounts.  

With recent probate and trust administration files, I’ve noticed that finding in-home caretakers after my client’s death can sometimes pose a challenge. While many employ caretakers from established licensed businesses providing that service, it also appears that there’s a significant underground economy consisting of non-licensed individuals, or even friends and neighbors, who get paid for helping elderly folks who need it.

The caretakers might simply take the individual to the grocery store, or they may perform other tasks like cooking meals, driving to doctor’s appointments, and assisting with check-writing and other bill-paying services. It’s dangerous to have a person in your home performing these tasks without insurance, bond, or background checks, but I can tell you anecdotally many are so employed here in Southwest Florida.

Because so many of our elderly residents’ families live in far away states, it’s no wonder that those losing physical or mental capacity turn to others to help perform daily tasks. “I don’t want to be a burden to my children” is a refrain I’ve heard on more than one occasion.

Nevertheless, when an individual who has been cared for passes away, there might be loose ends or unpaid bills for services outstanding. The personal representative or trustee may not even know that there was anyone helping with these tasks or if they had been paid in full.

So, if you are one of those who does employ in-home aids, please first ensure that they are insured, licensed and bonded. You should also let your loved ones know who you have employed, how often they come to your residence, how much their charges should be, from which accounts those payments are generated, and what accounts those individuals have access to. I would go so far as to suggest that a close relative should receive copies of the statements (print or electronic) to monitor activity within the account.

Another issue that may become a problem with many decedents is leased vehicles. Typically, car leases do not expire upon the lessor’s death. That means that if you pass away one year into a three-year lease, your estate may be liable for the final two years of payments. Before leasing an automobile, ensure that you understand the leasehold terms applying to your death or disability, and let whomever you have named in your legal documents to take care of your affairs know about the transaction.

You’re putting a great deal of responsibility on those that you name as your personal representative and/or trustee. It’s incumbent upon you to keep those individuals in the loop as to your financial life, particularly if you should begin to fail mentally or physically. If you want to learn more about this subject, I’ve written a book Legal Matters When a Loved One Dies. You can obtain an electronic copy for free on my website: http://estateprograms.com/resources/#books.

© 2018 Craig R. Hersch. Originally published in the Sanibel Island Sun.

Asset Alignment

Many clients believe that an estate plan is all about the legal documents, which usually consist of a will, a revocable living trust (for those with any degree of net worth), durable powers of attorney, health care surrogates and living wills among others. Upon completing their estate planning documents, many consider the job done and that there’s nothing left to do for years.

Did you know, however, that you can have the best estate planning documents ever drafted by the best attorney who ever practiced and yet your estate plan might fail?

One reason for the failure is the improper alignment of your assets inside of your estate plan. What do I mean by that? It might relate to several things, each unique to your situation.

If you have a revocable living trust, for example, it is vitally important that your assets are actually titled into your trust. Many attorneys provide their clients a “funding instruction sheet” that details how accounts are to be titled. Rather than an account titled in my name, “Craig Hersch”, instead it should be titled into my trust: “Craig Hersch, Trustee for the Craig Hersch Trust dated June 15, 2018”.  Failure to transfer the assets that would have otherwise been subject to the probate process could result in a failure of the estate plan.

So if you have a revocable living trust should all of your assets be titled into your trust? The simple answer to that is “No” when you own IRAs, 401(k)s, and annuities, for example. Generally speaking you can’t transfer title of those accounts without withdrawing the account balances triggering income tax and potential excise tax penalties depending upon your age.

Should those assets instead name your trust as the beneficiary instead of individuals? It depends. If you want to protect those distributions from the reaches of predators and creditors, then perhaps. Whenever you name a trust as the beneficiary of a tax-deferred account, you must be mindful of the “identifiable beneficiary” rules associated with the required minimum distributions that your beneficiaries will have following your death.

What about annuities? Should those designate a trust as a beneficiary? Again, it depends. The rules governing qualified annuities that are a part of your IRA are treated differently than are non-qualified annuities that are typically held outside of a qualified retirement account. The annuity contract provisions will also be determinative, as non-persons (trusts) often don’t have the same distribution options following the annuity owner’s death.

Asset alignment is important for closely held business interests. If you own shares of a Subchapter S Corporation, for example, you will want to ensure that your trust provisions meet the “Qualified Subchapter S Trust” requirements found in the Internal Revenue Code, or you may risk defeating the S election, resulting in a federal corporate income tax on all of the shareholders that otherwise wouldn’t apply.

Further, if your closely held business, whether it’s an S Corporation, C Corporation, LLC, general or limited partnership may have operational/shareholder/member/partnership agreements that govern the disposition of those interests in the event of your disability or death. Accordingly, for your assets to align properly your estate plan should synchronize with those agreements.

For those married individuals or those with minor children who have declared homestead for their Florida residence, yet another asset alignment issue exists. If you haven’t updated your documents to Florida law, your homestead might be invalidly devised within your estate plan. The proper title to the residence should be accomplished with a deed that integrates with your estate planning documents.

Similarly, if you have been divorced and your dissolution of marriage agreement contains dispositive requirements governing assets, it’s necessary for the estate plan to satisfy those requirements and that the assets meant to so satisfy are properly titled and accounted for.

I could go on. Commercial properties that have tenants, vacation cottages, and non-traditional assets all often need to be titled properly for the estate plan to satisfy your intent.

Even if you’ve done an exemplary job of aligning your assets, and ensuring that they are all titled correctly, the task is often incomplete. Your assets change over time. You might open a new brokerage account, or your broker may have consolidated accounts resulting in new account numbers not aligned with your estate plan.

Your broker may have transferred to a different firm. When you followed the broker over, did you ask your estate planning attorney to verify that the title to the accounts at the new institution are correct? Did you double check the beneficiary designations of the IRAs, annuities and life insurance to ensure that they all fit properly inside of your estate plan?

As you can see, your documents are an important element to your estate plan. It’s equally important, however, to ensure that the assets align properly to your estate plan, and that over the course of time they remain in alignment. If all your estate planning attorney did to verify this was to provide you a funding instruction sheet, then you probably haven’t completed this important step. Most of the new clients that I visit with, even if they have in years past completed their estate planning documents with another firm have failed to properly align their assets.

© 2018 Craig R. Hersch. Originally published in the Sanibel Island Sun.

Acting in Concert

Did you ever wonder where the phrase “acting in concert” comes from? It may have originated from the Old Italian word “concerto” meaning “agreement, harmony” which sounds very nice. You would hope that two people who have to decide things together would do so collegially and with mutual consensus on the issues.

But the phrase may also have originated from Vulgar Latin “concertare” meaning “to settle by argument, debate, or to separate – decide by fighting”. This definition suggests an adversarial process to reaching agreement.

Which brings me to today’s estate planning topic – how many cooks should you have in the kitchen when creating your estate planning documents? Normally when spouses have a will or a trust they name each other as personal representatives (executors), successor trustees or agents under a durable power of attorney or health care surrogate documents.

Who should succeed the surviving spouse when making all of these decisions is where all of the real fun begins.

Many times parents will name their children to act as their successors. They might name two adult children to make their legal, tax, financial and health care decisions together. They might name them in successive order but in several instances they might want two or more adult children to act together. They expect the children to “act in concert”.

This then begs the question – do both of them have to agree in order to carry out business? Under Florida law the general answer to that question is “yes”.

And here’s where it gets interesting. What happens if the two parties named in the legal documents can’t stand one another? One says the sky is blue and the other disagrees. There’s no shame in the fact that we have raised children who don’t see eye to eye – that seems to be common among many siblings for whatever reason.

But when you are entrusting your legal, financial and health care decisions to those who you love but may not necessarily get along, what should you do?   One choice is to clearly name the children in successive order. Indicate who is to act first, then second, then third.

The idea of putting two cooks in the kitchen at the same time isn’t always a bad one, however. One child might be good with financial aspects but might be impulsive. Another child might temper the impulsiveness of the first. So even if they butt heads on occasion, naming two very different siblings to act together might actually lead to better decisions.

When choosing two or more individuals to serve together in these roles, you should first communicate with all of them what to expect. Tell them that they’ll be working together. Set expectations.  You might tell them that while you expect them to debate certain decisions and not see eye to eye on all matters, you are choosing them both because you appreciate and value their different perspective on things. This kind of a conversation might help them see their differences in a new light, and be more open to one another’s viewpoints.

If, however, you suspect that the bad blood between them may lead to stalemates, then it is a wise idea to impose a third party “tie-breaker”. You might name a close friend, relative or advisor to fill this role only when necessary. The legal documents can be drawn to anticipate these issues and provide for a means to resolve them.

One type of document is a bit problematic – your Durable Power of Attorney. Under Florida law, you cannot create a “springing” Durable Power of Attorney meaning that it is only effective if the person holding the one before it can’t act.  The Durable Power of Attorney document is valid the minute that you put pen to paper and sign it. Therefore, when you have more than one Durable Power of Attorney, you usually have multiple individuals all with current authority.

One solution is not to give individual Durable Power of Attorneys, but rather name multiple individuals in one document. While this avoids the multiple individual powers problem mentioned above, it also creates a situation where the incapacity of one of the agents named in the document renders the entire document useless. So that is usually not a recommended course of action.

The bottom line is to carefully consider those that you are naming in positions of authority within your legal documents, and to communicate what you have done and your expectations for when they must act for you. And then hope for the best!

© 2018 Craig R. Hersch. Originally published in the Sanibel Island Sun.

Religious Conditions Imposed on Inheritance Upheld

Can you impose a “religious test” on your beneficiaries – or for that matter any other life style test – or else they become disinherited from your estate after your death? This is an intriguing question that became the point of contention in an Illinois case.

Looking at In re Estate of Feinberg, Max Feinberg created a trust in which he declared that any grandchildren or lower descendants who marry outside of the Jewish faith are to be treated as if the grandchild predeceased the grandparents, thereby denying the grandchild a share of the inheritance unless the spouse of such descendant has converted to the Jewish faith. The parties to the litigation call this “the Jewish clause”.

An Illinois circuit court held that this Jewish clause was invalid and an appellate court confirmed, both finding the clause unenforceable and against public policy. Generally speaking, courts will find such constraints against public policy if they either encourage divorce or discourage marriage itself.

One of the judges of the appellate court disagreed, stating that the clause should be held valid. “Max and Erla had a dream…to preserve their 4,000 year old heritage,” Justice Alan J. Greiman noted.

Max and Erla Feinberg were survived by five grandchildren. All of the grandchildren married, but only one married a Jew. Several cases erupted against the estate plan. They were consolidated into one case and the question about the Jewish clause went to the appellate court.

One of the grandchildren, Michele Trull, who had married a non-Jew sued the co-executors of the estates. Those executors happened to be Michele’s father, her aunt and uncle. Michele claimed that the three had engaged in a conspiracy to evade estate taxes and had misappropriated millions of dollars from her grandparents’ estates. Apparently the amounts left in the grandchildren’s shares exceeded the Feinberg’s generation skipping tax exemption. So the executors sought to enforce the Jewish clause to pull amounts back to the children’s generation, to which the executor’s belonged.

The executors of the estate sought to have Michele’s case dismissed because the Jewish clause deemed Michele to have predeceased her grandparents and therefore she had no interest in the estate.

The appellate court’s opinion explored the public policy argument voiding the Jewish clause. Such a clause is invalid if it encourages disruption of a family relationship, discourages formation or resumption of such a relationship, or seriously interferes with a beneficiary’s freedom to obtain a divorce or exercise his or her freedom to marry.

It is conceivable that such clauses “could just as well result in the courts being required to enforce the worst bigotry imaginable,” Justice Quinn noted. “Courts are not well suited to decide all the various questions that might arise in the enforcement of such conditions. What would happen if one of Max and Erla’s grandchildren initially married a non-Jewish person but subsequently married a Jewish person? Would the grandchild be resurrected upon the second marriage?”

Justice Greiman, on the other hand, who dissented, examined a multitude of cases from outside Illinois. Most were decided in the 1950s or earlier, but sided with enforcing such a clause. According to those cases, “partial restraints on marriage are valid unless they are unreasonable, and therefore conditions on gifts prohibiting a beneficiary from marrying a specific individual have been upheld.”

Given the heated exchange between justices Greiman and Quinn, the Illinois Supreme Court agreed to hear the case. In its decision, the Illinois Supreme Court unanimously upheld the right of individuals to unequally bequeath assets based upon religious beliefs. The Court cited that individuals could legally disinherit any family member who married outside of a particular faith, so long as such a method did not encourage divorce, which would be against public policy.

Supreme Court Justice Rita Garman wrote, “although those plans might be offensive to individual family members or to outside observers, Max and Erla were free to distribute their bounty as they saw fit and to favor grandchildren of whose life choices they approved.”

The Court determined that at no point did the trusts encourage the grandchildren to divorce or remarry within their faith. Garmin noted that the trusts’ provisions were not intended to control, but rather “made a bequest to reward, at the time of her death, those grandchildren whose lives most closely embraced the values that she and Max cherished.”

This important decision upholds a person’s right to include conditions in his or her trust on inheritance. This decision likely extends beyond religious preferences. Trusts that have conditions imposed upon a drug addicted or alcoholic beneficiary prior to receiving their inheritance will also likely benefit from this ruling.

Whether a Florida court would rule in the same way remains to be seen. I don’t know of any cases in Florida that are similar – so although this case might not be legal precedent in Florida – the decision may sway a Florida court nonetheless.

If you wish to include conditions on a beneficiary’s inheritance, it is always wise to consult with your estate planning attorney to make sure that the provisions are properly drafted to minimize the chances that a beneficiary successfully challenges them.

© 2018 Craig R. Hersch. Originally published in the Sanibel Island Sun.