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A Digital World

Today I woke up and went for a run with my iPhone, listening to my favorite songs that help keep my pace. I ate breakfast while paying my bills online. I then drove to my office, making phone calls along the way via the Bluetooth technology in my car so I didn’t have to actually hold or dial my cell phone. Once I arrived at my office, I worked on client files that are all maintained digitally.

None of this was possible only a relatively short time ago.  Isn’t that amazing?

So much of our lives are electronic and digital now, we don’t even realize it. Yet this electronic age also creates problems. When one of my clients gets sick and their children need to take over as their durable power of attorney or as trustee of their trust, often it is difficult to access bank and brokerage accounts unless the children know the usernames and passwords to those accounts.

Obviously, if you have named someone in your legal documents under your durable power of attorney or as a trustee to your trust, it would be a good idea to let them know where you have electronic accounts as well as the username and passwords on those accounts. Perhaps they can keep those in a password-protected file on their computer or in some other location where third parties won’t have access.

But it really shouldn’t stop there. Most of us keep only a month or two’s worth of living expenses in our checking account. Our income might be electronically deposited into that account – either in the form of wages, social security benefits, dividends and interest. Sometimes, however, we have larger bills that need to be paid – such as when our real estate tax bill comes due. When those larger bills are due, we might take amounts from our savings or money market accounts to pay those bills.

The person you have named to take care of these things in the event of your incapacity should know which accounts you commonly tap for those larger expenses. They should also know how to easily transfer money between accounts.

Sometimes I see where people will actually name a child or other trusted person as a joint account holder to facilitate these issues. While I believe it may be a good idea to add such a person as a signor on the account, I don’t think it’s wise to name that person as a joint owner on the account for a number of reasons.

First, as a joint owner, you have legally made a gift to that person of half of the account, and continue to make gifts each time you deposit money into the account. Those gifts are limited to the annual exclusion amount, and if you make any more gifts to that person (both outright to them as well as in the joint account) that are above the annual amount in any calendar year you are required to file a gift tax return.

Second, you might thwart your estate plan when making someone else a joint owner on an account.  Upon your death, the joint owner would then take the account if it were owned with rights of survivorship. It doesn’t matter if your will or trust says to divide all of your assets equally among all of your beneficiaries, because a joint account wouldn’t be governed by your will or trust.

Third, if the person you have named as a joint owner on the account has any creditor problems, or if they are going through a divorce, your account that you have named them on as a joint owner might be at risk.  

Fourth, if you ever want to change the account and remove the joint owner – replacing him or her with someone else, you will require that joint owner’s signature to make the changes.

So as you might see, it’s usually a better tactic to make the person a signor on the account, or better yet – just have the account held in your trust. If that person is your successor trustee then they will be able to access the account in the event of your disability without actually having to be named on the account.

But it would still be a good idea to let that person know how you manage the account electronically. Keep this in mind as well – if you have given someone your usernames and passwords, and if you later don’t want that person to have access to your accounts, you should remember to change the username and passwords to the account.

While our digital age has definitely made life more enjoyable in any number of ways, it has also added complexity.  Even recently, the law is catching up with the multitude of digital assets people have.  Please make sure that you stay up with the times and that all of those who you will trust to take care of you understand how your accounts are set up and how to access them. It’s also a good idea to consult your estate planning attorney to find out about how the law has kept up to date with technological advances.

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

The Importance of Communication

Americans don’t like to talk about sensitive topics like money and death. I deal with both of these topics on a daily basis with my clients, so to me it’s pretty much second nature. It’s apparent, however, that most of my clients squirm at the thought of revealing their financial condition, as they must in order for me to properly help plan their estate. Couple that with discussing their own mortality, and you’ve got a pretty nasty combination.

And that’s just the beginning. While communication with your team of legal, tax and financial professionals is important to put a proper estate plan in place, the project isn’t complete without informing your loved ones. 

I’m not kidding.

“Why do I need to tell my family about my finances and my will? It’s none of their business!” I’ve heard on more than occasion.

I reply that you don’t need to tell your family, but the more that you communicate, the less likely problems arise. 

Consider a situation where in his last will and testament Tim designates his Florida property for his son and another Michigan property for his daughter. Tim then has a stroke and becomes unable to communicate. He eventually needs a nursing home, but Tim doesn’t have a lot of money. Discovering his lack of liquidity, daughter decides to move Tim to his Michigan lake house (near where she lives), and sells the Florida property to provide money for his care.

Daughter’s actions effectively disinherited her brother from Tim’s estate. Daughter and son didn’t realize this until Tim’s death, as Tim didn’t communicate his financial condition or the contents of his will with his children. Daughter disinherited her brother innocently, but that could easily devolve into bad feelings and finger pointing. Communication of his financial condition, along with the contents of his will prior to his illness, could have helped his children consider alternatives that could have avoided these problems.

Yet another common communication problem arises in blended families. Consider the situation where Joe is married to Laura, his second wife who is not the mother of his children, Matt and Luiza.  Joe loves Laura and wants to provide for her, but he doesn’t want to leave everything outright to her, since Joe wants his children to benefit from his wealth following Laura’s death.

Joe leaves a life estate in his residence to Laura, along with a marital trust that pays Laura income for her life. At Laura’s death all of the assets are left to Matt and Luiza.

Joe should communicate his intent to Laura and his children. Who knows what their expectations are? While Joe might feel that no one should have expectations, that attitude defies human nature. Laura may not have many assets of her own to live off and may be quite fearful of her financial future if Joe predeceases her.

If Joe doesn’t discuss and share with her what he intends to leave her and how he intends to leave it, Laura’s anxiety is only going to increase. In the best of all worlds, Joe and Laura meet not only with the estate attorney but also with a financial planner to discuss budgets and needs under various conditions. Joe’s portfolio may or may not be appropriate to meet his intent.

At the same time, there’s the danger that Laura’s relationship with Matt and Luiza becomes acrimonious after Joe’s passing. If Joe sits down with his children and explains how he wants his estate plan to work, then they are less likely to be wary of any money that Laura spends. Consider that every dollar Laura spends for the rest of her life is one less dollar the children will inherit.

The children might even bring up valid points that Joe may not have considered. What if Laura is close in age to the children? What if Laura doesn’t want to live in the house any longer and needs nursing home care? Should the house be sold to provide money for that care? Is it more important for the children to inherit the home than the money one day? What about the contents of the home? Are there any items that Laura wouldn’t value but are invaluable to the girls?

There are a million things to discuss.  The problem is, no one wants to. Then when something happens everyone wishes that these things were discussed while Joe was healthy.

A joint meeting with a third party like an estate attorney may help get the ball rolling with delicate topics like these. Just don’t sweep them under the rug because they’re uncomfortable topics.

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

Should You Title Your Automobile In Trust?

Clients frequently ask whether one should transfer the title to their automobile into their revocable living trust. This is a loaded question, as it depends.

If the client is a Florida resident and doesn’t own more than two automobiles, then Florida law exempts those two automobiles from probate. For Florida law to apply, however, the automobiles must be registered in Florida. Whomever you named in your will to receive the automobiles specifically, or the tangible personal property more generally, will be entitled to the cars.

To transfer the automobiles, the beneficiary needs to take a copy of the will with a certified copy of the death certificate to the Tax Collector’s office, along with the title. If the title is electronic, there are additional forms to complete.

Automobiles registered in other states, however, would be subject to the law of registration in the state of registration. In those states a probate court order may be necessary to transfer title. Coincidentally, the proper forum for the probate would be Florida if the owner was a Florida resident at the time of his death.

Presume, for example, that Andy owned two automobiles, a Volvo sedan and a Buick. The Volvo he kept at his residence on Captiva, with Florida tags and title. The Buick he kept in Ohio with tags and registration there. Both cars were held in Andy’s name individually. Upon Andy’s death the Florida automobile is exempt, but if Ohio requires a probate to transfer title then a Florida probate would have to be opened before title to the Buick could be transferred to its rightful beneficiary.

This begs the question – if Andy created a revocable living trust, should he then transfer the Buick’s title to his trust? I would suggest that the answer is no.

Assume that Andy was in a terrible accident that was his fault. His automobile coverage is limited to $300,000 under the terms of his policy. If a plaintiff’s attorney sees Andy’s name on the title he may not jump to certain assumptions about Andy’s wealth than if the automobile is owned in trust.

This, of course, begs another question as to whether a revocable trust protects Andy’s assets from his creditors. It does not. A revocable trust is simply another form of ownership. Andy has complete control over the trust. He is the grantor, trustee and beneficiary. He can freely contribute assets to the trust and remove them from the trust. The trust can use his social security number as the taxpayer identification number. Consequently, a judgment creditor can attack the trust assets.

One solution that I recommend to nearly all my clients with any degree of net worth is to carry an umbrella liability policy. An umbrella policy is not terribly expensive and can serve to protect you beyond the scope of what your homeowner’s, automobile and boat policies might cover. Be sure to discuss what your other policy limits must be with your carrier when you do purchase an umbrella policy.

For liability purposes I also rarely suggest that married clients own automobile titles jointly. If Andy is married to Denise, and they own automobiles jointly, then any accident could jeopardize their jointly held assets. While a jointly owned automobile would avoid probate, remember that if you have Florida title, probate won’t usually be necessary.

I normally recommend to my married clients that each spouse own the automobile that he or she drives most often.

So, there’s a lot more to owning automobiles that meets the eye.  Be sure to always consult with your legal counsel as well as with your liability carrier before deciding what’s right for you and your family.

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

Creating Education Trusts

Over the years clients have asked me how to provide for educational gifts within their estate plan, specifically with trust planning. While a variety of tax-favored educational accounts exist like state-sponsored prepaid college tuition plans or Section 529 accounts, today I’m going to limit the discussion to the creation of a trusts for these purposes.

There are two types of trusts: lifetime gift trusts or testamentary (after death) trusts. Both can be built inside an estate plan and can serve the same purpose. Since most of my clients have children or grandchildren who need the money now rather than waiting until the clients’ demise, lifetime education trusts are more common.

Assuming you want to benefit multiple beneficiaries, there are two different types of educational trusts. One would be a “pooled” trust where the sums contributed can be allocated among the beneficiaries as the trustee determines, while the other would be “separate share” trusts, where the amounts contributed are divided proportionately among the beneficiaries.

The advantages to a pooled trust include the fact that the amounts can be used disproportionately among the beneficiaries. The ones who have the greatest need would presumably consume more of the trust. This is also the most challenging problem to a pooled trust, and why I usually recommend avoiding this technique.

Assume, for example, that Jane and Joe contribute $240,000 to a pooled trust, and they have three grandchildren, Bob, Charles and Denise. Bob is the first grandchild who attends Harvard at a cost of $70,000 annually. By the time his siblings Charles and Denise start college, Bob’s educational expenses have consumed the entire trust.

Over my career I have drafted several pooled educational trust funds. In some of those instances, beneficiaries fought over access to the funds. The trustee has a fiduciary duty to all beneficiaries. Imagine a trust where the oldest beneficiary is already in college but one of the beneficiaries is a toddler. How much should the trustee allow the first beneficiary to consume, knowing that the trustee has a fiduciary duty to the younger beneficiaries to have something left for them?

Consider further that with the rise of college tuition – outpacing inflation even – how should the trustee allocate funds as each beneficiary attends school? Add to that the difference in cost between a state school and a private institution and you have a real trustee conundrum.

Suppose that Jane and Joe instead impose a limit on the amount that any one beneficiary can consume to avoid the above problem. In that case, why not instead have separate trust shares? Here, Jane and Joe instead fund an educational trust with $240,000 for Bob, Charles and Denise but create separate $80,000 shares for each. When the amount is consumed then that’s all that the beneficiary would have. If the older beneficiaries don’t consume their entire share, either the remainder is distributed outright to them at an certain age or it instead would be added to the younger beneficiary’s shares.

You might see that there’s much thought that should be put into the planning behind an educational trust. I haven’t even touched upon several other issues that should be thought through. These include who should act as the trustee, how the funds should be invested, whether a beneficiary’s other resources should be considered before making distributions, or whether vocational education would be treated similarly to a more traditional bachelor’s degree.

Ultimately, providing for a young person’s education is one of the best gifts you can bestow. It’s akin to the proverbial teaching a man to fish rather than giving him a fish. When you provide a youngster a means to make a living, then you’ve passed something more valuable than anything else they can inherit.

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

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.

Does Your Dog Bite?

One of my all-time favorite movie scenes is from The Pink Panther Strikes Again where Inspector Jacques Clouseau (played by legendary actor Peter Sellers) inquires of the innkeeper, “Does your dog bite?”

While reaching to pet the animal, Clouseau is viciously attacked causing him to yell in shock, “I thought you said that your dog does not bite!?”

“THAT is not my dog.” The innkeeper calmly replies.

Despite seeing it hundreds of times, I still laugh at that scene. As most of you know, the plot of the Pink Panther movie series revolves around the heist of a famous large pink-hued diamond and Clouseau’s ensuing shenanigans pursuing the thieves.

But it’s not so funny when mother or father loses precious jewelry or other valuables while in assisted living or nursing home care.

Anecdotally, the loss of keepsakes and valuables appears to happen quite frequently when a loved one is in the care of another, whether in their own residence or in an assisted living facility. Unfortunately, when valuables disappear, they are almost never recovered, and it’s very hard to prove who may be responsible. Further, most assisted living facilities are not contractually liable for valuable items lost or stolen while one is in their care.

I’m not, by the way, accusing all health care workers of committing theft. I’m sure many such caretakers have been accused of taking items that were long ago lost, but faulty memories lead to false accusations. With that said, enough valuables have disappeared from the homes of those being cared for or from the rooms in assisted living facilities that residents should consider taking precautionary steps to avoid the heartache of losing an item near and dear to their hearts.

So let’s review what steps you may want to consider before moving yourself or another loved one into a residence where others are readily present.

First, if one owns valuables that one doesn’t often wear, consider storing them in a bank safety deposit box. The annual charges are well worth the investment to ensure that your valuables aren’t prone to those who may have sticky fingers. When you have a safe deposit box, it is usually a good idea to have a trusted relative as a signor on the box, and for you to advise the bank location and box number that you have rented as well as where your key is stored.

Second, if you have already considered giving some or all of your valuables away to loved ones now (as opposed to bequeathing them in a will), you may get the added benefit of watching your loved ones enjoy the gifts. Here you should consider getting appraisals and filing gift tax returns if you or your spouse is likely to have to file a federal estate tax return.

Third, if you don’t already have riders covering the valuables on your homeowner’s or renter’s policy, speak to your insurance agent. Your agent will tell you what steps should be taken to guard against loss. Most of the time, however, it is not the financial loss that hurts when losing jewelry and other keepsakes; it is the emotional loss as well. To that end, if you decide to give jewelry that is already covered by an insurance rider, make sure that you remove the rider from the policy after the gift is completed.

I have known some who use modern surveillance equipment to record video of those who work in the home.  While I don’t believe that this is the best option, it could catch a thief red-handed, so to speak, and lead to the recovery of the item if discovered soon enough after the heist.

I believe that the takeaway from all of this is that those who are vulnerable should work to minimize the opportunity of those who might be interested in taking valuables by not having them around to begin with.

After all, most of us don’t have a trusted manservant like Clouseau’s Cato Fong – who would never steal anything. Instead, Cato would rather karate chop the inspector upon his arrival from home after a hard day’s work.

So don’t end up like Chief Inspector Dreyfus who eventually ended up in the funny farm (pun intended!).  When you or a loved one is in need of assisted living or nursing home care, don’t forget to secure the valuables.

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