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Fort Myers | Naples Estate Planning Lawyer Blog - Part 2

What is Probate?

Every so often I find it important to emphasize the importance of a topic.  Most of the readers of this column know I’ve discussed the Florida probate process before, but I find that, without some reminding, I often forget things outside my normal scope of operation daily.

With that in mind, many people who visit with me in my office are under the misconception that all Wills avoid probate.  False. Some people believe that if their estate is less than whatever the federal estate tax exemption is (currently the exemption is $11.4 million), then there won’t be a probate.  That’s false too.

Almost any asset that is subject to disposition by your loved one’s Will is actually distributed by the probate process.  Understanding what probate means, then, is crucial to understanding these issues.

Probate is a legal process under which the deceased’s assets are transferred to their beneficiaries.  The Last Will is filed with the probate court in the state and county in which the decedent resided at the time of his or her passing. This is known as the domiciliary estate. The personal representative (executor) in the Will petitions the court for Letters of Administration, which gives the personal representative the authority to transact business on the estate’s individually held accounts.

It does not matter whether bank and brokerage accounts are held in the same state in which the probate is opened. A bank account in New York, for example, is governed by the probate court in Florida.

If, however, the decedent owned real property in his or her individual name in another state, then an ancillary probate administration must usually be opened in that state. If the real estate is held in a trust, corporation, partnership, LLC, or in joint name, then the ancillary administration is usually not necessary.

Why is probate necessary? It’s not just for attorneys to make fees, as many might expect.  The probate process actually protects both the beneficiaries of your estate, as well as any potential creditors and of course, the taxing authorities.

Imagine that there was no probate process.  Suppose in a codicil to his Will your Aunt Wilhelmina left you her entire estate.  But what if Aunt Wilhelmina dies and your cousin brings a copy of her old Will into the bank naming cousin as the beneficiary, and cousin demands that Aunt’s accounts be distributed to him pursuant to the Will? How does the bank know that this is really Aunt Wilhelmina’s Last Will?  What if your cousin beat you to the bank and you didn’t realize it? What recourse would you have once the bank distributed to your cousin? The probate process protects against just this scenario and many others.

If you submit a Will as the Last Will of Aunt Wilhelmina to the court, and someone else submits a codicil to the Will to the same court, now we have a centralized system that can ensure Aunt Wilhelmina’s wishes are carried out.  The personal representative marshals all of the assets of the deceased and files an inventory with the court so all interested parties can determine in full light what the estate is worth. They can also question if the inventory is complete or may be missing assets.

Florida law provides that creditors have three months from the date of notice of publication of the probate administration to file a valid claim against the estate.  There are laws that deal with creditors, how they are to make claims, and how the personal representative may object to any such claim. The personal representative actually has a duty to notify reasonably known creditors of the administration.

Once all of the creditor claims have either been dealt with and all tax clearances have been obtained, the personal representative submits an accounting of the estate to the court.  All of the income and expenses are listed, as are items of capital gain and loss.  The personal representative presents a schedule of proposed distributions pursuant to the terms of the Will.

The distributions may be to beneficiaries, to trustees of testamentary (after death or continuing) trusts established under the terms of the will  or, in the case of a pour-over will (a will that distributes all assets into a revocable living trust), distribute the probate assets to the decedent’s trust.

All of the beneficiaries have the chance to object to any item listed in these petitions, and can appear before the court.  A judge decides if any objection has merit.

Once all of the distributions have been made, the personal representative petitions to close the estate and be discharged from further obligations as a fiduciary for the estate.  Receipts of distributions are filed with the court at this time.

So as you can see, probate is actually a strictly supervised court (public) process.  It is very hard for any foolery to get by a judge.  In a future column I’ll compare this process to a trust administration – which is necessary when all assets are owned by a revocable living trust.

©2019 Craig R. Hersch. Originally published in the Sanibel Island Sun.

Liability Protection Important for Retirees Too

Many of my clients who are retired tell me that they want to simplify things. Their children have grown; their careers have wound down.  Now that they’re living off retirement savings, many start to look for expenses that can be cut back.

Since they have a fair amount of life savings and there are no more dependents, life insurance may not be as important as it once was. The thousands of dollars of annual premium payments may no longer be necessary or in the budget, so policies might be terminated or cashed in.

Professional and trade memberships aren’t useful anymore, so they’re discontinued. Business lunches aren’t part of the daily routine.  The country club membership up north isn’t used much anymore, so it’s discontinued in favor of the golf membership here in Florida.

Cars might be leased instead of bought. Eating out at restaurants might be curtailed.

Some money magazines even suggest cutting back on your homeowner’s liability, automobile and umbrella liability policies. But that would be a big mistake.

Why?

The answer is simple. Because if you get into a car accident that is your fault, you might find yourself responsible for damages beyond the liability protection that you’ve cut back to under your car insurance policy.  If the injured party sues you after the accident, and a judgment is entered against you, then the plaintiff could go after your life savings to make up the difference between what your automobile liability policy pays and the amount of the judgment.

Assume, for example, a terrible scenario where you are involved in an accident that severely injures someone – crippling them for life.  The liability that you may be held responsible for could certainly be more than a $250,000 limit one finds on many automobile insurance policies. Medical costs, lost wages, pain and suffering, the loss of the injured person’s ability to enjoy life among all of the other damages could be in the millions.

The same holds true for your homeowner’s liability insurance. If someone is injured on your property and you are deemed to have been somehow negligent, then you could find yourself at the wrong end of a judgment and have to pay damages over the amount that your homeowner’s liability insurance policy covers. A pool, for example, is considered under the law to be an “attractive nuisance”. If a neighborhood toddler should wander onto your property and drown in the pool, you may be held negligently liable even though the child was not invited onto your property.

So even if you are retired, you remain subject to many of the same risks and liabilities that everyone else must guard against. Nevertheless, I’ve heard all sorts of excuses why retirees shouldn’t purchase maximum liability protection. But to counter those all you have to do is turn on the television. How many personal injury attorney ads do you see? And each one essentially asks the viewer, “isn’t there anyone we can sue for you?”

Liability insurance is so important not only for the amount of protection that it offers, but because it also pays for attorney fees to defend you in case you are simply accused of negligence. Even if it turns out that you are not negligent the costs of defending a claim might take a big chunk out of your life savings if you don’t have a policy that also serves to pay these expenses.

Then there’s the mistake that some make with regard to their estate planning. Some wrongly assume that if they have placed all of their assets inside of a revocable living trust, then they’ve protected the trust assets from liability. This isn’t the case. In almost all revocable trusts – the trust and its assets are legally yours – which means that you can do anything that you want with your trust assets. Because you have that much dominion and control over the assets, your judgment creditors can demand restitution from your trust assets.

So what should you do? The best practice is to increase the liability coverage on your home and car and then purchase, in addition to those policies, an “umbrella” policy. The “umbrella” policy covers liability up to its stated policy amount over and above the home and car policies.

A $2 million umbrella policy might cost a couple thousand dollars annually (or perhaps even less) which is a great investment to protect you and your hard earned savings from the claims of a judgment creditor. Not only will this provide much needed coverage, it should also give you peace of mind.

If you value what you’ve worked so hard to accumulate over the course of your working career, consider making a visit to your liability insurance carrier to review whether your coverage adequately protects you.

©2019 Craig R. Hersch. Originally published in the Sanibel Island Sun.

Estate Planning Nesting Dolls

I remember when my sister, as a young girl, would play with my grandmother’s collection of matryoshka dolls. Those are the wooden dolls, commonly known as Russian nesting dolls, of decreasing size placed one inside of the other. The outer layer is usually the painting of a woman wearing a dress and a babushka with figurines inside that are either male or female characters with the smallest usually looking like an infant carved out of a single wood chip.

The matryoshka doll is a good analogy for an estate planning technique that attorneys frequently use but that many of their clients don’t quite understand – the “testamentary trust”.

Think of a “testamentary trust” as the inside doll of one larger than it. The “outside” or main element is usually a will or a revocable living trust. If I create the Craig Hersch Revocable Trust, then that is the biggest matryoshka doll. Inside of my main doll might be a bunch of smaller dolls, the “testamentary trusts”.

When the grantor of that trust dies, the next inside trust comes out – which is a testamentary trust. “Testamentary” refers to “after death” meaning that the revocable trust may split into one or more testamentary trusts that can continue on for a period of years or the lifetime of their beneficiaries who follow the person who originally created the trust.

Let’s say that Ronald creates a revocable living trust. At his death, a testamentary marital trust is created for and benefits his wife Tiffany for the rest of her life. When Tiffany dies, two more testamentary trusts are created to benefit their children, Ron Jr. and Kathleen. Like the matryoshka doll, the trusts keep dividing.

But the testamentary trusts are not new trusts that require new language. They always existed inside of their parent trust but didn’t spring into life until the trust before them dies or is taken apart so that the new trust becomes the governing language.

Many people, including those who work in the financial services industry, get confused by testamentary trusts. When Ronald dies, for example, my office might call the bank and tell them to change the account to the marital trust created for Tiffany. It’s easy for them to get confused. “Where is this marital trust?” they might ask. Or, “we need a copy of the marital trust” when, in fact, they always had the copy of the marital trust because it was already embedded inside of Ronald’s trust, which they knew about from the beginning!

As each testamentary trust is established, the title on the accounts changes and a new taxpayer identification number is obtained. Like the matryoshka doll, it’s a new trust that came out from inside of the old one but is a completely different “person” in that it might have different provisions and beneficiaries. That is why the banks and brokerage houses have to change the title to the accounts that are now divided between the testamentary trusts.

You might wonder why anyone would use a testamentary trust to begin with. Why don’t you just divide all of your estate and leave everything outright to your children? Testamentary trusts are useful in that they can serve to protect the assets that you are leaving your children from the threat of a divorcing spouse, creditors and predators.

Assume the example where a son got foreclosed and the bank obtained a deficiency judgment on the mortgage balance. If you leave an inheritance outright to him, the bank may be able to force collection on their judgment. Another example would be your daughter the doctor who is in the middle of a malpractice case when you die. There, the inheritance you leave her might be at risk. Testamentary trusts can be built to mitigate these problems.

In years past, testamentary trusts got a bad rap. Many named banks as trustees that didn’t perform well or were loathe to distribute any of the money to the trust beneficiaries. Those days are past. A good estate planning attorney can draft a trust that gives its beneficiaries control over the investments and distributions of the trust. We can also draft provisions that allow a corporate trustee to serve alongside and be replaced by your selected trustee.

Testamentary trusts can also be drafted to accomplish income tax savings amongst its beneficiaries that cannot otherwise be achieved when an estate is distributed outright. There are all sorts of benefits to drafting testamentary trusts inside of your revocable trust or will, and many of these benefits have nothing at all to do with estate taxes.

So when your attorney starts talking about the use of a testamentary trust, think about the old wooden matryoshka dolls.  They’re not quite as beautiful or as much fun, but they can sure add some life and good benefits to your estate plan.

©2019 Craig R. Hersch. Originally published in the Sanibel Island Sun.

Don’t Major in “Pre-Law”

A recent report from the Law School Admission Council showed that the number of law school applications for the 2018-2019 admissions cycle was nearly 11 percent higher than the previous cycle. This is likely a reflection of our economic growth and political news cycle. There are many now who aspire to the degree.

Since having two daughters who have graduated college, their friends (who had one day hoped to become lawyers) often asked me whether they should, as an undergraduate in college, major in pre-law.

I always tell them “No!”

Before being accepted into and attending law school in the United States, one must first earn an undergraduate degree. The degree can be in anything, so long as it is earned at an accredited institution. Many colleges and universities now offer a “pre-law” curriculum designed to attract undergraduate students who plan to attend law school.

I advise against an undergraduate degree in pre-law because I believe that it doesn’t provide a solid foundation in a base knowledge that is necessary to become a better practicing lawyer. Further, I believe that a pre-law degree doesn’t give the student any more than what he or she will learn during their first year of law school. A pre-law major, for example, will likely take courses in introductory research, writing and reasoning classes, philosophy of law and courses covering the makeup of our government and constitutional systems.

First year law students get all of that and more as they are required to complete courses in contracts, torts, jurisprudence (history of the law), research and writing, constitutional, criminal, civil procedure, and property law.  The second and third year of law school allows the student to take “electives” where they can learn certain specialty areas, which is very important today, since law, like most occupations is highly specialized.

You don’t find many “general practitioners” any more, as most attorneys concentrate their practices in one field or another such as estate planning, tax, real estate, business organizations, civil litigation, intellectual property, and family practice.

If one wants to become a tax or estate planning attorney, for example, it would be far better as an undergraduate to major in accounting or business so that the student will have a frame of reference for the complex income, gift, estate, business, and trust laws that they will encounter in practice.  Many attorneys who practice intellectual property law (patents, trademarks and copyrights) have an engineering degree which helps them understand the complexities of their clients’ inventions.  One of my law school classmates was a physician who went into medical malpractice law.

Other undergraduate majors that aren’t occupational specific serve better than pre-law in the lead in to law school. English and literature majors, for example, become proficient in reading, analyzing and expressing thoughts through superior written communication skills. Some of my classmates who were tapped to write for the prestigious Florida Law Review were English majors as undergrads.

The problem with what I am recommending is that it asks an eighteen or nineteen year old not only to commit to a path that leads to law school, but also to commit to a specific type of law. Most young people coming out of high school have no idea where their career interests may lie.

One good way to look at obtaining an undergraduate degree that provides certain definable skills is that if the individual changes their mind about going to law school, at least they will have a solid undergraduate degree in something worthwhile. Where is a pre-law degree going to take you if you either can’t get into law school or don’t want to go after your undergraduate years? Perhaps it would be a good background to work as a paralegal or in law enforcement, so if that’s your fall back, then that could work.

A varied undergraduate degree will also help the student land their first job.  As an estate planning lawyer, when I am looking to add an associate lawyer in my office I’ll likely look for a candidate who has an accounting or business background. In my field of work, I feel that a candidate with such a background will likely hit the ground running faster than someone with a pre-law undergraduate degree.

Equally important to the undergraduate degree is the course work that the student selects in their second and third years of law school. Most law schools offer a wide variety of electives for the second and third years, allowing students to specialize their education into a given field.

There are many choices out there. If one is crazy enough to want to earn a law degree and then go out and practice law, I hope that I have provided some valuable insight.

©2019 Craig R. Hersch. Originally published in the Sanibel Island Sun.

Tom Petty and the Heartbreakers

During the 1980s I attended college and law school at the University of Florida in Gainesville, which also happens to be the hometown of rock and roll legend, Tom Petty.

I was not a big Petty fan before attending UF. You couldn’t help it, however, from becoming a fan while living in Gainesville during the height of his popularity. Over time his music grew on me. He was the hometown hero who busted it “Into the Great Wide Open.”

As an undergrad, one Thursday night I happened to take a date to Rickenbacker’s Bar in downtown Gainesville, when Petty, at the height of his career when he normally played to packed stadiums, strolled in with an acoustic guitar and a friend.

He proceeded to play two sets to the uncrowded room, (this was before cell phones which would have resulted in an immediate madhouse), allowing me to enjoy a personal concert from one of the biggest musical names at the time. He sang some songs and chatted with the 20 or so people in the bar about his music.

It was a great experience, and I became a much bigger fan.

Petty’s “Last Dance with Mary Jane” happened from an accidental drug overdose in October of 2017. Since that time, his widow, Dona York Petty, and his two daughters Adria Robin Petty and Annakim Violette, both from a prior marriage, have been trying to “Break Down” one another over his estimated $95 million estate.

The disagreement between step-mother and step-daughters boiled over in lawsuits, each vying for control over Petty’s intellectual property rights, including marketing rights to his name and image, royalties and artistic creations.

Dana chides Adria for wanting to authorize Petty’s likeness to promote products like salad dressing, a la Paul Newman. She accuses her step-daughters of locking her out of the management of the intellectual property rights, claiming that Petty’s trust directs those rights to be contributed to an LLC, which she wants managed professionally.

Adria and Annakim have said “Don’t Do Me Like That” to Dana over these same issues, claiming that Petty’s trust directs the intellectual property rights to be maintained in an LLC with all three having equal membership interests, which would create a situation where the step-daughters could outvote their step-mother at any time.

The two sides “Won’t Back Down.”  It looks like all of the parties will be “Free Fallin’ ”  for quite some time until the legal process works all of this out. I’m sure that either side would like to be “Runnin Down a Dream” and get their own way, but that doesn’t look likely anytime in the near future.

The Tom Petty saga speaks to many universal estate planning truths. Economically tying a step-parent to step-children can be a recipe for disaster, especially when there’s not an impartial trustee named to ensure that your dispositive intent is carried out the way that you would like.

Your trustee decides how the trust assets are invested and distributed. In Tom Petty’s case, an impartial LLC manager could decide how to optimize the intellectual property rights.

Obviously Petty wanted to take care of all his “American Girls.” It appears that his estate had more than enough assets and revenue to do so. Instead his family turned into “Tom Petty and the Heartbreakers.”

Neither his wife nor his daughters will have to “Live Like a Refugee.” But when the glue that holds the family relationship is no longer there, it comes down to money and control

I’m sure if he were alive today, he’d tell his wife and his daughters “You Wreck Me,” and “It’s Time to Move On,” to “The Best of Everything.”

But Tom’s not with us anymore.

It doesn’t take millions to put your family in a similar situation. In fact, the less money and assets available makes the investments and distribution allocation decisions that much more important and vital to each party’s interest.

If you have a similar situation, make sure that you think through the issues, so everyone will “Feel a Whole Lot Better.”

© 2019 Craig R. Hersch. Originally published in the Sanibel Island Sun.

The Living Will

An often-misunderstood estate planning document is the living will. It’s often confused with a “living trust” which is a trust document providing the direction of how to invest and distribute your assets during your lifetime and upon your death.

The living will, in contrast, is what many refer to as the “right to die” document. In Florida, our living will statute can be found in Chapter 765, Part III. Florida law allows you to direct the withdrawal or withholding of life-prolonging procedures provided that you are in a terminal condition, have an end-stage condition, or are in a persistent vegetative state.

Typically, the living will states that when two physicians determine that there is no reasonable medical probability of your recovery from the condition, in such case the life-prolonging procedures be withheld and withdrawn when the procedures would serve only to prolong artificially the process of dying. When this occurs, you’re permitted to die naturally with only the administration of medication or the performance of a medical procedure deemed necessary to provide you with comfort, care and pain relief.

The most famous Florida case involving these issues was over Terri Schiavo, who, ironically never signed a living will. In 1990, at age 26, Schiavo suffered cardiac arrest at her home in St. Petersburg. While successfully resuscitated, she suffered massive brain damage and was left comatose. She was diagnosed 75 days later as being in a persistent vegetative state.

In 1998 her husband petitioned a Florida Court to remove her feeding tube, indicating this is what his wife would have wanted. Schiavo’s parents opposed the move. Litigation wound its way through the Florida and federal court system, ultimately resulting in the feeding tube being removed. Schiavo died in 2005, a full 15 years following her heart attack.

The Schiavo case involved 14 appeals and numerous motions, petitions, and hearings in the Florida courts; five suits in federal district court, extensive political intervention at the levels of the Florida state legislature, Governor Jeb Bush, the U.S. Congress, and President George W. Bush; and four denials of certiorari from the United States Supreme Court. The case also spurred highly visible activism from the pro-life movement, the right-to-die movement, and disability rights groups.

Despite your political beliefs, no one wants their personal medical situation to be the focus of litigation and political debate. It’s therefore surprising that so few people take the time to sign a living will.

One of the most heart-wrenching decisions my clients face when signing their living will involves the decision to remove the food and water tubes. “I don’t want to die of hunger or thirst,” is the usual response. Yet, at the same time, declaring your intent to not remove the tubes could result in a Terri Schiavo result, indefinitely lying comatose in a hospital bed.

Clients may find comfort in the fact that the living will directs for medical procedures to continue that would provide comfort, care or pain relief.

Some, however, struggle with the notion that the doctors could be wrong. That recovery may occur despite the long odds. In other cases, religious beliefs preclude the removal of food and water tubes. Both concepts occurred when Israel’s Prime Minister Ariel Sharon suffered a massive stroke in 2006.

Surgeons operated for seven hours to ease the pressure from the hemorrhage in Sharon’s brain. But few were prepared to write him off. He was known for bull-like strength, and many thought he would miraculously recover.

He underwent seven additional operations over the six months following his stroke, including the removal of a third of his large intestine. It was not until that April when ministers in the Israeli government voted unanimously to declare Sharon “permanently incapacitated,” promoting his successor Ehud Olmert to the Prime Minister’s office.

Because Orthodox Judaism considers the removal of food and water tubes euthanasia, which is prohibited under Jewish law, Sharon lay comatose in a nursing bed until his death in 2014, eight years after his stroke. He eventually died of cardiac failure.

The living will makes us confront our mortality. Medical science’s capabilities to revive and keep us alive are ahead of the philosophical, moral and religious considerations we face when making choices under a living will.

You might say that the living will is a counterbalance to science’s ability to put our bodies in a sort of stasis, yet not bring us all the way back to a functional state, including a certain quality of life. At that time, we have the option of saying “no more heroics.”

© 2019 Craig R. Hersch. Originally published in the Sanibel Island Sun

Congress is Coming for Your IRA

Congress is about to wallop the American people with a huge middle-class tax hike, which can change the way that you look at your IRA accounts.

And it’s quite sneaky the way they’re doing it.

To understand what I mean, you first need to understand the Required Minimum Distribution (RMD) rules. Most of us know that when we turn 70½ we have a fixed amount that we must withdraw from our traditional IRA accounts. These amounts increase as we age.

But what happens to the remaining balances of our IRAs when we die? If we name a spouse as our primary beneficiary, then she can roll over the IRA into her own account. If she is over age 70½, then she also must make RMDs based on her own schedule.

But then what happens when our surviving spouse dies and leaves the IRA to a child, grandchild or other loved one? When we leave an IRA account to a non-spouse beneficiary, then it becomes an “Inherited IRA.”

Under current rules, a non-spouse beneficiary can “stretch” the RMDs of an Inherited IRA over their lifetime. This allows the IRA to continue to grow tax deferred. If the beneficiary is wise with the investments and doesn’t take more than his RMDs, then the IRA balance can grow for his or her retirement.

But that may all change. The “Setting Every Community Up for Retirement Act” (known as the “Secure Act”) gives non-spouse beneficiaries only 10 years to pull out all the money from an IRA account.

The effect would be to make more of an Inherited IRA subject to higher taxes sooner, as distributions would be made in larger amounts. As much as one-third more of an Inherited IRA would be consumed by taxes than what the current law provides.

If Trump signs the Secure Act into law, it will set the stage for much higher taxes in the coming decade, especially when the Trump Tax Act signed in 2017 expires in 2025. Assume, for example, a $1 million IRA left to a middle age daughter. She’d have to withdraw roughly $100,000 annually, pushing her up into a higher tax bracket. If she lives in a state with a state income tax, more than half of the IRA distribution could be lost to taxes.

If she has college-age children, the additional income would likely affect their aid applications adversely. If instead the IRA were left to the grandchildren, this would also adversely affect their college aid applications, and because of the “kiddie tax” would results in the same tax consequence as if the account were left to the parents.

In exchange for this windfall under the Secure Act, Congress will push back the age at which retirees must take their first RMD from 70½ to 72.

The Secure Act would be an estate-planning catastrophe for people holding significant IRAs. It would take the sensible planning performed up to now and require an entire re-think of the plan.

Typically trusts are used for Inherited IRAs to young recipients. The “identifiable beneficiary rules” require that the trusts satisfy certain requirements for the young beneficiaries to “stretch out” the IRA RMDs. Under the Secure Act, significant trust income would be trapped inside, resulting in the highest marginal federal income tax bracket. And don’t forget state taxes.

The Senate also seems poised to pass the Secure Act, which would land it on the President’s desk. Personally, I’m finding it tiresome how Congress names legislation (Setting Every Community Up for Retirement Act) exactly opposite of that legislation’s effect on our citizens.

This is a tax not only on the wealthy, but hurts the middle class, who’s retirement savings are largely vested in IRA and 401(k) accounts. It’s an estate tax on everyone. Should you so desire, it’s not too late to write your Senators to speak up against this legislation.

© 2019 Craig R. Hersch. Originally published in the Sanibel Island Sun

Serving as Trustee vs Being a Beneficiary

When you deal with your estate plan once every decade or so, it’s easy to get lost in the vocabulary.  This occurred to me the other day during a conversation with my client, Babs, who was upset that one of her daughters, Jeanette, was not listed in her documents as a successor trustee if Babs became incapacitated or died.

I was befuddled since Babs once told me how irresponsible Jeanette was. In fact, Babs said that she didn’t want Jeanette to have any control over her bank or brokerage accounts. So I first confirmed with Babs that we were talking about the same person.

“Well, yes” client answered, “I don’t want Jeanette to control any of my money, at least while I’m alive.”

“So why are you upset that she is not going to serve as your trustee?” I asked.

“Because I still want to treat all my children equally!”

This is where I explain that being a trustee is not an honor, nor does it bestow any more of a beneficial interest on the person acting as trustee. Instead, acting as a trustee is a job. It is laden with a lot of responsibility.

Whomever serves as your successor trustee must have the ability to interact with your financial advisor to determine what your asset mix should consist of. In fact, your trustee is held to the “prudent investor” standard under Florida law.  Violating that standard could lead to a lawsuit where the other beneficiaries of the trust recover damages against the trustee.

If stocks or bonds need to be sold in order to have cash to pay for in-home nursing care or other convalescent care expenses, your trustee is the one who makes decisions which assets should be sold to do that. If you need to move out of your home for care, then the family member that you have named as your trustee will have to decide whether to continue to have your finances continue to carry the expenses associated with owning the home or whether it would be prudent to sell it.

These are not easy decisions.

Your trustee will file your tax returns. He or she will interact with your CPA as well as your attorney when deciding legal matters associated with your estate. When you die, your trustee will have a fiduciary duty to your creditors, taxing authorities and the other beneficiaries. If your trustee violates these fiduciary duties then he or she can be held liable, and have to pay an attorney out of their own pocket to defend the claims or to satisfy any judgments if they are deemed to have acted negligently.

Just because someone is a trustee does not mean that the amount that they are entitled to as a beneficiary will change. If Suzy is a 25% beneficiary of the estate, she does not receive any additional beneficial interest when acting as the trustee.

She may get reimbursed for her out of pocket expenses associated with fulfilling her trustee duties, such as air fare, car rental, hotel expenses, overnight express charges and the like. She will also be entitled to take a trustee’s fee for her time. The fee that she takes is usually well earned, and is taxed as ordinary income much like a CPA’s or attorney’s fees would be taxed to them as ordinary income.

Many family members graciously perform their duties without taking a fee. More often than not, his or her siblings will not appreciate it and expect the child you have selected to act as trustee to do it all for free even though the duties can be enormously burdensome.

It is therefore vitally important when naming a trustee that you select someone who will devote the requisite time and attention to these important matters, and will be comfortable interacting with your professionals. Someone who is confident, diligent and detail oriented makes for a fine trustee. They don’t necessarily have to have any background in law, accounting or taxes. So long as they know how to interact with your team of professionals, it usually works out fine.

As you can see, it really isn’t a matter of being “fair” to one child or another. I would go so far as to say that not only have you not bestowed an “honor” upon the family member that you select as your trustee, rather you have handed them a job. A big job, at that.

So don’t worry about being equal. Select the family member who is the most likely to do the job right.

For more information on the duties of a successor trustee, visit estateprograms.com/selectingyourtrustee for a free guide!

© 2019 Craig R. Hersch. Originally published in the Sanibel Island Sun.

The Top 5 Reasons Baby Boomers MUST Update Their Estate Plans

The baby boomer generation, said to span between 1946 and 1964 has been quite the generation.  I know as I was born at the tail end in 1964. And boy have we been a royal pain-in-the-rear. By first swelling the ranks of classrooms, causing the construction of new schools, and then making college admissions hyper-competitive, afterwards increasing the demand for first home purchases and so on.

We’re even responsible for our own baby-boomlet of progeny in the 1980s and 1990s.

The oldest baby boomers are retiring – while quite a few remain in the primes of our working careers. We’re expected to put a strain on the Social Security and Medicare programs, and many of us haven’t saved enough for retirement. There are a number of reasons for that, from overconsumption to stock market and housing crashes to believing the mirage of never-ending youth.

A lot of us are very guilty of that last one.

The mirage of never-ending youth. It’s what traps those who haven’t looked at their estate plan in quite some time. When baby boomers arrive at my office, they generally pull out existing wills that call for guardianships for their children (who are now grown adults themselves) and name long-deceased parents as executors and trustees.

Which brings me to today’s topic – the top five reasons that baby boomers MUST update their estate plans:

  1. Relationships Change

Just as I mentioned above, your old wills, trusts and power of attorney documents might name people to serve in posts such as personal representative, trustee and health care surrogate who you may have lost touch with or who are no longer close to us. While attorneys in northern jurisdictions often name themselves as trustee of their clients’ trusts, you may now be a Florida resident or that attorney may have long since retired. It’s time to take a fresh look at who you have named to conduct your affairs for you in the event of your disability or death. Also, we may now be in a different relationship or marriage than we found ourselves in when we first prepared our estate plan. Blended families typical of second marriages require a thoughtful, detailed plan to prevent problems between a surviving spouse and step-relations;

  1. Children Grow Up

Your will drawn twenty years or more ago may have contemplated making distributions for your young children that are now fully grown with kids of their own. Your adult children may also be some of the best candidates to serve as your personal representative under your will or as your trustee under your trust. You may also want to protect the inheritance you leave your grown children from adult issues such as divorce or lawsuits;

  1. Your Health

While none of us like to admit it, age usually presents more health issues to deal with. You want to make sure that your health care surrogate documents are up to date, as well as your living will that designates what you want to have happen should you end up on life support with no hope of recovery. None of us wants to be the next Terri Schiavo, so it is important that your health care documents are up to date with today’s law and with your intent;

  1. Your Stuff

It’s probably time to review your assets and how your estate plan provides for you, in the event of your disability, and your loved ones after your death. In our youth our main assets probably consisted of a home, term life insurance and maybe a few investments. As we enter middle-age we may no longer have term life insurance (instead we may have whole or universal life policies that contain cash value), and we may have larger investment accounts as well as IRA and 401(k) accounts. As the types and amounts of assets that we own changes, it is important that our estate plan change with them. An estate plan built around a young family with term life insurance should look drastically different than an estate plan for someone in the prime of their working career or who is nearing retirement;

  1. Your Legacy

Finally, many of us like to consider what kind of legacy we leave behind. It might include a charitable legacy with institutions or causes near and dear to our hearts, or it might mean how we want our progeny to carry on with the wealth that we’ve accumulated.  Perhaps we’re concerned that we’ll take away the incentive to lead a productive life, or we may want our wealth to be used for certain activities we find beneficial – such as education or health care.

There’s a lot to consider. Make it a priority to dust off the will or trust that you’ve neglected for so long and use these five points to write down what concerns you the most about your own planning. Then take that to your attorney to provide a framework for your discussions and plans.

© 2019 Craig R. Hersch. Originally published in the Sanibel Island Sun.

Another Look At Euthanasia

Euthanasia or physician-assisted suicide remains a topic of conversation, particularly among families of those who suffer from dreaded, life-ending diseases, especially those that take a long time to conclude such as Alzheimer’s, ALS, MD and terminal, inoperable cancer.

Some of my clients have voiced frustration that the law allows one to put down a pet in grave distress, but a human must suffer until the end. If you’ve ever witnessed a loved one die a slow, painful, death then you probably understand the desire to more freely allow euthanasia.

To that end, Switzerland, Holland and Belgium, as well as a growing number of U.S. states, including California, Colorado and most recently Maine, whose governor recently signed the Death With Dignity Act, have legalized euthanasia.

New medical guidance in Canada, where the practice has been legal for three years for terminally ill patients, hints at the troublesome ways that assisted suicide might be expanded in the coming years. I say “troublesome” because of the influence of the need for organ donations taken from individuals who choose to meet their end in this manner.

About 30 euthanasia patients in Canada have donated their organs after death since 2016. The Canadian Medical Association issued guidelines for how the process should work, clarifying that organ removal should not begin until the patient is medically deceased and the heart stops beating.

But some experts quarrel with this restriction.

In a 2018 New England Journal of Medicine article, two Canadian medical researchers and a Harvard bioethicist argued waiting until death occurs reduces the quality of donated organs. The authors suggest killing the patient by removing his organs. After all, the best organs come from live people, like those who donate a kidney.

Even a gap of a few minutes that it takes following death to remove the organ makes a difference in its quality. The New England Journal of Medicine authors admit to the ghoulishness of their proposal but note “many may want the option of donating as many organs as possible in the best condition possible.”

By linking assisted suicide and organ harvesting, those in the medical community ratify the premise that euthanasia can help create a more efficient organ supply chain. An obvious criticism of Canada’s guidance that organs may be harvested only from deceased individuals is that it focuses on the supply of organs while ignoring the demand.

One need only look to China to see where this might lead. There, organs are harvested from executed political prisoners. Executions are timed to maximize the organ-harvesting potential. After the sentence is handed down, doctors examine the condemned man to evaluate him as a possible organ donor. If he looks like a good candidate, the date of his execution is put on hold until, say, someone needs a heart transplant.

While you might say that China is the exception, it’s not too hard to imagine the temptation for other countries to link the time of death with the demand for organs. You may recall these conversations over the implementation of Obamacare, where critics suggested that “death squads” might take the need for organ donation into consideration when determining resources allocated to a terminally ill patient.

One lesson from Holland’s experience with euthanasia is that doctors and nurses may powerfully influence a person’s decision to end his life. The most vulnerable patients are those who are depressed and dependent upon another’s care. Some patients were reportedly influenced by their caregiver’s cues of being physically, mentally and financially worn out.

In many circumstances, slippery-slope scenarios and arguments often seem foolish or unlikely. Here, however, the moral problems warrant serious philosophical discussion. There are two very real sides to the euthanasia coin, and hopefully we arrive at conclusions considering the consequences of each.

© 2019 Craig R. Hersch. Originally published in the Sanibel Island Sun.