When asking about how to avoid probate, many clients have asked about the wisdom of adding family members as joint owners to bank accounts. While joint ownership will achieve the goal of avoiding probate, there are many dangers and drawbacks to adding family members—even trusted family members—as joint owners on bank accounts:

Vulnerability to creditors: Your only goal in adding a family member as a joint owner may be to avoid probate, but in the eyes of creditors that bank account is suddenly fair game, and may be used to pay off the debts of your co-owner.

Vulnerability to lawsuits: In the same way that joint accounts are vulnerable to the creditors of both owners, they are also vulnerable to potential lawsuits against both owners.

Gift tax assessment: If a new owner is added to an account as a joint owner, but doesn’t contribute any funds to the account, the IRS may see the move as a monetary gift. If the “gift” exceeds the annual gift tax exclusion amount the IRS will require it be reported on a gift tax return.

Joint ownership can adversely affect Medicaid planning: Even if an account is jointly owned by two people, the state considers ALL the funds in the account to be at the disposal of the owner applying for Medicaid. Furthermore, if your co-owner chooses to remove assets from the account Medicaid could consider this an improper transfer of assets and you could be rendered ineligible for Medicaid for a certain period of time.

And of course, the number one danger of joint ownership for probate avoidance purposes is that your co-owner may act unethically or irresponsibly.

For more reliable—and more effective—estate planning strategies to protect your assets and avoid probate, please contact our office.

Some assets—such as real property, stocks and savings—are fairly straightforward when it comes to bequeathal to heirs; other assets—such as valuable artwork or antiques—are not so easy. How do you will an asset to a loved one when there is no deed of ownership? And just as importantly, how do these paperless assets figure into the size and administration of your “taxable estate”?

According to this article by Bonnie Kraham, how you dispose of these assets can be extremely important to the administration and taxation of your estate. One particularly dangerous method is referred to as “the empty hook” method, wherein “When the collector dies, the beneficiaries simply remove the artwork (from the hooks) in accordance with name tags on the items for the intended recipients. Thus, the estate is left with “empty hooks” of what may be part of a sizable taxable estate for estate tax purposes.”

The problem that arises with the “empty hook” method is that wealthy families who collect artwork or antiques as investments often have records of their purchases and sales, as well as a list of valuable items for insurance purposes. Any of these documents and records would be reviewed during probate or administration of the estate. “If you don’t fully disclose the value of your art collection, or don’t properly plan to gift art in compliance with estate tax rules and regulations, you can pass on tax fraud, instead of art, to your beneficiaries.”

Perhaps the best way to hold and legally dispose of your art or antiques collection upon your death is to transfer ownership of these valuable assets into a trust. “Transferring your art collection to a trust may be the most effective, efficient and transparent way to administer your estate after death . . . Trusts are private documents and, although the tax reporting remains the same for trust assets, trusts protect the privacy of an art collector or artist, which can be an emotional protection for the beneficiaries.” Additionally, keeping valuable artwork in trust provides an extra layer of protection from divorce or frivolous lawsuits during your lifetime.

Contact our office, or your own local estate planning attorney, for more information.

Being named as the executor of the estate of a deceased loved one comes with many challenges, including dealing with the probate system, and refereeing unhappy family members; but one of the most difficult (and least discussed) challenges is sorting through the plethora of paper and information that people collect over the course of a lifetime.

You can save your executor (and your family) time and money later by organizing your important documents and finances right now. If you’re not sure where to begin, or what information an executor would need to know, we’ve assembled a list of information and documents an executor might need quick and easy access to if anything were to happen to you:

• Instructions and letter to trustee: Contact information for your EP attorney and trustees, instructions on how to begin the process.
• Minor children: Information about your minor children, nearby guardians or relatives, medical and health insurance information.
• Personal Information: Birth and marriage certificates, passports, family, friends and contact people.
• Estate Planning Documents: Trust, wills, any amendments, personal property memorandum.
• Employment/Business Information: Contact information for supervisors, client information if you are a small business owner.
• Health Care: Advanced Health Care Directive, HIPAA, emergency contact information, phone numbers for doctors, health insurance particulars.
• Financial Powers of Attorney
• Real Estate and Tangible Property: Deed to your home, mortgage information, homeowners and fire insurance, vehicle records, artwork and antiques.
• Bank Accounts and Investments: Account numbers and locations, contact information.
• Monthly Expenses and Bills: A copy of one monthly statement for each.
• Information about recent Taxes
• Retirement Accounts/Government Benefits: Account numbers, beneficiary information.
• Life Insurance: Account numbers, beneficiary information
• Memorial and Burial/Cremation: Preferences, pre-paid arrangements, phone numbers.
• Memberships/Secured Accounts/Passwords

Once you are organized, keep your information in an accessible place and make your executor aware of the location. This simple act of organization will not only benefit you right now, it will save your family and your executor much time, money and frustration later on.

The hardest part of legacy planning or estate planning isn’t necessarily choosing the right fiduciaries, or deciding how to distribute your wealth fairly among your loved ones… the hardest part of legacy planning or estate planning is often simply talking about it with family. In fact, having “The Discussion” can be such a daunting task that many families simply don’t do it, choosing instead to take their chances when the family patriarch or matriarch passes away and the succession plan is revealed.

But avoiding the subject isn’t going to do you or your family any favors. More family infighting takes place after a death than at any other time. After all, this is when loved ones are grieving and emotions are high, when the central family figure or peacemaker may no longer be with you, and seemingly unequal inheritance distributions can no longer be explained.

What if there was a way to have “The Discussion” before it was forced upon you? What if there was a way to make that legacy and estate planning discussion low-pressure and even fun? That is exactly what husband and wife psychologist team Carolyn Friend and James Weiner have done with their book and accompanying card game, The Legacy Conversation: the missing gem in wealth planning.

A review of the Conversation Starters card game in Forbes gives a more detailed description of the game, including 7 or so sample questions to get the juices flowing; obvious questions such as “What cherished possession might your family fight over?” to the not-so-obvious questions such as “Have you ever found wisdom in a song’s lyrics? Name that tune.” The point of the Conversation Starters is not merely to discuss the family legacy, but to get to know your family members better, enjoy each other, and perhaps even grow closer in the process.

If your family has been putting off the necessary discussion of succession and legacy planning, this might be just the game you need. Don’t be afraid to tackle the difficult subjects, you might find you enjoy them more than you expect. And when you’re ready, call our office. We can help your family with the practical details and legal legwork.

Most people think that having a trust is about controlling (to an extent) what happens to your assets after you die. This is true, but a trust actually has a much broader scope: a trust can also protect and provide for your loved ones—and more importantly, it can protect and provide for you—if you should ever become incapacitated.

In basic terms, incapacity means that you are no longer able to make decisions for yourself. Sometimes it is easy to determine incapacity: the person is in a coma or unconscious and obviously unable to make decisions. But sometimes it’s more difficult. What about whether or not a person is able to make rational decisions? What if someone is suffering from Alzheimer’s, Dementia, or even a severe mental illness… should that person be making important financial decisions?

It is important to include a discussion of incapacity in your trust, because this one word carries a lot of weight. It is when you are incapacitated that your successor trustee will take over, when the agent nominated in your Healthcare Directive will get the authority to make health care decisions for you, and when your financial Power of Attorney will go into effect. With so much hanging on a single word, it’s important to know exactly what that word means.

Every standard trust should have a definition of incapacity as determined by a court of law. This means that you are deemed incapacitated when a court of competent jurisdiction determines that you are unable to legally handle your own affairs. A really good trust will also include a definition of incapacity as determined by two physicians; which means that two independent, licensed physicians have examined you and have determined that in their opinion you are unable to effectively manage your property or financial affairs.

There are many reasons why you want to have more than just the standard definition of incapacity, the primary reason being that court proceedings can be lengthy and filled with red tape. While your agent is spending days or weeks going through the legal process, your estate is languishing and your financial agent is powerless to take action on your behalf. Giving two physicians the power to determine your incapacity will circumvent the red tape and prevent lengthy delays.

Call or come into our office for more information about incapacity and what it means in your trust or Healthcare Directive.