Monthly Archives: June 2014

Trust Could Force Beneficiaries To Arbitrate Dispute Rather Than Go To Court

This male referee has gone madAndrew Reitz set up a trust to benefit his sons, with an independent trustee. The trust document said that if there was a dispute between his sons and the trustee, it would be decided by a private arbitrator rather than a court.

When John Reitz, one of the sons, became unhappy with the trustee, he sued to have the trustee removed. The trustee argued that the suit should be thrown out of court, and decided by an arbitrator.

The dispute over who should decide the dispute went all the way to the Texas Supreme Court.

That court said the issue should go to an arbitrator. The judges ruled that (1) the trust should be handled according to Andrew’s clear intentions, and (2) it would be unfair to let John receive all the benefits of the trust, but ignore the one part of the trust he didn’t like.

If you set up a trust and you think there’s a chance that there could be disputes among the beneficiaries or between a beneficiary and the trustee, you might consider adding an arbitration requirement. Arbitration can be quicker and cheaper than a lawsuit, so money might be saved that could help the other beneficiaries. Also, arbitration is typically private while lawsuits are public, so arbitration could prevent an unhappy family’s internal disputes from being aired for all the world to see.

On the other hand, there can be disadvantages to arbitration as well. There are many procedural safeguards in a court proceeding that simply don’t exist when people go to arbitration.

Also, outside of Texas, it’s not always clear whether arbitration requirements in trusts are valid. A few courts have suggested that while arbitration requirements are valid in a contract, a trust isn’t a contract, and beneficiaries can’t be barred from going to court by a requirement in a document that they never signed.

Letter of Instruction for Heirs

Senior woman writingA ‘letter of instruction’ can spare you and your heirs a lot of stress if you die or become incapacitated. It can help your family sort through your affairs and find the information they need to help you. Without it, they may miss important items or become overwhelmed trying to sift through all the documents you have left behind.

Although it’s important to have an updated estate plan, there’s a lot of information your heirs and/or caregivers need to know that doesn’t necessarily fit into a will, trust, or other document. For instance: Where can your heirs find your insurance policies? How can they locate your bank accounts, and access your safe deposit box? How can they be sure they’ve accounted for all your assets?

The solution is a “letter of instruction:’ which can provide your heirs with guidance if you die or become incapacitated.

A letter of instruction isn’t legally binding, but it can give your heirs crucial information to help them tie up your affairs. Without such a letter, it can be easy to miss important items, or become over- whelmed trying to sort through all the documents you’ve left behind.

The letter can be informal, and it doesn’t have to follow any specific format. It’s far better to write something than nothing, so don’t worry that it has to be perfect.

Here are some good things to cover to get you started:

A list of people to contact if you die, and of beneficiaries of your estate plan

  1. Where to find important documents, such as your will, insurance policies, financial statements, deeds, and birth certificate
  2. A list of assets, such as bank and investment accounts, insurance policies, real estate holdings, and military benefits
  3. Passwords for online accounts
  4. The location of any safe deposit boxes
  5. Contact information for lawyers, financial planners, brokers, tax preparers, and insurance agents
  6. A list of credit card accounts and other debts
  7. Organizations that should be notified in the event of your death (such as professional organizations or boards)
  8. Instructions for a funeral or memorial service
  9. How you want sentimental personal items to be distributed
  10. A personal message to family members
  11. Once you write the letter, be sure to store it in an easily accessible place and to tell your family about it. A letter is of no value if your heirs don’t know about it, or can’t find it!

Also, it’s a good idea to check the letter at least once a year to make sure it’s up-to-date.

Now’s A Good Time To Review Your Beneficiary Designations

Grow Your 401KDid you know that your will does not determine who gets your IRA or your 40l(k) account when you die?
That’s right – these accounts are “non-probate” assets, which means they’re not covered by your will. Instead, they will generally go to whatever per­ son you named as the beneficiary when you set up the account.

Similarly, your will doesn’t determine who gets your life insurance – that will go to the named beneficiary on the policy. And your brokerage account might have a beneficiary as well.

So as part of your estate plan, is essential from time to time to review your beneficiary designations. For example:

  • You’ve remarried, but you want to leave your 401(k) to your children from your prior marriage. Under federal law, even if you name the children as beneficiaries, your account will go to your new spouse – and not your children – unless your new spouse signs a waiver.
  • Is one of your beneficiaries a trust? If so, it’s a good idea to have this reviewed. There have been a lot of developments in the law recently, and you might want to change the way the trust is set up in order to make sure you’re still getting all the possible tax advantages.
  • Is your estate listed as your IRA or 40l{k) beneficiary? This is generally a bad idea, because you can often save a lot of taxes by naming individual beneficiaries instead and stretching out payments over time.
  • Is one of your beneficiaries a minor? This could require going to court and setting up a guardian­ ship, which can be time-consuming and expensive. There are better alternatives.
  • Do you plan to leave money to charity? It might be wise to leave IRA or 40 l (k) assets to charity, rather than other assets. That’s because heirs who receive IRA distributions have to pay income tax on them, whereas they probably won’t have to pay tax on other assets.
  • Did you also know that a divorce may not automatically change your beneficiary designations?

Florida has a new statute, which became effective 07-01-12 that provides when an individual dies after a dissolution or annulment of his or her marriage, a beneficiary designation, which designates the former spouse as a beneficiary, becomes void upon the divorce and the former spouse is deemed to have predeceased the decedent. See Florida statute 732.703

There are exceptions to this statute. It is not automatic. It does not apply to the extent that controlling federal law provides otherwise (for example plans that are covered by the federal statute known as ERISA, such as 401ks) or if the governing instrument provides otherwise or if state law other than Florida governs the contract or agreement, to name just a few of the exceptions to the statute.

BE CAREFUL.

CONSULT WITH YOUR ATTORNEY IN THESE SITUATIONS, ESPECIALLY IF YOU HAVE BEEN DIVORCED.

Now’s A Good Time To Review Your Beneficiary Designations

 

Did you know that your will does not determine who gets your IRA or your 40l(k) account when you die?
That’s right – these accounts are “non-probate” assets, which means they’re not covered by your will. Instead, they will generally go to whatever per­ son you named as the beneficiary when you set up the account.

Similarly, your will doesn’t determine who gets your life insurance – that will go to the named beneficiary on the policy. And your brokerage account might have a beneficiary as well.

So as part of your estate plan, is essential from time to time to review your beneficiary designations. For example:

  • You’ve remarried, but you want to leave your 401(k) to your children from your prior marriage. Under federal law, even if you name the children as beneficiaries, your account will go to your new spouse – and not your children – unless your new spouse signs a waiver.
  • Is one of your beneficiaries a trust? If so, it’s a good idea to have this reviewed. There have been a lot of developments in the law recently, and you might want to change the way the trust is set up in order to make sure you’re still getting all the possible tax advantages.
  • Is your estate listed as your IRA or 40l{k) beneficiary? This is generally a bad idea, because you can often save a lot of taxes by naming individual beneficiaries instead and stretching out payments over time.
  • Is one of your beneficiaries a minor? This could require going to court and setting up a guardian­ ship, which can be time-consuming and expensive. There are better alternatives.
  • Do you plan to leave money to charity? It might be wise to leave IRA or 40 l (k) assets to charity, rather than other assets. That’s because heirs who receive IRA distributions have to pay income tax on them, whereas they probably won’t have to pay tax on other assets.
  • Did you also know that a divorce may not automatically change your beneficiary designations?

Florida has a new statute, which became effective 07-01-12 that provides when an individual dies after a dissolution or annulment of his or her marriage, a beneficiary designation, which designates the former spouse as a beneficiary, becomes void upon the divorce and the former spouse is deemed to have predeceased the decedent. See Florida statute 732.703

There are exceptions to this statute. It is not automatic. It does not apply to the extent that controlling federal law provides otherwise (for example plans that are covered by the federal statute known as ERISA, such as 401ks) or if the governing instrument provides otherwise or if state law other than Florida governs the contract or agreement, to name just a few of the exceptions to the statute.

BE CAREFUL.

CONSULT WITH YOUR ATTORNEY IN THESE SITUATIONS, ESPECIALLY IF YOU HAVE BEEN DIVORCED.

Living Wills

 

A living will allows an individual to take control of his/her future medical treatment in advance of an incapacitating illness or injury by specifying in advance whether or not a person is to have his/her life prolonged through artificial or extreme methods. It goes into effect only when you are no longer capable of making decisions about your medical treatment. Living Wills are made more effective when supplemented by a health care proxy or durable power of attorney for health, naming a relative or friend to act on the patient’s behalf if he/she is unable to do so.

In accordance with Florida law, the will must be signed by the principal in the presence of two witnesses, one of whom is neither a spouse nor a blood relative of the principal. If the principal is physically unable to sign, one of the witnesses must subscribe the principal’s signature in the principal’s presence and at their direction.

In the absence of a living will, the decision to withhold or withdraw life-prolonging procedures from a patient may be made by the health care surrogate designated by the patient unless the designation limits the surrogate’s authority to consent to the withholding or withdrawal of life-prolonging procedures. The surrogate must be satisfied that the patient does not have a reasonable; probability of recovering capacity so that the right could be exercised by the patient and the patient has an end stage condition, is in a persistent vegetative state, or the patient’s physical condition is terminal.

This article is for general reference only, and it is not intended to be a substitute for the hiring of an attorney. It is always best to consult an attorney about your legal rights and responsibilities regarding your particular case.