Category Archives: Probate

Estate Planning for Blended Families

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Tips & Techniques for the Modern Family

The idea of the “typical” American family has changed significantly over the last several decades from the traditional nuclear family to blended families of countless variations. Now-a-days, a blended family, or a family where one or more spouse has children from a prior marriage is commonplace.

Blended families face unique challenges when it comes to estate planning. Parents of blended families should take extra precautions to adequately consider what would happen to the family upon the death of one spouse and take steps to avoid disinheriting a spouse or children.

Perhaps one of the more famous estate disputes in recent history surrounded the estate of J. Howard Marshall who was married to the much younger Vickie Lynn Marshall, more widely known as Anna Nicole Smith.  Upon Mr. Marshall’s death, his will left almost all of his estate to his son from a previous marriage. However, Ms. Marshall sued, claiming her elderly husband promised to give her more than $300 million and the court battle went on for several years.

This case illustrates one of the more common scenarios in blended families, where one spouse leaves everything to their children from a prior marriage and completely leaves out his or her spouse. This leaves the estate subject to claims from the surviving spouse, as well as other disputes between family members that can have lasting impacts.

Another common problem occurs when the children are disinherited by virtue of joint ownership of property.  This commonly occurs because married couples often decide to hold property such as houses, bank accounts, or cars jointly. However, in a family of a second marriage joint ownership with a spouse can result in unintended consequences. In the case of joint ownership, the surviving spouse obtains sole ownership of the property by operation of law, thereby excluding the predeceasing spouse’s children from ownership of the property.

If you have remarried and have children from a prior marriage, what can you to reduce the chance for disputes between your spouse and children after you are gone?

First, it is essential that you talk to your spouse and children about your wishes, as well as discuss potential issues that may arise with the distribution of your estate. In addition to communication with family members, a blended family should consider the following techniques for reducing conflicts:

Update your Estate Plan & Beneficiary Designations

At a minimum each spouse should have an estate plan containing a will with Powers of Attorney for finances and health care. However, a will only goes so far with a blended family. It is also critical that each spouse updates their estate plan and beneficiary designations to ensure that ex-spouses are disinherited or no longer listed as beneficiaries of assets such as retirement accounts or life insurance policies. Then review your beneficiary designations to make sure that the proper beneficiaries are named, and the beneficiary designations fit within your overall estate plan. Remember, a beneficiary designation trumps a will, so keeping your beneficiary designations updated to reflect your current life situation is essential.

Prenuptial or Other Marital Agreements

Perhaps one of the best methods of preventative maintenance for a blended family is to execute a prenuptial or other marital agreement with your spouse that addresses estate planning issues. By clearly defining which assets you want to remain separate after the marriage and which assets you agree will pass to each of your children you can reduce disputes later, Moreover, marital agreements allow you to maintain more control over the how and when your assets are distributed.

Life Insurance Policies

Life insurance can be a great tool for providing for your children, while also providing for your spouse. By specifically naming children as beneficiaries of a life insurance policy it creates immediate benefit to children upon death, rather than having to potentially wait many years for inheritance. With the life insurance proceeds going to children, the remainder of the estate may pass to the surviving spouse, thereby eliminating or reducing potential inequities.

Create a Trust

Consider a joint revocable living trust or Qualified Terminable Interest Property Trust “QTIP” Trust. A QTIP or other trust can provide income and principal for a surviving spouse’s care during his or her lifetime. However, upon the death of your spouse, the remaining assets in the trust can be distributed to your children according to your wishes.

Life Estates

Another option to consider is to provide your spouse with a life estate in your home.  A life estate allows a surviving spouse to live in the house for his or her lifetime, but allows the remainder interest in the home to pass to your children.

Talk with your Family & Seek Professional Advice if Necessary

These are just some of the techniques to consider when planning an estate with a blended family. It is critical that you and your family discuss these issues together and have an overall plan to addresses any potential disputes or inequity problems. Your particular estate may also have estate tax or other considerations, so I always recommend seeking the professional advice of your attorney, CPA or financial planner.

These types of estate planning issues may not always be easy issues to talk about, especially with a blended family. However, communication and planning now can provide peace of mind that you are sparing your family from conflicts or hurt feelings down the road.

Contact Kelly O’Brien for more information or questions about estate planning at  Measure, Sampsel, Sullivan & O’Brien, P.C. at (406) 752-6373/ www.measurelaw.com

 

 

New Federal Estate Tax Exemptions for 2012

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The IRS recently announced that it will increase its federal estate tax exemption amount for 2012. For an estate of an individual that dies during calendar year 2012, the basic exclusion from estate tax amount will be $5,120,000, up from $5,000,000 in 2011.

The federal estate tax is a tax on property transferred pursuant to a death. Essentially, it is the tax that the family or beneficiaries of a deceased person must pay on that inheritance. Only those estates that exceed this amount must pay estate taxes, and the estate is only taxed on that portion of that exceeds the threshold amount.

For purposes of determining whether or not a federal estate tax return is required, it is important to determine the value of the “gross estate.” The “gross estate,” consists of the fair market value of everything owned on the date of death. The IRS also allows adjustments for taxable gifts and certain deductions including deductions for mortgages, debts and the expenses to administer the estate. Moreover, all property that passes to the surviving spouse or a charitable organization with federal 501(c)(3) exempt status is excluded from the taxable estate. After these adjustments and deductions are accounted for, only those estates with a “gross estate” that exceeds $5,000,000 (or $5,120,000 in 2012) need to file a federal estate tax return and pay estate taxes.

In addition, the IRS permits reductions in value for certain real property in determining the value of the estate. The total decrease in value permitted will decrease in 2012. For Special Use Valuation for qualified real property, the aggregate decrease in the value of the property resulting from the election cannot exceed $1,040,000, in 2012, up from $1,020,000 for 2011.

There are a number of other exemptions and reductions permitted in determining the gross value of the estate for federal estate tax purposes. For a complete list of the increases in tax benefits for 2012 see http://www.irs.gov/newsroom/article/0,,id=248485,00.html, which lists all of the income tax benefit increases, exemptions, standard deductions, and tax brackets for 2012.

Federal estate tax calculations are complicated, so I always recommend working with CPA to determine whether or not an estate tax return is required for a specific estate. However, the best way to ensure that your family avoids paying federal estate tax is to plan ahead with the use of trusts and other estate tax reducing tools. Work with a team including an estate planning attorney, financial planner and accountant to determine how you can plan your estate to reduce taxes and other complications for your family.

For questions or advise on federal estate tax and estate planning contact Kalispell, Montana attorney Kelly O’Brien at (406) 752-6373.

What is Estate Planning & What Happens Without it?

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What is Estate Planning & Who Needs it?

Advise from a Montana Estate Planning Attorney

Estate Planning is the process of setting out your wishes for the distribution of your assets upon your death, and implementing strategies to ensure that your wishes are carried out to the fullest extent possible. Anyone who wants to control the distribution of their assets, the guardianship of their minor children, provide for charitable causes, or reduce estate taxes needs estate planning can benefit from estate planning.

Estate planning can be utilized to accomplish goals ranging from complex tax planning to simple distributions to children. However, it is best accomplished as a team, where you, your attorney, financial advisors, and your family can work together to create a complete picture of your goals and implement the best strategies to meet those goals.

What happens without a Will or Trust Montana?

Without estate planning, or a Will or Trust, Montana state law controls the distribution of assets upon your death. These laws are known as the laws of intestate succession. Without a valid Will or Trust you do not have control of who receives which assets, nor do you have control over the selection of guardians for minor children, or how those children will receive their inheritance.

For example, if you are married without children, or all of your children are from you and your spouse together, then upon your death your spouse will receive your entire estate. However, if you die leaving a spouse and children who do not belong to your surviving spouse, then surviving spouse is entitled to receive a $100,000 plus ½ of the remaining estate and the child is entitled to receive ½ the remaining estate. It is important to note that intestacy laws change, and unless you want to constantly keep up with current laws, it is a good idea to have a valid Montana Will or Trust.

However, if you have a valid Montana Will or Trust in place, you can decide who receives your assets, how much, and when they receive those assets. This means that you can provide for different distribution amounts to different children. With a valid Will or Trust, you can distribute specific assets to other friends, family members or charities. You may also decide to disinherit a child, limit the amount a child receives from your estate, or place their inheritance in a separate trust to be managed by someone else. Basically, a Will or Trust lets you determine who receives your property and does not leave it up to state law.

Proper estate planning is one of the most valuable gifts you can give your loved ones. It is important to work with an attorney that can take the time to understand your long-term goals and draft a Will or Trust that will address your family’s unique needs. If you have questions about estate planning or would like assistance with a Will or Trust, please call my office to schedule a consultation at 406-752-6373.

How can you avoid Probate? Part IV: Revocable Living Trusts

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Revocable Living Trusts as a Method to Avoid Probate

Advice from a Montana Probate Lawyer

This is the final post in a series of entries regarding methods for avoiding probate in Montana.  For a more general overview of probate avoidance methods, see Part I of this series; for a discussion of beneficiary designations, see Part II of this series; for a discussion of joint tenancy see Part III.  Today’s blog post focuses on revocable living trusts.

A revocable living trust is the most comprehensive and sure way to avoid the probate process. All of the assets are owned by the trust, and not held by an individual therefore a court process is not required to transfer assets upon death. To completely avoid probate with a revocable living trust, the trust must be properly “funded,” which means that all assets must be title in the name of the trust (or held by the trustee of the trust) and not titled in the name(s) of an individual(s).

A revocable living trust is an estate planning mechanism where an individual (called “trustor,” “grantor,” or “settler”) puts property into the trust, to be managed and controlled by the trustee. Usually the trustee is the same person(s) as the trustor(s) while that individual or individuals are alive. The trust is considered a separate entity and technically “owns” the trust assets, and since the owner of the assets never technically dies, probate is avoided.

A revocable living trust has several advantages over other estate planning mechanisms. A trust allows for greater planning options over time. If a revocable living trust is properly funded, then it is possible for your family to avoid the need for probate. A trust may also avoid the need for a conservatorship in the event of incapacity and greatly reduce or eliminate estate taxes for large estates.

Manage Distribution of Assets Over Time

A trust allows you to control the distribution of your assets over time. If you have a revocable living trust, you basically provide your trustee with a set of “instructions,” for how you want your assets to be managed or distributed upon your death. Typically, the trustee invests the property on behalf of the trust and then the trustee will pay beneficiaries interest and distributions according to your instructions. For example, you could provide for a distribution to each child upon graduation of college or upon reaching a specific age. Then, upon the expiration of the trust, the trustee distributes remaining property to the beneficiaries.

Privacy Protection

Trusts provide for more privacy in estate planning than wills. If you had a will it needs to be filed in your county of residence upon your death. The, your personal representative would have to provide notices to all heirs, beneficiaries and creditors, along with a public posting in a local newspaper.

However, if you were to pass away with a trust in place, probate is usually avoided so no documents need to be filed with a court. Your trustee basically follows your instructions and your estate is all handled in a private manner.

Estate Tax Advantages

Simply having a trust does not mean that your family will not have to pay taxes upon your death. However, there can be some estate tax advantages to having a revocable living trust, especially if you are married or want to give a portion of your estate to a charity.

I will not discuss tax planning in any detail in this post, but it is important to note that the federal estate tax limit for 2011 is currently set at $5,000,000. Only individuals that have estates exceeding this amount need to worry about estate tax planning, but the estate tax rate is generally very high and reducing the total value of your estate is greatly beneficial. If you or your family falls into this category I highly recommend working with an estate planning attorney, CPA and financial advisor on strategies for reducing federal estate taxes.

Incapacity Planning

A carefully drafted trust can also account for the management of your assets in the event of incapacity, and eliminate the need for a court ordered guardianship or conservatorship. You can specify in your trust how to determine whether or not you are physically or mentally incapacitated to the point where you are no longer able to manage your own affairs.  Then you can direct through your trust who should take care of you and nominate a disability trustee to manage your financial affairs in the event of your incapacity. You can also set limits on the types of assets your disability trustee can manage and the amount of funds they can distribute.  Not only could you eliminate the need for a court process to nominate a guardian or conservator, but you can direct the details of this relationship before incapacity.

Considerations

Revocable living trusts are great estate planning tools, but they do not make sense for everyone. Trusts take more work to administer and are more expensive to set up than a regular will, but they can be very effective in avoiding probate. However, if you are concerned about any of the issues I discussed above, or if you simply have more questions about the advantages and disadvantages of trusts, call me to speak with a Montana estate planning attorney at 406-752-6373.

How can you avoid Probate? Part III: Joint Ownership

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Joint Ownership, Advice from a Montana Probate Lawyer

Over the last few weeks, I have been posting a series of entries regarding methods for avoiding the probate process.  For a more general overview of probate avoidance methods, see Part I of this series; or for a discussion of beneficiary designations, see Part II of this series.  Today’s blog post focuses on joint ownership with the rights of survivorship.

Joint Ownership with the Rights of Survivorship

A method commonly used to avoid probate in Montana is joint ownership with the rights of survivorship. If you own something jointly with the rights of survivorship it means that upon the death of the first co-owner, title to the entire property or assets automatically transfers or “vests” in the surviving co-owner. Probate is not required until the death of the last surviving joint tenant, or co-owner.

Most couples own joint bank accounts or own their homes by joint tenancy (known as “tenancy by the entirety” for married couples), so it is a concept we can easily understand. Joint ownership is a good method for transferring property, especially real property, upon your death. It can be a simple and easy way to transfer your property quickly. However, joint ownership does have its disadvantages.

Disadvantages of Joint Ownership

Simultaneous Death

A major disadvantage of joint ownership as an estate planning tool is that it does not account for what happens in the event that both owners are in an accident together and die at the same time. If both joint tenants die at the same time, a Montana probate proceeding would be required for both of the joint owners. Moreover, if the owners did not have a valid will or trust, the probate court would have to decide which owner was the first to die to determine which owner’s heirs would inherit the property.

Loss of Ownership & Control

Another disadvantage is loss of ownership rights and control. I will occasionally get questions from individuals seeking to avoid probate and wanting to give joint ownership in their home to an adult child, or to otherwise add a child on to the title of their home. In this scenario, when you grant joint ownership to a child, you actually give up a portion of the ownership in that property and you lose ultimate control of the property. A joint owner has the ability to transfer or encumber his or her ownership interest in the property, which can have significant negative implications on your ownership rights. This also means that the property can be subject to creditors, or even the bankruptcy, of your child or other joint owners.

Tax Implications

There also can be some significant tax implications of simply “giving” joint ownership to an adult child, including the possibility of having to pay federal gift taxes; and the loss of “step-up” basis that is available to children that may have inherited your property. If a child inherited the property instead of receiving the property through joint tenancy, he or she would have the advantage a 100% “step up” in basis. This means that upon a subsequent sale of the property, your child can use the value of the property as of the date of your death for purposes of capital gains, instead of using the value at the time you purchased the property.  However, if the child received the property through joint tenancy, he or she would only receive a step up in basis for a portion of the property. For the portion of your property that your child received via joint tenancy, he or she would have to use the value as of the date of transfer for purposes of calculating capital gains.

For purposes of this post, I will not go into specific detail regarding all of the potential tax implications of joint ownership. However, it is important to understand the tax implications for your particular situation and discuss these issues with your tax advisor.

Joint tenancy can be an effective estate planning tool, but I always recommend you use it in conjunction with a will or revocable living trust. While it is often used to hold property with your spouse or partner, it is best to avoid joint tenancy for other family members or co-owners, especially if you have any doubts about that individual’s motivations or credibility. If you are considering transferring property to joint tenancy, I recommend that you thoroughly discuss the tax and estate planning impacts with your tax advisor and a Montana estate planning attorney to avoid any unintended consequences. If you have questions or would like to discuss joint tenancy with a Montana estate planning attorney call me at 406-752-6373.

How can you avoid Probate? Part II: Beneficiary Designations

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How can you avoid Probate? Part II, Beneficiary Designations

Advice from a Montana Probate Lawyer

Beneficiary Designations or Transfer-on-Death (T.O.D), Payable-on-Death (P.O.D) Designations

Over the next several weeks, I will be posting a series of entries regarding methods for avoiding the probate process.  For a more general overview of probate avoidance methods, see Part I of this series.  Today’s blog post focuses on beneficiary designations.

Payable-on-Death & Transfer-on-Death Accounts

Payable on Death Accounts (P.O.D/ T.O.D Accounts) are specific types of accounts that you set up with your bank or financial institution where you name another individual to inherit the money in your account upon death. While you are alive these accounts are treated like a normal bank account. The person you have designated to inherit the money does not have any rights to the account during your lifetime; you may spend or transfer money, close the account or do anything else you could have with a regular account. However, upon your death, any funds remaining in the account belong to the person(s) named on the account. That individual simply needs to go to the bank and provide documentation of his or her identity and proof of death, then he or she can take out all of the remaining funds in the account.

Typically setting up a P.O.D. or T.O.D account is fairly easy. Most banks or financial institutions will provide a you with a simple form  to fill out where you name the person you want to inherit the money in the account upon your death. Payable-on-death accounts are the designations used for bank accounts and transfer-on-death designations are used for securities such as stocks or bonds.

Other Beneficiary Designations

For other assets such as your retirement, 401(k) accounts or life insurance you need to name a beneficiary for the account. Beneficiary designations for other assets work much like payable-on-death designations and the funds remaining in the account upon your death will pass directly to the name beneficiary upon your death.

There are some very specific rules that apply to beneficiary designations for your retirement accounts.  Mainly, if you are married your spouse will likely be entitled to inherit the money from your retirement account regardless of the named beneficiary. When dealing with your retirement accounts it is important that you always seek advice from your attorney, cpa or financial advisors.

Advantages & Disadvantages of Designating Beneficiaries for Your Accounts

The advantage of beneficiary designations for your financial accounts is that you can avoid probate, at least for these assets. Additionally, you may change the person you designate as the beneficiary at any point in time.

However, there are disadvantages to relying on beneficiary designations (including T.O.D. and P.O.D accounts) to transfer assets upon your death. Mainly, you cannot control the manner in which these accounts are managed after your death or the manner in which the funds are distributed to the beneficiary.

Say, for example, you wanted your bank account to transfer to one of your children upon your death. However, you wanted that child to receive the money in several different installments over time, instead of all outright at once. You may not trust that your child can manage these funds effectively or budget appropriately. If you set up your bank account with a payable on death designation, then the account would automatically transfer to your child upon your death all at one time. The beneficiary designation does not allow for installment distributions, or any other control mechanisms after your death.

Moreover, while beneficiary designations can be a useful estate planning tool, they are only applicable for financial assets. While there are some mechanisms to transfer real property upon your death, you cannot simply add a beneficiary for your real property in Montana. So, if you own your own home, you would need to utilize another method to transfer your home upon death to avoid probate such as a trust.

The best way to transfer these assets while avoiding probate would be through a revocable living trust. Revocable living trusts are important estate planning tools, but trusts are not for everyone. I will discuss trusts in more detail in my later posts. However, if you set up a trust correctly you can avoid probate all together. Regardless, it is important to discuss your options and specific situation with a Montana estate planning attorney.

To learn more about trusts or other mechanisms for avoiding probate in Montana call me in Kalispell at (406) 752-6373

How can you avoid Probate? Methods for Avoiding Probate in Montana

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How can you avoid Probate? Methods for Avoiding Probate, Advice from a Montana Probate Lawyer, Part I:

While the probate process in Montana is not as daunting as it might sound, people often ask me or how to avoid the probate process all together. While my answer really depends on the specific situation there are many ways to transfer property upon your death in Montana, while avoiding probate.

Today’s entry will provide a brief overview of some of the methods to avoid the probate process. However, over the next few weeks I will be posting a series of entries which will explain the advantages and disadvantages of the specific method you can use to avoid probate in more detail.

The most common methods for reduce or eliminate the need for probate include:

  • Beneficiary Designations or Transfer-on-Death (T.O.D), Payable-on-Death (P.O.D) Designations

Designating a beneficiary or a Transfer-on-Death (T.O.D), Payable-on-Death (P.O.D) designation for your financial assets is can be a helpful tool in avoiding probate. These designations are used for your financial accounts such as bank accounts, money markets, annuities, brokerage accounts, life insurance and retirement accounts. Most financial institutions have an easy form where you can specify who will receive ownership of the account upon your death. Then, upon your death the person you designated as your beneficiary (or T.O.D. or P.O.D) would be the outright owner of that account. These assets are not considered part of your probate “estate,” and therefore these assets will not have to go through the probate process.

  • Joint ownership

Another method commonly used to avoid probate in Montana is joint ownership with the rights of survivorship. If you own something jointly with the rights of survivorship it means that upon the death of the first co-owner, title to the entire property or assets automatically transfers or “vests” in the surviving co-owner.

  • Trusts

The one method for avoiding probate for all of your assets, while maintaining full control of these assets is a revocable living trust. A trust is basically a legal agreement where a “grantor” transfers title to property to another person, the “trustee,” to mange it for the benefit of a third party, known as a “beneficiary.” The property is placed in trust while the grantor is alive and upon the grantors death, the beneficiary will receive the trust assets, managed by the trustee according to the instructions set out by the grantor of the trust.

While this sounds like there are a lot of people involved, if you set up a trust during your lifetime, most likely you are the grantor, trustee and the main beneficiary at the same time. You would retain control of all of your assets as you had before, but upon your death your trust remains “alive” therefore no probate is required.

It is important to remember that there are advantages and disadvantages of using each of these tools depending on your specific situation. As a Montana probate and estate planning attorney, I always recommend that you have a valid Montana will or trust and that you discuss your specific situation with an attorney.

The Purpose of the Montana Probate Process

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The Purpose of the Montana Probate Process

Probate Advice, Tips from a Kalispell, Montana Probate Lawyer

The probate process is the legal, administrative process that determines the value of the assets of a deceased person and distributes these assets according to state law. More specifically the probate proceedings serve to:

  • Determine whether or not the deceased person had a will, and determine the validity of that will;
  • Appoint a personal representative to gather, manage and protect the property and assets of the deceased;
  • Identify and notify heirs and/ or devisees of the estate;
  • Pay debts of deceased and settle claims of creditors;
  • Distribute assets and property of the estate to the heirs according to Montana state law of intestacy; or to devisees named in the will.

How the assets will be distributed depends on whether or not the deceased person drafted a will prior to his or her death. If there is a will, then the property and assets will be distributed by the personal representative as directed under the will. If individual died without a will then property and assets will be distributed according to Montana law of intestate succession.

The laws of intestate succession in Montana determine who receives property and assets of a deceased person, and the how much of that property they will receive. According to Montana law if an individual is survived by a spouse only, then his or her spouse will receive 100% of the property of the estate. If the individual had children with that spouse, then the spouse is also entitled to receive 100% if the estate property.

However, if the deceased person has children from a prior marriage, step children, or is not married, the distribution of property becomes more complicated. For example, if the deceased individual had a surviving spouse and children from a prior marriage, then the spouse is entitled to receive $100,000 plus ½ of the remaining estate and the child is entitled to receive ½ the remaining estate.

When a family experiences a death it can be a troubling and overwhelming time. That is why it is important to have an attorney that can look after your interests during the probate process to reduce any unnecessary complications, prevent undue delays and, perhaps most importantly, ensure that your loved one’s last wishes are properly acknowledged. To learn more about the probate process or to speak with a Montana probate attorney call me in Kalispell at (406) 752-6373.

Probate in Montana

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Probate is the legal process of transferring property after a person’s death. If that person left a will, we follow the instructions they left. If they died without a will, what is called intestate in Montana, we distribute their property according to Montana law, which provides very thorough instructions.

That legal description ignores the reality that these are real lives and real families trying to cope with tragedy. Probate is a foreign process forced on people at the worst possible time. As a probate attorney, I think my job is to make the process quick, affordable, and understandable.

Many people think of probate as a dirty word, a reputation that isn’t entirely deserved. Montana probate law has changed to correct many of the past problems and create a new system that strives to be efficient and understandable.

The cost of a Montana probate is capped by statute for both the Personal Representative (sometimes called the executor in other states) and the attorneys involved. This means that from the outset, you should have a good idea of what a probate will cost. At Measure Law Office, we administer probate estates for our clients without charging any upfront fee and wait until the estate is closed and the case is finished to receive our payment.

If you have questions about opening a Montana probate, or help with an estate that is already being administered, please call me today at (406) 752-6373.