Paul R. Tierney Law

Who Pays Mortgage When I Pass Away?

“One important aspect of estate planning is deciding what will happen to your home after you die. The answer might be fairly cut and dry if the home is fully paid for. If it’s not, though, you’ll need to consider the financial ramifications for your estate and for the person who inherits the home.”

No one automatically assumes your mortgage after your death, says Credible’s recent article entitled “What Happens to Your Mortgage When You Die?”

Your estate executor—the individual you name to carry out your will and manage your estate after you die—will continue to make payments using funds from the estate, while everything is being settled. Later, the person who inherits the home might be able to assume the loan.

If you’re a co-borrower or co-signer with the decedent, you don’t have to do anything to take over the mortgage because you’re already responsible for paying it.

Mortgage loans have a due-on-sale clause, also called an acceleration clause. This requires the loan to be paid in full, if it transfers to a new owner. However, federal law prohibits lenders from accelerating a loan in the event of a borrower’s death.

Those who acquire ownership this way are considered “successors in interest,” and lenders must treat them as if they were the borrower. A successor in interest can assume the loan without having to apply or qualify, and continue making the payments. You also can modify the mortgage to avoid foreclosure, if you want to keep the home.

A significant step in estate planning is drafting a will stating exactly how you want your estate handled after you die and naming an executor.

When planning to bequeath a mortgaged home, you should disclose the mortgage to your executor and close relatives. If you fail to do so, they won’t know how to make payments. As a result, the home could be inadvertently lost to foreclosure.

Finally, think about whether the person who inherits your home will be able to afford mortgage payments and upkeep.

An experienced estate planning attorney can help you devise a strategy to keep your gift from becoming a burden to your loved ones.

Reference: Credible (Sep. 24, 2021) “What Happens to Your Mortgage When You Die?”

Will Gift to Heir Be a Benefit or Burden?

“One of the biggest conundrums of estate planning is considering how, or even if, you can give money or property to your heirs in a manner that will help them.”

Research shows that getting a lot of money can have harmful consequences. According to MarketWatch, a study found that a third of people who received an inheritance had negative savings within two years of the event.

Watertown Public Opinion’s recent article “How to make sure you leave inheritances that are helpful, not harmful” says that, on average, an inheritance is gone in about five years because of careless debts and bad investment behaviors.

However, a minority of heirs don’t mishandle their inheritances. Nonetheless, it's good to explore exactly what you intend the gift to accomplish, prior to leaving money or property to someone. It’s also important to consider the possible negative consequences of a gift.

Determine if the gift will actually cost the recipient time or money. As an example, leaving the family home, vacation property, land, or a ranch to someone can often cost them money they may not have in maintenance or taxes.

You should also consider if it results in causing difficult emotional issues between siblings, and whether it might encourage bad financial behavior. If a beneficiary hasn’t developed healthy financial behaviors, a significant inheritance might actually create new financial troubles instead of addressing existing ones.

A good way to make certain that your bequests are helpful is to explore your own intentions. Ask yourself if you want to leave enough money for the beneficiary to become financially independent and if you’d you like your bequest used in a specific way, like to pay off debt or fund education.

Do you care how they spend the money?

Another way to provide for thoughtful, conscious inheritances, is to speak with the intended recipients.

Ask them directly whether someone would want a bequest, such as a valuable art or coin collection or perhaps an expensive vacation home. Discuss the options and possibilities and don’t simply take for granted what your heirs might want or what they might do with an inheritance.

Leaving a family member an inheritance can be helpful in some instances, but may be exceedingly destructive in others. No two situations are alike, and if you want to increase the chances that your bequests will be helpful, explore and improve your own relationship with money. Examining that relationship can help make sure that what you leave to heirs will be a benefit not a burden.

Reference: Watertown Public Opinion (Nov. 1, 2021) “How to make sure you leave inheritances that are helpful, not harmful”

What Can We Learn from Painter Bob Ross’ Business Succession and Estate Planning?

“The new, buzzy Netflix documentary on the late, beloved, iconic public broadcasting TV host, painter Bob Ross—“Bob Ross: Happy Accidents, Betrayal and Greed”—documents how the artist’s son, Steve, now 55, was allegedly robbed of his late father’s inheritance by the artist’s business partners.”

News AKMI’s recent article entitled “Don’t make the mistakes Bob Ross made: 4 estate-planning lessons for business owners” says that the documentary shows how Ross’ business partners Annette and Walt Kowalski profited from his talents and reputation, by taking control of his name, image and likeness.

Now the Kowalskis fully profit from sales of Bob Ross paint brushes, paint and other art materials; Bob Ross paintings sometimes sell for $8,000 to $10,000. Their business Bob Ross Inc., or BRI, is now run by the Kowalski’s daughter Joan. She issued a statement calling the documentary an “inaccurate and heavily slanted portrayal of our company.”

The contracts that “The Joy of Painting” host signed with the Kowalskis eventually prevented Ross’ son from getting the rights to his dad’s name, work and money. According to the film, Ross didn’t care about the business side of his enterprise. Instead, he let the Kowalskis secure favorable terms for themselves in contracts and other agreements with Ross, which they took the lead in creating. When Bob Ross Inc., or BRI, was founded in 1985, it was set up with equal partnership shares between Ross, his second wife Jane and the Kowalskis. Annette met Ross when she took one of his painting classes. Walt had retired from a career in the CIA.

The agreement said that if one of the four partners died, his or her stock in the company would be equally distributed among the surviving partners—not to an heir. Ross also signed over his name, image and likeness (or NIL) to BRI for specific business endeavors, according to court documents. However, Ross had The Bob Ross Trust, which he established in 1994. Under its terms, at Ross’ death, the interest in all rights to the painter’s NIL would transfer to his half-brother, Jim Cox, and son, Steve. However, Ross made another legal mistake: giving 51% of the interest to Cox and only 49% to his son, making Cox the executor of the trust and the person charged with carrying out Ross’ wishes.

In 1997, two years after Ross died, Cox folded to legal pressure from the Kowalskis and signed over Ross’ entire NIL to the couple. Steve Ross sued the Kowalskis in 2017, alleging the trust gave him the rights to his father’s NIL and intellectual property, but he lost the case.

Here are some lessons the Bob Ross story offers for small-business owners and, in particular, family businesses:

1. Hire your own legal counsel. Have your lawyer draft corporation and partnership agreements to be sure your interests will be promoted and protected. If that’s not possible, have your attorney review all corporation and legal agreements you receive before you sign.
2. Determine how shares are divided now and how they’ll be divided upon a shareholder’s death. The Ross story demonstrates how important it is to critically assess what each partner offers to a corporation and then to distribute shares accordingly.
3. Review your last will and testament annually. Ross could have appointed his son the executor of his estate, rather than Cox, or he could have named a bank or lawyer as the executor of the trust and will and thus could have looked out for the interests of his own son.
4. Don’t sign away the rights to your name, image and likeness. Your contracts for the business and its future should give you control over how your name, likeness and image are used. Require the approval of any use of your name, likeness, or image.

Reference: News AKMI (Sep. 23, 2021) “Don’t make the mistakes Bob Ross made: 4 estate-planning lessons for business owners”

Can My Power of Attorney Change My Will?

“Power of attorney is one of the most important legal forms for estate and elder care planning. Along with wills and trust documents, it is a critical document for arranging one’s affairs.”

A power of attorney can’t change a properly written will. But note that an agent can make many changes to the assets in the estate, says Yahoo Finance’s recent article entitled “Can a Power of Attorney Change a Will?”

A power of attorney is a document that grants a person, known as the attorney in fact or agent, the authority to make legally binding decisions on your behalf. This can mean managing financial assets, making choices regarding medical care, signing contracts and other commitments.

Your attorney in fact can access confidential materials and their decisions are as binding as if you had made them yourself. In some instances, you may want your power of attorney to be broad and at other times you may want to limit the authority under your power of attorney by time, scope, or both.

Provided a will is valid, an attorney in fact under a power of attorney can’t modify or rewrite it. It’s not within their scope of authority, even if it specifically says otherwise in their power of attorney assignment.

A will written by a power of attorney is invalid on its face.

The authority of a power of attorney typically ends once the principal (the person granting authority) dies. At that point, the principal’s legal rights transfer to their estate. The executor of the estate takes over and manages all of the deceased’s affairs from that point forward.

Thus, an attorney in fact appointed under a power of attorney can’t change a will while the principal is alive because they don’t have the authority to do so. In addition, they can’t change an estate once the principal dies because their role as attorney in fact under the power of attorney ends with his or her death.

It’s important to understand that a person with a general power of attorney can still change the circumstances surrounding a will. He or she can make changes to your estate—essentially, before it becomes your estate. For example, an attorney in fact can make significant financial decisions on your behalf. As a result, they may be able to restructure your personal finances according to their own best judgment. The effect is that it may invalidate sections of your will if the power of attorney dissolves or changes assets that you had assigned to various heirs. This doesn’t always require bad faith and unfair dealing, but that can also occur.

If you include a general power of attorney as part of your elder care plan, you should discuss your estate wishes with your attorney in fact in advance. Remember that issues such as power of attorney and estate law are highly specific to each state. Talk to an experienced estate planning attorney about a power of attorney.

Reference: Yahoo Finance (Sep. 17, 2021) “Can a Power of Attorney Change a Will?”

Should I Write My Own Will?

“An online form or a DIY will kit may be a more cost-effective option. However, hiring a lawyer could save you money in the future.”

Only a third of Americans have estate planning documents, according to a 2021 study. However, the pandemic has caused many to start taking estate planning more seriously. The research saw a 63% increase from last year in adults between the ages of 18 and 34 who have a will or another estate planning document. A total of 24% of all adults surveyed also said that COVID made them see a greater need for estate planning and take action.

Yahoo Life’s recent article entitled “Planning to Write Your Own Will? Here's What You Need to Know” explains that an online form may be cheaper. However, hiring a lawyer could save you money in the future. If you don't understand or review the probate laws in your state, when you try to write your will on your own, it can cost you and your loved ones more in the long run. It can mean added court fees, legal fees and stress. If there are any mistakes in your will, it can take a long time for it to clear probate court.

Drafting a will through an attorney is a way to make certain that your assets will be transferred the way you want them to, giving you and your loved ones more peace of mind.

You should hire an experienced estate planning attorney because the state's probate code and tax laws are constantly changing.

If you write your own will, it is possible that a minor mistake can cause the will to be invalid or contested.

Once you create your will, it is vital that you execute or sign it correctly according to state law. That means having the correct number of witnesses, the right formal language above the will-maker's signature and the legal requirements of your state.

Even if you decide to write your own will, you should ask an attorney to review it for you.

When you use an experienced estate planning attorney, you can fix any mistakes and know that your will is legally sound.

Many attorneys offer estate plan audits for those who have documents and want to make sure they work the way they think they do.

Reference: Yahoo Life (Sep. 17, 2021) “Planning to Write Your Own Will? Here's What You Need to Know”

What Do I Do with Estate Plan after Divorce?

“Major changes in your life—such as marriage, having a baby, moving out of state, or divorce—should prompt a revisit to your current will. It is important to revise your will at these times, in order to ensure that your estate planning is up to date.”

If you forget to update your will after a divorce, you risk your assets being distributed to your ex-spouse when you pass away.

Investopedia’s recent article “Here's what you need to remove and add to your will when your marriage is over,” says that many states have laws that, after a divorce, automatically revoke gifts to a former spouse listed in a will. There are states that also revoke gifts to family members of a former spouse. If you’re in a state that has such a law, gifts to former stepchildren would also be revoked after your divorce.

Most married people leave everything in their will to their surviving spouse. If that’s the way that your will currently reads, be certain that you change your ex as a beneficiary and add a new beneficiary. Remember that many types of assets are passed outside of a will, such as life insurance, 401k’s and other investments. Therefore, you must change the beneficiary designation on those documents.

Property Transfers. Update your will for any property gained or lost during the divorce. If you have assets that are specifically identified in your will, be sure to update them for any changes that may have happened because of the divorce.

The Executor of your Will. If your ex-spouse is named in your will as your executor, you should change this.

A Guardian for Minor Children. If you have children with your ex-spouse, you will want to update your will to appoint a guardian, if you and your ex-spouse pass unexpectantly at the same time. If you die, your children will likely be raised by your ex-spouse.

The Best Way to Change Your Will After Divorce. It’s easy: tear up your old will (literally) and begin again because you probably left everything or almost everything to your spouse in your original will. Just because you’re legally married until a judge signs a divorce decree, you can still modify your will or estate plan at any time. Ask an estate planning attorney because there some actions you can’t take until the divorce is final.

Can an Ex Challenge Your Will? An ex-spouse or even ex-de facto partner can challenge the will of a former spouse or partner. Whether the challenge will be successful will depend on the court's interpretation of a number of factors.

Reference: Investopedia (Sep. 14, 2021) “Here's what you need to remove and add to your will when your marriage is over”

How Does Power of Attorney Work?

“For many families with elderly people or engaged in estate planning, power of attorney is essential, especially if the elderly person’s mental abilities are compromised. Having someone who can take care of legal and financial matters can make this part of life far easier. However, power of attorney is a sweeping grant of authority.”

Depending on how you structure a power of attorney, an agent can – in some instances – transfer money and property to themselves.

However, it’s uncommon and only allowed in specific circumstances and the laws vary by state.

Yahoo Finance’s recent article entitled “Can a Power of Attorney Transfer Money to Themselves?” explains that a power of attorney is when you assign someone (known as an agent or attorney-in-fact) the authority to make legally binding decisions on your behalf. Most of these documents have a limited grant of authority.

A general power of attorney is a type of durable power of attorney (the other two are special power of attorney and healthcare or medical power of attorney). With this, an agent is permitted to make just about any decisions at all on your behalf while the power of attorney assignment remains valid. However, even a general power of attorney has limits.

An agent typically can’t transfer money, personal property, real estate, or any other assets from the grantee to him or herself, and it’s usually deemed a fraudulent conveyance.

However, a power of attorney can transfer assets to themselves, if they have specific written consent from the grantee (or creator of the document).

The grantee can authorize most forms of property transfer, provided the assets are theirs to give and the authorization is specific.

A grantee can only give this authority to an agent, if he or she is mentally and legally competent.

If you think you’ll want your power of attorney to have this authority at some point, be sure to write it out in the original grant because you may not be able legally to amend this document when the issue comes up in the future.

Reference: Yahoo Finance (Sep. 21, 2021) “Can a Power of Attorney Transfer Money to Themselves?”

Don’t Follow Queen of Soul: Think about Estate Planning

“Estate planning is perhaps the area of tax practice where one must consider the whole.”

The Albuquerque Journal’s recent article entitled “Learn from Aretha’s estate mess and ‘Think’” talks about the new bio pic called “Respect” that traces 20 years of the life of Aretha Franklin, the Queen of Soul and the number one singer of all time in a Rolling Stone ranking from 2010.

Aretha died in 2018. She had four sons from either three or four fathers. Their ages spanned 15 years. The oldest, born when Aretha was 12, has special needs and lives in a group home. When she passed, all evidence pointed to the fact that she had no will. The sons – in birth order, Clarence, Edward, Ted, and Kecalf – agreed to a friendly and equal split of the estate. Michigan law supported this. They designated a cousin, Sabrina, as the executor.

This was good, until Sabrina started finding wills. There were two from 2010 and one from 2014. They were all in Aretha’s handwriting, the last one in a spiral notebook found under cushions of a sofa.

Michigan law permits an entirely handwritten will and even allows a will to be unsigned, if it clearly shows the decedent’s wishes. Her 2014 will first named the three younger sons as co-executors.  Aretha then crossed out all names but Kecalf. Ted and an attorney appointed to represent Clarence challenged Kecalf’s competence to serve as Aretha’s executor.

But wait! A fourth will was found. That one was actually typed and established a trust for Clarence. Aretha initialed some pages, but she didn’t sign it.

At that point, Sabrina gave up and resigned as Aretha’s executor.

The probating of Aretha’s estate went from a friendly division of assets to a hot mess.

The sons were now “playing games that they can score,” and wondering if Aretha stopped to think what she was trying to do to them.

The Probate Court judge appointed Aretha’s friend Reginald Turner, who recently was named President of the American Bar Association, as temporary estate representative.

The sons’ fighting is ongoing.

Aretha’s estate has a lot of issues. Don’t be like the Queen. Get your estate plan set and revise it, as needed, with the help of an experienced estate planning attorney.

Reference: Albuquerque Journal (Sep. 12, 2021) “Learn from Aretha’s estate mess and ‘Think’“

What are Biggest Blunders I Can Make in Retirement?

“You’ve done your homework, and now you’ve got this retirement stuff all figured out. Savings socked away. Debts paid off. A plan in place to transition from work to leisure. However, some retirement mistakes operate under the radar.”

Wealth Insider’s recent article entitled “8 Things You Should Not Do in Retirement” reviews some poor decisions that could sink your retirement and how to avoid them.

1. Failing to create or update legal documents. Circumstances and laws change, so our legal paperwork needs to change along with them. It could be a birth, a death, a divorce, or a new tax law that necessitates a review.
2. Not creating a budget. You’re on a fixed income in retirement, so you’ll have to budget for things like medical bills not covered by Medicare; household help if you can no longer do yard work or deep cleaning; food for specialized diets and home modifications, like grab-bars in the bathroom or a wheelchair ramp out front.
3. Going into debt. According to an Experian study, the average baby boomer owed $97,290 in 2020. That included mortgages and student loans, along with consumer debt. You should plan to go into retirement with no debt. If you have substantial debt, consider credit counseling.
4. Spending fixed income on adult children. This may jeopardize your own long-term comfort and security.
5. Withdrawing too much money. If you claimed Social Security before your full retirement age, you’ll have permanently reduced benefits. Conventional wisdom says to take no more than 4% out of your accounts each year. Out-of-control spending may cause you to loot your retirement funds faster than you should.
6. Becoming sedentary. A lack of exercise can lead to plenty of health issues, says the National Institute on Aging, part of the U.S. Department of Health & Human Services. Being active improves energy, physical strength, balance and sleep. It can also help you reach or maintain a healthy weight, reduce stress and anxiety levels, improve cognitive function and manage or even prevent certain diseases. Added together, these improvements could make it possible to live independently for longer, or maybe for the rest of your life.
7. Letting yourself become isolated. Extended periods of isolation can result in serious physical and mental health issues, according to the National Institute on Aging, such as depression, anxiety, cognitive decline, high blood pressure, obesity, weakened immune function and heart disease. Get out there and do things like volunteering, auditing classes at a college or university, adopting a pet (if you’re physically able), joining an exercise class, or revisiting an old hobby or taking up a new one.
8. Being too generous. Rather than messing up your own finances, make “charitable giving” part of your budget, perhaps as a specific percentage, like a 10% church tithe. When you’ve reached that amount, stop. Before you decide to give to a cause, check it out through websites like GuideStar or Charity Navigator to see what amount actually goes toward helping others.

Reference: Money Talks News (Oct. 18, 2021) “8 Things You Should Not Do in Retirement”

What’s the VA Doing about the Backlog in Claims?

“Veterans Affairs leaders are bringing on more than 2,000 claims processors to deal with an expected spike in overdue cases that could push the department’s claims backlog to its highest level in seven years.”

The VA says that it’s planning to hire more people and use mandatory overtime for thousands of already-working claims staff and emergency coronavirus pandemic funding to help stem the problem.

Military Times’s recent article entitled “VA to hire 2,000 new processors to help with looming spike in claims backlog” says that despite that, Veterans Benefits Administration officials expect it to take two and a half years to bring the backlog back down to pre-pandemic levels. Moreover, they’re asking veterans to wait for their claims to be processed and not to panic.

“We don’t want people to worry when they see that number,” said Mike Frueh, VA’s Principal Deputy Under Secretary for Benefits. “We want veterans to keep filing their claims.”

As of the end of September, the claims backlog (the number of cases that have been pending for more than four months) was 208,000—nearly three times the typical monthly backlog total from before the start of the coronavirus pandemic in early 2020. The VA says that office closures caused by the pandemic steadily drove up the backlog total for much of last year. In addition, the issue grew due to several court decisions and new laws mandating additional benefits for troops exposed to Agent Orange during the Vietnam War. It’s also why VA officials know another backlog spike is coming.

About 70,000 claims related to new benefits rules for Parkinsonism, bladder cancer and hypothyroidism linked to poisoning from the chemical defoliant are due to hit the four-month mark at the end of October. Frueh said officials think the backlog will reach more than 260,000 by then. However, he said officials are processing cases at a record rate, and don’t expect the backlog to reach the same challenges as in 2013, when an influx of new benefits swelled the total to more than 600,000. Thousands of those cases lingered in the VA system for years without resolution.

“We are the front door to VA benefits and services,” he said. “This is a natural consequence of people filing more claims.”

The VA processed more than 1.5 million claims in fiscal 2021, the most ever. However, they also received about 1.7 million claims and expect the number to rise even higher with the recent benefits changes. The short-term hiring of new workers will provide long-term relief to the claims processing problems. However, it will take months before those staff are fully trained and able to handle standard workload amounts.

Since May, the benefits administration required 20 hours of mandatory overtime a month to deal with the backlog spikes. Those requirements will continue for the foreseeable future, Frueh said.

In a statement, VA Secretary Denis McDonough said the department remains “committed to ensuring timely access to benefits and services for all veterans.”

Reference: Military Times (Oct. 13, 2021) “VA to hire 2,000 new processors to help with looming spike in claims backlog”