Paul R. Tierney Law

How to Get Disinherited

If you do not want to be disinherited by your relatives, it might be helpful to know what actions often lead to disinheritances so that you can avoid them.

Normally when someone is disinherited it comes with anger and surprise. This is because often people do not think that they have done anything so wrong that a family member would take such a drastic measure.

Even people who do not get along well with their relatives tend to not think it will result in being disinherited. However, estate planning attorneys can often predict what types of behaviors might lead a person to be disinherited because the same patterns occur over and over again.

Recently Financial Advisor published a list of common actions that lead to being disinherited in "Ten Tips To Avoid Losing An Inheritance."

The list includes:

• Do not visit or call – If you neglect to spend time with or talk to a relative, he or she is likely to think you do not care for him or her.
• Only visit if the relative does something for you – Threatening not to visit unless you get something in return is likely to lead to resentment.
• Judging how they spend their money – If you argue with relatives about how they spend their own money, they might think you care more about the money than them.
• Argue over trivial matters – Arguments over little things can lead to arguments over much bigger things.
• Clean out their home – Even if your parents are in a nursing home, they might not appreciate you clearing things out of their home without permission.
• Filing for guardianship too soon – Do not rush to file for guardianship if your relatives can still handle things on their own.
• Act obsessed with their estate plan – It is good to know and discuss what a relative's estate plan is, but if you talk about it all the time, it will seem like you have ulterior motives.

Reference: Financial Advisor (Nov. 19, 2015) "Ten Tips To Avoid Losing An Inheritance."

Estate Planning for Widows

Anytime someone loses a spouse, it is important that the surviving spouse's estate plan be revisited. As it turns out, widows often need something different than widowers.

Studies suggest that single women are more likely to have financial difficulties than single men. This means that a widow's estate plan generally needs to be more flexible than a man's just in case the widow does experience financial issues in the future.

While estate planning for widows is often difficult, it is not impossible.

Recently, the Wills, Trusts & Estates Prof Blog published a list of planning tips for widows in an article titled "Planning Tips For Widows."

The list includes:

• Wait at least six months after a widow's spouse passes away to allow proper time for mourning.
• Financial accounts should be easy to access and flexible.
• Immediate needs should be addressed before any financial or estate planning.
• Do not be afraid to seek professional services such as counseling if needed.

If any widows need help reevaluating their estate plans, they should seek the counsel of an experienced attorney.

Reference: Wills, Trusts & Estates Prof Blog (February 10, 2015) "Planning Tips For Widows."

Declaring Lord Lucan Completely Dead

In the United Kingdom Lord Lucan was officially declared dead by High Court order in 1999. However, that does not mean that he is considered legally dead for all purposes.

In 1974 a nanny in the employ of the 7^th Earl of Lucan was found murdered at the Earl's home. His wife was found severely beaten as well. The Lord's car was found bloodstained and abandoned.

The Lord has never been found. He was convicted of the murder and has been a fugitive ever since.

Over the years there have been numerous reported sightings. In 1999 the High Court declared Lord Lucan officially dead. However, reminiscent of the famous scene in The Princess Bride that ruling only makes Lord Lucan mostly dead.

The court's declaration allowed property to go to heirs and let his family get on with their lives.

However, it did not allow for Lord Lucan's son to inherit the title and become the 8^th Earl of Lucan.

The Mirror reports in "Lord Lucan death certificate bid faces last minute legal challenge from son of murdered nanny" that the son has submitted an application to have his father declared "presumed dead," which would allow him to inherit the title of nobility.

As the headline suggests the nanny's son is asking that Lord Lucan not be declared presumed dead.

In the United States, we do not have to deal with titles of inheritance and the estate headaches that they can bring. On the other hand, we do sometimes have to deal with missing persons and when they can be declared deceased for other estate purposes.

If you have a relative who has been missing for a long time, you might want to speak to an attorney to see when you can and should apply to have him or her declared deceased.

Reference: Mirror (Nov. 7, 2015) "Lord Lucan death certificate bid faces last minute legal challenge from son of murdered nanny"

Preventing Long Term Care Policy Lapses

Long term care in a nursing home is extremely expensive. One way to mitigate that expense is to purchase a long term care insurance policy. Unfortunately, many of the people most in need of long term care insurance let their policies lapse before they need them.

Planning for end-of-life medical care often goes hand-in-hand with estate planning. An estate plan is useless if nursing home costs eat up all of your savings as there will be no assets left for your heirs to inherit through the estate plan.

For this reason it is important to decide how you will pay for nursing home care should you ever need it.

Long term care insurance policies are a popular and effective solution. However, more than a third of the people who purchase long term care policies let them lapse before they need them to pay for nursing home expenses.

Most of the time people do not intentionally let the policies lapse. Instead, they simply forget to pay the premiums.

This may not happen out of ordinary forgetfulness but may happen because as we age we often start to suffer from cognitive impairments.

Unfortunately, the people who suffer from the cognitive impairments that would make them forget to pay the insurance premiums are the very same people who are most likely to need long term care in a nursing home.

Next Avenue reported on this problem in "How Long-Term Care Insurance Policies Backfire."

The article does point out a potential solution to this problem. It is possible to have the insurance policy statements sent to a trusted third party who can make sure that the premiums are paid.

However, if this is going to work as an anti-lapse strategy, it needs to be done when the policy is first purchased rather than risking forgetfulness later in life.

Reference: Next Avenue (Nov. 6, 2015) "How Long-Term Care Insurance Policies Backfire."

Leaving an Intellectual Inheritance

Most people who amass wealth do not do it so that their heirs can squander it. However, that is what happens in most cases. One way to help prevent this from happening to your wealth is to leave your family with an intellectual inheritance.

In "Preparing for Inheritance: How to Avoid Losing It All," Barron's points out that 70% of a family's wealth is lost in the second generation and 90% of the wealth is lost in the third generation after an initial inheritance.

What typically happens is that the first generation works hard to amass wealth and the second generation lives off the wealth instead of working hard to make more. The third generation continues where the second left off until nothing is left of the original fortune.

Of course, this is not true for all families.

Some wealthy families continue to amass wealth generation after generation. The article points out how this occurs: the families that continue to thrive leave an "intellectual inheritance" for heirs.

Consequently, they educate their heirs about the family's legacy and values. They have conversations with their heirs about how the wealth was generated and why it is so important that it be maintained through continued hard work.

Think about this when you are creating your own estate plan.

It is not enough to have an airtight estate plan drawn up by a professional. If you really want that estate plan to be a legacy for future generations of your family, then educate your heirs and also leave them an intellectual inheritance.

Reference: Barron's (Nov. 7, 2015) "Preparing for Inheritance: How to Avoid Losing It All"

What Did the Scaife Trustees Know?

The contentious battle over the trust of the late Richard Mellon Scaife has taken an interesting turn as new court filings make it appear that at least one of the three trustees may have suspected the trust was being mismanaged.

Richard Mellon Scaife's mother created a multi-million dollar trust for his benefit. When he passed away, the remainder of the trust was then supposed to pass to his children. However, instead of receiving a windfall the children received nothing because when Scaife passed away there was nothing left in the trust.

Scaife had apparently drained the trust of all of its assets to prop up his failing newspaper. His children are suing the trustees on the basis that they should not have allowed Scaife to drain the trust for that unintended purpose.

As the Pittsburgh Post-Gazette reports in "Scaife children say they were kept in dark about trust as it was drained," it appears that one of the trustees, PNC Bank, was aware that there was a potential issue with the way the trust was being administered.

It further appears that, in conversations with its legal advisors, PNC was wondering if Scaife's requests were proper and, if not proper, how the bank could protect itself from potential liability for accommodating them. The children claim that they were never informed.

While this case is still in its infancy, these revelations do not bode well for the trustees. If they knew that the trust was not supposed to be completely emptied by Scaife, then the trustees had a duty to say "no" to his requests. If they failed in that duty, then they can be held liable for that failure.

Reference: Pittsburgh Post-Gazette (Nov. 6, 2015) "Scaife children say they were kept in dark about trust as it was drained"

How Probate Can Get Expensive

There are many reasons to want to avoid probate for your estate. One of them is that probate can get very expensive. One doctor's bill in a case in New Hampshire illustrates just how expensive.

The story of Geraldine Webber's estate has been followed closely on estate planning blogs. The basics are that Webber was an elderly woman who met an on-duty police officer named Aaron Goodwin. Although Goodwin had a wife and children and was much younger than Webber, it appears that she became enamored with him.

She rewrote her will to leave Goodwin a $2 million inheritance.

The will was challenged by a group of Webber's friends, two hospitals, a city and a school on the basis that Goodwin had unduly influenced and taken advantage of her. The challengers won the case.

However, as Seacoast Online reports in "Doc charged $70K for losing testimony in cop's inheritance case," testimony from one witness came at a steep cost for the estate.

A doctor, who was hired by the estate to serve as an expert witness, concluded that Webber was competent and not suffering from dementia at the time she signed the will.

The doctor, who reached his conclusion by reviewing medical records and visiting Webber's home, had never met her. For his services to the losing case he is asking to be paid $70,120 by the estate. A judge will have to approve the amount.

That is how probate can get so expensive.

The testimony of one expert witness for the losing side can cost $70,000. Imagine if there had been other expert witnesses and not just the one.

Of course, while the judge may not approve the bill for the amount asked, the doctor will certainly receive a substantial amount from the estate.

Reference: Seacoast Online (Nov. 4, 2015) "Doc charged $70K for losing testimony in cop's inheritance case,"

Irrevocable Trusts - the Answer to Complicated Estate Planning Issues

The death of a loved one can create a lot of financial complexity. For families that have set up irrevocable trusts to facilitate the transfer of assets from one generation to another, the tax implications can be even more complicated. However, there are some basic rules that any heir should know if they get an inheritance from an irrevocable trust.

The Motley Fool recently published an article entitled, "Tax Consequences of an Inheritance From an Irrevocable Trust," in which it noted that generally speaking, whether an irrevocable trust will be subject to estate tax at the death of the person who set it up will depend on the trust's terms and how it was created.

Because an irrevocable trust is typically a separate legal entity, it's not part of the estate of the person who created it. Its creation is usually a taxable gift that requires a gift tax return, which can have implications for eventual estate tax liability. Nonetheless, heirs receive the benefit of avoiding estate tax on the trust asset's appreciation in value.

One caveat is life insurance trusts. If the person creating the trust retained incidents of ownership in the policy (retaining power to change beneficiaries, canceling or transferring the policy, putting the policy up as collateral for a loan, or borrowing money against the policy's value), it will be included in the person's estate—regardless of the irrevocable trust's ownership. If this is the case, estate taxes may be due, and your inheritance could decrease.

The impact of income taxes also depends on the terms of the irrevocable trust. If the trust terminates at the person's death and the trust distributes assets to the heirs, your tax basis in those assets will be that of the trust. Make sure you have detailed information from the trustee before making plans to sell those inherited assets.

But if the trust continues beyond the death of the person who created it, then some complex trust tax rules apply. There may be regular distributions that the trust makes to you which will be treated as taxable income. You'll receive a year-end informational return that shows how much income is taxable and if it's ordinary income, capital gains, or other specialized types of income.

Every trust is different, so get sound advice from a qualified estate planning attorney. He or she will guide you through the tax issues and make sure you're in good shape.

Reference: The Motley Fool (October 24, 2015) "Tax Consequences of an Inheritance From an Irrevocable Trust"

What Do The Uber-Wealthy Do with Their Money?

Art makes up 2.5 percent of the biggest estates and just 0.6 percent of those who had between $10 million and $20 million. A Picasso fetched more than $95 million in 2006. The superrich are different from the very, very rich. For one thing, they own more art. Estate tax data recently released by the Internal Revenue Service show what the wealthiest Americans possess when they die—and where the money goes.

In The Wall Street Journal's "When the Superrich Die, Here's What's in Their Wallets," reported that the estate tax returns in the data sample were all filed in 2014, so they came from the estates of people who died in 2013 (the estate tax applied to estates of individuals over $5.25 million and a top rate of 40%). Estates can deduct charitable contributions and bequests to surviving spouses, who then pay when they pass away.

The most important thing to remember about the estate tax is that it really doesn't apply to most folks, just to a few of the very rich. Congress increased the exemption and indexed it to inflation, ensuring that almost all of the 2.6 million people a year who die in the U.S. need not worry about estate tax. That leaves just the very wealthiest in the country.

Fewer than 12,000 estate tax returns were filed in 2014—more than 50% of those didn't yield any tax for the federal government.

The data showed that the uber-wealthy don't provide much information about the ways they shift assets out of their ownership or the planning maneuvers that can decrease the size of estates prior to death. Those who died with more than $50 million (the top tier) were heavily invested in stock and closely held businesses.

Those who were rich enough to file an estate tax return–but not at the very top–relied much more heavily on retirement accounts like 401k's and real estate. The types of assets change as people get wealthier. The merely rich have houses, cash, farms and retirement accounts. The very rich have bonds and real estate. But the very, very rich own art and stocks of businesses which they often want to pass to future generations.

The richest people pass on smaller shares of their estates to their heirs and it's not merely due to the fact that more of their wealth is subject to taxation. They tend to have bigger debts and make bigger charitable contributions. Charities collected $18.4 billion from bequests from the returns filed in 2014, with 58% of that coming from just 1.4% of estate tax returns.

Whether you're "uber-rich" or just getting by, you can truly benefit from a discussion with a qualified estate planning attorney.

Reference: Wall Street Journal (October 30, 2015) "When the Superrich Die, Here's What's in Their Wallets"

Motivate Heirs' Behavior with Trust Clause

One of the most difficult issues in estate planning is what to do about heirs who may need something like a parent's guiding hand long after they become adults. A child or grandchild may have a mental illness, a problem with substance abuse, or chronic trouble holding a job. Helping such a person by giving them money may in fact be harmful, by enabling bad or self-destructive behavior. One possible solution for such dilemmas is what's known as an incentive trust. This gives the trustee power to enforce provisions that encourage desired behaviors – or penalize the heir for failure to meet a certain standard.

The Greater Wilmington Business Journal article, "Trusts Can Include Incentives For Heirs To Act Responsibly," says that this is different from situations in which a person with a disability, or the beneficiary of a settlement as the result of an accident, is cared for through a trust.

You must use great care when creating an incentive trust.

Attempting to control too many aspects of an heir's life can be counterproductive: it's called trying to "rule from the grave," or making an inheritance conditional. Examples of "incentives" include completing a certain degree or entering a certain line of work that may not be in line with an adult's actual talents or aspirations.

Nonetheless, where a clear pattern of negative actions exists, the right incentives can encourage an heir to make better life choices.

It's important to be realistic. The promise of inherited money may not be enough to overcome a pattern of severe substance abuse, so the threat of giving the inheritance to charity if specified incentives aren't met might be needed.

It may be a good idea to attach age restrictions.

If you have a kid who is irresponsible with money, a trust might be structured so that s/he will not have access to the estate's principal until a certain age. Some trusts set up staggered distributions, at specified ages, to keep them from burning through their inheritance right away. Another way to encourage a responsible lifestyle is to distribute trust funds on a matching basis. That might be dollar for dollar, based on what the beneficiary earns on his or her own. This is known as a "work ethic" clause.

Another sort of incentive clause could specify that the trustee wouldn't distribute any money until the heir showed an ability to handle the funds. For someone with an abuse problem, this could be enforced by requiring the beneficiary submit to random drug testing. Failure to comply could result in the assets being distributed to alternate beneficiaries, like charities.

Instead of just disinheriting a child or grandchild, an incentive trust can work as an escape clause. It might just help to get someone who's struggling to turn his or her life around.

Contact a qualified estate planning attorney to help you create the appropriate incentives for your unique circumstances.

Reference: Greater Wilmington Business Journal (November 1, 2015) "Trusts Can Include Incentives For Heirs To Act Responsibly"