Klitzman Law Group, PLLC

Singer’s 15-Year Estate Battle Is Wrapping Up

“The family of entertainer James Brown has reached a settlement ending a 15-year battle over the late singer’s estate, an attorney involved in the mediation said Friday.”

The fighting over Brown’s estate has been going on since he died 15 years ago on Christmas Day at age 73. A series of bizarre events followed, says the Associated Press in the article “Family of James Brown settles 15-year battle over his estate.” They included photos of a woman who claimed to have been married to Brown being locked out of his home, sobbing and rattling the iron gates to his estate.

James Brown was known for his flashy performances and iconic chart-topping hits, like “I Feel Good,” “A Man’s World,” “Pappas Got a Brand-New Bag,” and many more. Unfortunately, he was plagued by drug problems and mismanaged finances, which shrank his estate.

More than twelve lawsuits were filed by people trying to establish claims to his assets. Courts estimates of his net worth range from $5 million to more than $100 million.

The battle was gruesome from the start, since it wasn’t just about money. Brown’s family fought over what was to happen with his body. His remains, inside a gold casket, were in a funeral home in cold storage for more than two months, until this issue was resolved.

Brown was eventually interred in Beech Island, South Carolina, at the home of one of his daughters. The family had plans to create a shrine to him, using Elvis Presley’s Graceland as a model, but the idea never became reality.

In 2020, the South Carolina Supreme Court ruled that Tommie Rae Hynie, the woman who claimed to be his wife, had never been legally married to Brown and had no claim on his estate. Justices also ordered a circuit court to proceed with probating Brown’s estate, following the directions of his estate plan.

Brown’s estate plan outlined plans for a trust to be created to use his music royalties to fund educational expenses for children in South Carolina and Georgia.

There had been a 2009 settlement plan that would have given almost half of his estate to a charitable organization, a quarter of his estate to Hynie and the rest to be divided among his adult children. That settlement was overturned in 2013, with a judge saying the settlement did not follow Brown’s wishes for most of his money to go to charity.

A professional manager had been brought in to take control of Brown’s assets from the estate’s trustees to settle his debts.

Reference: Associated Press (July 23, 2021) “Family of James Brown settles 15-year battle over his estate”

What are the Basics of a Successful Estate Plan?

An estate plan tells your heirs and the courts how to divide up your assets, but it also helps protect your loved ones from unnecessary hassle and expense–as well as potentially months, even years, tied up in the court system settling your estate.”

Whether you have a whole lot of money or a little, an estate plan is an essential. It protects you and your loved ones, and can also minimize taxes, expenses, fees and the loss of your privacy. A solid estate plan is created by an experienced estate planning attorney who is familiar with the laws of your state, reports the recent article titled “Estate planning checklist: 3 key steps to making a successful plan” from Bankrate.com.

All good estate plans have three key elements: a will, power of attorney and an advance healthcare directive. Each serves a different purpose. Some estate plans also include trusts, but every situation is different. Your estate planning attorney will be able to create the right estate plan for you.

A Will. The will, also known as the last will and testament, is the foundation of all estate plans. It directs your assets to be distributed as you wish. Without an estate plan, the court decides who will receive your assets. That’s the biggest mistake you can make. It’s called dying intestate. Your heirs will be burdened with additional court costs, delays and the stress of not knowing what you might have wanted.

However, financial accounts and property aren’t the only valuable thing protected by your will. If you have a minor child or children, the will is used to name a guardian who will take care of them. It also names a conservator who will manage the child’s financial assets, until they are of legal age. The guardian and conservator may be the same person, or they might be two different people. If you opt to split the roles, be sure the two people work well together.

Power of Attorney. A power of attorney, or POA, is used to give another person legal authority to take care of financial and legal matters, while you are still living. If you are incapacitated, a POA gives someone else the ability to pay bills and manage your affairs. A medical POA gives another person the ability to make healthcare decisions on your behalf. The POA is completely customizable: you can use it to give someone else broad powers to do everything, or narrow powers so they are in charge of only one bank account, for instance. It is very important to have a detailed discussion with the person before you name them. It’s a big responsibility and you want to be certain they are comfortable carrying out all of the tasks.

The Advance Healthcare Directive. This document lays out in detail what you want to happen to you if you are not able to make decisions because of severe illness or injury. If you don’t want to be resuscitated after a heart attack, for instance, you would state that in your advance care directive. It includes a list of treatments you do and do not want. Your family will be able to use it as a guide to help them make difficult decisions regarding sustaining your life, managing pain and providing end-of-life care.

Trusts in Estate Planning. The three elements above form the base of an estate plan, but there are other tools used to achieve your goals. Depending on your circumstances, you will want to incorporate trusts, useful tools for transferring assets of all types. For example, when assets are placed in an irrevocable trust, they are no longer part of your estate, thereby minimizing your estate tax liability. Trusts are also used when parents wish to exert control over how and when money is distributed to children. If the parents should both die, a trust can prevent an entire inheritance coming into the hands of an 18-year-old who is legally old enough to inherit property, but likely not ready for the responsibility.

Trusts also transfer assets outside of the probate process, so they protect the family’s privacy. No one outside of the trustees know how much money is in the trust and how the money is being distributed. Trusts are not just for the very wealthy. They can help you protect assets from creditors, ex-spouses and litigious family members.

Reference: Bankrate.com (July 23, 2021) “Estate planning checklist: 3 key steps to making a successful plan”

Disney Grandson Loses Appeal of Probate Court’s Decision

“An appellate judge dubs probate court ‘the Unhappiest Place on Earth,’ as Disney heir Bradford Lund has lost an appeal stemming from his fight to claim his fortune.”

Bradford Lund, Walt Disney’s adult grandson, lost an appeal in a battle with a Los Angeles probate judge who appointed a guardian ad litem without a hearing and rejected a proposed settlement that would have given Lund a $200 million inheritance, says this recent article “Walt Disney’s Grandson Loses Appeal in Fight for $200M Inheritance” from The Hollywood Reporter. Despite its decision, the appellate court described the probate court’s behavior as “troubling.”

In 2020, Lund filed a lawsuit in California federal court arguing that his due process was violated when a County Superior Court judge rejected a settlement reached by family members and trustees. The judge appointed a guardian ad litem, even though an Arizona judge had determined that Lund was not incapacitated and another judge in California stated that Lund had the capacity to choose new trustees.

The lawsuit was later amended to include a claim under the Americans With Disabilities Act because in the 2019 settlement, Judge Cowan had stated that he would not give 200 million dollars to someone who may suffer, at some level, from Down syndrome.

Six months later, a U.S. District judge dismissed the matter. During the appeals process, the Superior Court discharged the guardian ad litem and granted Lund’s request for a new judge.

The 9^th Circuit Court of Appeals affirmed the dismissal, finding that most of Lund’s claims had become moot, as a result of the judge recusing himself and removing the guardian ad litem. The panel also held that, while the judge’s statements were inappropriate and without factual basis, they were protected by judicial immunity.

It may be small comfort to Lund, but the 9^th Circuit judge criticized the probate court and acknowledged his frustration with the system. The district judge no longer serves in probate court, although no connection between his departure and the Lund matter was recognized by the 9^th District.

Regarding the ADA claim, the panel of 9^th Circuit judges says that judges must remain completely independent, and subjecting judges to liability for grievances of litigants would compromise that.

Reference: The Hollywood Reporter (July 16, 2021) “Walt Disney’s Grandson Loses Appeal in Fight for $200M Inheritance”

What are the Advantages of a Testamentary Trust?

“This legal document can also be beneficial in other situations, such as if you want to leave an inheritance to someone but aren’t sure they will use the gift wisely.”

One reason to have a last will and testament is to protect minor children. A will offers a means of providing for a minor child through a testamentary trust, which is also a good tool for leaving an inheritance to someone who might not use their bequest wisely, says the recent article “What is a Testamentary Trust and How Do I Create One?” from wtop news.

Trusts are legal entities that hold assets, and money or other assets in the trust are managed according to the wishes of the person who created the trust, known as the grantor. A testamentary trust is created through the person’s will and becomes effective upon their death. Once the person dies, their assets are placed in the trust and are distributed according to the directions in the trust.

A trust can also be created while a person is living, called a revocable trust or a living trust. Assets moved into the trust are distributed directly to heirs upon the person’s death and do not go through the probate process. However, they are administered without probate, as long as they are in effect. Living trusts are also managed outside of the court system, while testamentary trusts are administered through probate as long as they are in effect.

A testamentary trust is used to manage money for children. However, it can also protect assets in other situations. If you are concerned about an adult child getting divorced and don’t want their inheritance to be lost to a divorce, a trust is one way to keep their inheritance from being considered a marital asset.

The oversight by the court could be useful in some situations, but in others it becomes costly. Here’s an example. Let’s say a testamentary trust is created for an 8-year-old to hold assets until she turns 25. For seventeen years, any distribution of assets will have to take place through the court. Therefore, while it was less costly to set up than a living trust, the costs of court proceedings over the seventeen years could add up quickly and easily exceed the cost of setting up the living trust in the first place.

If someone involved in the estate is litigious and likely to contest a will or a trust, having the court involved on a regular basis may be an advantage.

Having an estate planning attorney create the trust protects the grantor and the beneficiary in several ways Trusts are governed by state law, and each state has different requirements. Trying to set up a trust with a generic document downloaded from the web could create an invalid trust. In that case, the trust may not be valid, and your wishes won’t be followed.

Once a testamentary trust is created, nothing happens until you die. At that point, the trust will be created, and assets moved into it, as stipulated in your last will and testament.

The trust can be changed or annulled while you are living. To do this, simply revise your will with your estate planning attorney. However, after you have passed, it’ll be extremely difficult for your executor to make changes and it will require court intervention.

Reference: wtop news (July 19, 2021) “What is a Testamentary Trust and How Do I Create One?”

How Is Insurance Used in Estate Planning?

“There may be potential benefits to life insurance beyond its traditional uses, especially when it comes to taxes, estate planning and long-term care.”

It’s possible that life insurance may play a much bigger role in your estate planning than you might have thought, says a recent article in Kiplinger titled “Other Uses for Life Insurance You May Not Know About.”

If you own a life insurance policy, you’re in good company—just over 50% of Americans own a life insurance policy and more say they are interested in buying one. When the children have grown up and it feels like your retirement nest egg is big enough, you may feel like you don’t need the policy. However, don’t do anything fast—the policy may have far more utility than you think.

Tax benefits. The tax benefits of life insurance policies are even more valuable now than when you first made your purchase. Now that the SECURE Act has eliminated the Stretch IRA, most non-spouse beneficiaries must empty tax-deferred retirement accounts within ten years of the original owner’s death. Depending on how much is in the account and the beneficiary’s tax bracket, they could face an unexpected tax burden and quick demise to the benefits of the inherited account.

Life insurance proceeds are usually income tax free, making a life insurance policy an ideal way to transfer wealth to the next generation. For business owners, life insurance can be used to pay off business debt, fund a buy-sell agreement related to a business or an estate, or fund retirement plans.

What about funding Long-Term Care? Most Americans do not have long-term care insurance, which is potentially the most dangerous threat to their or their spouse’s retirement. The median annual cost for an assisted living facility is $51,600, and the median cost of a private room in a nursing home is more than $100,000. Long-term care insurance is not inexpensive, but long-term care is definitely expensive. Traditional LTC care insurance is not popular because of its cost, but long-term care is more costly. Some insurance companies offer life insurance with long-term care benefits. They can still provide a death benefit if the owner passes without having needed long-term care, but if the owner needs LTC, a certain amount of money or time in care is allotted.

Financial needs change over time, but the need to protect yourself and your loved ones as you age does not change. Speak with an estate planning attorney about your overall plan for the future.

Reference: Kiplinger (July 21, 2021) “Other Uses for Life Insurance You May Not Know About”

How Do You Survive Financially after Death of Spouse?

“The death of a spouse is one of the most difficult things imaginable. Besides the emotional toll, surviving spouses typically confront financial issues, which often trigger tax-related questions and consequences.”

The financial issues that arise following the death of a spouse range from the simple—figuring out how to access online bill payment for utilities—to the complex—understanding estate and inheritance taxes. The first year after the death of a spouse is a time when surviving spouses are often fragile and vulnerable. It’s not the time to make any major financial or life decisions, says the article “The Financial Effects of Losing a Spouse” from Yahoo! Finance.

Tax implications following the death of a spouse. A drop in household income often means the surviving spouse needs to withdraw money from retirement accounts. While taxes may be lowered because of the drop in income, withdrawals from IRAs and 401(k)s that are not Roth accounts are taxable. However, less income might mean that the surviving spouse’s income is low enough to qualify for certain tax deductions or credits that otherwise they would not be eligible for.

Surviving spouses eventually have a different filing status. As long as the surviving spouse has not remarried in the year of death of their spouse, they are permitted to file a federal joint tax return. This may be an option for two more years, if there is a dependent child. However, after that, taxes must be filed as a single taxpayer, which means tax rates are not as favorable as they are for a couple filing jointly. The standard deduction is also lowered for a single person.

If the spouse inherits a traditional IRA, the surviving spouse may elect to be designated as the account owner, roll funds into their own retirement account, or be treated as a beneficiary. Which option is chosen will impact both the required minimum distribution (RMD) and the surviving spouse’s taxable income. If the spouse decides to become the designated owner of the original account or rolls the account into their own IRA, they may take RMDs based on their own life expectancy. If they chose the beneficiary route, RMDs are based on the life expectancy of the deceased spouse. Most people opt to roll the IRA into their own IRA or transfer it into an account in their own name.

The surviving spouse receives a stepped-up basis in other inherited property. If the assets are held jointly between spouses, there’s a step up in one half of the basis. However, if the asset was owned solely by the deceased spouse, the step up is 100%. In community property states, the total fair market value of property, including the portion that belongs to the surviving spouse, becomes the basis for the entire property, if at least half of its value is included in the deceased spouse’s gross estate. Your estate planning attorney will help prepare for this beforehand, or help you navigate this issue after the death of a spouse.

It should be noted there is a special rule that helps surviving spouses who wish to sell their home. Up to $250,000 of gain from the sale of a principal residence is tax-free, if certain conditions are met. The exemption increases to $500,000 for married couples filing a joint return, but a surviving spouse who has not remarried may still claim the $500,000 exemption, if the home is sold within two years of the spouses’ passing.

There is an unlimited marital deduction in addition to the current $11.7 million estate tax exemption. If the deceased’s estate is not near that amount, the surviving spouse should file form 706 to elect portability of their deceased spouse’s unused exemption. This protects the surviving spouse if the exemption is lowered, which may happen in the near future. If you don’t file in a timely manner, you’ll lose this exemption, so don’t neglect this task.

Reference: Yahoo! Finance (July 16, 2021) “The Financial Effects of Losing a Spouse”

Does a Beneficiary on a Bank Account Override a Will?

“Beneficiaries, in general, are people or entities that the holder of an account designates to receive the assets in the account, typically, in the event of the account holder’s death.”

You’ve named beneficiaries to accounts many times already, when you opened an IRA, bought an insurance annuity, a life insurance policy, started an investment account, signed up for a pension or bought shares in a mutual fund. These are the accounts that come to mind when people think about beneficiary designations. However, according to a recent article in Forbes titled “Do You Need a Beneficiary for Your Bank Account?,” they are not the only financial instruments with beneficiary designations.

When you open a bank account, most retail banks don’t ask you to name a beneficiary, but it’s not because you can’t. If the bank allows beneficiaries on their accounts, it’s usually a pretty simple process. In most cases, you’ll be asked to fill out a form or go through the bank’s process online.

Banks don’t push for beneficiary accounts because they are not required to do so. However, this is a smart move and can be a helpful part of your estate plan. The biggest benefit: funds in the account will be distributed directly to the beneficiary upon your death. They won’t have to go through probate and won’t be part of your estate. Otherwise, whatever assets you keep in your bank accounts will be counted as part of your estate and subject to probate.

Probate is a court process to validate the will and the named executor, supervising the distribution of assets from your estate. In some cases, it can be complicated, take months to complete and depending on the size of your estate, be expensive. If the money in your bank accounts does not go to a beneficiary, it can be used to pay off estate debts instead of going straight to a beneficiary.

For married people, bank account funds are treated differently. Half of the balance goes to your spouse upon death, the rest goes through probate.

Naming a beneficiary is a better alternative. The beneficiary may collect the money immediately. They’ll need to go to the bank with an original or certified copy of a death certificate, required identification (usually a driver’s license) and the money is transferred to them.

If you are married and don’t live in a community property estate, a surviving spouse may be able to dispute the terms of a beneficiary arrangement, but that will take time.

Another means of transferring assets in a bank account is to change your accounts to POD, or Payable On Death accounts. There are other names: In Trust For (ITF), Totten Trust or Transfer on Death (TOD). The named beneficiary is referred to as the POD beneficiary.

There is considerable flexibility when naming a POD beneficiary. It may be a living person, or it can be an organization, including a nonprofit charity or other trusts. You are not allowed to name a non-living legal entity, like a corporation, limited liability company (LLC) or partnership.

Beneficiary designations override wills, so if you forget to change them, the person named will still receive the money, even if that was not your intent. You should review beneficiaries for all of your accounts every year or so. Divorce, death, marriages, births and any other lifetime events are also reasons to check on beneficiary designations.

Reference: Forbes (July 9, 2021) “Do You Need a Beneficiary for Your Bank Account?”

Do You Need a Revocable Trust or Irrevocable Trust?

“Trust funds are not just for the ultra-rich. These sophisticated estate-planning tools can make just as much sense for middle-class Americans who own a home and have a net worth of at least $100,000.”

There are important differences between revocable and irrevocable trusts. One of the biggest differences is the amount of control you have over assets, as explained in the article “What to Consider When Deciding Between a Revocable and Irrevocable Trust” from Kiplinger. A revocable trust is often referred to as the Swiss Army knife of estate planning because it has so many different uses. The irrevocable trust is also a multi-use tool, only different.

Trusts are legal entities that own assets like real estate, investment accounts, cars, life insurance and high value personal belongings, like jewelry or art. Ownership of the asset is transferred to the trust, typically by changing the title of ownership. The trust documents also contain directions regarding what should happen to the asset when you die.

There are three key parties to any trust: the grantor, the person creating and depositing assets into the trust; the beneficiary, who will receive the trust assets and income; and the trustee, who is in charge of the trust, files tax returns as needed and distributes assets according to the terms of the trust. One person can hold different roles. The grantor could set up a trust and also be a trustee and even the beneficiary while living. The executor of a will can also be a trustee or a successor trustee.

If the trust is revocable, the grantor has the option of amending or revoking the trust at any time. A different trustee or beneficiary can be named, and the terms of the trust may be changed. Assets can also be taken back from a revocable trust. Pre-tax retirement funds, like a 401(k) cannot be placed inside a trust, since the transfer would require the trust to become the owner of these accounts. The IRS would consider that to be a taxable withdrawal.

There isn’t much difference between owning the assets yourself and a revocable trust. Assets still count as part of your estate and are not sheltered from estate taxes or creditors. However, you have complete control of the assets and the trust. So why have one? The transition of ownership if something happens to you is easier. If you become incapacitated, a successor trustee can take over management of trust assets. This may be easier than relying on a Power of Attorney form and some believe it offers more legal authority, allowing family members to manage assets and pay bills.

In addition, assets in a trust don’t go through probate, so the transfer of property after you die to heirs is easier. If you own homes in multiple states, heirs will receive their inheritance faster than if the homes must go through probate in multiple states. Any property in your revocable trust is not in your will, so ownership and transfer status remain private.

An irrevocable trust is harder to change, as befits its name. To change an irrevocable trust while you are living takes a little more effort but is not impossible. Consent of all parties involved, including the beneficiary and trustee, must be obtained. The benefits from the irrevocable trust make the effort worthwhile. By giving up control, assets in the irrevocable trust may not be part of your taxable estate. While today’s federal estate exemption is historically high right now, it’s expected to go much lower in the future.

Reference: Kiplinger (July 14, 2021) “What to Consider When Deciding Between a Revocable and Irrevocable Trust”

Does Estate Planning Vary by State?

“Whether you've recently moved to Florida or are a ‘snowbird’ with Florida residency, there are important reasons to consider updating your estate plan.”

Estate planning laws vary greatly from state to state and understanding the difference could have a significant impact on whether your estate plan is valid. It is best to get this straight shortly after moving, says The National Law Review in the recent article “Updating Your Estate Plan: What Michigan Residents Need to Know When Moving to Florida.”

It's not just people from Michigan who move to Florida who need to have their estate plans reviewed, if they are snowbirds or making a full-time move—it’s anyone who moves to another state, from any state. However, Florida’s popularity makes it a good example to use.

Florida restricts who is permitted to serve as a Personal Representatives under a will. The personal representative, also known as an executor, must be a descendent or ancestor of the decedent, a spouse, brother, sister, aunt, uncle, nephew, niece or descendant or ancestor of any such person or a Florida resident.

Florida doesn’t recognize “no contest” clauses in trusts or wills. It also does not recognize unwitnessed testamentary documents, which are handwritten documents even if they are in your own handwriting. Michigan may accept them, but Florida courts do not.

Florida also has a special set of laws, known as the Homestead laws, designed to protect a decedent’s surviving spouse and children. You may have had other plans for your Florida home, but they may not be passed to the people you have designated in your non-Florida will, if they don’t follow the Sunshine State’s guidelines.

Power of Attorney laws differ from state to state, and this can create huge headaches for families. In Michigan, the Durable Power of Attorney can be “springing,” that is, it is effective only upon incapacity. In Florida, once a Durable Power of Attorney is signed, it is effective. Florida may accept a DPA from another state, but Florida law will be applied to the agent’s actions, and restrictions will be based on Florida law, not that of another state.

As for estate planning documents concerning medical and financial decisions while you are living, these are also different. A living will names a person, known as a “Patient Advocate” in Michigan or a “Health Care Surrogate” in Florida, who is authorized to make decisions regarding end of life care, including providing, withholding, or withdrawing life-sustaining treatment. In Michigan, you need two doctors to certify a patient’s incapacity for non-life-or-death decisions. In Florida, only one doctor is needed.

Whether you are traveling north for a cooler summer or planning to leave a northern home before the winter arrives, meet with your estate planning attorney to understand how any and all of your estate planning documents will work—or not—when you are in another state.

Reference: The National Law Review (June 30, 2021) “Updating Your Estate Plan: What Michigan Residents Need to Know When Moving to Florida”

Who Pays the Tax on a Special Needs Trust?

“The main financial vehicles of supporting disabled individuals—the special needs trust and the Achieving a Better Life Experience (ABLE) account—both come with special tax conditions that advisors need to consider.”

One of the reasons to use a Special Needs Trust (SNT) or open an ABLE account is to prevent federal or state benefits for a disabled person to be put at risk. The SNT is a way to hold property for someone without interfering with their eligibility. However, there are no tax advantages to the trust, according to a recent article titled  “How To Factor In Taxes When Considering Special Needs Trusts, Accounts” from Financial Advisor.

Tax results depend on who creates the trust, the terms of the trust and how it’s administered. The trust pays no taxes on any income it earns, as long as that income is passed on to the beneficiary. Trust tax rates are generally higher than individual tax rates. The income to the beneficiary will be taxable at their income tax rate. In some cases, all of the income of a trust might be taxed to the beneficiary, while in others the parent or person who created the trust might bear a tax burden, or the trust itself may be responsible for the tax liability.

An ABLE account is also a tax-favored vehicle, similar to a 529 college saving account. For a person to qualify for an ABLE account, they must have a disability that began before age 26 or be a recipient of Supplemental Security Income (SSI) or Social Security disability insurance benefits or meet other disability requirements.

The ABLE account will not reduce the major part of SSI benefits under the dollar-for-dollar SSI direct support rules, and it won’t be counted as an asset. The disabled person may also use their ABLE account to save earned income. The ABLE account can be inherited, and new rules allow funds in a 529 college savings account to be rolled into an ABLE account.

You can only contribute $15,000 a year to most ABLE accounts, and if the account plus other resources exceeds $100,000, SSI benefits will be suspended. These accounts must be managed carefully to protect eligibility.

The ABLE account varies, depending on the requirements and rules of the state where it is established. Some states offer additional tax benefits, if the person uses the ABLE accounts offered by their home state.

Depending on the state where you open the account, there can be deductions for contributions to an ABLE account. Earnings in the account are generally not subject to taxes, but the funds in the ABLE account may only be used tax-free for qualified expenses that result from living with a disability. Those include education, housing, employment training and special assistance.

The ABLE account is a useful financial tool for disabled individuals, but it does not completely replace a Special Needs Trust or trust planning.

When there are substantial funds, such as those from an inheritance, litigation settlement or a major gift, most estate planning attorneys recommend that those funds go into a Special Needs Trust.

Reference: Financial Advisor (July 12, 2021) “How To Factor In Taxes When Considering Special Needs Trusts, Accounts”