Issue 12.10

The use of a revocable trust (sometimes referred to as a “living trust” or “family trust”) to plan one’s estate has become very popular.  Despite the popularity of the revocable trust, revocable trusts are not without their potential problems. 

First, it is important to understand that there is no definitive answer as to whether a trust is necessary.   Another estate planner explained that asking whether a revocable trust is good or bad is like asking whether a wrench is good or bad.  It depends on what you are trying to accomplish.  A trust is just an estate planning tool.  Whether it is good or bad depends on your needs and desires.

Although there are many factors to consider in determining whether a revocable trust is right for you, here are a few of the more significant factors:

1.  Avoiding Probate.  It is true that a properly funded trust avoids probate.  If the goal of the client is to avoid probate, it is critical that the trust be properly funded.  To “properly fund” a trust, title to all assets and beneficiary designations for insurance policies and retirement accounts must be reviewed.  A properly funded trust avoids probate because the owner of the assets (generally termed the trustor, settlor, grantor or trustmaker in the trust document) conveys ownership from him or herself (in his or her individual capacity) to him or herself as trustee of his or her trust.  Probate is avoided because for “probate purposes” the deceased person does not own assets but rather the trustee of the trust owns the assets.  It is critical to understand that a revocable trust only avoids probate if the assets have been properly transferred to the trust.

Out of State Property.  A revocable trust is especially useful if you own real estate in another state.  Real estate in another state generally requires a probate proceeding in that state.  If you live in one state but own real estate in another state, your beneficiaries may be required to commence multiple probate proceedings.  This situation can be avoided through the use of a revocable trust.

3.  Avoiding Court Appointed Conservatorship.  A properly drafted trust should provide for the management of trust assets in the event the person contributing the property to the trust becomes incapacitated.  This would avoid the need for a court appointed conservator for financial matters.

In conclusion, a revocable trust is an important estate planning tool.  Depending on your individual situation and desires, you may decide to use a revocable trust as your principal estate planning tool.  As in all estate planning decisions, being educated about your choices is key in deciding whether a revocable trust is right for you. 

Jeffery J. McKenna is a local attorney serving clients in Utah, Nevada, and Arizona. He is a shareholder at the law firm of Barney & McKenna, with offices in St. George and Mesquite.  He is the former President of the Southern Utah Estate Planning Council.

Issue 10.10

The term “community property” is a form of property ownership between husband and wife - recognized in Nevada, Arizona, California, Idaho, Louisiana, New Mexico, Texas, Washington and Wisconsin.  The other states are “common law” states.

The defining feature of community property is this: Irrespective of the name(s) on title documents, ownership of (almost) ALL property - including income from wages and self-employment - acquired during marriage by either spouse is automatically split, so that each spouse owns a separate, undivided one-half interest.  (An “undivided” interest is one in which each spouse has half ownership of the whole, rather than full ownership of only a specific half.)

In community property states, property acquired by a spouse separately and brought into the marriage remains separate.  In these states, too, property acquired by gift or inheritance, or in exchange for separate property or money, also remains separate.  Commingling of assets can obscure separate property ownership, until it finally becomes community property.  This often happens with checking and other financial accounts.

Since the two equal interests of the spouses in community property are separate, each spouse is free to dispose of his/her half of community property in a Will.  It does not automatically pass to the survivor, as it would if owned jointly, with right of survivorship.

The subject of community property deserves the attention of three groups of readers: Spouses who now live in a community property jurisdiction, those who now live in a common law state, but who acquired money or property while living in a community property state previously, and those who now live in a community property state, but who acquired money or property while living in a common law state previously.

It is possible in some community property states for the spouses to change their respective ownership rights in an asset, from community property to separate property and vice-versa, simply by written agreement between them.

In a community property state, a spouse’s actual contribution to the marriage, and to the couple’s marital property, is largely irrelevant.  A spouse is, by law, entitled to half.  This is true even if one spouse has worked throughout the marriage, and the other has not worked at all.

State laws vary, and these issues can be complex, so be aware that special attention needs to be given to the issue of community property, if you are affected by it. If so, it is important to see a lawyer for guidance in understanding the extent of each spouse’s property rights - before attempting to give it away by gift, in a Will or in Trust.

Jeffery J. McKenna is a local attorney serving clients in  Utah, Arizona and Nevada. He is a shareholder at the law firm of Barney, McKenna, and Olmstead with offices in St. George and Mesquite.  If you have questions you would like addressed in these articles, you can contact him at 435 628-1711 or jmckenna@barney-mckenna.com.

Issue 8.10

Deciding who gets your assets after you die is difficult enough, but what if you want to make sure someone IS NOT included?  Even though the word “disinherit” may conjure up images of family discord, there are many reasons one may wish to do it.  Perhaps one of your children is a wealthy entrepreneur and another has special needs, or perhaps you are in a second marriage and want to provide for your children from a previous marriage – but not your ex-spouse. 

Spouses.  If you live in a community property state like Arizona and Nevada, the law assumes that your spouse automatically owns half of everything you both earned during your marriage.  There are ways to define money that is yours, separate from the community property, to make sure it goes where you want when you die.  However, in order to do that, both spouses must sign a written agreement that explains which assets belong to each partner separately.  

Other states give your spouse the right to claim a prescribed portion of your estate, no matter what your will provides, or even if you have a will at all.  In these cases, it is impossible to completely disinherit a spouse, unless your spouse is willing to sign a marital agreement waiving his or her right to your estate.

Ex-spouses.  Your ex-spouse has no claim to the assets of your estate, unless he or she has some claim against your estate before you die, such as a court order that has awarded a portion of a retirement benefit or pension.  It would depend on how the assets were separated at the time of the divorce.  Significantly, insurance policies with an ex-spouse inadvertently left as beneficiary take precedence over a will that leaves those same assets to another.

Children.  In most cases, you can disinherit a child or grandchild simply by stating so in your will.  However, simply omitting to mention a child does not automatically disinherit a child.  Most states have laws that protect against accidental disinheritance; for example, if a child was born after you drafted your will.  

Disinheritance is a personal issue.  One who wishes to disinherit a family member may find that there are other effective options, such as putting assets in a trust for that heir, with a trustee making the decisions of what the money can, and can not, be used for.  It is wise to consult an estate planning attorney before making decisions that affect the distribution of your estate and the harmony of your family, once you are gone.

Jeffery J. McKenna is an attorney licensed and serving clients in Nevada, Arizona and Utah with a local office in Mesquite.

Issue 4.10

Many people use trusts to achieve specific estate planning goals.  Such trusts are designed to save money by avoiding probate fees and delays, and by deferring or reducing estate taxes.  For example, a revocable “living trust” can avoid the cost and delays associated with probate.  A will or living trust may also create a separate trust when one spouse dies, in order to shield later estate taxes.  Such trusts are designed to save money by avoiding probate fees and delays, and by deferring or reducing estate taxes.

But if there are disputes about the management of the trust, litigation can be very expensive.  Trust litigation may also take longer than probate to uncover mismanagement or theft, thus reducing the odds of recovering lost property.

Normally, a trustee (the person administering the trust) is not subject to court supervision.  However, a trustee or beneficiary may initiate a court action.  The court can compel the trustee to account for the trust’s assets and income, or to change investment and distribution policies to conform to the trust’s instructions.  

Trust disputes can have different causes.  A trustee may decide to pay himself a high fee, or may distribute trust property in a way that conflicts with the trust instructions.  A beneficiary may want more money distributed, or may object that the trustee’s investment strategy is too risky (or too conservative).  

Adult children are often concerned about the management of a “living trust” by a step-parent after a parent has died.  The children are concerned, yet they are uncomfortable insisting that the step-parent provide information, especially if the step-parent is entitled to all income during his or her lifetime.  The result may be resentment, alienation, and a loss of family harmony.

Many problems can be avoided by making sure all family members understand their rights and receive adequate information about the trust’s management.  Ideally, information should be shared before either parent dies.

If the beneficiaries are well-informed, they can more easily express any concerns about the trust’s administration to the trustee, who can then act quickly to address those concerns properly without the need for lawsuits.

There are ways to set up trusts and trustee provisions to minimize future problems and conflicts, and to prevent family disharmony.  An experienced estate planning attorney can suggest innovative solutions to seemingly insurmountable problems.

Jeffery J. McKenna is a local attorney serving clients in Utah, Arizona and Nevada. He is a shareholder at the law firm of Barney, McKenna, and Olmstead with offices in St. George and Mesquite.  If you have questions you would like addressed in these articles, you can contact him at 435 628-1711 or jmckenna@barney-mckenna.com.

Issue 51.09

Revocable “living trusts” have become increasingly popular in the past decade.  They allow heirs to avoid probate court proceedings.

But unlike a will, a living trust cannot be simply signed and filed away.  If an asset is never transferred to the trust, or is unintentionally removed from the trust, it will be subject to probate.

Over the past few years, as interest rates plunged, many homeowners refinanced their homes to reduce payments.  Unfortunately, many lenders won’t make loans on property held in a living trust.  They insist that the home be transferred back to the owners’ individual names before a loan is made.

After the new loan is made and the new deed of trust is recorded, the homeowners are free to transfer the home back into the living trust but lenders rarely assist homeowners with this final step.  (Some homeowners don’t even know their home was removed from the trust, since they signed many documents at once.)  The end result is that homeowners who properly transferred their homes into living trusts to avoid probate, may face probate anyway because their work was undone.

It is sometimes possible to obtain court approval to confirm trust ownership of a home that was never formally transferred to the trust.  However, it can be costly for a court to make such determination and defeats the purpose of the trust.

Anyone who implemented a “living trust” and subsequently refinanced their property should review the documents to make sure that the home is currently held in the living trust.  If not, the owner should have a new deed prepared.  The new deed should return the property into the trust.

If you are concerned that your living trust may not be properly funded, or if you have other questions about your trust, review your existing documents.  You should then make a list of questions and concerns to discuss with an attorney.  Delaying addressing these issues could be costly.  Many times all that is needed is a deed prepared and recorded or a simple amendment to modify small portions of a trust in order to accommodate changes in circumstances. 

Jeffery J. McKenna is a local attorney serving clients in Utah, Arizona and Nevada. He is a shareholder at the law firm of Barney, McKenna, and Olmstead with offices in St. George and Mesquite.  If you have questions you would like addressed in these articles, you can contact him at 435 628-1711 or jmckenna@barney-mckenna.com.

Issue 48.09

You or someone you know may own unmarketable assets as a result of the death of a previous owner.  The asset may be real estate, stock in a corporation or some other asset.  The title is unmarketable because the property is in the name of the deceased individual.

Many times when someone dies owning property in his or her name, the surviving family members do not take the necessary steps to clear title to the property.  Although this is common, it can create future problems.

If a parent, grandparent or some other ancestor died with real estate, stock or other assets in just his or her name and no probate proceeding was commenced, the assets are likely still in that person’s name and presently unmarketable.  The assets cannot be sold or transferred because title is in the name of the deceased. 

If someone dies with a will, the will states who is to serve as personal representative of the deceased.  If there is no will, the intestate statute of the state where the property is located specifies the priority for who is to serve as personal representative.

Once someone is appointed personal representative, the person appointed has authority to sell or transfer assets of the deceased.  However, in Utah, if the probate proceeding is not commenced within three years after someone’s death, a personal representative cannot be appointed.  In these situations, a legal action to determine the heirs of the deceased must be commenced.

Although a determination of heirs is usually a more involved process then a probate proceeding, it is an effective way to clear title to otherwise unmarketable assets. 

Many families know of assets within their family that were owned by a family member that died more than three years ago.  Often, the family does not know what to do about the assets.  In some situations, the assets may have significantly increased in value.  Family members are often relieved to know there is a process to clear title.

Determining the heirs of a deceased individual usually involves several steps.  Although the process can be involved, it rarely gets easier with the passage of time.  Fortunately, with a little effort and sometimes a brief genealogical review to determine the heirs of a deceased  property owner, property that is presently unmarketable can once again be sold or transferred.

Jeffery J. McKenna is a local attorney serving clients in  Utah, Arizona and Nevada. He is a shareholder at the law firm of Barney, McKenna, and Olmstead with offices in St. George and Mesquite.  If you have questions you would like addressed in these articles, you can contact him at 435 628-1711 or jmckenna@barney-mckenna.com.

Issue 46.09

If a client does not have a trusted friend or family member to name in their will or trust as caretaker of their pet, want can be done?

For fifteen years I have worked with clients regarding their estate planning and end of life affairs.  As part of my planning, I have spent much time addressing concerns related to pets.  Many clients have become very attached to their pets.  Some clients after losing their spouse have relied on the love of their pets to help them through the most difficult time in their lives.  In doing their planning, these clients feel strongly they want to provide for these “extensions” of their family.

A problem arises when there is no one in the area that can take care of the pet.  In helping these clients, I have come to rely on Homeless Animal Rescue Team (H.A.R.T.).  H.A.R.T. is a 501(c)(3) non-profit organization formed to provide care and shelter for neglected, abused and abandoned dogs.  H.A.R.T. is actively engaged in monitoring the animal shelters in the area and retrieving dogs that are scheduled to be euthanized and placing them in temporary and later permanent homes.

Because H.A.R.T.’s primary focus is the placement of animals, I have found them well suited to help with caring for animals of estate planning clients. 

Many clients set aside part of their estate for the care of their animals.  The funds can be retained by the trustee, personal representative of the will or the client can designate a representative of the organization named as caretaker of the animal.  The funds are then used to care for the client’s pet and to be administered to the individual or family providing the care.

In conclusion, many of us love animals.  Planning for the animals we love most, our pets, can sometimes be hard.  Using an estate planning attorney to prepare the necessary documents and relying on charitable organizations equipped to help, can make the process easier and rewarding.  

Jeffery J. McKenna is a local attorney serving clients in  Utah, Arizona and Nevada. He is a shareholder at the law firm of Barney, McKenna, and Olmstead with offices in St. George and Mesquite.  If you have questions you would like addressed in these articles, you can contact him at 435 628-1711 or jmckenna@barney-mckenna.com.

Issue 44.09

Love knows no bounds.  Many couples have experienced the extent and truth of this common saying. 

Often, older couples have to cope with adult children who cannot understand why mom or dad wants to remarry.  By updating one’s estate plan, many concerns related to the marriage can be minimized.

In second marriages later in life, there is often a desire to allow the estate of the first spouse to die to be available for a surviving spouse during his or her life.  However, the deceased spouse often wants the estate to ultimately be distributed to his or her children upon the surviving spouse’s death.

The best way to ensure that one’s assets are available for a surviving spouse but ultimately distributed to one’s children from a prior marriage is through the use of a trust.  The trust can be created within a will (this is called a testamentary trust) or it can be created within a living trust (this is a trust created while one is alive). 

Significantly, the trust maker would set forth the terms of the trust according to his or her wishes, and would select the trustee (or trustees) to manage the trust.  Upon the death of the trust maker, the trustee would then manage the trust assets subject to those specified wishes of the trust maker.

For couples in a second marriage, it is often important to sign a marital agreement that states each spouse can dispose of his or her estate as desired.  If such a document is not signed, a surviving spouse could legally attempt to “override” the estate plan of the deceased spouse. 

Often, a given state’s law will provide that a surviving spouse can “elect against the will.”  This means that a surviving spouse is entitled to a spousal share as specified by statute despite the fact that the will may provide differently. 

Proper estate planning in these circumstances can be a great blessing.  It can relieve significant concerns of adult children when a parent remarries later in life, and it can bring peace of mind to the parent, knowing that he or she has succeeded in protecting the financial legacy of the children. 

Jeffery J. McKenna is a local attorney serving clients in Utah, Nevada, and Arizona. He is a shareholder at the law firm of Barney & McKenna, with offices in St. George and Mesquite.  He is the former President of the Southern Utah Estate Planning Council.

Issue 42.09

In doing estate planning, it is essential to plan not only for death — but for life.

Lifetime planning involves preparing for the care and management of assets in the event you become incapacitated.

There are two main objectives of lifetime planning.  First, it is important to plan for the effective administration of your estate upon incapacity.  Second, it is important to preserve the estate if your incapacity requires professional long-term care. 

Effective administration of your estate during incapacity.  In planning for the administration of your estate during incapacity, it is critical that certain documents be executed. 

All individuals engaging in estate planning should strongly consider executing a durable power of attorney.

A durable power of attorney will enable someone else to manage your assets should you become unable to manage your own assets for any reason.  If the power of attorney is not “durable” (which means it specifically states that it will be effective in the event of your incapacity), it will not be effective if you become incapacitated.  Significantly, many powers of attorney are not durable powers of attorney.

Preservation of your Estate During Incapacity.  In addition to concerns related to how your estate will be administered during your incapacity, you must also consider expenses related to an extended period of incapacity.

In a previous article, I explained that Medicare and private insurance do not cover long-term care (care for the basic functions of life such as eating, dressing, bathing) for extended periods.  Medicaid is the government program that covers extended long-term care.  Because Medicaid is a welfare program for the poor, an individual will only qualify after income and assets have been depleted. 

In doing lifetime planning to preserve your estate during incapacity, it is usually not advisable to deplete your estate in order to qualify for Medicaid.

A more effective approach for planning for incapacity would be the purchase of long-term care insurance.  Long-term care insurance greatly eases the burden of paying for long-term care. 

In working with families that have long-term care insurance within their estate, I have found a much greater degree of comfort and security. 

Jeffery J. McKenna is an attorney licensed in three states and serving clients in Utah, Nevada, and Arizona. He is a partner at the law firm of Barney, McKenna and Olmstead, with offices in St. George and Mesquite.  He is a founding member of the Southern Utah Estate Planning Council. If you have questions or topics that you would like addressed in these articles please email him at jmckenna@barney-mckenna.com or call 435 628-1711.

Issue 40.09

For your benefit and the benefit of your family, it is a good idea to organize your estate planning documents into a family estate planning binder.  The documents within your binder should constitute a complete estate plan.  The question then is, “What documents constitute a complete estate plan?”

First, the cornerstone of the estate plan can be either a will or a revocable trust.  As discussed in articles previously published in this column, whether the estate plan should be a  “will based plan” or a “trust based plan” depends on your desires with respect to privacy and avoiding probate, as well as the location, size and types of assets comprising the estate.

If the cornerstone of your estate plan is a revocable trust, it is important that you still have a will.  All “trust based plans” must still have what is called a “pour over will.”  It is a simple will that serves as a safety net to “pour over” assets into the trust.  This type of will directs the property into the trust. 

In addition to a will and possibly a trust, a complete estate plan should have a durable power of attorney for financial matters.  This document allows legal decisions to be made regarding your financial matters in the event you become incapacitated. 

In addition to the above documents, your estate planning binder should contain documents pertaining to medical treatment decisions.  If desired, a living will for the state in which you now live should be included.  A living will (also called a “directive to physician”) specifies that no use of artificial life-support systems should be used once you are beyond reasonable hope of recovery. 

A medical power of attorney is also an important document.  A medical power of attorney allows a specified individual to make medical decisions for you in the event you are too ill to do so.

Lastly, your estate planning binder should contain information pertaining to funeral arrangements.

In conclusion, a family estate planning binder is a wonderful way to put your affairs in order.  Although you hope the binder will not be needed for many years, you will feel more secure knowing that it is ready. 

Jeffery J. McKenna is a local attorney serving clients in Utah, Nevada, and Arizona.  He is a shareholder at the law firm of Barney, McKenna & Olmstead, with offices in St. George and Mesquite.  He is a former President of the Southern Utah Estate Planning Council. He can be reached at 628-1711.