Issue 32.10

It is common to hear the statement, “I want to avoid probate” or “I don’t want my family to go through the horrors of probate.”  When you ask these same individuals “What is probate?” many do not have an answer.

Probate is one of the least understood of court processes.  However, it is a procedure that can affect the family and heirs of every mature adult following his or her death.

Simply stated, probate is a special state court legal process for settling the debts of someone who has died, and distributing the remaining property to rightful heirs. 

In a probate, the person who is authorized by the probate court to administer the estate of a deceased person is called a personal representative (or executor or administrator in some states).

A primary purpose of the probate process is to have a personal representative appointed for the deceased individual.  The personal representative must be appointed in order to “sign” the decedent’s name after death.

During life, a person signs a deed or bill of sale to transfer property.  When a person dies, it is still necessary to have some document to show a transfer of title.  In other words, a “signature” of the decedent is necessary.  The probate process provides one method of doing this.  By appointing a personal representative, the court authorizes that person or persons to sign for the deceased individual.

Many people believe that if they have a will there will be no probate.  Nothing could be further from the truth.  Whether you have a will or do not have a will, your estate must go through a probate proceeding if the assets are in your sole name. 

The only difference between dying with a will and dying without a will is that if you die with a will, you tell the probate court how you would like to have your property distributed after your death.  If you die without a will, the state legislature tells the probate court how to distribute your estate.  In either case, probate will take place.  

When considering whether to “avoid probate” or not, it is important to understand what is being avoided. 

In all cases, it is important to be educated about the different estate planning tools.  After you have reviewed the different estate planning possibilities, you can then make a decision as to what is best for you.

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.  He is a founding member of the Southern Utah Estate Planning Council. If you have topics you would like addressed, you can reach him at jmckenna@barney-mckenna.com or call 628-1711.

Issue 28.10

When you make a will or trust, you are not obligated to leave property to anyone. In order to discourage disappointed heirs from disputing your estate plan, you can include a “no-contest” provision that automatically cancels an heir’s inheritance if he or she challenges the distribution of your assets in any way. The original reasoning for the no-contest provision was to intimidate any heir who may consider contesting a will or trust, thereby securing his or her cooperation.

“No-contest” clauses can be broad or narrow, and may even disinherit people who challenge transfers made outside your will (through a trust or beneficiary designation).

Of course, you cannot make a bequest of property you don’t own, but you can often provide in a will that a beneficiary will only receive your bequest if they abandon their rights in some other property. In a recent case, a court was asked to decide whether a refusal to abandon such rights would constitute a “will contest” that would void other gifts. When a testator died, he left a complex estate plan that included a will, a trust, and beneficiary designations for his retirement account. The testator’s wife legally owned part of his retirement account and other “community property.” The testator’s will and trust required his wife to abandon her “community property” rights in order to receive benefits worth $2.65 million from her husband’s trust.

The wife filed a special petition with the court, asking whether she would be viewed as “contesting” the estate plan if she sought to enforce her community property rights. The wife claimed that her husband had mistakenly transferred some community assets to his own trust, and she was merely trying to correct the mistake. On appeal, the Court ruled that the wife’s challenges would constitute a “contest.” Therefore, she had to decide whether to assert her “community property” rights (and thus receive only her share of community property and nothing from her husband’s trust) or simply accept the provisions of the trust and will (thus sacrificing her “community property” rights).

This case illustrates an important issue. If you make a mistake in your estate plan, a “no-contest” clause in a will or trust may prevent your heirs from correcting the mistake. On the other hand, if you don’t include a “no-contest” clause, an heir might contest your estate plan, thus delaying the distribution of your assets, and frustrating your goals. There are many such issues with Estate Planning that require careful planning and expertise to avoid.

Some Estate Planning and Administration problems are difficult and expensive to resolve.  Often, the advice of an estate planning attorney can be very helpful in avoiding unnecessary problems.

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 a founding member of the Southern Utah Estate Planning Council.  He can be reached at 628-1711.

Issue 24.10

An effective estate plan has many benefits.  In the broadest sense, estate planning includes the process of accumulating, managing, and distributing property over the course of a lifetime.  Satisfaction comes from knowing your objectives, taking practical approaches to achieve them, and avoiding hazards in the process.

An effective estate plan involves recognizing and coping with four financial challenges:

1. Dying Too Soon.  For those with a sense of responsibility to loved ones, one of the greatest concerns is providing for them.  Savings plans, retirement accounts, life insurance, and estate plans are just a few of the ways to assure financial security for loved ones.

2. Outliving One’s Resources.  As time passes, the possibility of outliving one’s financial resources can be a concern. Many people will reduce what they spend today to ensure that they have ample funds for the later years. It can be a challenge to balance present and future needs. 

3. Emergencies.  Estate planning may ease the hazards of illness, accidents, and other unforeseen economic hardships.  We can accumulate savings in order to be prepared, but insurance assumes greater importance as costs increase.  Medical, automobile, homeowners, and other insurance policies can help lessen the possibility that an emergency will unnecessarily deplete economic resources.

4. Mental and Physical Disability.  It is vitally important to plan for adequate income and management of assets, in the event that a mental or physical disability impairs a person’s ability to manage his or her property.  A number of financial arrangements, including various types of trusts and powers of attorney, can be created to help deal with the need for assistance in asset management. These trusts can also be set up for disabled family members.

Addressing each of the above concerns is the essence of an effective estate plan. Many people view estate planning, and particularly addressing the above concerns, as an overwhelming task. A good estate planning attorney can help bring order to what may otherwise seem to be too difficult to accomplish on your own.

Your estate planning attorney will take an organized approach to decide what is needed. Your attorney will help you focus on the “essential elements” of estate planning – the people in your life, the property you own, your plans for the future, and the persons who will assist you in achieving your goals.

Like a building project, with the help of your attorney, you will start with your “blueprint” for setting out a plan. You will determine the essential elements. In a few short days or weeks, your plan can become a reality.

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 20.10

Relocating to a new state often creates issues affecting estate planning.  Many people wonder if they need a new will or trust when they move from one state to another.  Although a will or trust validly executed in one state should be valid in a different state, it is a good idea to have the estate planning documents reviewed.  By addressing issues related to the relocation, an individual can avoid certain problems and maximize possible benefits.

One problem that can be avoided relates to references to another state’s laws.  Often, estate planning documents reference a particular state’s law as the governing law.  Many times specific state statutes are referenced.  If someone dies in a “new” state, the references in the estate planning documents to the “old” state’s laws can be problematic.  By executing an amendment to the trust or codicil to the will that changes the state law references to the “new” state’s law, one can avoid possible problems.

Another concern that should be addressed pertains to special health care documents.  In a complete estate plan, one should have legal documents pertaining to medical treatment decisions.  These documents usually consist of what is commonly referred to as a “living will” (more formally titled “Directive to Physicians”) and a durable power of attorney for medical matters.  These documents are very useful if an individual becomes incapacitated and unable to make his or her own decisions.  The documents allow one to specify what medical treatment he or she desires.  Additionally, the living will directs the treating doctor or health care facility to allow the termination of life support if the individual is determined to be in a vegetative state without possibility of recovery.

Significantly, these documents are created by state law.  Many states have special provisions related to these medical treatment documents.  Although a living will or power of attorney validly executed in one state should be valid in another, the doctors or health care facilities will probably be most familiar with the documents used in their state

Another issue related to relocating to another state that should be addressed in order to maximize potential tax benefits pertains to community property.  There are ten community property states (Arizona, California, Nevada, New Mexico, Idaho, Texas, Washington, Louisiana, Wisconsin, and Alaska – with Alaska recently adopting a form of community property ownership).  Many married couples have relocated to Southern Utah from community property states.  If a married couple has moved from a community property state or is planning to move to a community property state, they should have their estate plan reviewed. 

The preceding issues are just a few of the estate planning items that should be considered when relocating from one state to another.

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 and Olmstead, with offices in St. George and Mesquite.  He is a founding member of the Southern Utah Estate Planning Council.

Issue 16.10

It is common to hear the statement, “I want to avoid probate” or “I don’t want my family to go through the horrors of probate.”  When you ask these same individuals “What is probate?” many do not have an answer.

Probate is one of the least understood of court processes.  However, it is a procedure that can affect the family and heirs of every mature adult following his or her death.

Simply stated, probate is a special state court legal process for settling the debts of someone who has died, and distributing the remaining property to rightful heirs.

In a probate, the person who is authorized by the probate court to administer the estate of a deceased person is called a personal representative (or executor or administrator in some states).

A primary purpose of the probate process is to have a personal representative appointed for the deceased individual.  The personal representative must be appointed in order to “sign” the decedent’s name after death.

During life, a person signs a deed or bill of sale to transfer property.  When a person dies, it is still necessary to have some document to show a transfer of title.  In other words, a “signature” of the decedent is necessary.  The probate process provides one method of doing this.  By appointing a personal representative, the court authorizes that person or persons to sign for the deceased individual.

Many people believe that if they have a will there will be no probate.  Nothing could be further from the truth.  Whether you have a will or do not have a will, your estate must go through a probate proceeding if the assets are in your sole name.

The only difference between dying with a will and dying without a will is that if you die with a will, you tell the probate court how you would like to have your property distributed after your death.  If you die without a will, the state legislature tells the probate court how to distribute your estate.  In either case, probate will take place.

When considering whether to “avoid probate” or not, it is important to understand what is being avoided.

In all cases, it is important to be educated about the different estate planning tools.  After you have reviewed the different estate planning possibilities, you can then make a decision as to what is best for you.

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.  He is a founding member of the Southern Utah Estate Planning Council. If there are topics you would like addressed in these articles, please contact him at 628-1711 or jmckenna@barney-mckenna.com.

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.