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Wills and Estates Blog

Blended Families: The Not-So-Simple Estate Plan

Tuesday, April 03, 2018

Blended families, or families that consist of a couple and their children from this and/or previous relationships, may not realize the estate plan they currently have in place doesn’t fit their needs. It is common that blended families will arrange their finances as if their estate is your average estate plan when, in fact, for many blended families that is not the case.

For blended families, we must consider the balance of both the spouse and the children as opposed to your usual estate plan where you are only considering the present needs of your spouse. For example, for your average estate plan a spouse may choose to give all of their assets to their surviving spouse and in the event the surviving spouse had predeceased them then the assets go to the children. Using this same example, if you are a blended family, you could be disinheriting your children. Only in the event the surviving spouse has predeceased do your children receive an inheritance. If the surviving spouse is alive then they receive the inheritance and upon their death their inheritance passes to who they have chosen in their own estate planning documents—which may not include your children.

Also considering your incapacitation, who is the right person or persons to handle your financial affairs and your medical decisions? Are you supposed to put your spouse’s feelings and wishes before your children or vice versa? These are difficult questions that need to be addressed when considering a blended family estate plan. These questions can be answered using various estate planning tools. In considering the best estate plan for a blended family you must consider all of your options.

Last Will and Testament/ Revocable Living Trust

Whether you are a blended family or not, your estate plan can include a Last Will and Testament or a Revocable Living Trust. Regardless of the type of document, in a blended family your estate plan will attempt to balance the competing interests between your spouse and your children. Both have an interest in your assets and both can be at odds should you pass away without putting certain mechanisms in place. For example, if you have real property that you purchased prior to your marriage, do you want your children to receive an inheritance of that real property? What if you want your spouse to continue to reside in the real property after you pass away? These are all practical considerations of a blended family estate plan.

Whether it is a Last Will and Testament or a Revocable Living Trust, who will you choose to ensure those assets are transferred to the people you choose? To the extent that you chose to have a Trust that provides monies to your spouse until he or she passes and then the remaining assets to be divided amongst your children there can also be a conflict. Especially if you choose for your spouse to be the Trustee of the Trust. This means your Spouse will have sole control of the assets when you pass away, allowing them to spend the Trust assets lavishly and unfettered. Again, this can place your spouse and your children at odds because they both have competing interests. Consulting with an estate planning attorney can provide options to ensure your desired goal is met whether it be only providing for your spouse or it be ensuring your spouse is taken care of while also ensuring you still have assets left to give to your children.

Title of Assets

Let’s also consider that you may have joint assets with your spouse. If that is the case, there is a chance that it won’t matter what you put into a Last Will and Testament or Trust. If your assets are titled jointly with your spouse, your assets may automatically pass to your spouse as the surviving joint owner of those assets. As such, the estate plan you think you have in place may not achieve the goal you desire.When setting up your estate plan it is imperative that you also consider the assets you currently have and how they are titled to address any potential for the assets not to pass through your Last Will and Testament or Trust. An experienced estate planning attorney should review the titling of your assets when advising you of your estate planning options.

Power of Attorney and Advance Directive Agent(s)

In planning for incapacitation, many conflicts arise in blended families in the division of authority or responsibility. In any marriage it can be expected that you would wish for your spouse to make health and financial decisions in the event you cannot. However, what if your spouse and your children do not get along? Some factors to consider include how long you have been married to your spouse and the relationship between your spouse and your children when deciding who you will name as your Agent to make those decisions. Again, if you are the glue that holds the family together it can be problematic if you become incapacitated. Thus, it is best to provide clear instructions and consulting with an attorney can provide options to suit your needs.

Premarital Agreements

Premarital Agreements can be essential to any blended family estate plan. In a Premarital Agreement, both spouses are upfront about the division of their assets in the event of death. For couples that have Premarital Agreements in place, it is imperative that should they wish to change any aspect of the division of assets that are mentioned in the Premarital Agreement that any change be done by amending that Agreement. Your Last Will and Testament may not override your Premarital Agreement if there is a conflict between the two documents. For example,if you provide in your Premarital Agreement that you spouse has the right to purchase the real property at less than fair market value and you include in your Last Will and Testament that your spouse has to purchase the real property for fair market value those clauses are conflicting. Such a change would require an amendment of your Premarital Agreement should you wish for your that provision in your Last Will and Testament to be upheld. Any document that you currently have place that discusses the disposition of your assets should be reviewed by your estate planning attorney when advising you of your estate planning options.

Beneficiary Designations

Most divorcees are primarily concerned with ensuring they have updated their Last Will and Testament or Trust to take out any clauses referencing their ex-spouse, but fail to change their beneficiary designations. Many spouses assume that their Last Will and Testament or Trust will trump all other documents. However, that is not the case when it comes to beneficiary designations. If you do not change your beneficiary designation to remove your former spouse and name a new beneficiary, that beneficiary designation will trump any other estate planning document for that particular asset. In essence, your former spouse could still inherit from you even if they are not named in your Last Will and Testament or Trust. When consulting with an experienced estate planning attorney it is imperative you provide them with your asset information, including your beneficiary designations.

Blended families should consider consulting with an experienced attorney to ensure they are aware of all of their estate planning options. Should you wish to receive free initial consultation please contact Nicole A. Slaughter, Esq. at 301-670-7030.

 

Revocable Living Trusts: Are They Worth the Hype?

Thursday, September 22, 2016

In many states, the use of a Revocable Living Trust has become increasingly popular as a viable estate planning option. But in Maryland, the ease of the probate process, among many other reasons, makes this option usually not worth the hype, money or time.

A Revocable Living Trust is a written document that contains provisions of how to hold, manage, and distribute property during your life and after your death. It is revocable, meaning that even though assets are transferred (or re-titled) to the living trust, the person who creates the trust, the grantor, can get his or her property back by revoking the Trust during his or her lifetime. The persons who manages the assets in the Trust is the Trustee and this is almost always the grantor during his or her lifetime. The primary purpose of a Revocable Living Trust is to avoid probate. It is most popular in states with probate systems which are expensive and time consuming.

In Maryland, the advantages of having a Revocable Living Trust are typically outweighed by other estate planning alternatives and the ease of the Maryland probate system. After a person’s death and once the probate documents are filed in Maryland, a personal representative can be appointed within days and the Letters of Administration can be used to access funds and manage probate assets. In addition, the costs associated with probating an estate are modest with probate fees depending on the size of the probate estate. For example, an estate of $200,000 would have a probate fee of$400.00. Unless there is some complicating matter, many estates can be closed after 6 months which is the period that creditors have to make claims against the estate.

Despite the ease of the Maryland probate process, many who have heard of the evils of probate will still insist on a Revocable Living Trust, and for them, the following information should assist them with making an informed decision.

Pros

1. Avoiding Probate

Upon your death, assets that were titled in the Revocable Living Trust pass directly to the Trust without going through probate. This is particularly important if you own real estate in more than one state because without a trust, your loved ones would have to open a probate estate in each state real property is located. In addition, a Revocable Living Trust allows immediate access to bank accounts titled in the Trust after your passing, instead of waiting for the documentation from the probate estate to gain access to the account(s). Lastly, the decedent’s affairs could theoretically be finalized in weeks or months as there is no 6 month creditor claims period. Note that this may in fact also be construed as a disadvantage because creditors may have three years to file a claim against assets that were in the trust.

2. Management of Assets

Should you become ill or incapacitated, some argue that it is easier to manage Trust accounts versus accounts in your individual name. If your assets are held in a trust account and you become incapacitated, the Trust document outlines the Trustee’s power with regard to managing your assets. Financial institutions will require your trustee to provide a copy of the Trust Agreement.

For accounts held in your individual name, a properly executed Power of Attorney will allow your agent to control those assets. Although recent changes in the Maryland law regarding Powers of Attorney should make it easier to use a Power of Attorney, some may still find it difficult to use POAs with certain financial institutions.

3. Privacy

Unlike a Last Will and Testament, upon your death a Revocable Living Trust is not public record. Therefore, information as to what you owned and how you dispose of those assets are private. Thus, your beneficiaries and the amounts they receive are not available for public scrutiny.

4. Avoiding Multi State Probate

The most compelling reason for a Revocable Living Trust is to avoid probate in multiple states if you own real estate outside of your home state. In this instance, your Last Will and Testament must generally be probated in your home state and the state for which you own real property, a process which is called “Ancillary Probate.” If your real property is titled in your Living Trust, this will not be necessary. Your real property can be distributed by your Trustee, upon death, no matter where it is located.

Cons

1. A Last Will and Testament is Necessary

Invariably, not all of the assets will have been re-titled in the name of the Revocable Living Trust before death. There will be a bank account or vehicle that was still in the decedent’s name at the time of death. Thus, a Will is still necessary. Most attorneys will draft a special type of Last Will and Testament called a Pour Over Will to ensure that any unfunded assets (assets not re-titled) will “pour” into your trust. To do this, your Pour Over Will must also be probated, and such assets may then be distributed according to the instructions in the Trust.

2. Initial Expense is High

It is more expensive to create a Revocable Living Trust than a Last Will and Testament. Preliminarily, there is the initial cost of drafting a Trust Agreement, which is usually more than the price for drafting a Will. There is also the expense of “funding” the Revocable Living Trust. This is the process of transferring the ownership of every eligible asset into the name of the Trust. In addition to just the time spent on this process there may be costs associated with retitling assets. For example, real property can only be assigned to a trust by deed, which must be recorded at the applicable office of land records for a fee. This fee includes the time and cost for the attorney or titling company to draft the deed and the fees to record the deed.

3. Funding a Trust Takes Time and Effort

Once your Revocable Living Trust becomes effective, you must fund the Trust by contacting financial institutions, life insurance companies, and transfer agents to change account ownership and beneficiary designations; retitle vehicles, and sign and record new deeds for real estate. There is a significant cost – in terms of time – to accomplish this. If you fail to re-title, even one asset of any significance, your trustee, upon your death, would have to open an estate to administer such assets. This would defeat the purpose of the Living Trust.

4. Cannot Avoid Tax

Although assets that are retitled to the Trust avoid probate, they are still subject to income and estate taxes. This is because the IRS still considers that all the assets in the Revocable Living Trust are still yours. This should not be surprising as you are the trustee of the trust, the beneficiary of the trust, and can revoke it at any time. Because it is still considered your money, you and/or your estate are still responsible for income, estate, and inheritance taxes. There is simply no tax advantage to having a Revocable Living Trust over a Last Will and Testament.

The next time you hear someone tell you that a Revocable Living Trust is a must, please consider all of the pros and cons as they specifically apply to your situation. While there are cases where a Revocable Living Trust can be beneficial, for most Maryland residents there are other legal avenues to accomplish your goals without the cost and effort of a Revocable Living Trust.

The Do Not Resuscitate (DNR) Order Has Been Replaced With the New and Improved MOLST Form in Maryland

Thursday, September 22, 2016

When it comes to protecting your loved ones, we MOLST Blog Pictureencourage you to have an Advance Directive (See Get an Advance Directive: Don’t Be a Headline; Should I get an Advance Directive, a Living Will or a Health Care Power of Attorney?). Having an Advance Directive is effective in explaining your wishes and giving someone the authority to act on your behalf. To be absolutely sure your wishes are followed, however, you should consider completing a Maryland Orders for Life-Sustaining Treatment (MOLST) form.

The MOLST form is a medical order form that contains orders about cardiopulmonary resuscitation and other life-sustaining treatments. Unlike an Advance Directive, the MOLST form is more specific and contains a more in-depth look into the various medical procedures that could be used during cardiopulmonary arrest and other emergency situations. For example, in an Advance Directive you may include generally your wishes with regard to artificial ventilation or artificially administered fluids and nutrition, but most Advance Directives do not include your wishes with regard to blood transfusions, hospital transfers, medical workups or dialysis situations. The details of the MOLST form provide the patient with a plethora of medical decisions that must be taken into consideration during an emergency situation, many of which are not taken into consideration when drafting an Advance Directive.

The MOLST form acts as added protection to correct any limitations an Advance Directive may have. For instance, if you reside in a nursing home and an emergency situation presents itself, your healthcare agent is not present. If a decision must be made to resuscitate you and the personnel must act vigilantly, they would probably perform CPR. But if you wished that CPR not be performed then your wish may not be followed. The MOLST form prevents this situation and stands in place of your Advance Directive, ensuring that your wishes are followed.

A MOLST form is completed by a patient or health care agent (if his/her decisions are consistent with a known advance directive of the patient) when the patient is incapable of making an informed decision, and is signed by a physician. Once signed, it becomes a valid medical order and all medical facilities must comply with it. More specifically, nursing homes, assisted living facilities, hospices, home health agencies, kidney dialysis centers (upon new admission), and hospitals (upon discharge of the patient to another medical facility) must complete a MOLST form for a patient. Also, in situations where the patient is hospitalized or institutionalized, the MOLST form must follow the patient.

When planning for the future, it is beneficial to consider completing a MOLST form. You can attempt to plan every aspect of your life, however, as we all know things can happen unexpectedly. Let the medical providers ensure your wishes are followed and take the burden off your health care agent of having to be available at all times in the case of an emergency.

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