How Does Probate Work?

Having a good understanding of how wills are used, how probate works and what other documents are needed to protect yourself and loved ones is key to creating an effective estate plan, explains the article “Understanding probate helps when drafting will” from The News Enterprise.

A last will and testament expresses wishes for property distribution after death. It’s different from a living will, which formalizes choices for end-of-life decisions. The last will and testament also includes provisions for care of minor children, disabled dependents and sometimes, for animal companions.

The will does not become effective until after death. However, before death, it is a useful tool in helping family members understand your goals and wishes, if you are ever incapacitated by illness or injury.

The will has roles for specific people. The “testator” is the person creating the will. “Beneficiaries” are heirs receiving assets after the testator has died. The “executor” is the person who oversees the estate, ensuring that directions in the will are followed.

If there is no will, the court will appoint someone to manage the estate, usually referred to as the “administrator.” There is no guarantee the court will appoint a family member or relative, even if there are willing and qualified candidates in the family. Having a will precludes a court appointing a stranger to make serious decisions about a treasured possession and the future of your loved ones.

A will is usually not filed with the court until after the testator dies and the executor takes the will to the court in the county where the testator lived to open a probate case. If the person owned real estate in other counties or states, probate must take place in all other such locations. The will is recorded by the county clerk’s office and becomes part of the public record for anyone to see.

Assets with named beneficiaries, like life insurance proceeds, retirement funds and property owned jointly are distributed to beneficiaries outside of probate. However, any property owned solely by the decedent is part of the probate action and is vulnerable to creditors and anyone who wishes to make a claim against the estate.

The best way to protect your family and your assets is to have a complete estate plan that includes a will and a thorough review of how assets are titled so they can, if possible, go directly to beneficiaries and not be subject to probate.

Reference: The News Enterprise (Aug. 17, 2021) “Understanding probate helps when drafting will”

Who Inherited from the Painter Bob Ross?

Like many painters before him, Bob Ross’s image only took hold after his untimely death. He’s now a pop culture icon, and is featured as bobbleheads, Chia pets and has his own cereal.

However, there’s a reason why we see so much more of the gentle painter than ever before. That’s because of a legal battle for ownership of Ross’s name. That was the only item of value in his estate, which is rare for celebrities of his caliber.

Wealth Advisor’s recent article entitled “Here’s Who Inherited Bob Ross’ Estate, And Where They Are Now” reports about what happened to his estate, who controls it and where they are today.

The Daily Beast wrote that Ross is “a smash hit on social media, where he feels more like a Gen-Z influencer than a once semi-obscure PBS celebrity who rose to fame in the 1980s on the back of his bouffant hairdo, hypnotic singsong baritone and a timeless message about the beauty of the world around us.”

However, he wouldn’t have become a household name, if not for Bob Ross Inc. The battle began when the artist met Bill Alexander, a celebrity painter who had a show on PBS, in 1978. Alexander gave him a job as a traveling art instructor. Ross met Annette and Walt Kowalski at a class, who recently lost their son, and who wanted to learn how to paint.

The Kowalskis convinced him to come to Washington, D.C. to teach. They eventually made a deal: they’d give him a stipend and room and board, if he’d teach more classes that they’d arrange in the area. PBS then asked Ross to do a show like Alexander’s, and Dennis Kapp, the owner and CEO of the art-supply company Martin F. Weber, wanted to develop a line of supplies with him too. Soon, The Joy of Painting was born. However, to look after the supply company with Kapp, Ross and his wife Jane, and Annette and Walt signed documents to create Bob Ross Inc., with all four of them being equal partners.

At the end of the 1980s, all four partners were making $85,000, and in the early ’90s, Ross made around $120,000. However, he wanted to branch out, and when he did, the happy days were at an end. When Ross’s health started to decline, Walt “declared war” and sent Ross documents saying the Kowalskis owned everything, but they’d agreed that Ross and his heirs would get 1% of the revenues for the next decade. Ross never signed anything, and in fact, he quickly changed his last will to make it harder for the Kowalskis to steal his name and likeness.

Those changes to his last will included “a clause specifically addressing his name, likeness and the rest of his intellectual property. All of those rights were to go to Steve and one of Bob’s half-brothers.” His third wife replaced Annette as the administrator of his estate. In July 1995, the painter lost his battle to cancer.

When Ross died, Bob Ross Inc. was totally owned by the Kowalskis. However, they wanted it all, including his name and likeness. Then what one of Ross’s good friends calls “Grand Theft Bob” began.

Steve did not know about the final amendment until 20 years later when his uncle Jimmie, the estate’s executor, informed him. When Ross died, he was worth $1.3 million. Half of that was his third part of Bob Ross Inc., and there was also cash, stocks and property to divide.

The Kowalskis went after Ross’s art supplies and artwork and made “claims against the estate for business and personal reimbursements,” charging Ross’s widow with hefty lawsuits and suing PBS and the children’s show Ross guest-starred on. In 1997, Jimmie, Ross’s brother, settled the lawsuit, practically handing over everything to the Kowalskis. In 2012, their daughter Joan took over, opening up the realm of merchandising for the company.

However, there was still a “grey zone” in how Bob Ross Inc. could truly own Ross’s name and likeness. After learning about that amendment in Ross’s will, Steve went after Bob Ross Inc. but didn’t win his case against Bob Ross Inc.

Joan did strike a deal with him: if he surrendered his rights to Ross’s name and likeness, he could print his name on anything he wanted.

The good news was that Steve was able to return as an art instructor, and thanks to Bob Ross Inc., Ross was bigger than ever. That helped class sizes, and students came in masses to learn the iconic style. Steve gets to run his father’s estate, and fans welcomed him back to the painting world. Despite the fact that the Kowalskis got everything, they were the only ones who could have kept Ross’s name from disappearing.

As for all of Ross’s paintings the Kowalskis seized, they ended up in an unprotected warehouse until the Smithsonian took a collection of them.

Reference: Wealth Advisor (June 28, 2021) “Here’s Who Inherited Bob Ross’ Estate, And Where They Are Now”

What Happens If You Inherit a House with a Mortgage?

Nothing in life is certain, except death and taxes, says the old adage. The same could be said about mortgages. Did you know that the word “mortgage” is taken from a French term meaning “death pledge?” A recent article titled “What happens to your mortgage when you die?” from bankrate.com explains the options for homeowners who wonder what might happen to their home, mortgage and loved ones, after they die.

When a homeowner dies, their mortgage lives on. The mortgage lender still needs to be repaid, or the lender could foreclose on the home when payments stop, regardless of the reason. The same is true if there are outstanding home equity loans or lines of credit attached to the property.

If there is a co-borrower or co-signer, the other person must continue making payments on the mortgage. If there is no co-signer, the executor of the estate is responsible for making mortgage payments from estate assets.

If the home is left to an heir through a will, it’s up to the heir to decide what to do with the home and the mortgage. If the lender and the terms of the mortgage allow it, the heir can assume the mortgage and make payments. The heir might also arrange for the property to be sold.

A sole heir should reach out to the mortgage company and discuss their options, after conferring with the family’s estate planning attorney. To assume the loan, the mortgage must be transferred to the heir. If the property is sold, proceeds from the sale are used to pay off the loan.

Heirs do not need to requalify for the mortgage on a loan they inherited. This can be a good opportunity for someone with bad credit to repair that credit, if they can stay current on the mortgage. If the heir wants to change the terms of the mortgage, they will need to qualify for a new loan and meet all of the lending institution’s eligibility requirements.

Proof that a person is the rightful inheritor of the property or executor of the estate may be required. The mortgage lender will typically have a process to specify what documents are needed. If the lender is not cooperative or balks at any requests, the estate planning attorney will be able to help.

If you own a home, it is very important to plan for the future and that includes making decisions about what you want to happen to your home, if you are too ill to manage your affairs or for when you die. You’ll need to document your wishes,

Reference: Bankrate.com (July 9, 2021) “What happens to your mortgage when you die?”

Have You Considered Estate Planning for Fido?

In Montana, a pet is “any domesticated animal normally maintained in or near the household of its owner.” In Kansas, the statutes define an “animal” as “any live dog, cat, rabbit, rodent, nonhuman primate, bird or other warm blooded vertebrate or any fish, snake, or other cold-blooded vertebrate.”

Wealth Advisor’s recent article entitled “Estate Planning For Pets” explains that a pet is tangible personal property—just like guns, cars, or jewelry. When a pet owner passes away, pets pass to beneficiaries by provisions in an owner’s will, by directives in an owner’s trust document, or by a priority list of heirs contained in the state probate laws, if an owner does not have a will or a trust.

Pet owners should select a willing care giver and make a care plan for their pet that will lower the pet’s stress in the first days after you are gone. Writing down your wishes can help your heirs avoid potential problems, if there is a need to cover expenses for food, medical requirements and transportation of the pet to the beneficiary.

For example, in Montana, an honorary trust for pets is valid for only 21 years, no matter if a pet owner writes a longer term in the trust document. As a result, the trust terminates the earlier of 21 years or when the pet dies. Unless indicated in the trust document, the trustee may not use any portion of the principal or income from the trust for any other use than for the pet’s care.

Pet owners have options, when funding a pet trust. Funds could come from a payable on death (POD) designation on financial accounts to the pet trust. Another option is a transfer on death (TOD) registration with the pet trust as beneficiary for stocks, bonds, mutual funds and annuities. The pet owner could also direct the trustee in the pet trust document to sell assets, like a vehicle, house, or boat, and place those funds in the trust for the care of the pet.

Life insurance is perhaps another option for funding for a pet’s care. States typically do not consider a pet to be a “person,” so Puffball cannot be a beneficiary of a life insurance policy. A pet owner can fund a living or testamentary pet trust, by naming the trustee of the trust as the beneficiary of a life insurance policy. As an alternative, a pet owner may have a certain percentage of an existing policy payable to the pet trust.

Pet owners should talk to an experienced estate planning attorney about the best way of naming the trustee of a pet trust as a beneficiary of a life insurance policy.

Reference: Wealth Advisor (June 14, 2021) “Estate Planning For Pets”

Can I Write a Perfect Will?

The Good Men Project’s recent article entitled “10 Tips to Writing the Perfect Will” says that writing a perfect will is hard but not impossible. The article provides some tips to keep in mind:

Include Everything. If you have items that are very important to you, make sure they are in the right hands after your death.
Consult an Experienced Estate Planning Attorney. It is a challenge to write a will, especially when you do not know all the legal processes that will take place after your death. An estate planning lawyer can educate you on how your estate is being distributed after your death and how to address specific circumstances.
Name an Executor. An executor will manage and distribute your assets after you die. Select a trustworthy person and be sure it is someone who will respect you and your will.
Name the Beneficiaries. These people will get your assets after you pass away. Name them all and include their full names, so there is no confusion.
Say Where Everything Can Be Found. Your executor should know where all of your property and assets can be found. If there is any safe place where you keep things, add it to your will.
Describe Residual Legacies. This is what remains in your estate, once all the other legacies and bequests are completed. If you fail to do this, it will be a partial intestacy. No matter that the legacies would be distributed according to the will, the intestacy laws will control the residue, which may not be to your liking.
Name Guardians for Your Minor Children. Appoint a guardian to take care of any minor children or the court will appoint their guardians, again this may not be to your liking.
Be Specific. An ambiguous will creates issues for the executor and may require court intervention. Be specific and include heirs’ full names. Account numbers, security boxes and anything of the sort should also be included in your will for easy access.
Keep it Updated. If you experience a major life event, update your will accordingly.
Get Signatures from Witnesses. Once your will is completed, you need witnesses who are at least 18 and are not beneficiaries. Sign and date the will in front of these witnesses, and then ask them to date and sign it too.

If you have any questions about wills, speak to an experienced estate planning attorney.

Reference: The Good Men Project (May 28, 2021) “10 Tips to Writing the Perfect Will”

What Taxes are Due When Children Inherit Home?

The first issue to address is whether the will addresses how inheritance taxes will be paid, says nj.com recent article entitled “My adult kids inherited a home. What taxes are due?” The mortgage may say the estate itself will pay it before anything is paid out to beneficiaries, or it may not mention anything.

Iowa, Kentucky, Nebraska, New Jersey, and Pennsylvania are the only states that impose an inheritance tax, which is a tax on what you receive as the beneficiary of an estate.

Maryland is the one state that has both an inheritance tax and an estate tax. Its inheritance tax is up to 10%. As to the others, Nebraska’s inheritance tax can be as high as 18%. Kentucky and New Jersey both taxes inheritances at up to 16%. Iowa’s inheritance tax is up to 15%, as is Pennsylvania’s.

Spouses and certain other heirs are usually excluded by the state from paying inheritance taxes.

A child may have an issue if there’s not enough liquidity in the estate, separate from the house to pay the taxes. If the beneficiaries plan to keep the home, they’d need to take an additional mortgage. They’d also need to find enough cash to pay the inheritance taxes due.

In the example above, if the deed is transferred to a niece and nephew, the executor should hire a licensed real estate appraiser and pay for a date of death appraisal on the property. That appraisal will determine how much capital gains was exempted at the sister’s passing. It will also establish a new basis for capital gains purposes for the niece and nephew.

If the heirs simply do nothing and move into the house, the inheritance tax will come due. In New Jersey, it’s due eight months from the date of death.

If the inheritance tax isn’t paid, liability for the unpaid tax will attach to the executor personally, often in the form of a certificate of debt attached to some asset belonging to the executor, like his or her house.

To make sure this is handled correctly, consider speaking to an experienced estate planning attorney, who can walk you through the process.

Reference: nj.com (June 14, 2021) “My adult kids inherited a home. What taxes are due?”

Tackling Estate Plan Quarter by Quarter

Most of us know that a tax bill is typically due on April 15, and we know that our paychecks will include deductions for taxes, Social Security, and IRA or 401(k) contributions. If we are self-employed or retired, we make quarterly estimated tax payments. We plan throughout the year to be better prepared when April 15 comes around. The preparation takes place routinely over time, and the same can be done for estate planning and updating, says a recent article “Make quarterly payments to estate plan” from Victoria Advocate. It’s simple and sensible.

If we can make our plans today to make our eventual passing easier for loved ones and friends, why not divide and conquer, in a quarterly manner? Consider these quarterly “payments” to your estate plan and your family:

First Quarter: Review current estate plans with your estate planning attorney. Don’t have an estate plan? Get started. An estate plan includes a Will, Durable Power of Attorney, Medical Power of Attorney, Directive to Physicians document and any trusts you might need.

The Will, aka Last Will and Testament, is the only one of these documents to be used post-mortem. The will is used to designate an executor to carry out your wishes and designate a person or persons to serve as legal guardians for minor children.

Second Quarter: Let your family know your wishes. Open communication with family members is a gift, so they are not left guessing during critical times. Finding the right words is not always easy, so try writing out your thoughts as you prepare your estate plan. Document your wishes for burial arrangements, information they’ll need for a death certificate or obituary. Do you want to donate your organs, or will your pet need special care? Where are your important papers located? Once you’ve had all the necessary documents created and have thought through these wishes and written a memo about them, let your future executor know what your wishes are, and where they can find the information that they’ll need.

Third Quarter: Do some easy but important estate planning tasks. Review the beneficiaries listed on your accounts. Assets and accounts that pass through beneficiary designations are not controlled by the will, so this is extremely important if it’s been more than a few years since you last reviewed these documents. Your IRA, SEP, 401(k), life insurance and any accounts titled Transfer or Payable on Death probably have beneficiaries listed.

Fourth Quarter: Does your estate plan include a legacy to future generations or charities? Speak with your estate planning attorney about how to pass your estate to children or grandchildren. If you have a unique goal, trusts can be as individual as you are.

As systematically as you pay taxes and bills, work through your estate plan so that you are prepared for the two things we know will occur, regardless of how we feel about them—taxes and death.

Reference: Victoria Advocate (May 8, 2021) “Make quarterly payments to estate plan”

What Is the Purpose of an Estate Plan?

No one wants to think about becoming seriously ill or dying, but scrambling to get an estate plan and healthcare documents done while in the hospital or nursing home is a bad alternative, says a recent article titled “The Essentials You Need for an Estate Plan” from Kiplinger. Not having an estate plan in place can create enormous costs for the estate, including taxes, and delay the transfer of assets to heirs.

If you would like to avoid the cost, stress and possibility of your spouse or children having to go to court to get all of this done while you are incapacitated, it is time to have an estate plan created. Here are the basics:

A Will, a Living Will, Power of Attorney and a Beneficiary Check-Up. People think of a will when they think of an estate plan, but that’s only part of the plan. The will gives instructions for what you want to happen to assets, who will be in charge of your estate—the executor—and who will be in charge of any minor children—the guardian. No will? This is known as dying intestate, and probate courts will make all of these decisions for you, based on state law.

However, a will is not enough. Beneficiary designations determine who receives assets from certain types of property. This includes life insurance policies, qualified retirement accounts, annuities, and any account that provides the opportunity to name a beneficiary. These instructions supersede the will, so make sure that they are up to date. If you fail to name a beneficiary, then the asset is considered part of your estate. If you fail to update your beneficiaries, then the person you may have wanted to receive the assets forty years ago will receive it.

Some banks and brokerage accounts may have an option of a Transfer on Death (TOD) agreement. This allows you to plan out asset distribution outside of the will, speeding the distribution of assets.

A Living Will or Advance Directive is used to communicate in advance what you would want to happen if you are alive but unable to make decisions for yourself. It names an agent to make serious medical decisions on your behalf, like being kept on life support or having surgery. Not having the right to make medical decisions for a loved one requires petitioning the court.

Financial Power of Attorney names an attorney in fact to manage finances, paying bills and overseeing investments. Without a POA, your family can’t take action on your financial matters, like paying bills, overseeing the maintenance of your home, etc. If the court appoints a non-family member to manage this task, the family may see the estate evaporate.

Creating a trust is part of most people’s estate plan. A trust is a means of leaving assets for a minor child, or someone who cannot be trusted to manage money. The trust is a legal entity that inherits money when you pass, and a trustee, who you name in the trust documents, manages everything, according to the terms of the trust.

Today’s estate plan needs to include digital assets. You need to give someone legal authority to manage social media accounts, websites, email and any other digital property you own.

The time to create an estate plan, or review and update an existing estate plan, is now. COVID has awakened many people to the inevitability of severe illness and death. Planning for the future today protects the ones you love tomorrow.

Reference: Kiplinger (April 21, 2021) “The Essentials You Need for an Estate Plan”

What Emergency Documents Do I Need in Pandemic?

With the threat of COVID-19, we’ve all come face-to-face with our mortality. However, are you prepared for the worst?, asks KSAT in its January 23 article entitled, “Important documents you need to have handy in case of an emergency.”

A consumer report recently found that just 7% of those ages 19 to 29 have an advance directive for health care emergencies, and even fewer have a will. Estate planning is one of the most worthwhile things we could do for ourselves or our loved ones.

The article explains that your estate is everything you own, and if it’s not protected, it could be taken away from your loved ones.

An extremely important document to have, in addition to a will, is a living will and a healthcare proxy or power of attorney. These documents let you designate the individual who will make decisions on your behalf, if you cannot speak for yourself.

In addition, a HIPAA authorization permits an individual you trust to speak with your healthcare staff and receive your personal medical information.

Another key document is a financial power of attorney. This empowers you to designate an agent to handle your debts, contracts and assets. A financial power of attorney must be signed and notarized.

You should also consider payable on death and transfer on death designations, which transfer assets to designated beneficiaries without probate.

It is important to conduct a digital asset inventory to list your entire online presence and include all accounts, logins, passwords, social media, and professional profiles, and most importantly, a list of everything you have on autopay.

Last, you need a last will and testament. This lets you to name an executor or personal representative to handle your postmortem affairs. However, a last will does not keep assets out of probate.

One last note: you can prepare a personal property memorandum to list the beneficiaries of any sentimental, non-monetary items.

Reference: KSAT (San Antonio) (Jan. 23, 2021) “Important documents you need to have handy in case of an emergency”

How to Protect Digital Property

When people built wealth, assets were usually tangible: real estate, investments, cash, or jewelry. However, the last year has seen a huge jump in digital assets, which includes cryptocurrency and NFTs (Non-Fungible Tokens). Combine this growing asset class with the coming biggest wealth transfer in history, says the article “What happens to your NFTs and crypto assets after you die?” from Tech Crunch, and the problems of inheriting assets will take more than a complete search of the family attic.

One survey found only one in four consumers have someone in their life who knows the details of their digital assets, from the location of the online accounts to passwords. However, digital assets that require two factor authentication or biometrics to gain access may make even this information useless.

There are many reports about people who purchased digital assets like Bitcoin and then lost their passwords or threw away their computers. More than $250 million in client assets vanished when a cryptocurrency exchange founder died and private keys to these accounts could not be found.

Digital assets need to be a part of anyone’s estate plan. A last will and testament is used to dictate how assets are to be distributed. If there is no will, the state’s estate law will distribute assets. A complete list of accounts and assets should not be part of a will, since it becomes a public document when it goes through probate. However, a complete list of assets and accounts needs to be prepared and shared with a trusted person.

Even traditional assets, like bank accounts and investment accounts, are lost when no one knows of their existence. If a family or executor doesn’t know about accounts, and if there are no paper statements mailed to the decedent’s home, it’s not likely that the assets will be found.

Things get more complicated with digital assets. By their nature, digital assets are decentralized. This is part of their attraction for many people. Knowing that the accounts or digital property exists is only part one. Knowing how to access them after death is difficult. Account names, private keys to digital assets and passwords need to be gathered and protected. Directives or directions for what you want to happen to the accounts after you die need to be created, but not every platform has policies to do this.

Password sharing is explicitly prohibited by most website and app owners. Privacy laws also prohibit using someone else’s password, which is technically “account holder impersonation.” Digital accounts that require two factor authentication or use biometrics, like facial recognition, make it impossible for an executor to gain access to the data.

Some platforms have created a means of identifying a person who may be in charge of your digital assets, including Facebook and more recently, LinkedIn. Some exchanges, like Ethereum, have procedures for death-management. Some will require a copy of the will as part of their process to release funds to an estate, so you will need to name the asset (although not the account number).

A digital wallet can be used to store access information for digital assets, if the family is reasonably comfortable using one. A complete list of assets should include tangible and digital assets. It needs to be updated annually or whenever you add new assets.

Reference: Tech Crunch (April 5, 2021) “What happens to your NFTs and crypto assets after you die?”

Estate Planning Blog Articles

Estate & Business Planning Law Firm Serving the Providence & Cranston, RI Areas

How Does Probate Work?

Who Inherited from the Painter Bob Ross?

What Happens If You Inherit a House with a Mortgage?

Have You Considered Estate Planning for Fido?

Can I Write a Perfect Will?

What Taxes are Due When Children Inherit Home?

Tackling Estate Plan Quarter by Quarter

What Is the Purpose of an Estate Plan?

What Emergency Documents Do I Need in Pandemic?

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How Does Probate Work?

Who Inherited from the Painter Bob Ross?

What Happens If You Inherit a House with a Mortgage?

Have You Considered Estate Planning for Fido?

Can I Write a Perfect Will?

What Taxes are Due When Children Inherit Home?

Tackling Estate Plan Quarter by Quarter

What Is the Purpose of an Estate Plan?

What Emergency Documents Do I Need in Pandemic?

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