How Do I Keep My Spendthrift Son-in-Law from Getting the Money I Give my Daughter in My Estate?

Say that you were to name your daughter as the beneficiary on your Roth IRA and 401(k) accounts, as well as your house and other investments. Her husband would not be a beneficiary.

His only source of income is a monthly stipend that he receives from a trust and earned income from being a rideshare driver. He has at least $5,000 in credit card debt.

Can Mom use a “bloodline trusts” to prevent her son-in-law from inheriting or getting her money when she dies?

Nj.com’s recent article entitled “Can I protect my daughter’s inheritance from her husband?” explains that “bloodline trusts” were created for this very reason.

Note first that retirement assets can’t be re-titled to a trust. However, a home can be, and investments can be, if they’re not tax deferred.

For assets that can’t be re-titled to the bloodline trust during your lifetime, you can name the trust as the payable-on-death (POD) beneficiary of those assets.

You also should take care in deciding on who you choose as a trustee.

In the situation above, depending on applicable law for your state of residence, the daughter may not be the sole trustee and the sole beneficiary under this form of trust arrangement. However, in all instances, a bank or attorney can be a co-trustee.

This trust arrangement ensures that assets distributed to the daughter aren’t commingled with the assets of her husband with extravagant tastes and an open checkbook. In addition, those assets would not be subject to equitable distribution in the event of a divorce.

If the daughter is the sole trustee over a bloodline trust, then all the planning will be out the window, if the daughter does not agree to this set-up.

For example, if she takes distributions from the trust and deposits them in a joint account with her husband, the money is available for equitable distribution.

This means the daughter arguably has indicated that she does not think of her inheritance as a non-marital asset.

A divorce court would see it the same way and award a portion to the husband in a break-up.

Reference: nj.com (July 21, 2020) “Can I protect my daughter’s inheritance from her husband?”

State Laws Have an Impact on Your Estate

Nj.com’s recent article entitled “Will N.J. or Florida’s tax laws affect this inheritance?” notes that first, the fact that the individual from Florida isn’t legally married is important.

However, if she’s a Florida resident, Florida rules will matter in this scenario about the vacation condo.

Florida doesn’t have an inheritance tax, and it doesn’t matter where the beneficiary lives. For example, the state of New Jersey won’t tax a Florida inheritance.

Although New Jersey does have an inheritance tax, the state can’t tax inheritances for New Jersey residents, if the assets come from an out-of-state estate.

If she did live in New Jersey, there is no inheritance tax on “Class A” beneficiaries, which include spouses, children, grandchildren and stepchildren.

However, the issue in this case is the fact that her “daughter” isn’t legally her daughter. Her friend’s daughter would be treated by the tax rules as a friend.

You can call it what you want. However, legally, if she’s not married to her friend, she doesn’t have a legal relationship with her daughter.

As a result, the courts and taxing authorities will treat both persons as non-family.

The smart thing to do with this type of issue is to talk with an experienced estate planning attorney who is well-versed in both states’ laws to determine whether there are any protections available.

Reference: nj.com (July 23, 2020) “Will N.J. or Florida’s tax laws affect this inheritance?”

Which Stars Made the Biggest Estate Planning Blunders?

Mistakes in the estate planning of high-profile celebrities are one very good way to learn the lessons of what not to do.

Forbes’ recent article entitled “Eight Lessons From Celebrity Estates” discussed some late celebrities who made some serious experienced estate planning blunders. Hopefully, we can learn from their errors.

James Gandolfini. The “Sopranos” actor left just 20% of his estate to his wife. If he’d left more of his estate to her, the estate tax on that gift would have been avoided in his estate. But the result of not maximizing the tax savings in his estate was that 55% of his total estate went to pay estate taxes.

James Brown. One of the hardest working men in show business left the copyrights to his music to an educational foundation, his tangible assets to his children and $2 million to educate his grandchildren. Because of ambiguous language in his estate planning documents, his girlfriend and her children sued and, years later and after the payment of millions in estate taxes, his estate was finally settled.

Michael Jackson. Jackson created a trust but never funded the trust during his lifetime. This has led to a long and costly battle in the California Probate Court over control of his estate.

Howard Hughes. Although he wanted to give his $2.5 billion fortune to medical research, there was no valid written will found at his death. His fortune was instead divided among 22 cousins. The Hughes Aircraft Co. was bequeathed to the Hughes Medical Institute before his death and wasn’t included in his estate.

Michael Crichton. The author was survived by his pregnant second wife, so his son was born after his death. However, because his will and trust didn’t address a child being born after his death, his daughter from a previous marriage tried to cut out the baby boy from his estate.

Doris Duke. The heir to a tobacco fortune left her $1.2 billion fortune to her foundation at her death. Her butler was designated as the one in charge of the foundation. This led to a number of lawsuits claiming mismanagement over the next four years, and millions in legal fees.

Casey Kasem. The famous DJ’s wife and the children of his prior marriage fought over his end-of-life care and even the disposition of his body. It was an embarrassing scene that included the kidnapping and theft of his corpse.

Prince and Aretha Franklin. Both music legends died without a will or intestate. This has led to a very public, and in the case of Prince, a very contentious and protracted settlement of their estates.

So, what did we learn? Even the most famous (and the richest) people fail to carefully plan and draft a complete estate plan. They make mistakes with tax savings (Gandolfini), charities (Brown and Hughes), providing for family (Crichton), whom to name as the manager of the estate (Duke) and failing to prevent family disputes, especially in mixed marriages (Kasem).

If you have an estate plan, be sure to review your existing documents to make certain that they still accomplish your wishes. Get the help of an experienced estate planning attorney.

Reference: Forbes (July 16, 2020) “Eight Lessons From Celebrity Estates”

Is It Easy to Change My Home’s Title from Tenants in Common to Joint Tenants?

Many couples may have purchased a home years ago with the original deed titled as “William Smith and Wilhelmina Smith”. In some states, like Georgia, this defaults to tenants in common. With Wilhelmina being William’s wife for decades, they thought it was time to think about changing the title to William Smith and Wilhelmina Smith, joint tenants with right of survivorship.

The Washington Post’s recent article entitled “Changing a home title from ‘tenants in common’ to ‘joint tenants’” looks at whether this would result in any adverse consequences, such as issues with the title insurance or taxes issues.

When you own a home in joint tenancy, should either of the owners die, that owner’s interest automatically goes to the surviving joint tenant. However, when people own a home as tenants in common, each person owns a specific share of that home. Therefore, our hypothetical couple William Smith and Wilhelmina Smith each owns a 50% interest in the home. If either of them were to die, his or her 50% interest in the home would be distributed, as provided in his or her will or as provided by state probate statute.

If people purchase a home but don’t specify how they want to own the property, in most situations, the state law will say how the parties take title to the property when the deed is silent.

You can typically record a new document that puts both William Smith and Wilhelmina Smith on the title to the home, as joint tenants with rights of survivorship. When it’s a simple change in the title from tenants in common to joint tenants, most state tax authorities will ignore that change.

To be sure you should ask an experienced estate planning attorney or the office that collects or assesses values in your location for more information. However, it’s a pretty safe bet that the change won’t affect a home’s value.

As far as the title insurance policy, after so many years, it would be doubtful there would be any problems. That’s because the original title insurance policy named William Smith and Wilhelmina Smith as the insured. If they change the ownership from tenants in common to joint tenants, the Smiths are still the owners of the home and still named on that policy.

Reference: Washington Post (July 6, 2020) “Changing a home title from ‘tenants in common’ to ‘joint tenants’”

Can I Add Real Estate Investments in My Will?

Motley Fool’s recent article entitled “How to Include Real Estate Investments in Your Will” details some options that might make sense for you and your intended beneficiaries.

A living trust. A revocable living trust allows you to transfer any deeds into the trust’s name. While you’re still living, you’d be the trustee and be able to change the trust in whatever way you wanted. Trusts are a little more costly and time consuming to set up than wills, so you’ll need to hire an experienced estate planning attorney to help. Once it’s done, the trust will let your trustee transfer any trust assets quickly and easily, while avoiding the probate process.

A beneficiary deed. This is also known as a “transfer-on-death deed.” It’s a process that involves getting a second deed to each property that you own. The beneficiary deed won’t impact your ownership of the property while you’re alive, but it will let you to make a specific beneficiary designation for each property in your portfolio. After your death, the individual executing your estate plan will be able to transfer ownership of each asset to its designated beneficiary. However, not all states allow for this method of transferring ownership. Talk to an experienced estate planning attorney about the laws in your state.

Co-ownership. You can also pass along real estate assets without probate, if you co-own the property with your designated beneficiary. You’d change the title for the property to list your beneficiary as a joint tenant with right of survivorship. The property will then automatically by law pass directly to your beneficiary when you die. Note that any intended beneficiaries will have an ownership interest in the property from the day you put them on the deed. This means that you’ll have to consult with them, if you want to sell the property.

Wills and estate plans can feel like a ghoulish topic that requires considerable effort. However, it is worth doing the work now to avoid having your estate go through the probate process once you die. The probate process can be expensive and lengthy. It’s even more so, when real estate is involved.

Reference: Motley Fool (June 22, 2020) “How to Include Real Estate Investments in Your Will”

Will James Brown’s Estate Finally Be Settled after 15 Years?

The South Carolina Supreme Court in June finally began sorting out the litigation that has been part of Brown’s estate since his death. The court held that Brown was never legally married to his fourth wife, Tomi Rae Hynie, because she had not annulled a previous marriage.

Wealth Advisor’s recent article entitled “Might The Battle Over James Brown’s Estate Finally Be Coming To A Close After Nearly 15 Years” explains that the court’s decision weakens her claim to the estate. The estate has been valued to be worth between $5 million and $100 million. It’s the first real move forward in years. According to The New York Times, “the Supreme Court instructed the lower court to “promptly proceed with the probate of Brown’s estate in accordance with his estate plan,” which called for the creation of a charitable trust to help educate poor children.”

South Carolina law stipulates that Hynie, as Brown’s widow, would have had the right to a third of his estate’s value, no matter what his will instructed.

Hynie was married in 2001 to Javed Ahmed, a Pakistani man who already had three wives in his native country. Her lawyers argued that since Ahmed was a bigamist, their marriage was void. South Carolina’s lower courts agreed, holding that her marriage to Brown was valid.

However, the South Carolina Supreme Court disagreed. “All marriages contracted while a party has a living spouse are invalid, unless the party’s first marriage has been ‘declared void’ by an order of a competent court,” the Court explained.

Hynie’s counsel will be filing “a petition to reconsider and rehear the decision.”

Hynie is entitled as spouse to a share of Brown’s valuable music copyrights under federal law. She has already settled part of her dispute with the estate, agreeing to give 65% of any proceeds from her so-called termination rights—copyrights that, though once sold, can return to the songwriter or his heirs after several decades—to charity.

Brown’s will had bequeathed $2 million for scholarships for his grandchildren. The will said that his costumes and other household effects were to go to six of his children, and the remainder of the estate was to go to the charitable trust for the poor, called the “I Feel Good Trust.”

The South Carolina Supreme Court ruling is significant, because Brown’s 2000 will said, “Any heirs who challenged it would be disinherited. However, several of his children and grandchildren sued after his death,” notes The New York Times.

Reference: Wealth Advisor (July 20, 2020) “Might The Battle Over James Brown’s Estate Finally Be Coming To A Close After Nearly 15 Years”

Cat Is Fighting for Her Inheritance?

A year later, and the estate of Chanel creative director Karl Lagerfeld is not yet finalized. However, some details have emerged that, while Lagerfeld’s cat Choupette is an heir, she isn’t the only one who will inherit a share of Lagerfeld’s grand fortune.

The seven beneficiaries are trying to access Lagerfeld’s assets that include real estate in Paris and Monaco, a bookstore and designer furniture.

Choupette is a blue-cream tortie Birman cat who was owned by German fashion designer Karl Lagerfeld from around December 2011 until Lagerfeld’s death in February 2019 at the age of 85.

The designer’s feline has her own agent and, according to The New York Times, at the height of her fame she had two minders, a bodyguard, a concierge veterinarian and a personal chef.

Wealth Advisor’s article entitled “Karl Lagerfeld’s cat is locked in inheritance battle” says that Lagerfeld’s “trusted” accountant for many decades, 87-year-old Lucien Frydlender has been named to manage the creative director’s finances. In addition, Frydlender is responsible for distributing the estate, according to Lagerfeld’s will.

However, an investigation by French publication Le Parisienfeatured in Voici magazine found that Frydlender hasn’t been taking calls from the beneficiaries. The magazine also says that “after closing his office in September 2019, the former collaborator of Karl Lagerfeld has simply disappeared from the radar,” raising questions for those involved.

Frydlender’s wife has defended her husband and assured the public that there’s nothing suspicious going on. She says he’s not “on an island paradise with a hidden treasure.” Instead, she tells reporters that he’s “very sick”.

When Choupette the cat will get her inheritance and what that will look like is unknown. It’s been more that a year since the death of her owner, Lagerfeld. Choupette fans have been concerned for the pet, but the cat isn’t scrounging in garbage cans: she made over $4 million in 2015.

“People came by the store and said how sad they were, and half of it was about Choupette,” Caroline Lebar, head of communications for the Karl Lagerfeld brand, admits. “They’d say, ‘If she’s alone, I’ll take her home.'”

However, Lebar promises Choupette is in safe hands, living in Paris with Lagerfeld’s former housekeeper Françoise Caçote. “She is in good shape, and is surrounded by love.”

Reference: Wealth Advisor (June 9, 2020) “Karl Lagerfeld’s cat is locked in inheritance battle”

Did ‘The Gambler’ Have Estate Planning?

An article from Wealth Advisor entitled “What Kenny Rogers Leaves Behind After Four Divorces And Restaurant Armageddon,” says that he was a hit machine, racking up an estimated $250 million through extensive touring, TV appearances, and constant radio play.

Rogers was a singer, songwriter, actor, record producer and entrepreneur.

He was elected to the Country Music Hall of Fame in 2013 and charted more than 120 hit singles. He topped the country and pop album charts for more than 200 individual weeks in the U.S. alone. He sold more than 100 million records worldwide during his lifetime, making him one of the best-selling music artists of all time.

However, Rogers may not have left a lot of that money behind. He built a 425-restaurant chain in the 1990s that should have been his retirement plan. However, those restaurants closed everywhere, except in Asia. He had no licensing fees for use of the name, so there’s no revenue for his heirs.

The issue is whether Rogers accumulated sufficient wealth in life to support the lifestyles of his family. He left a wife (his fifth) and five adult kids behind. Kenny paid out $60 million to settle his fourth divorce in 1993, which was half his fortune.

While it was a while after his commercial peak, he started working on a smaller scale and married again, raising his two youngest kids. Kenny continued to tour and record, but his health became an issue. He decided the 2017 tour would be his last— and he was forced to cancel that one as well.

Kenny most likely only had whatever cash he set aside in conventional investment accounts, working real estate and other retirement assets. It’s unclear how much that was, but it’s probably enough to keep his widow comfortable for the rest of her life. That’s another challenge with late marriages. Roger died at 81, and wife No. 5 is just 57.

So, in theory, she needs those assets to last another 40 years to maintain her lifestyle.

Reference: Wealth Advisor (March 23, 2020) “What Kenny Rogers Leaves Behind After Four Divorces And Restaurant Armageddon”

Should I Give My Kid the House Now or Leave It to Him in My Will?

Transferring your house to your children while you’re alive may avoid probate, the court process that otherwise follows death. However, gifting a home also can result in a big, unnecessary tax burden and put your house at risk, if your children are sued or file for bankruptcy.

Further, you also could be making a big mistake, if you hope it will help keep the house from being used for your nursing home bills.

MarketWatch’s recent article entitled “Why you shouldn’t give your house to your adult children” advises that there are better ways to transfer a house to your children, as well as a little-known potential fix that may help even if the giver has since passed away.

If you bequeath a house to your children so that they get it after your death, they get a “step-up in tax basis.” All the appreciation that occurred while the parent owned the house is never taxed. However, when a parent gives an adult child a house, it can be a tax nightmare for the recipient. For example, if the mother paid $16,000 for her home in 1976, and the current market value is $200,000, none of that gain would be taxable, if the son inherited the house.

Families who see this mistake in time can undo the damage, by gifting the house back to the parent.

Sometimes people transfer a home to try to qualify for Medicaid, the government program that pays health care and nursing home bills for the poor. However, any gifts or transfers made within five years of applying for the program can result in a penalty period, when seniors are disqualified from receiving benefits.

In addition, giving your home to someone else also can expose you to their financial problems. Their creditors could file liens on your home and, depending on state law, get some or most of its value. In a divorce, the house could become an asset that must be sold and divided in a property settlement.

However, Tax Code says that if the parent retains a “life interest” or “life estate” in the property, which includes the right to continue living there, the home would remain in her estate rather than be considered a completed gift.

There are specific rules for what qualifies as a life interest, including the power to determine what happens to the property and liability for its bills. To make certain, a child, as executor of his mother’s estate, could file a gift tax return on her behalf to show that he was given a “remainder interest,” or the right to inherit when his mother’s life interest expired at her death.

There are smarter ways to transfer a house. There are other ways around probate. Many states and DC permit “transfer on death” deeds that let people leave their homes to beneficiaries without having to go through probate. Another option is a living trust.

Reference: MarketWatch (April 16, 2020) “Why you shouldn’t give your house to your adult children”

What If Grandma Didn’t Have a Will and Died from COVID-19?

The latest report shows about 1.87 million reported cases and at least 108,000 COVID-19-related deaths were reported in the U.S., according to data released by Johns Hopkins University and Medicine.

Here’s a question that is being asked a lot these days: What happens if someone dies “intestate,” or without having established a will or estate plans?

If you die without a will in California and many other states, your assets will go to your closest relatives under state “intestate succession” statutes.

Yahoo Finance’s recent article entitled “My loved one died without a will – now what?” explains that there are laws in each state that will dictate what happens, if you die without a will.

In Pennsylvania, the laws list the order of who receives upon your death, if you die without a will: your spouse, your children, and then your parents (if still alive), your siblings, and then on down the line to cousins, aunts and uncles, and the like. Typically, first on every state’s list is the spouse and the children.

You may also have some valuable assets that will not pass via your will and aren’t affected by your state’s intestate succession laws. Here are some of the common ones:

Any property that you’ve transferred to a living trust
Your life insurance proceeds
Funds in an IRA, 401(k), or other retirement accounts
Any securities held in a transfer-on-death account
A payable-on-death bank account
Your vehicles held by transfer-on-death registration; or
Property you own with someone else in joint tenancy or as community property with the right of survivorship.

These types of assets will pass to the surviving co-owner or to the beneficiary you named, whether or not you have a will.

It’s quite unusual for the government to claim a deceased person’s estate. While it might be allowed in some states, it’s considered a last resort. Typically, we all have some relatives.

If you have a loved one who has died without a will, speak with an experienced estate planning attorney about your next steps.

Reference: Yahoo Finance (June 1, 2020) “My loved one died without a will – now what?

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