The late singer’s will leaves everything to her 19-year-old daughter, Bobbi Kristina, but Kristina can’t access her mother’s estimated $20 million fortune right away because it is in a trust.

According to news reports, Houston’s will sets up what is known as a “testamentary trust” for her daughter. A testamentary trust is a trust created by a will. The will names a trustee and specifies what property will be put in the trust. Such a trust has no power or effect until the will of the donor is probated (processed through the legal system). Although a testamentary trust does not avoid the need for probate and becomes a public document because it is a part of the will, it can be useful in accomplishing other estate planning goals, such as providing for a child or reducing estate taxes in certain circumstances.

The person creating the trust may want to prevent a beneficiary who is a child or young adult from inheriting a large amount of money before he or she can handle it. One option is to pay the beneficiary in stages when the beneficiary reaches a certain age or achieves a specific goal.

This is what Whitney Houston’s trust does.  It reportedly allows Houston’s daughter to receive a 10 percent payout when she turns 21, another one-sixth when she turns 25, and the remainder of the trust’s assets when she turns 30. In this type of trust, the trustee usually has the discretion to distribute trust funds to the child at any time prior to attaining these ages, if needed for education or other reasons.

Will Never Updated

Now to the surprising parts of Houston’s estate plan.  First, as Forbes magazine columnists note, Houston could have accomplished the same goals through a living trust, a type of revocable trust, which would have kept the provisions of the trust private because it would pass outside of probate. Second, Houston was relying on a will that was created in 1993, when she was married to Bobby Brown, and it apparently was never updated, even after she and Brown divorced in 2007.  The will names Brown as the suggested guardian for Bobbi Kristina.  Although Bobbi Kristina is no longer a minor, Brown could still gain control of Kristina through a Conservatorship, as was done in the case of Britney Spears.  Finally, the will provided that if Houston had no living children at the time of her death, her fortune would be split between Brown and several family members.

Perhaps all this is what Houston wanted, even after her divorce from Brown, but that should have been made clear in an updated will.  As it stands, it appears that Houston simply neglected to do something elder law attorneys urge all clients to do: update their estate plan after a divorce or other major life change.

Trusts — either testamentary or living — can be set up for many different purposes. To decide if a trust is right for you, consult an elder law attorney.

Contact Attorney Kristina Vickstrom for more information on trusts.

Photo credit: asterix611 / cc by-sa 2.0

Not necessarily. Even if you are single and/or have no children, a Worcester Wills and Estates lawyer like Attorney Kristina Vickstrom should still be in your plans. Why? Because estate planning is really about YOU.

While it is absolutely advisable for married people or those with children to work with an estate planning lawyer, it’s also just as important for single adults. After all, when a married person suffers a major illness, it’s usually pretty clear who will eventually take on their medical and financial responsibility. The water gets murkier for unmarried individuals.

If you were to suddenly become incapacitated, who would make your medical decisions for you? Possibly your parents would be called in to determine how your medical care should proceed. It might be your sibling. But what if you don’t get along with your brother? Even if your parent or sibling would be your first choice, that doesn’t mean that the courts would agree without having your wishes legally documented.

The person to make medical and financial decision on your behalf is whomever the courts decide! Again, it could be a parent, a sibling, some other relative, or even a court-appointed individual (a stranger!). While she was not single when she was hit with dementia, the children of the late signer, Etta James, fought repeatedly with their step-father over the management of her assets and health care. James should have documented her wishes and avoided a lot of the conflict, allowing her family to more fully enjoy her last moments.

Finally, who would have legal rights to your belongings, to your home, to your pets? You may think you know the answers, but without clearly outlining your wishes with a Worcester area Wills and Trusts attorney, you have very little control over the matter. Families can be torn apart by court battles involving an estate with no Will. Popular Swedish novelist Stieg Larsson, who died unexpectedly in 2004, had been living with his girlfriend of 30 years at his passing and had taken on no estate planning. A legal battlefield erupted over his assets, namely the rights to his successful publications. With the exception of an unfinished manuscript on a shared laptop, his girlfriend walked away with nothing and Larsson’s father and brother inherited everything. This also could have been avoided, or lessened, if Larsson had set up even the most basic of estate plans.

A single adult without children does not need to worry about creating guardianships and trusts to provide for his or her children, but it’s certainly a good idea to look out for yourself. Some of the basic legal documents any single person should have include:

• A Will to determine what will become of your assets in the event of your death.
• A Health Care Proxy to name the person you want making medical decisions on your behalf.
• A Power of Attorney for financial matters to name the person you feel should be responsible for your money if you are incapacitated.
• And possibly a revocable living trust to centralize management of assets if you become incapacitated and keep your assets out of probate if you should pass away.

These documents are crucial in ensuring that your wishes are met and that you have control over your future. One doesn’t need to a famous R&B singer or best-selling, author to need an estate plan. Everyone, including single people, in Worcester County, should consider estate planning.  Contact Vickstrom Law today to set up a consultation or to find out more information.

Photo courtesy of Bree Bailey

One of the biggest factors, of course, is that most people don’t want to consider their own mortality, and estate planning forces you to do just that.  When it comes to adult children, we are just as guilty of not wanting to think about the inevitability of losing our parents, and therefore, we choose not to push them.

There are other complex reasons that come into play as well.  An adult child who wants to encourage his or her parents to set up wills and trusts may worry that the parent or other family members will mistake concern for greed.  If the parent has remarried, then even more complex family dynamics can come into play, with the adult child remaining quiet on the subject rather than creating waves.

Elder law attorneys understand these considerations and so many more, but we also know what happens when advanced planning isn’t given enough attention.  When a parent passes away or becomes incapacitated without an estate plan, the fallout can be devastating.  It may fall to the courts to determine who should be given power over medical and/or financial decisions for the parent, and the court’s opinion often does not reflect the wishes of those involved.

Really, having a plan in advance of a tragic event is the best way to ensure it will be handled according to your parents’ desires; and framing the request in this way can be helpful.  At a time in life when they are finding themselves with less and less control, it can be reassuring to know that some of the most important decisions regarding health, money, and property are theirs to make; and that when they can no longer make those decisions, substitute decision makers of their choosing are ready to step in.

In order for this to happen, though, parents need to meet with their elder law attorney while they are still able to make sound decisions and legally sign documents.  Again, most people don’t want to think about losing their mental acuity, but it can be very common.

Creating wills and trusts and setting up powers of attorney and a health care proxy can give your parent the sense of control that they may feel slipping away.  During your discussions with your parent, it can also be helpful to point out that estate planning:

• Allows them to determine who they want to have in charge of their money
• Provides the opportunity to designate who will receive which assets (or none at all)
• Keeps the courts out of the process, or limits their involvement, saving time, money, and hassle for those left behind
• Ensures that THEIR wishes are the ones that matter
• Minimizes the taxes that will be paid out of the estae

Life is busy, and it’s easy to say that estate planning is something that we’ll get to “later.”  However, “later” doesn’t always come when you think it will.  Instead of leaving the decisions (and potential hassles) in someone else’s hands, empower your parents to have a say in their future and the future of their family. Contact Vickstrom Law today for more information about encouraging your parents to handle their estate plan and to set up a consultation.

For example, Alice Smith, a 77-year-old widow, wants to protect her family cottage from potential long-term care nursing home bills and preserve it for the benefit of her four children and their immediate families.  To do so she would need to establish an irrevocable trust, fund it with the cottage property, and have five years pass from the date of the transfer.  Additionally, to ensure her children have sufficient funds to maintain the family cottage, Alice also simultaneously transferred $250,000 of cash assets into the trust.  Finally, in order to bullet-proof the plan in the event of an accident, Alice purchased a traditional long-term care insurance policy which will provide her with five years worth of long-term care benefits, including home health, assisted living, and nursing home care.  The long-term care insurance policy also offered a full return of premium rider in the event that she passed away without using any of the coverage.  After such an event, the annual premiums would be refunded to her revocable living trust.

With the above plan in place, Alice was confident that her wish to have the family cottage remain in the family for many years to come would be long lasting.  Notwithstanding the above, Alice understood that when the maintenance funds ran out that a financial problem may soon develop.  However, to avoid a point of impasse among her children, Alice designed the trust so that if a financial problem persisted for more than 90 days, the trustee was directed to sell the property, giving each child an equal share of the sale proceeds.

This week’s blog originally appeared in a blog from Kraus Financial Services and can be viewed here.

Mary lived alone on a large estate for fifteen years following her wealthy second husband’s death. Her only living relative was her sister, Louise. The two have been close since childhood, but in recent times the frailty of both women has led to fewer and fewer visits. Mary passed away in January after a three-year battle with endometrial cancer. Although weakened by age and sickness, often delusional and dependent on prescription medication, Mary executed a second version of her will in 2010 (unbeknownst to Louise) with the assistance of her live-in caregiver, Kate. When the terms of Mary’s will are administered, Louise discovers that she is to receive just $1,000 while Kate is the primary benefactor of Mary’s $450,000 estate.

Many times, the relative of one who has recently passed believes that they were unjustly left out of a will. Perhaps due to the mental state of the deceased, the relative might believe that the deceased was delusional in granting a non-relative a financial windfall. In the above example, Louise would like to know whether she has any legal recourse to challenge Kate’s award. She feels that Kate knew about Mary’s delusional capabilities and possibly took advantage of Mary in receiving the majority of Mary’s estate, and finds it hard to believe that her sister would not have left her more. However, it is also reasonable to see that Mary might have felt indebted to Kate and wanted to provide her with a genuine token of appreciation for her services.

In order to create a valid will in Massachusetts a person must possess “testamentary capacity”. In most states, this means that the person creating the will understands the nature of the document, the worth of her assets, and her relationship with whomever she is transferring them to. Testamentary capacity requires freedom from delusion which is the effect of disease or weakness and which might influence the disposition of her property. The person executing the will needs only to be aware of her actions during the period of time she is making the will. The fact that he or she doesn’t remember it the day after does not invalidate a will.

Although wills contests arise frequently, proving that a person is without testamentary capacity is difficult because signing a will does not require a great deal of coherence nor consistency. Louise would have be allowed to contest Mary’s will in the probate court, but it likely would lead to a lot of costly litigation. Most often the disagreeing parties will negotiate a settlement to mitigate the litigation.

If a relative finds themselves in a similar position, they should contact an attorney experienced in Estate Administration to discuss the possibility of a legal claim. If you considering disinheriting an heir who might attempt to challenge a will’s provisions, speak to an experienced Estate Planning attorney about avoiding the probate process altogether through the use revocable or irrevocable trust planning.

Contesting a will is a procedural and difficult process. Yet, if you feel that a loved one lacked the mental capacity to transfer his or her estate, contact our office to discuss your options.

The Massachusetts legislature has finally recognized the strong bond that exists between man and animal by passing legislation that allows a pet owner to establish a trust fund to provide ongoing care for any animals alive during their lifetime. The Act states simply that “[a] trust for the care of one or more animals . . . is valid.” Prior to this legislation being enacted, an animal owner had to leave funds with a human caretaker, who would then agree to provide care to any animals.

The statute provides that the trust will not terminate until the benefited animal, or the last of several animals, has passed away. This assumes that the trust contains enough funds to continue to exist for that length of time. Thus, it is not enough to merely create a trust. You must also ensure that enough assets will be placed into the trust to provide the desired care. Some people overcome the lack of present funds by purchasing a life insurance policy that will pay into the trust when they pass away. Conversely, if the trust receives an excessive amount of assets, the statute also allows for a reduction of the funds, so long as there will be no substantial impact on the animal.

When creating a pet trust, it is necessary to name a trustee, who will be responsible for managing and investing the funds, as well as making distributions for animal care. Fortunately, failure to name a trustee will not be fatal as the statute provides that the court shall name the trustee in this case. The legislation also provides safeguards by restricting distributions to the trustee, with the exception of trustee fees, costs of administration and any other distribution authorized by the trust. Further, the statute allows for court enforcement of the trust if the trust funds are being misused.

When the last of the animals passes away, or if there is a reduction as indicated above, the funds would first be distributed as directed in the trust. If there is an absence of direction, the funds would be returned to the person who created the trust, if they are still alive. If they are not alive, then the funds would pass pursuant to the residuary clause of their Will. In the absence of a Will, the funds would pass in accordance with the laws of intestacy, which distribute your assets if you pass away without a Will. The best trust would provide for distribution of the balance within its terms.

Another important decision when planning for your pet is determining who will serve as your pet’s caretaker. While the statute does not restrict the trustee from acting as the caretaker, this arrangement is not recommended as it could lead to a lack of oversight with respect to animal care, trust fund management, or both. It is also recommended that you name at least one alternate caretaker, if not several, who would provide care if the originally named caretaker was unable to do so.

To ensure that the plan is carried out as intended, you should also address the following concerns. Remember that your pet will pass through your estate as personal property; therefore, you must leave your pet to the trust in your Will or by assignment prior to your passing. In addition, your plan should clearly describe the animal to avoid “replacement” of the animal by an unscrupulous caregiver who desires to continue receiving payments from the trust. If your animal has specific care requirements, you should be sure to clearly describe those requirements and to specifically authorize any expenditures that might be considered unusual or excessive. Finally, you should be sure to include strict guidelines for euthanasia and to address the final disposition of your animal.

Planning for the ongoing care of your animals has never been easier. If you have a current plan in place for the care of your animals, you should update your plan to take advantage of this new law. If you do not have a plan in place for the care of your animals, there is no time like the present to establish one.

One of the most prominent sellers of do-it-yourself wills and other estate planning documents, is the target of a class action lawsuit in California charging that the company engages in deceptive business practices and is practicing law without a license.

The lawsuit was filed in Los Angeles Superior Court on May 27, 2010, by Katherine Webster, who is the niece of the late Anthony J. Ferrantino and the executor of Mr. Ferrantino’s estate.

Knowing that he had only a few months to live, Mr. Ferrantino asked Ms. Webster in July 2007 to help him use LegalZoom to execute a will and living trust. Based on LegalZoom’s advertising, Ms. Webster says she believed that the documents they created would be legally binding and that if they encountered any problems, the company’s customer service department would resolve them.

But after the living trust documents were created and signed, Ms. Webster could not transfer any of her uncle’s assets into the trust because the financial institutions that held his money refused to accept the LegalZoom documents as valid. Ms. Webster tried to get help from LegalZoom, with no success. The trust was still not funded when Mr. Ferrantino died in November 2007.

Ms. Webster was forced to hire an estate planning attorney, who petitioned the court to allow the post-death funding of the trust. The attorney then had to convince the banks to transfer the funds — a more difficult task following Mr. Ferrantino’s death. The attorney also discovered that the will LegalZoom created for Mr. Ferrantino had not been properly witnessed. All this cost Mr. Ferrantino’s estate thousands of dollars.

The lawsuit claims that Ms. Webster and others like her relied on misleading statements by LegalZoom, including that LegalZoom carefully reviews customer documents, that it guarantees its customers 100 percent satisfaction with its services, that its documents are the same quality as those prepared by an attorney, and that the documents are effective and dependable.

“Nowhere in the [company's] manual do defendants explain that using LegalZoom is not the same as using an attorney and that its documents are only ‘customized’ to the extent that the LegalZoom computer program inputs your name and identifying information, but not tailored to your specific circumstances,” the lawsuit states, adding that “the customer service representatives are not lawyers and cannot by law provide legal advice.”

Ms. Webster is suing not only on her behalf but on behalf of anyone in California who paid LegalZoom for a living trust, will, living will, advance health care directive or power of attorney. The lawsuit estimates this class embraces more than 3,000 individuals.

“LegalZoom’s business is based on nurturing the false sense of security that people do not need to hire a traditional attorney,” says San Francisco attorney Robert Arns, one of the attorneys who filed the lawsuit. “The complaint points out that LegalZoom advertises that you don’t need a real attorney because its work is legally binding and reliable. That’s misleading. Improperly prepared estate planning documents are a ticking time bomb that can result in improper tax consequences and other items that could cost the estate and heirs huge sums.”

“LegalZoom preys on people when they’re at their most vulnerable, when they are of advanced age or poor health and need a will or a living trust,” adds San Francisco elder abuse attorney Kathryn Stebner, Ms. Webster’s lead counsel.

One of the defendants named in the suit is LegalZoom co-founder Robert Shapiro, who appears on the LegalZoom Web page and TV ads and who is best-known for being one of O.J. Simpsons attorneys.

This is not the first suit against LegalZoom. In December 2009, a Missouri man who paid LegalZoom to prepare his will sued the company for engaging in the unauthorized practice of law (Janson v. LegalZoom). The lawsuit is also seeking class action status. LegalZoom is trying to have the case removed from Missouri state court to the United States District Court for the Western District of Missouri.

For a copy of Ms. Webster’s complaint, click here.

If you have an estate plan that was prepared by an online preparation service you may want to have it reviewed by an estate planning attorney that is licensed in your state to ensure that it is complete and actually accomplishing your planning goals.

Certain ideas with respect to estate planning are widely accepted, yet unfortunately, inaccurate. This article will reveal and explain the most commonly stated estate planning myths. 

Myth No. 1: ‘If I have a valid will, my estate does not have to go through probate.’

Many people believe that having a will means that their estate will not have to be probated when they pass away. A will is a document that, in part, gives instructions as to the distribution of the assets in the decedent’s probate estate. The assets in the probate estate are those assets that are held in the decedent’s name alone that do not have a designated beneficiary. Thus, whether or not probate is needed is not based upon whether or not the decedent had a will; rather, it is based upon how the assets are owned by the decedent.

If the decedent left probate assets, then in order for their will to ‘speak,’ a probate estate must be opened. If all the assets held in the decedent’s name are jointly owned with a right of survivorship or have named beneficiaries, then there is no need for probate.

Myth No. 2: ‘I can give away $10,000 to as many people as I want each year, but if I give more, then I have to pay gift tax.’

This myth emanates from the gift-tax system. In 2010, the rule with respect to gift tax is that you may give up to $13,000 to as many people as you want without having to file a gift-tax return. Note that the amount that can be gifted is stated incorrectly in the myth because most people remain unaware of the ongoing increases to the allowable gift amount.

Also under the current rules, even if a gift-tax return must be filed because more than $13,000 is given to one person, the giver of the gift will not pay any gift tax until he or she has gifted more than $1 million during their lifetime. Thus, if a person has $100,000 and gives all of it away in one year to one person, they will need to file a gift tax return, but they will not owe any gift tax because the gift does not exceed the lifetime threshold.

The estate tax system is NOT to be confused with MassHealth/Medicaid planning. If nursing home care is eminent and you intend on having MassHealth/Medicaid pay for your care, gifts of any size are not allowed and can lead to MassHealth/Medicaid disqualification.

Myth No. 3: ‘I can give away assets when I enter a nursing home and still obtain Medicaid benefits.’

When faced with a nursing home bill of approximately $8,000 per month, many people wish to obtain Medicaid benefits to pay for this care. In order to obtain Medicaid benefits, an asset limit must be met; therefore, assets valued above this amount must be reduced to the asset limit before benefits will be granted. In their efforts to reduce the excess assets, many people believe that they can gift the excess assets due to the gift-tax exclusion explained in Myth No. 2. While a person can make a gift of up to $13,000 per person in 2010 without filing a gift tax return, the Medicaid program is not governed by the gift tax rules.

The Medicaid program imposes a penalty when any assets are given away within five years of the application for benefits, except in very specific circumstances. This penalty results in being unable to obtain Medicaid benefits for at least five years after such a gift is made. Thus, a gift of any amount will typically result in a penalty being imposed even if the gift does not have to be reported on a gift-tax return.

Myth No. 4 – ‘If I need nursing home care, Medicare will pay for my care.’

In part, this myth is perpetuated due to the fact that “Medicare” sounds very much like “Medicaid,” which does pay benefits for nursing home care for approved applicants. Medicare Part A will pay for medically necessary inpatient care in a skilled nursing facility, but only following a three-day hospital stay. Medicare will pay for up to 100 days of skilled nursing care or rehabilitation services. The actual length of benefits could be much shorter than 100 days if those services are no longer required.

When Medicare benefits are paid, Medicare pays 100% of the cost for the first 20 days, but only 80% of the cost of the next 80 days. Most Medicare recipients also have Medigap insurance, which will pay the balance not paid by Medicare. When Medicare benefits are exhausted, an alternative payment source is needed to pay for ongoing nursing home care.

Questions? Wondering if something you’ve heard is a ‘myth?’

 This article was originally published in Business West.

To answer these questions, ElderLawAnswers asked two experienced Estate Planning and Elder Law attorneys to evaluate three leading online will preparation and estate planning programs: Nolo’s Online Will, BuildaWill, and LegalZoom. Their findings and ElderLawAnswers’ conclusions are presented in a five-page whitepaper that is available for free on ElderLawAnswers website.

The conclusion: “We conclude that while online estate planning could possibly work for people who have little or no property, small savings or investments, and a traditional family tree, the significant remainder of the population should not rest easy using one of these programs and should instead consult with a qualified Estate Planning attorney. In other words, in all but the most commonplace Estate Planning situations (and only an attorney can determine what is “commonplace”), do-it-yourself estate planning programs can be a risky, and often quite costly, substitute for in-person planning with an experienced estate planning attorney.”

I encourage you to read the whitepaper and see for yourself. Common issues with these type of estate plans include oversimplification. For example they do not explain the complexities of naming too many decision makers to serve at the same time, nor do they explain why a minor child or an elder parent may not be a good choice to name as an agent. They often overlook tax laws. Its important to remember that each State’s probate laws and tax laws vary. Further, mixed marriage situations are never a good fit for these programs. Additionally, users may miss powerful opportunities to sheild a child’s inheritance or plan for a special needs child. Finally, there is the issue of liability. Who do you hold accountable if a mistake was made?

In my office alone, I have several consultations per month where I assist clients in backing out of poorly drafted, do-it-yourself estate plans, and into something that makes sense for them and their families. Its very important to remember that there are no one-size-fits-all when it comes to planning one’s estate but that the utmost care should be placed in choosing the right person (Estate Planning or Elder Law Attorney) to help you, and not the right computer program.

Olga M. Rodrigues and her now deceased husband purchased a home in September 1979. Mr. Rodrigues died in 1994, and Mrs. Rodrigues became the sole owner of the home. Shortly thereafter, she transferred the home into a revocable trust where she was the trustee and her children were the beneficiaries of the trust upon her death. Once the home was transferred into the trust, Mrs. Rodrigues no longer owned the legal title to the home; at the point, she only owned equitable title. In April 2008, less than a year before bankruptcy proceedings were filed against her, Mrs. Rodrigues executed a Declaration of Homestead and recorded the declaration in the Bristol County Registry of Deeds. The declaration stated that she owned, possessed, and occupied the home as her residence and homestead under the Massachusetts General Laws, chapter 188. This declaration was only partially correct because she did not actually own the home, but she did possess it and she was occupying it.

Currently, the law dealing with the Massachusetts Homestead Exemption states that a homestead interest “may be acquired … by an owner or owners of a home or by one or all who rightfully possess the premise by lease or otherwise.” M.G.L., c. 188, §1 (2007). Although Mrs. Rodrigues was no longer a legal owner of the home, when she recorded her Declaration of Homestead, she rightfully held possession of the home and evidenced her intent to occupy the premises as her principal residence. Judge Feeney, the bankruptcy court judge in this case, held that Mrs. Rodrigues’ actions satisfied the Massachusetts law concerning homestead and that she had validly exercised her homestead exemption. The result of this case has encouraged the Massachusetts state legislature to rewrite M.G.L., c. 188, to make it clearer and include language about trusts and the homestead exemption.

Going forward, the proposed law moving through the state legislature specifically uses language allowing a trustee of a trust containing real estate to make a declaration of homestead for the person or persons occupying the premise. The law states that the person claiming the homestead exemption must prove that he or she is using or intends to use the home as his or her principal residence. If this law passes, holding your home in a trust may be a safe way to protect it from unsecure creditors. Please visit the current text of Senate Bill 2401, An Act Relative to the Estate of Homestead.