Don’t Forget the Basics Estate Planning is About People

Estate planning attorneys and clients are once again awaiting possible sweeping changes in estate taxation. Will the cherished step-up in cost basis of capital assets go away? Will unrealized capital gains be recognized at death? What will the exclusion amounts be for federal estate tax? At the moment, answers are murky at best.

These are undoubtedly big changes being considered by Congress. But what can a client do in the meantime? The answer is simple: mind to the basic building blocks of your estate plan. The basics aren’t sexy. But they are crucial elements to your plan. This is the first in a series of articles which will examine the crucial but often overlooked decisions that make or break an estate plan.

What is the first essential building block of an estate plan? Is it the power of attorney? The last will? Maybe a trust? These are all good tools, but in the end, they are just ink on paper. Estate plans are not self-executing. We rely on people to carry them out. Your will may direct that a certain piece of property be given to so and so, but it takes a living, breathing person to secure, safeguard, account for, and physically deliver that property to the intended beneficiary. Thus, the selection and ongoing review of these critical players in your estate plan deserves careful consideration.

The challenge is that people and relationships change, often quickly. Our skills, temperaments, and relationships with others are constantly in flux. The person you entrusted five years ago to oversee your estate or serve as your power of attorney may now be unsuitable for a host of reasons that you could not have foreseen.

To address this, I recommend that my clients critically review their estate plan each year with a special focus on the people they’ve chosen to serve in these roles. I encourage them to ask themselves the following questions:

o Are the people I’ve appointed as my children’s guardian, my trustee, executor, or agents under my power of attorney still the best choices to ensure my wishes are carried out? Are any of them experiencing health issues, marriage problems, addiction issues, or other major life distractions that they were not experiencing when I first named them as a fiduciary? Do I still trust these individuals as I once did?

o What natural skills do each of these individuals exhibit? Who in my life exhibits the key characteristics of a fiduciary, namely trustworthiness, organization, and accountability?

o Do the people I’ve currently nominated to serve as fiduciaries reflect outdated or faulty notions? For example, did I nominate my son to be my Power of Attorney only because he lives in close proximity to me when another child of mine who lives far away might actually be better suited? Or, did I nominate my oldest daughter to serve as my Successor Trustee because I was afraid of hurting her feelings?

o Whom do I really trust to make personal medical decisions for me if I am incapacitated?

o Have I given enough consideration to the alternate fiduciaries who may be called upon if my first choice is unable to serve?

o What are my children’s relationships like with each other? Are they harmonious? Contentious? If I elevate one of my children to administer my estate at my death or be my primary medical decision maker, will it lead to unnecessary strife or litigation?

These can be messy questions indeed. Don’t breeze past the identification of the proper people to carry out your estate plan or protect you in the case of an incapacity. Talk with your attorney, review whom you have selected to fill these roles, and make appropriate changes as necessary. It’s worth a modest invoice from your attorney to ensure the people with the right skills and temperament are in place.

Please contact E|S trust and estate attorneys with questions on how to approach your own comprehensive estate plan to fit your needs.

Divorce’s Impact on Estate Plans in Nebraska

    On September 3, 2017, Nebraska LB 517 went into effect. The passing of this bill has resulted in the enactment of Nebraska Revised Statute §30-2333, titled “Revocation by divorce or annulment; no revocation by other changes of circumstances.” What exactly does this mean? Well, absent a court order, express terms of a governing instrument, or contract relating to the division of the marital estate, it means a few different things.
   First, a divorce or annulment revokes any revocable transfer or appointment of property made by a divorced individual to his or her former spouse, or to a relative of his or her former spouse. For instance, let's say Spouse 1 is both the owner and insured of a life insurance policy that lists Spouse 2 as the primary beneficiary. In the event Spouse 1 and Spouse 2 legally divorce, Spouse 2 is no longer treated as the primary beneficiary of said policy, assuming the contrary is not specified under the policy, by court order, or by other contractual agreement between the parties.  In this case, the provisions of the life insurance policy are given effect as if Spouse 2 disclaimed all interest in the life insurance policy. The same principle applies to accounts with payable on death designations, last wills, interests in certain trusts, pensions, retirement plans, transfer on death deeds, annuity policies, profit-sharing plans, etc.  
    Also revoked by a divorce or annulment is any revocable provision giving the former spouse, or relative of the former spouse, a general or non-general power of appointment. An individual's estate planning documents often contain such powers of appointment. Also found in estate planning documents are nominations of certain fiduciaries. Any revocable nomination of the former spouse, or relative of the former spouse, as a fiduciary or representative is revoked upon divorce or annulment. Examples of potential nominations include an executor, trustee, guardian or power of attorney.
    Next, a divorce or annulment severs any interest in property held together by former spouses as joint tenants with a right of survivorship at the time of the divorce or annulment. The former spouses then become equal tenants in common.  What does “joint tenants with a right of survivorship” mean? Let’s say you have Spouse 1 and Spouse 2 and they own property together as joint tenants with a right of survivorship. Now if Spouse 1 dies, Spouse 2 automatically obtains the percentage of the property previously held by Spouse 2. Now what about “equal tenants in common”? Now you have Spouse 1 and Spouse 2 and this time they get a divorce. Upon the divorce, Spouse 1 and Spouse 2 both have equal shares in the property, and upon the later death of one spouse, the surviving spouse no longer has a right to the deceased spouse's interest in the property. Again, it is important to note that these are default rules absent express terms of a governing instrument, court order, or other property settlement agreement.  Also, unless there has been a writing declaring the severance and the writing was noted, registered, filed, or recorded in appropriate records, this severance does not affect a purchaser’s interest in the property so long as the purchaser purchased it for value and in good faith relied on the fact that the title was in survivorship in the survivor of the former spouses. 
    Also, it is important to note that a decree of legal separation is not considered a divorce or annulment for purposes of this statute. Moreover, provisions revoked solely by this statue are revived by the divorced individual's remarriage to the former spouse or by nullification of the divorce or annulment.
    How are third parties affected by this statute? A third party is not liable for making payment or transferring property to a beneficiary designated in a governing instrument that is affected by the divorce, annulment, or remarriage, or for taking any other action in good faith reliance on the validity of the governing instrument, before such third party receives notice. If a third party receives written notice of the divorce, annulment, or remarriage, the third party then becomes liable for payments or action taken regarding the property after said notice.  Finally, a former spouse, relative of a former spouse, or other person who received, without giving value in return, a payment, an item of property, or any other benefit to which that person is not entitled under this section is obligated to return the payment, item of property, or benefit, or is personally liable for the amount of the payment or the value of the item of property or benefit, to the person who is entitled to it.