Annapolis, Maryland Wills, Trusts & Estate Planning

Proper Planning for the Distribution of an IRA – Annapolis Estate Planning

The rules for IRA distributions can be complicated. Unforeseen circumstances can make things even more complex. Understand the rules, so the money goes where you want it to.

What happens if you designate each of your two adult children as 50/50 beneficiaries of your IRA, and then one of them dies? Will the funds go to your grandchildren?

MarketWatch answered that question in its article, “Who gets your IRA when you die? It’s not so simple.” The answer to what happens to the IRA money is dependent upon what the beneficiary designations say and when one of the children passes away. The beneficiary designations state how it will be distributed. However, that may not be what is written in your will.

If the children are alive when the IRA owner dies, and she simply named them 50/50 outright beneficiaries, they will each get half the funds. Each child could do whatever they wanted, including placing the funds in an inherited IRA account and naming their choice of beneficiaries.

However, if either child dies before the parent with the IRA passes away, and she doesn’t update the beneficiary designation before she dies, there are two common default arrangements built into account forms for IRAs, retirement accounts, life insurance policies, annuity contracts, and “transfer on death” arrangements available in some states. One is per capita: if one child is dead at the time of the parent’s death and is still listed as a 50% beneficiary, then 100% of this share will go to the surviving child.

The other common arrangement is per stirpes—Latin for “by the root.” Here, rather than the predeceasing child’s share going to their surviving sibling, the share goes to the deceased beneficiary’s children.

Be sure to obtain a copy of what you filed for your beneficiary designations. You should carefully review the language to be certain that it meshes with your wishes. If you want your assets to flow differently, speak with an estate planning attorney about drafting a custom beneficiary designation. Some people don’t want one of their beneficiaries to inherit outright and have free reign with the funds. An attorney can help protect that person and the money.

If you want to have people who are not “linear” decedents be beneficiaries, such as family friends or spouses of children, you’ll need to sit down with an estate planning attorney to make sure that the legal documents are correctly drafted. You may decide to use a custom beneficiary designation or trusts to achieve this.

Reference: MarketWatch (March 17, 2018) “Who gets your IRA when you die? It’s not so simple”

Holden & Campbell, LLC – Annapolis Estate Planning Attorneys

Undue Influence Found by Appellate Court in Case of Elderly Man and Neighbor - Annapolis Estate Planning

If undue influence can be proven, it is established that a will can be set aside.

A 2013 probate judgment ordering Frank and Angelina Picciolo to return all funds that Mrs. Picciolo received was appealed. The funds were from an annuity transfer that her husband completed, while acting as attorney-in-fact for their neighbor William C. Mallas

The Superior Court of New Jersey, Appellate Division recently decided this in the case captioned “In re Estate of Mallas.” Apparently, before his death, Mallas executed a power of attorney (POA) naming Frank as attorney-in-fact, a new will naming Angelina as a beneficiary and later, a codicil appointing Frank as executor.

Frank used the POA to transfer funds contained in a long-standing Bristol Myers Squibb IRA into two annuities, with the estate as beneficiary. Sometime later, Frank used his POA to transfer the annuities into one annuity with another company and designated Angelina as sole beneficiary.

The sales agent for the annuity transaction testified that Frank directed him to make Angelina, instead of himself, the primary beneficiary, because Frank had an IRS lien against him. The sales agent also testified that he met with Frank and Angelina on several occasions, but he never met with Mallas. When the agent requested to meet Mallas, Frank told the agent it "wouldn't be feasible to go meet him."

At his deposition, Frank testified that the annuity sales agent met with Mallas in his home. At trial, Frank changed his testimony and said he confused the sales agent with a bank employee who handled the elderly man’s accounts. At trial, Angelina admitted she "had very little contact with Mr. Mallas," and "never set foot in his house."

After Mallas died in 2010, Frank filed to probate the will and codicil. Two of Mallas’s nieces challenged the decedent's will, codicil, POA and the annuity transaction. The Chancery Division found that Mallas had the required capacity to execute each document and the benefit of independent counsel. The court upheld the POA, will, and codicil, but found that Frank "failed to prove . . . that no undue influence was exerted" upon Mallas regarding the purchase of an annuity, which designated Angelina as sole beneficiary. As a result, the court ordered Angelina to disgorge all related benefits and ordered the beneficiary changed to "the Estate of William Mallas."

The court also concluded that Frank "failed to properly account" for his actions using the POA. The court also removed him as executor because, "[a]s a result of this [c]ourt's decision, the Estate of William Mallas has substantial claims against him."

On appeal, in a per curiam opinion, Judges Reisner, Hoffman, and Mayer of the Superior Court of New Jersey, Appellate Division wrote that the concept of undue influence connotes "mental, moral, or physical exertion of a kind and quality that destroys the free will of the testator by preventing that person from following the dictates of his or her own mind as it relates to the disposition of assets . . ." This is generally accomplished "by means of a will or inter vivos transfer in lieu thereof."

The challenger of a will typically maintains the burden of proof in showing undue influence, but the Court explained that the burden shifts when a beneficiary "stood in a confidential relationship to the testator and if there are additional 'suspicious' circumstances" present. A confidential relationship exists when "the testator, 'by reason of . . . weakness or dependence,' reposes trust in the particular beneficiary, or if the parties occupied a 'relation[ship] in which reliance [was] naturally inspired or in fact exist[ed].'"

The Appellate Division judges said that similar principles apply for setting aside inter vivos gifts and property transfers on the grounds of undue influence. To establish a presumption of undue influence and shift the burden of proof, a challenger must show either that "the donee dominated the will of the donor or . . . a confidential relationship exist[ed] between [the] donor and donee.”  However, here there’s no requirement that the challengers show suspicious circumstances to set them aside.

To rebut the presumption after the burden switches, the beneficiary must prove "not only that 'no deception was practiced therein, no undue influence used, and that all was fair, open and voluntary, but that it was well understood.'"

In this case, the Appellate Division found that the trial judge reasonably determined that a confidential relationship existed between Mallas and Frank and that as to the suspicious circumstances surrounding the execution of each of the challenged documents in the case, the judge concluded that Frank met his burden of proving there was no undue influence exerted by him in connection with the estate planning documents and beneficiary designations.

 However, with the annuity, the trial judge said that Frank and Angelina failed to carry their burden of proving the absence of undue influence. The appellate court said there was sufficient evidence in the record of the confidential relationship between Mallas and Frank and the highly suspicious circumstances surrounding the annuity transaction.  However, the record contained no credible evidence to rebut the presumption of undue influence, they said.

The trial judge crafted an equitable remedy that accounted for the lack of credible evidence that the annuity transaction had been authorized by Mallas, stated the Appellate Division. It also found that there was no credible evidence that Mallas intended to have that transaction nullify his will and codicil, which was done with the benefit of counsel.

Reference: Superior Court of New Jersey, Appellate Division (March 6, 2018) “In re Estate of Mallas”

Holden & Campbell, LLC – Annapolis Estate Planning Attorneys

Insurance Agent Ordered to Give Back $1 Million from Client Policies - Annapolis Estate Planning

An administrative law judge said that Blanche Berenzweig should return the $1 million she collected from a deceased client’s estate. The heirs of a reclusive man have objected to the will, claiming that she pressured their uncle.

This fall, a trial will be held to determine who LeRoy Ern’s real heirs are, as ordered by Milwaukee County Circuit Judge Marshall Murray. With an estate worth $1.6 million, the reclusive man, who died at 92 of advanced dementia, left his entire estate to a retired insurance agent. His will was drafted by an attorney that shared an office with the insurance agent.

The Milwaukee Journal Sentinel article, “Insurance agent should give up $1 million received from client's policies, judge recommends,” reports that 11 of Ern's 12 nieces and nephews objected to the will that was drafted in 2009. They said Berenzweig improperly pressured their reclusive uncle.

Ern also gave her power of attorney over his financial and health affairs, if he became incapacitated.

Rachel Pings, an administrative law judge, wrote a proposed order that was filed in the Circuit Court probate case. She says Berenzweig put herself in a position to entirely manage his money and exploited Ern's trust and isolation by knowingly being named as the beneficiary of his annuities, when she had no insurable interest in his life.

"She profited illegally by more than $1 million," Pings wrote.

The order now goes to state Insurance Commissioner who will decide whether to uphold the recommendations that Berenzweig return the annuity proceeds, permanently revoke her insurance license and fine her $3,000. The annuity proceeds are frozen.

Pings' decision says the fact that Berenzweig served as Ern's agent, beneficiary, and power of attorney posed obvious conflicts.

Ern was never close to his nieces and nephews. The relationships grew more distant as his siblings died. He met Berenzweig in 1993, when she helped him purchase an annuity. They became reacquainted in 2008, when Ern was having a problem with that policy.

A friendship developed, and Berenzweig said she vehemently objected to Ern making her the beneficiary of the annuities and the estate but that her client was insistent.

Pings noted in her opinion that insurance regulators consider Berenzweig "an unethical insurance agent who took advantage of her position of trust with a lonely old man, so she could benefit from his sizable estate when he died."

Berenzweig’s attorney argues that she did not violate any laws or rules, but that some of the problems she is facing could have been avoided. The entire will, which named Berenzweig the sole beneficiary, is being challenged.

Reference: The Milwaukee Journal Sentinel (March 12, 2018) “Insurance agent should give up $1 million received from client's policies, judge recommends”

Holden & Campbell, LLC – Annapolis Estate Planning Attorneys

Does Your Estate Plan Match Your Life Right Now? - Annapolis Estate Planning

Remember to update your estate plan, especially if your life includes events like new kids, a new marriage or the death of a loved one.

If you love your family, you’ll keep them in mind when considering whether to make an appointment to update your estate, as you go through the inevitable changes of life. Not doing so can create financial and emotional burdens. That’s probably not how you want to be remembered.

According to a recent Newsday article, “Make sure your estate plan keeps up with life changes, experts say,” estate planning may seem overwhelming and depressing because it deals with issues of aging.  Some people believe that estate planning is just for the very rich.

That’s not right. Estate planning is for everybody. Make a plan to do it now, in order to avoid consequential fumbles.

Let’s look at what you need to do.

Estate planning is a set of legal documents that state who will receive your assets and property when you pass away.  It also specifies who you want to make medical decisions, and who should make financial decisions, if you are unable to do so yourself.

This should make everything easier for your heirs at this stressful time, when they most need it.

Remember that estate planning isn’t a one-and-done proposition. It’s wonderful that you finally got your will finished and signed, and you have your medical directives in place along with a designated individual to have your authority via power of attorney.

However, that’s not the end of it. Your estate planning documents must keep pace with change.

It’s critical that you update the contingent (secondary) beneficiaries on life insurance policies after the first spouse dies.

The birth or adoption of a child and divorce are similarly important life events that will require you to review and update your estate planning documents.

Don’t assume that establishing joint tenancy (sharing ownership in personal property, like your family home) or joint ownership over financial accounts is enough to protect your assets.

Finally, be certain to work with an experienced estate planning attorney who has the insights and legal knowledge to create a plan that aligns with your goals. An online will has the potential to create more problems than it solves. You might save some money, only to cost your heirs thousands of dollars to undo the damage.

Reference: Newsday (March 4, 2018) “Make sure your estate plan keeps up with life changes, experts say”

Holden & Campbell, LLC – Annapolis Estate Planning Attorneys

Post-Divorce Tasks to Protect Finances - Annapolis Estate Planning

Once your divorce is done, you still have work to do. There are many financial and legal tasks to tackle, which cannot be ignored, unless you want to create big problems in the future.

There is nothing pleasant or easy about working through a divorce settlement. Emotions run high and when there are large sums of money or privately-held businesses in the mix, things can take a long time.

Forbes recently published an article, “A Checklist To Help You Manage Post-Divorce Finances.” According to the article, many women are disappointed to learn that all their divorce-related financial troubles aren’t neatly resolved when their ex signs the settlement documents.

 It is true that your agreement will say exactly what must be divided and how much goes to whom.  However, you’ll need to work through the practical details of how the agreement is implemented.

Some of the post-divorce financial matters you’ll face, like changing your name, address, and emergency contact, are simple enough. You only need a copy of your divorce decree.  However, other issues can be more complex and serious.

If you haven’t done so already, you should take care of the following:

• Watch your credit and cancel any joint credit cards. You should also establish credit in your name alone;
• Disinherit your ex. See your estate planning attorney to make changes to legal documents;
• Change beneficiary designations on your insurance policies, retirement accounts, pensions, trusts, and annuities;
• Sell or refinance the marital home. You may agree to sell it, with the proceeds divided between you, or if you are keeping the home, refinance the mortgage in your name alone.

Even if you and your ex are on good terms, it may be best to have your attorney involved to make sure the final details are handled, as per the terms of your agreement.

Reference: Forbes (February 12, 2018) “A Checklist To Help You Manage Post-Divorce Finances”

Holden & Campbell, LLC – Annapolis Estate Planning Attorneys

New Procedure for Designating a Beneficiary of a Vehicle Title - Annapolis Estate Planning

The Maryland Motor Vehicle Administration has recently changed the procedure for adding a beneficiary to a vehicle title.

The MVA is no longer using Form VR 471 to designate a beneficiary of a vehicle. There is now the option of adding a beneficiary to your title via the MVA's website, which can be accessed using the following link:  Vehicle Beneficiary Designation (see the last option under Vehicle Services on the left hand side).

You can complete the online process and receive a new title that designating your beneficiary.  This transaction will void any previously issued titles. The fee for adding, deleting, or changing a beneficiary is Twenty Dollar ($20.00). You will need to provide the title number, Maryland driver's license or ID number and date of birth. The form must be completed in full prior to the death of the vehicle owner. 

Further requirements and instructions to add beneficiary are as follows:

• The vehicle must be solely owned and currently titled in Maryland

• Only one beneficiary can be named; which can either be an individual or business entity

• Beneficiary must be designated prior to the death of the vehicle owner. A corrected title will be mailed to the vehicle owner displaying “Beneficiary on File.”

• A beneficiary may be added if a vehicle is subject to a lien. When the vehicle is being transferred, all liens must be satisfied, or have a letter of permission to change ownership to the beneficiary.

• The designation of a beneficiary does not affect the ownership of the vehicle until the death of the owner of the vehicle.

• The owner of the vehicle may cancel or change designation of a beneficiary at any time without the consent of the beneficiary.

• Once a beneficiary is designated, the corrected title will be delivered to the vehicle owner. All previously issued titles will be void.

Holden & Campbell, LLC – Annapolis Estate Planning Attorneys

Does Debt Go With Us When We Die? - Annapolis Estate Planning

Retirement planning includes considering how much income our retirement savings will generate. However, there are other financial issues to also consider as well, including debt.

Estate plans and retirement plans meet at a few different points. Both should contain properly prepared documents that allow someone to make medical decisions and to handle financial affairs if you become incapacitated, and who should receive your assets after you pass away. But many people go into retirement with debt, or debts are incurred during retirement. What can you do about that?

fosters.com explores this in a recent article, “What happens to your debt in estate planning?” The article reminds us that this is where estate planning is needed. An estate plan is a set of instructions that lets us designate certain individuals to act on our behalf after we die, or while we’re living but incapacitated.  It provides guidance about how our assets should be distributed to beneficiaries at death, or managed for us while we are alive but unable to do so on our own.

Wills, trusts, and beneficiary forms set out our instructions as to who will receive any assets that we leave behind. Wills name an executor who is responsible for an accounting of all of our assets and liabilities at death.  The executor also works with the probate court to get our creditors paid, and distribute the remaining funds to our heirs. Trusts are similar, but don’t involve oversight by the probate court. When a trust is set up to own assets during your lifetime, a successor trustee is named at your death or incapacity to manage the trust assets and then distribute them at the specified time to the named beneficiaries.

Wills and trusts don’t have any control over accounts that have a joint owner or beneficiary designation, unless the estate or trust has specifically been named as beneficiary. IRAs, 401(k)s, life insurance, annuity contracts, and brokerage and bank accounts can all be created with beneficiary designations that serve as the instructions to their custodians, regarding who is to receive them after death.

Durable power of attorney documents for both financial matters and health care are also important components of a retiree’s estate plan. Because IRAs, 401(k)s and other retirement accounts can’t be owned by a revocable trust, trustees can’t manage them for you. An agent designated in a durable power of attorney can take any actions you authorize on these sources of retirement cash flow. A durable power for health care will specify the individual you authorize to make care decisions for you and what your wishes are regarding life-sustaining treatments.

It is not unusual for those approaching retirement to either delay creating wills, trusts, and power of attorney documents or not to have reviewed them for many years. Because laws and relationships change over time, it is important to review estate planning documents regularly and consult with an estate planning attorney when updates are needed.

As for any debt, the goal of good planning is to eliminate this problem.  However, whether or not beneficiaries or your estate are liable for the debt, depends on the type of debt and how it is owned. For example, if you and your spouse are both on the mortgage, your spouse will still be liable for the mortgage. If you co-signed a loan, the other signer will still have to pay the loan. But unsecured debt, like a credit card, will become a liability of the estate. The probate court and the executor will need to pay them from assets passing through the will. An estate planning attorney will work through all of these matters, so that you and your heirs will be prepared in advance.

Reference: fosters.com (November 22, 2017) “What happens to your debt in estate planning?”

Holden & Campbell, LLC – Annapolis Estate Planning Attorneys

Avoid Common Mistakes about Inherited IRAs - Annapolis Estate Planning

The rules about inherited IRAs are complex, and mistakes can be costly. These accounts need to be addressed for tax planning and in your estate plan.

Mistakes made with an inherited IRA can become very expensive, very quickly. A recent article in The Hampton Roads Business Journal, “You may be paying more tax on inherited IRA than required,” explains the basics.

IRAs are distributed differently than other assets, during life and after death. Your IRA beneficiaries may qualify for special tax breaks that are often overlooked. They can’t change ownership during life or be jointly owned. IRAs pass by contract generally, and not by a will.

IRAs may require their own estate plans, and those plans should be integrated within the overall estate plan. You should speak with your estate planning attorney about this.

As far as taxes are concerned, IRA investment gains may not be subject to the 3.8% investment income surtax and may be subject to double tax at death–both income and possibly estate tax.

For example, if you were to inherit an IRA from your father when he passes away and he has a taxable estate, as the beneficiary you may be entitled to a special deduction that can offset some of the otherwise-taxable distributions from that IRA. This deduction is easy to miss because two entities must coordinate their tax planning: (1) the settling estate and (2) the IRA beneficiary. It’s not common for these two to make a coordinated effort to realize all of the tax-saving opportunities.

The distributions from an inherited IRA are generally fully taxable to the beneficiary. You might be able to find shelter from that tax liability, which would be easier to catch before the inherited IRA begins to pay income. However, even if you’ve started to get income, you may still be entitled to take this deduction.

When an IRA owner dies, there are a few complex rules from the IRS with which you’re expected to comply. The 691(c) deduction for Income in Respect of a Decedent may be worth discussing with your estate planning attorney if you have inherited an IRA or think you may in the future. IRAs are very different when it comes to how they mesh with your existing plans and those of your heirs.

When it comes to retirement savings, IRAs are terrific, but their complexity requires the help of an experienced estate planning attorney. The goal is to pay less taxes, not more, and that takes understanding how the inherited IRA works,  as well as how it fits into your overall estate plan.

Reference: The Hampton Roads Business Journal (October 30, 2017) “You may be paying more tax on inherited IRA than required”

Holden & Campbell, LLC – Annapolis Estate Planning Attorneys

Getting Off to the Right Start the Second (or Third) Time Around – Annapolis Estate Planning

With the number of late in life marriages among older Americans on the rise, it is best to address financial, legal and blended family issues before walking down the aisle.

We Americans like to be married. So much so that, according to the U.S. Census Bureau, about a third of us have tied the knot at least twice. While the trend for younger adults is to delay getting married or not to marry at all, the number of Americans age 55 and up getting married again is on the rise.

The Flagstaff (AZ) Business News recently published an article, “Financial Issues to Consider in Remarriages,” which suggests that you should be candid about your financial situation. Couples who are marrying for the second (or third) time frequently have financial baggage. You should eliminate issues later in the marriage by having open and honest discussions about assets, debts and obligations. Think about the following questions to get the talks started:

• What financial obligations are we bringing to our marriage?
• How are our credit scores?
• Do we have financial obligations (alimony, child support) to our ex-spouse(s)?
• Do we want to pool our finances?
• Where will we live?
• How will our marriage impact college financial aid for our children from previous marriages or relationships?

It is also important to update life insurance, medical directives and beneficiary designations. If you don’t do this and you (or your spouse) die, part of your estate could go to a previous spouse. If you and your spouse have living wills, health care powers of attorney or healthcare directives, review them with your estate planning attorney to ensure that these documents reflect your current wishes.

You should also consider how remarriage affects your retirement planning, like the benefits your partner may be receiving. These can include a deceased spouse’s social security benefits or pension payments.

Discuss estate planning with your estate planning attorney because subsequent marriages can impact estate plans—a common concern among older couples. An older couple is more likely than younger newlyweds to bring property and other valuables into the relationship. They often may want these family valuables to go to their own children from a prior marriage.

A new marriage presents an exciting opportunity to start a new life together, but a successful second (or third, or fourth) marriage requires making sure that the legal, financial and emotional aspects of marriage are addressed. Clear and ongoing communication is the key.

Reference: Flagstaff (AZ) Business News (October 26, 2017) “Financial Issues to Consider in Remarriages”

Holden & Campbell, LLC – Annapolis Estate Planning Attorneys

How Can a Roth IRA Reduce the Tax Burden Facing Your Heirs? – Annapolis Estate Planning

There’s more than retirement savings power in a Roth IRA. Used properly, it can help cut your beneficiary’s tax liability, regardless of if and when tax reform becomes reality.

If you’re interested in reducing the taxes your heirs will have to pay, you’re probably concerned about the discussion about tax reform going on in Washington these days. Unfortunately, there’s no way to be certain what, if any, changes will actually occur. In the meantime, your estate planning attorney can help you structure your estate, so that less of it ends up being consumed by taxes. That includes moving funds into non-taxable accounts, including Roth IRAs.

Motley Fool’s recent article, “A Clever Way to Cut Your Heirs' Income Taxes,” says the money you put into a Roth retirement savings account has already been taxed. It was taxed on the contributions you made or as a rollover from a tax-deferred retirement savings account. As a result, everything in that account is now non-taxable for income-tax purposes. As the Roth has been open for at least five years prior to your death, the money in that account won’t be subject to federal income taxes.

In the event you leave the money in your Roth rather than spending it during your retirement, after your death, the account will be transferred to the person you designated as a beneficiary. At that point, the Roth account will be subject to the IRS's rules for inherited IRAs.

The beneficiary must then begin to take distributions based on their predicted lifespan (pursuant to the IRS’s actuarial tables). If your beneficiary doesn't simply blow the money in the account right away, the balance in the Roth will continue to grow tax-free, providing them with some untaxed income in the future.

In order for this to work, you’ll want to avoid spending any of the money in the Roth account while you are alive. This means that you should make sure you have other sources of income to finance your retirement.

Remember that you can do a Roth conversion at any age, even if you did not set up a Roth account before retirement.

Reference: Motley Fool (September 14, 2017) “A Clever Way to Cut Your Heirs' Income Taxes”

Holden & Campbell, LLC – Annapolis Estate Planning Attorneys