Family home ownership is a part of the American Dream. It is often a family’s largest asset and a means of gaining an economic foothold. Many families who choose to leave their homes to their children hope to avoid probate, says the article “Leaving Your Home To Your Kids While Avoiding Probate Litigation” from Realty Biz News. Probate is the court-supervised process where a deceased person’s assets are examined, the will is reviewed, and beneficiaries and the executor are determined.

Probate was designed to ensure that potential creditors can pursue claims against the estate and provide a forum to identify the correct beneficiaries who should receive the deceased person’s property. Probate is more common when there is no will or when the bulk of a person’s property has been left to a third party, such as a significant other, a second spouse, or an organization.

How can you ensure that the family home you want to leave to your children ends up with your children without having to go through probate?

The three most common ways of gifting the family home to another person are through your will, a living trust, or titling the property deed. An estate planning attorney can help plan this as part of your entire estate plan.

A will is a legally binding document outlining what you want to happen to your home and all of your assets. The people named as recipients of real estate and any other assets are known as beneficiaries. The will goes through probate to validate the will, in case there are any questions about your instructions. Any outstanding debts must be paid before assets can be distributed.

A living trust, also called a Revocable Trust, distributes assets, including homes. Once the living trust is created, assets can be added to it. You’ll still own and control the assets while you are living. However, once you pass, the items are transferred to the trust. The language of the trust will determine when and how assets are passed to beneficiaries.

If you create the trust but neglect to retitle the deed, your home will go through probate upon your death. If you plan to use a living trust, prepare one as soon as possible and retitle any assets you want to place in the trust once the trust is created. Assign a trustee who will be in charge of following instructions in the trust.

Modifying your home’s deed is another way to pass your home to family members. Depending upon your state, you may be able to change the deed to a Transfer of Deed or TOD, which gives you complete control of the home and the ability even to take out a reverse mortgage on your home if you need funds. You can also retitle the home to Joint Tenant with Right of Survivorship. However, any decisions about the home, like a reverse mortgage or a home equity loan, must be approved by the joint tenant.

Titling the home as Tenant by the Entireties is used in about half the states. It applies only when the property owners are married.

Passing on the family home to children should be done with the help of an experienced estate planning attorney. There are tax implications to be considered, as well as the family’s dynamics. For some families, this is a welcome and sensible decision. However, in others, there may need to be certain protections put into place to prevent family disputes and possible litigation.

Reference: Realty Biz News (July 12, 2023) “Leaving Your Home To Your Kids While Avoiding Probate Litigation”

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A probate judge oversees cases where a will has been prepared by a deceased person and those where there is no will (intestate cases). Most probate issues are decided on a county basis. The main job of a probate judge is dealing with estates, says Yahoo Finance’s recent article entitled, “How Do Probate Judges Administer Estates?”

Probate is the process of closing an individual’s estate at their death. Probate is the process of proving that the will is valid, paying the bills associated with the estate, paying taxes and distributing property to the heirs. If the person dies intestate or without a will, probate is more complex and requires more involvement from the probate judge. If you leave a last will and testament upon your death, you ease the burden on your family, who will be grieving and navigating the probate process.

If the deceased person (the decedent) had a will, and no beneficiary steps up to contest it, the role of a probate judge is relatively minor but significant. If you must enter probate, here are the general steps, but the procedure varies from state to state.

1. Open a Probate Case with the Court – The executor of the decedent’s estate files the will with the probate court. The probate judge will see if anyone has any objections to the will. For instance, a possible beneficiary could assert that the decedent was coerced into making the will. The beneficiaries of the will could also disagree on what’s inherited. Moreover, the judge might have to deal with a contested will. However, if there are no objections to the will, the executor is approved, and an estate bank account is opened.
2. Notify Interested Parties – The executor will place notices in newspapers to creditors of the decedent. Those interested in a decedent’s will would be any possible heirs and all creditors. They’re notified if they can be found. If not, then newspaper notices have to suffice. Creditors have a specified time period to submit claims against the estate.
3. Inventory of the Estate Assets– The executor must inventory the estate and state the amount that individual assets were worth on the date of the decedent’s death. This inventory is filed with the probate judge and the heirs. Executors may be compensated for their work either by inheriting themselves or by a statement in the will concerning their compensation. Executors often hire a probate attorney for assistance, especially if the estate is very large or complex.
4. Distribution of Assets – After the inventory, the probate judge authorizes the distribution of assets, unless the will is contested. The debts of managing the estate, creditor’s debts and minor children and their inheritance are also addressed. The debts are paid from the estate, even if assets have to be sold to pay them.
5. Terminating the Estate – The probate judge ensures that all creditors have been paid and closes the estate. It remains a public record.

If a person dies without a will, the same general steps are followed. However, the process is more complicated.

Reference: Yahoo Finance (Aug. 31, 2021) “How Do Probate Judges Administer Estates?”

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Sims & Campbell, LLC– Annapolis and Towson Estate Planning Attorneys

You’ve probably thought about who will inherit your home, your great-grandmother’s jewelry collection and your collection of superhero comics. However,what about your digital assets, asks a recent article from Coast Reporter, “Make sure your estate plan considers your digital assets.”

Digital assets may have significant value. Digital assets include cryptocurrency, non-fungible tokens (NFTs), domain names, digital photos, digital rights to literary content, musical compositions, blog content, online video channels where your content is generating revenue, online gaming, digital online betting accounts, PayPal accounts or even prepaid subscriptions to online content or goods and services.

If your estate plan hasn’t adequately accounted for these assets, your heirs may be unable to access them. Do you and your executor even know what digital assets you own?

Having a list of your digital assets is a start. However, this doesn’t mean your executor can access the assets after your death. Photos and videos stored online may be inaccessible, social media accounts may stay online forever and heirs might not receive money or other assets you intended them to have.

The first hurdle is knowing the passwords for your accounts. Some can be accessed by cybersecurity professionals, like breaking into your phone or a laptop. However, others, like cryptocurrency keys, could be lost forever. Unless you’ve given explicit authorization to someone to access your accounts, they could violate data privacy laws, a criminal offense in most states.

Here’s a game plan for your digital assets and estate plan:

Document digital assets. Know what you own and understand that there’s a difference between owning a digital asset and owning a non-transferable license to use the asset.

Back up your digital assets. Ensure that all online documents, data and assets are backed up to the cloud and store them on a local computer or external hard drive, so your family can access them with fewer obstacles.

Leave digital assets to your spouse. This will avoid the assets being taxed and give the surviving spouse time to plan for the tax liabilities upon their death with an experienced estate planning attorney.

Provide authorization in your will. Update your will so your executor can bypass, reset or recover passwords. If your digital assets are significant enough, talk with your estate planning attorney about having a separate will to deal with digital assets and name an executor knowledgeable about digital assets for the second will.

Check-in regularly. Digital assets are still new for most people, so speak with your estate planning attorney to be sure your wills and powers of attorney reflect any changes in the law or your digital assets.

Reference: Coast Reporter (June 21, 2023) “Make sure your estate plan considers your digital assets”

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Many families count on the transfer of general wealth and the transfer of assets from generation to generation. A report from Cerulli Associates says approximately $84 trillion will be passed from today’s older generation to heirs by 2042.

For this wealth transfer to succeed, parents and heirs should consider the pointers in a recent article from yahoo! finance, “Don’t Make These 5 Mistakes When Passing Down Generational Wealth to Your Family.”

Prepare heirs for their inheritance. Speak with family members about how their inheritance might change their lives. Educate them early on about personal finance, and introduce them to your advisors, including your estate planning attorney, financial advisor, and CPA.

Teach heirs how to be financially independent. Another problem can occur if children expect to receive an inheritance and don’t think they’ll need to work. This could get in the way of their personal and professional growth. You want them to know how to support themselves and the value of money earned.

Make sure to diversify your portfolio. When did you last increase your 401(k) contributions or diversify your portfolio? Be mindful of your investments. You don’t want to overestimate the value of your wealth or leave your children with an out-of-date investment portfolio.

Involve your children in the family business. If your legacy includes a family business, you need to consider the importance of ensuring that your children are fully involved in how the business operates and its financial needs and goals. If you simply toss the children into the business without completely understanding it, the transition may not work. As a result, your years of hard work could disappear quickly. A succession plan should be in place, so everyone knows what is expected of them.

Don’t neglect your estate planning. Sit down with an estate planning attorney and create a comprehensive estate plan, including a last will and testament, power of attorney, health care power of attorney, living will, and any trusts needed to pass wealth to the next generation. Do this long before you expect it to be needed. If you fail to create an estate plan, heirs will end up in probate court. It could take years before they receive the assets you want them to inherit.

Contact us to speak with one of our experienced estate planning attorneys.

Reference: yahoo! finance (June 5, 2023) “Don’t Make These 5 Mistakes When Passing Down Generational Wealth to Your Family”

Sims & Campbell, LLC – Annapolis and Towson Estate Planning Attorneys

So far, part of the Presley legacy appears to be the failure to create effective estate plans, says a recent article from Kiplinger, “Five Estate Planning Lessons We Can Learn From Elvis’ Mistakes.” An effective estate plan transfers assets and legacy to the right people at the right time, while keeping the wrong people out.

In this case, the right people would be the people whom Elvis and Lisa Marie wanted to benefit, and a good estate plan would have ensured that their desired beneficiaries or heirs received their inheritance. The right time would be to give control of assets to loved ones when they are mature enough to benefit for a lifetime. Keeping the wrong people out would mean minimizing tax and administrative costs and protecting heirs from lawsuits, divorce, creditors and a second level of estate taxes upon their own death.

Most recently, Priscilla Presley challenged a 2016 amendment to Lisa Marie’s trust which would have removed Pricilla as co-trustee from serving alongside Lisa Marie’s former business manager, Barry Siegel. This may have been her intent. However, the amendment didn’t include basic legal formalities. A confidential settlement was recently reached on this issue.

Priscilla had grown Elvis’ estate after his death. Despite his fame, he left an illiquid estate worth $5 million in 1977—adjusted for inflation, roughly $20 million in today’s dollars. The IRS successfully asserted that the estate was worth far more and asserted $10 million in estate taxes.

The estate didn’t include as much royalty income as expected because Elvis’ business manager, Colonel Tom Parker, sold the music catalog to RCA for $5.4 million, of which only $1.35 million went to the estate. Priscilla then assumed control of the estate. From her wise use of Graceland profits, merchandising and royalties for music recorded after the RCA deal, Priscilla grew the estate to $100 million.

In 1993, Lisa Marie turned 25 and was eligible to receive and control her inheritance. She established a revocable trust to hold her inheritance, then appointed a businessman as her co-trustee with primary control over her assets. In two years, he sold 85% of her interests in Elvis Presley Enterprises, an entity The Elvis Presley Trust created to conduct business, including Graceland and worldwide licensing of Elvis Presley Products.

The deal was worth $100 million but brought the estate only $40 million after taxes, plus $25 million in stock in a future holding company of American Idol, later made worthless due to bankruptcy by its parent company.

Careful planning could have avoided substantial income tax on the sale and provided the family a much better financial return. Siegal was removed as trustee in 2015 when lawsuits between Siegel and Lisa Marie began, which were pending when she died unexpectedly in 2023.

The lessons from the Elvis estate:

Use a trust, not a will. The trust removes delays, and higher costs and keeps private details private.

Make sure that your estate plan addresses estate tax issues. The goal is to reduce the value of the taxable estate and increase the value of your legacy to family and loved ones. The estate tax must be paid in cash within nine months from the date of death. This often requires a sale of estate or trust assets to pay the tax and can lead to heirs getting less than the full value of assets because of the need to come up with the cash. A simple testamentary charitable lead annuity trust (TCLAT) could have prevented the estate tax assessed after Elvis’ death and provided substantial benefits to Lisa Marie.

Plan for a lifetime legacy. Lisa Marie gained complete control over her inheritance at age 25. First, however, she needed to prepare for the complexity of the business and other assets she inherited and learn how to maintain a lifetime of living within her means.

Plan for estate taxes on the sale of the family business. Careful planning can almost always reduce the tax triggered by the sale of appreciated property. Unfortunately, no tax mitigation planning was taken before the $100 million sale of Elvis Presley Enterprises. As a result, the maximum capital gains tax, federal and estate combined, can be more than 40%.

Carefully choose the successor trustee or executor and provide at least two alternatives. Elvis appointed his father Vernon as the executor. Elvis died tragically in 1977 when Vernon was elderly and not well. Appointing a business manager as a trustee creates an inherent conflict of interest due to the business manager’s ability to profit from decisions made. A professional trustee would have been a better choice due to the complexity of the estate and Lisa Marie’s age.

Reference: Kiplinger (May 18, 2023) “Five Estate Planning Lessons We Can Learn From Elvis’ Mistakes”

Contact us to review your estate plan with one of our experienced estate planning attorneys!

Sims & Campbell, LLC- Annapolis and Towson Estate Planning Attorneys