Author Archives: Tyler Barrett

Jeralean Talley, the world’s oldest-known person, died last week at the age of 116 (Source: Reuters via NAELA eBulletin). Due to advances in medicine and today’s emphasis on eating healthy foods and maintaining an active lifestyle, people are living longer than ever before. With life expectancy likely to increase further in the coming decades, there should be a renewed focus on an aspect of estate planning that is sometimes overlooked: planning for your personal care. You should definitely determine how you’d like your property and assets to be distributed following your death. Equally important, however, is putting a plan in place for your personal care in the event you become incapacitated and can no longer make decisions about your finances and medical treatment on your own. This involves naming an agent to act on your behalf under a Durable Power of Attorney, setting forth your wishes regarding end-of-life care in an Advance Directive for Health Care and signing a HIPAA Authorization form so that your trustees, agents, health care proxies and family and loved ones have access to your medical records when necessary.

It used to be that estate taxes were a primary focus of estate planning both in Oklahoma and nationwide. However, the estate planning landscape has changed significantly in recent years. Oklahoma repealed its estate tax effective for deaths occurring on or after January 1, 2010. Consequently, you won’t owe any estate taxes to the Oklahoma state government regardless of how large your estate is. What’s more, Congress passed and the President signed the American Taxpayer Relief Act of 2012, commonly referred to as ATRA. There are two key components to ATRA. First, ATRA permanently set the federal estate tax exemption at $5 million, to be indexed annually for inflation (in 2015, the federal estate tax exemption is $5.43 million). This means estates valued at less than the exemption amount will not be subject to the payment federal estate taxes. In addition, ATRA permits what’s known as portability for married couples; whenever the first spouse to die passes away, the surviving spouse can elect to use the deceased spouse’s unused exemption amount to increase their own federal estate tax exemption. The practical effect is that married couples could have a federal estate tax exemption of up to $10.86 million in 2015.

Given these changes in federal and state law, concerns such as providing for a client’s incapacity, protecting a child’s inheritance from lawsuits and creditors and maintaining privacy while avoiding probate have taken precedence over estate taxes in estate planning. That said, one must keep in mind that both federal and state laws can and do change. Furthermore,  it’s important to get an accurate picture of the size of your estate. Oftentimes, people do not account for the value life insurance policies or an anticipated inheritance of their own in estimating what their net worth will be at death. An estate planning attorney can help you sort through all of these issues to make sure that the benefits of your estate plan are passed on to your family and loved ones.

A revocable living trust, last will and testament, durable power of attorney and medical directive are the main components of a comprehensive estate plan. However, did you know that another simple one page document can often be the key to your estate planning working as you intended? Sometimes overlooked, beneficiary designations play an important role in the distribution of your property and how your family and loved ones will be taken care of after you are gone. Here’s what you need to know.

Beneficiary designations, also referred to as payable-on-death (POD) or transfer-on-death (TOD), operate as a private contractual arrangement between you and your bank, brokerage and life insurance company or other financial institutions. The institution provides you with a form and you list who you want to receive the account following your death. Your choice can have significant ramifications. For example, in the case of individual retirement accounts,  naming your spouse as the primary beneficiary can result in considerable tax savings; rather than being forced to cash out the entire balance or take larger yearly distributions than needed, a surviving spouse can rollover the funds into his or her own retirement account — allowing for greater tax-deferred growth. Another situation in which beneficiary designations can make a big difference is minor children. If you have minor children, your estate planning documents should contain provisions to hold the property in trust for them in the event you pass away before they reach the age of 18. Naming a minor child individually as a beneficiary of a bank account, retirement account or life insurance policy will cause the funds to pass automatically, and the provisions in your will or trust regarding your minor children won’t come into effect. Consequently, it may be necessary for a court to appoint a guardian to manage the money until the child becomes a legal adult, which is expensive and time-consuming.

Beneficiary designations are a vital part of estate planning. If you are thinking about doing estate planning, be sure to discuss beneficiary designations with your attorney. If you already have a will or trust, it might be a good idea to review the beneficiary designations on all of your accounts and to consider making changes if the beneficiary designations do not fit into your overall estate plan.

So, you have decided in consultation with your estate planning attorney that a revocable living trust is best for you and your family. One of the first issues you will have to address is naming a trustee. It is likely that you will be the initial trustee. Therefore, the question becomes who will serve as successor trustee in the event you are incapacitated and after you pass away.

One of the great things about a revocable living trust is the flexibility it provides to you in your estate planning. In regards to appointing a trustee, you have almost endless options. For our purposes, however, I will group them into three categories: (1) corporate or institutional; (2) individual; (3) professional adviser.

Corporate or institutional trustees are typically banks or trust companies. This type of trustee is professional, experienced and regulated by the state and federal government. Yet, many banks and trust companies manage only very large trusts with substantial assets; it can be hard to find one willing to administer the smaller trusts that most of us have. Furthermore, unless you have a very close, long-term relationship with the bank or trust company and its staff, it is unlikely they will understand the dynamics of your family, which can be crucial to the administration of your trust going smoothly.

The second category of trustee is an individual. Usually, this is a family member or close friend. The advantage of having a family member or close friend be your trustee is they almost certainly understand your family and all of the variables at play. In addition, while individual trustees can receive a fee for administering your trust, they probably will not charge as much as a bank or trust company. On the other hand, a family member or friend may lack knowledge about trusts. This could require them to hire help, which largely negates the cost savings in comparison to a corporate or institutional trustee.

Lastly, there are professional advisers — namely attorneys and CPAs. For many people, this is a good compromise between the corporate trustee and the individual trustee. Attorneys and CPAs, especially those with long-standing ties to your family, presumably have some of the family knowledge that bank and trust companies lack. Unfortunately, if they have represented multiple members of your family, there may be conflicts of interest that prohibit them from serving.

Choosing a trustee is often the first choice you will make in designing your revocable living trust. Every situation is different. The discussion above is merely a general overview. Your estate planning attorney should talk over this with you in depth, counsel you about your options and help you come to a decision.

As you are finishing up spring cleaning and getting ready for your summer vacation, you happen upon that will an attorney drew up for you several years back. You take it out, dust it off and begin reading. Then you notice: the will says you have only one child, but now you actually have three (and the grocery bill to prove it). The charity to which you wanted to continue donating after you pass away unfortunately no longer exists. And you think, “Didn’t I see something in the news about Congress and the federal estate tax laws?”

For many people, estate planning is a one-time occurrence. As soon as the documents are signed, they don’t see the light of day for years or perhaps even decades. However, the world does not stop moving after you sign on the dotted line. New presidents are elected, each with their own set of beliefs and ideas for raising revenue and funding the government. The stock market goes up, then down…and back up again. Your personal values change, and so does your family. Maybe you start that business you’ve always dreamed of. As a result, the will or trust that was right for you 10 years ago might not work for you today. That’s why it’s vital to periodically review your estate plan. If it has been more than 2 or 3 years since you did your estate planning, then before you head off to the beach this summer, make an appointment with an estate planning attorney to go over your plan. Someday, your family will be thankful you did.

Estate planning attorneys have long counseled clients to avoid probate, the court managed process of distributing a deceased person’s property and assets to his or her heirs. In Oklahoma, the time to complete a probate case ranges from 3-4 months for simple estates to a year or more for complex estates with property to be sold or where objections and creditor’s claims have been lodged. Furthermore, probate can be expensive — costing several thousand dollars. Lastly, there is no privacy in probate: your will has to be filed with the Court, and all of the details of your estate become public knowledge.

How do you avoid probate? The answer lies in how your property and assets are owned. The probate courts have jurisdiction over property and assets that are owned solely in the name of the deceased. For example, the title to a house is “Bob Smith”. By contrast, property and assets owned in joint tenancy, i.e. “Bob Smith and Susie Smith, as joint tenants with rights of survivorship”, pass automatically to the survivor upon the death of the first owner to die. The same is true of payable-on-death and beneficiary designations, which are common for retirement accounts and life insurance policies. Another way to avoid probate is by establishing a revocable living trust. Whenever you create a revocable living trust, ownership of your property and assets will be transferred to the trust and thus will not be subject to probate at your death.

Joint tenancy, payable-on-death and beneficiary designations and the revocable living trust: this is how to avoid probate. If you want to spare your loved ones significant time, expense and loss of privacy after you pass away, consider these options in your estate planning.

How do you own your home? If you are married, chances are that like most married couples you own your home as joint tenants with your spouse. Why do so many of us own our homes and other property in joint tenancy, and what are the disadvantages to this common form of ownership?

To start, it’s important to understand what joint tenancy is. Take a look at the deed you received whenever you and your spouse bought your home. It probably lists the names of you and your spouse followed by “as joint tenants with rights of survivorship” or similar language. When property is owned in joint tenancy, both owners have co-equal ownership; that is, each owner has the right to use and occupy the entire property. This is obviously desirable for married couples. In addition, joint tenancy is good because it avoids probate on the death of the first spouse to die: the property automatically passes to the surviving spouse without court intervention. However, there are a few important reasons why you may not want to own your home in joint tenancy.

First, as we’ve discussed, joint tenancy can serve as a probate avoidance tool. Yet, probate is only avoided on the death of the first spouse to die. Upon the death of the surviving spouse, the estate of the surviving spouse must go through the probate process. If you have children, this will cause delay in transferring the property to them or distributing the proceeds of a sale. What’s more, probate can be expensive: your children might have to pay an attorney several thousands dollars to complete the probate case. Finally, should the surviving spouse get remarried and transfer the property to the surviving spouse and his or her new spouse as joint tenants, the children could be unintentionally disinherited.

Another disadvantage of joint tenancy is lack of asset protection. If you and your spouse have a revocable living trust, you can design it so that the property you leave to your children is protected from the claims creditors and ex-spouses. With joint tenancy, as soon as both you and your spouse pass away, your children receive the property outright, creating the possibility a child could lose their inheritance in the event of a lawsuit against that child.

Lastly, there is a major tax disadvantage to joint tenancy. Under the federal tax code, inherited property is entitled to what’s called a step-up in basis. To illustrate this concept, imagine that Tom bought a house in 1980 for $100,000. Tom died in 2014. By this time, the house had increased in value to $200,000. For federal capital gains tax purposes, the cost basis of Tom’s heirs in the home is $200,000, i.e. the current fair market value of the house. Practically speaking, this means if Tom’s heirs immediately sold the house for $200,000, they would not recognize any gain for federal tax purposes and would not owe any federal capital gains taxes on the sale. In contrast, if Tom’s heirs did not get a step up in basis, their cost basis in the house for federal capital gains tax purposes would be the price Tom originally paid for the house — $100,000 — and not the current fair market value of $200,000. Consequently, Tom’s heirs would owe federal capital gains taxes on the difference between the $100,000 purchase price and the $200,000 sale price.

What does this have to do with joint tenancy, you ask? The federal tax code allows joint tenants only 50% of the stepped-up basis. Let’s return to the example above. Assume that Tom was married to Cindy and they owned the house they bought in 1980 for $100,000 as joint tenants. Fast forward to 2014, the date of Tom’s death. Only the 50% interest that passed to Cindy upon Tom’s death would get the stepped-up basis. The basis for the 50% that Cindy already owned would be unchanged. As a result, Cindy’s basis in the house would be $150,000. Supposing Cindy sold the house, she would owe federal capital gains taxes on the difference between the $200,000 sale price and her basis of $150,000. Depending on Cindy’s tax bracket, this could result in significant taxes.

As you can see, there are many issues inherent in joint tenancy ownership. While it might not be right for everyone, a revocable living trust can get around many of these issues, and is definitely worth exploring with an estate planning attorney.

A common household drug could be more powerful than we previously thought. Doctors have long prescribed aspirin for heart attack and stroke prevention. Now, a medical trial funded by the National Institutes of Health is raising hopes that aspirin might also delay the onset of dementia. The theory is that inflammation in various parts of the body such as the ears, eyes and brain can trigger dementia. Because of its general anti-inflammatory effect, researchers hypothesize that aspirin may suppress the type of inflammation believed to cause dementia. Results of the study won’t be known until 2018, but this is another positive sign in the fight against a disease that robs so many people of their golden years.

Source/More: Victoria Age via NAELA eBulletin

Nobody wants to think about death. However, planning for the medical treatment you will receive at the end of your life is just as important as determining who will inherit your estate. As we’ve discussed, you can utilize a revocable living trust to have a successor trustee manage your property and assets in the event you become incapacitated. Yet, decisions regarding your end-of-life health care are dealt with in a separate document, called the Advance Directive.

The Oklahoma Advance Directive Act is found in Title 63 of the Oklahoma Statutes, beginning at Section 3101. Oklahoma’s Advance Directive form contains three parts. In part one, you indicate whether you want to receive life-sustaining treatment if you have the following: a terminal condition, defined as an incurable and irreversible condition that in the opinion of an attending physician and another physician will result in death within six months; you are persistently unconscious; or you have an end-stage condition, being a condition caused by injury, disease or illness which results in incompetence and complete physical dependency and for which treatment would be medically ineffective. For each of these situations, you can choose to receive all life-sustaining treatment available, no life-sustaining treatment at all or only to be administered artificial nutrition and hydration. Part two of Oklahoma’s Advance Directive form is the appointment of a health care proxy. This is the individual who will make medical decisions on your behalf should you be unable to make these decisions for yourself. Your health care proxy is responsible for ensuring that doctors carry out your wishes concerning end-of-life treatment. Finally, part three of the Oklahoma Advance Directive form gives you the opportunity to donate your organs and other body parts to transplantation and medical research after you pass away.

You can complete an Advance Directive on your own. That said, in most cases it’s advisable to obtain legal advice before you fill out the form. An estate planning and elder law attorney can help you fully understand the different aspects of the Advance Directive, provide counsel about who you should appoint as your health care proxy and make sure your Advance Directive is given to the appropriate individuals and institutions. If you have not already done so, think about completing an Advance Directive. It can save your family and loved ones much anguish in trying to figure out what you would have wanted and give you peace of mind in knowing that the end of your life will be handled with the dignity and respect you deserve.

So, you have decided in consultation with your estate planning attorney that a revocable living trust is best for you and your family. One of the first issues you will have to address is naming a trustee. It is likely that you will be the initial trustee. Therefore, the question becomes who will serve as successor trustee in the event you are incapacitated and after you pass away.

One of the great things about a revocable living trust is the flexibility it provides to you in your estate planning. In regards to appointing a trustee, you have almost endless options. For our purposes, however, I will group them into three categories: (1) corporate or institutional; (2) individual; (3) professional adviser.

Corporate or institutional trustees are typically banks or trust companies. This type of trustee is professional, experienced and regulated by the state and federal government. Yet, many banks and trust companies manage only very large trusts with substantial assets; it can be hard to find one willing to administer the smaller trusts that most of us have. Furthermore, unless you have a very close, long-term relationship with the bank or trust company and its staff, it is unlikely they will understand the dynamics of your family, which can be crucial to the administration of your trust going smoothly.

The second category of trustee is an individual. Usually, this is a family member or close friend. The advantage of having a family member or close friend be your trustee is they almost certainly understand your family and all of the variables at play. In addition, while individual trustees can receive a fee for administering your trust, they probably will not charge as much as a bank or trust company. On the other hand, a family member or friend may lack knowledge about trusts. This could require them to hire help, which largely negates the cost savings in comparison to a corporate or institutional trustee.

Lastly, there are professional advisers — namely attorneys and CPAs. For many people, this is a good compromise between the corporate trustee and the individual trustee. Attorneys and CPAs, especially those with long-standing ties to your family, presumably have some of the family knowledge that bank and trust companies lack. Unfortunately, if they have represented multiple members of your family, there may be conflicts of interest that prohibit them from serving.

Choosing a trustee is often the first choice you will make in designing your revocable living trust. Every situation is different. The discussion above is merely a general overview. Your estate planning attorney should talk over this with you in depth, counsel you about your options and help you come to a decision.