Category: Estate Planning

When you create an estate plan, it is an admission of your mortality. But even if you accept that you are not going to live forever, you may be slower to face the possibility that you could become incapacitated before you die. 

Although it can be an uncomfortable topic, incapacity is an essential but often overlooked part of drafting revocable living trusts. Placing your money and property in a living trust can accomplish many estate planning objectives, including planning for incapacity. Should you suffer a disability, your mental competency could come into question. At that point, it will need to be determined if a backup trustee should take over the management of your living trust. 

Who, exactly, makes this key determination is very important. Naming a disability panel in your trust allows you to exert control over your incapacity plan by choosing a group of people you trust to determine if you are incapacitated. 

Disability Is Common among Older Americans

Today, Americans can expect to live longer than previous generations. Living longer does not always mean living better, though. 

Older Americans are much more likely than younger Americans to have a disability, according to the Pew Research Center. About one-quarter of Americans, and roughly half of Americans over age seventy-five, report living with a disability. For eighteen- to thirty-four-year-olds, that number is just 6 percent. Around 13 percent of thirty-five- to sixty-four-year-olds say they have a disability. 

Disability can befall anyone at any age. However, the longer you live, the more likely you are to suffer from a disability, and certain disabling conditions such as Alzheimer’s are age-related. Currently, more than 6 million Americans are living with Alzheimer’s. By 2050, the number of Alzheimer’s patients is projected to more than double to 13 million. Roughly one-third of seniors die with Alzheimer’s or another form of dementia. 

Living Trusts and Disability Panels

A living trust, also known as a revocable trust, is a popular estate planning tool that allows people to avoid probate; eliminate, defer, or lower estate taxes; and distribute money and property to their beneficiaries at death. 

Another major benefit of living trusts is that they help the trustmaker (i.e., the grantor, trustor, or settlor) arrange for the management of the trust’s money and property should they become disabled, ill, or the victim of age-related decline. 

The trustmaker is typically also the trustee of their living trust and handles any administration that may be required, such as recording trust income and expenses and filing tax returns. There may be a co-trustee (e.g., a spouse) who shares these duties. If there is no co-trustee who can continue to manage the property held by the trust, a successor trustee named in accordance with the trust document should take over as trustee when the trustmaker dies or becomes incapacitated. It is possible for the trustmaker to name two different individuals to serve as the successor incapacity trustee (upon the trustmaker’s incapacity) and successor death trustee (upon the trustmaker’s death). 

Within a living trust, a trustmaker can define when they are deemed to be incapacitated so there are no doubts about when trusteeship passes from the trustmaker as trustee to the remaining co-trustee or successor trustee. For example, the trustmaker could include a general definition in their trust stating that incapacity begins when they are no longer able to manage their financial affairs; or they could rely on a more objective measure, such as the General Practitioner Assessment of Cognition screening test, which is often used to evaluate dementia patients. 

In addition to defining incapacity, the trustmaker can choose a group of people to determine if the definition has been met. The trust documents can leave this decision to a doctor or the court, or the trustmaker can instead name a private disability panel. 

A disability panel is a group of pre-selected people who determine if the trustmaker is incapacitated. The trustmaker selects these people ahead of time and names them in the trust. The trust should also state whether the panel’s decision must be made by a unanimous or majority vote. 

Reasons to Name a Disability Panel

A physician or court, while ostensibly qualified to weigh in on disability, may not be best suited to the task. The trustmaker may prefer to name a disability panel because 

• it can include the people who know the trustmaker best and can recognize when something is wrong, 
• they may feel more secure with a mix of people—such as medical professionals and trusted family members—making the determination, 
• it eliminates the need to pay an attorney to go to court to have the trustmaker declared incompetent, and 
• it circumvents red tape and avoids delays that can affect estate planning considerations. 

Creating an estate plan is all about taking control of the future. Naming a disability panel gives the trustmaker control over not only what happens upon their death, but also what happens if they suffer from an incapacitating disability. By providing for a disability panel in their trust, they will not have to rely solely on a court or a doctor to make such a personal decision. 

Getting the Details Right in Your Estate Plan

Advanced healthcare directives and powers of attorney supplement your living trust and can provide direction if you become incapacitated, but if you do not have a disability panel as part of your trust, you are overlooking an important aspect of incapacity planning. 

The people on—and the rules of—your disability panel are completely up to you. Setting these parameters while you are still competent and in control is one more way that you can make your wishes known. 

It is important to discuss the creation of a disability panel with an attorney who can help you with practical considerations, such as having a medical professional on the board to assure stronger cooperation from financial institutions. Remember that you can always change the terms of your revocable living trust, including the disability panel. For help drafting or updating your estate plan, please reach out to schedule a meeting.

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Footnotes

1. Kristen Bialik, 7 facts about Americans with disabilities, Pew Research Ctr. (July 7, 2017), https://www.pewresearch.org/fact-tank/2017/07/27/7-facts-about-americans-with-disabilities/.
2. Alzheimer’s Ass’n, 2022 Alzheimer’s Disease Facts and Figures, https://www.alz.org/media/Documents/alzheimers-facts-and-figures.pdf.

None of us likes to think about our own death or enjoys planning for that occasion. However, if you do not create an estate plan or fail to update it regularly, you are likely setting your loved ones up for even more stress and grief after you pass away. It may add to your own stress and impede your peace of mind during your lifetime because of the uncertainty that your wishes and goals will be fulfilled. If you have not updated your estate plan to include loved ones who are not provided for in your existing plan, you may be tempted to make deathbed gifts. It may bring you pleasure to make significant gifts to loved ones because of the joy it may bring to them. However, in addition to the obvious problem that none of us knows the exact time we will die and may not be able to make the deathbed gifts we intend, there are some other drawbacks to deathbed planning that you may not have thought about.

Lack of Basis Adjustment

Although it may seem special and meaningful to provide a gift to a loved one as your last act, it may come with significant costs to them. Under federal tax law, a capital gain occurs if property is sold or exchanged for more than its original price. The original price is called its basis. If you make a gift during your lifetime, even one minute prior to your death, the recipient of your gift will have the same basis you had: this is called a carryover basis. However, if the same person inherits the property after your death, the basis of the property is generally its fair market value at the time of your death: this is called a basis adjustment. This is important because if the value of the property increased over time, it will likely be worth more at your death than it was when you bought it, perhaps many years ago.

Example: If, on your deathbed, you decide to give your son a valuable painting you purchased in 1975 for $20,000 that is currently worth $150,000, the painting has appreciated in value by $130,000. Your son’s carryover basis in the painting is the same as yours—$20,000. As a result, if your son decides not to keep the painting and sells it for $150,000, the increase in value of $130,000 will be taxable as capital gain to him. In contrast, if your son inherits the painting at your death, his basis will be stepped up to $150,000, its fair market value on the date of your death. If he immediately sells it, he would have no capital gain, and thus, would benefit from significant tax savings.

Possible Inclusion in Your Gross Estate

If you have a very large estate, you may be tempted to make lifetime gifts as a way of decreasing the size of your estate and minimizing your liability for estate taxes. However, if you wait until you are on your deathbed to make those gifts, they will still be included in your estate under some circumstances because they are not considered “completed” gifts under federal tax law.¹ A recent case, Estate of DeMuth v. Commissioner,² dealt with a situation in which a father’s health began to worsen. His son, as his agent under a power of attorney, wrote eleven checks on September 6, 2015, from his father’s investment account totaling $464,000 to different recipients in an effort to take advantage of the annual gift exemption ($14,000 in 2015). The father died on September 11, 2015. Some of the recipients had deposited their checks before the father’s death, but some had not. 

Treasury Regulation § 20.2031-5 provides that the “amount of cash belonging to the decedent at the date of his death, whether in his possession or in the possession of another, or deposited with a bank, is included in the decedent’s gross estate.” The Tax Court found that under Pennsylvania law, which was applicable to determine when the gift of a check was a completed gift, delivery of a check does not complete the gift.³ Instead, only checks deposited by the recipients before the father’s death and credited to the their bank were completed gifts, and those that were not deposited or paid by the investment company should be included in the father’s estate because he (or his son as his agent) could have stopped payment on those undeposited checks until his death.⁴ Estate of DeMuth highlights the importance of planning ahead rather than waiting until the last moments or days of life to make a gift, particularly if the goal is to reduce your estate tax liability.

Although gifts made within three years of your death are generally includible in your estate,⁵ there is an exception if a gift tax return was not required to be filed because the value of the gift was less than the annual exclusion amount. Transfers relating to life insurance policies, however, are an exception to this exception.⁶

Doubts about Your Capacity

To make a valid gift, you must have the mental capacity required by state law, but those standards vary by state. In some states, it is the same standard that must be met to make a valid will: (1) you must have a general understanding of what type and how much property you own, (2) you must understand to whom you plan to give the property, and (3) you must understand that the gift transfers the property. In some states, it may also be necessary for you to have an understanding of the effect of the gift on your future financial security. 

If you make a gift on your deathbed, other heirs who may have inherited the property if the gift had not been made and who disagree with your decision may question your mental competency to make the gift. Although the mere fact that a gift was made on your deathbed is not enough on its own to show that you lacked the capacity to make the gift, there may be other factors that call the validity of the gift into question: Could your medical condition at the end of your life cause your mental capacity to decrease? What if you are taking medications immediately prior to your death that could impede your understanding?

We Can Help You Plan Ahead

The downsides of deathbed planning can outweigh any benefits you may think it will achieve, so it is prudent to consult an experienced estate planning attorney when considering any plan involving lifetime gifts. In addition, creating an estate plan designed to achieve all of your goals or updating an old plan that is no longer in line with your wishes will spare your family members and loved ones discord and can help them avoid tax bills. In addition, you will have the peace of mind that comes with knowing that your intentions will be carried out. Give us a call so we can assist you in planning ahead to avoid additional grief for you and your family.

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Footnotes

1. See I.R.C. § 2035(c)(3); Treas. Reg. § 25.2511-2(b) (“[I]f upon a transfer of property (whether in trust or otherwise) the donor reserves any power over its disposition, the gift may be wholly incomplete, or may be partially complete and partially incomplete, depending upon all the facts in the particular case.”).
2. 124 T.C.M. (CCH) 22 (2022) (appeal filed).
3. In re Mellier’s Estate, 182 A. 388, 389 (Pa. 1936).
4. Several of the checks that the Internal Revenue Service (IRS) had mistakenly conceded were not included in the father’s gross estate were excluded from it. But for the IRS’s mistake, the amounts of those checks also would have been included.
5. I.R.C. § 2035(a).
6. I.R.C. § 2035(c)(3).

Would you like to provide your children or loved ones with an inheritance but protect them from the risks that may accompany a large windfall? If so, you can create a beneficiary-controlled trust in which the person you name as the trust’s primary beneficiary has rights, benefits, and control over the property held by the trust, but with important protections. In a beneficiary-controlled trust, you can name the primary beneficiary as the sole trustee, or if you name a co-trustee, the beneficiary can be given the authority to remove the co-trustee and select a successor co-trustee if they choose. In addition, a beneficiary-controlled trust may include a broad, non-general power of appointment that enables a beneficiary who is also trustee to limit the ability of other more remote beneficiaries to enjoy the property held by the trust. 

What Are the Pros?

If you want to provide an inheritance to a mature child or loved one that you trust to make prudent financial decisions, a beneficiary-controlled controlled trust is a strategy that you should consider. Even beneficiaries who handle money wisely could encounter situations in which their money and property are vulnerable to creditors’ claims, divorce, lawsuits, or estate taxes: a beneficiary-controlled trust can protect the property held in the trust against those claims. Although you can include terms in the trust document that limit the degree of involvement and control you would like the beneficiary to have, a beneficiary-controlled trust can still enable the beneficiary to have a considerable amount of control over their inheritance and how it is used.

Beneficiary as sole trustee. Under most states’ laws, even if a beneficiary is the sole trustee, most creditors may not reach the beneficiary’s interest in the trust or compel the trustee to make a distribution if the trustee is not required, but has the discretion, to make distributions based on an ascertainable standard, for example, distributions for the beneficiary’s health, education, maintenance, and support (HEMS). Also, even if a beneficiary is the sole trustee, the trustee has a fiduciary duty to adhere to the trust’s requirement to make distributions only for the beneficiary’s HEMS and is not permitted to make distributions to the beneficiary’s creditors. However, once the trustee makes a distribution to themselves as a beneficiary, the creditor may then be able to reach the funds.

This type of provision provides two additional benefits. First, the HEMS standard provides a safe harbor under the Internal Revenue Code (I.R.C.), and its use will prevent the value of the money and property in the trust from being included in your beneficiary’s gross estate for estate tax purposes. Second, depending upon the unique circumstances of each beneficiary and if there is low risk of creditors’ claims or lawsuits, naming the primary beneficiary as the sole trustee, along with the HEMS standard for distributions, may reduce expenses during administration of the trust because the fees required for an independent co-trustee would not be incurred.

Beneficiary as co-trustee. Another option that provides enhanced protection for the trust’s assets such as money and property is to name the beneficiary as a trustee authorized to manage and invest the trust’s assets, and to name an independent co-trustee (sometimes called a distribution trustee) who is responsible for making discretionary trust distributions to the beneficiary. Although it is more complicated and expensive to include an additional independent trustee empowered to make distributions in their sole discretion, it provides a greater degree of asset protection for property held by the trust and for the primary beneficiary indirectly. In addition, the independent trustee does not need to be limited to distributions according to the HEMS standard. Rather, the independent trustee may distribute trust property to the beneficiary for any reason without reducing the level of asset protection. Typically, the trust’s terms still provide the beneficiary with a significant degree of control, not directly over the amount or timing of distributions, but over who serves as the independent co-trustee. The beneficiary is permitted to select the independent trustee as long as that trustee is actually independent—not a related party or a person subordinate to the beneficiary as defined by I.R.C. § 672(c)—and still avoid having the property held by the trust included in their estate for estate tax purposes. In addition, the beneficiary may replace the independent trustee at any time and for any reason. If the beneficiary is facing a heightened risk of lawsuits, divorce, or creditors’ claims, they could resign as the trustee and appoint an independent trustee to serve in their place, providing additional protection for the trust’s assets.

What Are the Cons?

May not protect against all creditors. Some states’ laws provide exceptions that preclude beneficiary-controlled trusts from being used to protect trust assets from claims by certain creditors, for example, a former spouse’s claim for alimony or a claim for child support. In those states, the creditor may be able to reach the trust’s property to satisfy those claims or to compel a distribution that it can then use to satisfy the claims.

May provide too much control for some beneficiaries. For beneficiaries who are not skilled at managing money or have poor judgment, a beneficiary-controlled trust may not be the best estate planning strategy. Although the trust document will specify the beneficiary’s responsibilities as a fiduciary, a beneficiary-controlled trust provides the beneficiary with considerable control over their inheritance. Even if a beneficiary who is also the sole trustee may only make HEMS distributions to themselves, to a large extent, it is up to them to determine if a particular distribution meets that standard, permitting them substantial leeway in how the money or property held by the trust is expended. If you are concerned that a beneficiary will not be able to handle the responsibility of also being a trustee for a beneficiary-controlled trust, other estate planning solutions may provide you with more peace of mind.

If you would like to find out more about whether a beneficiary-controlled trust is a strategy that will work for you and your family, give us a call to set up an appointment. We can help you think through how to design your beneficiary-controlled trust in a way that achieves your goals and protects the inheritance you want to leave for family members and loved ones.

Losing your spouse is one of the most difficult things you might face in life. Although it is important to take time to grieve, there are also some crucial steps you need to take as soon as possible to address your spouse’s accounts and property and secure your own future. 

If your spouse’s will or trust, or your joint trust, has a disclaimer provision, one of the time-sensitive decisions you will need to make is whether to disclaim (refuse to accept) money or property that you will otherwise receive as a trust beneficiary. State and federal law set forth the requirements that you must meet in order for the disclaimer to work as intended. Under Internal Revenue Code (I.R.C.) § 2518, a qualified disclaimer is simply an irrevocable, unqualified refusal to accept a gift or bequest of a property interest. The disclaimer allows the interest in property to pass to someone other than the beneficiary who originally would have received it, and it is not considered a taxable gift from the first beneficiary to the next beneficiary in line. There is a special exemption under I.R.C. § 2518(b)(4) that allows a surviving spouse to benefit from disclaimed money or property, but taking advantage of the exemption requires careful planning. 

A qualified disclaimer must meet the following requirements:

• It must be made in writing as required by state law.
• It must be made within nine months after your spouse’s date of death.
• You must not accept the property interest or its benefits. 
• The interest must pass to someone other than you without any direction by you (the person who is disclaiming the interest).

There are several steps you should take to ensure that you make timely decisions and properly disclaim a property interest if you choose to do so:

Step 1: Locate the estate planning documents. Your estate planning documents are one of the first sources of direction about what should happen next. Your spouse’s documents contain the roadmap that indicate what your spouse wanted to happen to their property and money, and they were likely designed in coordination with your own estate plan. A will or trust may include a provision specifying how particular property should be handled if the original beneficiary disclaims their interest in it. Your estate planning attorney will need to have those documents to advise you about the best course of action. 

Step 2: Meet with your estate planning attorney. The legal process that those who are left behind when someone dies is often complicated, and it is important to seek the help of your estate planning attorney. Because of the limited time during which you must elect to disclaim accounts and property, you will need to make an appointment with your attorney as soon as you can. Your attorney will review your spouse’s estate plan with you and help you determine if it contains disclaimer provisions, and if so, whether you should consider disclaiming your interest in a will or trust and the effect of such a disclaimer. 

Because of the unlimited marital deduction under federal tax law for US citizens, your spouse was permitted to transfer an unrestricted amount of accounts and property to you at any time during their life or at their death, free of taxes. However, the transferred amounts will usually be included in your estate. If you and your spouse had a large amount of wealth, using a disclaimer is one strategy for taking advantage of the lifetime estate tax exemption. 

Currently, the exemption amount is historically high. In 2023, the federal estate tax exclusion amount is $12.92 million for an individual and $25.84 million for a married couple, and only estates that exceed this amount are subject to estate tax. However, the current estate tax exclusion amount is scheduled to be reduced by half at the end of 2025, so many more estates will soon be subject to estate taxes unless the law is changed. In addition, some states have their own estate or inheritance taxes applicable to estates of a much lower value. If your estate is likely to be subject to federal or state estate taxes, disclaiming an inheritance may make sense, especially if the beneficiary specified in the trust document as the next in line is less likely to be subject to estate taxes, or if the trust specifies that the disclaimed property can be transferred to another trust that will benefit you without being included in your estate. 

Keep in mind, however, that for federal estate and gift taxes purposes, after your spouse’s death, you must file an estate tax return and make a portability election that will allow your deceased spouse’s unused exclusion amount (known as the deceased spousal unused exclusion (DSUE) amount) to be applied to your subsequent transfers during life or at death. For example, if your spouse’s gross estate is valued at $5 million and does not qualify for the unlimited marital deduction, you can elect to have their unused estate tax exemption of $7.92 million transferred to you. As a result, your estate would have a total exemption of $20.84 million ($12.92 million plus $7.92 million) in 2023, so a disclaimer may not be necessary unless you and your spouse have very large estates. 

Your estate planning attorney will help you determine the best strategy to minimize your estate taxes or whether a disclaimer may be useful to achieve other goals, for example, to provide funds to a beneficiary that is next in line to receive the benefits of the trust and has a greater need for it than you.

Step 3: Include financial and tax professionals in the conversation. In addition to your attorney, involve your financial advisor, accountant, and other financial or tax professionals in the conversation. This team of professionals will help you determine the value of the accounts and property you will inherit from your spouse, as well as the value of your own estate, to determine if a portability election will provide adequate protection or if disclaiming some of the accounts and property in your spouse’s estate or held in trust for your benefit is the better strategy. They will help you consider all the important variables, including the impact of a disclaimer on your family members: Will they have to pay estate tax at your death if you do not disclaim your interest in the trust? Or will the beneficiary who receives the inheritance after a disclaimer be negatively impacted, for example, by increased income taxes if they receive trust income that pushes them into a higher tax bracket?

We Are Here to Help

Disclaiming your interest in a will or trust is a strategy that you may not have considered, but it may be a great way for you to achieve your estate planning and tax-savings goals. We can help you evaluate your unique circumstances to determine whether a disclaimer will benefit you and your loved ones, as well as assist you in meeting any looming deadlines and avoiding possible pitfalls. Give us a call today to set up a meeting.

Beginning your retirement is a great milestone that is worth celebrating. You have put in many years of hard work, and you are now able to focus your energy on the next phase of your life. However, before you begin this next chapter, you need to make sure that you have fully thought through this exciting change in your life.

Things to Consider When Beginning Your Retirement

With this new chapter come certain estate planning issues that you need to consider.

If You Have an Existing Estate Plan

Having a properly executed and legally binding estate plan is a great first step toward ensuring that you and your loved ones are cared for. However, estate planning is not a one-and-done event. It is important that you review your plan every year or so, and especially after major life events such as the beginning of your retirement. When considering your existing plan, ask yourself the following key questions:

• Do you still own the same property or have the same account balances as when your plan was first created? What will the balances be like at your death? Chances are, you put money into investment or retirement accounts during your working years to prepare for this next chapter. While you may have a lot today, you need to be aware that this value may decrease once you start withdrawing from those accounts.
• Does your plan assume that your children or other young beneficiaries are still minors? A birth usually prompts parents to have an estate plan created. However, once it has been drafted, many parents continue living their lives without giving much thought to their estate plan. If it has been some time since your estate plan was created, your then-minor children are likely now adults or approaching adulthood. Your focus may no longer be on choosing the right guardians but on ensuring that your adult children’s needs are properly addressed in your documents. 
• Does your plan rely on proceeds from an employer-provided life insurance policy? As part of an employment package, many employers offer life insurance. However, this policy may no longer exist once you are no longer working. If you were relying on these proceeds to provide for your loved ones at death, you will need to explore other options.
• Do you want to change how much your beneficiaries inherit and how they receive their inheritance? Now that some time has passed, are the amounts and ways the money and property are being given still appropriate or possible? For example, imagine that your will or trust provided that $300,000 be held in a trust for your only child’s benefit and then distributed to them when they turned thirty-five. Is it likely that you will have less than $300,000 at your death, and what wishes will have to be sacrificed as a result? Also, if your child is now thirty-five or older, any money and property would be given to them automatically based on the provisions in your documents. Are you still okay with that? Now that your child is older and you have a better understanding of their needs and abilities, you may want to consider changing how they receive the money and property. They may require more than you had originally planned, or perhaps they are successful enough that they would be fine without an inheritance from you.

If You Do Not Have an Estate Plan or Have Not Completed It

Do not procrastinate any longer. The only way to truly protect yourself and your loved ones is to have an intentional and legally enforceable estate plan. To begin thinking about your estate plan, you need to evaluate your new lifestyle and answer questions such as the following:

• What accounts and property do you own? To make sure that we craft a comprehensive plan, we all need to be on the same page about what you own and the value of your money and property. From there, we can help you determine what will happen to this money and property if you are unable to care for yourself and at your death.
• What are the current needs of your loved ones? Based upon your unique situation, you should determine the needs of your loved ones and whether you are able to support their needs during your lifetime (if necessary) and at your death.
• Can you accomplish your goals with what you have? Working with an experienced professional, you can consider the answers to the first two questions and determine how likely it is that you will be able to carry out all of your wishes. Together, we can examine all options and come up with the best possible solution for you and your loved ones.

We are excited to help you celebrate this new chapter in your life. Part of this celebration should include a visit with your financial and estate planning team to ensure that the celebration can continue for many years to come. If you are interested in discussing your existing estate plan or creating your first one, please contact us.

Jerry Lee Lewis passed away in October 2022, leaving behind a long legacy, a large family, and a multimillion-dollar estate.

Celebrities can give us a glimpse into lifestyles beyond our wildest dreams. But celebrities face many of the same estate planning issues that the rest of us do, such as which tax planning strategies to use and how to divvy up assets among loved ones when they die. 

Jerry Lee Lewis’s death has prompted thoughtful retrospectives about his life in the spotlight. But on a more practical level, his death raises questions about what will become of his estate. This exercise in estate planning “what ifs” can provide lessons for anyone—celebrity or not. 

What Lewis Leaves Behind

Lewis died in his home near Memphis on October 28, 2022, at the age of eighty-seven. He outlived other rock and roll icons of his era such as Elvis Presley and Johnny Cash despite a hard-charging lifestyle that included substance abuse and serious health problems. Vulture, part of New York Magazine, describes him as “the last man standing from the dawn of rock and roll.”¹  

Arguably best known for his rock song “Great Balls of Fire,” Lewis also had country hits and was a four-time Grammy winner. He is a member of both the Rock & Roll Hall of Fame and the Country Music Hall of Fame who recorded over forty albums during a career that spanned seven decades. 

Lewis is survived by Judith Coghlan Lewis, his seventh wife. He also had six children. Four of his children are alive—Jerry Lee Lewis III, Ronnie Lewis, Phoebe Lewis, and Lori Lancaster. In the years before his death, Lewis was embroiled in a feud with his daughter Phoebe and her husband, Ezekiel Loftin. In 2017, Lewis sued Phoebe and Loftin for allegedly taking financial advantage of him, although the suit was later dismissed.² 

Lewis filed for bankruptcy in 1988. His petition listed over $3 million in debts, including $2 million in Internal Revenue Service debt, tens of thousands in attorney fees, and medical bills.³ At the time of his death, his net worth was estimated to be between $10 million and $15.4 million.⁴ 

Estate Planning Scenarios

As estate planning lawyers, we cannot help but look at Jerry Lee Lewis’s life and legacy through the lens of our vocation. Most of us do not relate to his fast-living rock and roll lifestyle, but we can see common estate planning issues his life raises that may be helpful for you to think about. Below, we discuss some of the issues we are keeping an eye on regarding Lewis’s estate.

How will he treat his children?

It is probably a safe bet that Phoebe—the daughter he accused of elder abuse—will be disinherited by Lewis, which he is allowed to do under Mississippi law. However, there is a chance she will not need his money, as Phoebe had her own career in music and worked in Hollywood. 

It remains to be seen how Lewis treats his other surviving children in his estate plan. While many parents choose to leave their children equal amounts of money and property, the Lewis family’s situation raises the question of what is fair versus what is equal. 

Every child has different financial needs. Some achieve financial independence, and others struggle financially. Parents might also treat their children differently based on the age at which they had them and their finances at the time. For example, children born later, after their parents have established good careers, might receive more than children born earlier, when their parents were not making as much. Splitting everything equally among children might not always be the fairest approach. 

How will he treat his surviving spouse?

Lewis was married seven times, and his marriages were not without controversy. His latest wife was by his side when he died. Will he reward her loyalty?

If Lewis did not have a will, then intestate law (the law specifying what happens when you have no will) dictates that his spouse is the primary beneficiary of his estate. Around two-thirds of Americans die with no estate plan. Celebrities are not immune to this lack of planning; there have been many celebrities who have died without even a basic will. 

Assuming Lewis had a will, he still could have left everything to his wife. Or, he could have left her a portion of his wealth. If the latter is true, the share could be given outright (i.e., as a lump sum) or held in a trust and managed by a trustee, to be distributed to her over time. 

Lewis had further options for the type of trust he used. Each type of trust has pros and cons. For example: 

• A qualified terminable interest property (QTIP) trust would allow him to provide trust income to his wife but maintain control of what happens to the trust’s money and property once she dies. Additionally, he could give the trustee discretion to give his wife additional amounts during her life. QTIP trusts are often used when somebody has beneficiaries from a past marriage but wants to provide for their current spouse if they die before the spouse. 
• A discretionary trust set up for Lewis’s wife would give the trustee discretion to make payments to her as the trustee sees fit. While this type of trust could help protect the trust’s money and property from creditors, money given to a discretionary trust will not qualify for the unlimited marital deduction. 

Tax Issues

Death and taxes are inevitable. However, estate taxes may not be inevitable, depending on the size of the estate at the time of death and how much of the lifetime exemption has been used. 

The lifetime gift and estate tax exemption is the amount of money an individual can transfer to their heirs without being liable for estate taxes. These transfers can be made as gifts over the course of a person’s life or at death. 

For 2022, the federal lifetime gift and estate tax exemption was $12.06 million. In 2023, it increased to $12.92 million. Taking the lower-end estimate of Lewis’s net worth, his estate value falls below the 2022 lifetime exemption amount. As a result, assuming he did not use any of his exemption during life, he may not have required strategies to avoid estate taxes if his spouse does not have significant personal assets. For couples, the exemption amount doubles to $24.12 million (2022) and $25.84 million (2023). 

Lewis’s estate does not have to worry about an estate tax being levied by the state of Mississippi because Mississippi does not have an estate tax. However, if he had died in a state with a state estate tax, or if he had died owning property in one of those states, there could be an additional tax due because of his death. Each state with an estate tax sets its own exemption amount and tax rate. 

If Lewis’s wife has money and property that exceed the individual gift and estate tax exemption, she may benefit from electing to receive the deceased spousal unused exclusion (DSUE) amount. Meant to benefit the surviving spouse, the DSUE enables the deceased spouse’s remaining exemption amount to be transferred to the survivor if the deceased spouse’s estate did not use the entire exemption amount. In other words, Lewis’s wife would qualify for a $2.06 million DSUE amount based on the 2022 exemption of $12.06 million and his estimated estate value of $10 million. 

Unexpected Plot Twists 

There is no telling exactly what Jerry Lee Lewis decided to do with his money. His wife and children may be just as in the dark as the rest of us. And there could be some surprises lurking in his estate plan. 

The Lewis family asked that in lieu of donating flowers for his funeral services, donations be made in his honor to the Arthritis Foundation or MusiCares. Could Lewis have left a sizable portion of his estate to these or other charities instead of to his family? 

We may find out in the months ahead—or we may not. If he left the money to charity in a trust, information about his estate might not become public. 

Estate Plans Are Not Just for Rock Stars

You do not need to be a rock-and-roll legend to need an estate plan. Regardless of the size of your estate, you should prepare a blueprint for how your assets will be distributed, how your debts will be settled, and how you can ensure that more of your wealth ends up with the people and causes you care about. To start planning today, contact our office to schedule a meeting with our estate planning lawyers.

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Footnotes

1. Bill Wyman, Jerry Lee Lewis Was an SOB Right to the End of His Life: The Talented Hell-Raiser of Early Rock and Roll Died at 87, Vulture (Oct. 28, 2022), https://www.vulture.com/2022/10/jerry-lee-lewis-obituary-1935-2022.html.
2. Judge Dismisses Most of Suit Between Jerry Lee Lewis, Family, U.S. News and World Report (May 13, 2019), https://www.usnews.com/news/entertainment/articles/2019-05-03/judge-dismisses-most-of-suit-between-jerry-lee-lewis-family.
3. Jerry Lee Lewis Files Bankruptcy Petition, AP News (Nov. 9, 1988), https://apnews.com/article/14622642563978a1739790fcb13843cf.
4. Selena Fragassi, What Was Jerry Lee Lewis’ Net Worth Upon His Death at 87?, Yahoo! (Nov. 6, 2022), https://www.yahoo.com/video/jerry-lee-lewis-net-worth-191917385.html.

As the name suggests, ABC’s TV show Modern Family depicts the relationships and experiences between a fictional extended family. Throughout the course of the series, the show addresses many issues that families deal with each day. For a close-knit family such as this fictional one, estate planning is crucial to ensure that everyone is protected when one of them dies or becomes disabled or incapacitated. We hope that examining some of the issues this family would need to address as they prepare for such circumstances will encourage you to consider how these issues impact your own family. 

The Family’s Entrepreneurial Endeavors

Over the course of the series, there are a variety of businesses owned by members of the family. Whether it is a hobby, investment, or their nine-to-five job, these businesses require special consideration when planning for their future.

• How are these businesses owned? Depending on the ownership structure (sole proprietorship, partnership, corporation, limited liability company), what happens to the business at the owner’s death may already be dictated by the business’s official documents. If not, there needs to be legally enforceable documentation in place to facilitate the transition.
• Who should ultimately end up with the business? For business owners, it is very easy to get caught up in the day-to-day operations. However, it is important that you look to the future and proactively determine who should be in charge of your business. Just like Jay, if you want your child to continue your business, it is important that you have that discussion with them and pave the way for them to take over.
• Should the business interest go directly to the next generation or be held for them? Depending on the age of the beneficiary, you may need to appoint someone to run the business until your child is sufficiently mature. Instead of relying on the state’s determination of when a child becomes an adult, you can provide specific instructions for when and how your child becomes involved in the business.

Multiple Generations of Blended Families

When determining who will receive their money and property, members of blended families must evaluate the bonds within their family. For instance, on several occasions, Jay refers to Manny as his son, and Manny spent many of his formative years living with his mother and Jay. On the other hand, although Dylan and Haley have two children together, Dylan also has children from his first marriage. Haley may not be that close to Dylan’s other children and may not want them to receive anything she owns individually (or what she may inherit from her parents). Because a stepchild has no legal right to their stepparent’s money and property, a legally enforceable last will and testament or trust needs to be put in place in order for a stepparent to leave anything to their stepchild at death.

Guides for the Next Generation

Within this extended family, there are a few minors who need guardians in the event both parents pass away. First, although Manny states that he wants to be Joe’s guardian in the event Gloria and Jay pass away, they need to name the person they want to be Joe’s guardian in their wills. However, the naming of an individual in a last will and testament or separate document is merely a nomination. This may not stop others from contesting the nomination. It may be wise for Jay and Gloria to have frank conversations with both of their families to avoid the possibility of a fight for guardianship and to prevent Joe from potentially being taken to a foreign country.

Lily and Rex are also minors who would need a guardian if their parents were to pass away. Without an appropriate estate plan, a fight between Cameron’s and Mitchell’s families is likely to occur. Although Lily spent much of her life around Mitchell’s family, by the end of the show, Lily and Rex are moving with their parents to Missouri and will be living closer to Cameron’s family. Rex will arguably grow up with a greater bond with Cameron’s family, which could lead to conflict between the Pritchett and Tucker families if a guardian for these two children is needed. 

Lastly, Poppy and George would need guardians if their parents died. Haley and Dylan may not have a lot of money and property to plan for, but their precious children deserve at least basic planning, including naming a guardian and alternates. At the end of the show, although Haley and Dylan are no longer living with Phil and Claire, they are still living close by. However, Dylan’s mother Farah started appearing once Haley became pregnant. She may have a desire to raise the children should something happen to Haley and Dylan. 

If you have minor children, it is important that you think about who you want to raise them if you cannot. Although no one will ever care for them as you would, it is important that you nominate someone in a last will and testament or separate writing (if your state allows for one). Although the court will still have to make the ultimate decision as to who will be the guardian, you can rest easier knowing that you have made your wishes clear. Also, by having conversations with your family members ahead of time, you may be able to reduce the possibility of fighting after your death if everyone understands your wishes.

Protecting the Surviving Spouse

All married couples face the question of what will happen at the first spouse’s death. Some couples, like Phil and Claire, have earned and accumulated most of what they have while they were married. It would be understandable for them to consider everything they own “theirs.” Both of them would likely want everything to go to the surviving spouse. However, when everything is given to a spouse outright, the hard-earned money and property is susceptible to creditors and predators. A naive and well-meaning person like Phil might become the victim of a scam artist and give large sums of money away based on a sad story. Alternatively, a successful woman like Claire could end up remarrying, and without proper planning, could accidentally disinherit Haley, Alex, and Luke by leaving everything to her new spouse. To protect what you leave to your surviving spouse, no matter if it is your first or third marriage, a qualified terminable interest trust can help. This type of trust can allow your surviving spouse to receive the income the trust generates at least annually, to withdraw principal for specific purposes such as health, education, maintenance, and support, while allowing you to determine what happens to any remaining money at your spouse’s death.

Determining How Much Everyone Gets

Within this blended family, there are many different options for who will receive an inheritance from each person. When preparing his estate plan, Jay will need to consider how he wants to divide everything he owns. In his immediate family, he has a spouse, two adult children from a previous marriage, a minor son, and an adult stepson. He also has five grandchildren and two great-grandchildren. He will need to decide who gets what, how much, and when. He will need to ask himself if it is better to give everything to Gloria (possibly in a trust) for her needs during her life with the remainder to go to Claire, Mitchell, and Joe at her death—or if Claire and Mitchell should receive their portion of the inheritance while Gloria is still alive. Should he provide for Joe or leave that up to Gloria if she survives him?

When considering what to leave to a surviving spouse, it is important to remember that in some jurisdictions, there is a minimum amount that must be given to a surviving spouse known as the elective share. Also, if you reside in a community property state, your spouse may be entitled to some of your money and property if it was acquired during your marriage. While someone might think that their surviving spouse will be able to support themselves without an inheritance, it is important to have this conversation ahead of time: without the proper documentation, a surviving spouse can unwind a plan if they have not been provided for in their deceased spouse’s estate plan and have not waived the right to their entitled minimum amount.

Phil and Claire will need to take a look at their own family situation and determine how their money and property are to be divided up among their children and grandchildren. They have three children who are very different and most likely would have very different needs. Haley, the mother of two, may benefit from receiving a larger share since she has two children to support. Alternatively, Phil and Claire could choose to set aside a sum of money specifically for their grandchildren. Alex may not need an inheritance given her education and employment opportunities. Luke, on the other hand, may need more financial assistance. A sum of money could be held in a trust for him, with restrictions to ensure that he is properly provided for, gets an education, and is able to invest in good business ideas while protecting him and his inheritance from bad business decisions. 

For many families across the country, not just the fictitious ones on television, an estate plan is a great way to make sure that you, your loved ones, and your hard-earned money are protected. We are committed to working with families of all shapes and sizes to craft a plan that is as unique and modern as you and your family are. Get in touch with us today.

Probate is the legal process for recognizing the validity of a person’s will after their death and appointing the nominated decision maker. This person, also known as an executor or personal representative, administers the deceased person’s estate and ensures that their money and property are transferred to the beneficiaries specified in their will. If someone dies without a will, probate is the process by which a court declares who that person’s heirs are and appoints an administrator who will distribute the person’s money and property as required by state law. Because the probate process can sometimes be expensive and lengthy, and the details of the deceased person’s estate may become part of public court records, many people create an estate plan designed to avoid probate by using a revocable living trust. However, there are some circumstances in which a probate proceeding may still be necessary.

A Third Party Refuses to Accept Your Affidavit

Affidavit for small estates. Nearly every state allows smaller estates (the amount depends on the state – Indiana uses a $100,000 threshold) to bypass the typical probate proceedings, or at least use a quicker and simpler probate process. In those states, after a certain number of days have passed following a person’s death, the beneficiary of a small estate may submit to a person, bank, or other institution a small estate affidavit stating that they are entitled to the money or property, along with a death certificate. The affidavit is usually required to be notarized, and typically the person or institution to which it is submitted can rely on the affidavit to transfer the money or property to the beneficiary. The person or institution will not be held liable if it is later revealed that the money or property was transferred to the wrong beneficiary. 

Nevertheless, the person or institution may refuse to comply with the affidavit, for example, if they believe that the property they hold is worth more than the amount allowed for a small estate affidavit, or if they are aware of a dispute among the heirs of the person who died regarding the will or the property being claimed. A full probate proceeding or lawsuit may be necessary under such circumstances.

Last paycheck affidavit. In some states, the spouse of someone who dies may be allowed to submit an affidavit to the deceased person’s employer that allows the employer to release their last paycheck to the spouse. Some states also allow the paycheck to be released to adult children, parents, or siblings—usually in that order of preference if there is no surviving spouse. However, there are often limits on the amount that the employer is permitted to pay to the spouse or other party outside of probate proceedings. Some states may require the spouse or family member to submit a particular form as the affidavit, but many do not as long as the affidavit includes the necessary wording and is notarized.

This allows the surviving spouse or family member to have timely access to a paycheck that they may have been relying on to pay their bills. If the employer refuses to release the deceased employee’s paycheck, the surviving spouse or other family member may need to initiate a probate proceeding or a lawsuit to require the employer to release the paycheck. 

A Personal Representative Is Needed to Represent the Estate In Court

Sometimes, a personal representative must be officially appointed to defend the estate in a court action. For example, in Sander v. Commissioner, Sandy and her daughter Leda were co-trustees of a revocable living trust that Sandy had created. In addition, Leda was nominated as the personal representative by Sandy’s will. When Sandy died, Leda became the sole trustee of Sandy’s trust. Leda’s attorney told her that there were no accounts or property that needed to be probated; as a result, Sandy’s will was never probated, and Leda was never officially appointed as personal representative of her estate. 

After Sandy’s death, the Internal Revenue Service issued notices of deficiency to Sandy for amounts it asserted that she owed in unpaid taxes. Leda filed a motion for redetermination of the amounts and sought to be substituted as a party for Sandy in the case. However, the tax court found that although Leda was the trustee of Sandy’s trust, she did not have the authority to act for her mother’s estate in litigation that did not involve trust property but instead involved only a redetermination of Sandy’s income tax deficiencies for two years prior to her death. Rather, a personal representative needed to be appointed who could litigate the case on behalf of Sandy’s estate.

In similar circumstances, even when all or most of a deceased person’s accounts and property are transferred outside of probate, a probate proceeding may still be necessary to appoint a personal representative to represent the estate in court.

A Personal Representative Is Needed to Transfer Real Estate

Some types of joint ownership avoid probate by vesting full title of the real estate in the surviving owner upon the death of the joint owner. In addition, some states allow transfer-on-death deeds that specify a new owner and immediately transfer the title of the real estate when the current owner dies. Transferring title of real estate to a trust that directs that title should be transferred to a specified beneficiary is another way to transfer real estate without probate. However, unless one of these estate planning solutions is implemented, a personal representative must typically be appointed to transfer real property in a probate proceeding.

Although there are some exceptions, many states that allow a deceased person’s personal property to be transferred to their heirs without probate via a small estate affidavit do not allow small estate affidavits to be used for real estate. It may be possible to petition the probate court for a simplified probate proceeding in some states. However, in the absence of such special rules, even a small estate must be probated, and a personal representative must be appointed when real estate is involved. Indiana does have a procedure that in some instances may avoid a court probate even if real estate is involved.

Give Us a Call

Although it is often possible to avoid probate, probate proceedings are necessary in some circumstances. Give us a call if we can help you create an estate plan that will enable you to transfer your money and property to your family or loved ones in the most efficient way possible.

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Footnote

1. 124 T.C.M. (CCH) 237 (2022).