Category: Estate Planning

Investment and Distribution Trustees: Why Would I Need Both?

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When creating a trust, it is common to name yourself as the initial trustee who is responsible for all aspects of administering the trust. However, when considering who will take over when you can no longer act (either because of illness or death), it is sometimes helpful to divide the responsibilities between two or more successor trustees. For example, you may decide to have one trustee who manages the accounts and property held by the trust and another trustee who makes decisions about distributions to the trust’s beneficiaries. There are some important reasons why you may want your trust document to bifurcate the trustees’ duties in this way.

Benefit from specialized knowledge or aptitudes. Trustees have a variety of duties and responsibilities in administering a trust, and it is sometimes beneficial to divide them up between more than one trustee based upon the expertise or skills needed to perform a particular aspect of the trust’s administration. For example, if your sister-in-law is knowledgeable about investments and experienced in making financial decisions, but is not as skilled at handling potentially difficult interpersonal interactions, it may be beneficial to name her as your investment trustee, which is a trustee whose sole duty is to make discretionary decisions about the investment of funds held by the trust. 

Some trusts call for distributions to be made to beneficiaries at the trustee’s discretion rather than mandatory distributions of a certain amount or percentage at specific times. For trusts that provide for discretionary distributions, it may be helpful for another trusted person capable of making impartial decisions, skilled at communicating with others, and familiar with the beneficiaries of the trust and their needs to be named the distribution trustee, which is a trustee responsible for making decisions about whether and when to accumulate or distribute the income or principal of the trust. 

This division of responsibilities is particularly helpful if there are any difficult relationships or potential conflicts between beneficiaries or between one of the trustees and a beneficiary. For example, if your second wife is one of the trustees of the trust but the beneficiaries of the trust are your children from your first marriage, naming an unrelated third party as the distribution trustee may avoid hard feelings or the perception of unfairness related to distributions. Although it may be more expensive to have two or more trustees instead of a single trustee, the additional expense may be worthwhile to maintain family harmony and avoid damaging relationships. 

Gain additional asset protection. Most creditors may not reach a beneficiary’s interest in a trust if the trustee is not required to make distributions. Some creditors may be limited in how much they can reach if distributions are based on an ascertainable standard such as for the health, education, maintenance, and support (HEMS) of the beneficiary. Depending on state law, this may be true even if the beneficiary is also the sole trustee. 

However, the general rule is that the less control a beneficiary has over the trust’s accounts and property, the more protection is provided against creditors’ claims. Even if the beneficiary of the trust is also the investment trustee, greater asset protection may be available if a separate distribution trustee is appointed who is empowered to make distributions to the beneficiary in their sole discretion. In some jurisdictions, the trust could also provide that the beneficiary could resign as a trustee and appoint another independent trustee to take their place. This might further enhance the level of asset protection if the beneficiary is concerned that they may become more vulnerable to creditors’ claims in the future.

Note: This asset protection is typically not available for certain creditor claims, such as for child support or alimony or tax debts. The list of “exception creditors” varies by state and should be discussed with your estate planning attorney.

Minimize taxes. When a trustee has total discretion to make distributions from the trust to themselves or others, the value of the trust’s accounts and property may be included in the trustee’s estate for estate tax purposes, or the trustee may be taxed on the trust income under Internal Revenue Code (I.R.C.) § 678. Depending on the type of trust and the goals it is designed to achieve, an independent trustee could be appointed to minimize either estate or income taxes. 

Example: To avoid having the property held by the trust included in their estate for estate tax purposes, a trustee who is also a beneficiary may be permitted by the terms of the trust to select an independent distribution trustee, as long as that distribution trustee is actually independent—not a related party or a person subordinate to the beneficiary as defined by I.R.C. § 672(c). In this situation, the investment trustee who is also a beneficiary will not have direct control over the amount or timing of the distributions, but they may still retain significant control over who serves as the independent co-trustee. In addition to choosing the independent distribution trustee, the trust document may provide that the beneficiary can replace the independent trustee at any time and for any reason. 

Example: If your trust is a nongrantor trust—i.e., a trust that is a separate entity for tax purposes that pays taxes on trust income at the trust level—it is important for someone other than the grantor (the person who creates the trust) or any party who is related or subordinate to them to be the investment trustee. This is because the power to determine trust investments may be considered to be the power to control the beneficial enjoyment of the trust assets under I.R.C. § 674, which would mean the grantor, rather than the trust, must pay taxes on the trust income.  

Give Us a Call

If you would like to find out more about whether you should appoint separate investment and distribution trustees, give us a call to set up an appointment. Although having more than one trustee will make the trust more complex, and additional fees may be required for the services provided by the trustees, you may decide that the benefits far outweigh any additional costs. We can help you design your trust in a way that best achieves your goals by maintaining family harmony, protecting assets, and minimizing taxes.

Why Can’t We Have a Joint Trust If We Are Not Married?

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Joint trusts are beneficial for many married couples, especially if they have a stable relationship, do not have many creditors, and do not live in a state where their estate may be subject to a state death tax. Compared to separate trusts, they are easier to fund, allow the surviving spouse to have complete control over the money and property held in the trust, and may help avoid much higher trust income tax rates that are applicable to their spouse’s separate trust after their spouse dies.

If you are in a long-term relationship with your partner but are not married, you may want to take advantage of these benefits. However, joint trusts typically are not a good option for unmarried couples. This may not seem fair, but there are some important reasons why unmarried couples should consider separate rather than joint trusts.

Gift Tax Consequences

Under federal tax law, married couples benefit from an unlimited marital deduction that allows them to make an unlimited amount of gifts to their spouse, during their lifetime or at death, without incurring estate or gift taxes. This benefit is not available to unmarried couples, regardless of the longevity of their relationship and level of commitment to each other. As a result, if an unmarried couple forms a joint trust, they must be careful to ensure that each partner contributes money and property that is already jointly owned or is precisely equal in value. If one of the partners contributes property of greater value to the joint trust, that partner may be considered to have made a taxable gift to the other partner. To avoid this result, the money and property each partner transfers to the joint trust must be carefully divided into separate shares, in effect, creating two separate trusts within one trust agreement. The burden of creating these separate shares in a joint trust may outweigh its benefits. 

In addition, to prevent transfers to the trust from being considered a completed (and therefore taxable) gift under the federal tax code, the trust document may need to include provisions that allow either partner to revoke the trust instead of requiring joint action by both partners.1 One or both partners may find this type of provision unattractive.

Income Tax Consequences

Joint trusts are typically used for married couples who file joint income tax returns because either spouse’s Social Security number can be attached to property or accounts held by the trust that are producing income. Revocable trusts, which are commonly used by married couples during their lifetime, are grantor trusts: for federal income tax purposes, the person or couple who creates a grantor trust is considered the owner of the accounts and property held by the trust. This means that the income produced by the trust is reported by the married couple on their joint income tax return rather than a separate income tax return filed on behalf of the trust. Either spouse’s Social Security number can be used as the tax identification number for the trust, and the property and accounts held by the trust can be associated with either spouse’s Social Security number. 

Federal tax law does not allow unmarried couples to file joint tax returns, so each partner must file separate returns reporting income from their respective share of the trust. This makes reporting much more complicated for a joint trust operating under one partner’s Social Security number or a separate tax identification number, and it sets the couple up for trouble stemming from inaccuracies on their tax returns.

What Are Some Alternatives?

Separate trusts. To avoid the complications that will likely arise if an unmarried couple establishes a joint trust, each partner could form a separate trust funded with some or all of their money and property. A trust allows the property and accounts to be transferred to the named beneficiaries according to its terms, and it avoids probate at death. Each partner can be a trustee for their own trust and can choose a co-trustee or successor trustee to manage their affairs during their lifetime if they become incapacitated. In addition, they can name anyone they choose to be their beneficiary, including their partner, and can specify the property and accounts that should pass to them. 

Note: Keep in mind that if you and your partner transfer jointly owned property to a trust, it will no longer be jointly owned because the trust will be the sole owner of the property or accounts. The trust’s terms will determine who will ultimately receive it.

Joint ownership. There are a couple of ways that unmarried couples may jointly own their accounts and property. The method the partners choose will depend on whether they want the surviving partner to receive full ownership of the account or property when one of them dies. Generally, if they hold the accounts or property as joint tenants with rights of survivorship, the surviving partner automatically and immediately becomes the full owner when one of them passes away—without going through the probate process. Typically, neither partner can transfer the property or obtain a mortgage on it without the other’s consent.

However, if the couple owns property or accounts as tenants in common, the deceased partner’s share will become part of their probate estate and will pass according to the terms of their will, or in the absence of a will, to the heirs specified by state law. Each of the tenants in common may freely transfer their interest in the property, so it is often a less desirable option than a joint tenancy with a right of survivorship. Unless the deceased partner’s will provides that the surviving partner should inherit their interest, the surviving partner could end up co-owning property (including a residence!) with someone they may not have chosen.

We Can Help You Plan Ahead

Although some states provide protections for couples who have registered as domestic partners or civil union partners, state law generally does not protect unmarried couples when one of them passes away without an estate plan. Instead, the next of kin set forth in the state’s intestacy statute will inherit all of their money and property, and the surviving partner will receive nothing. Contact us today so we can help you create the best plan for your unique situation aimed at providing for your needs during your lifetime and ensuring that your partner’s future is secure if something happens to you.

Footnote

  1. Treas. Reg. § 25.2511-2(b) (as amended in 2020) (a gift is complete if the donor retains no power to change disposition of the property); see id. § 25.2511-2(e) (a donor would not retain the power to revoke a gift if the right to revoke is only exercisable jointly with a person who has a substantial adverse interest, and thus the gift would be complete).

The Death of Raquel Welch and What Her Estate Plan Is (or Might Be)

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Raquel Welch, whose acting career spanned five decades, passed away in February at the age of eighty-two. Welch appeared in more than thirty films and fifty television series, won a Golden Globe Award, and has a star on the Hollywood Walk of Fame. However, Welch was more than an actress. She was also a savvy businesswoman with several successful ventures, including a fitness program, wig line, and celebrity product endorsements. 

Her reported net worth of $40 million will presumably go to her two adult children, although there are few public details about Welch’s estate plan. This suggests that Welch was also savvy about estate planning and may have set up a trust for her loved ones. 

Movie Star, Mogul, and Mother: A Look Back at Welch’s Life

Welch was born Jo Raquel Tejada to a Bolivian father and English mother in 1940. She married James Welch, her high school sweetheart, in 1959. The couple had two children together, Damon Welch and Latanne “Tahnee” Welch. 

Rise to Stardom

After her divorce in 1964, Welch moved to Los Angeles to pursue an acting career. A few minor parts led to her landing roles in the 1966 movies Fantastic Voyage and One Million Years B.C. Welch later won a Golden Globe for her role in 1974’s The Three Musketeers. Welch is also credited with breaking the stereotype of the blonde bombshell that ruled 1950s Hollywood. 

Successful Businesswoman 

The 1980s were more of a mixed bag professionally for Welch. She was nominated for a Golden Globe for the 1987 TV drama Right to Die, but was fired from an adaptation of John Steinbeck’s Cannery Row. Welch sued MGM for breach of contract and won a $10.8 million verdict in 1986.1 However, the lawsuit led to her being essentially blacklisted in Hollywood. 

When it became harder for Welch to get big-screen work, she pivoted to business ventures. She created the Raquel Welch Total Beauty and Fitness Program, a series of health books and videos targeted at women.2 Welch also published a memoir and self-help guide called Beyond the Cleavage, served as a model and spokesperson for Foster Grant sunglasses, and had signature lines of jewelry, skincare products, and wigs. Her line of wigs for HairUWear sold well and led to her becoming the company’s creative director.3 

Final Years and Legacy

Welch never left acting behind completely. Alongside her entrepreneurialism, she continued to have roles that introduced her to a new generation, including a well-known cameo in Seinfeld in which she played an exaggeratedly volatile version of herself. She appeared in other popular 1990s sitcoms, as well as the 2001 movie Legally Blonde. Her last professional acting credit was in the TV show Date My Dad in 2017. 

Spending her final years out of the spotlight in her Los Angeles home, Welch died on February 15, 2023.4 Her agent issued a statement to KTLA that “Raquel Welch, the legendary bombshell actress of film, television, and stage, passed away peacefully early this morning after a brief illness.”5

She was married and divorced four times and is survived by son Damon and daughter Tahnee, both of whom are in their sixties. Her net worth is estimated at $40 million.6 

Did Raquel Welch Have an Estate Plan? 

The lack of reports about Welch’s estate plan leaves fans to wonder what will become of her fortune. Yet this silence, together with details about her family, offers some clues. 

A Trust Could Preserve Privacy

Although fame took a toll on Welch’s children, she worked to repair her relationship with them, and by all accounts, they were on good terms when she died. They made public appearances with their famous mother over the years, but according to Hollywood Life, Damon and Tahnee lead very private lives.7 

It would therefore make sense that Welch set up a trust for her children rather than having a will. Trusts avoid the probate process and stay private. A will must go through probate, and it becomes public record. 

In addition to providing tax savings, a revocable trust would allow Welch’s money and property to pass to Damon and Tahnee as privately as possible. Welch, in this scenario, would have transferred money and property to the trust during her lifetime and designated her children as beneficiaries. Among these accounts and property could be Welch’s Beverly Hills mansion, worth an estimated $3.5 to $4.5 million.

Charitable Giving

Welch was charitably inclined, as evidenced by her donation of millions of dollars’ worth of wigs to the American Cancer Society. Welch had been a spokesperson for the organization since 1975 and was touched by notes from women who received her wigs. It is possible that Welch wanted to continue her philanthropy even after death. If so, her estate plan could include a donation to the American Cancer Society and similar nonprofit groups. 

Welch’s Postmortem Publicity Rights

Welch lent her name to a number of product lines. While the Raquel Welch Total Beauty and Fitness Program is unlikely a big seller today, her wigs remain popular. This raises the question of what happens to her publicity rights and other intellectual property following her death. 

The right of publicity, an intellectual property right that allows an individual to control the commercial exploitation of their name, image, or persona, is widely recognized but varies from state to state. One of the ways it varies is in the ability of a surviving spouse or children to inherit publicity rights. 

California, where Welch lived, allows heirs to inherit—and capitalize on—the publicity rights of the deceased for seventy years after their death. In theory, Welch could have passed on her name, image, and likeness rights to her children in a trust or will. If she did, they would be able to file a lawsuit if her publicity rights are misappropriated. Under California law, Welch’s children might also be able to financially benefit from her name, voice, signature, photograph, or likeness.

Estate Planning Is Not Just for Celebrities

Many celebrities die without an estate plan, leading to lengthy and highly public court battles. But dying without an estate plan is not unique to celebrities. Around two-thirds of Americans do not even have a basic will, let alone more advanced documents like a living will, medical directives, and powers of attorney. 

We may learn more about the fate of Raquel Welch’s fortune in the months following her death. Regardless, her passing serves as a reminder that you do not have to be a celebrity to create an estate plan. Every adult should have one, regardless of their status or net worth. Not having an estate plan means having no control over what happens to your assets in the case of disability or death. 

To take control of your legacy, start planning today: call or contact our office to schedule a consultation.

Footnotes

  1. Craig Modderno, Welch Celebrates Verdict, Hollywood Cautious on Ruling’s Impact, Wash. Post (Jun. 26, 1986), https://www.washingtonpost.com/archive/lifestyle/1986/06/26/welch-celebrates-verdict-hollywood-cautious-on-rulings-impact/ba9261f4-2279-41ee-bf74-7f014c02dab9/.
  2. Anita Gates, Raquel Welch, Actress and ‘60s Sex Symbol, Is Dead at 82, N.Y. Times (Feb. 15, 2023), https://www.nytimes.com/2023/02/15/movies/raquel-welch-dead.html.
  3. Raquel Welch to Debut First Wig Collection as Creative Director, Beauty Packaging (Mar. 31, 2015), https://www.beautypackaging.com/contents/view_breaking-news/2015-03-31/raquel-welch-to-debut-first-wig-collection-as-creative-director/.
  4. Will Potter, Iconic Sex Symbol Raquel Welch Embraced Being Single in the Years Before Her Death and “Swore Off Men” After Four Failed Marriages While Living as a Recluse in Los Angeles, Daily Mail (Feb. 17, 2023), https://www.dailymail.co.uk/news/article-11759373/Sex-symbol-Raquel-Welch-embraced-living-recluse-LA-final-years.html.
  5. Christine Samra, Actress Raquel Welch Dies at 82, KTLA (Feb. 15, 2023), https://ktla.com/entertainment/actress-raquel-welch-has-died-at-82-report/.
  6. Raquel Welch Net Worth $40 Million, Celebrity Net Worth, https://www.celebritynetworth.com/richest-celebrities/actors/raquel-welch-net-worth/ (last visited Apr. 13, 2023).
  7. Sara Whitman, Raquel Welch’s Children: Meet Her Grown Kids Who Have Lost Their Famous Mom, Hollywood Life (Feb. 15, 2023), https://hollywoodlife.com/feature/raquel-welch-children-5031268/.

Are You Single with a Minor Child? If So, You Need a Plan

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You have a minor child who depends on you for their survival, so you need to make sure that they will be cared for if you are ever unable to care for them. By creating an estate plan, you can address your minor child’s care and custody and provide instructions about how your money and property should be used for their care should something happen to you. 

Care and Custody of Your Child

Creating an estate plan allows you to name someone to care for your minor child if you are unable. A child under the age of majority (eighteen or twenty-one depending on your state law) cannot legally care for themselves (unless they have been emancipated). A guardian must be appointed to take care of the minor child if both parents have passed away or are unable to care for the child. It is important to note that if the other legal parent is still alive, that parent may receive custody of the child. However, you need to have a plan in case there is no other legal parent or the other legal parent cannot care for the child. If you do not choose a guardian, the judge will look to state law to determine the appropriate guardian, who may not be the person that you would have chosen. 

How do you nominate a guardian?

There are a few different ways to nominate a guardian to care for your child after your death. First, it can be done in a last will and testament (also known as a will). In this document, you can name someone to be your child’s guardian after your death, a person to wind up your affairs (executor or personal representative), and people to receive your money and property, along with any instructions. Similarly, you may use a pour-over will to name a guardian for your child upon your death. A pour-over will also allows you to name your trust as the beneficiary of any money and property that goes through the probate process. Lastly, some states have a separate document that allows you to nominate a guardian for your minor child. Some people prefer the separate document because they can change guardians without having to update their entire will or pour-over will. 

How do you name someone to step in when emergencies arise?

While an estate plan usually focuses on planning for your death, it is also important to plan for the situation in which you are alive but unable to act or make decisions (called being incapacitated), including naming someone to temporarily care for your child. In addition to delegating your parental authority when you are unable to act, this document can be used if you are traveling and need someone to make decisions for your child. It is important to note that this document is only effective for a short period (six months in some states), and your chosen person cannot agree to certain actions, such as the child’s adoption or marriage. 

Rules for Your Child’s Inheritance

Who will be in charge?

A minor child cannot handle their own financial affairs (unless they are emancipated); they need an adult. If you pass away without an estate plan, the other legal parent may be in charge of managing the money and property you have left to your child. If the other legal parent is unable to manage your child’s inheritance, then the court will have to appoint someone. An estate plan allows you to name the person you want to control the money and property. Without an estate plan, the judge can only use state law and the people who appear in court to determine who will manage the inheritance. 

When and how will your child receive their inheritance?

If you do not have an estate plan, your child’s inheritance will be managed for their benefit until they reach the age of majority, and then it will be given to them outright. Although they will be a legal adult, they may not be prepared for a large influx of money and property. Also, you may have certain things that you want the money to be used for. With a trust, you can draft instructions for exactly how you want the inheritance to be used. You can create a revocable trust or include these instructions in your will (known as a testamentary trust). The important distinction between these two options is that a will has to be filed with the probate court, and the proceedings will be public and overseen by a judge. A properly drafted and funded revocable trust, on the other hand, can be managed without probate, and no documents need to be made public.

There are many options available to you when crafting instructions for how your child’s inheritance should be managed and distributed. Your minor child can receive a percentage upon reaching a specific age (e.g., 50 percent at thirty years old and the remainder at fifty years old). You can also structure your child’s trust as an incentive trust to allow the trustee to give your child money only after they meet certain goals (e.g., successfully completing postsecondary education, being sober for one year). Alternatively, you can leave the decision of how and when to give out the funds exclusively up to the trustee’s discretion. This is sometimes referred to as a discretionary trust. Because your child will not be guaranteed a specific amount of money or piece of property, the funds will be better protected from any future creditors or divorcing spouses that your child may have. However, when deciding to use a discretionary trust, it is important to choose your trustee wisely and provide clear guidelines for the trustee to consider.

When considering who to select as the trustee of your minor child’s trust, you can choose a family member who knows your child and understands your wishes. If you do not have family that you would like to fill this role, you can look to your close friends. These people may already be a large part of your child’s life and may understand your wishes. Lastly, if you do not have someone who you would want to serve as a trustee, you can hire a professional trustee, though be aware that professional trustees charge for their services. While all trustees are entitled to compensation, a professional trustee may be more expensive and have set fees.

Although state law will provide your child with a guardian, someone to manage their inheritance, and a distribution plan for their inheritance, this is the least desirable result. You have the power to design an estate plan that is unique to your child’s circumstances and allows you to choose the most trusted individuals to guide them if you are no longer able to. We would love the opportunity to help you create the best plan for you and your child or to update your existing plan. Call us to schedule an appointment.

Planning a Barbecue Is Like Planning Your Estate

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For many, Memorial Day weekend signals the beginning of summer and enjoying warm-weather activities, including backyard barbecues with friends and family. Although a cookout may be an informal affair, planning is crucial to its success. This is true for estate planning, too. Just as preparations are necessary for a successful cookout, a little planning goes a long way to prevent a poorly designed estate plan (or no estate plan at all!) from leaving you and your loved ones in a pickle.

Step 1. The menu: what do you own?

When you plan a barbecue, one of the first steps is to decide what foods to include on the menu. If you buy the burgers and hot dogs but forget the buns, the menu will lack an essential component and the party may be ruined. Likewise, in creating your estate plan, one of the first steps in making sure your goals are achieved is to consider what you own. If you omit important property or accounts from your estate plan, it is unlikely to fully achieve your goals. 

As your estate planning attorneys, we will provide you with a checklist that will help you think through what you own so that none of your property is inadvertently left out of your plan. For example, you will be asked to list real and personal property and all of your bank and other accounts, and to note whether you own them individually or jointly with your spouse or another person. Filling out this inventory will help you evaluate everything you own holistically and determine how you want to distribute it when you pass away or if you would like to make gifts during your lifetime. It will also enable us to suggest estate planning strategies that will provide for your loved ones and achieve any other goals you may have, such as minimizing taxes.

Step 2. The invitations: who are your beneficiaries?

The next step in planning your cookout is determining who you would like to invite. Likewise, when creating your estate plan, you will need to decide who you would like to be your beneficiaries—the individuals who will inherit your money and property when you pass away or that you would like to benefit during your lifetime. You may think that this is simple and will not require much thought, but there is more involved in creating this list than you may think. Your beneficiaries may include your spouse or partner, children and stepchildren, grandchildren, other relatives, friends, charitable organizations, and your church. 

In determining your beneficiaries, you may want to consider issues such as whether all of your children need an inheritance or if one of them, such as a disabled child, has a greater need. If a child is addicted to drugs, you may decide not to provide them an inheritance and instead create a trust designed to prevent the child from spending their inheritance to support their habit. We can help you consider who you would like to receive your money and property and discuss the best strategies to provide for your beneficiaries while achieving other goals, such as minimizing gift and estate taxes or providing grandchildren incentives to attend college or start a new business.

Step 3. Serving sizes: how much does each person get?

When you plan a barbecue, you need to calculate how much food each person will consume. Your six-foot-tall adult son will likely need a bigger portion than your two-year-old granddaughter. In estate planning, your first instinct may be to provide an equal share of your money and property to each of your beneficiaries. However, as is the case with a cookout, you may want to give some beneficiaries a bigger share and others a smaller share. As mentioned previously, if you have a child with special needs who is unable to support themselves, you may want to create a trust to provide for them and give smaller inheritances to your other children who are financially independent. 

Depending on what you own, it may also be important to give certain accounts or property to one beneficiary and other accounts or property to other beneficiaries. For example, if you have a family home, real estate, or business in which only one child is actively engaged, splitting ownership among multiple siblings may set them up for disagreements and strain or destroy relationships. To avoid family fights after you pass away, consider giving hard-to-divide property to one child and money (in the form of accounts or insurance proceeds) to others. Alternatively, you could instruct in your will or trust that the hard-to-divide property be sold and the proceeds divided equally among the siblings.

Step 4. Extra touches: give letters and personal property to loved ones.

Just as you add extra touches such as umbrellas, tablecloths, or strings of lights to make your barbecue a special occasion, you can include special documents in your estate plan, such as letters to loved ones to articulate your feelings for them and leave a final blessing when you pass away. A will or trust document may otherwise seem impersonal, even if you intend for the gifts you make in them to be a demonstration of your love for your family. Leaving a letter to your loved ones expressing your feelings and hopes for them may be one of the most precious gifts you can give. 

You may also use a special memorandum, typically called a personal property memorandum, to indicate who you would like to receive your tangible personal property such as heirlooms, collectibles, or items having sentimental value (not real property or intangible property such as accounts). You can use this memorandum to express that particular items be given to certain family members or to make sure that everyone receives something meaningful to them. A personal property memorandum that clearly describes each item listed and who should receive it can also help avoid fights among family members over significant items. To make sure the personal property memorandum is effective and legally enforceable, reference it in your will or trust and include any formalities specified by state law. 

Lettuce help you plan: call us so we can ketchup!

You may be worried that you will be grilled when you come in for an estate planning consultation, but we promise that you will be glad you came. Anyone who has outgrown their salad days knows that failure to plan leads to less-than-optimal outcomes. Call us today to spill the beans about your estate planning goals, and we will help you create an estate plan that will satisfy your craving to provide a secure future for yourself and your family.

What to Do with a Loved One’s Used Medical Equipment

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After a loved one has passed away and the funeral has been held, the task of sorting through their personal belongings begins. While items with sentimental value or family historical importance may have been distributed to beneficiaries in the estate plan, many more might still be lying around the house. 

The question of what to do with a loved one’s remaining possessions is one that every family faces. Some items, like trinkets and personal effects, may be given away to family or friends. Others, including medical equipment, can be sold or donated to charity. From eyeglasses and hearing aids to wheelchairs and at-home hospital beds, there are options for giving used medical equipment a second life. 

Death and Decluttering 

Even if somebody is careful to declutter during their lifetime, it is unlikely that they will pass away without any possessions. When somebody is dealing with an ailment or just age-related decline, certain medical items are likely to be needed right up until their final moments: 

  • Elder-care or assisted-living products such as bathroom grab bars, shower seats, entryway ramps, and personal alert systems   
  • Mobility aids like canes, wheelchairs, scooters, and walkers
  • Eyeglasses and hearing aids
  • Big-ticket medical equipment such as hospital beds, kidney machines, prostheses, ventilators, apnea monitors, and infusion pumps

Family members charged with clearing out the deceased’s home may unwittingly find themselves in control of these left-behind medical items. Nobody in the family may have a use for them, but that does not mean they must be discarded. Provided it is in relatively good condition, the medical equipment can be given to those in need, listed for private sale, or purchased by a dealer.

Donating Used Medical Equipment

The fastest and easiest way to get rid of unneeded medical items is to donate them. Depending on the items, consider the following options for donation:

  • A local hospice, nursing home, church, Veterans Affairs hospital, or Center for Independent Living
  • Charities, including Alliance for Smiles, American Red Cross, American Medical Resource Foundation, Easter Seals, Med-Eq, MedShare, Project CURE, and United Way
  • A local Goodwill store or Salvation Army 
  • Eyeglasses
    • The Lions Club Recycle for Sight program, Eyes for the Needy, and New Eyes
    • A local eye doctor who may participate in one of these programs
  • Hearing aids
    • The Starkey Hearing Foundation Hear Now program
    • The Lions Club Hearing Aid Recycling Program, Hearing Charities of America, and Hearing Loss Association of America

In some instances, charitable giving has the added benefit of being tax-deductible. Receipts can be given during an in-person donation or requested from the organization in the case of drop-box or mail donations. 

Selling Used Medical Equipment

Donating small personal items like eyeglasses and assistive hearing devices might make more sense than selling them. While hearing aids, which are considered medical devices by the Food and Drug Administration, can be costly and might be worth selling, not all states permit the sale of used hearing aids. Where legal, used hearing aid sales may also have guidelines and restrictions. 

E-Commerce Sites

Before selling a medical device on an online marketplace such as eBay, craigslist, or Facebook Marketplace, check the site’s policy. 

eBay does not allow the sale of medical devices that require a prescription,1 and craigslist does not permit the sale of medical devices, period.2 Meta/Facebook says that it does not allow listings related to medical and healthcare products and services—including medical devices.3 

Not all medical equipment is considered a medical device. However, it is not always easy to tell the difference. Medical gloves and insulin pumps are medical devices, for example, but wheelchairs and hospital beds are medical equipment.4 

Selling durable medical equipment (DME) or home medical equipment (HME) at the retail level is regulated and requires a license in many states.5 DME is a specific medical term used by Medicare, Medicaid, and private insurance companies, and it covers wheelchairs, canes, crutches, hospital beds, and oxygen equipment, among other items. 

Licensing requirements may not apply to personal DME sales on e-commerce sites, but local laws should be consulted just in case.

Resale Sites

An internet search for “companies that buy used medical equipment” or similar terms will reveal a host of relevant companies. 

Not all companies are interested in all types of equipment. The website might list the types of equipment a company is interested in buying. For specific inquiries, reach out to the company and provide a description of the items for sale. 

Local resellers may be willing to pick up used equipment, but shipping costs may be involved for nonlocal buyers and can affect pricing. Buyers may have a set price for what they are willing to pay. As with most sales, though, it may be possible to negotiate a better deal. Clean up the equipment before shopping it around, take pictures in good lighting, and identify the brand, model, and features. 

Instead of using a professional reseller, consider a local medical facility that may be willing to purchase the used medical equipment. In either case, spend some time researching what the equipment may be worth. Online calculators can be used to get a rough idea of used medical equipment value.6 

Need Advice? Let Us Know

Our attorneys have dealt with all aspects of estate planning and administration. Whether you need advice about selecting a charity or reseller for medical equipment donations, have legal questions about selling specific types of equipment, are wondering about charitable tax deductions, or are interested in securing your legacy with an estate plan, call or contact us to get answers.

Footnotes

  1. Medical Devices Policy, eBay, https://www.ebay.com/help/policies/prohibited-restricted-items/medical-devices-policy?id=4322 (last visited Mar. 29, 2023).
  2. Prohibited, craigslist, https://www.craigslist.org/about/prohibited (last visited Mar. 29, 2023).
  3. Commerce, Facebook, https://www.facebook.com/policies_center/commerce/ (last visited Mar. 30, 2023).
  4. How Medical Device and Medical Equipment Sales Differ—It’s More Than You Think, MedReps.com (Jan. 11, 2022), https://www.medreps.com/medical-sales-careers/how-medical-device-and-medical-equipment-sales-differ.
  5. Hans Howk, Durable Medical Equipment Licensing Requirements, Wolters Kluwer (Feb. 8, 2022), https://www.wolterskluwer.com/en/expert-insights/durable-medical-equipment-licensing-requirements.
  6. See, e.g., Used Medical Equipment Valuation Calculator, https://form.typeform.com/to/GmTvcsQi?typeform-source=pssshaix2gp.typeform.com (last visited Mar. 29, 2023).

What Happens to Elvis’s Legacy Now?

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Elvis Presley, the King of Rock and Roll, died in 1977. Like most celebrities of his stature, he left behind a complicated legacy—and a considerable estate. Elvis’s estate, including Graceland, ended up in the hands of his only child, Lisa Marie Presley, who passed away in January at fifty-four years old. It is now set to pass to Lisa Marie’s three daughters. 

Several complications could make administering Lisa Marie’s estate a messy affair, however. Personal financial issues, a wide age gap between her children, and a challenge to her will by mother Priscilla Presley cast doubt over what will happen not only to her estate, but the future of Elvis’s legacy. 

Lisa Marie: Her Inheritance and Finances

Lisa Marie was born in 1968 to Elvis and Priscilla Presley. Less than a decade later, her father passed away from a heart attack at the age of forty-two. Lisa Marie would die of her own heart problems nearly forty-six years later, in January 2023.

Elvis never lost popularity in the decades following his death—his estate raked in an estimated $400 million last year, as the 2022 Elvis biopic movie helped to boost the value of the estate from around $500 million to more than $1 billion.1

The Elvis Presley Trust

When Elvis died, his estate was placed in a trust, with Lisa Marie, Elvis’s grandmother, and his father as the beneficiaries. Elvis stipulated that Lisa Marie’s inheritance was to be held in trust for her until her twenty-fifth birthday on February 1, 1993. On that date, the trust automatically dissolved, and Lisa Marie inherited $100 million.2

Part of her inheritance was her childhood home, Graceland, which has become a museum and international tourist attraction that generates over $10 million per year.3 Lisa Marie started a new trust, the Elvis Presley Trust, to continue managing Graceland and the rest of the Elvis estate, which also includes the business entity Elvis Presley Enterprises, Inc (EPE).4 Lisa Marie was owner and chairperson of the board of EPE until 2005, when she sold 85 percent of its assets. 

Graceland and the Living Trust

Lisa Marie retained 15 percent ownership in EPE but 100 percent sole personal ownership of the Graceland mansion. She owned the entire thirteen-acre Graceland grounds, as well as her father’s personal effects, such as his awards, cars, costumes, and wardrobe. In 2013, Lisa Marie said, “Graceland was given to me and will always be mine. And then passed to my children. It will never be sold.”5

Her children—thirty-three-year-old Riley Keough and fourteen-year-old twins Harper and Finley Lockwood—stand to inherit their mother’s money and property through a living trust. Her son, Benjamin Keough, died in 2020. 

Since it appears that Lisa Marie did not file a separate will, the living trust—an estate planning document that allows an individual to transfer ownership of accounts and property to a separate entity (the trust), controls the accounts and property as the trustee while they are alive, and names a successor trustee to manage the accounts and property when they die—looms large. 

Priscilla Presley’s Trust Challenge

Priscilla Presley has disputed the validity of a 2016 amendment to Lisa Marie’s trust that removed Priscilla and a former business manager as trustees and replaced them with Riley Keough and Benjamin Keough.6 

Court filings indicate that Priscilla says she was not notified of the change as required by law. She also claims there is no witness or notarization for the amendment, her name was misspelled in the document, and her daughter’s signature looked unusual. Priscilla has asked a judge to invalidate the amendment that removed her as trustee. 

Lisa Marie’s Financial Troubles

Despite inheriting $100 million when she turned twenty-five-years old, legal documents indicate that, upon her death, Lisa Marie was in financial trouble. The documents show that she had around $95,000 in cash and $715,000 in bonds, stocks, and other assets. She also reportedly had more than $100,000 in monthly earnings from EPE.7 

However, the same documents show a $1 million tax debt and $92,000 in monthly expenses. And, in 2021, her ex-husband Michael Lockwood reopened a lawsuit against Lisa Marie seeking $4,600 per month in child support. 

By 2016, her $100 million trust had been reduced to just $14,000 cash. This revelation came from a lawsuit against her manager, Barry Siegel, for allegedly mismanaging her wealth. Lisa Marie claimed in 2016 divorce documents that she was $16.67 million in debt.8 In 2019, Siegel, who counter-sued Lisa Marie, said the deal to sell off her 85 percent stake in EPE cleared up over $20 million in debts she had incurred. 

Potential Legal Issues for the Lisa Marie Presley Estate

The uncertainty of Lisa Marie’s estate raises several legal questions that will most likely be left to the courts to resolve. 

The Living Trust Challenge

If Priscilla’s challenge to the living will amendment is successful, the amendment will presumably be treated as invalid. This would mean Priscilla, not Lisa Marie’s daughter Riley, would be named the successor trustee and have control over the trust’s money and property. 

Creditor Claims

While her financial status is still unclear, if Lisa Marie was in debt, her creditors would have the chance to make claims against her estate. The estate has the option to honor or reject any creditor claims. Rejection could lead to litigation. 

Because creditors receive priority over those entitled to inherit Lisa Marie’s money and property, her accounts and property, including Graceland, might have to be liquidated or sold to satisfy Lisa Marie’s debts. In her case, estate taxes could also be due even after debt is calculated, and an estate tax valuation could take time if creditors bring lawsuits against Lisa Marie’s estate. 

Her Daughters’ Inheritances

Assuming that there is enough liquidity in the estate to satisfy creditors without selling Graceland, the mansion and any remaining money and property would pass to daughters Riley, Harper, and Finley. But the mansion comes with maintenance and tax expenses of over $500,000 per year. It is not clear whether the daughters would agree to support these costs and keep control of the Elvis legacy in the family. 

The daughters could decide to sell Graceland. But if even one of the daughters wants to cash out, it could lead to internal conflict among them. The ages of the daughters are another wildcard. Did Lisa leave her twin daughters’ inheritances in trust until they come of age, as her father did for her? Or does the trustee have discretion? And will the trustee end up being daughter Riley or mother Priscilla following the trust challenge? 

There is no guarantee, either, that Lisa Marie left an equal inheritance to all three daughters. Although this is common practice, there is no law mandating that children be treated equally in estate plans. Parents are free to divvy up their money and property however they see fit. An unequal bequest could be another source of inner-family conflict. 

Control What You Can with an Estate Plan

Lisa Marie Presley’s tragic and untimely passing is a reminder that none of us know the time, place, and manner of our death. But we can assert control over our legacy through estate planning. 

A well-considered estate plan eliminates some of the uncertainty we all face, helping to bring peace of mind to you and your loved ones. To start planning today, contact our office to schedule an appointment.

Footnotes

  1. Steve Knopper, The Elvis Business Is Booming Into the Billions, Billboard Pro (June 25, 2022), https://www.billboard.com/pro/elvis-business-what-its-worth-graceland-publishing-film/.
  2. Harriet Alexander, Who’s going to get Graceland? Lisa Marie Presley’s 14-year-old twins and Hollywood starlet daughter are expected to split the King’s Memphis mansion – but they won’t see a cent of $100million Elvis left his daughter because she lost it all, Daily Mail (Jan. 13, 2023), https://www.dailymail.co.uk/news/article-11630587/Whos-going-Graceland-Lisa-Maries-14-year-old-twins-Hollywood-star-daughter-inherit.html.
  3. Brian Contreras and Anousha Sakoui, Lisa Marie Presley leaves behind a lucrative Graceland — and a complicated financial legacy, Los Angeles Times (Jan. 14, 2023), https://www.latimes.com/entertainment-arts/business/story/2023-01-14/lisa-marie-presley-graceland-financial-legacy-elvis.
  4. The Estate of Elvis Presley/The Elvis Presley Trust, Graceland, https://www.graceland.com/about-graceland.
  5. Leah Bitsky, What Lisa Marie Presley’s children may inherit after her tragic death, Page Six (Jan. 13, 2023), https://pagesix.com/2023/01/13/what-lisa-marie-presleys-children-may-inherit-after-her-tragic-death/.
  6. MoneyWatch, Priscilla Presley is challenging her daughter Lisa Marie’s will, CBS News (Jan. 31, 2023), https://www.cbsnews.com/news/priscilla-presley-challenges-lisa-marie-presley-trust-amendment/.
  7. Andrew Court, Lisa Marie Presley’s finances revealed: $92K in monthly spending, $1M in IRS debt, New York Post (Jan. 13, 2023), https://nypost.com/2023/01/13/lisa-marie-presleys-finances-revealed-in-court-docs-92k-in-monthly-spending-1m-in-irs-debt/.
  8. Maria Pasquini, Lisa Marie Presley Says She’s Over $16 Million in Debt, Divorce Documents Claim, People (Feb. 16, 2018), https://people.com/music/lisa-marie-presley-16-million-debt/.

Garn–St Germain Act: What You Need to Know

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It is important to let your estate planning attorney know if you own real estate that is subject to a mortgage. Most mortgages include due-on-sale clauses stating that, upon the transfer of the mortgaged property, the entire amount of the debt owed on the mortgage is immediately due and payable. Under the Garn–St Germain Depository Institutions Act of 19821 (Garn–St Germain Act), lenders are prohibited from enforcing due-on-sale clauses in some circumstances but not in others. If your estate plan involves the transfer of property subject to a mortgage, it is important to keep this in mind.

What Is the Garn-St Germain Act?

The Garn–St Germain Act is a federal law that allows lenders to enter into or enforce contracts, including mortgage agreements, that contain due-on-sale clauses even if a state’s constitution or laws, including their judicial decisions, prohibit them. However, the Garn–St Germain Act lists nine situations in which due-on-sale clauses are not enforceable, including some transfers that may be relevant to your estate plan. In the nine situations specified, lenders may not enforce due-on-sale provisions in real property loans “secured by a lien on residential real property containing less than five dwelling units, including a lien on the stock allocated to a dwelling unit in a cooperative housing corporation, or on a residential manufactured home.”2

This generally means that the statutory exceptions apply to due-on-sale clauses in mortgages on residential—not commercial—real estate with less than five apartments. Although we will not cover every situation involving mortgages on residential real estate in which lenders are not permitted to enforce due-on-sale clauses, the following exceptions are especially relevant when you are creating or updating your estate plan:

A transfer by devise, descent, or operation of law on the death of a joint tenant or tenant by the entirety. Many spouses and other individuals co-own their homes or other real estate. In a joint tenancy, two or more co-owners (not necessarily spouses) of real property have equal rights and responsibilities and a right of survivorship, meaning that if one of the co-owners dies, their interest disappears and the other co-owners’ interests automatically and immediately increase proportionally. A tenancy by the entirety is only permitted in some states and is generally available only to married couples. Neither of the married co-owners may sell the property or obtain a mortgage without the consent of the other. Similar to joint tenants, tenants by the entirety have a right of survivorship, so if one spouse dies, the surviving spouse automatically becomes the sole owner of the property. When one of these two types of co-ownership exists, a lender may not enforce a due-on-sale provision upon the death of one of the co-owners.

A transfer to a relative resulting from the death of a borrower. This situation involves the transfer of real property when one or more relatives inherit it after the borrower’s death. As long as the beneficiaries are relatives, the due-on-sale clause will not be enforced.

Transfer to a spouse or child during the owner’s lifetime. If someone who owns property subject to a mortgage transfers it during their lifetime to their spouse or child, the due-on-sale clause may not be enforced. This could be a transfer of the owner’s entire interest in the property or a partial interest to establish joint ownership, such as a joint tenancy mentioned.

A transfer to an inter vivos trust in which the borrower is and remains a beneficiary that does not relate to a transfer of rights of occupancy in the property. An inter vivos trust is a trust that is created during the lifetime of the grantor (the creator of the trust) as opposed to at the grantor’s death. There are a couple of somewhat complicated but important elements to consider regarding this exception:

  1. The borrower is and must remain a beneficiary of the inter vivos trust. In the case of a revocable living trust (RLT), a grantor is often also the beneficiary of the trust: the trustee simply holds the property in trust for the benefit of the grantor. In many cases, the grantor is also the trustee. An RLT may be revoked or modified by the grantor at any time during the grantor’s lifetime, and is useful for many people because it enables them to enjoy their property as if they still owned it. The trustee is authorized to manage the property for the grantor if they become incapacitated during their lifetime, and holding the property in the trust avoids probate proceedings by enabling the property to pass according to the terms of the trust, maintaining privacy and avoiding delays and costs. Because the grantor often remains the beneficiary of an RLT, this requirement of the Garn–St Germain Act is frequently (although not always) satisfied in situations involving transfers to RLTs.

Irrevocable trusts, that is, trusts that generally cannot be revoked or changed once they are created, are often created to minimize estate taxes or protect the property held by the trust from creditors’ claims. To achieve these benefits, the grantor is often not a beneficiary of an irrevocable trust—and if the grantor is not a beneficiary, the lender may not be precluded by the Garn–St Germain Act from enforcing a due-on-sale clause when the property is transferred to the irrevocable trust.3 

  1. The borrower may need to occupy the property. Unfortunately, it is not completely clear whether the individuals who transfer real property to a trust during their lifetime need to occupy the property. The Garn–St Germain Act does not require occupancy of the property being transferred to an inter vivos trust, but simply mandates that the transfer does not relate to a transfer of the rights of occupancy in the property. However, the regulations issued by the Office of the Comptroller of the Currency to implement the Garn–St Germain Act state that the borrower must remain an “occupant of the property.”4 Because of the lack of clarity, it may be prudent to comply whenever possible with both requirements to ensure that the lender is prohibited from enforcing the due-on-sale clause.

We Can Help

Estate planning often involves transfers of real estate, either during your lifetime to a trust or family member, or at your death. Fortunately, if the property is subject to a mortgage, the Garn–St Germain Act will prevent the lender from enforcing a due-on-sale clause in many situations, especially transfers to family members. However, it is important to be cautious to avoid missteps that could result in a mortgage unexpectedly being called due. Obtaining lender approval in writing before transferring real estate with a mortgage is advised. Call us to set up an appointment so we can help ensure that your estate plan achieves your goals for your real property and does not include any unpleasant surprises.

Footnotes

  1. 12 U.S.C. §1701j-3.
  2. 12 U.S.C. §1701j-3(d). The regulations implementing the Garn–St Germain Act, Preemption of State Due-on-Sale Laws, 12 C.F.R. §§ 191.1-191.6 (2018), https://www.govinfo.gov/content/pkg/CFR-2018-title12-vol1/xml/CFR-2018-title12-vol1-part191.xml, use the word “home” instead of a “residential real property containing less than five dwelling units” as stated in the text of the Garn–St Germain Act. 12 C.F.R. § 191.5(b). Those regulations also state in 12 C.F.R.§ 191.2(e) that the word “home” has the same meaning as provided in 12 C.F.R § 141.14, which states: “The term home means real estate comprising a single-family dwelling(s) or a dwelling unit(s) for four or fewer families in the aggregate.”
  3. There is some authority indicating that a right of occupancy will be deemed to be a beneficial interest sufficient to satisfy the statute. Daley v. Sec’y of the Exec. Off. of Health and Hum. Servs., 477 Mass. 188 (Mass. 2017).
  4. Preemption of State Due-on-Sale Laws 12 C.F.R. § 191.5(b)(1)(vi)) (Jan. 1, 2018), https://www.govinfo.gov/content/pkg/CFR-2018-title12-vol1/xml/CFR-2018-title12-vol1-part191.xml. Although one case found that the OCC had exceeded its authority in requiring the borrower to be an occupant of the property to maintain the Garn St Germain protections, the case may not be considered by some courts because it was unpublished. Baldin v. Wells Fargo Bank, N.A., 2013 WL 794086 (D. Or. Feb. 12, 2013).

National Home Remodeling Month: How Remodeling Your Home Could Impact Your Estate Plan

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Spring is associated with renewal, and as the weather gets warmer, many homeowners turn their attention to renovation projects. 

Each May, the home remodeling industry and the National Association of Home Builders (NAHB) celebrate National Home Remodeling Month. In 2023, over 17 million home remodeling projects are expected to be undertaken in the United States. 

Between planning, permitting, and construction, the home remodeling process can take months to complete. But even after the finishing touches have been applied, there may still be work to do. If the home is part of an estate plan, a remodel can affect that plan and require changes to it. To keep your estate plan up to date, make sure to discuss a home remodeling project with an attorney. 

Remodeling Market Remains Strong 

The home remodeling market has shown tremendous growth. From 2007 to 2022, US remodeling activity increased 65.9 percent.1 The remodeling market slowed at the start of the pandemic in early 2020 but has come back strong, despite rising material costs and labor shortages. 

Homeowners flush with cash from increased home values have been a major driver of the billions spent on improvement projects.2 While high home equity levels should sustain remodeling activity for the next few years, decreases could occur due to falling home prices, inflation, and the probability of a recession. 

The number of remodeling projects is expected to decrease from 17.7 million in 2022 to 17.3 million in 2023. Nevertheless, the United States spends hundreds of billions per year on home improvement. From 2019 to 2021, Americans spent $624 billion on nearly 135 million home improvement projects—an increase of $300 billion and 94 million projects compared to 2013.3 

As the housing market slows, more homeowners plan to invest in improvement projects to make their homes more comfortable and enjoyable, as opposed to making them more attractive to prospective buyers. Home improvement spending averages around $7,750 to $8,500.4 The most common remodeling projects involve the bathroom, kitchen, living room, and primary bedroom. 

When it comes to home improvement project funding, cash from savings pays for most projects under $5,000. Pricier projects are more likely to be funded by a home equity loan, cash from home refinancing, an insurance settlement, or contractor financing. 

Home Improvement Estate Planning Considerations

Different generations spend differently on home renovations. Millennials, for example, tend to focus on projects around family formation and favor a do-it-yourself approach. Baby Boomers and the Silent Generation, on the other hand, prioritize projects that make the home more livable as they age and are more likely to hire a professional contractor. 

There are also generational differences in estate planning. Although 60 percent of US adults have no estate plan, 81 percent of people aged seventy-two or older and 58 percent of those ages fifty-three through seventy-one have estate planning documents.5 

A home is the largest purchase that most people ever make. For the average American, home equity accounts for around 65 to 70 percent of their net worth. The home should therefore feature prominently in any estate plan. Home remodeling can necessitate estate plan changes, however. Here are a few estate planning considerations to keep in mind when remodeling a home. 

Remodeling a Home in a Trust with a Home Equity Loan

Homeowners may place their property in a revocable living trust (i.e., a living trust) to avoid probate. Placing property in a trust makes the trust the legal owner of the property, which requires drafting a new deed in the trust’s name. 

A home equity loan (also known as a second mortgage) allows homeowners to borrow money using the equity in their home as collateral. A home equity loan is dispersed in a lump sum and paid back in monthly installments. This type of loan is often used to pay for big expenses, such as a home improvement project. 

Some lenders prefer to only extend a home equity line of credit to a person—not a trust. Depending on the bank, this could mean taking a property held in trust out of the trust and deeding it back to the homeowner. The property can be transferred back into the trust when the loan is secured; the homeowner does not have to wait until the loan is repaid. If you deed your home out of the trust and back to you, make sure that the home gets transferred back to the trust if you want to avoid probate.

Increasing a Home’s Value and Beneficiaries

Remodels are not a great way to make money. The return on investment for remodeling projects ranges from 54 percent to 87 percent.6 But depending on the neighborhood, region, market, and project expense, home improvement can significantly increase a property’s value, especially over time, since home prices increase about 5 percent a year. 

Median home prices have risen dramatically over the years, from just under $18,000 in 1963 to more than $467,000 in 2022.7 Record growth in home prices during the pandemic accelerated this trend, and while median prices are declining in some markets, they mostly remain above pre-pandemic levels. 

With or without major renovations, a home purchased years ago is likely to have appreciated over time. In certain areas, homes purchased in 2000 appreciated over 200 percent. Average prices in San Francisco, for example, have increased from $364,000 to $1.12 million since 2000.8 

Home value changes may affect a homeowner’s estate plan. If leaving the property to a specific person and wanting to treat beneficiaries equally, an estate plan may need to be refigured to equalize each beneficiary’s inheritance. One option to do this is to leave the home to more than one person; however, care must be taken to avoid conflict among multiple beneficiaries. The estate plan should stipulate how the home will be co-owned and provide a plan for the recipients to sell their interests in it. 

Balancing Homeowner Needs and Legacy

Older adults have a strong preference for growing old in their current homes. Ninety-percent of respondents told AARP that they want to “age in place.”9 At the same time, nearly 50 percent said they have not considered the changes their home may need to accommodate them as they age. 

Remodeling projects specific to aging in place average less than $10,000, but they can cost up to $40,000 or more.10 Because older adults tend to have more equity in their homes and more savings, an aging-in-place project may be affordable, but unless paying cash for a project, it also may entail taking out a loan.

Any debt that outlives a person needs to be paid during estate or trust administration. Creditors have preference over most heirs, and every dollar that goes to paying back a loan is one less dollar that goes to a beneficiary. While aging in place usually costs less than a nursing home, having less cash on hand or added debt can impact estate planning goals. 

Revising Your Estate Plan After Home Improvement

Americans renovate their homes around every three to five years. This is the same time interval that attorneys recommend reviewing an estate plan. 

Once you have finished remodeling your home, you should consider remodeling your estate plan. In addition to home improvements, there may have been other life events in recent years that warrant an estate plan update. Making changes to your plan does not cost much, and you will buy peace of mind knowing your plan reflects your current wishes. 

To discuss revisions to your estate plan, contact our office and schedule an appointment.

Footnotes

  1. Vincent Salandro, Remodeling Activity Likely to Drop in 2023, Remodeling by JLC (Dec. 18, 2022), https://www.remodeling.hw.net/benchmarks/economic-outlook-rri/remodeling-activity-likely-to-drop-in-2023.
  2. Market Measure, The Industry’s Annual Report, Hardware Retailing p. 26, 27 (Jan. 2022), https://lsc-pagepro.mydigitalpublication.com/publication/?m=59500&i=732068&p=30&ver=html5.
  3. Elizabeth Renter, 2022 Home Improvement Report, NerdWallet (Nov. 16, 2022), https://www.nerdwallet.com/article/mortgages/2022-home-improvement.
  4. State of Home Spending, Angi, https://www.angi.com/research/reports/spending/ (last visited Apr. 10, 2023).
  5. Haven’t Done A Will Yet? You’ve got company. Neither have 6 in 10 U.S. adults, AARP (Feb. 24, 2017), https://www.aarp.org/money/investing/info-2017/half-of-adults-do-not-have-wills.html.
  6. Carl Vogel, Home Renovations with the Best Return on Investment, This Old House, https://www.thisoldhouse.com/home-finances/21015466/renovations-that-give-you-a-return-on-your-investment (last visited Apr. 10, 2023).
  7. Median Sales Price of Houses Sold for the United States (MSPUS), FRED Economic Data, Federal Reserve Bank of St. Louis, https://fred.stlouisfed.org/series/MSPUS (last visited Apr. 10, 2023).
  8. Nick Routley, Charting 20 Years of Home Price Changes in Every U.S. City, Visual Capitalist (Oct. 22, 2020), https://www.visualcapitalist.com/20-years-of-home-price-changes-in-every-u-s-city/.
  9. Kristen Dalli, Most older adults want to grow old in their current homes, study finds, Consumer Affairs https://www.consumeraffairs.com/news/most-older-adults-want-to-grow-old-in-their-current-homes-study-finds-041822.html (last visited Apr. 10, 2023).
  10. Jonathan Trout, The Cost of Aging in Place Remodeling, RetirementLiving (Mar. 15, 2023), https://www.retirementliving.com/the-cost-of-aging-in-place-remodeling.

Five Things to Know Before Including a Limited Liability Company in Your Estate Plan

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When it comes to protecting your hard-earned money and property, it is important that you have the right plan, which can include a number of tools for your unique situation. One tool that might benefit you is a limited liability company (LLC) that owns some of your accounts and property.

What is a limited liability company?

An LLC is a business structure that can own many types of accounts and property. The LLC is owned by members who contribute money or property to the LLC. You can have a single-member-owned LLC or a multimember-owned LLC. If there is more than one member, management of the LLC can either be carried out by each member or the members can elect a manager.

What can an LLC own?

When people think of an LLC, they assume that it is a structure to operate a business. However, many types of accounts and property can benefit from being owned by an LLC:

  • Real estate. An LLC can own property such as a second home, a rental property, or a property that has been in the family for generations.
  • Investments. In some cases, an LLC can be formed to allow multiple people to pool their money and invest it with a larger volume.
  • Expensive and risky property. An LLC can own items such as airplanes and boats. 

Why should I consider using an LLC in my estate plan?

Asset Protection

Because the LLC is a separate entity, typically the LLC’s creditors can only go after the LLC’s money and property, not the member’s personal accounts or property. Also, if the proper formalities are in place, the member’s personal creditors may not be able to reach the LLC’s accounts and property to satisfy the member’s personal debts. Note: In some states, a single-member LLC does not enjoy the same protection from the member’s personal creditors. The rationale of these laws is that your creditors should be able to seek relief through your LLC interests to satisfy their claims because there are no other members that will be negatively impacted by seizure of money and property owned by the LLC.

Probate Avoidance

Anything that is owned by the LLC, either retitled into the name of the LLC during your lifetime, bought by the LLC, or transferred by operation of law at your death, will not go through the public, costly, and time-consuming probate process. The probate process only transfers accounts and property that you owned at your death. By using an LLC, the LLC—not you—owns the accounts and property. However, if you own a membership interest in your own name, the transfer of the membership interest at your death may need to go through the probate process.

How can an LLC be used in an estate plan?

How It Works

During your lifetime, you create an LLC and then transfer accounts and property to the LLC or name the LLC to be the beneficiary of your accounts and property at your death. Once it has been created, you may also purchase property or create accounts in the name of the LLC. As the creator of the LLC, you will be a member. A member is someone who owns an interest in the LLC, and depending on the number of members and the type of management, may also manage the LLC. If you are married, your spouse may also be a member. You can also add other people as LLC members either when the LLC is created or later. Be aware that there may be gift tax consequences associated with adding members who do not contribute their own money or property to the LLC. The LLC becomes the owner of the accounts and property and it is operated as an entity separate from its individual members. It is this separation that allows an LLC to have some level of asset protection. At your death, the only item that may need to be transferred is your ownership interest in the LLC; the accounts and property owned by the LLC will remain owned by the LLC.

Operating Agreement

Most LLCs have an operating agreement that outlines the rules for managing and transferring a member’s interest in the LLC. If you currently have an LLC but do not have an operating agreement, or have an operating agreement but need to update it, please reach out to an experienced business law attorney as soon as possible. Some provisions that should be included in the operating agreement are  

  • who the members of the LLC are,
  • the percentage of ownership that each member has,
  • how conflicts among members are settled,
  • any restrictions on a member’s ability to transfer their membership interest (including transfers to a trust), and
  • what happens to each member’s interest if the member dies (in most cases, whatever is stated in the operating agreement controls).

Trust Agreement

As an additional layer of protection, you may choose to transfer your membership interest in an LLC to a revocable living trust. As the creator, trustee, and beneficiary of the trust, you would still be able to participate in the management of the LLC and benefit from the LLC, you would just do so as the trustee of the trust and not as an individual. Because the trust owns the membership interest, transfer of the membership interest will not require probate, because the trust does not die. In fact, the trust can continue to own the membership interest after your death, which you can include in the trust’s instructions, along with a provision allowing a successor trustee to step in for you and handle LLC matters on behalf of the trust’s beneficiaries. Alternatively, you could state in the trust instructions that the membership interest be distributed to a named beneficiary at your death or at a specific time in the future. At that point, the beneficiary would have control of the membership interest.

Best Practices for Using an LLC

To ensure that you can take full advantage of the benefits associated with an LLC, it is critical that you follow all of the rules. An LLC is supposed to be a separate entity and you need to treat it as such. This means that there are some formalities you need to abide by, some of which include filing your annual report with the appropriate state government office and keeping separate records to showcase all transactions and meetings that the LLC is involved with. Additionally, you need to keep your personal money and property separate from the LLC’s money and property. You should not treat the LLC bank account as your own personal wallet.

Effective January 1, 2024, LLCs that meet the definition of a reporting company will need to file a Beneficial Ownership Information Report with the Department of the Treasury’s Financial Crimes Enforcement Network. The report must include the name, birthdate, address, and unique identifying number, issuing jurisdiction, and image of an acceptable identification document for all of the beneficial owners of the LLC. A beneficial owner is an individual who owns or controls 25 percent or more of the ownership interest of the company or who exercises “substantial control” over the company. For reporting companies created after January 1, 2024, company applicants must provide their name, birthdate, address, and the unique identifying number, issuing jurisdiction, and image of an acceptable identification document. A company applicant is either the individual who files the document that creates the entity or registers the entity to do business in the United States in the case of a foreign reporting company, or the individual who is primarily responsible for directing or controlling another person’s filing of the document.

What are my next steps?

We understand how important it is to protect yourself, your loved ones, and all that you have worked so hard to earn. A comprehensive estate plan can help accomplish your goals by implementing the right strategies for your situation. If you would like to explore how an LLC can help you plan for your future and the future of your loved ones, please reach out to our firm.