Probate Avoidance Strategies 

  • By Staff Writer
  • 09 Feb, 2016
estate planning, living trust, Hot Springs AR
Probate is a court supervised proceeding where a person’s Last Will and Testament is enforced and administered at the time of death. Since it is a court supervised process, it can be quite expensive (up to 6% of the estate value) and time consuming (minimum of 6 months in Arkansas). Based on these issues, most seniors attempt to avoid having their estate pass through probate. Estate planning often focuses on probate avoidance. This article will focus on some probate avoidance strategies that should be avoided or at least carefully considered.

Before addressing strategies to avoid probate that are undesirable, I would like to provide a brief explanation on the best probate avoidance planning, which is the use of a Revocable Living Trust. Trusts are the most popular estate planning document primarily because they avoid probate while at the same time thoroughly addressing all issues that can come up in administering an estate at death. A Trust is simply an agreement that not only controls your assets while you are alive (with you serving as your own Trustee and remaining in full control), but also controls the disposition of your assets at death (much like your Will would).

Based on the perceived high cost of setting up a Trust, many people attempt to avoid probate by other means, most commonly through joint accounts, payable on death (POD) accounts, and transfer on death (TOD) accounts. Joint accounts are when a child or other beneficiary is named as a joint owner. POD accounts designate a beneficiary(s) at death and are available for most bank accounts. TOD accounts (much like POD accounts) are allowed for most investment accounts. The problem with these planning strategies, is that they do not plan for the “what if’s” in life, such as the prior death of a named beneficiary or a beneficiary who has financial or personal problems. They also do not require the payment of your final expenses such as funeral expenses. POD and TOD accounts simply distribute the funds outright to the named beneficiary with no other contingency plans. Joint accounts create an additional risk in that the named joint account owner is an owner of your account, thereby subjecting the assets in said account to their creditor and marital claims. This author strongly discourages the use of joint accounts. If your family needs access to your funds in the event of your incapacity, your estate plan will have a Power of Attorney to allow such access for your benefit. For this reason there is no need to have a joint account owner (other than your spouse) with a proper estate plan.

In my experience, these “short cut” strategies often have poor results and end up costing more in legal fees to clean up. Further, based on unattended consequences as a result from such strategies, your family may end up in conflict with one another over what your true intentions were. If you or a loved are interested in avoiding probate, I encourage you to discuss the pros and cons of the various strategies with an estate planning attorney.

Adam Williams is the managing partner at Farrar & Williams, PLLC, a law firm limiting its practice to trusts, estate planning, and elder law, located in the Bear State Bank building, 135 Section Line Road, Hot Springs, Arkansas.
By Manda Bass 07 Jun, 2017

     One of the first questions I often get asked by prospective clients is how much my services will cost. This is a fair question as fees should always be discussed at the beginning of a business relationship. Under ethical rules, an attorney’s fee should be reasonable and based on the time spent on the matter; the expertise of the attorney; and fees customarily charged for similar services in the community. Most lawyers charge fees on an hourly basis and charge for all time spent on the matter. By contrast, many estate planning lawyers prefer to charge fees on a flat or fixed fee basis. My firm has a published fee schedule available on our website or by calling our office. This fee schedule lists the fees and expenses we normally charge for most routine estate planning services, such as powers of attorney, healthcare directives, Wills and Trusts.

      Are fixed fees better than hourly fees? This is a tough question but I have found that my clients prefer to know what the cost will be for the services rendered. The unknown of how much time is being spent can cause client’s anxiety, and in my opinion can have a negative impact on my dealings with my clients. I do not want my clients to feel rushed or in a hurry to get the services done in order to reduce the costs. In estate planning the services are more predictable and routine so fixed fees can be established based on the amount of time spent on the typical case. Our fee schedule is reviewed and updated on an annual basis. Of course you will have cases that take more time and end up being less “profitable” but in the long run fixed fees are the most reasonable way to charge for estate planning services. It must be pointed out that many legal services cannot be charged on a fixed fee basis as there is no way to predict the amount of time the matter will take. This is usually the case with any type of lawsuit.

      There are some disturbing trends I have encountered with some attorneys, including some estate planning or elder law attorneys. The first trend involves charging fees based on a percentage of the assets involved or “being protected” with said fees charged while the client is living. While percentage fees on trust and estate settlements (such as in probate) may be somewhat customary, in my opinion, charging a percentage fee to a client based on how much of their assets you are going to “protect” is not reasonable and often results in the client being taken advantage of during a vulnerable time in their life (such as when being admitted to a nursing home). Another disturbing trend involves a so-called “lifetime fee retainer,” where an attorney charges a large fee and agrees to provide for all future legal services (read the fine print as the services are limited). This type of fee arrangement does not pass the ethical requirements in my opinion as there is no way to predict the future needs of a client, and it may be difficult to ensure the attorney or law firm will be around to even provide such services.

      In summary, attorney fees are a “necessary evil” as some of my clients put it. I encourage you to discuss the fees at the beginning of the matter and ask questions about other types of fee arrangements. I also encourage you to be wary of percentage fees for protecting your assets, or fees that are based on a lifetime of services.

 

Adam Williams is the managing partner at Farrar & Williams, PLLC, a law firm limiting its practice to trusts, estate planning, and elder law, located on the 2nd floor of the Bear State Bank building, 135 Section Line Road, Hot Springs, Arkansas, and can be reached at (501)525-4401 or at adam@farrarwilliams.com

The firm’s website is www.farrarwilliams.com .

 

 

 

By Manda Bass 27 Apr, 2017

     If you have a grandchild graduating from high school next month, chances are you have been hearing a lot of talk about scholarships, financial aid and the cost of tuition.

     The Wall Street Journal recently reported that the cost of college tuition, room and board is averaging about $19,000 a year at public universities and $42,000 at private nonprofit schools. With these costs, it is important for families to know their options regarding paying for college.

     According to Sallie Mae, 17% of families relied on relatives to help pay for college.  There are many different ways that grandparents (or other relatives) can help their grandchildren pay for college.

     If your grandchild is looking to pay for college this year, your options are more limited than if you had planned for this in advance.

     One way to help your grandchild immediately would be simply making cash gifts. However, the gift tax exclusion is currently $14,000 per person. This means that grandma can give $14,000 to a single individual and grandpa can give $14,000 per year without having to report the gift on any tax returns. However, these cash gifts could hurt the student’s chances for financial aid. If your grandchild is applying for financial aid you should not pay the money directly to the school because the school will reduce the student’s financial aid.

     Another option would be for the grandparent to pay a student’s full tuition directly to the college. When this is done there is no gift tax, but these tuition payments cannot be deducted.

     Typically the best option to help your grandchildren pay for college is by planning in advance and contributing to a 529 Plan. A 529 Plan is an education savings plan operated by a state or educational institution designed to help families set aside funds for future college costs.   Amounts contributed to a designated beneficiary's 529 account are treated as a gift. However, contributions of up to $14,000 can be made for each designated beneficiary without incurring federal   gift tax   in accordance with the annual exclusion. In addition, there is a special exemption to the gift tax for the purpose of contributing to a 529 Plan, which allows each grandparent to contribute a one-time gift of $70,000 (five years of the gift tax exemption). Arkansas taxpayers can deduct up to $5,000 (up to $10,000 for married couples) of their Arkansas 529 GIFT Plan contributions from their Arkansas adjusted gross income.

Tiffany is an associate attorney at Farrar & Williams, PLLC and can be contacted at 501-525-4401 or by email at tiffany@farrarwilliams.com . She can answer any questions you have about this subject.

By Manda Bass 14 Apr, 2017

     Probate is considered a dirty word by most seniors. Why is that? Probate can be defined as a court supervised proceeding where a person’s Last Will and Testament is enforced and administered at the time of death. Probate is also required for a person who dies without a Last Will and Testament. Since it is a court supervised process, it can be quite expensive (up to 6% of the estate value in some states) and time consuming (minimum of 6 months in Arkansas). Based on these problems, probate should be avoided if possible. A good estate plan often focuses on probate avoidance. This article will outline some probate avoidance strategies that should be avoided or at least carefully considered, as shortcuts to avoid probate can create more problems than probate itself!

     The best probate avoidance plan is the use of a Revocable Living Trust. Trusts are the most popular estate planning document primarily because they avoid probate while at the same time thoroughly addressing all issues that can come up in administering an estate at death. A Trust is simply an agreement that controls your assets while you are alive (with you serving as your own Trustee and remaining in full control), but also controls the distribution of your assets at death (much like your Will would). Trusts are often called Will substitutes as they replace the function of a typical Will.

     Rather than using a Trust, many people attempt to avoid probate by other means, most commonly through joint accounts, payable on death (POD) accounts, and transfer on death (TOD) accounts. Joint accounts are when a child or other beneficiary is named as a joint owner. POD accounts designate beneficiary(s) at death and are available for most bank accounts. TOD accounts (much like POD accounts) are allowed for most investment accounts. These forms of ownership do avoid probate; however, they may create other problems. First, they do not plan for the “what if’s” in life, such as the prior death of a named beneficiary or a beneficiary who has financial or personal problems. Next, they also do not require the payment of your final expenses such as funeral expenses, which may leave other relatives paying for your funeral and your named beneficiaries skipping town.

     Jointly owned accounts create an additional risk in that the named joint account owner is an owner of your account, thereby subjecting the assets in said account to their creditor and marital claims. If your family needs access to your funds in the event of your incapacity, your estate plan should have a Power of Attorney to allow such access for your benefit. For this reason there is no need to have a joint account owner (other than your spouse) with a proper estate plan.

     In my experience, these “short cut” strategies often have poor results and end up costing more in legal fees to clean up the mess left behind. There are often unattended consequences as a result of short cuts in planning and your family may end up in conflict with one another over what your true intentions were.

Adam Williams is the managing partner at Farrar & Williams, PLLC, a law firm limiting its practice to trusts, estate planning, and elder law, located on the 2nd floor of the Bear State Bank building, 135 Section Line Road, Hot Springs, Arkansas, and can be reached at (501)525-4401 or at adam@farrarwilliams.com.

By Manda Bass 06 Apr, 2017

  With advances in health care, statistics show that people are living longer. With advanced age, many people require assisted living or nursing home care during the later stages of life.  The costs of such care can be very expensive and unfortunately the options for payment of the care are limited.  If forced to private pay for such care, the costs for long-term care can rapidly deplete a person’s estate. Nursing home costs in Garland County can easily exceed $5,000.00 per month, with home based care being even more expensive. My law practice focuses on helping people plan for such costs.

            The best planning option for long term care expenses, whether it be assisted living, home based care or long-term care, is an appropriate long-term care insurance policy. A properly structured long-term care policy will include services for home care, assisted living care as well as nursing home care. These policies provide the best choices for such care and should be included in your estate plan. I am often told by my clients that they do not purchase the long-term care insurance based on the high premiums.  Despite these concerns, I always encourage my clients to seek out information about long-term care insurance as it remains the best option to cover such costs.

  Surprisingly, a small percentage of seniors actually have long-term care insurance, which forces them to look for other alternatives to pay for such care. For this reason other options must be evaluated. In the case of assisted living care or home based care, my first inquiry is whether or not my client or their spouse was a wartime veteran. If they were a wartime veteran, then they have an opportunity to seek a special pension benefit available through the Veteran’s Administration, known as Aid and Attendance Benefits. While this pension benefit will not cover the full cost associated with most care, it does provide a monthly pension (of  over $2,000.00 per month in some cases) which will help supplement the cost of uncovered medical-related care, including assisted living or home-based care. There are numerous eligibility restrictions on the Veteran’s Administration Aid and Attendance program. If you or your spouse were a wartime veteran and you have medical-related expenses that exceed your monthly income, you should inquire as to your eligibility for said pension benefits, as they provide much needed funds to help supplement the cost of your care.

            For those clients that need full-time nursing home care, the payment options are limited. The two main options are private payment (in excess of $5,000.00 per month) and the long-term care Medicaid program. The Medicaid program is a large government funded program that pays for up to 70 percent of all people in nursing homes. The cost savings associated with the long-term care Medicaid benefits can be significant. Gaining eligibility for the long-term care Medicaid program is a complex process. Throughout my practice I have gained experience in this area as I have assisted hundreds of people in obtaining long-term care Medicaid eligibility. Early planning is the key so I encourage you to explore your options sooner rather than at the time of a crisis.

            Planning for the increasingly high cost of long term care is an essential part of your estate planning. This type of planning is complex and requires the services of an attorney who deals with elder law issues.

By Manda Bass 06 Mar, 2017

     If you are retired, what is the best way for you to title your vehicle, so that your surviving spouse and children do not have any problems following your death?

      If you are in a first marriage, and your spouse is still alive, you would usually want to hold the title in to both you and your spouse’s name. I recommend that you title your car with an “or” between your names on the car title (for example, “Joe Smith or Sue Smith.”) In this manner, either you or your spouse can sell the vehicle at a later date without both of you having to sign the paperwork. Following your death, your surviving spouse would have sole ownership of the vehicle without having to obtain an updated title.

      What if you are in a second marriage? If it’s a long-standing second marriage, you would typically want your surviving spouse to inherit your car. You would simply follow the same procedure outlined above for a first marriage. But if you are in a recent second marriage and instead desire your vehicle to pass to your children, you would  accomplish this either by a provision in your will or alternatively by  adding  your children’s names on the car title through a ”TOD” designation (transfer on death”). This TOD can be handled through the local Department of Motor Vehicles office for a small title transfer fee.

      How should you handle your car title if you are a single person? If you want all of your children to inherit your car following your death, then all your children have to do is take the car title to the Department of Motor Vehicles following your death, and fill out an affidavit of inheritance. This would place the vehicle in all of the children’s name.  This procedure assumes the children get along with each other, and that your children will cooperate in filling out the paperwork.

      If you’re single, and you want just one of your children to inherit your car, then you should follow the transfer on death procedure explained above, or specifically designate that in your estate plan.

      In summary, the transfer of your car following your death usually does not require involvement of lawyers or probate court. But it is helpful to your family for you to leave clear instructions, and fill out paperwork in a manner that avoids problems for your survivors.

 

Tiffany Tucker is an associate attorney at Farrar & Williams, PLLC and can be contacted at 501-525-4401 or by email at tiffany@farrarwilliams.com.

By Master Account 25 Jan, 2017

Many seniors have purchased time shares. These vacation properties give the senior the right to vacation one week or more each year at a condominium that can be located anywhere from Florida, to Hawaii, to foreign countries. The time share market has changed dramatically over the past 10 years. Rather than owning a specific week in a specific property, owners’ have points that allow them to utilize many different properties.

How should you handle your time share property as a part of your estate plan?  You will want to take steps to ensure your time share is not subject to probate in the state in which your time share is located.  This problem can occur because, the title (or deed) of the time share property is governed by the probate laws in the state in which the property is located. Your family could be faced with having to hire a probate attorney in that state, at considerable expense (sometimes as much as $1,500 or more in legal fees). Most property owners want to save their children the cost and delays of Probate proceedings. Probate is the court process to determine the new owners of property after an owner’s death.   A Last Will and Testament does not avoid probate court! Rather a Will only directs the probate court as to how to distribute your assets .

How can you avoid the expense of probate court on your timeshare? You may want to create a Joint Tenancy with Right of Survivorship for your time share with your children so that the property passes automatically to your children at your death. Alternatively you might consider transferring title to your living trust to avoid probate court. If you have already created a trust, you will want to make sure that you deed your time share into your trust.

In most states including Arkansas, if a husband and wife own the timeshare as “Joint Tenants” or as “Tenants by the Entirety,” probate is avoided when one owner dies because the co-owner has automatic “rights of survivorship” and becomes the sole owner. However, when the surviving co-owner dies, probate then becomes necessary if you do not take steps to avoid it. Finally, if you own a time share in a community property state (Texas, California, Arizona, and six other states), the joint tenancy or tenancy by entirely rules may not apply and there may even be probate at the death of the first spouse. That can create expense and worry for the surviving spouse and you will want to try to fix that.

In summary, if you own real estate located out of state (including time shares, farm property, or vacation homes), this real estate can be subject to expensive and time consuming out-of-state probate procedures. You will want to consider taking steps to avoid this to save your children both money and time.

Adam Williams is the Managing Member of Farrar & Williams, PLLC, and can be reached at the law offices of Farrar & Williams, PLLC at the First National Bank Building, Section Line Road, Hot Springs, Arkansas; Phone: 501-525-4401.

 

By Staff Writer 14 Nov, 2016

Individuals oftentimes become motivated to create an estate plan for their family once they have children, to name a guardian for their minor children and to ensure their minor children are cared for.

Sometimes the motivation is not there to create an estate plan for those without children. However, an estate plan is just as important for those without children, as it is for those with.

Who would receive your estate assets if you passed away today? If you die in Arkansas without a will, intestate succession statutes govern who is to receive your estate. Intestate succession depends on whether you have living children, a spouse, parents and other close relatives.

Therefore, it is important to consider who you wish to be beneficiaries of your estate upon your death. You can make these wishes in your Last Will and Testament, or if you wish to avoid probate upon your death, you should consider creating a revocable living trust.

All of us run the risk of becoming incapacitated by reason of stroke, accident, or advanced age. Therefore, you should also consider executing a durable power of attorney. This is the most basic building block of an estate plan. A power of attorney is a legal document where you appoint a trusted person as your agent to act for you regarding management of your assets in the event of your incapacity. Our firm recommends your power of attorney be durable; this permits a power of attorney to remain effective despite your disability. However, it is necessary that your power of attorney express your intent that the power of attorney be “durable”.

Further, a living will and advance directive is an important document to consider. A Living Will is a document directing that your physician not take extraordinary medical steps to prolong your life in the event you are suffering from a terminal illness or injury from which you have little possibility of recovering. If you feel strongly about avoiding prolonged and expensive medical care in hopeless situations, you may also wish to utilize a Medical Power of Attorney. A Medical Power of Attorney is a document by which you appoint another trusted person to act on your behalf in the event you are unable to act for yourself, with regard to the hard decisions that must be made if you are terminally ill.

Tiffany Tucker is an associate attorney at Farrar & Williams, PLLC and can be contacted at 501-525-4401 or by email at tiffany@farrarwilliams.com.

By Staff Writer 14 Nov, 2016

Communicating with your family about your estate plan is a sensitive but important topic.

The need for good communication between seniors and their adult children is important as the children often have a role in the estate plan (whether it be as Agent under a Power of Attorney, Executor under a Will or Successor Trustee of the Family Trust). In addition to the basic estate planning structure, the discussions can include topics including when the senior should discontinue driving his or her car, when the senior should consider moving to residential care, and a number of other difficult topics to discuss.

In addition to the above talks, there is another kind of talk to be had with your adult children. That is the talk by the parents to the adult child about how the adult child should protect any inheritance the adult child receives from divorce or creditor claims. If the adult child receives an inheritance, and co-mingles it with his or her spouse, then the inheritance is usually split 50/50 if there is a subsequent divorce. This is a result that neither the parent nor the adult child ever meant to happen. They simply did not understand the complex rules pertaining to a divorce (which varies from state to state). An inheritance should not be co-mingled with the spouse, unless the marriage is very solid and mature. What does co-mingling mean? It means depositing any inheritance into an account titled in the name of the adult child and his or her spouse. Another example would be the adult child purchasing a new home with the proceeds of the inheritance and titling in joint tenancy with his or her spouse. In either of those situations that normally results in the daughter-in-law or son-in-law being entitled to one-half of the amount so co-mingled.

Further, if an adult child has creditors that they may be attempting to avoid, the parent should be aware of this so as to possibly structure the inheritance to protect the assets. This is a critical talk to have with the adult child. If one of your estate planning goals is to keep your in-laws out of your estate (or to protect it from your children’s creditors) so as to preserve it for your children and grandchildren, you should have your estate pass in trust for your adult children in a manner that they have generous access but it cannot be co-mingled. This is a common estate planning goal and can be accomplished with proper planning.


Adam Williams is the managing partner at Farrar & Williams, PLLC, a law firm limiting its practice to trusts, estate planning, and elder law, located in the Bear State Bank building, 135 Section Line Road, Hot Springs, Arkansas.

By Staff Writer 28 Jul, 2016

Estate planning attorneys and their clients spend a great deal of time drafting a plan that divides the large assets of an estate equally and equitably among their children, grandchildren, or other beneficiaries. However, they sometimes give far less thought to the other stuff, including tangible personal property that may have more sentimental value than monetary value. Oftentimes, it is the decisions about those sentimental items that can cause the most problems in a family upon the death of a loved one.

Arkansas has a statute that allows a written statement, signed and dated, designating how certain items of tangible personal property shall be distributed. This statement allows people to change the division of tangible personal property without having to amend their entire will or trust.

It is a good idea to ask your children or other beneficiaries which of your personal property items they would like to receive upon your death. It is helpful to know which child loves your paintings and which child loves your china. You can equalize values at death with other assets from the estate to ensure fairness, if that is your intention. Families can use an appraiser to determine values of personal property items to ensure fairness, especially if one child is receiving a Rembrandt painting and one child is receiving grandma’s famous casserole dish.

Oftentimes a family will draw lots or take turns in deciding what personal property items they want. This allows each family member to feel they got their fair share.

An extreme approach may be taken if a family cannot decide how to divide the personal property items. This approach is for the executor or trustee to sell everything and divide the proceeds from the sale among the beneficiaries in the will or trust.

As with all estate planning, it is best to speak to a trusted estate planning attorney or adviser to devise a plan that works best for your family and your beneficiaries. A properly drafted plan can reduce problems or fighting within the family upon your death.


Tiffany Tucker is an associate attorney at Farrar & Williams, PLLC and can be contacted at 501-525-4401 or by email at tiffany@farrarwilliams.com.

By Staff Writer 14 May, 2016

Blended families, or families consisting of a couple and their children from their current and all previous relationships, are becoming increasingly more common. Blended families and second marriages present their own unique challenges to estate planning. The main concern most of my clients in blended families have is ensuring that each spouse’s share of their estate ultimately goes to their intended beneficiary, which is often their respective children.

A client recently set an appointment with me to discuss ownership rights of her current house. The client was on her second marriage and owned her home as tenants by the entirety with her current spouse. Tenancy by the entirety is joint ownership of property by a husband and wife, in which upon the death of one owner, the other owner has title (also referred to as right of survivorship). She was alarmed when I explained that if she is the first to die, her spouse owns the home, and without an estate plan to the contrary, the home will go to his children upon his death.

Similarly, if all assets are owned jointly between a husband and wife, the assets will be controlled by the estate plan of the survivor. If the surviving spouse does not have an estate plan, all the assets will go to his or her children upon their death, leaving out the children of the predecessor.

Traditional estate planning distributes assets to the surviving spouse and then to the children upon the death of the survivor. However, this plan may not work with blended families. The traditional estate plan oftentimes gives the surviving spouse the ability to amend the documents however they choose. This might mean they disinherit certain children, or leave the estate to charities, or even to a new spouse.

The first step to ensuring an estate plan for blended families is set up according to the family’s wishes, is to have open communication about the issue. Openly discuss all of the finances and the ownership of the finances. Discuss how assets are to be distributed upon the death of both spouses. An experienced estate planning attorney can assist with this communication and help ensure that each spouse’s respective children are treated equally in the estate plan.

So what does an estate plan for a blended family look like? The most common method is to establish a joint trust, which becomes irrevocable upon the death of the first spouse. Upon the death of the first spouse, half of the couple’s assets are placed into an irrevocable trust for the limited benefit of the surviving spouse during their lifetime. Upon the death of the survivor, the assets are distributed according to the terms of the trust (typically one-half to each spouse’s respective children). This ensures that a portion of the couple’s assets are preserved for the benefit of their respective children upon the death of both spouses.

A second method is to establish a residence trust. A residence trust allows the surviving spouse to live in the residence during their lifetime, but upon their death, the home is distributed to the beneficiaries of the trust (typically one-half to the husband’s children and one-half to the wife’s children). If my client in the example above had utilized a residence trust, the home could be distributed evenly to each of their respective children upon the death of both of them.

A third method for estate planning in blended families is the use of a prenuptial agreement. This agreement can protect an individual’s right to distribute his or her pre-marital property in the manner he or she desires. A prenuptial agreement allows each spouse to control who ultimately receives their assets upon their death.

Planning for blended families can give each spouse peace of mind that their respective children will not be disinherited upon their death and ensures their children will ultimately inherit a portion of their estate. It also helps eliminate or reduce family tension. The children do not have to worry that the surviving spouse will remarry or leave all assets to their own children.


Tiffany Tucker is an associate attorney at Farrar & Williams, PLLC and can be contacted at 501-525-4401 or by email at tiffany@farrarwilliams.com. She can answer any questions you have about this subject.

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