Introduction . . .

With the New Year, I thought I would expand a part of my practice and send out a newsletter.  I hope “The Future Estate” newsletter will make a very difficult subject area – estate planning – easier to understand.  My goal is to blend a sense of compassion to a sensitive topic using everyday language.  I will try to avoid using high-level legal terms so that anyone can take away a few thoughts for their future.

My newsletters will focus on issues confronting couples in their late 20’s to early 40’s that are starting a family since I deal mostly with these clients.  But, I will also try to address a range of estate planning issues that impact everyone.  Other topics I write about include estate planning issues that have occurred in my life, my family or friend’s lives along with how changes in the tax laws could impact a person’s estate. I will also try to spice it up by reviewing the estates of famous people and use them as examples of what not to do.

The first question I get from people when I tell them I am sending out a newsletter is: “why not write a blog?” I have two answers.  First, I think a newsletter is much more pro-active. I can target my information to those that need it, those who have come to my site or those who have interacted with me in some way.  To me a blog is a more passive approach. People will have to find my blog in the vast universe of the internet. They will have to specifically surf the net past the other hundreds of blogs to find mine. Second, given the fact I would be a single drop of rain in a storm with the number of estate planning blogs out there, I only have so much time, and I feel a newsletter is the best approach right now.

My goal is to send out a newsletter approximately every 4-6 weeks depending on my schedule.  I hope you find each one informative and helpful in thinking about how you would organize your estate.  So let’s get started…

What's that Alphabet after my name mean?

Since estate planning encompasses a wide range of topics from familial relationships to complex tax planning, I thought a basic primer on how property is owned and transferred upon death would be a good starting point for everyone.

For a single person, how property is owned is very simple.  It is very easy for people to understand that if they are single and have the deed to their home in their name, they are the owner of the house or after 360 monthly mortgage payments they are the owner.  Or, if someone opened a checking account in their name, they are the owner of that checking account.

If a single person dies, what type of property is owned will determine to whom the property is transferred and who is the beneficiary of that property.  Checking accounts, brokerage accounts, 401(k)s, IRAs or other type of financial institutional account are referred to as payable-on-death (“POD”) or transfer-on-death (“TOD”) accounts. Generally, when a person opens this type of account they designate a beneficiary(ies) who will acquire ownership of those accounts upon death of account opener.  This will occur outside of probate under rule of law. Even if a will states otherwise, a TOD account ownership will be transferred to the listed beneficiary.  If the property is some type of real estate, and there is no will, the property is transferred under the intestate laws of the state. If there is a will, then the will is probated and property transfers to the person under the will.

However, property ownership and transfer on death gets much more complex when other people are thrown into the mix. Any property can be concurrently owned, at the same time, by several persons, all of whom have the right to ownership and enjoyment of that property.  There are three types of ownership of property: joint tenancy, tenancy in common and tenancy by the entirety, and each type has different legal ramifications and pro/con issues with respect to estate planning.

Joint tenancy means that each person has equal interest in the property. It typically arises between husband and wife with respect to ownership of real estate or parent and child for other property. The primary feature of joint tenancy is the right of survivorship of that property.  This means that if two people own property and one of them dies, the surviving person will receive full ownership rights by operation of law in that property.  For example, if a husband and wife own a home in joint tenancy together and the husband dies the wife will be the sole owner of the home.  A will stating otherwise is ineffective on the property because the passing joint tenant’s rights in the property extinguish on their death.

Joint tenancy can also be used to own financial accounts like a checking, saving or other financial institution account.  Regardless of who is listed as a beneficiary on the account, the joint tenant takes the property.  So under this type of ownership, the last living person takes ownership of the property and the property will be incorporated into their estate upon their death. To determine if a bank or brokerage accounts is jointly owned just look at the account name.  The acronym “JTWROS” or “JTROS” is commonly appended as evidence of the owners’ intent for the property to be jointly owned with survivorship rights

The second type of ownership is called tenancy in the common.  Each person is still entitled to possession as a whole but can have unequal interests in the property. For example, two people can have a 60/40 split ownership of a property or three people can split the property 40/30/30.  For real estate, this form of ownership is most common where the co-owners are not married or have contributed different amounts to the acquisition of the property.

Further, unlike joint tenancy, tenants in common have no right of survivorship.  This means that if one tenant in common dies, that tenant's interest in the property will be part of his or her estate and pass by inheritance to that owner's devisees or heirs, either by will, or by intestate succession.  For example, if an unmarried couple purchases a house, and one of them dies, the surviving member of the couple would not take over full ownership of the home, but the interest in the house of the dying person would pass to that person’s heirs by intestacy or probate.  The same outcome would occur if two people own a checking account, the heirs of the dying person would inherit their interest in the checking account.

The last type of ownership is tenancy in the entirety or entireties and is only available to married persons and generally restricted to real property. Ownership of property is treated as though the couple were a single legal person. Like joint tenancy, the tenancy by the entirety also encompasses a right of survivorship, so if one spouse dies, the entire interest in the property passes to the surviving spouse, without going through probate. Further, only a joint creditor to the married couple may severe the tenancy.

I hope this helps those out there understand a little more about property ownership as my newsletters delve further into estate planning issues.

The Estate of the Month - Sean Taylor

The tragedy of Taylor’s death is enhanced by the lack of steps Taylor took in planning his estate. A Washington Post article from September 30, 2009 details how Taylor’s loved ones have suffered beyond Taylor’s absence. The main reason for their suffering - Taylor died without a will – including foreclosure and financial difficulty is not unsurprising given the lack of estate planning that occurred.  In fact, it appears from the article and court records that he failed to take any steps in organizing his affairs.  That means most of his estate was administered by the State of Florida Probate system.  His estate – estimated at $5.8 million – was considerably larger than most, as a professional athlete, but the suffering is just as great.

According to the Post article, the bulk of his estate passed to his daughter based on Florida intestate rules.  But, several pieces of Taylor’s estate passed outside probate including a bank account worth over $300,000 that passed to Taylor’s father.  Taylor’s father was a joint tenant with right of survivorship on the account. A life insurance policy in the amount of $650,000 listed one of Taylor’s sisters as the beneficiary and also passed outside of probate court.  No one else received anything else from Taylor’s estate even though he financially supported many of his family members while he was living

Taking a 50,000 foot view of the two items that passed outside probate, it is pretty simple to see what happened.  I would surmise that Taylor’s bank account with his father stemmed from Taylor’s high school days.  More likely then not when Taylor opened the account as a minor, his father signature was needed as co-signer to open the account.  They then probably made the decision to make it a joint tenancy based purely on Taylor’s father being a co-signer… a very common occurrence. After Taylor started playing for the Redskins, there certainly would be less need for it to be a joint account.

The life insurance policy naming his sister likely occurred from a time prior to Taylor having a child and was never updated.  It is very common for people to forgetting to update life insurance policies, bank accounts and other transfer on death accounts after a life changing event, like having a baby.

Given Taylor’s largess in supporting his family, a great deal of suffering could have been avoided by a few simple steps. I certainly won’t judge how some of Taylor’s family members became reliant on Taylor’s earnings, but it demonstrates that everyone needs to plan for their passing – be expected or unexpected.

A few simple steps would have likely avoided the foreclosure of his mother’s house that he bought her and ensure that his wishes in administering his estate would be granted.  Removing his father from being a joint tenant on a bank account would mean the listed beneficiary would receive ownership of the account or it would pass into probate for the court to decide who gets ownership.  Secondly, renaming the beneficiary on his life insurance policy would  also ensure the benefits of the policy would go to the right person.

Other steps Taylor should have taken would be at a minimum to draft a will to bequeath his estate out according to his wishes.  I find it unlikely that he would have left his mother and other family members in such a financial predicament given his history of supporting them. Taylor could also have formed some type of trust that would accept the property from his estate to be used to protect his loved one from financial upheaval.

Hopefully, this tragedy will give everyone a moment of pause.  Regardless of how young one is, their death will bring unforeseen consequences that will effect everyone around the decedent. Planning your affairs can dramatically reduce the impact and mitigate the financial unknown loved ones’ may feel at your death.