Living Trusts and the Issue of Mental Capacity

These days, hardly a day goes by that we don’t hear about someone we know being diagnosed with Alzheimer’s or some form of dementia. In some tragic cases, it comes way too early and it’s agonizing to see a life cut short.

Alzheimer’s: No hope, no cure

Alzheimer’s is one disease for which we have no cure, no revolutionary treatment. It violates every demographic, and the statistics indicate that nearly 80% of us will experience some kind of dementia before we die—it may not be the complete debilitation of Alzheimer’s, but we’ll have some degree of memory loss and inability to deal with our surroundings. For those who are in the process of creating a Living Trust, along with a Power of Attorney and Advance Healthcare Directive, this presents a potential problem. At what point is someone incapable of creating and signing a legal document such as a Living Trust?

Legally, everyone is presumed to be competent

However, the presumption that someone has legal capacity can be challenged in court. If the challenge is successful, the court will invalidate the Living Trust, making it necessary for the heirs to go through Probate to settle the estate and distribute the deceased’s assets.

Possession of a mental deficit

In California, testamentary incapacity does not refer to physical or mental disorders, but rather to one of three factors: The inability of a person to understand and sign estate-planning documents, the presence of an unsound mind or the possession of a mental deficit “so substantial that, under the circumstances, the person should be deemed to lack legal capacity.”

It’s important to note that age, illness and disease in themselves are not factors in the determination of testamentary capacity. People can be well into their 90s or suffering from debilitating disease, yet still have the capacity to be fully cognizant of what they are doing, legally able to sign a Will and Living Trust.

Under California law, deficits that may affect testamentary capacity are divided into four categories.

• Alertness and attention. The court would be looking for poor arousal or consciousness; a weak orientation to time, place, person, and situation; inability to concentrate.
• Information processing. This includes deficits in short or long-term memory; the inability to understand or communicate with others; the lack of recognition of familiar objects and people; the inability to understand and appreciate quantities; the inability to reason logically and to carry out a plan or action.
• Thought processes. Extreme examples of inability to complete thought processes would be hallucinations, delusions and uncontrollable, repetitive thoughts.
• The ability to modulate mood and effect. In this case, there would be evidence of persistent, recurrent moods inappropriate to an individual’s circumstances, including euphoria, anger, anxiety, fear, panic, depression, hopelessness, despair, apathy or indifference.

The presence of one or more of these factors does not necessarily mean someone is incapable of making decisions regarding his/her estate or signing related legal documents–an illness or prescribed medications may temporarily influence testamentary capacity, for instance. Once the prescribed drug treatment is finished or the illness has passed, the person may be fine once again.

With a diagnosis comes some immediacy

But evidence of any one or all of these factors in at least some degree raises the need to take extra precautions if you or someone in your family is creating estate-planning documents. Once people have been diagnosed with dementia, there is, of course, the need to create end-of-life documents as quickly as possible. In addition to the issue of testamentary capacity, there are very practical considerations–they may soon need these documents to be in place if they are no longer able to take care of their own affairs and make decisions about their own care. They will need to identify a Power of Attorney and an Agent for their Advance Healthcare Directive.

Do I Really Need a Trust or is a Will Enough?

We get a lot of questions from our clients about whether or not they really need a Revocable Trust or whether a Will, a simpler legal document, is enough. Trusts are an increasingly popular estate-planning tool for a number of reasons. Trusts are private while a Will is a public document, available to anyone who wants to search public records. If your privacy is important to you, you want a Living Trust.

Let’s look at the case of the late North Carolina basketball coach Dean Smith

Smith died in 2015 and left $200 each to an estimated 180 players he’d coached over the course of his 36-year career. The small payouts come from his Revocable Living Trust—not a Will. Smith had set this up because he didn’t want attention on himself; rather, it was about his players, as it had always been. Coaching and mentoring young men, including Michael Jordan and James Worthy, was his legacy, and he was widely admired not just for his winning record but for running a consistently clean program with a high graduation rate; an estimated 97% of his athletes received degrees. Smith also helped promote desegregation by recruiting the university’s first African-American scholarship basketball player and pushing for equal treatment for African Americans by local businesses.

For Smith, each of his players was special and important

Each of Smith’s players who lettered received a check for $200 and a letter, suggesting he “enjoy a dinner out, compliments of Coach Dean Smith.” Because this was set up as part of a Revocable Trust, each transaction was completely private; it only became public when former players posted their letters and checks on social media and they went viral.

Other advantages of a Living Trust

• Revocable means that if you change your mind and want to dissolve the Trust at some point, you can do so without a problem or penalty.
• Assets that you transfer into the Trust don’t go through Probate when you die. Without a Living Trust, your heirs must go through Probate, and your Estate becomes a matter of public record. Probate can be time-consuming and expensive.
• Many of our clients are concerned that they will have forgotten to include some of their assets in their Living Trusts. For this purpose, there is a safety net that California Document Preparers includes in our Living Trust package called a Pour Over Will. It essentially transfers any remaining assets or property not previously transferred into the Trust—they “pour over” into the Trust so they may be distributed according to the terms of the Trust.
• As part of our comprehensive Living Trust package, we also include a Power of Attorney and Advance Healthcare Directive. We want our clients to be thinking about the full range of end-of-life document requirements and needs. Whom would you appoint to make healthcare decisions for you if you were no longer able to make these decisions for yourself and who is the best person to help with paying bills and managing your everyday needs.

One more thing: A Living Trust is meaningless if it’s not funded—your assets, including real property, must be moved into your Trust. Your Trust should also be updated with important life events—births, deaths and important investments.

Are you still putting off creating or updating your Living Trust? We prepare the legal documents and notarize them–most of our clients tell us they’re surprised at just how easy it was! Make an appointment today to get started on your Trust.

Probate Case Study: The Story of Sally and the Sharks

About a year and half ago, a well-dressed woman came into the Oakland office and asked Ian, one of the owners, if he did Probate. “Yes, of course we do!” Ian loves doing Probates.

This woman was very professional and pleasant. She was accompanied by a past client, and apparently the two of them worked together. Ian had enjoyed working with this client, so he was delighted with the referral and was looking forward to working on a new Probate case.

Mrs. Cruikshank became a client. Her business? Buy low, sell high

Mrs. Cruikshank asked Ian if she could be a client: Ian would prepare Probate matters for her for the true Entitlees to the properties, as a vendor. Her business was buying and selling houses that were in Probate; she intended to clean up by buying low and selling high. Well, that’s how people like JP Getty and the Rockefellers made their fortunes—it’s the American way, right?

Meet Sally, the Estate’s Administrator

One could not have imagined a nicer, more caring person than Sally, who out of the goodness of her heart stepped up to administer the Estate after those named in the decedent’s Will refused to do so, even though they were going to inherit assets from the Estate. Sally had nothing to gain; she was the decedent’s longtime friend, and felt compelled to help.

The Shark Crew was trying to buy the Estate’s real estate for a price that was far below market value—a total violation of the probate code. They should have gotten a professional appraisal to determine current market value in the Bay Area’s red-hot real estate market. Instead, they circumvented this step and tried to practically steal the Estate’s property.

In Probate Court, the Court’s in charge

Thank goodness for the Probate Court. At a hearing for court confirmation of the sale, the court essentially forced the Shark Crew to pay a reasonable price for the property. Once the house was sold, Ian mistakenly figured that the Shark Crew was gone. Wrong.

One of the Estate’s less-functional beneficiaries was still living in the house. The home was no longer part of the Estate, so it was no longer CDP’s matter. But the Shark Crew convinced Sally to pay a distribution to all of the Estate’s beneficiaries before obtaining a court order to generate money to help this beneficiary move. This also cleverly saved Mrs. Cruikshank and the Shark Crew the time and expense of evicting this squatter.

Ian, a law and order guy, becomes her worst nightmare

Meanwhile, Mrs. Cruikshank was really sick of hearing from Ian—his constant hand-waving about pesky things like rules, procedure and the probate code. Ian’s a law and order guy, after all. She’s religious and figured God would either absolve her, take care of her—or at the very least, forgive her for her sins.

Now, as they wearily approach the end of this long, strange journey to close the Estate, Ian’s trying to keep his client from being sanctioned by the court for her extremely poor judgment.

The moral of this story: Avoid Probate by getting a Living Trust!

Stay out of probate! Do a Living Trust, for crying out loud, and avoid the sharks who want to “help” you sell your real estate.

If you do find yourself needing to go through Probate, find a good provider, such as a lawyer or Legal Document Assistant with a good reputation. There are no shortcuts. Real estate scams abound, and Probate creates low-hanging fruit. People are grieving, in a state of shock and loss, mourning their loved ones. They’re vulnerable and facing the long, confusing Probate process. When some nice person offers to “help” them, they’re delighted. Don’t get eaten by sharks–stay out of the water in the first place.

Of course we do Probate! Contact us one of our three Bay Area offices. Better yet, avoid Probate altogether and make an appointment to get started on your Living Trust. We help you through every step of the process. Helpful. Compassionate. Affordable

Tom Clancy’s Estate Battle: Wording Trumps Intentions

Tom Clancy died in August of heart failure. Just 66, he left behind a huge body of work, and most of us remember him for his books and the movies they spawned, including The Hunt for Red October and Patriot Games. He left behind a family, a fortune and an estate battle, but the struggle between his widow and four adult children over his $86M estate is now over. Maryland’s highest court ruled about a key clause in the codicil to Clancy’s Will, and the ruling was a decisive victory for Clancy’s widow.

Legal documents written in an unclear manner

One of the best-selling authors of all time, it’s ironic that the fight boiled down to an interpretation of a clause in his estate-planning documents that was written in an unclear manner.

The dispute centered around a provision in Clancy’s second codicil (amendment) to his Will. The Will, signed in 2007, divided Clancy’s assets into three Trusts:

• One-third for his wife
• Another third for his wife to use while she was alive and then onto his daughter from that marriage
• The last third was to be split among his four adult children from a prior marriage.

Just weeks before he died, Clancy signed the codicil, which included this key sentence: “No asset or proceeds of any assets shall be included in the Marital Share of the Nonexempt Family Residuary Trust as to which a marital deduction would not be allowed if included.”

Four justices sided with the widow 

Maryland’s court was closely divided about what this language meant. The four who ruled in favor of Clancy’s widow believed that this clause meant that all estate taxes from Clancy’s Estate would have to be paid by the children’s Trust, not the Trusts containing her money, because that was the only way to fully protect the marital deduction to federal estate-tax laws.

Three justices sided with the four adult children

These justices felt that the children should only pay one-half the tax bill, not all of it, and this clause did not alter the outcome. They felt that Clancy wanted to protect the marital deduction but not to increase it at the expense of what his children would inherit.

Interestingly, the lawyer who drafted the codicil initially acted as executor of Tom Clancy’s estate, and he sided with the children. This suggests that the language was intended to apply as the children contended, yet the law isn’t about intentions, but what the documents actually say.

What does this mean for Tom Clancy’s heirs?

The four children now have to pay the IRS estate tax bill of almost $12M. If they’d won, the total tax bill would have been closer to $16M, but they would have been able to split it with one of the Trusts set up for Clancy’s widow. The results: they lost $8M, and the IRS lost out on $4M.

A strange irony for a writer

A loss of $8M for Clancy’s adult children, two years’ worth of litigation and who knows how much money in legal fees. And it all would have been avoided if the language had been more clear.

Take a lesson from Tom Clancy: wording trumps intentions

The wording of your estate-planning documents is what matters, not your intentions. While most of us, unfortunately, don’t have $86M estates over which our heirs will haggle, battles like this occur on a regular basis across the country. Make sure all of your assets are accounted for; read your documents carefully; understand what everything means before signing.

Still putting off your Living Trust? We prepare the legal documents and notarize them–most of our clients tell us they’re surprised at just how easy it was! Make an appointment today to get started on your Trust.  

Living Trust Case Study: Grandma Outsmarts Her Family

When it comes to the matter of distributing someone’s assets after he/she dies, funny things happen–even in the best of families. The reality is that when there is money involved–assets, property and valuable belongings–greed often rears its head. In some cases, it’s the aggressive sister and her greedy husband who are the troublemakers. But just as often, someone else entirely thinks he or she deserves the biggest share of their parent’s estate.

In our Oakland office, one of our clients entertained our team with what is ultimately a very funny story about his grandmother and the greedy relatives who were hoping to inherit their share of their grandmother’s modest estate.

He had always been close to his grandmother

Our client’s grandmother had helped raise him, and she had always been loving and supportive. They had remained very close, and it was his turn to care for her in the final years of her life. He had helped her create her Living Trust and he had Power of Attorney, paid her bills, took her to her doctor appointments, checked in with her most days and spent as much time with her as he could. In turn, she left most of her modest estate to him.

This grandmother was a hoarder

We probably all know a few people like this kind grandmother—she grew up during the depression, and she never forgot those difficult times, so she saved/repurposed everyday items. Cottage cheese cartons were her Tupperware containers, empty bread sacks with their little plastic closures became her Ziploc bags. She lived alone in her later years, and her cupboards, drawers, attic and garage became stuffed with the containers and other paraphernalia that she was saving to repurpose for some other use—things that should have long ago been recycled or gone to a landfill.

Grandma was tough, independent and resilient, but old age finally caught up with her, and at 93, she knew she didn’t have long to live. Assorted family members gathered around her, most of whom hadn’t bothered to call, write or stop in to see her in years. She slyly told everyone that there was a large amount of money hidden in her house. The result? The house and all of its bags and empty containers was cleaned out in record time. Our client, who was her caretaker, knew that there was no fortune, but took great pleasure in watching his greedy family members clean out the house as they searched for the money, each hoping to be the one who uncovered the hidden riches. Grandmother enjoyed her little joke enormously and got the last laugh.

There is a moral to this story

People tend to move real property, brokerage accounts, life insurance policies and other big-ticket items into their Living Trusts. But in all too many cases, smaller items are not accounted for. And it’s these items that can cause family conflicts. Many of these items have monetary value, but often it’s the sentimental value that makes them just as coveted. The more detail you provide as you create your Living Trust, the less dissension there will be for your family.

Are you still thinking about creating a Living Trust in 2016? 

There’s still time. The California Document Preparers team can help you. Call today to schedule an appointment.

Lessons on Estate Planning from Gene Wilder

A comedian whose career spanned 40 years, Gene Wilder was 83 when he died in August from complications from Alzheimer’s disease. He kept his illness hidden from most people for at least three years. The star of legendary comedies Blazing Saddles, The Producers and Willy Wonka and the Chocolate Factory reportedly wanted his fans to keep laughing over his large body of work rather than mourning the tragedy of his final years.

According to experts, keeping Alzheimer’s a secret is a common approach

Most Alzheimer’s sufferers hide symptoms for as long as possible for a variety of reasons.

• Losing control. Those who are alone fear they’ll lose control of their own lives if their family or friends think they can no longer care for themselves and/or handle their own affairs.
• Shame. There is also considerable shame attached to this disease, and many people who are in the early stages of dementia are understandably in denial. It may be family members, alarmed about cognitive changes, who finally force the issue. Interestingly, those patients who have advanced education or who have used their brains the most during their careers who are most successful at hiding their disease the longest.
• Loss of friends. In another blog we talked about a New York woman who was diagnosed with early Alzheimer’s, and her therapist advised her not to tell her friends for fear they would abandon her. Her solution? She stopped going to that therapist, told her friends and, indeed, did lose a few friends who did not have the capacity to provide the support she would need.

Dementia and Alzheimer’s are becoming common among the elderly and, unfortunately, the incidence will increase as our baby boomer generation ages. An estimated 80% of us can expect to experience at least some degree of dementia in our lifetimes.

Being diagnosed with Alzheimer’s creates immediacy

If someone in your family has been diagnosed with Alzheimer’s disease, it is critical to move quickly to create or update a Living Trust and other estate-planning documents before the person deteriorates and is unable make decisions or sign legal documents.

Those suffering from the early stages of Alzheimer’s disease or other forms of dementia can often still make legally valid decisions for themselves. It may be necessary, however, to get a doctor’s letter attesting to the patient’s ability to understand what he/she is signing. It’s important to make sure that all of the legal documents are in place, including the Will, Living Trust, Power of Attorney and Advanced Healthcare Directive. At California Document Preparers, our comprehensive Living Trust package includes a Power of Attorney and an Advanced Healthcare Directive.

Creating a Power of Attorney to manage income and assets

The Power of Attorney, called an agent, is usually a trusted family member, domestic partner or friend, who will make financial and other decisions when the person with dementia (the principal) is no longer able. Power of attorney documents should be written so that they are durable–valid even after the principal is incapacitated and can no longer make decisions. The agent is authorized to manage and make decisions about the income and assets, according to the instructions, and in the best interests, of the principal.

An Advanced Healthcare Directive to make decisions about care

An Advanced Healthcare Directive empowers a trusted friend or family member to make healthcare decisions for the principal when he/she no longer can. This includes choosing doctors and other providers, including hospice care. It also includes treatment and care facilities. For a person in the later stages of dementia, the healthcare agent also may make end-of-life decisions, such as giving do not resuscitate (DNR) instructions to healthcare providers. For the person with dementia, it’s important to talk through his/her wishes early on to make sure the agent not only understands but agrees to act on his/her behalf.

A final caveat . . .

When a person suffering from Alzheimer’s disease signs new estate-planning documents after the disease has progressed, it greatly increases the chances that someone in the family may contest the validity of the documents in court. Getting these end-of-life documents in place as soon as possible after the disease’s diagnosis helps assure that they will not be challenged.

Call the California Document Preparers team today to schedule an appointment for your Living Trust. We help you through every step of the process.

Supreme Court’s Gay Marriage Ruling Levels Field for Estate Planning

When gay, lesbian, and other proponents of same-sex marriages celebrated the US Supreme Court‘s landmark ruling in Obergefell v. Hodges, millions of Americans became eligible for dramatically different legal rights upon the death or disability of a life partner than were previously possible. These rights extend to estate planning. Gay and lesbian couples now have a level playing field, equal to that of heterosexual couples.

Legal implications of the ruling: symbolic, monetary and life-changing

The Supreme Court opinion in Obergefell illustrates this by sharing the stories of three sets of plaintiffs involved in that case.

1. James Obergefell and John Arthur

The lead plaintiff, James Obergefell, was motivated by nothing more than being legally recognized as the spouse of his partner, John Arthur, whom he married shortly before Arthur died from ALS. Obergefell wanted to be listed on Arthur’s death certificate as his spouse. Before the ruling, that was not possible because the State of Ohio did not recognize same-sex marriages, even though the couple had flown to Maryland to be wed—the tragedy, of course, is that they had to fly to another state to become legally married.

Happily, with the Supreme Court ruling, the “surviving spouse” box on Arthur’s death certificate does not have to be left blank. Obergefell can hold an official State of Ohio death certificate in his hands naming him as the spouse of John Arthur. For a heterosexual married couple, this may seem like a small thing, but this is a major victory for this and every other gay couple in the country.

2. Thomas Kostura and Ijpe DeKoe

Thomas Kostura lost his legal recognition, under state law, as the spouse of Army Reserve Sergeant First Class Ijpe DeKoe every time they traveled across state lines to return home to Tennessee. This meant that if DeKoe had been killed in action on a mission to Afghanistan, Kostura would not have been eligible to receive all governmental benefits that opposite-sex partners of military members are entitled to receive.

In late 2013 that changed when the Supreme Court issued its prior gay marriage decision mandating that all married same-sex federal employees could receive employment benefits to the same extent as other married couples. But what about state employees — or even state-issued benefits, like Medicaid? Kostura and DeKoe could not receive them in Tennessee, even though the only reason they moved to Tennessee was because the US military required DeKoe to do so.

Now, Kostura and DeKoe are both entitled to all government benefits available to spouses, state and federal, regardless of what state they live in--just like their heterosexual counterparts.

3. April DeBoer and Jayne Rowse

For Michigan couple April DeBoer and Jayne Rowse, ruling’s impact may have been even more profound. This lesbian couple adopted four special-needs children and provided a loving home for kids badly in need of one.  Michigan law, however, prohibited adoption by two same-sex parents. This meant the couple had to divide up who adopted each child. The exception was the last child, adopted by the both of them after a federal court judge previously ruled in their favor--a temporary ruling until the Supreme Court’s decision.

If DeBoer had passed away, Rowse would have had no legal rights as a parent to DeBoer’s two children. Each child legally would have had one parent, not two. The Supreme Court ruling brings cohesiveness to this and many other families throughout the country.

Now both parents will be able to direct schools, hospitals, doctors, etc. that they are the legal parents of all four of their children. They don’t have to worry that if tragedy strikes one of them, several of their children would be legally without a parent. DeBoer, Rowse and their children are finally recognized as a single family under the eyes of the law.

Further impact Estate Planning for LGBT couples

These three examples are really only the tip of the iceberg when it comes to estate planning issues. Before the Supreme Court ruling, gay couples in states that did not recognize gay marriages (or possibly could refuse to recognize them in the future) estate planning looked significantly different for gay couples than it did for married couples. 

The unequal treatment in the law meant no:

• Spousal rights of inheritance
• Spousal support in the event of a death or divorce
• Intestate inheritance rights
• Legal priority to act as a guardian, conservator or executor if a partner died or became incompetent
• Protected pension rights
• Dower rights to protect real estate

LGBT couples were unable to create a joint marital trust

Prior to the ruling, LGBT couples had no guarantee of access to their loved ones in the hospital, especially when traveling out of state. They could never have been certain that, when naming a partner as a future decision-maker under a Living Trust, Advanced Healthcare Directive, or Power of Attorney, that their choice would have been recognized — especially if challenged in court by “actual” family members. Wealthy couples would have potentially faced double inheritance taxes, along with being denied other tax savings that are available for married couples.

The final act of saying good-bye to a loved one—planning a funeral to honor and celebrate a lost life? This was a right that belonged to the next of kin and was often usurped by a so-called family with whom someone really had little relationship. Today, next of kin includes same-sex spouses.

Married gay couples can now prepare Wills, Trusts, end-of-life documents, and other estate-planning instruments in the same was as their married hetero counterparts can. They no longer need to be concerned about what could happen to a spouse or children if one of them were in an accident and a judge refused to recognize the marriage.

No one likes thinking about the inevitability of death, the consequences of aging or becoming incapacitated. But now LGBT couples can face these issues in the same way as everyone else, secure in the knowledge that they’re protected by the laws of the land, that they won’t be discriminated against because of their sexuality.

If one of your New Year’s resolutions was to create or update your Living Trust, call one of our three Bay Area offices today to make an appointment. We help you through every step of the process