Most people think that when they receive an inheritance they have to take it. However, you have no legal obligation to take any inheritance. You can actually refuse it. The legal term for doing so is called a “Disclaimer.” When you disclaim an inheritance, the law assumes for purposes of distributing the disclaimed property that you have passed away. That means that the inheritance you would have received will go to your heirs.

There are many reasons to disclaim an inheritance. The most common reasons have to do with very large estates and very small estates. In a small estate, real property often comes with a mortgage. If you cannot afford the mortgage or simply do not want the property, then you can disclaim it. It might be a good idea to have your heirs disclaim the property as well. In a large estate, the property is subject to the estate tax. If you plan on leaving it to your children, it will be subject to the estate tax again. You can get around this double-dipping of the estate tax by disclaiming the inheritance. It will go to your children now and the estate tax will only have one bite at it.

Before taking an inheritance talk to an attorney to see if disclaiming it might be better under the circumstances.

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Ryan M. Denman and Dennis D. Duffy

Duffy Law Office

Duffy Law Office is a member of the American Academy of Estate Planning Attorneys.

When you leave assets to someone in your estate plan, he or she is not legally required to accept them. The inheritance can be disclaimed. This is often done for tax reasons or to avoid inheriting property with more debt that its worth. When this happens, the property generally passes to the next heir according to the laws of Intestate Succession.

The law assumes that the person who disclaimed the inheritance predeceased you and the inheritance goes to the next person in the line of succession. However, there are exceptions to that. If you have a Trust, for example, that goes to person A for her lifetime and then goes to person B, person B can accelerate his or her inheritance if person A disclaims the Trust. That means that Person B gets the Trust immediately. This is not always a good outcome of Person B is a minor child. However, it might be better than Person C, who would be the next in the line of succession, getting the Trust for his or her lifetime.

The best course of action is to think about what will happen if one of your heirs or beneficiaries disclaims the inheritance. In most cases, you can designate an alternate person to receive it, making it your choice rather than up to state law.

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Thanks again.

Dennis D. Duffy

Duffy Law Office

Duffy Law Office is a member of the American Academy of Estate Planning Attorneys.

The dynasty trust carries on generation after generation, providing assets and avoiding federal transfer taxes for as long as the assets remain in trust. In addition, the assets in the dynasty trust have asset protection.

“Asset protection” means that trust assets can’t be taken by the creditors, divorcing spouses, disgruntled business partners, bankruptcy court, medical bill creditors, or any lawsuit creditors of any of the beneficiaries….forever…so long as the assets remain in trust.

Federal Transfer Taxes Eliminated

The financial savings of avoiding the federal estate tax and generation skipping taxes is tremendous; this is how wealthy families maintain and build their wealth. Instead of the assets being sliced in half by taxation with each generation, they grow and grow and grow. Compounding.

Asset Protection Granted

Assets in the dynasty trust are only available for the trust beneficiaries, not their creditors. Likely, assets can be used for beneficiaries’ health, education, maintenance, and support; although, on occasion, different distribution terms are included. The trust itself will provide specific direction. The trust will, specifically, state that the assets cannot be assigned to creditors.

Trustee Required

Although it has been commonplace for beneficiaries to be named as the trustee of their own trust share, this is short-sighted. If a beneficiary is the sole trustee of his or her own trust share, the court can order the trustee/beneficiary to release the assets. Instead, a co-trustee should be named to serve with the beneficiary/trustee, if the beneficiary is to serve at all.

Funded with Life Insurance

Dynasty trusts are often funded with life insurance. Consult with a qualified estate planning attorney to determine whether a dynasty trust fits into your customized estate plan.

Duffy Law Office is a member of the American Academy of Estate Planning Attorneys.

Our discussion continues from part one of this article.  As a reminder, the terms, “power of appointment” and “power of attorney,” sound similar but mean something very different.  They are both estate planning terms.

A general power of appointment indicates that the trust beneficiary can appoint the trust assets to anyone, including her creditors.  In fact, the person that holds the general power of appointment (i.e. the trust beneficiary) can direct the trust assets to herself, her estate, and creditors of her estate, as well.

Second, powers of attorney are likely more familiar to you than powers of appointment.

The two main types of powers of attorney are health care and financial.

Health Care Powers of Attorney

• The health care power of attorney may also be called a “medical power of attorney” and may contain a HIPAA release.  If it doesn’t, you need a separate HIPAA release.
• The health care power of attorney is effective if you can’t provide informed consent.
• Your health care agent makes health care decisions for you if you cannot.
• Appoint health care agents and contingent health care agents in your health care power of attorney and make sure they have access to your power of attorney document (and your HIPAA release, living will, and organ donation authorization.)

Financial Powers of Attorney

• The financial power of attorney is also called a “general durable power of attorney.”
• It’s usually effective immediately, but can be drafted to spring to life upon disability.
• It allows your agent to handle your finances and day-to-day business decisions.
• Be sure to name contingent agents as well and to ensure that your power of attorney document is available when needed.

If you have questions about how powers of appointment and powers of attorney fit into your estate plan, consult with a qualified estate planning attorney.

Duffy Law Office is a member of the American Academy of Estate Planning Attorneys.

The terms, “power of appointment” and “power of attorney,” sound similar but mean something very different.  They are both estate planning terms.

First, a power of appointment, is the term you may not be familiar with; most people aren’t.  A power of appointment is a legal right to determine who gets assets after you (i.e. at your death.)  It’s granted in a will or trust and must be exercised in a will or trust.

The person who gives the power of appointment is called the “grantor.”  The person who is given the power of appointment is called the “holder.”

For example,

Meg designed her estate plan, passing her assets to trusts for her two children, Sandy and Cheri, at her death.  Meg also gave the children limited powers of appointment.  This means that Sandy and Cheri can dictate in their own will or trust who, among their descendents, will inherit their trust shares created by Meg.

Typically, limited powers of appointment mean that the assets can only be distributed among descendents.  General powers of appointment are used when the individual doing estate planning wants the trust assets to be taxed in her beneficiaries’ estates.

This may sound odd, but sometimes being taxed actually saves taxes as in the case of the federal estate tax and generation skipping tax.

Please continue reading “Is a Power of Appointment a Power of Attorney? (Part Two of Two)” to learn more.

Duffy Law Office is a member of the American Academy of Estate Planning Attorneys.

Owning a family vacation home is a nice tradition and creates a life-time of memories for you and your children.  If you wish to continue that tradition into further generations, you need to protect the family vacation house with good estate planning.

Trusts or business entities are used to provide asset protection, pay taxes and maintenance fees, and keep the peace regarding responsibilities and usage.  Be careful to accurately estimate future expenses and include these funds, if your children may not have the funds to maintain the property on their own.

Do not use joint ownership with a child or between children.  Joint ownership commonly leads to disinheritance.  In addition, it has other pitfalls:

• If you own the vacation home with your child, it is subject to seizure by your child’s creditors.  There is no asset protection.
• If your child becomes estranged or develops an addictive issue, he can force the sale of the property.
• When you die, only that child will inherit the vacation house; this disowns your other children.
• When you put a child’s name on an asset such as the vacation house, you are transferring your tax basis.  If the asset is passed at your death, your children would receive a step up in basis to the date of death value and save on taxes at subsequent sale.
• If you give the house to your children and they own it in joint names, the surviving child will own the vacation house, disowning all grandchildren except through that line.  In addition, the value of a deceased’s child’s share would be included in his or her estate so the surviving spouse and grandchildren would pay taxes on the share but have no rights to it.
• If your children own the house jointly, it’s subject to the creditors of all the children.

If you have a family vacation home that you’d like to keep in the family, consult with an estate planning attorney to transfer the house to your children in a business entity or trust.

Duffy Law Office is a member of the American Academy of Estate Planning Attorneys.

When you are designing your estate plan, keep in mind that minor children, those under age 18, cannot inherit.  It’s a legal impossibility.  If you try to give assets outright to a minor, the court will intervene, name a guardian for the assets, oversee the guardianship, and allow the minor to have the assets at age 18, no matter how large the dollars.  This, likely, isn’t what you would want.

If you would like a minor such as your child or grandchild to be a beneficiary of your estate, include provisions in your revocable living trust to pass the assets in trust shares.  You will name a trustee (and successor trustees) to manage the assets and make distributions for the minor’s benefit, per your instructions.

Name the child’s trust as the beneficiary of a life insurance, annuities, or retirement accounts that you wish to pass to him or her.

The trust will provide for your beneficiary’s health, education, and maintenance.  You can keep the terms of the trust general to allow your trustee to make good decisions at the time or you can include specifics regarding providing something that may be important to you such as college education or travel opportunities.

A life-time trust is the best way to inherit.  So, when your minor beneficiary attains the age of 18, keep the trust provisions in your estate plan.  At that time, you may want to add the child as a co-trustee, in progressive levels of responsibility, so the child learns about managing money, making investments, and living within his or her means.

Life-time trusts provide asset protection so assets can’t be taken by creditors such as a divorcing spouse, bankruptcy creditor, or car accident creditor.  In addition, the trust will include special needs language so if your beneficiary is ever receiving governmental assistance, the inheritance will not disqualify him or her.

If you wish to pass assets to a minor beneficiary, consult with a qualified estate planning attorney.

Duffy Law Office is a member of the American Academy of Estate Planning Attorneys.