Author: Beth McDaniel

When the Death of a Spouse Occurs

By Beth A. McDaniel

 

 

One of the most stressful, if not the most stressful, life altering events an individual can experience is the death of a spouse. Aside from obvious impacts, there can be some not so obvious impacts:

  • I think of the woman who was frustrated as Comcast would not allow her to put the ownership of the account I her sole name as she did not know answer to a ‘secret question,’ the name of her husband’s childhood best friend.
  • The shock of a client when her bank abruptly cancelled her only credit card, which had initially been established under her late husband’s social security number.
  • The insensitivity encountered by a client when she informed her property casualty carrier of her husband’s death to be chirpily told the company’s representative, ‘there goes your married couple’s discount.’

One stress a survivor spouse may encounter is post-death estate tax planning. If the couple had a wellthought-out estate plan, their documents were likely structured to grant each spouse an opportunity for a $2.193 million exemption. How this occurs will depend upon how the documents were drafted. Typically, the estate planning document will state everything goes to the survivor spouse who then has a nine-month window in which to disclaim or relinquish their interest in certain assets. Following this, the assets are retitled into a trust (often referred to as a ‘credit trust’ or ‘bypass trust’) established for the survivor spouse’s benefit.

 

To fund such a trust, it’s essential to determine the value of the assets as of the date of the first spouse’s passing. This involves obtaining appraisals for real estate and ascertaining the account balances or financial asset values of the first spouse’s date of death. Using these valuations, the survivor spouse collaborates with their attorney, CPA, and often their financial advisor to best decide what should be disclaimed into the credit trust. Typically, the survivor spouse serves as the Trustee of the credit trust, which has its own tax identification number. The survivor spouse typically receives all income generated by the credit trust and, if needed, principal to maintain their lifestyle. Upon the survivor spouse’s passing, the assets of the credit trust are not included in their taxable estate.

 

Another method to structure a credit trust is through specific language in the deceased spouse’s Will or a revocable living trust, This language dictates that states upon the first spouse’s passing, one-half of the community property and all the deceased spouse’s separate property will be used to fund the credit trust. Here, it is still important to determine the value of the assets as of the first death as this determines the new cost basis. If the deceased spouse’s assets are greater than $2.193 million, the credit trust will be limited to that amount, or the survivor spouse may opt to pay taxes on it to keep it out of their taxable estate.

 

An important note is that although the assets of the credit trust will not be included in the survivor spouse’s taxable estate, the tax basis for the assets in the credit trust will be what the assets were worth upon the deceased spouse’s date of death. 

 

If you would like resources regarding what steps to take when a death occurs, or if you have questions regarding a special needs trusts or any other estate planning related topics, please contact our client care specialist, Margo Passeau, directly at (425) 296-3121 or by e-mail at margo@bethmcdaniel.com.

 

First Published: November 2023

What is the difference between a First Party Special Needs Trust versus Third Party Special Needs Trust?

By Beth A. McDaniel

 

A special needs trust allows a disabled person to retain assets – or enables a third person to provide assets for the sole benefit of a disabled person — without the disabled person’s losing tax exemption will increase from $17,000 to $18,000. • The federal estate tax exemption will increase from $12.92 million to More Info on page 2-3 2024 – What you will see and not see When the Death of a Spouse Occurs By Beth A. McDaniel One of the most stressful, if not the most stressful, life altering events an individual can experience is the death of a spouse. Aside from obvious impacts, there can be some not so obvious impacts: Continued on pages 7-9 What is the difference between a FirstParty Special Needs Trust versus ThirdParty Special Needs Trust? By Beth A. McDaniel losing their eligibility for important needs-based benefits. A special needs trust is a discretionary trust – the disabled person cannot direct distributions or serve as Trustee of such a trust. Typically, the only limited ‘power’ the disabled person may have regarding their trust (per the trust’s terms) is a ‘testamentary power of appointment.’ This power allows the beneficiary to stipulate, through a provision in their Will, the final disposition of any remaining trust assets upon their passing.

 

First Party Special Needs Trust.

  • A first-party special needs trust is funded with the assets of the disabled person. 
  • Other names for a first party trust include ‘d(4)(A) special needs trust,’ which cites to the Social Security code provision authorizing such a trust or a ‘self-settled special needs trust.
  • Common reasons for establishing such a trust include the disabled person’s receipt of inheritance, the disabled person’s being directly named as a beneficiary of a non-probate asset like life insurance or an IRA, or the disabled person’s receiving funds from a settlement or lawsuit.
  • A first-party special needs trust can be established by the individual (or their agent), a guardian, parent, grandparent, or the court.
  • The beneficiary must be younger than age 65 when the trust is established, and the trust must be funded before the beneficiary turns age 65.
  • The beneficiary’s social security number can serve as the first-party special needs trust’s tax identification number.
  • Upon the trust’s termination, which occurs at the earlier of the beneficiary’s recovery from disability or their passing, the state(s) must be reimbursed.
  • The only expenses which can be paid ahead of the state(s) upon the trust’s termination are taxes, liabilities incurred prior to the beneficiary’s passing, and administrative expenses.
  • It is worth noting that the beneficiary’s funeral expenses cannot be paid prior to the state(s) being reimbursed following the beneficiary’s death. This has led some of my colleagues to give such trusts the morbid, tongue-in-cheek nickname of ‘stinky body trusts’ (not pleasant, but a memorable). Consequently, it is important to prepay for funeral services expenses from the trust while the beneficiary is still alive.

A useful resource for Trustees of first-party special needs trusts is the Special Needs Trust Alliance’s Trustee handbook which can be found for free on their website (specialneedsalliance.org).

 

Third-Party Special Needs Trust.

  • A third-party special needs trust is created by a third-party for the benefit of a disabled person (“beneficiary”) and funded by a thirdparty’s assets.
  • A Third-Party Special Needs Trust can be a stand-alone trust for gifting purposes, enabling contributions for the benefit of the disabled person; more commonly, however, third-party special needs trusts are ‘testamentary,’ funded with inheritance through trust language in a Will or a revocable living trust.
  • Upon the establishment of a trust for a disabled family member, it is helpful to provide family members with a letter which states the name of the trust so they may leave assets intended for the disabled family member to the disabled family members’ third-party special needs trust. Please let us know if you would like a sample letter to send to family members.
  • Unlike a first-party special needs trust, the beneficiary’s age at the time of the trust’s creation does not have to be under the age sixty-five.
  • Additionally, the Trust does not need ‘payback provisions’ to the state(s). The creator of the thirdparty special needs trust determines the eventual final distribution of the trust’s assets, upon the earlier of the end of the beneficiary’s disability or death.

 

Things to Make Note of For Both First-Party and Third-Party Special Needs Trusts: 

  • Special Needs Trusts, whether first-party or third-party, cannot be used for food or shelter for SSI recipients without affecting their monthly benefits.
  • Shelter includes utility expenses.
  • Using funds from a special needs trust for shelter expenses will cause a one-third reduction to SSI payments. That said, it is important for the trust to give the Trustee flexibility to use trust funds for shelter as it may be in the best interest of the beneficiary.
  • If a special needs trust’s assets are used for food, the SSI payment deduction is dollar-for- dollar.
  • If the beneficiary receives Section 8 housing, any distribution from either type of special needs trust that is not a medical expense will be considered income to the beneficiary, leading to an increase in the beneficiary’s rent. To avoid this, if the beneficiary was disabled before the age of twenty-six, the Trustee can utilize trust funds to establish an ‘ABLE account.’ There would be no rental increase if qualified. non-medical expenses are paid from an ABLE account.
  • To learn more about ABLE accounts, a helpful resource is the Able National Resource Center (ablernc.com). Note: many states have ABLE accounts, including Washington (washingtonable.com), but you do not have to use Washington’s able account if you prefer the offerings of another state.
  • Both first-party special needs trust and third-party special needs trust can be designated as a beneficiary of an IRA account.
    • It is important that the trust contains provisions that the required minimum distributions (“RMDs”) can ‘accumulate’ in the trust. Otherwise, the RMDs will be treated as income.
    • Unlike ‘designated beneficiaries’ who must take the RMDs within ten years of the IRA owner’s death, disabled individuals are considered ‘eligible designated beneficiaries’ who can take the RMDs over their actuarial life. The RMDs would be treated the same way if the beneficiary is a special needs trust. Having a third- party special needs trust be the beneficiary of an IRA is preferrable.
    • If a disabled person is named as the beneficiary (rather than the trust), the hope is that they are under the age of sixty-five, as per IRS private letter ruling, it is possible for the disabled beneficiary’s inherited IRA to be rolled over to an inherited IRA owned by a first-party special needs trust. This process requires a knowledgeable advisor and proactive IRA administratoras the rollovers from the decedent’s account to the disabled beneficiary’s inherited IRA and then to the inherited IRA owned by the first-party special needs trust must occur within the same month and be completed by the first of the following month. Otherwise, the IRA account will be considered an asset of the disabled individual, jeopardizing their Medicaid and/or SSI eligibility.

 

 

For more information, or to schedule an appointment, please call 425-251-8880 or email info@bethmcdaniel.com

 

First Published: November 2023

What is the difference between a Health Care Directive and a POLST Form?

By Beth A. McDaniel

 

A Healthcare Directive (AKA “Directive to Withhold Life Sustaining Treatment” or “Living Will”) is a legal document which provides an individual’s end of life wishes should the individual be dying in a hospital or nursing home. To be valid, it must be notarized or signed in the presence of two disinterested witnesses.

 

This document becomes operative when an individual reaches a terminal condition or a permanent unconscious condition. In the context of this document, a ‘terminal condition’ is established through diagnosis by the attending physician and is legally defined in Washington law as an incurable and irreversible condition caused by injury, disease, or illness, that would within reasonable medical judgment cause death within a reasonable period of time in accordance with accepted medical standards, and where the application of lifesustaining treatment would serve only to prolong the process of dying. A ‘permanent unconscious condition’ is determined by two physicians and is defined as an incurable and irreversible condition in which the individual is medically assessed within reasonable medical judgment as having no reasonable probability of recovery from an irreversible coma or a persistent vegetative state.

 

A Healthcare Directive, at the very least, articulates an individual’s preferences concerning the withholding of nutrition or hydration. In our practice, the Healthcare Directive form goes further by encompassing preferences regarding CPR, ventilation, intubation, and the use of antibiotics. It is important to note that a Healthcare Directive can diverge in its stipulations concerning terminal conditions versus permanent unconscious conditions. Additionally, the directive may grant the individual’s agent discretion regarding decisions surrounding life sustaining treatment. This is a common stipulation for clients regarding the administration of antibiotics.

 

A Healthcare Directive should be included with the individual’s health records and should be provided to any attending physician. It is advisable that Healthcare Directives be updated at least every five years.

 

In short, although a Healthcare Directive is an ‘optional’ document, it provides helpful information to your agent, family, and healthcare providers, including whether you want to continue to receive ‘life sustaining treatment’ when you are facing end of life in a hospital or nursing home setting.

 

In Washington, the POLST (Physician’s Order Regarding LifeSustaining Treatment) Form was established the result of amendments made to Washington’s Natural Death Act in 1992. The primary objective was to provide clear guidelines to healthcare professionals operating in out-ofhospital environments and emergency medical personnel who respond to injury or illness incidents for the purpose of treating individuals who have formally expressed their wishes through a written directive or durable power of attorney, indicating their preference to avoid ‘futile emergency medical treatment’

 

It is essential to know that in Washington, emergency medical personnel are prohibited by law to act based on end-of-life directives that may be conveyed through bracelets, necklaces, or tattoos.

 

If you are seriously ill or in poor health from one or more chronic or serious health conditions, you should discuss the possible execution of the POLST form with your physician and the risks you would face in a medical emergency. In some cases, clients execute POLST forms so that emergency medical treatment is not given. In such cases, oxygen and other comfort measures would instead be administered.

 

Of course, executing a POLST form is not a guarantee that your end of life wishes would be honored in a medical emergency as, although you would likely post it on your refrigerator or another prominent place in your home, it is highly unlikely that you will have the POLST form with you should an emergency occur in a public place like a Mariner game or grocery store (that said, a client has shown me a small, laminated version of the form which she carries with her).

 

Although Medicare requires health care institutions ask patients about advance care planning documents, it prohibits them from compelling or requiring patients to have a Healthcare Directive or POLST form. Also know that in situations where both a POLST form and a Healthcare Directive contain conflicting instructions, the document executed most recently takes precedence.

 

It is essential to understand the distinctions between a Healthcare Directive and a POLST form. As mentioned, a POLST form requires a doctor’s signature and imparts specific directives to emergency medical personnel in non-hospital or nursing home settings, whereas a Healthcare Directive provides end of life directives when the individual is dying in a hospital or nursing home setting.

 

Sadly, during my legal career there have been a few instances where confusion and frustration arose for clients when emergency medical personnel failed to adhere to the Healthcare Directive after a 911 call was made from the home. It can be traumatizing to watch emergency responders administer lifesaving treatment to dying loved ones, sometimes to no avail, especially when knowing that was not the loved one’s desire.

 

If you have questions regarding a Healthcare Directive, POLST form, or any other estate planning documents, please contact our client care specialist, Margo Passeau, directly at (425) 296-3121 or by e-mail at margo@bethmcdaniel.com. 

 

First Published: October 2023

Stay Alert to Financial Scams

By Beth A. McDaniel

 

 

Falling victim to a financial scam doesn’t imply incapacity or a lack of sophistication. Financial scams are a pervasive and affect people across the spectrum of age and social backgrounds, with senior citizens being particularly targeted. Here are real-life examples of scams that have impacted individuals I know:

  • A couple receives an urgent call from a member of a non-profit organization they actively support. The caller alleges to be stranded in London, having lost their wallet. The caller references mutual acquaintances, including those who recently attended the same conference as them. Without hesitation, the couple wires the money.
    • It is when they receive a second phone call in the middle of the night, this time from an individual with a thick accent requesting additional funds, that the couple realizes they have fallen victim to a scam.
  • A victim is persuaded by an individual to make a bank withdrawal and place the cash inside a bag. Once the cash is withdrawn, the victim and perpetrator meet in the bank’s parking lot to ostensibly lay hands on the bag and pray over the money. After the perpetrator is long gone, the victim discovers that the bags were switched, and the perpetrator absconded with the money.
  • A daughter must take protective measures to stop her dad from giving money away to the ‘nice women’ he meets on Facebook.
  •  A victim maxes her credit cards and takes a loan against her house to help her ‘online boyfriend’ with his business venture. She only realizes it is not real when he abruptly ghosts her. 

A 2023 AARP report estimates that older Americans annually lose $28.3 billion to financial exploitation. In most cases, the perpetrator was known to the victim and the crimes are not reported due to shame or embarrassment.

 

Online thieves are becoming more sophisticated than ever. A September 29, 2023, bulletin from the FBI warns of a recent nationwide increase in ‘phantom hacker scams’ that are significantly impacting senior citizens. According to the bulletin, this phantom hacker scam is an evolution of more general tech support scams, layering imposter tech support, financial institution, and government personas to enhance the trust victims place in the scammers and identify the most lucrative accounts to target. Through the scams, victims often suffer the loss of entire banking, savings, retirement, or investment accounts under the guise of “protecting” their assets. Between January and June 2023, 19,000 complaints related to tech support scams were submitted to the FBI Internet Crime Complaint Center (IC3), with estimated victim losses of over $542 million.

 

If this were not grim enough, with the advent of advancing technologies, it is becoming easy to ‘spoof’ another phone number or a victim’s loved one’s voice from a publicly posted video. Know too that scammers are astute at exploiting their victim’s heightened emotional state – happy or negative – to manipulate them into making ill-advised decisions.

 

How should you protect yourself? 

Here are a few tips which could help:

  • Never give cash or gift cards to a representative of a ‘lawyer’ who is helping a loved one get out jail or a company trying to ‘protect you from fraud.’
  • Never give banking information or other personal identifiers (social security number, mother’s maiden name, birthdate, etc.) to someone who calls you.
  • If you contact a company through the company’s website, make sure that you verify that you are going through the actual company’s website, versus the first site that pops up when you conduct an online search for the company.
  • Have a secret word that only family members know. Ask for the secret word to help verify the identity of a family member who calls in a panic requesting help.
  • Do not click on unsolicited popups, links sent via text messages, or email links or attachments.
  • Do not contact any telephone number provided in a pop-up, text, or email.
  • Do not download software at the request of an unknown individual who contacted you.
  • Do not allow an unknown individual who contacted you to have control of your computer.
  • Do not ignore warning texts from your financial institution (like at least one victim did) that you may be involved in a scam.
  • Never send information like bank account numbers or social security numbers through e-mail that is not encrypted or otherwise secure – even if the recipient is trusted and well known to you.
  • If you are doing a significant fund transfer, transfer a small amount first to confirm the transfer instructions are correct (and not fraudulent) prior to transferring more significant funds.
  • Remember that if something sounds too good to be true – like an online ad selling tennis shoes for $19.99 a pair that usually sell for $140 per pair –it, unfortunately, probably is.
  • To ensure your digital safety, it is essential to have robust security software in place. Keeping it up to date is also paramount. If you need security software, before purchasing it, I recommend conducting a thorough research by reading reviews and seeking recommendations from knowledgeable individuals before making a purchase decision.
    • Once you have chosen the right software for you, download and install it directly from the official website of the security software company. Regularly run scans to detect and remove any malware. After eliminating malware, it is prudent to rerun the scan to confirm that your system is entirely free of malware.
    • Remember that legitimate security software companies will never initiate contact with you through calls, emails, or texts to inform you about issues with your computer. Likewise, they will not send unsolicited pop-ups with phone numbers for you to call regarding problems with your computer.

 

Where can you find help if you or a loved one has been scammed?

  • For fraudulent transfers involving financial accounts or a credit card, contact your financial institution immediately. Although the financial institution may not always be able to make you whole, they may be able to mitigate the damage.
  • The AARP Fraud Watch Network Helpline (877-908-3360) is staffed by volunteers who help AARP members and non-members with tips and referrals to resources.
  • The FBI requests that victims report fraudulent or suspicious activities to their local FBI field office ((206-622-0460 or 1-800-225-5324 to find a field office near you) and the FBI IC3 at www.ic3.gov. Be sure to include as much information as possible, including:
    • The name of the person or company that contacted you;
    • Methods of communication used, including websites, emails, and telephone numbers; and
    • The bank account number(s) where the funds were wired to and the recipient’s name(s).
  • File a report with the Federal Trade Commission (https://reportfraud.ftc.gov/#/), as this agency will report the fraud to the appropriate law enforcement agency. 

 

If you have additional information that we should offer to our clients regarding online scams, please contact Margo Passeau at (425) 296-3121 or margo@bethmcdaniel.com as we would love to pass it on. Let’s help keep each other safe. 

 

First Published: October 2023

The Importance of a Last Will and Testament

By Beth A. McDaniel

 

 

A Will is an optional legal document. In its absence, state law determines asset distribution and who has standing to be appointed as administrator of the estate. Nevertheless, a current Will provides substantial value: 

  • It allows nominating your preferred executor.
  • It allows selection of beneficiaries (including charities and non-family members)
  • It provides an opportunity to nominate a guardian for any minor children; and
  • It allows disposition of personal property according to your wishes.

 

A Will offers peace of mind to surviving loved and a path forward. Further, a Will can address unforeseen circumstances:

  • It can protect a beneficiary’s share, should the beneficiary become disabled after the Will is executed.
  • It can give your personal representative discretion to hold a beneficiary’s share in trust if the executor determines it is in the beneficiary’s best interest due to circumstances like bankruptcy, pending divorce, incarceration, chronic homelessness, or substance abuse.
  • It can provide direction for handling a beneficiary’s share if the beneficiary is missing (versus having to wait seven years before the beneficiary can be declared dead).
  • It provides an alternate distribution plan, should a key beneficiary predecease, or if the first nominated personal representative is unable or unwilling to serve. Likewise, a Will can state those individuals whom you would not want to serve as personal representative under any circumstances. 

 

Additionally, a Will can create opportunities for estate tax planning opportunities for the survivor spouse.

 

In our state, a valid Will must be executed in the presence of two disinterested witnesses. If there was only one witness, or one of the witnesses is ‘interested’ in that he or she stands to gain more under the Will than he or she would have otherwise been entitled if there were no Will, the Will is invalid. Of course, a draft Will found on a computer is not a valid Will.

 

It is important to have a Will even if you anticipate all your property will pass under a Living Trust or via beneficiary designations. Keep in mind that under state law, disinherited relatives who would have otherwise inherited had you not had a Will are entitled to notice of the probate proceedings and thus can potentially contest’ the Will.

 

The original Will should be stored in a safe place and the named personal representative should know its location. While it is possible in our state to admit a copy of a Will to probate, it involves additional burdens, such as obtaining written statements from the witnesses to the Will and approval from those named in the Will before it can be submitted to probate. Thus, safeguarding the original Will is vital.

Safe places to keep the Will include a safe deposit box at the bank (with the nominated personal representative as a signer on the box), home safe, or in the same location as other important papers. Some older law firms store their client’s original Wills in vaults, but this is less common.

 

Alternatively, in our state, it is possible to ‘store’ original Wills with a county Superior Court. Here, for a small fee, the Court will store your Will in a sealed envelope. During your lifetime, you (and only you) can view or remove your Will without a court order. Following your death, upon presentation of a certified death certificate and the required fee, the Will can be converted to a public filing, viewable by everyone and available for probate. Probating the Will in another state or county will require a court order to release the Will.

 

For those who want to keep their Wills’ terms private until following death, the Court’s repository is a suitable choice. It is important to inform a trusted individual your original Will is in the Court’s repository.

 

Lastly, it is worth noting that the dramatic ‘reading of the Will’ events in an attorney’s office as portrayed in books and movies are fictional. In reality, heirs obtain a copy of the Will through the probate attorney’s office or from the Court.

 

 

 

For more information, or to schedule an appointment, please call 425-251-8880 or email info@bethmcdaniel.com

 

First Published: September 2023

A Few Thoughts About Inheritance

By Beth A. McDaniel

 

In a syndicated ‘Ask Amy’ column, dated September 3, 2023, a reader shared her distress over her father-in laws informing her husband two years prior that he was being ‘disinherited’ in favor of his sister, who served as his full-time caregiver and needed his financial support. The reader expressed her difficulty in coming to terms with this decision and sought advice.

 

I have many thoughts surrounding the issue of inheritance. First, inheritance is a privilege, not a right. Everyone has the right to designate their estate beneficiaries and distribution as they see fit.

Here, the father-in-law proactively conveyed his wishes to his son. By doing so, he may have averted a future ‘will contest’ initiated by his son based upon his suspicion of undue influence brought on by his sister. Likewise, sharing this information with his son allows him to process the information and his emotions prior to his father’s passing, hopefully preventing any posthumous resentment towards his sister for blindsided him with the news.

It is not uncommon for a caregiver child to be ‘compensated’ following the parent’s death, especially as the funds may likely be tied up during the parent’s lifetime.

 

In my view, inheritance is a multifaced topic. At least one study shows that receiving an inheritance brings a surge of happiness, which is likely short-lived as at least one other study shows that few people retain any substantial portion of their inheritance one year later.

It is intriguing that the estates where the inheritance was unexpected (and the inheritor likely did not have a relationship with the relative who died) generate the most phone calls to our office with individuals impatiently inquiring about the timing of their inheritance. Perhaps this stems from the apprehension that an unexpected windfall could easily dissipate.

 

This year, we have encountered our first probate cases involving ‘inheritance advance loan companies’ in which an heir takes out a loan with a company, with ridiculous terms, in exchange for the company’s directly receiving a portion of the inheritance from the estate. If I were to ever represent such a beneficiary, I would encourage patience and not “spending” the inheritance before it is received.

In my perspective, inheritance is not just about money, it is often a final expression of love. While I can appreciate disinheritance due to estrangement, I often encourage estate planning clients to think twice about ‘disinheriting’ a child solely because another child or children ‘need it more’, as may unintentionally punish the disinherited child for being successful. As someone wiser than me pointed out, this action can have listing, multi-generational repercussions.

 

When it comes to more distant relatives, the children’s story of ‘The Little Red Hen’ often comes to my mind. In that story, the Little Red Hen repeatedly asks for help from her friends who provide excuses as to why they are too busy to help. In the end, the friends show up to reap the fruits of the Little Red Hen’s labor and the Little Red Hen turns them away. In short, I think it is entirely acceptable for someone like an aunt to allocate her estate to those nephews and nieces with whom she shares the closest bond, rather than distributing it equally among all nephews and nieces equally, regardless of the nature of their relationship.

Inheritance is undeniably intricate and warrants thoughtful consideration. On the recipient’s end, it’s wise to maintain modest expectations and keep any sense of entitlement in check.

 

For more information, or to schedule an appointment, please call 425-251-8880 or email info@bethmcdaniel.com

 

First Published: September 2023

Transfer on Death Deed – What It Is and Could It Be Helpful For You

By Beth A. McDaniel

 

A transfer on death deed allows a beneficiary to receive a parcel of real estate upon the death of the owner(s). This type of deed has existed in Washington since 2014. The transfer on death deed is recorded while the property owner is still alive. The deed names a beneficiary who will receive/own the property upon the property owner’s death. Upon the death of the owner, the beneficiary submits a death certificate and real estate tax affidavit to the recorder of the county in which the property is located. The current fees for submitting these documents to the recorder are about $54.00. It is also important for the beneficiary to take steps to get the homeowner’s insurance in their name as soon as possible

 

A recorded transfer on death deed supersedes any later attempt to distribute the real property by a Will.

A transfer on death deed avoids probate for the sole purpose of transferring the property. A transfer on death deed may make sense when there is one beneficiary or a few beneficiaries who get along well and have the same objectives for the property.

A transfer on death deed is likely not advisable when there are multiple beneficiaries, minor beneficiaries, beneficiaries who may not have the means to maintain the property, or disabled beneficiaries. I think back to a case where my client was left a life estate* in a residence owned by his late wife and decided following her death that the house was too much for him to maintain. To sell the residence, his six stepchildren needed to sign off the sale of the house. Getting their cooperation was extremely difficult. If I recall correctly, we had to petition the court for the appointment of a special master (typically a real estate lawyer) to sign the deed on behalf of the uncooperative stepchildren. In short, a transfer on death deed is likely is not advisable where there are multiple beneficiaries who may have competing interests or equal abilities to maintain the property.

 

Moreover, a transfer on death deed may not advisable if the intent upon death is for the property to be sold and the proceeds distributed among several individuals, charities, and/or to pay the tax and/or creditor obligations of the estate. Having a transfer on death deed would not avoid an estate or income tax obligation and could create complications for the fiduciary who has the responsibility to assure that the tax obligation is paid

If a transfer on death deed is executed, the transfer should be referenced in the property owner’s Last Will, as they likely would not want their personal representative to spend thousands to probate the Will only to learn after the fact that probate was unnecessary. Also, keep in mind that the Will contains the ‘back up plan’ as to what will happen with your property, should the transfer on death beneficiary predecease the property owner

 

If avoiding probate is the main objective for a transfer on death deed, a revocable living trust should also be considered. If all the assets subject to probate are in the trust name prior to the death of the Trustor (creator of the trust), probate can be avoided all together. There are other options to life estates, like trusts – a topic for a future newsletter.

 

 

Disclaimer: this newsletter is informational only and should not be construed as legal advice.

If you have questions about leaving property to a relative, guardianship/conservatorship, or would you like to discuss your estate plan, please contact our client care specialist, Margo Passeau, directly at (425) 296-3121 or by email at margo@bethmcdaniel.com

 

First Published: July 2023

Committed Intimate Relationships – What They Are and Why You Should Know

By Beth A. McDaniel

Do you have — or does someone close to you have – a significant other? If so, are you familiar with the term ‘committed intimate relationship?’

Based upon my informal polling, I am guessing the answer to the last question is “no.” Committed intimate relationships (“CIRs”) appear to be a booming area of law in our state. I continue to be surprised when yet another colleague tells me of a lawyer in their firm who has CIRs as a main part of their law practice. Clearly it is something that should be given attention.

 

In accordance with a 1984 Washington court case, In re Marriage of Lindsey, a CIR is a stable, marital-like relationship where both parties cohabitate with the common knowledge that a marriage between them does not exist. In determining whether a CIR exists, the court considers the following nonexclusive relevant factors:

1. Continuous cohabitation

2. Duration of the relationship

3. Purpose of the relationship and whether it is inclusive

4. Pooling of resources and services for joint projects

5. The intent of the parties

 

Pursuant to a 1995 Washington court case, Connell v. Francisco, for a court determine whether a CIR exists, a three-pronged analysis if followed: 1) the court must look at the relevant factors and determine whether a CIR exists; 2) if a CIR exists, then the court must evaluate the interest of each party in the property acquired during the relationship; and 3) based on such information, the court must make a just and equitable distribution of property.

The purpose of Lindsey Connell, and similar cases is to protect individuals who may be left at a financial disadvantage upon the termination of such a relationship due to death of one of the partners. Such surviving partners may feel helpless watching their deceased partner’s family members ‘swoop in’ to claim assets.

 

On the other side, the advent of CIRs may have unintended results. For example, during a relationship there may have been a mutual understanding that everything is separate and that assets will go to the deceased partner’s children upon the partners’ respective deaths. Note that it may not make a difference if the deceased partner remembered their partner in their Will or named them as an asset beneficiary.

When a partner of a CIR dies, the surviving partner may submit a petition to the court requesting the estate assets should be distributed based upon the existence of a CIR, leaving them open to objections filed by surviving family member of their deceased partner.

 

In amicable instances, a mutual agreement may be reached by thesurviving partner and the deceased partner’s family members as to how the assets will be distributed.

A written agreement clearly stating the intentions of each partner can avoid the filing of such a petition or the need to execute a post-death agreement. An agreement should be considered even among platonic, long-term roommates, especially if the roommates previously had a romantic relationship

 

For more information, or to schedule an appointment, please call 425-251-8880 or email info@bethmcdaniel.com

 

First Published: July 2023

Making Guardianships and Conservatorships Run More Smoothly and Less Expensively

By Beth A. McDaniel

 

On January 1, 2022, the adult guardianship laws changed in our state, bringing with it new document and notice requirements. An adult guardianship occurs when an adult needs assistance with housing and medical decisions and there is no suitable less restrictive alternative like a Durable Power of Attorney for Healthcare Decisions. An adult conservatorship occurs when an adult needs assistance with finances and there is no suitable less restrictive alternative like a Durable Power of Attorney.

It is common for parents of a developmentally disabled child to petition for guardianship/conservatorship when the child turns 18. Other situations in which an adult guardianship/conservatorship may be required include: 

  • When an adult becomes incapacitated prior to executing a Durable Power of Attorney.
  • When the adult has a Durable Power of Attorney, but the agent refuses to act, acts inappropriately, or dies and there is no alternate agent named.
  • Where there are ‘dueling Durable Powers of Attorney’ in which, for example, a parent has named different children who do not get along or have different ideas regarding what is in the parent’s best interest.
  • To protect an individual from reoccurring financial exploitation or the individual’s lack of judgment due to neurological impairment like dementia

 

Due to our needing to keep our over 90 current guardian and conservator clients up to date with the requirements of the new guardianship laws, our office is currently not taking new guardianship/conservatorship cases. If you or someone you know is contemplating guardianship or conservatorship, please contact our office for an attorney referral list.

It is important to know that an adult guardianship/conservatorship matter is subject to ongoing court review, typically annual or triennial, for the duration of the incapacity, the individual’s lifetime, or the individual’s execution of a Durable Power of Attorney (if possible), whichever is the shortest. If the individual’s only source of income is needs-based Social Security Income (SSI), we ask the Court to waive the requirement of providing to the court accountings for this income and to instead direct the conservator to attach representative payee reports to the conservator’s reports which coincide with the same reporting period.

 

Also, whenever possible, we ask the Court for a triennial review versus annual review to save the legal fees associated with annual reporting. The downside to a threeyear review, however, is they require our guardianship/conservatorship clients to be disciplined with keeping good records. To help our clients with the task, we will implement annual check-in calls with our conservatorship clients to review that year’s financial statements and get questions answered regarding any unusual deposits or disbursements.

 

Here are additional tips to save legal fees in a guardianship/conservatorship: 

  • Notify the attorney immediately if you or the individual subject to a guardianship/conservatorship relocates as a Notice of Change of Circumstances needs to be filed within 30 days of such a move.
  • Likewise, notify the attorney immediately if the individual subject to a guardianship/conservatorship dies as, per state law, a guardianship/conservatorship final report needs to be filed with the court and submitted for approval within 90 days of the death.
  • If the individual receives SSI, arrange for those funds to be deposited to a separate representative payee account. Any other income received should be deposited to a separate account from the SSI.
  • Save in a file each financial statement as soon as it becomes available or is received; immediately review the statement and make note of any unusual expenditures or deposits.
  • Avoid electronic transfers between the individual subject to a conservatorship’s account and your own account. Without fail, the purposes of transfers become forgotten and impossible to account for. An exception would be a monthly transfer from the individual’s account to the conservator’s account for rent.
  • Provide information needed to prepare accountings and reports when requested by the law office, as delays often require requesting orders to give additional time to file the report. Presenting such an order incurs more fees and costs.
  • Guardianship and Conservatorship clients should do their best to respond to e-mails and calls in a timely manner; otherwise, more legal fees will be incurred when follow-up emails and calls are required.
  • If you do not live with the individual and you are their guardian, know that the Court requires you to keep a log of all your visits with the individual. Thus, please keep such a log if you have not been doing so already

 

Also consider that, under the new statute, the individual subject to the guardianship/conservatorship now needs to be given notice of the filing of the report. This requires a mailing to the individual and giving the individual two weeks to object before the guardianship/conservatorship report can be submitted to the Court for approval. As letters of guardianship/conservatorship now expire in 120 days versus 150 days, there is a shorter window in which the report can be presented for approval prior to the letters expiring.

 

In short, adult guardianship/conservatorship can be costly and complicated. It is best to do everything to avoid it or mitigate it by having a proper Durable Power of Attorney or Trust when possible. If a guardianship/conservatorship is necessary, the guardian-conservator and attorney need to work as a team so that the filings are timely, and the costs are minimized. 

 

If you have questions about leaving property to a relative, guardianship/conservatorship, or would you like to discuss your estate plan, please contact our client care specialist, Margo Passeau, directly at (425) 296-3121 or by email at margo@bethmcdaniel.com

 

First Published: June 2023

Garn-St Germaine Act: What it is and how it may be relevant to you

By Beth A. McDaniel, JD, CELA

 

You are probably familiar with mortgage ‘due-onsale’ clauses. If a mortgage contains this clause, a sale or partial sale of the mortgaged property may require the mortgage or other loan to be paid off in full.

The Garn-St Germain Depository Institutions Act, signed into law by President Ronald Reagan on October 15, 1982  introduced adjustable-rate mortgages, removed interest limits on banks and savings and loans, affirmed that due-onsale clauses are legal, and provided several exceptions for a due-on-sale clause. Here are defined situations in which a due-onsale clause cannot be enforced: 

  • Creation of a second mortgage
  • Purchase money liens for household appliances
  • Termination of joint tenancies (where all joint tenants, but one, die or assign his or her interest to one remain tenant/owner)
  • Leases of less than three years
  • A transfer to a relative resulting from the death of a borrower and the relative uses the residence as his or her primary residence (note: the act does not define ‘relative;’ thus, nieces, nephews, or a stepchild are likely covered, but it is not clear)
  • Divorce or legal separation settlements or court orders
  • Transfers into an inter vivos trust (most commonly, a revocable living trust), if the borrower is a beneficiary of the trust
  • Transfers approved by the relevant federal agency

Note that the exceptions apply only to residential properties; however, a five-unit apartment or less would still qualify as residential property if a unit was occupied by the borrower.

It is helpful to know that inheritance of a house by a relative does not require the relative to refinance the property. The relative can continue to make payments on the existing mortgage.

Obviously, the relative should have the means to make the payments on time and in full along with the ability to pay other obligations associated with the property, such as insurance and property taxes. In this situation, it is optimal for the relative to have good credit should he or she wish to secure a better interest rate or more favorable terms than the original mortgage.

Should you intend for a relative to inherit your residence and assume your mortgage, unless the relative is your only child, you need to make this intention known in your will or trust. Upon your death, your acting trustee or courtappointed personal representative should familiarize themselves with the terms of your mortgage.

They should contact the mortgage company and request any mortgage assumption forms the company requires. Consider too that if there are other heirs who have an equal interest in the residence, the relative needs to have the means to pay the other heirs for their interest in the residence. Sometimes this can be done with other inherited assets, but not always.

 

For more information, or to schedule an appointment, please call 425-251-8880 or email info@bethmcdaniel.com

 

First Published: June 2023