Estate Planning

More than 4 in 10 Americans have at least one step-relative in their family – either a stepparent, a step or half sibling or a stepchild — according to the Pew Research Center. The National Center for Family and Marriage Research estimates that about one-third of all weddings in America create stepfamilies.

A trust case from North Dakota highlights the importance of taking current and potential step-relationships into account when planning your estate.

William and Patricia Clairmont created two trusts for their grandson, Matthew. In both trusts, “the brother and sisters” of Matthew were contingent beneficiaries (meaning they would be the trust beneficiaries if Matthew died).

After the trusts were created, the Clairmonts’ daughter, Cindy (Matthew’s mother), divorced Matthew’s father, Greg, and Greg remarried and had two children with a second wife. In March 2011, Matthew died suddenly and unexpectedly at the age of 25 without a wife, children or a will.

Under North Dakota law, Greg’s two children with his second wife were technically “brothers and sisters” of Matthew and, thus, eligible beneficiaries under the trusts. The Clairmonts argued for an interpretation of the trust that would exclude Matthew’s stepsiblings as beneficiaries or, alternatively, for reformation of the trust to include language that only lineal descendants of the Clairmonts could benefit from the trusts.

Ultimately, the North Dakota Supreme Court granted the Clairmonts’ petition to reform the trusts based on evidence that the Clairmonts made a mistake of law by interpreting the phrase “brothers and sisters” to include only full blood siblings and based on testimony by the Clairmonts themselves on their intention to benefit their lineal descendants alone.

Although things turned out well for the Clairmonts in the end, it took much time and money to get there. The case stresses the importance of addressing step-relations in your estate plan whether or not you are already a member of a stepfamily.

Life estates can be an excellent tool for Medicaid planning, probate avoidance and tax efficiency, but there are potential problems to look out for. Knowing the implications and risks of a life estate is essential in determining whether it is appropriate for your situation.

In a life estate, two or more people each have an ownership interest in a property, but for different periods of time. The person holding the life estate — the life tenant — possesses the property during his or her life. The other owner — the remainderman — has a current ownership interest but cannot take
possession until the death of the life estate holder. The life tenant has full control of the property during his or her lifetime and has the legal responsibility to maintain the property as well as the right to use it, rent it out, and make improvements to it.

Life estates are excellent planning techniques in many circumstances. They permit parents to pass ownership in their homes to their children while retaining absolute possession of the property during their lives. By executing a life estate deed, the property avoids probate at the parents’ deaths, is protected from a Medicaid lien, and receives a step-up in tax basis.

However, there are potential issues that may arise with life estates and it’s important to fully understand the following risks:

• As a life tenant, you may not easily sell or mortgage property with a life estate interest. The remaindermen must all agree if you decide to sell or borrow against the property. One thing that can help is a testamentary power of appointment in the deed. This is a mechanism that permits the life tenants to change who ultimately receives the property by directing its disposition in their wills. It won’t allow the life tenant to sell the property, but it does give the life tenant more bargaining power with the remaindermen. Another option is a nominee realty trust. This type of trust permits one or more children to act as trustee or trustees for all the children, and provides that they must follow the direction of a majority of the beneficiaries. So, if there are four children and one child objects to the sale or mortgage of the property, but the other three are on board, the majority can direct the trustee to sign the papers necessary to facilitate the sale or borrowing.
• If the property is sold, the remaindermen are entitled to a share of the proceeds equal to what their interest is determined to be at that time.
• It is not as easy to remove or change a name once it is on a deed to real estate as it is to change the beneficiary on a life insurance policy or bank account.
• Once a remainderman is named on the deed to your house, he or she has an interest in the home and his or her legal problems could become yours. For example, if your child, who is a remainderman, is sued or owes taxes, a lien could be filed against your home. Your child’s interest in the home is not protected if he or she files for bankruptcy. If your child gets a divorce, his or her spouse could claim all or part of your child’s interest in your home. Should your child die before you do, the child’s estate would have to go through probate unless at least one other remainderman was listed as a joint tenant. However, while these claims may be made against the property, no one can kick you out of it during your life.
• Giving away an interest in property could disqualify you from receiving assistance from Medicaid, should you require long-term care within five years of the transfer. In addition, if you and the remaindermen were to sell the property while you were in a nursing home, the state could have a claim against your share of the proceeds for payments it has made on your behalf, but the share of the proceeds allocated to your children would be protected.

As with most planning tools, a life estate can be very useful with valuable benefits, but it is not for everyone. In many cases, the potential problems outweigh the benefits. As the law in this area is complex, it’s important to talk to a lawyer who knows about this in-depth. To find an attorney near you, click here.

It is a very good idea to create advance directives in order to plan for the possibility that you may one day be unable to make your own medical decisions. In doing so, there can be confusion about the difference between a living will and a “do-not-resuscitate” order (DNR). While both these documents are advance medical directives, they serve different purposes.

A living will is a document that you can use to give instructions regarding treatment if you become terminally ill or are in a persistent vegetative state and unable to communicate your instructions. The living will states under what conditions life-sustaining treatment should be terminated. If you would like to avoid life-sustaining treatment when it would be hopeless, you need a living will. A living will takes effect only when you are incapacitated and is not set in stone — you can always revoke it at a later date if you wish to do so.

When drawing up a living will, you need to consider the various care options and what you would like done. You need to think about whether you want care to extend your life no matter what or only in certain circumstances. A living will can dictate when you want a ventilator, dialysis, tube feeding, blood transfusions, and other life- saving or life-prolonging options.

A DNR is a different document. A DNR says that if your heart stops or you stop breathing, medical professionals should not attempt to revive you. This is very different from a living will, which only goes into effect if you are unable to communicate your wishes for care. Everyone can benefit from a living will, while DNRs are only for very elderly and/or frail patients for whom it wouldn’t make sense to administer CPR.

In addition to a living will, you will also need a health care proxy or broader medical directive.

A recent New Jersey appeals court case demonstrates how important it is for families to come up with a long-term care plan before an emergency strikes. The case involves two brothers who got into a fight over whether to place their mother in a nursing home – a dispute that resulted in one brother filing a restraining order against the other.

R.G. was the primary caregiver for his parents and their agent under powers of attorney. After R.G.’s mother fell ill, R.G. wanted to place his mother in a nursing home. R.G.’s brother objected to this plan, but R.G. went ahead and had his mother admitted to a nursing home without his brother’s consent. R.G.’s brother sent angry and threatening texts and emails to R.G. as well as emails expressing his desire to find a way to care for their parents in their home. Eventually the men got into a physical altercation in which R.G.’s brother shoved R.G.

R.G. went to court to get a restraining order against his brother under the state’s Prevention of Domestic Violence Act. The trial judge ruled that R.G. had been harassed and assaulted and issued the restraining order. R.G.’s brother appealed, arguing that R.G. did not meet the definition of a victim of domestic violence.

In R.G. v. R.G. (N.J. Super. Ct., App. Div., No. A-0945-15T3, March 14, 2017), a New Jersey appeals court reversed the trial court, ruling that R.G.’s brother’s actions did not amount to domestic violence. According to the court, there was insufficient evidence that R.G.’s brother purposely acted to harass R.G., ruling that “a mere expression of anger between persons in a requisite relationship is not an act of harassment.”

If the brothers had sat down with their parents before they needed care to explore options and determine their parents’ wishes, this drawn-out and costly dispute might have been totally avoided. Putting a long-term care plan into place can help avoid family conflicts like this one.

To start planning for long-term care, talk to your elder law attorney, who can help you devise the best plan for you. To find an attorney near you, go here.