Preventing A Will Contest

When you write a Will, you have control over how your assets will be distributed after your death. However, if someone in your family disputes your Will, a probate court judge could end up with the final say over who gets your property.

Emotions run high when someone dies. If family members aren’t content with what they’ve received, or don’t believe your wishes are being interpreted property, they may contest your Will. Will contests can drag on for years, preventing your heirs from getting the assets you wanted them to receive.

As part of creating an estate plan, look for ways to reduce the possibility that someone could challenge your wishes. Here are some steps you can take to ward of a Will contest after your death:

  1. Start Early. Make your estate plan while you are of sound mind. If you wait until your health is failing, or your mind is impacted by an accident, your Will becomes vulnerable to claims that you lacked sufficient mental capacity to draft it.

  2. Prove Competency. When you write your Will, you can ask a physician and/or your attorney to certify that you are mentally competent. A video record at the time you sign the Will can also help demonstrate you acted with a clear head and of your own free will.

  3. Get Qualified Legal Advice. There are do-it-yourself books and online tools available for writing your Will. But using an estate planning attorney is the best way to ensure it is property executed and valid. If you do choose the DIY rout, have it reviewed by an attorney.

  4. Consider Trusts. There are a variety of Trusts that direct how your assets are managed, held, and distributed to your heirs. With a Trust, you generally can avoid probate and increase control over how your estate is settled. Your heirs will receive their inheritance more quickly, and privately, with potentially fewer costs to the estate.

  5. Write Your Will Without Interference. Avoid complaints that someone exerted undue influence over you when you write your Will. To help avoid such contests, don’t have your beneficiaries sign as witnesses, and don’t include them in meetings with your attorney.

  6. Share Your Intentions. Consider talking to your family about the intentions in your Will. Let your heirs know why you’ve designed it the way you have, or write an explanatory letter to accompany your Will. Generally what you put in the letter will not have a legal effect on your Will, but it can help family members accept your choices.

  7. Include A No-Contest Clause. A no-contest clause stipulates that anyone who contests the Will, and then loses that contest in court, is disinherited from what they would have otherwise received. No-contest clauses aren’t enforceable in all States, and they’re only effective if you’re leaving your heirs enough value that they wouldn’t want to risk the challenge.

Once your Will is complete don’t just file it away. Sit down regularly with an attorney to make updates that reflect your current situation. Changes such as moving, having grandchildren, or losing a loved one, can significantly impact your estate plan.

Your Health Savings Account Can Be a Stealth IRA

Generally, people don’t think about a Health Savings Account (HSA) as a savings account. The HSA was intended to be a tax-advantaged account to pay for medical expenses, but in certain ways it’s better than an IRA.

An HSA is a tax-preferred investment account with triple tax advantages. Your money isn’t taxed when it’s contributed, as it grows, or when you spend it on qualified expenses. It’s the only tool that allows you to contribute tax-deductible dollars and take them back out tax-free.

Unlike flexible spending accounts, there’s no “use it or lose it” provision, meaning the account can continue to grow and gain in value.

In order to open an HSA, you must be enrolled in a High Deductible Health Plan. For 2019, this is defined as one with deductible of at least $1350 for an individual or $2700 for a family.

The 2019 contribution limits are $3500 for an individual and $7000 for a family. If you’re over 55, you can add $1000 in catch-up contributions. This is better than the limits on both traditional and Roth IRA’s.

Plus, unlike IRA’s, there’s no income limit on deducting contributions to an HSA. Your contributions remain deductible no matter how much you earn. An HSA combines the tax benefits of a Roth IRA and a traditional IRA in one sheltered account. If you don’t use the money, it can continue to grow tax-free.

If you withdraw money before age 65, you must use it to pay for qualified medical expenses. Otherwise, you’ll be subject ti income tax and a 20 percent penalty. However, once you reach age 65, you can withdraw money for any reason. At that point, you can continue to use your HSA funds for medical expenses and avoid taxes, or you can withdraw funds for other purposes and pay income tax on the amount. Essentially, you have the option to treat it like a traditional IRA once you reach age 65.

Considering your expected health care costs in retirement, an HSA may be a better savings tool than other options. Talk to an advisor about adding it to your financial strategy.

Keep Your Tax Credit for Charitable Gifts

Following the Tax Cuts and Jobs Act (TCJA), many taxpayers are concerned about losing tax breaks for charitable contributions. Under the law, fewer households have a tax incentive to make charitable gifts. However, with planning, individuals and businesses can still benefit from donations.

The law increased the standard deduction to $12,000 for individual filers and $24,000 for married households filing jointly. This increase, plus the elimination of other deductions, means many households will no longer itemize, essentially losing the benefit of their charitable gifts.

However, you can still leverage contributions if you bundle several years of giving into one tax year and surpass the standard deduction limit. You’ll have higher giving one year and less the next. This strategy works well for households already close to the new standard deduction limit.

January-December bundles

One approach is to donate at the beginning of January and the end of December. This comes closer to normalizing cash flow for both you and the charity. Just be sure the charity records the correct date on your receipt.

Donor advised funds

Another approach is to bundle your giving in a donor advised fund (DAF), available through brokerage firms and community foundations. With these funds, you get a tax benefit for the year you donate, but you have unlimited time to decide how you want to allocate those gifts. This strategy is scalable, meaning you can put several years of donations into one DAF.

Appreciated stock

Under the new law, you still get a tax break for donating shares of appreciated stock, mutual funds, and real estate. By making the gift directly, instead of selling the asset and then making a gift, you eliminate the tax consequences.

Charitable advertising

Businesses still can gain a tax benefit from charitable sponsorships or advertising through a charity. You could, for example, sponsor a golf outing or advertise in the charity’s newsletter. If certain conditions are met, such exchanges are deductible as business advertising. Your preferred charity benefits, and you retain the savings.

Be aware that you can’t inflate the value of a sponsorship or ad. For the promotion to be deductible as an advertising expense, there must be a reasonable expectation that you will receive a proportionate financial return. If there’s a rational reason your company would benefit from a sponsorship, you may be able to claim a deduction.

Talk to an advisor to build your giving strategy and ensure you are meeting any requirements under the new law.

Make an Estate Plan for Your Digital Assets

Today, 77 percent of Americans go online every day, according to a recent Pew Research Center survey. And, most of us maintain at least some kind of digital data in the cloud. We save emails, post to social media, and store photos in online albums.

All of this digital information has created a new issue for you, your heirs, and the technology firms that hold your assets. The key concern is maintaining your privacy and security, and determining who can legally access this information upon your death.

A statute called the Revised Uniform Access to Digital Assets Act provides a legal path for fiduciaries (such as your Personal Representative or attorney-in-fact) to manage your digital assets if you die or become incapacitated. But under the law, which has been adopted (often in slightly modified versions) by most states, a fiduciary can access your digital assets if, and only if, you've given proper consent. 

What are digital assets?

Digital assets include your online accounts, your emails, your social media, online photo storage, personal websites or blogs, URLs you own, etc. 

What's the concern?

Even though many digital assets have no monetary value, you may want some control over what happens to them when you die. Think about what digital assets you may have, and whether you would want those assets deleted, modified, or distributed to family. 

Until the uniform law was enacted, it was difficult to know who had a legal right to access these accounts and files. Some user agreements indicate that these assets are non-transferable, meaning they are either untouchable or can simply be deleted when you die. 

Beyond privacy issues, some digital assets do have value. Frequent flyer points are transferable after death, credit card points can be redeemed, and URLs may be sold. 

What's your legal protection?

Under the uniform law, your family members or personal representative  can't access your digital assets just because of that relationship. Other users, including family members, need express authorization to access your accounts and information.

How can your personal representative and/or family have access?

  1. Insert a provision in your will that grants your personal representative the authority to access digital assets and accounts. If you want someone other than your personal representative to access your digital assets, you can appoint a special fiduciary for that specific purpose. 
  2. Add language that grants your power of attorney authority to act on your behalf in terms of digital assets. 
  3. Inventory your digital assets and provide someone with the necessary passwords. Some online password managers can be set up to transfer passwords to another person at your death. 
  4. Designate a digital guardian in any online tools that offer such a feature. For instance, Facebook's "legacy contact" and Google's "account trustee." This is someone who will look after your account after you've died. Be aware, however, that under the uniform law, any such settings will override conflicting instructions you leave in your Last Will. 

Capacity to Execute a Will

Imagine a situation where a loved one dies and there is a contest over the validity of the Will. The question arises: What was the decedent's mental state in drafting the Will?

A typical, knee-jerk answer is that the decedent had a perfectly clear state of mind.

However, testamentary capacity doesn't require such a high level of clarity in communication and comprehension. Further, overstating a decedent's capacity might actually lead a trier of fact to become skeptical of the Will proponent, especially if other evidence exists that the decedent's mind wasn't as clear as stated.

When a Will is contested, the proponent has to prove that the decedent had the capacity to make the Will. Meeting that burden requires showing that the testator knew the nature and extent of their property, knew the natural objects of their bounty, and was aware of the contents of their Will. Age and sickness aren't determinative, and mental illness or failing memory do not preclude a decedent from having testamentary capacity to execute a Will. 

Cases on lack of capacity really come down to a he-said-she-said analysis. In one recent case in New York, an 83-year old woman executed her Will while in the hospital. A form in her records entitled "Adult Patient Without Capacity With Surrogate for DNR Order," stated, "I have determined tat the patient lacks capacity to make this decision," by reason of "dementia." The records also noted that the woman became disoriented during dialysis the day she was admitted.

Yet the woman's attorneys, whom she had known for years, said that her behavior at the time of executing the Will was similar to that in her prior interactions with them and indicative of a sound mind. Further, her medical records from the day the Will was executed said she was alert.

In this instance, the case didn't go to trial. The court said that the parties protesting the Will didn't provide sufficient evidence to raise a triable issue of fact that the decedent lacked testamentary capacity.

However,in an earlier case before the same court, a woman in her eighties executed her Will two years after suffering a debilitating stroke. A few months later she was found to be an incapacitated person under the state mental hygiene law. The court at that time said she needed one-on-one support and suffered from dementia. 

Like the case noted above, evidence was offered on both sides. The proponent offered evidence that the attorney and others said the decedent was able to speak normally and understood her surroundings. However, the parties objecting produced evidence from a guardianship proceeding and the testimony of a treating physician that the decedent lacked testamentary capacity.

In this case, the court decided the case should go to a jury.

What happens in matters like these really depends on the facts and circumstances of the individual case. But it's important to keep in mind that in order to prove capacity to execute a Will, it isn't necessary to demonstrate that someone who had challenges with verbal communication at the end of life or showed periods of confusion was of a perfectly clear state of mind. In fact, if you try to argue that too strongly, be aware that it might lead to skepticism on the part of the judge or jury.