NEWSLETTER - ESTATE PLANNING

The Natural Objects of One's Bounty - II

This article is the second part of a three-part series describing the traditional names for the various members of one's family.

The first article discussed the phrase "the natural objects of one's bounty," which means the closest surviving members of one's family. Ancestors are described in terms of parent relationship and descendants are described in terms of child relationship. One's parents and their parents, and one's child or children and their children, are related in a direct line of descent, and known as one's lineal relatives. That leaves collateral relatives. They are persons of common ancestry, but not in a common line of descent.

Close Collateral Relatives

The children of one's parents, other than oneself, are known as one's siblings. A brother is a male sibling. A sister is a female sibling.

A nephew is a male child of one's sibling. A niece is a female child of one's sibling. A child of one's nephew is known as one's grandnephew, and a child of one's niece is known as one's grandniece. A child of a grandnephew is known as one's great-grandnephew, and a child of one's grandniece is known as one's great-grandniece, and so on.

An uncle is a male child of one's grandparent who is not one's parent. An aunt is a female child of one's grandparent who is not one's parent. A great-uncle is a male child of one's great-grandparent, and a great-aunt is a female child of one's great-grandparent, and so on.

Cousins

A cousin is a grandchild (or further descent) of one's grandparent (or further ascendant). A first cousin is the grandchild of one's grandparent. A second cousin is the great-grandchild of one's great-grandparents, and so on.

Consanguinity and Affinity

A lineage is all of the persons who can trace their natural origin back to a common ancestor. Blood relatives, the members of a lineage, are related by blood. The formal term for related by blood is consanguinity. The terms kin and kinship are sometimes used to refer to blood relatives, but they can also be used to refer to a larger group (e.g., including spouses) or a smaller group (e.g., blood relatives more remotely related than through grandparents). Likewise, the phrase next of kin is sometimes used to refer to the nearest blood relatives, but it can also be used to refer to a larger or smaller group.

Most states prohibit marriage between persons who are second cousins or more closely related. The term in-laws is used to describe person's related to one's spouse. Along with one's spouse, in-laws are said to be related by marriage. The formal term for related by marriage is affinity.

Co-Ownership Myths - I

One of the most confusing aspects of estate planning is the numerous myths about co-ownership of property. Many people do not understand the differences between a tenancy in common and a joint tenancy with right of survivorship. Many people do not understand what a tenancy by the entirety is or was. Many people do not understand the differences between the common law forms of co-ownership and community property. Moreover, people may define their own forms of co-ownership by contract. This article discusses some of the many myths about the co-ownership of property.

Right of Survivorship

An automatic right to share in a co-owner's share of property upon the co-owner's death is known as a right of survivorship. When a co-owner of property with a right to survivorship survives all other co-owners, he or she becomes the sole owner of the property.

There is a myth that all forms of co-ownership include a right of survivorship. The myth is not true because, among other things, there is no right of survivorship in a tenancy in common. A tenant in common may give away his or her share separate and apart from any other tenant in common. If a tenant in common dies without leaving a will, the deceased tenant in common's share of the property passes by intestate succession.

There is a myth that a form of co-ownership with a right of survivorship can be created in which one co-owner owns a greater share of the property than another co-owner. The myth is not true because were there is no equality of interest, the only form of co-ownership that can be or be created is a tenancy in common.

Probate Avoidance

There is a myth that all forms of co-ownership avoid probate. The myth is not true because only property in a joint tenancy with right of survivorship, or in a form of co-ownership with a designated right of survivorship, always avoids probate. Only in such property is the deceased co-owner's interest in the property transferred at the moment of the deceased co-owner's death.

The only way property in a tenancy in common avoids probate is by transferring it to a trust before the deceased co-owner's death.

Your lawyer

It is wise to consult your lawyer when you want to make changes to, sell, or give away co-owned property. Your lawyer can help you avoid any misunderstandings stemming from the numerous myths about the co-ownership of property.

Trust Modification and Termination

Modification

A court will modify a trust where the trust's leading purpose is frustrated by a specific directive made by the trustor. In such instances, the directive will be struck in order to accomplish the trustor's primary intention.

When a trustor provides no power to invade the principal and the income generated by the trust is insufficient to support the beneficiary, a court may allow a distribution of income. Such distribution is allowed only if the beneficiary's support or education is not sufficiently provided for and if the trust's purpose cannot be attained without the distribution.

Termination

A trust ends automatically at the end of the time specified in the document that created it. If a trustor has reserved the power to revoke a living trust, he may do so at any time. If a living trust is not revocable, the trustor and all the beneficiaries have to consent to revocation. If any beneficiary is a minor or is incompetent, the trust cannot be revoked because minors and incompetents cannot, by law, give consent. Any revocation of a living trust must be in writing and signed, acknowledged, or witnessed in the same manner as was required to create the trust. Notice of the revocation should be delivered to the trustee in a reasonable time, but failure to deliver such notice does not affect the validity of the revocation.

Even if all the beneficiaries consent, a testamentary trust cannot be terminated if the termination would be in contrast to the purposes of the trustor. In those jurisdictions that automatically give limited spendthrift protection to all income interests, courts cannot terminate a testamentary trust upon application by the beneficiaries because to do so would frustrate the primary purpose of giving spendthrift protection to the beneficiaries. Testamentary trusts in which the beneficiaries are allowed to transfer their interest may be ended by them if no other material purpose of the trustor is to be served.

Transfer on Death Registration of Securities

TOD or transfer on death registration of securities allows an investor to arrange for transfer of securities upon the investor's death without the necessity of having the securities go through probate. The executor or administrator of an estate does not have to take any action regarding specific securities that have TOD registration or even entire accounts that have been set up with TOD instructions.

Beneficiaries of TOD-registered securities have to re-register the securities in their own names in order to trade the securities. Re-registration normally requires sending a copy of the original securities holder's death certificate to the transfer agent for the securities together with an application for re-registration. The company that issued the securities may act as its own transfer agent. If not, the company should be able to identify the transfer agent for the company's securities. Liquidation of a TOD-registered account also requires sending a death certificate for the account holder and an application by the beneficiary to the institution holding the account.

Almost all states have adopted (with some modifications in some instances) the Uniform TOD Security Registration Act to govern how securities may be registered so that the securities pass upon the death of their owner to a designated beneficiary. The uniform act was first proposed for adoption by states in 1989. Objectives of the uniform act include encouraging and protecting intermediaries such as mutual funds, banks, and brokers who adopt procedures for TOD registration of securities owned by customers.

The process of TOD registration can be as simple as registering a security or an account in the name of the investor "TOD" the name of the beneficiary. The letters TOD indicate that the security or the account passes to the beneficiary upon the death of the investor. TOD securities or accounts remain under the control of the investor, and the investor retains the right to re-designate the beneficiary or to remove the TOD designation entirely.

Inheritance Without Planning Means No Person Is In Control

When a person dies intestate (without making and leaving a will), each state provides a default plan (usually known as the statute of descent and distribution), under which his or her net estate is disposed. Under the default plan, no person is put in control of the disposition. The disposition must go according to the default plan. This article discusses the disadvantages of descent and distribution related to that inability to have a person put in control of the disposition.

Disposition Overseen By a Trusted Person

Under descent and distribution, a person who wants to plan the disposition of his or her estate cannot nominate a trusted person to oversee the disposition. There is no personal executor or executrix nominated by the intestate. Very often, a heir learns from a stranger what he or she has or has not inherited from an ancestor or collateral relative.

Disposition Directed By a Trusted Person

Under descent and distribution, a person who wants to plan the disposition of his or her estate cannot appoint a trusted person to transfer the estate as that trusted person deems appropriate. In other words, under descent and distribution, there is no granting of a power of appointment. Instead of person's estate being disposed of as a trusted person deems appropriate, the state is, in effect, given a power of appointment, and the estate is only disposed of as provided in the state statute of descent and distribution.

Neither a Trusted Person Nor an Explanation

A person who wants to plan the disposition of his or her estate may not care what particular person oversees and/or directs that disposition, but may want whomever is overseeing and/or directing the disposition of his or her estate to know how and/or why he or she wants his or her estate disposed of in a particular way. Under descent and distribution, a person cannot explain how and/or why he or she wants his or her estate disposed of in a particular way. Under descent and distribution, the intestate's last desires and intentions are irrelevant.

Nominate a Guardian

In addition to the disposition of his or her property, a person who wants to plan the disposition of his or her estate will probably want to know that his or her minor children are being well cared for. Under descent and distribution, however, a person cannot nominate a person as the guardian of his or her minor children.

Some of the Advantages of Making a Will

All of the disadvantages of descent and distribution related to the inability to have a person put in control of the disposition, can be overcome by making a will. To overcome the disadvantages of descent and distribution, have your lawyer prepare a will (and any other estate planning documents) for you.