Leaving Someone Out of Your Will

Let's Talk About.......Leaving someone our of your Will.

By: Alan Orlowsky

The main purpose for executing a will is to decide exactly who will inherit your property at your death. You can leave family and friends out of your will, and there's not much they can do about it. However, some state laws don't allow you to disinherit minor children or surviving spouse.

Disinheriting a Spouse

Many states use a concept known as "elective share" to ensure that a surviving spouse isn't entirely disinherited from a will.Generally, a disinherited spouse can take between one-third and one-half of the estate, regardless of what the will says or doesn't say. Some states use a sliding scale approach and look to the number of years a couple was married to determine how much of the estate a surviving spouse can claim. In other words, the longer the marriage, the more property the surviving spouse gets.

Disinheriting Minor Children

In most states, your adult children are not entitled to any property in your estate unless you specifically name them as heirs in your will. Some states forbid the exclusion of minor children from your will, despite what you say in your will, and will award them part of your estate.

Homestead Laws

If you die before your spouse or have minor children at the time of your death, state homestead laws may preclude you from leaving a primary residence to someone else in your will. Other states may exempt certain types of property, such as your home, or provide a minimum sum of money from your estate that must go to a surviving spouse and minor children. As a result, intentionally disinheriting your spouse or child may not be wholly effective if your state has one of these laws on their books.

Clearly State Your Intention to Disinherit

If the law in your state permits you to leave a child or spouse out of your will, it may be a good idea to include a few lines in your will that names the individuals you're intentionally leaving out and the reasons why. Since your will can be contested in court after your death by people who are disinherited, including such statements can discredit any argument that you made a mistake and didn't intend to disinherit anyone.

A Trusts and Estates Lawyer can help explain the laws surrounding leaving someone out of your will. Our Firm has clients throughout the North Shore assisting with the complexity with this issue; Plus, the facts of each case are unique. This article provides a brief, general introduction to the topic. For more detailed, specific information, please contact Orlowsky & Wilson to see how we can help with any questions you may have.

If you have questions about this post or about a particular legal situation, please contact Alan Orlowsky by calling 847-325-5559, or visit our website at http://www.orlowskywilson.com

Who Should I Choose as Trustees of My Trust?

Lets talk about....Who should I choose as Trustees of My Trust?      By: Alan Orlowsky

You can select an individual as a Trustee, such as a close friend or family member; or a professional Trustee can be selected such as an attorney or CPA; or you may choose a financial institution or a bank. A good Trustee should be someone who is honest and trustworthy, because they will have a lot of power under your trust document. The person you choose to act as a Trustee should also be financially responsible, because they will be handling the investments in regards to your Estate and the benefit of your beneficiaries. The Trustee should be someone who can get along and have a good relationship with the beneficiaries of your trust. They should also possess good record-keeping abilities.

In many cases, you may want to consider appointing co-trustees. A Trustee is required to abide by the terms of a trust. If that Trustee fails to do so, a beneficiary of the trust is not without recourse. One of the benefits of naming co-trustees is that they tend to hold one another accountable. In addition, most trusts will provide a way for the beneficiaries to remove a Trustee, and replace them with the next successor trustee on the list.

It is wise to name not only your immediate successor, but subsequent successor Trustees as well. An individual Trustee may refuse to accept the position, or may resign from the position due to any number of reasons. The Trustee may become disabled or die. Many clients want family members or close friends to act as successor Trustees. But since all individuals eventually pass away, it is good practice to name a bank trust department or other corporate trustee as the final successor trustee on the list. Some clients with very high net worth, or very complex assets, may name a professional or an institutional trustee from the very beginning – either as a co-trustee with a trusted family member, or serving as the sole trustee.

One of the advantages of naming a professional or corporate fiduciary is that they manage trusts professionally every day, and usually know what they are doing. They act very objectively to follow the instructions set forth in the trust document. They have investment experience and record-keeping skills. They know the law, and follow the prudent investor rule. If they make a mistake, they have errors and omissions insurance, so the trust beneficiaries have a source to recover any potential damages.

The primary disadvantages of a corporate trustee, however, are cost and the fact that they may not have a personal relationship with the beneficiaries. A family member acting as trustee may better understand the family dynamic, and make better discretionary decisions when it comes to your loved ones. On the other hand, although family members will usually serve for little or no compensation, they may not be the best choice for a Trustee. While the trust may allow for some discretion, some family members are prone to make decisions on an emotional basis. Most times, the family member is not an experienced Trustee and does not know what is required of him or her under the law. If they make mistakes, they may face the wrath (and legal action) of the beneficiaries, or the trustees may be unwilling to take action, and your plans and goals for the beneficiaries are not fulfilled. If you do choose a family member as a Trustee, it is best to train them for the responsibility before you die.

Sometimes the best solution is a combination of a professional or corporate Trustee and a family member Trustee working together as co-trustees. The family member brings knowledge of the family situation, and the professional or corporate trustee knows how to invest and maintain records.

If you have questions about this post or about a particular legal situation, please contact Alan Orlowsky by calling 847-325-5559 or visit our website at http://www.orlowskywilson.com

What are Trustees and What Do They Do?

Lets Talk about.......What are Trustees for Estate Planning, and What does a Trustee Do?
By Alan Orlowsky

Trustees are those individuals (family members, attorney, or CPA for example) or entities (such as a bank trust department) named in a trust agreement to administer the trust. Trustees are required to manage and invest trust property and to distribute the trust property to certain individuals (the beneficiaries) based upon the instructions contained in the trust. Because trusts often last for years or even decades, a well-designed and drafted living trust agreement should include different trustees for different phases of your life, and the lives of your beneficiaries, and when possible should try avoid any conflict or contested estates.

In a typical revocable living trust, you will serve as your own Trustee as long as you remain alive and well. When a joint living trust is used (a trust created by both), the couple will usually serve as co-trustees of the trust while they are both alive and well. When each spouse has their own trust, it is customary that both spouses will serve as co-trustees of each spouse’s individual living trust.

When it comes to Elder Law we are seeing longer life spans because of medical advances, the result is more people will suffer periods of disability prior to death; requiring the assistance of others to manage the trust and its assets. One or more Disability Trustees should be named in the trust document to take care of your personal affairs and assets in the event of disability or mental incapacity. It is critical that the trust document include detailed instructions for the care of both you and your loved ones in the event you become disabled.

The trust should specifically state who is a permitted trust beneficiary during your disability, and whether there is any priority for distributions (e.g., “provide for me, then my spouse, then my children, in that order of priority”). If you are using a gifting program to reduce the size of your estate, you may want that to continue during a period of disability. But a Trustee can do that only if the trust includes those instructions. You will also name one or more Death Trustees who will assume management of the trust upon your death. The death trustees are responsible for all phases of trust administration, including identifying assets, working with professional advisory (e.g., attorney, accountant and financial advisory) to prepare tax returns, and distributing the trust assets to the named beneficiaries. If assets are to remain in trust for one or more beneficiaries, the death trustees may be appointed as trustees of the beneficiary’s trust share, or other trustees may be named for that role.

If you create a “protective trust” for a child that will be funded at your death, or the death of you and your spouse if you are married, your attorney may suggest that a responsible adult child serve as a trustee of their own trust share along with a “friendly” co-trustee. This technique would allow for your child to have access to their trust assets for their needs, but can help insulate those assets against attacks by your child’s creditors, including a divorcing spouse.

A Trustee has the legal duty to carry out the directions set forth in your trust. As a fiduciary, the Trustee cannot derive personal benefit from the assets with which he or she is entrusted. If the Trustee does not follow the directions set forth in your trust, they can be subject to personal liability. Some of the duties of the Trustee include taking a complete inventory of the assets when they begin to act as Trustee; obtaining a tax identification number for the trust; determining values of the assets in the trust; investing the money in the trust for the benefit of the beneficiaries; paying expenses of the trust; preparing accounting for the beneficiaries of the trust; preparing tax returns for the trust; and distributing the assets in accordance with the terms of the trust.

If you have questions about What is a Trustee and how they can impact your Estate Planning please contact me today at 847-325-5559 or visit our website at: http://www.orlowskywilson.com

4 types of IRS Audits and how to Prepare

Let's talk about the 4 types of IRS Audits, and some things you can do to prepare for being Audited by the IRS. By Alan Orlowsky

As a Certified Public Accountant and former IRS agent, I understand getting a notice that you're being audited by the IRS can strike fear in the hearts of the bravest of taxpayers. Let's talk about educating yourself about the different types of  IRS Audits and how to follow a few simple rules that can make the process much less painful should the IRS should choose you for an audit.

There are 4 main types of Audits, and the truth is you will prepare different for each one so it is important to understand the difference.

• Corresponding Audit - This is the least severe type of audit and involves the IRS sending a letter in the mail requesting more information about part of a tax return. Typically the IRS asks for a straightforward answer on less complicated issue, such as proof of dedications, and you mail back the answer. If your tax return is legitimate and you have the data to back up any claims on your return you can normally handle the situation on your own. If you don't have the receipts or information, then you may want a professional dealing with the IRS because you could face additionally fines, penalties and interest if you end up owing money.

• Office Audits - If the IRS has additional questions regarding your return you will typically receive a letter in the mail inviting you into an IRS office for the audit. This type of Audit is often more serious, so it is important your records are in place, and all receipts are accounted for. You are allowed to have your tax prepare, accountant or tax attorney accompany you to the Office Audit. These Audits typically are resolved during this Office visit and if you are missing information you will be granted more time to provide any documentation you do not have during the meeting.

• Field Audits - This is the most serious type of audit and it involves the IRS visiting you at your home. While there are much fewer field Audits compared to the other types, these types of Audits involve the IRS looking for something and the agent will request access to other things or documents that should be commonly found in your home. I would not recommend to any of my clients to go into a Field Audit without proper representation.

• Random Audits - In this type of audit the IRS is not looking for anything in particular when they send out random tax payers to review their return, but they will review the entire return. The IRS conducts these Audits to determine what areas are most likely to produce additional taxes. In most cases you do not need legal representation, but this is the most comprehensive type of audit and again the IRS will be looking at everything on the return. 

While the seriousness of the audits varies, it is my professional recommendation that the best way to prepare is to always organize all your receipts with your accompanying tax return and store them some place secure since it is likely you won't get an audit notification until 12 to 24 months after your return has been filed.

It has become so much harder to get the documents together if a year has past. When you file your return you are better off building a file and organizing them in anticipation of an audit then reacting to an IRS Audit. 

Some commonly asked questions I have received include:

• I received a notice from the IRS, what do I do?
• I lost some of my receipts for items I claimed as deductions. Can I use a bank statements to prove I purchased the items in question?
• What information do I have to give the IRS field agent?

If you have received a notice from the IRS or have questions related to any Tax issue please contact Alan Orlowsky by calling 847-325-5559. You can also visit our website at http://www.orlowskywilson.com

What you should know about Writing a Will

Let's talk about what you should know about writing a Will. By: Alan Orlowsky

Writing a Will is not the most pleasant of tasks. After all, by doing so you're not only acknowledging your own inevitable demise but actively planning for it. That might explain why so many adults avoid this cornerstone of estate planning. According to an AARP survey, 41% of boomers (born 1946 - 1964) and 71% of people under the age of 34 do not have a will in place. Procrastination (34%) was cited as the largest reason, followed by feelings it is unnecessary (21%) or too expensive (21%).

The truth is creating a Will is one of the most critical things you can do for your loved ones. Putting your wishes on paper helps your heirs avoid unnecessary hassles, and gain the peace of mind knowing that a life's worth of possessions will end up in the right hands. A Will is an important way to stay in control over who gets what of your property and by planning in advance you can also save your family time and money.

So What should you know about Writing a Will? Well let's talk about it.

What is a will?

A will is a simply a legal document in which you, the Testator, declare who will manage your estate after your death. Your Estate can consist of everything from bigger items such as property, to smaller sentimental valued items such as family photographs. The person named in the will to manage your estate is called the Executor, because he or she executes your stated wishes. A will can also serve to declare who you wish to become the guardian for any minor children or dependents. Within a will, you can specify everything from Sister Liz will be responsible for the children and the house, or Aunt Sally gets the silver, Cousin Megan the china, and so on. Someone designated to receive any of your property is called a "Beneficiary."

You should know that some types of property, including certain insurance policies and retirement accounts, generally aren't covered by wills. You should always list beneficiaries when you open these accounts. Check to make sure these are up to date, since what you have on file when you die should dictate who receives those assets.

What Happens if I die without a will?

If you were to die without a valid will, you'll become what's called Intestate. This means your estate will be settled based on the laws of your state that outline who inherits what. Probate, is the legal process of transferring the property of a deceased person to the rightful heirs. If no executor has been names, a judge appoints an administrator to serve in that capacity. This can also happen is a Will is deemed invalid. All wills must meet certain standards, such as being witnessed, to be legally valid. Again, requirements vary from state to state. What you should know is if a will is not in place, the administrator will most likely be a stranger to you and your family, and that person will be bound by the Probate laws of your state. As such, an administrator may make decisions that wouldn't necessarily agree with your wishes or those of your heirs.

Do I need an attorney to prepare my will?

You should always have an attorney assist you with any legal document. In most cases you are not required to hire a Lawyer to prepare your will, but the biggest reason you should is an experienced Attorney can prove valuable advice on your estate planning strategy such as Living Trusts. 
Do-it-yourself kits are widely available, or if you write your own will on the back of a napkin as long as you meet the legal requirement of your state it will be valid. If you don't know your state laws, it is important you seek an attorney for additional knowledge. A good tip is while you are working on your will, you should think about preparing other essential estate planning documents to ensure your wished are carried out while you're still alive.

Should my spouse and I have a joint will or separate wills?

Estate planner almost universally advise against joint wills, and some states do not even recognize joint wills. Odds are you and your spouse won't die at the same time, and there can be property that's not jointly held. Separate Wills make more sense, even though your will and your spouse's will might end up looking remarkably similar. In particular, separate wills allow for each spouse to address issues such as ex-spouses and children from previous relationships. Ditto for property that was obtained during a previous marriage. Be very clear about who gets what. Probate laws generally favor the current spouse.

In summary, it is important a will is in place, and more importantly it is critical it is done correctly, and abides by the state laws.

If you or a loved one needs any help writing a will or have questions, please feel free to contact Alan Orlowsky by calling 847-325-5559. Or visit our website at http://www.orlowskywilson.com.

The Potential Disadvantages of a Qualified Personal Residence Trust

Lets talk about The Potential Disadvantages of a Qualified Personal Residence Trust By: Alan Orlowsky Lincolnshire IL

A Qualified Personal Residence Trust (QPRT) allows you to remove the value of your residence or home from your Taxable estate with little or no gift taxation. If you are still living at the end of your term, your children (or trusts for their benefit) are now the owners of the house.

Even better, however, you do not have to mover out. To assure that you have a place to live, the terms of the QPRT can permit you to enter the remainder beneficiaries when the trust ends. The terms of the lease must be at fair market value. An additional benefit is that each payment of rent to the remainder beneficiaries will effectively transfer additional funds to them, free of gift or estate tax. The QPRT can also be written so that after the initial term of the trust, if you are survived by a spouse, your spouse can be permitted to occupy the residence rent-free for his or her life.

So what are the disadvantages of a Qualified Personal Residence Trust? 

One disadvantage of a QPRT is if you and your spouse do not live until the end of the trust term, the house will be still be included in your taxable estate. The good news is you are in no worse position, the house is simply treated as though you never placed it in the QPRT.

The second disadvantage of a QPRT is you are passing the house to your children with your original income tax basis. For example, assume that you bought your house for $50,000 and lived in it for 30 years without putting any more money into it. After 30 years, you decide to sell it, and you are paid $350,000 at today's market price. For income purposes, the IRS would say that you had a "basis" in the house $50,000 and a taxable gain tax on that $300,000 of "profit." At 15% for example, the tax would be $45,000 - leaving $305,000 for the children. However, if the house is your primary residence, under current law you can avoid taxation on all gain up to $250,000, or $500,000 for a married couple.

Let's say you never sell the house, but rather live in it until your death, and then leave it to your children as part of their inheritance. In that case, the house gets a "step-up" in basis to the date-of-death fair market value. The date of the death value is the fair market value of the asset valued on the decedent's actual date of death. If the fair market value on the day of your death is $250,000, the "basis" is adjusted to that level. Then, if your children sell the house a month later for $350,000 there is no capital gains tax due. They were able to get the full value of the $350,000 inheritance. When you gift your house to a QPRT, the remainder beneficiaries do not get a step-up in basis to your date of death value. The likely result is payment of capital gains tax when the children eventually sell the house.

As a "Grantor Trust," you are treated as the owner of the property for federal income tax purposes. Therefore, all income, deductions and credits associated with the property pass through the trust to you. For the same reason, if your primary residence is the property of a QPRT, then you will qualify for the $250,000 ($500,000 for married couples) capital gain exclusion.

You, as the grantor, pay for all repairs to the house, utilities, lawn care and other basic maintenance, homeowner's insurance premiums, and real estate taxes. Such payments are for the benefit of you, the grantor, as the tenant during the trust term, and do not constitute taxable gifts.

If you would like to learn more about QPRT's, or have questions about your estate and how to plan for the future, or if you have questions about this post or about a particular legal situation, please contact Alan Orlowsky by calling 847-325-5559, or visit our website today.

Contested Estates

Let's Talk about Contested Estates.......
By Alan Orlowsky

A Will Contest, in the law of property is a formal objection raised against the validity of a will, based on the contention that the will does not reflect the actual intent of the testator (the part who made the will). This can include things like the home, the personal belongings, checking and savings account, and other remaining assets. Unfortunately, Family disputed sometimes occur, but a will can always be challenged in court.
Additionally, contested estates are often a a lengthy process to overturn and in the wrong hands the process can be very expensive.

Michael Green's mother died in February of 2012, he was shocked to discover she had left her $600,000 home, all the contents within the house, the checking and savings account, and overall 80% of the total assets to his sister Beth. Michael's own grown daughter was completely left out of the will. "This came totally out of the blue, and we still don't know the motivation behind the slight," says Fran Green, Michael's wife of 25 years. "Michael feels completely helpless and we just don't know why."

But is he?

The answer is No! I regularly take calls from people who feel dissatisfied about a departed loved one's will and want to know about filling a challenge. With the aging Baby Boomer population more and more wills are being contested because they are not current, or done incorrectly.

The four most common grounds for contesting a will or trust are the following:

1) Under Influence. One child exerts under influence on a parent in order to take a bigger share of the estate For example, a son threatens to put his mother in a nursing home unless she leaves a bigger share of the estate to him.

2) Incompetence. The person making the will or trust was not of sound mine, or did not understand the meaning of the document, then its validity is questionable. This was the reason why Michael and Fran had a case. It was later determined Michael's Mother was not of sounds mind when the will was modified leaving the majority of the assets to his sister. The Estate was successfully contested, and divided up accordingly.

3) Fraud. If a person makes a will or trust based on lies or deceptions, the document is invalid. For

example, a daughter falsely tells her parent that her brother is engaging in criminal activity.

4) Ambiguous language. The meaning of a provision is unclear, or it can be interpreted in different ways.


Orlowsky & Wilson, Ltd. Provides representation if you believe a will or trust should be contested because of one of these factors. We also provide guidance to help you prepare a Will or Trust that is protected by use of No-Contest Provisions. Contact us today or visit out website to learn more.

If you have questions about this post or about a particular legal situation, please contact Alan Orlowsky by calling 847-325-5559.