Robert A. Bonavito, CPA PC

How to Avoid Estate Planning Litigation: Understanding Wills & Trusts

Hi, everybody. Welcome to another edition of New Jersey Forensic Account. Today, we're going to discuss how to avoid estate planning litigation. I'd say probably about 33% of our firm's work in forensic accounting revolves around either problems with the will, problems with an estate, the accounting, something to do with estate planning. So, what we're gonna do today is just talk about estate planning quickly and discuss ways you can avoid this.

Now, just to give you an example of what could go wrong, we had a case that we were retained of an elderly woman. She was 87, 88 years old, had slight dementia. Her husband died 10 years earlier. And what was happening was the children... The couple was very wealthy. Their children would invite the mother to stay. One lived in New York, one lived in California, and one lived in Florida, to stay with them. And the mother would fly down there to see the children and the grandchildren. And she wouldn't leave. She would stay there. And they said that what was happening was she couldn't say she wanted to go. She just didn't have the ability to say, "I wanna leave." But she did. And one of the other family members would fly down here and take her and then, they would do the same thing. But the problem was that when she was at their house, all kinds of expenses would come out of her account.

She would buy condos, cars, diamonds, go out to eat every night. I mean, she's 87 years old. So, eventually, what happened was the judge put us in charge of the estate. So, we approved all the bills and looked at all the invoice. So we put a stop to it. But this case, in our firm, was known as the "Hotel California" case because she would go in to the house and she'd never come out, just like the song. I know I'm just having a little fun here, but I tell you, it was a very serious matter because this woman and her husband, they were actually... she was actually a Holocaust survivor. She had the numbers on her arm. They were all faded, but they were there. So, they built up this tremendous wealth. They had seen the worst thing that could possibly happen to a human being on the planet. And here she is dealing with this because they never really thought about the estate plan and this is what happened. And we were able to, obviously, put an end to all that nonsense and fix all the issues, but that she had to go through this was ridiculous.

So, let's take a look at a basic estate plan that could have avoided this. Here, we have basics. Generally, when you do an estate plan, you get a good attorney, a lawyer, you talk to him. There's wills, trusts, gifts, joint ownership, that type of stuff. So, check your pension plans, retirement plans, make sure that the beneficiaries are who you want to be the beneficiary because we have people who are married three or four times, they die and they never change the... took the first wife off the million-dollar insurance policy. So, check that out. Make a list of individuals who can help, manage your assets, and have a reputable CPA and attorney. But remember, the first thing is to make a good list of all your assets, where they're located, passwords, all that stuff. Because once you have that, you can then move on and talk to the attorneys and the CPA and make a plan.

Now, what type of wills? Everybody, they call me and they're like, "I wanna do this or that." I said, "Listen. There's a will for that." Every attorney has a will that will do that. There's all kinds of wills. There's simple wills, testamentary wills, pour over wills, oral wills, joint wills, living wills. These things are already there. These are tools that every state attorney has and we have really good ones we bring in. Testamentary trust will is great because it enables you to set up trust that, if anything happens to one spouse, it will pour into a trust. And also what we do is, and right now and when we're doing this, the government gives you $22 million of exemptions on estates. You can actually save tax on $22 million.

And the best way to do this is...we do it through AB trust. And I'll just take this real quick. But generally, what it does is an AB trust, we do with businesses. We just set up two trusts and whoever dies first, they get to use half of the estate. Was 22 million on this, but it's 11 million and another 11 million here. And then, that would feed into another trust here and that would go to the kids. Something like this would have really helped in the "Hotel California" case. So, there's wills that will do that. Don't worry about that. The important thing is to get a will, because if you don't have a will, the state is gonna make decisions of who gets your money, and that's not something you wanna do.

So, let's talk about trust, type of trust: revocable trust, irrevocable trust, dynasty trust, insurance trust, living trust. Again, anything you's already there. And that's something that your CPA or your lawyer will guide you through. Do you want a revocable trust? Do you want a irrevocable trust? Do you have a spendthrift trust? Maybe you don't trust the kids with the money, a testamentary trust, you know, that was created through a will. All kinds of good stuff here. Now, the real question is, "What is better, a will or a trust?" Okay. Let's just go through. Here's my opinion. A trust provides more structure, protects your privacy because, in a will, it goes through what's called probate. In probate, your will is actually in the county scene [SP]. Anybody can go look at it. So, it's online now. All the stuff is online. They can see your will. So, a trust gives you privacy. It can reduce estate taxes. Like I said, there's ways to shelter $22 million that we do at least once every couple of weeks for clients.

Living Trust. For the "Hotel California" case, that's what was needed. They needed a good trustee to protect this woman because they spent a lot of money getting our firm in there to take over and run the estate where they could have done it in the beginning. So, trusts are generally more difficult to contest than wills. Trusts are more flexible than wills. Trusts can impose greater discipline on beneficiaries. You can tell them in the trust what you want them to do. Now, the most important thing is who is managing? Who's your executor? Or who's your trustee? Who's your executrix? This really depends a lot on the nature of your estate, your family situation, other factors. But you wanna try to pick the best person possible. And here's the criteria we usually like to look at. Okay. You need to have an idea of the pros and cons of each person because you're never gonna find the perfect person to manage your DV [SP] executor. A lot of people just put people in there. They don't even tell them, put people in the will. Or with a trustee, they usually say, "Listen, you're gonna be the trustee because there's a lawyer involved and it's more complex."

But what are the pros and cons of this? Are they crazy? Are they really busy? Did they have a financial background? Understand them. Talk to them. Make sure that they know the importance of record-keeping because a lot of times we get involved because the records are horrendous. Make sure they have a good disposition. You don't want someone who is very flaky. Someone younger is also helpful or at least two people. If you have an older person and a younger person would be great. You're never gonna find the perfect trustee or executor, but picking the best one possible will save you a great deal of headaches.

Okay, guys, I hope you enjoyed this. If you have any questions, just leave a comment below. And if you enjoyed this, feel free to subscribe to my YouTube channel. Thanks a lot.

Return to Video Gallery