A No-Contest Clause can Protect your Planning

February 10, 2025

While the number of wills being contested may sound small, this number doesn’t include the many wills not contested because of strategies used to discourage litigation. If your family includes people likely to battle over your estate plan, you’ll want to know about how a no-contest clause can protect your planning. A recent article from Think Advisor, “How to ‘Bulletproof’ a Will With a No-Contest Clause,” explains how to protect your wishes.

Tens of thousands of wills are impacted by contested wills yearly, and even the closest families can find themselves fighting over inheritances. One way to prevent this is with no-contest clauses, also known as the in-terrorem clauses, placed in wills and trusts to discourage heirs from voiding their claims to any part of the overall estate if they challenge the will in court proceedings.

Estate battle reasons vary, from sibling rivalry to intergenerational power struggles. The outcome of using a no-contest clause depends on state statutes, evolving case law and how much the warring parties can or want to invest in estate litigation.

Encouraging discussion between all stakeholders in advance of the passing of the parent or grandparent can give time for everyone to work through any disagreements before courts become involved. However, even with the best of intentions, clear communication doesn’t always resolve the issues.

Almost every jurisdiction has addressed whether or not no-contest clauses can be enforced, either by law or by case law. Vermont doesn’t have any laws about enforcement, and Indiana and Florida do not allow the use of no-contest clauses.

A no-contest clause is relatively simple. However, there are limitations to be aware of. No-contest clauses work only for named beneficiaries who have a claim in the will, and they must be given a sufficient interest under the will or trust for the no-contest clause to be useful. Someone who has been cut out of a will entirely has nothing to lose by taking family members to court for their perceived deserved inheritance, while someone who stands to inherit something, albeit a smaller amount than they would have wished, could lose everything if the no-contest clause is enforced.

Many estate litigation matters involve individuals who receive significant interests. However, feel they that did not receive what they see as unequal or non-controlling interests. In these cases, the enforcement may be relatively straightforward.

Challengers who file actions because they believe someone unduly influenced the testator can be problematic. Few people understand how undue influence works in a legal setting. Undue influence can be found when a person makes bad or unfair choices because of an alleged wrongdoer’s behavior towards them, causing the victim to placate the person. However, proving undue influence is not easy.

There are strategies to overcome no-contest clauses, so estate plans must be prepared with these in mind. In some instances, estate administration is challenged, including actions over improper investments, or raising interpretations of ambiguities.

An estate planning attorney with experience will show you how a no-contest clause can protect your planning and create an estate plan to stand up to challenges from dissatisfied family members or others who feel they have been treated unfairly. If you would like to learn more about no-contest clauses, please visit our previous posts.

Reference: Think Advisor (Jan. 16, 2025) “How to ‘Bulletproof’ a Will With a No-Contest Clause”

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Understanding the Difference Between a Living Will and Last Will and Testament

February 4, 2025

Estate planning serves to make your wishes known, plan for the future and enjoy peace of mind knowing that you have protected yourself and your family. Young adults, unmarried people and parents juggling family and work also need an estate plan, according to a recent article from Success, “What to Consider When Making a Will—and the Difference Between a Will and a Living Will.” Understanding the difference between a Living Will and a Last Will and Testament is critical to successful estate planning.

A Last Will and Testament and a Living Will are essential parts of every estate plan. However, their similar names can lead to confusion. They serve two very different purposes.

A Will provides directions to be followed when administering your wishes. The will names an executor who manages the estate and distributes assets in the probate estate. A guardian for minor children is also part of a will. This is why it’s so important for parents with young children to have an estate plan, including a will. If there is no will, a court will decide who will raise the children if both parents die.

Young adults, who generally believe they are immortal, often engage in high-risk activities and travel to exotic places. They should have a will and, equally importantly, a living will. This document is used to express preferences for medical care if one is seriously ill or injured and cannot communicate their wishes.

Similarly, young adults should also have an Advance Directive or a Medical Power of Attorney so someone they choose can make decisions if they are incapacitated, whether by illness or injury.

A Power of Attorney is needed to allow someone else to handle financial and legal matters in case of incapacity. Taken together, the will, living will and advance directive allow someone else to take over for you while you are living or after you have died.

Digital assets need to be addressed for anyone with an online life—which means almost everyone, especially younger people. Access to bank accounts, utility companies, photos stored online, social media accounts and digital property is a part of contemporary life. Settling an estate without this information will be difficult, if not downright impossible.

Estate plans need to be reviewed every three to five years and when significant life events occur, like marriage, divorce, the birth of a child, or a big change in financial circumstances. An experienced estate planning attorney will ensure you have a full understanding of the difference between a Living Will and a Last Will and Testament. They can guide you through this process, making it far easier than expected. If you would like to learn more about a Living Will, please visit our previous posts.

Reference: Success (Dec. 23, 2024) “What to Consider When Making a Will—and the Difference Between a Will and a Living Will”

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Leaving Inheritance to a Child with Addiction requires thoughtful Planning

January 30, 2025

Leaving an inheritance to a child with addiction requires thoughtful planning to balance their needs with potential risks. Addiction can compromise a person’s ability to manage finances responsibly, increasing the likelihood of misused funds or exacerbating harmful behaviors. By implementing tailored estate planning strategies, parents can protect their children, while ensuring their legacy is used constructively.

Challenges of Leaving a Lump Sum Inheritance

Directly transferring a lump sum inheritance to a child with addiction poses significant risks. The sudden availability of large amounts of money can intensify addictive behaviors, leading to financial instability, strained family relationships and even legal troubles.

In addition, addiction often results in a lack of financial literacy or accountability, making it difficult for the individual to manage their inheritance responsibly. Parents must consider these challenges when planning their estate to ensure that the inheritance is a source of support rather than harm.

Estate Planning Strategies to Protect a Child with Addiction

A trust is one of the most effective tools for managing an inheritance for a child with addiction. Parents can appoint a trustee to oversee distributions and ensure that the funds are used responsibly by creating a discretionary trust.

The trustee, often a professional or trusted family member, can manage payments for essential needs like housing, education, or treatment. This arrangement provides financial stability, while minimizing the risk of misuse.

Include Incentives

Incentive trusts encourage positive behaviors by linking distributions to specific milestones or achievements. For example, a trust might provide additional funds if the beneficiary completes a rehabilitation program, maintains stable employment, or avoids legal troubles.

By structuring the trust this way, parents can promote recovery and self-sufficiency, while ensuring the inheritance aligns with their child’s best interests.

Use Spendthrift Provisions

Spendthrift provisions limit the beneficiary’s access to the trust’s funds, protecting the assets from creditors, lawsuits, or impulsive spending. This legal safeguard is particularly valuable for individuals with addiction, as it prevents external pressures or poor decision-making from depleting the inheritance.

Consider Lifetime Gifting

For parents who prefer to provide financial support during their lifetime, lifetime gifting allows them to contribute smaller, manageable amounts. This approach enables them to monitor how their child uses the funds and adjust future support based on their child’s progress and needs.

Collaborate with Addiction Professionals

Involving addiction specialists or financial therapists in the planning process can help parents design an inheritance strategy tailored to their child’s specific challenges. These professionals can offer guidance on treatment resources, behavioral incentives and effective trust structures.

Communicating the Plan

Open communication about the estate plan can help manage family expectations and reduce potential conflicts. While discussing addiction and inheritance may be difficult, transparency fosters understanding and ensures that other family members are aware of the reasoning behind specific decisions.

Parents should also document their intentions clearly in the estate plan to prevent disputes among heirs. Including a letter of intent can provide additional context and convey the love and support behind the decisions.

The Role of Professional Guidance

Leaving an inheritance to a child with addiction requires thoughtful planning. Working with an estate planning attorney is essential to navigating these complexities. Attorneys can help draft trusts, incorporate spendthrift provisions and ensure that the plan complies with legal requirements. Their expertise ensures that the inheritance strategy aligns with the family’s goals, while protecting the child’s long-term well-being. If you would like to learn more about inheritance planning, please visit our previous posts.

Reference: The Guardian (June 19, 2010) “Experience: I blew my million dollar inheritance”

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Navigating Probate for Out-of-State Properties can be Complex

January 29, 2025

Navigating probate for out-of-state properties can be complex. Property outside the deceased’s home state requires additional steps, often involving separate probate processes, known as ancillary probate. This process can be complex and time-consuming for beneficiaries, so knowing how to avoid and manage it is essential.

Understanding Ancillary Probate

Ancillary probate is a secondary process required when a decedent owns real estate in a different state from where they resided. Each state has its own probate rules, and ancillary probate ensures that local laws govern property transfer within that state. This process involves additional court proceedings, paperwork and, often, hiring an attorney licensed in that state.

The necessity of ancillary probate can complicate estate settlement, leading to delays and added legal fees. However, understanding how this process works and planning accordingly can help streamline property transfer and reduce administrative burden for beneficiaries.

Drawbacks of Out-of-State Probate

Out-of-state probate can be particularly burdensome for estate executors and beneficiaries. Key challenges include:

Time and Expense: Ancillary probate can take months or even years to resolve, especially if multiple properties are involved. This can delay property transfers and increase expenses, from court costs to attorney fees in each state.
State-Specific Rules: Each state has probate requirements, and navigating unfamiliar regulations can be difficult. These complexities often necessitate hiring local legal assistance, further increasing costs.
Potential for Disputes: With multiple jurisdictions involved, disputes are more likely to arise, complicating property transfers and causing additional delays.

Recognizing these challenges early can help estate planners and executors find ways to avoid or mitigate the effects of ancillary probate.

Solutions to Avoid Ancillary Probate

Once you realize that you’re at risk of ancillary probate, the next step is implementing strategies to avoid it. Thankfully, there are several ways that you can keep your property out of ancillary probate.

Transfer Property Ownership with a Revocable Living Trust

One of the most effective ways to avoid ancillary probate is to transfer real estate ownership into a revocable living trust. By placing property into a trust, the owner maintains control over the asset during their lifetime. Upon their passing, the trust facilitates the property’s transfer directly to beneficiaries, bypassing the need for probate altogether. Trusts are also adaptable, allowing the owner to make changes as needed during their lifetime.

Establish Joint Tenancy with Right of Survivorship

Another strategy for avoiding ancillary probate is establishing joint tenancy with the right of survivorship (JTWROS) on out-of-state properties. In a JTWROS arrangement, property ownership automatically passes to the surviving joint owner, eliminating the need for probate. This method benefits spouses or relatives wishing to simplify property transfer upon death. However, it’s important to remember that JTWROS does not allow flexibility in asset distribution, since ownership automatically transfers to the surviving owner.

Use a Transfer on Death (TOD) Deed

A Transfer on Death (TOD) deed is another probate-avoidance tool available in some states. This type of deed allows property owners to name a beneficiary who will inherit the property upon death. The TOD deed doesn’t impact ownership during the owner’s lifetime and can be changed or revoked as desired. Upon the owner’s passing, the TOD deed transfers the property directly to the named beneficiary, bypassing probate. However, it’s crucial to check if this option is available, as not all states permit TOD deeds.

Consider Selling the Property Before Death

Sometimes, selling out-of-state property before death can eliminate the need for ancillary probate. By liquidating the asset, the estate avoids probate proceedings in that state, simplifying asset distribution for beneficiaries. While this may not be the best solution for all situations, it’s a viable option for those who want to reduce the probate burden on their loved ones. It’s worth consulting an estate planning professional to weigh the financial implications of selling versus retaining the property.

Navigating probate for out-of-state properties can be complex, especially for executors unfamiliar with ancillary probate processes. If you would like to learn more about probate, please visit our previous posts.

Reference: Nolo (June 4, 2024) “Ancillary Probate: How to Avoid Probate in Another State”

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Locating Missing Assets is Essential in Probate

January 22, 2025

When an individual passes away, their assets must be inventoried to settle the estate. However, it is common for executors or estate administrators to encounter missing or undisclosed assets. These can range from forgotten bank accounts to overlooked investments or real estate holdings. Locating missing assets is essential to fulfilling the deceased’s wishes and ensuring a smooth probate process.

Why Assets Go Missing

Missing assets often result from a lack of organization or documentation during the deceased’s lifetime. Individuals may have sometimes failed to update their records after acquiring new assets. Others may have intentionally kept certain holdings private or hidden. Digital assets, such as cryptocurrency or online accounts, can be easily overlooked if no record exists.

Missing assets can also stem from outdated beneficiary designations, closed accounts, or property acquired under different names. Executors must remain diligent and methodical to uncover these resources.

Steps to Locate Missing Assets

1. Review Personal Records

Begin by thoroughly reviewing the deceased’s documents. Tax returns, bank statements and insurance policies often reveal the existence of accounts or properties that require further investigation. Look for recurring payments, dividends, or interest income, which may point to assets, such as investments or savings accounts.

Correspondence, such as emails, letters, or physical mail, can also provide valuable clues. Notices from financial institutions, property tax bills, or statements from investment firms may lead you to assets that were not initially disclosed.

2. Search Public Records

Public records are an invaluable resource for identifying real estate and other registered property. County or municipal offices often maintain records of deeds, mortgages and tax assessments. Searching these databases can uncover properties owned by the deceased that were not listed in their estate documents.

Unclaimed property databases can also be used to search for forgotten bank accounts, stocks, or uncashed checks. Many states maintain searchable online registries for unclaimed funds, often accessible for free.

3. Investigate Digital Footprints

With the rise of online banking, digital assets can easily go unnoticed. Review the deceased’s computer, phone and email accounts for clues about digital wallets, cryptocurrency, or online investment platforms. Social media accounts and cloud storage services may also contain records of valuable digital assets.

Be sure to look for password managers or written login credentials, as these can grant access to encrypted accounts. Consulting with a tech-savvy professional or cybersecurity expert may help if access to these accounts is challenging.

4. Communicate with Financial Institutions

Contact banks, credit unions and investment firms where the deceased held accounts. Provide proof of your role as executor or administrator, such as letters testamentary, to gain access to account information. Financial institutions can often provide a complete list of accounts associated with the deceased, including dormant or inactive ones.

5. Consult Known Associates

Speak with family members, friends and professional advisors who were close to the deceased. Attorneys, accountants, or financial planners may have insight into undisclosed assets or ongoing financial obligations. Heirs and beneficiaries may also have knowledge of items or accounts the deceased valued but did not document.

Challenges in Recovering Missing Assets

Locating missing assets can be time-consuming, especially when dealing with complex estates. Some assets may be tied up in legal disputes or require additional documentation to confirm ownership. Executors must stay organized and persistent, keeping detailed records of their efforts.

In cases where assets are hidden intentionally or unintentionally, hiring a forensic accountant or private investigator may be necessary to uncover the full scope of the estate.

Legal Obligations of Executors

As the estate administrator, you have a fiduciary duty to locate and safeguard all assets belonging to the estate. Failure to do so can result in legal liabilities, disputes among beneficiaries, or delays in the probate process. A comprehensive search not only protects you legally but also ensures that the estate is settled equitably and transparently.

Avoiding Missing Assets in the Future

Encourage loved ones to maintain organized financial records and update their estate plans regularly. Comprehensive documentation of assets, passwords and account details can prevent future confusion and reduce the burden on executors. Estate planning attorneys often provide tools, such as asset inventories, to help individuals track their holdings effectively.

Bringing Closure to the Estate

Locating missing assets is more than an essential financial task in probate—it’s a way to honor the deceased’s legacy and fulfill their final wishes. By remaining diligent and methodical, you can ensure that all property is accounted for and distributed fairly among beneficiaries. If you would like to learn more about probate and estate administration, please visit our previous posts.

Reference: The Wall Street Journal (June 29, 2024) “Grief, Then Paperwork: The Messy, Thankless Job of an Estate Executor”

Self-Employed must take a Proactive Approach to Estate Planning

January 16, 2025

Freelancers and the self-employed must take a proactive approach to estate planning. These types of jobs operate without the safety nets provided by traditional employment. This independence brings freedom. However, it also adds complexity to financial and estate planning. From managing irregular income to protecting business assets, creating an estate plan ensures that your hard work is preserved and distributed according to your wishes.

Unlike salaried employees, freelancers often lack access to employer-sponsored benefits, such as life insurance, retirement plans, or disability coverage. Their business assets and personal finances are frequently intertwined, making careful planning essential to avoid unnecessary complications for heirs.

A well-crafted estate plan for freelancers addresses:

Transfer of business assets or intellectual property.
Continuity of income for dependents.
Minimization of taxes and legal hurdles.

Freelancers and the self-employed must create a plan that considers their unique financial circumstances and provides long-term security for loved ones.

Freelancers often rely on their business as their primary source of income. Without a plan, the value of that business could be lost upon their death. Key steps include:

Appointing a Successor: Identify someone to take over the business or handle its sale.
Creating a Buy-Sell Agreement: Outline how ownership interests will be transferred for partnerships or joint ventures.
Documenting Procedures: Maintain clear records and instructions to help successors understand ongoing operations or intellectual property management.

Freelancers often experience fluctuations in income, which can complicate traditional estate planning strategies. To account for this:

Establish a rainy-day fund to provide a financial buffer for your estate.
Work with an estate planning attorney to identify flexible asset protection strategies.
Consider annuities or investments that provide steady income streams for beneficiaries.

Unlike traditional employees, freelancers must set up their own retirement savings plans. Options include:

SEP IRAs or Solo 401(k)s: Tax-advantaged accounts tailored for self-employed individuals.
Roth IRAs: Flexible savings accounts that grow tax-free, offering greater liquidity for heirs.

Ensuring that retirement savings are properly designated to beneficiaries avoids complications later.

The self-employed often own valuable digital assets like intellectual property, domain names, or online portfolios. These assets must be included in your estate plan to ensure seamless transfer. Create an inventory of:

Login credentials for key accounts.
Ownership documentation for websites or digital products.
Instructions for transferring or licensing intellectual property.

Many self-employed generate income from intellectual property, such as writing, artwork, or designs. An estate plan should specify how copyrights, patents, or trademarks are managed after death. This may include:

Assigning ownership to heirs or beneficiaries.
Creating trusts to manage royalty payments.
Licensing or selling rights to preserve income streams.

The first step to creating an estate plan is drafting a will that distributes assets, business interests and personal property according to your wishes. Without one, state laws determine asset distribution, which can result in unintended consequences. However, there’s much more to an estate plan than just making a will.

Establish Powers of Attorney

Freelancers should designate a trusted person to handle financial and healthcare decisions, if they become incapacitated. Powers of attorney ensure continuity in managing personal and business affairs during emergencies.

Consider a Living Trust

A living trust can help freelancers avoid probate and ensure that assets are distributed efficiently. Trusts are beneficial for managing complex assets, like intellectual property or business income.

Secure Life Insurance

Life insurance provides a safety net for freelancers with dependents by replacing lost income and covering future expenses. Policies should be aligned with your estate plan to ensure that benefits are directed appropriately.

Reach Out to an Estate Planning Attorney

Freelancers should consult estate planning attorneys and financial/tax advisors to create a plan that addresses their unique circumstances. Regular reviews ensure that the plan evolves alongside income, assets, or family structure changes.

Freelancers and the self-employed must take a proactive approach to estate planning. You can ensure your hard-earned legacy benefits your loved ones by addressing business continuity, income fluctuations and digital assets. An estate plan tailored to your needs secures your financial future and provides peace of mind, knowing that your assets and values will be protected. If you would like to learn more about planning for the self-employed, please visit our previous posts.

Reference: American College of Trust and Estate Counsel (ACTEC) (Oct. 19, 2023) “Estate Planning for Freelancers and the Gig Economy”

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The Estate of The Union Season 3|Episode 11 is out now!

January 7, 2025

The Estate of The Union Season 3|Episode 11 is out now! We all make mistakes, and usually they aren’t fatal. Unfortunately, when someone dies, a mistake made in an estate plan can be!

In this edition of The Estate of the Union, Phillip Arendall and Brad Wiewel dissect mistakes that Phillip has seen people make in the probate process. Phillip is the Associate Director of our After Life Care Division and he brings his great insight (and sense of humor) to help analyze the foibles and pitfalls he has observed in that role. We hope you enjoy listening to these cautionary tales.

In each episode of The Estate of The Union podcast, host and lawyer Brad Wiewel will give valuable insights into the confusing world of estate planning, making an often daunting subject easier to understand. It is Estate Planning Made Simple! The Estate of The Union Season 3|Episode 11 is out now! The episode can be found on Spotify, Apple podcasts, or anywhere you get your podcasts. If you would prefer to watch the video version, please visit our YouTube page. Please click on the links to listen to or watch the new installment of The Estate of The Union podcast. We hope you enjoy it.

Texas Trust Law focuses its practice exclusively in the area of wills, probate, estate planning, asset protection, and special needs planning. Brad Wiewel is Board Certified in Estate Planning and Probate Law by the Texas Board of Legal Specialization. We provide estate planning services, asset protection planning, business planning, and retirement exit strategies.

Understanding the Rights of an Heir After the Death of a Relative

January 2, 2025

When a loved one passes away, it’s natural to have questions about your rights regarding their estate. Who gets a copy of the will? How are assets distributed? What if you need legal representation? These are common concerns that can often feel overwhelming. This article provides an understanding of the rights of an heir or beneficiary after the death of a relative. If you are in this situation, a probate lawyer can guide you through the legal complexities and advocate for your rights.

Who has the Right to See the Will?

A will is a private document until the testator (the person who made the will) passes away. At that point, the personal representative or executor is responsible for filing the will with the probate court.

Here’s what you need to know about accessing a will:

Named Beneficiaries: If you are named in the will, you are entitled to receive a copy.
Legal Heirs: Even if not explicitly named, heirs under state law may also have rights if the deceased did not leave a valid will (intestate succession).
No Public Reading: Contrary to what movies and TV shows portray, there’s rarely a dramatic reading of the will.

If you suspect you’re named in a will but haven’t been notified, a probate lawyer can help you determine your legal rights and ensure transparency.

Responsibilities of the Personal Representative

The executor or personal representative plays a key role in managing the estate. Their responsibilities include:

Filing the will with the court.
Identifying and valuing the deceased’s assets.
Communicating with beneficiaries about estate progress.
Preparing an accounting of financial transactions, even if the will waives this duty.

If the personal representative fails to fulfill these obligations, beneficiaries have legal recourse, including filing a petition with the probate court.

Can You Choose Which Assets You Receive as an Heir?

It’s important to understand that beneficiaries don’t always have a say in the specific assets they receive, explains The American College of Trust and Estate Counsel in their video, “A Child’s Right to Information When a Parent Dies.” For example, suppose a will leaves equal shares of an estate to two siblings. In that case, the personal representative may allocate one sibling the house and the other the cash, as long as the distributions are equivalent in value.

Disputes over asset allocation can arise, potentially leading to litigation. Consulting with a probate lawyer can help you navigate disagreements and ensure a fair resolution.

What If You Don’t Want an Inheritance?

It’s possible to decline a bequest or inheritance for various reasons:

Avoiding Tax Consequences: Disclaiming certain assets may prevent unnecessary tax burdens.
Simplifying Your Estate: You may prefer the inheritance to pass directly to your children or another heir.
Avoiding Unwanted Property: Some assets, such as a high-maintenance house, may carry more costs than benefits.

To disclaim an inheritance, you must act within legally defined timeframes to avoid tax implications or other complications. A probate lawyer can help ensure that the process is handled correctly.

Do You Need Legal Representation as an Heir?

While the estate’s lawyer assists the personal representative, they do not represent beneficiaries. Hiring a probate lawyer is essential if you have concerns about asset distribution, the executor’s conduct, or your rights.

An experienced probate attorney can:

Help you understand your rights as a beneficiary.
Request information or accounting from the personal representative.
Represent you in disputes or litigation over the estate.
Assist in disclaiming unwanted inheritances.

Why Work with a Probate Lawyer?

Losing a loved one is already a challenging time. Adding legal questions about the estate can make the process even more stressful. A probate lawyer will give you a better understanding of the rights of an heir or beneficiary after the death of a relative. The lawyer will be advocating for your interests and ensuring that the estate is administered by the law. If you would like to learn more about the rights of an heir or beneficiary, please visit our previous posts.

Reference: The American College of Trust and Estate Counsel (ACTEC) (Jan 23, 2020) “A Child’s Right to Information When a Parent Dies”

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What Art Collectors should know about Estate Planning

December 18, 2024

Art collections often hold deep sentimental value, while also being some of the most valuable assets in an estate. As any art collector knows, these pieces represent more than just investments—they carry a legacy, a story and a connection to the collector. However, without a thoughtful estate plan, artwork can face unique risks, from tax impacts to complications in transferring ownership. Here’s what art collectors should know about estate planning to ensure that their collections are preserved and passed on according to their wishes.

For art collectors, estate planning goes beyond finances. Artworks can be valuable assets with historical and emotional significance. Without planning, however, the collection may be subject to significant federal estate taxes, which can reduce what heirs receive. Any lack of clear instructions for the collection could lead to conflicts or, in some cases, force the sale of cherished pieces. According to SmartAsset, an effective estate plan can protect the integrity of the collection and outline specific wishes for its future.

One of the first steps in estate planning for art collectors is creating a comprehensive record of the collection. This involves cataloging each piece with descriptions, condition reports, and, if available, provenance or historical background. These details validate ownership and add to the artwork’s value. For instance, including an exhibition history or previous owners can enhance its worth.

Professional appraisals are crucial in determining each artwork’s fair market value. Appraisals consider the artist’s reputation, historical importance and market demand. Accurate valuations are also essential for estate tax purposes, ensuring that taxes are calculated based on a clear understanding of the collection’s worth.

What are the Tax Implications of Owning Art?

Taxes can significantly impact art collections. The federal estate tax, for example, is calculated based on an artwork’s fair market value at the time of the owner’s passing. The tax burden could often mean heirs must sell a piece to cover these expenses. This is particularly concerning if the estate lacks liquidity, meaning there may not be enough cash to pay taxes without selling assets.

By understanding potential tax liabilities and consulting a professional, collectors can consider strategies to reduce estate taxes, such as placing artworks in trust or donating select pieces to reduce the taxable estate.

Understanding intellectual property rights is crucial for collectors who own works by living artists or have purchased pieces with retained copyrights. Intellectual property can include copyrights, trademarks and any royalties tied to the job. These rights allow for continued earnings and control over how the artwork is displayed, reproduced, or used publicly.

Art collectors should ensure that these rights are documented and decide who will control them after their passing. This can prevent confusion for heirs and ensure that the art collection is managed according to the original collector’s wishes.

How Does Provenance and Documentation Help Protect Your Collection?

Maintaining detailed records on each artwork is more than just good organization—it’s a valuable part of preserving the collection. Provenance, or the history of ownership, verifies an artwork’s authenticity and is especially important for high-value pieces. For example, documentation that records where a piece was displayed or whether it was ever restored adds value and simplifies the transfer process.

Heirs inheriting an art collection will appreciate clear records. Such records support authenticity and value, making it easier for them to handle sales, insurance, or any future artwork exhibitions.

How Can Insurance Safeguard Your Collection?

Art collections face unique risks, including theft, damage and loss. Appropriate insurance coverage is an essential part of estate planning for art collectors. Ensuring that the collection is adequately insured can protect against unexpected financial losses. Regularly reviewing and updating the policy based on current valuations helps keep the coverage relevant, reflecting any changes in value or additions to the collection.

Several strategies exist to help collectors protect and manage their art collections in the long term. Here are some popular options:

Trusts: Placing artwork in a trust allows collectors to control how and when the collection is used or sold. Trusts can help reduce estate taxes and keep details about the collection private, which can be a priority for families or those with valuable, publicized pieces.
Comprehensive Wills: Drafting a will that explicitly addresses art assets can help avoid complications. Collectors can outline whether pieces should be sold, donated, or bequeathed to specific family members or institutions. This is also a way to ensure that the collection is passed on according to the collector’s wishes.
Charitable Donations: Donating to museums or charities can offer tax benefits, allowing art collectors to support cultural institutions, while reducing their estate’s taxable value. Some collectors also establish private foundations to maintain family control over how the artwork is displayed or used in the future.

An art collection can be more than a collection of assets; it’s a legacy that can endure through generations. An experienced attorney can educate art collectors on what they should know about estate planning. By adequately documenting, valuing and securing the collection, art collectors can help ensure its future. If you would like to learn more about planning for items such as art, heirlooms, or other personal property, please visit our previous posts.

Reference: Smart Asset (Jul. 19, 2024) “Guide to Estate Planning for Artists and Art Owners”

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Strengthen your Will against Potential Disputes

December 16, 2024

Creating a will is a way to ensure that your wishes are respected. However, without proper measures, a will can face challenges that delay its execution and burden your loved ones. You can strengthen your will against potential disputes by implementing these six strategies.

Communicate Clearly with Beneficiaries

Open communication with beneficiaries significantly reduces the likelihood of disputes. When loved ones understand your intentions directly from you, they’re less likely to feel blindsided by their inheritances. By having honest conversations about your decisions, you help manage expectations and clarify the reasoning behind your choices. This transparency can minimize feelings of disappointment and reduce the likelihood of challenges after you pass.

Include a No-Contest Clause

A no-contest or “in terrorem” clause is a powerful deterrent against potential challenges. This provision states that any beneficiary who contests the will and loses forfeits their inheritance, discouraging challenges from those who disagree with your decisions. While not foolproof, no-contest clauses are an effective way to uphold your wishes, since most beneficiaries won’t risk their inheritance over minor disagreements.

Verify Mental Competency and Strong Witnesses

Establishing that you’re of sound mind when drafting is crucial to creating an enforceable will. Consider scheduling a medical evaluation during the drafting process to document mental competency. Involving credible witnesses who can attest to your clarity of mind also strengthens the document. These measures prevent family members from successfully contesting the will on claims of diminished mental capacity, creating a more robust safeguard around your intentions.

Work with an Experienced Estate Planner

A qualified estate planner ensures that your will is legally sound and free of technical flaws that may open it up to disputes. Estate planners are well-versed in drafting wills that minimize ambiguities, comply with state laws and include critical legal clauses, reducing potential challenges. By partnering with an estate planner, you can feel confident that your will is prepared correctly and built to withstand disputes.

Document Your Decision-Making Process

Keeping a record of the decision-making process behind your will can serve as valuable evidence of your intentions. Documenting your reasons for asset distribution, family discussions and notes from planning meetings can help reinforce your choices if they’re questioned later. These records provide transparency and support the will’s validity, reducing the chance of successful contests.

Keep the Will Updated

Reflecting on significant life changes in your will helps prevent disputes by ensuring that they align with your wishes. Regular updates can account for family dynamics, marriages, divorces, births, or significant asset changes, reducing grounds for the contest. Consistently maintaining an updated will shows a clear intent, making it harder for anyone to claim outdated or unintentional distributions.

Seek Professional Legal Guidance

A will contest can derail the inheritance and legacy you want to leave behind. However, you don’t have to leave things to fate. You can strengthen your will against potential disputes and preserve your wishes with the right advance measures, even when you’re no longer here. If you would like to learn more about wills and probate, please visit our previous posts.

Reference: Forbes (June 7, 2024) “Contesting a Will: Who Can Do it and How Does it Work?”

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