Testamentary Capacity and Undue Influence in Will Contests

Posted by dfederman on Apr 18, 2012 in Investor Education | Comments Off

The two most common legal theories used in will contests are lack of testamentary capacity and undue influence.

While the basic principles of these two theories have long been established in Virginia, a recent decision handed down by the Supreme Court of Virginia illustrates the difficulty in satisfying the burden to prove lack of capacity and/or undue influence by an opponent to the will.

In Weedon v. Weedon, No. 101901, 2012 Va. LEXIS 7 (Va. Jan. 13, 2012), four of the deceased testator’s children challenged the validity of her 2008 will, arguing that their mother lacked the mental capacity to execute the will and that their sibling, the proponent and beneficiary of the 2008 will, exerted undue influence on their mother’s execution of the will. The elderly testator, confined to the hospital, executed a new will four days before she died, leaving all of her assets to the beneficiary child to the exclusion of the remaining four children. The beneficiary child was alleged to have taken control of her mother’s financial and medical affairs while gradually isolating her mother from her siblings.

The trial court held that (1) the testator lacked the requisite testamentary capacity at the time she executed the will, and (2) even if the testator did have capacity, then the testator was subject to the undue influence of the beneficiary child when she executed the 2008 will.

In a decision handed down in mid-January 2012, the Supreme Court of Virginia reversed the trial court’s decision and remanded the case for further proceedings. On the issue of testamentary capacity, the Supreme Court first held that an assessment of a testator’s mental capacity by the drafting attorney’s legal assistant or paralegal can be afforded the same weight as a similar assessment made by the attorney. The Supreme Court then held that the crucial moment for determining the testator’s capacity is the time of execution, finding that the trial court erred in placing more weight on the testimony of the will opponents’ expert witness and the testimony of the testator’s other children, who were not present when she executed the will, than it did on the testimony of the witnesses, notary, and beneficiary child who were present when the will was executed.

Turning its attention to the allegation of undue influence, the Supreme Court held that even when undue influence is presumptive (such as when a fiduciary relationship exists between the testator and the individual alleged to exert the undue influence), “[t]he burden of showing undue influence rests upon whose who allege it, and it cannot be based upon bare suggestion, innuendo, or suspicion.” It has long been established that in order to prevail on this type of claim, the undue influence must not only be present, but it must also overcome the testator’s own free will (e.g., “it is not my will, but I must do it.”). In the present case, the Supreme Court held that the trial court focused on the circumstantial evidence that raised the presumption of undue influence while overlooking the ultimate inquiry: whether the testator’s own free will was overridden.

The Weedon case shows how difficult it can be to challenge a will on the basis of mental incapacity and/or undue influence. Despite this ruling, however, each case will continue to be decided on its own set of specific facts and circumstances. If you suspect a loved one has been subject to undue influence or lacked the capacity to execute estate planning documents, then you should confer with an attorney to discuss the specific factors of your case.

The financial advisers of Ariba Asset Management and attorneys at The Estate Planning & Elder Law Firm can assist families with their estate, financial, insurance, long-term care, veterans’ benefits, and special needs planning issues.

Call to speak with an investment adviser at Ariba today to get your financial house in order. 1-800-808-7488.

Trustees – Selection, Roles, and Responsibilities

Posted by dfederman on Apr 16, 2012 in Investor Education | Comments Off

Description

The selection of a trustee is one of the most important elements of trust design. This article looks at the different aspects of the role of the trustee and the factors you should consider when selecting one.

Synopsis:

The person selected as trustee of a trust may shape your intentions for years — or even decades — to come. The trustee is responsible for keeping the trust’s financial blueprint on track in the face of random market events. He or she is also expected to ensure that the trust continues to meet its objectives for beneficiaries, even those whose goals and needs might evolve unpredictably over time. The ideal trustee will have — or be able to summon — legal, tax, investment, and administrative expertise, and deliver that expertise loyally, decisively, and impartially.

Key Points

• The Ideal Trustee May Be a Jack or Jill of Many Trades
• Personal or Professional — Weighing the Differences
• The Advantages of a Corporate Trustee
• The Costs of Trustees
• Points to Remember

By its very nature, a trust must work best just when its creator cannot act. Your trust may be carefully designed to address all the concerns you can identify. But no matter how well you and your financial and legal advisors have analyzed potential contingencies, the best-laid plans could be derailed by unforeseen circumstances. And perhaps nowhere can a trust be more vulnerable than in its trustees.

Trustees may be at the fulcrum on the levers of change, striking a balance in the future that you might find unfathomable today. Trustees are expected to keep the trust’s financial blueprint on track in the face of random market events. They are also expected to ensure that the trust continues to meet its objectives for beneficiaries, even those beneficiaries whose goals and needs might evolve unpredictably over time. In addition, trustees themselves might be buffeted by the winds of fate. Individuals might someday choose to relocate or change their occupation. They might alter their lifestyles, retire, or otherwise become unable to fulfill the duties you have envisioned. Your attention to sound trustee selection principles and self-correcting design features now can help manage those future risks to your plans.

The Ideal Trustee May Be a Jack or Jill of Many Trades

The role of trustee may at any given time require legal, tax, investment, and administrative expertise, as well as the wisdom to invoke that expertise when needed. The ideal trustee should also be able to deliver that expertise loyally, decisively, and impartially.

As the creator of the trust, you have the broadest possible discretion in selecting someone to act as trustee. You can opt for a personal confidant or relative in whom you have strong faith, such as a business associate, sibling, or spouse. You can select a professional practitioner whose skills might be especially useful to your purposes, such as a lawyer or accountant. Or you can designate a bank or trust company to act as a corporate trustee. Each option presents a unique balance of benefits and concerns.

Personal or Professional — Weighing the Differences

A personal confidant or relative may already have a well-established relationship with your intended beneficiaries and a detailed knowledge of the unique circumstances in your bequest. That familiarity can provide the context needed to interpret your wishes in your absence most effectively. It can also lay the groundwork for a strong long-term relationship between the trustee and the beneficiaries. However, someone chosen solely on the strength of personal relationships and intimate knowledge may lack the training or skills needed to act impartially in the face of duress or emotional entanglement. What’s more, a friend or relative acting as a trustee might have a conflict of interest or be unable to devote sufficient time to the duties of trusteeship, and these potential deficiencies may not become readily apparent for some time.

A professional practitioner who has had significant involvement in your family’s affairs may offer many of the same advantages as a personal associate, such as personal relationships with beneficiaries and historical knowledge of unusual situations and special needs. They may also have the professional distance needed to remain dispassionate under difficult circumstances. However, like a lay trustee, an individual professional’s tenure may be subject to the vicissitudes of his or her life and may ultimately be unavailable at some critical future juncture.

The Advantages of a Corporate Trustee

A bank acting as a corporate trustee can provide a high level of impartiality and detachment as well as ready access to specialized technical, tax, and legal expertise. A corporate trustee can also offer a high level of continuity and stability, since its ability to serve is generally not dependent upon any single individual. However, a bank cannot maintain the same level of intimate knowledge as a family insider about your intentions or your beneficiaries’ needs.

You should keep in mind that different types of trustees may be subject to different rules, insurance, and licensing requirements. Lawyers, for example, must meet the terms of their state bar association licenses when they act as trustees. Banks may be subject to regulatory audits and documentation procedures. Also, professional trustees are often held to the highest fiduciary standards under the “prudent investor” principle. Simply put, that means that trust assets would have to be managed according to the best practices of the asset management profession, with special attention to appropriate risk management and diversification.

Trusts created in the Colonial era still function today, even as the laws governing trust and inheritance change almost daily. Whether your goal is ensuring your family’s fiscal stability or creating a permanent legacy, a properly crafted trust can be a powerful tool.

Points to Remember

1. The ultimate success of your trust’s mission will depend in large part on how your trustee carries out your intentions, making the selection of a trustee one of the most important elements of trust design.
2. The ideal trustee should possess or have ready access to legal, tax, investment, and administrative expertise, as well as the wisdom to invoke that expertise when needed. The ideal trustee should also be able to deliver that expertise loyally, decisively, and impartially.
3. Personal confidants, relatives, lawyers, accountants, and banks are all commonly used as trustees. Family members, friends, and business associates are often the most knowledgeable about your intentions and your beneficiaries’ needs, but may have less than optimal skills or temperament for the job. Professionals may offer a stronger skill set but can lack important personal connections to your family. Professionals may also be held to a higher standard of performance than lay trustees by probate judges and executors.

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April 2012 — This column is provided through the Financial Planning Association, the membership organization for the financial planning community, and is brought to you by Dan Federman, CFP(r), a local member of FPA.

Required Attribution

Because of the possibility of human or mechanical error by S&P Capital IQ Financial Communications or its sources, neither S&P Capital IQ Financial Communications nor its sources guarantees the accuracy, adequacy, completeness or availability of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information. In no event shall S&P Capital IQ Financial Communications be liable for any indirect, special or consequential damages in connection with subscriber’s or others’ use of the content.

© 2012 S&P Capital IQ Financial Communications. All rights reserved.

Planning to Replace the Irreplaceable Parent

Posted by dfederman on Apr 10, 2012 in Investor Education | Comments Off

Elder law attorneys spend a good part of their time helping families navigate the long-term care system to secure care for a senior. Many families do not realize that elder law attorneys also assist in planning for the families of seniors.

Most parents of children with disabilities are aware of the necessity to plan financially for such a child; however, they may not have considered living and care arrangements for their child, regardless of the child’s age. Some families realize the need for such planning but do not want to face the parents’ inevitable aging and death. Such a “head in the sand” approach can ultimately be traumatic for the child with disabilities.

Recently The Estate Planning & Elder Law Firm has seen several cases in which an aging parent has a medical crisis that leaves this parent in need of long-term care. Prior to needing long-term care, however, the aging parent was the primary care provider for an adult child with disabilities. Once appropriate care is secured for the aging parent, particularly if the care is in a facility, then the crisis of the child’s care begins. The Estate Planning & Elder Law Firm has also seen situations in which the aging parent died without a care plan for the child.

In many of these cases, the child has been disabled since birth and has been living with the parent. The parent has always been the care provider, so the adult disabled child may not be receiving any type of public benefits or community services, and this child may not have been involved with any other care providers. When the parent is no longer available, either because of illness or death, the child is not only faced with losing the parent as a primary care provider, the child may also face the dilemma of leaving the only home the child has ever known. Such life changing transitions are difficult for any child, but for the child with disabilities these transitions can be traumatic. When the parent has a medical crisis or dies, some type of transition will be inevitable and necessary.

In some of these situations, families can make temporary arrangements for the adult child with disabilities to live temporarily with the child’s other family members until they can find a more permanent solution. It is stressful for the individual with disabilities; this individual is now removed from both the care of the individual’s beloved parent and also the individual’s familiar environment. This individual is also placed into the chaos of someone else’s life.

In the worst case situations, there are either no family members living in the local area, or none who are able to provide adequate care. Therefore, there is an immediate crisis for the child with disabilities for both the short-term and long-term. In order to avoid such a crisis, it is critical for the parent of a child with disabilities to devise a plan for that child’s care in the event the parent can no longer be the caregiver.

There are several planning objectives that parents of children with disabilities should pursue. The first objective is to ensure that the child is receiving as many benefits and services as possible. Some available benefits, such as Medicaid waiver programs, have long waiting lists and people may be on the lists for years. There may be programs available in the community through the community services boards as well as local recreation centers. There may also be work programs available through organizations like The Endependence Center and the ARC. Many parents have followed their natural instincts to shield their child with disabilities. In many cases, however, if it is possible for the child to be involved in a sheltered work program or community activities, the child may become more independent than initially thought possible. If the child has a relatively high level of independence, then there may be more community alternatives and housing options available. The parent will also want to ensure that the child’s health care benefits will remain intact at the parent’s death.

Another planning objective involves assessing housing options in case the parent is no longer available as the primary caregiver. If the child will be living with siblings or other family members, then in many cases it is a good idea for the child with disabilities to spend time with the potential caregivers in the caregivers’ home before a crisis occurs. This can make the eventual transition easier and more comfortable, and the person with disabilities is more likely to thrive in the new environment. The situation is more difficult if the child with disabilities will not be living with family members if the parent becomes ill or dies. Families should consider transitioning the child to the new environment (such as a group home) while the parent is still available. The parent can then monitor the transition to the new environment and ensure that the child is receiving the care that the parent desires. This also gives the parent the peace of mind that the child will not have to experience the disruption that can occur at the parent’s illness or death.

Each family’s situation is different; however, they all share one thing in common: the need to adequately plan to transition care for their family members with disabilities. Planning for the inevitable certainly provides the best result for everyone.

The financial advisers at Ariba Asset Management and the attorneys at The Estate Planning & Elder Law Firm can assist families with their estate, financial, insurance, long-term care, veterans’ benefits, and special needs planning issues.

Call to speak with an investment adviser at Ariba to start your financial planning. 1-800-808-7488 or info@aribaasset.com

Using ETFs in Tactical Asset Allocation Strategies

Posted by dfederman on Apr 3, 2012 in Investor Education | Comments Off

Description

Tactical asset allocation is the practice of fine-tuning an investment portfolio to meet changing market conditions. This article discusses the use of ETFs when implementing a tactical asset allocation strategy.

Synopsis:

Stocks and bonds are the fundamental building blocks of any investment portfolio. The types of stocks and bonds on which you choose to focus your portfolio will indelibly stamp your future investment performance. The blueprint for this focus is called the master asset allocation plan, and many argue that it represents the single most important decision that can be taken in an investment program. A well-constructed portfolio carries out the objectives of the investor by adhering to its preordained allocation formula. However, many portfolio managers have found they may enhance performance by adapting their allocation formula as the market environment changes, a practice often called tactical asset allocation. Exchange-traded funds (ETFs) can be a powerful tool for building and maintaining a portfolio that rigorously meets investment objectives while at the same time flexibly adapting to the changing dynamics of the market. This article discusses the use of ETFs when implementing a tactical asset allocation strategy.

Key Points

• Exploitable Financial and Economic Cycles
• Market Dimensions That Can Be Exploited by ETFs
• P/E Ratios of the S&P 500 During Bull Markets
• The Potential Value of Sector Rotation
• P/E Ratios of the S&P 500 During Bear Markets
• Other Considerations for Tactical Allocation
• Points to Remember

Exchange-traded funds (ETFs) may be ideal tools for helping savvy investors execute a tactical asset allocation strategy. A general understanding of tactical asset allocation can help crystallize this strategic use of ETFs.

The process of creating an allocation starts with an assessment of the investor’s age, goals, and risk tolerance. Because these factors are fixed, many assume that the resulting allocation plan must be static. However, every asset class has its own unique market cycles and economic influences. An investor can often identify these individual patterns and use that insight to guide his or her investment processes — shifting value to an investment that might outperform the average from an asset type showing potential to lag behind broad market performance. ETFs can provide a high degree of precision in targeting the exact proportions needed for an effective tactical execution.

It is important to emphasize here that tactical asset allocation is not the same thing as market timing. Tactical allocation adjustments are a form of fine-tuning for an established long-term master plan, often done in response to broader market trends. Such measured alterations to the core blueprint may be left in place for weeks, months or even years as environmental conditions warrant. Market timing, on the other hand, is more like betting — its success depends on profitably gauging the size and scope of random market spikes while avoiding the equally prevalent random market troughs.

Exploitable Financial and Economic Cycles

Tactical asset allocation is active asset reallocation — that is, changing your investment mix in response to actual environmental changes as markets rise and fall and the economy strengthens and weakens. For example, stocks and bonds each have their own bull-market and bear-market cycles. As a consequence, there will be times when stocks are overvalued relative to bonds, and vice-versa. Furthermore, there will be times within each asset class’s market cycle when some identifiable subset of those assets moves out of line from the overall average. The asset of opportunity may be a particular class of bonds, or the stocks of companies in a specific economic sector. Niche-focused ETFs can be used to increase your investment exposure to just those asset categories that might be needed to implement your short-term strategy.

Market Dimensions That Can Be Exploited by ETFs

Growth and Value

The relative performance of growth stocks and value stocks historically has been dependent on the market cycle. Growth stocks often have made their greatest gains in the early stages of a bull market, while value stocks have produced stronger appreciation as a bull market ages. In fact, during three of the past four times since 1978 that a bull market has entered its third year, the value component of the S&P 500 outpaced the growth component on both a percentage change and frequency of out-performance basis. ETFs that are composed purely of growth or value stocks can be used to add weight to one style or the other selectively.¹
Earnings and Market Cycles

Bull markets are traditionally marked by rising stock prices and increasing stock valuations. In fact, valuation — the amount of money that an investor is willing to pay for a dollar of expected earnings — is often a closely watched indicator of a potential turn in the direction of the market. Valuation is measured by a statistic known as the price-to-earnings ratio (P/E). As seen in the chart that follows, the level of P/E in the market is often associated with a change in direction. This often indicates the extent to which stocks might become overvalued or undervalued. (It should be noted that P/Es tend to be higher today than they were 50 years ago, so the levels of the next peaks and troughs might be expected to be higher than the simple averages might otherwise predict.)

Investors concluding that stocks have become overvalued may seek to reduce the proportion of equities in their portfolio by increasing the percentage of assets committed to bonds; when stocks are undervalued, they seek the reverse. ETFs that mirror the broad equity and bond market allow an investor to shift this emphasis quickly and efficiently.

Protect Yourself From Identity Theft

Posted by dfederman on Apr 3, 2012 in Investor Education | Comments Off

With identity theft becoming a growing problem, there are things each of us can do to minimize the possibility of identity theft or effectively deal with it if it happens.

Some of this information was included in a letter from a corporate attorney to his employees, and some information is from the National Consumer Law Center.

Credit and debit cards: Do not sign the back of your credit and debit cards; instead, write “Photo ID Required.” Next, when you are writing checks to pay your credit and debit card bills, do not put the complete account number on the memo. It is better to put only the last four numbers of your account number on this line. The credit and debit card company knows the rest of the number. Doing this will prevent anyone who might be handling your check as it passes through all the check processing channels from having access to your account.

Checks: If you want to put a telephone number on your checks, use your work telephone number instead of your home telephone number. If you have a post office box, use that address on your checks instead of your home address. Never have your Social Security number printed on your checks. You can add it if necessary. (Sometimes military commissaries and base exchanges require this information.) If your Social Security number is printed on your checks, anyone can have access to it.

Wallet: Photocopy the contents of your wallet. Copy both sides of each document in your wallet, including your driver’s license, other identification cards, and credit and debit cards. This will permit you to know what you had in your wallet, including account numbers, so you know what account holders need to be notified in case your wallet is lost or stolen. Keep the photocopy in a safe place. Some credit and debit card companies offer a registry as part of their services. It may be worth the fee to call one number, and then have the registry notify all of your credit and debit card issuers about a loss or a theft. You may also want to carry a photocopy of your passport with you when you travel.

Other tips to avoid identity theft:

– Do not carry your Social Security card with you; keep it in a safe place.

– Do not attach a personal identification number (PIN) or Social Security number (SSN) to any card that you carry with you or on any receipt or paper that you are going to throw away.

– Shred any document that contains a PIN, SSN, or account number before you throw it away.

– Check your receipts to make sure you have received your own and not someone else’s.

– Alert your credit or debit card issuer if you do not receive your statement; someone may be stealing your mail.

– Do not give your personal information to anyone until you have confirmed the identity of the person and verified that you need to provide the information.

– Check your credit reports on a regular basis.

– Put passwords on your accounts, but do not use something easily available, such as your mother’s maiden name or your date of birth.

If your wallet or credit and debit cards are lost or stolen, or if you suspect identity theft, then you should notify the credit or debit card issuers immediately. This is easier to accomplish if you have kept a list of your card numbers and the toll free telephone numbers of the credit and debit card issuers. Keep this list in a place where you can find it or subscribe to a registry. You should also immediately file a police report when your wallet or credit or debit cards are lost or stolen. This will prove to the credit and debit card issuers that you were diligent, and this will be the first step toward an investigation. If you think your mail was stolen, then contact the U.S. Postal Service. You should also phone the Social Security Administration’s (“SSA”) fraud line at 800-269-0271 to notify the SSA that someone may be using your Social Security number.

You should also notify the three major credit reporting agencies to place a fraud or identity theft alert on your accounts. This is important because thieves may apply over the Internet for credit in your name. This alert will tell any company that is checking your credit in order to issue new credit in your name that your information was stolen. The company will have to contact you by telephone to authorize new credit. The names and phone numbers of the three major credit reporting agencies are:

– Equifax: 800-525-6285

– Experian: 888-397-3742

– Trans Union: 800-680-7289

You can order copies of your credit reports from each of these agencies and review the credit reports to see if any new accounts in your name have been opened fraudulently. You can receive a free copy of your credit report once every 12 months from each of the three major credit reporting agencies. There is one central website for this: www.annualcreditreport.com, and one toll-free phone number: 877-322-8228. If you want to mail a request for a free credit report, then you can download the form at www.ftc.gov/credit, complete it, and mail it to P. O. Box 105281, Atlanta, Georgia 30348-5281. Do not contact the credit reporting bureaus individually for your free report. If you receive an e-mail purporting to be from www.annualcreditreport.com asking for personal information, it is probably a scam, and you should not respond to it. You can forward the e-mail to the Federal Trade Commission’s database of deceptive spam at spam@uce.gov.

You may also want to phone your creditors to find out about any accounts that may have been tampered with or opened fraudulently. You will want to close immediately any accounts that have been tampered with and use new personal identification numbers when you open new accounts.

Identity theft is a one of the fastest growing crimes. You can help protect yourself against identity theft by following these tips. For more information, see the National Consumer Law Center’s website at www.nclc.org/special-projects/older-consumers.html.

The financial advisors at Ariba Asset Management and the attorneys at The Estate Planning & Elder Law Firm can assist families with their estate, financial, insurance, long-term care, veterans’ benefits, and special needs planning issues.

Call 1-800-808-7488 to for a no-obligation review of your personal financial situation.