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A magnifying glass spotlighting a block of wood to symbolize the public spotlight Naomi Judd's estate plan is under

Naomi Judd's estate planning strategy provides lesson in maintaining privacy

by Jonathan Dougherty | Contributor
Aug 26, 2022

The media had a field day speculating why the deceased singer Naomi Judd left her famous daughters out of her will. Her daughters, actress Ashley and singer Wynonna Judd, found themselves in the middle of a media firestorm ever since their mother died on April 30, 2022, of a self-inflicted gunshot at age 76.

Weeks later, NBC obtained a copy of Naomi's last will and testament and discovered that Ashley and Wynonna were entirely left out of the will. Their mother left them nothing, according to the will.

Naomi Judd posing for the camera to take a picture

Naomi Judd named her long time husband, musician Larry Strickland, in charge of the will and all her assets. The will bestows strong powers on Strickland, giving him "full authority and discretion" to do as he sees fit with all the estate property.

Strickland can buy, sell, lease, keep or gift any assets in the estate at any time and for any terms. And he can do so without the approval of any court. And the will entitles Strickland to "reasonable compensation" for his services as executor along with attorney and accountant fees.

And if Strickland can't serve as executor, the daughters are not named as the successor executors either. Naomi's will stipulates her brother-in-law and an accountant as her backup successor executors.

It is not unusual to leave your spouse as your executor. But granting him such broad powers and leaving her daughters nothing in the will raises questions. And some news organizations reported that Wynonna may challenge the will in court.

What are the questions and issues? Better yet, what can we learn from this high-profile case to avoid these problems in our estate planning.

Questions about Naomi Judd's estate

The obvious question everyone is asking is why Wynonna, 58, or Ashley, 54, were left out of the will with an estate valued at around $25 million.

But estate attorneys and others are asking if Naomi had already transferred some of her estate assets to her children.

She could have privately gifted some of her property to her daughters during her life. Or she could have established a confidential trust for the daughters earlier and donated assets to the trust for her daughters. She might have established a generation-skipping trust for Wynonna's two daughters.

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Or Naomi might have left assets to her daughters by using beneficiary designations. Certain financial accounts allow you to designate a beneficiary for the account privately. Upon your death, the assets are transferred directly to your designated beneficiary. There is no need for a will or a trust, and they do not go through probate. This is a common feature of life insurance, bank accounts, investment accounts and similar financial accounts.

These are all interesting estate questions that the public may never get answered.

And that is because one of the significant differences between wills and trusts is that a will becomes public when probate is filed. But a trust can, and usually does, remain private and out of the public eye forever.

NBC and other news agencies, or even the public at large, can access the public court records to review a will. But a trustee is generally under no obligation to share the trust with anyone other than the beneficiaries.

Wills and trusts are powerful estate planning tools often used in concert. Typically, a will becomes public, and trusts do not. Wynonna could be challenging the will in court, citing possible undue influence and unauthorized signatures. The family estate story has the potential to become very public.

Below are some other differences between wills and trusts and how to use them in your estate planning.

So why have a will at all?

Wills can be very helpful; not having one is poor estate planning. If you lack a valid will, state intestacy laws determine what happens to your assets. With a will, you decide who gets your assets. But incredibly, about 50 percent of Americans have no will, and even more have no estate planning.

And if you are an unmarried couple, relying on state law for inheritance protection is unwise. Many states have laws that offer some protection to the surviving spouse when there is no will. And often, there are safeguards if their spouse tries to disinherit them or leave them only a small portion of the estate.

For example, in Florida, the surviving spouse is typically entitled to an "elective share" that equals 30% of the deceased spouse's estate. This is true even if there is no will or the surviving spouse is left out of the will.

But for unmarried couples, the Florida elective share protection does not apply. And most other states do not give estate law protections to surviving unmarried partners of a deceased partner.

And most state estate laws are not well-suited for distributing a deceased spouse's assets with an extended blended family and possibly with multiple ex-spouses and stepchildren.

And with no will, you all but guarantee the proceedings will be public. When you die without a will, you have died intestate. And when the courts handle intestate hearings, the records are typically available to the public.

With no will, family feuds are common as your loved ones argue with the court and try to explain their interpretation of your wishes.

What are some issues with only having a will?

Probate

When the court administers a will, it goes through probate. Not only are the probate records typically public, but the hearings can take months and even years to complete. This is a significant disadvantage of distributing major assets by a will.

However, many states allow small estates to have a simplified probate process that avoids lengthy probate, and there are no hearings to attend.

For example, Florida has a simplified probate process for small estates. The executor files a written request with the local probate court requesting the simplified procedure. If the court authorizes the request, the executor often can distribute the assets without all the hurdles of a typical probate process.

There are specific requirements to qualify for the simplified small estate process in Florida,

There can be no real estate. And all property is exempt from creditors' claims except for amounts needed to pay funeral and two months' last illness expenses. You can ask for the simplified process with a simple letter or filing with the court. If the court agrees, they authorize you to transfer the property with no further court action needed.

Floridians can also avoid probate hearings by filing a petition for summary administration. In this case, the value of the entire estate subject to administration, less the value of the property that is exempt from creditors' claims, is less than $75,000

Or the estate also qualifies if the deceased person has been dead for more than two years.

Wills often get challenged

Potential beneficiaries often challenge the will when they are left out or believe they were not given a fair share of the state.

Parents might have reasons for specifically leaving certain children out of the will. Sometimes the parent believes the beneficiary is financially set and does not need money as much as the other children. Other times one of the children might become estranged from the parent for personal or behavioral reasons.

In blended families, the parent's natural children may be named as beneficiaries while the stepchildren are disinherited. Not only are their hard feelings, but the odds of a legal challenge are significantly increased.

When an elderly parent remarries a much younger spouse, the adult children often challenge will if all or most of the estate is left to the remaining much younger spouse.

For example, if an 80-year-old parent leaves their entire estate to their 30-year-old spouse, the adult children will likely challenge the will or trust.

Age has a great deal to do with a will being challenged. Suppose a parent changes their will when they are 80 years old. In that case, the children often challenge the will based on undue influence or lack of competency.

And a disinherited family member has nothing to lose by going to court over the estate and tying up the distribution by years.

Tax issues with only having a will

Sometimes taxes are an issue if you only use a will to give your assets to your beneficiaries.

State inheritance tax

This is not the tax paid by the estate but a tax paid by the person receiving the inheritance. There is no federal inheritance tax, but six states have such a tax. Typically, the spouse and children are exempt. But if you live in Iowa, Kentucky, Maryland, Nebraska, New Jersey or Pennsylvania, be careful not to create a tax bill when you leave assets by using a will. While these states have an inheritance tax, they do not have estate taxes.

State estate tax

But 11 states do have an estate tax: Connecticut, Hawaii, Illinois, Maine, Massachusetts, Minnesota, New York, Oregon, Rhode Island, Vermont and Washington. Washington, D.C., also has an estate tax.

These taxes are based on the value of a decedent's assets after debts have been paid. For example, Maine levies no tax on the first $5.8 million of an estate. But then the amounts above are taxed at a rate of 8 percent to a maximum of 12 percent.

Maryland is the only state that levies both an inheritance tax and an estate tax.

Federal estate tax

Most Americans don't have to worry about the federal estate tax, which excludes up to $12.06 million for individuals and $24.12 million for married couples in 2022. However, with the rising value of real estate, more and more people are entering this tax bracket every year.

Using only a will gives you few options to minimize your tax burden.

Wills are helpful and often necessary documents to ensure your wishes are carried out when you are gone. For example, you can name guardians for your children in a will.

But when it comes to reducing taxes, shielding your family from potential creditors, and distributing assets and income according to your wishes - a will alone is usually not enough.

For those purposes, it is best to use a will and a trust in combination.

Estate planning strategy: Use a combination of will and trust

Wills and trusts have been around a long time.

Wills were used in ancient Rome and Greece to transfer possessions and assets from deceased male citizens to their heirs.

And the use of trusts began in England in the 12th century around the time of the Crusades. Land-owning Crusaders wanted to be able to leave the title of the property to a friend or relative who could manage the estate, grow crops and pay taxes. Upon returning, the Crusader would get back the title to the property.

Unfortunately, many managers decided to keep the property since they possessed the title. At the time, English law ruled that property ownership was one indivisible right, and the managers had the title. This did not sit well with the returning Crusaders.

When the Crusaders complained to the king, he sent them to the Court of Chancery. That court decided it was unfair or "inequitable" that the valid landowner could not get it back. The law evolved so that someone could hold "legal" title to the property so they could manage it and transact business. But the actual owner of the property held "equitable" title.

The "legal" title holder held the property for the benefit of the "equitable" owner of the property. This is how the trustees today can hold "legal" title for the beneficiaries of the trust, who are the "equitable" owners of the trust assets.

While wills have not changed much, modern-day trusts have evolved into powerful, specialized estate planning tools. Trust law is well-established in every state in the U.S., and the strategic use of trusts and wills gives you incredible estate planning options.

What are advantages of using a trust over a will?

Trusts have some obvious advantages over wills.

Privacy

Wills tend to lead to public disclosure of assets. When a will goes through probate, the public gets access to the documents filed in the probate proceedings. This is how NBC got a copy of Naomi Judd's will.

Trusts are private documents, typically not filed in any court. The transactions, assets and beneficiaries can all remain confidential. The public and news media may never know if Naomi Judd transferred any assets to her family through trusts.

Asset protection

The assets in a will are vulnerable to creditor claims. Part of probate is to publicly notify creditors to make claims against the estate.

The assets in a trust are held for the benefit of the beneficiaries. The trustee holds legal title only. Until the beneficiary receives the asset, most creditors are precluded from attaching any assets.

Taxes

Wills hold little to no protection against taxes.

Trusts have many options to reduce the tax burden. Assets can be donated into the trust when their value is low and then appreciate in the trust. This shifting of the tax burden can create substantial tax savings. And this is just one of the tax strategies available by using trusts.

Control

When a will is probated, the assets are distributed. A will by itself has no mechanism to hold onto the asset and distribute assets and income according to your desired timetable and wishes.

A trust is designed to control and distribute assets and income according to your wishes, as expressed in the trust instructions.

A will can distribute assets into a testamentary trust created upon the death of the will's testator.

Do you need a trust?

If you worry about any of the following, a trust might help in your financial and estate planning.

A small key attached to a small house
  • Privacy
  • Estate taxes
  • Probate
  • Creditors and lawsuits
  • Future judgments
  • Establishing an educational fund
  • Leaving money and property to your loved ones
  • Leaving money and property to your favorite charities
  • Income taxes

While a will is only effective after you pass away, trusts can be established during your life. This way, you can control your assets during your life, and the trustee will control them for you after you are gone.

How does a trust work?

A trust is a fiduciary relationship where one person transfers property into a legal entity called a trust, which is held and managed for the benefit of another person.

The grantor is the person who owns the property and transfers it into the trust. If you place money, real estate or other assets into the trust for your spouse, children, grandchildren and favorite charities, then you are the grantor. Additional terms for grantor are settlor, creator or trustmaker.

The beneficiaries are the people named in the trust to receive trust assets in the future. The trustee holds the trust property and administers it for the benefit of the beneficiaries. The trustee runs the trust according to your instructions in the trust document. Trustees have a fiduciary duty and legal obligation to administer the trust according to the trust documents.

Two types of trusts

All trusts are either revocable or irrevocable. There are significant differences. Many people have both types of trusts for different assets and different purposes.

The main difference is whether you, the grantor, maintain control over the assets and can make changes. There are tax differences as well.

As the grantor, you can change or even revoke a revocable trust at any time. Many people feel more comfortable being in control of their assets during their lifetime and choose a revocable trust. But an irrevocable trust cannot be changed once it is established, with rare legal exceptions. An irrevocable trust is a separate legal entity.

The assets named in a revocable trust still belong to you, the grantor, and the IRS treats them as your assets for tax purposes. Assets in an irrevocable trust no longer belong to you. They are owned by the trust for the benefit of the beneficiaries.

Revocable trust assets are not shielded from the grantor's creditors. But irrevocable trust assets are protected from the grantor's creditors since they are no longer the grantor's property. This is often one of the primary reasons to establish an irrevocable.

The assets you transfer into a revocable trust are no longer subject to probate. Upon your death, the living trust becomes an irrevocable trust, which is quite powerful. An irrevocable trust is not your property and not part of your probate estate.

Do you want to keep your estate plans private?

The best way to use a will in estate planning is to put most of your assets into one or more trusts during your lifetime.

You control the distribution of your property and income privately. Your family will receive assets and income without public knowledge or scrutiny. Your private family business remains private.

You avoid probate on almost all your assets and minimize your tax obligations, so you can leave more to your family and less to the government.

You will still have a will to handle those assets that did not get put in trusts. This is called a pour-over will. But your will might be purposefully small enough that a simple letter to the courts will handle the administration.

The combination of trusts and a will is a powerful estate planning strategy that gives you control, protection, privacy and tax reduction.

How do I create an estate plan?

There are numerous options and scenarios to consider when developing an estate plan that protects your legacy and achieves your objectives, and important decisions should be made with the advice of qualified lawyers and financial experts. Membership with Legacy Assurance Plan provides members with valuable resources and guidance to develop comprehensive estate plans that take life's contingencies into consideration and leave a positive impact for generations to come. Legacy Assurance Plan members also receive peace of mind that a team of trusted, experienced professionals will assist them in developing legal, financial and tax strategies that will meet their needs today and for years to come through periodic reviews.

This article is published by Legacy Assurance Plan and is intended for general informational purposes only. Some information may not apply to your situation. It does not, nor is it intended, to constitute legal advice. You should consult with an attorney regarding any specific questions about probate, living probate or other estate planning matters. Legacy Assurance Plan is an estate planning services company and is not a lawyer or law firm and is not engaged in the practice of law. For more information about this and other estate planning matters visit our website at legacyassuranceplan.com.

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Email - info@legacyassuranceplan.com
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