Credit Card Debt and Inheritance in Savannah

When it comes to estate planning, many people are confused about what happens to their credit card debt when they die.  Clients tell their Savannah estate planning lawyers that they thought the debt would be forgiven, for example.  Unfortunately, this isn’t the case, so it’s a good idea to understand what will happen to your estate and the assets you plan to leave to your loved ones.

First of all, your estate will be expected to pay off credit card debt when you die.  In fact, whatever you leave behind will first be used to pay for any outstanding debt.  Creditors of all kinds will have first crack at what you (or your heirs) will have.  Contacting the creditors and getting these debts paid off is one of the most important jobs of the executor of your estate.

However, credit cards aren’t necessarily the first thing that will be paid off, but they are definitely on the list.  If your estate doesn’t have the necessary assets to pay, then other courses of action may be available to those trying to collect on the debt.  If there is another name on the account, for example, they can go after that person for an outstanding balance.

This is important to note if you’ve put your adult child on any of your accounts.  Doing so is a fairly common practice, as it can make it easier for the adult child if they are helping by picking up groceries, paying bills, etc.  By having them on your accounts, they can simply use their own cards for your purchases.

Unfortunately, if and when you pass away, they could become responsible for the entire balance on any of those accounts.  Having them on bank accounts could even have tax implications.  It is really a good idea to work with a Savannah estate attorney in order to determine what the state and federal laws are as they apply to your situation.  One possibility is to have the adult child or other caregiver listed on the account as an “authorized user.”

Just what funds are used to pay off outstanding credit card debt after death can vary.  In most cases, for example, retirement accounts such as IRA and 401(k) plans with a specific beneficiary are not considered part of the estate.  Those funds pass directly to the named party and do not go through probate and are not available to pay creditors.  This may also be the case with life insurance policies.  Things can get a bit more complicated when talking about real estate or jointly held assets, however.  For example, can one spouse be forced to sell a home that has been inherited by a partner who had a large credit card debt in his or her name?

Laws regarding this and similar issues vary from state to state, which means that your best bet is to work with a Savannah estate planning lawyer to determine what our laws mean for you and your estate.

Thomas Kinkade's Estate: Not a Pretty Picture

Millions knew him as the Painter of LightTM but when Thomas Kinkade passed away in April of 2012, a difficult marital situation and poorly amended estate documents brought on some dark times for those he left behind.

At the time of his death, Mr. Kinkade was separated from his wife of 30 years, Nanette Kinkade, and had been living with his girlfriend of 18 months, Amy Pinto.  There was is no love lost between these women which is no surprise but did add significant fuel to the probate fire when each of them filed to probate different wills they claimed were the final last will and testament of Thomas Kinkade.  The battle lines were clearly drawn when Ms. Pinto claimed an interest in the family home (where she'd lived for 18 months with Mr. Kinkade, $10M in cash, and a significant portion of the artists creative work.  The litigation was so intense that, at one point, there were reportedly security guards stationed inside the gates of the family home 24/7 to assure that Ms. Pinto didn't remove any artwork or other items of value.

Mrs. Kinkade filed a will for probate which was executed by Mr. Kinkade in 2000, prior to their separation.  Ms. Pinto filed two handwritten docuemnts, signed by Mr. Kinkade in November and December 2011 respectively, which she claimed made up his latest (and last) will.

In approximately half the states in the union, a document handwritten by the deceased can be considered a valid will (known as a holographic will).  California recognized holographic wills if they are etnirely in the handwriting of the deceased and signed.

The will filed by Mrs. Kinkade left around $12.5M in assets to Mr. Kinkade's living trust which benefits Mrs. Kinkade and their four children (2 of whom are minors).  The holographic will, per Ms. Pinto's filing, leaves over $66M in artwork and other assets to her.

The first of the holographic wills states the following:

"I, Thomas Kinkade, being of sound mind and body do hereby bequeath to Amy Pinto Walsh $10,000,000 in cash from my corporate policy and I give her the house at 16324 and 16342 Ridgecrest Avenue for her security."

The second, created less than a month later, says:

“I, Thomas Kinkade, hereby bequeath my house at 16324 Ridgecrest Avenue, Monte Sereno, CA to Amy Pinto in the event of my death. I also give the sum of $10,000,000 to Amy Pinto to be used for the establishment of the Thomas Kinkade Museum at 16324 Ridgecrest Avenue, Monte Sereno CA for the public display in perpetuity of original art. This statement is null and void if my relationship with Ms. Pinto ends as it is defined by me in a future letter.”

The probate war lasted 8 months and was only over that quickly because the parties entered a confidential settlement agreement in late December 2012, following months of fighting and escalating attorneys' fees.

The estate planning documents Mr. Kinkade created, read in the context of his complex marital situation, certainly leave room for debate about what he intended.  What is, however, almost certain is that he did not intend for the people closest to him (especially his current girlfriend and daugthers) to have to suffer through a lengthy and expensive probate battle.

If Mr. Kinkade had properly changed title of his assets to his own revocable livng trust (a process called funding the trust) he could have avoided most of the confusion he created by writing the two late-in-life holographic wills.  A simple visit to his estate planning attorney, for an amendment to that trust, would have assured that his intent (a legacy to his wife and children or a bequest to the new love of his life) was carried out without all the financial and legal mayhem.

Ask a Trust Attorney: Does My Trust Require a Separate Income Tax Return?

Does my trust require a separate income tax return?

(photo courtesy of 401kcalculator.org)The answer, as is true of so many of the questions we get, is - it depends.  It depends on what type of trust you have.

A revocable living trust is what's known, under the Internal Revenue Code, as a grantor trust.  Your revocable living trust (also known as an RLT) uses your Social Security number (or either spouse's Social Security number, in the case of a joint RLT for a married couple).  All income, gains, losses, depreciation, etc. pass straight through to you (or you and your spouse).  Therefore, there is no need to file a separate income tax return for your revocable living trust.

Irrevocable trusts, however, usually do require a separate income tax return.  You or your family may have an irrevocable trust as part of your long term planning for Medicaid, VA Aid & Attendance benefits, and certain other government benefits programs.  You may have a special/supplemental needs trust, an irrevocable life insurance  trust, a gifting trust, or a charitable trust.

You, your CPA, or other tax preparer would typically use IRS form 1041 to make the necessary income tax filing.  Per the IRS's instructions for Form 1041, the irrevocable trust needs a separate tax return if the trust has:

1. Any taxable income for the prior year;
2. Gross income of $600 or more (regardless of taxable income); or
3. A beneficiary who is a nonresident alien.

If you are the trustee of an irrevocable trust, you should contact your CPA well in advance of the tax filing deadline and discuss whether, in his or her opinion, a return should be filed.