Estate Planning and DVC - Are You Costing Your Kids $$$??

[jkersman01]

After hanging around these DVC threads for a while and recently purchasing a BWV contract myself, I thought I’d write up just a little something on estate planning with DVC.

Now, two disclaimers. First, while I am an attorney licensed to practice in Pennsylvania, this should not be interpreted as legal advice for your specific situation or your specific state. It is just intended to be a general stimulant to get you thinking about this thing. Secondly, I’m not trying to solicit your business and would advise that if what you read sounds appealing, you should contact YOUR attorney for further advice. I’m doing this because when I was buying DVC, the DVC experts on this board kindly took time out of their days to lend me advice in (one of) their area(s) of expertise, DVC. Estate planning is my area as I’m not yet a DVC expert, so consider it “giving back” to this virtual community. Here it goes...

As all current DVC owners know, and as some of you potential DVC owners may have researched and discovered, when you purchase DVC, you actually receive an interest in real estate evidenced by a deed. If you purchase from WDW or Vero Beach, you receive a FL deed. HHI and Aulania, well, you get the picture.

When the owners pass away, which we all will at some point, generally our designees will open something called a probate estate in the state in which we resided. This probate procedure is necessary to transfer all assets owned by you, the decedent, in your name individually which do not pass otherwise by operation of law (i.e. beneficiary designation or to a joint account holder). So if you have a bank account in your name only, real estate in your name, etc., a probate estate is generally required to be opened. This can be an expensive process and one that seems to drag out for years (note each state is different). In fact, it is not uncommon for my clients to engage in probate avoidance planning such as the creation of a revocable trust in order to avoid this procedure upon their deaths and save their beneficiaries money.

You might think that if you’re a resident of Pennsylvania, for example, your executor would open a probate estate in Pennsylvania and take care of everything there, right? Well, that’s true only if you do not have assets physically located in other states. If a Pennsylvania resident died owning DVC in their names individually, he or she would most likely have to open a probate estate in FL, SC, or Hawaii to dispose of their DVC interest. Why is this a bad idea potentially? Well, you’ll have two (or more) probate estates in different states which could require different attorneys (if your attorney isn’t licensed to practice in both, or all, states). This means extra fees and extra hassle.

One way to avoid having to open another probate estate is by placing your DVC into a revocable trust. You (and your spouse, if you plan on owning together) can be the co-trustees so it can operate virtually identically to the manner in which it would if you owned it outright and free of trust. Revocable trusts are just probate avoidance vehicles and really have no other aspects, for relevant purposes, to them.

When purchasing DVC, if you have a revocable trust, you could make the revocable trust the purchasing party (this is what I did). Or, if you already own, you could consider transferring your DVC deed to a revocable trust you can create. Note that you will need to notify Disney in this regard since there is a ROFR but this ROFR process, as I understand, is pretty automatic since it is a transfer without consideration. However, admittedly, I’m not an expert in this area so you would want to verify this with MS first.

By doing so, when you pass away, your DVC deed can be transferred to your beneficiary(ies) pursuant to your revocable trust, and not the terms of your Will. As such, no probate estate is needed avoid the costs, fees and delay associated with same.

Again, maybe you were unaware of this aspect of DVC ownership and this is something you may want to think about if you are a planner. Otherwise, if you knew about this, I hope you stopped reading a while ago so I didn’t waste too much of your time.

 

[SusieBea]

Thank you for takiing the time to post this. Earlier this week, I was thinking of the easiest thing for our two adult daughters and was considering adding them to our contracts as owners. We have two sets of contracts with 2 use years, one set of which can be given to each of them. I appreciate your guidance.

 

[jkersman01]

Thank you for takiing the time to post this. Earlier this week, I was thinking of the easiest thing for our two adult daughters and was considering adding them to our contracts as owners. We have two sets of contracts with 2 use years, one set of which can be given to each of them. I appreciate your guidance.

If you have 1 daughter on 1 deed and the other daughter on the other deed as joint tenants with right of survivorship, provided both of your daughters survive you, they will pass to your daughters by operation of law upon your deaths without the need for probate. However, if one of your daughters, God forbid, predeceases you, you'd need to do something with that deed or it is going to run out of joint owners upon your death and you'll be in a probate situation there.

 

[HappyHappy]

Thank you but i need to make sure I've read this correctly. If I have "desinated a beneficiary" in my will I do not have to set up a trust??

 

[jkersman01]

Thank you but i need to make sure I've read this correctly. If I have "desinated a beneficiary" in my will I do not have to set up a trust??

Good point. I think I need to clarify there. I was walking a fine line between elaborating on boring points and making this a whole page v. getting to the point.

Those assets that you own that have beneficiaries avoid probate. For example, let's say you name your kids as beneficiaries of your 401k plan. Upon your death, they take, by operation of law, pro rata, your 401k plan balance. That does not go through probate. This is the beneficiary designation I was referring to that avoids probate. This is similar to a joint account with right of survivorship- it goes to the surviving joint account holder upon the first's death without the need for probate.

If we don't have a beneficiary on the account itself or a joint account holder on the account itself, it will pass under your Will and may be subject to a probate proceeding. Will = probate (again, generally, there may be small exceptions for your state) The fact that you have named beneficaries in your Will does not alleviate the need to open a probate estate in FL. In fact, that is what necessitates the need for probate. All assets passing under your will are probate assets.

 

[Tunseeker1]

Another thing to consider are the fees for dvc.

I have an account in Florida that i use for dvc transactions. I now have 2 small children that if anything should happen to me would be sole owners of the contracts and account with enough money in accounts to cover the dues for long enough to make a final decision on what to do with the property

 

[jkersman01]

Another thing to consider are the fees for dvc.

I have an account in Florida that i use for dvc transactions. I now have 2 small children that if anything should happen to me would be sole owners of the contracts and account with enough money in accounts to cover the dues for long enough to make a final decision on what to do with the property

Good point. I would just add to make sure you have minors' payment provisions in your estate planning documents to avoid having to go to court and have guardians of person and property appointed to manage the minors' assets. This is something you should make sure you have regardless of whether your own DVC.

 

[BWV Dreamin]

We did just this. With our Wilderness Lodge purchase, we titled it into the name of the Living Revocable Trust. I do have a question.

If at the time of death, and as the terms of the Trust are processed, can the beneficiaries decline ownership of my Wilderness Lodge DVC? If so, would the administrator of the Trust proceed with the sale? How exactly would that work?

 

[jkersman01]

We did just this. With our Wilderness Lodge purchase, we titled it into the name of the Living Revocable Trust. I do have a question.

If at the time of death, and as the terms of the Trust are processed, can the beneficiaries decline ownership of my Wilderness Lodge DVC? If so, would the administrator of the Trust proceed with the sale? How exactly would that work?

The beneficiaries, trustee(s), or both, could always agree to sell DVC. This could be done in 1 of 2 ways:

If the trustee of the trust wanted to sell the DVC, provided the trust document itself didn't preclude him/her from doing so, he/she could sell it, sign the closing documents as trustee, and then distribute the proceeds under the terms of the trust (I'll assume everything goes equally to your children for this example). In this situation, the kids get cash from the proceeds.

Let's say the trustee didn't want to sell and prepared a fiduciary deed transferring title to DVC to your children. The children could then sell as owners after title has been transferred to them and split the proceeds accordingly.

So basically, if your children (or beneficiaries) didn't want DVC, they could ask the trustee to sell it. If the trustee doesn't have authority to sell it under the trust document or simply just doesn't sell it, then the beneficiaries could sell it once title passes to them.

Now, one last hiccup. If you have specific provisions in your document that say something like "DVC is to remain in trust until my children pass away and the trust is to retain $X to pay for annual MF", then in this situation, state law would govern how they could sell. Some states say that beneficiaries can unanimously agree to terminate the trust early and sell by unanimous written consent. Some require a court order.

Sorry for the general responses, but without looking at the document itself, I can't give you specific answers. I'm sure the attorney that drafted the agreement could give you a more specific response.

 

[BWV Dreamin]

The Trust doesn't specifically state how to divide this DVC. It does state that all assets shall be divided equally (amongst my 3 sons). There are no specific provisions for MF's, etc. The VWL is just an asset titled in the name of the Revocable Trust, just as is our house. So I am then assuming at the time of the last trustee's death, they will have to decide if anyone wants it, and as you say, at worst case it gets titled into all three names then it can be sold. As a side note, and I don't know if it matters or not, at the time of the last trustee's death, as part of the process,all three of my son's will have their own trust created into which these assests will be put in. So maybe then the new DVC deed would have the names of all three of my son's trusts names? This is what I am thinking will happen. I did ask all of these questions, however I just can't remember what our lawyer said. So much information!!

I find this subject extremely interesting. Avoiding probate is just one of the reason's to have a Living Revocable Trust.

The beneficiaries, trustee(s), or both, could always agree to sell DVC. This could be done in 1 of 2 ways:

If the trustee of the trust wanted to sell the DVC, provided the trust document itself didn't preclude him/her from doing so, he/she could sell it, sign the closing documents as trustee, and then distribute the proceeds under the terms of the trust (I'll assume everything goes equally to your children for this example). In this situation, the kids get cash from the proceeds.

Let's say the trustee didn't want to sell and prepared a fiduciary deed transferring title to DVC to your children. The children could then sell as owners after title has been transferred to them and split the proceeds accordingly.

So basically, if your children (or beneficiaries) didn't want DVC, they could ask the trustee to sell it. If the trustee doesn't have authority to sell it under the trust document or simply just doesn't sell it, then the beneficiaries could sell it once title passes to them.

Now, one last hiccup. If you have specific provisions in your document that say something like "DVC is to remain in trust until my children pass away and the trust is to retain $X to pay for annual MF", then in this situation, state law would govern how they could sell. Some states say that beneficiaries can unanimously agree to terminate the trust early and sell by unanimous written consent. Some require a court order.

Sorry for the general responses, but without looking at the document itself, I can't give you specific answers. I'm sure the attorney that drafted the agreement could give you a more specific response.

 

[montrealdisneylovers]

This is fascinating reading. Being from Canada, my best bet is to add both our daughters to both our contracts as soon as my youngest turns 18.

It is really nice to know that there are so many friendly DVC owners willing to share their expertise!

 

[jkersman01]

The Trust doesn't specifically state how to divide this DVC. It does state that all assets shall be divided equally (amongst my 3 sons). There are no specific provisions for MF's, etc. The VWL is just an asset titled in the name of the Revocable Trust, just as is our house. So I am then assuming at the time of the last trustee's death, they will have to decide if anyone wants it, and as you say, at worst case it gets titled into all three names then it can be sold. As a side note, and I don't know if it matters or not, at the time of the last trustee's death, as part of the process,all three of my son's will have their own trust created into which these assests will be put in. So maybe then the new DVC deed would have the names of all three of my son's trusts names? This is what I am thinking will happen. I did ask all of these questions, however I just can't remember what our lawyer said. So much information!!

I find this subject extremely interesting. Avoiding probate is just one of the reason's to have a Living Revocable Trust.

Ok, armed with some more specific info, in your situation, here's what normally happens. Your successor trustee will let the 3 boys know that one of your assets was a DVC deed. He'll probably ask them if they want him to sell it or if one of them wants it. If they all say to just sell it, he'll sell it. If one of them wants it, he'll place a value on it (say $5k) and most likely put it in their separate trust under the terms of the agreement. Then, he'll take $5k in cash and place it in each of the other 2's trusts to equal out the distribution in that regard. Now, without any specific provisions, the trust for the benefit of the son with the DVC in his trust will have to pay the MFs each year to maintain the contract, so hopefully that is brought up at the time the sons are presented with the option of retaining or selling.

Essentially, there sounds to be a good bit of flexibility there. I can't imagine in your situation you have your children that have a DVC contract they can't legally unload. Now, what the market will be like for your DVC resale contract at that point in the future is anybody's guess, so who knows what sorts of restrictions on resale contracts will be in existence. That could alter how they dispose of the DVC contract.

 

[BWV Dreamin]

True. If I live to be the age of the law of averages for a woman, then I should out live the contract, and it will be a non issue. However, lets say there are less than 10 years remaining on the contract. They may just simply ask Disney to take the contract back, as I'm not sure there will be any value at that point. Another question; our Trust has blank papers in which we can specify what assets go to whom (what furniture goes to who, what jewlrey, etc.). Can a statement be written to specify the direction of the DVC asset or does the decision by the administrator superceed? Just wondering as we haven't written anything on these blank pages. These pages are not the original Living Recovable Trust document. Just additional blank pages to be included so that the wishes of the deceased can be read.

Ok, armed with some more specific info, in your situation, here's what normally happens. Your successor trustee will let the 3 boys know that one of your assets was a DVC deed. He'll probably ask them if they want him to sell it or if one of them wants it. If they all say to just sell it, he'll sell it. If one of them wants it, he'll place a value on it (say $5k) and most likely put it in their separate trust under the terms of the agreement. Then, he'll take $5k in cash and place it in each of the other 2's trusts to equal out the distribution in that regard. Now, without any specific provisions, the trust for the benefit of the son with the DVC in his trust will have to pay the MFs each year to maintain the contract, so hopefully that is brought up at the time the sons are presented with the option of retaining or selling.

Essentially, there sounds to be a good bit of flexibility there. I can't imagine in your situation you have your children that have a DVC contract they can't legally unload. Now, what the market will be like for your DVC resale contract at that point in the future is anybody's guess, so who knows what sorts of restrictions on resale contracts will be in existence. That could alter how they dispose of the DVC contract.

 

[BWV Dreamin]

This is fascinating reading. Being from Canada, my best bet is to add both our daughters to both our contracts as soon as my youngest turns 18.

It is really nice to know that there are so many friendly DVC owners willing to share their expertise!

Know that there is still a fee to do this even though the contracts won't go thru ROFR. The last I checked it was $450 for the first contract, $300 for all subsequent contracts. This info is a couple of years old. Disney can do all of this for you, or maybe you can find an attorney who can do it cheaper. There is the DIY method, but is time consuming. PM Dean for particulars on this.

 

[HappyHappy]

Thank you. Most helpful.

 

[jkersman01]

Another question; our Trust has blank papers in which we can specify what assets go to whom (what furniture goes to who, what jewlrey, etc.). Can a statement be written to specify the direction of the DVC asset or does the decision by the administrator superceed? Just wondering as we haven't written anything on these blank pages. These pages are not the original Living Recovable Trust document. Just additional blank pages to be included so that the wishes of the deceased can be read.

Anything you write in this regard must meet the formalities your state has set forth in order to be enforceable. This is really a matter of state law. Some states say that you need to sign at the end of each additional writing, so if you do this, you must be sure to initial or sign each time and it must be at the end. You'll need to check with your attorney. As a general rule, I tell my clients to use these papers only for tangible personal property of rather little monetary value. If you were my client and asked me this question, I'd say we need to do an amendment to the trust. I wouldn't advise using that extra paper for a real estate interest, but again, check with your attorney as this is rather state specific.

 

[BWV Dreamin]

This is what our attorney said now that you mention this. It's not for anything of real value. We do have to submit an amendment if we want to change the terms, but this is relatively easy (although not without cost ) since this is the purpose of having a REVOCABLE Living Trust. We were instructed not to in any way write on the document (which is in a big binder by the way, not some single piece of paper), any of the pages, etc. So we are aware of this.

Thanks for all of your input!! I hope those reading have learned as I did, and put these assests into a trust. I would always use a lawyer to do this (will hear rebuttals about this comment I'm sure). It has been worth every penny to do so!

Anything you write in this regard must meet the formalities your state has set forth in order to be enforceable. This is really a matter of state law. Some states say that you need to sign at the end of each additional writing, so if you do this, you must be sure to initial or sign each time and it must be at the end. You'll need to check with your attorney. As a general rule, I tell my clients to use these papers only for tangible personal property of rather little monetary value. If you were my client and asked me this question, I'd say we need to do an amendment to the trust. I wouldn't advise using that extra paper for a real estate interest, but again, check with your attorney as this is rather state specific.

 

[jkersman01]

Thanks for all of your input!! I hope those reading have learned as I did, and put these assests into a trust. I would always use a lawyer to do this (will hear rebuttals about this comment I'm sure). It has been worth every penny to do so!

You're welcome. I would suggest using a lawyer to do this also.

For a good bit of people, real estate investments are among their greatest assets. Hiring a competent estate planning attorney can help protect that asset and can avoid the issues with people trying to do it themselves. I've helped people through some pretty messy situations because decedent's tried doing things themselves and it ended up costing them alot more than if the decedent just would have went to an attorney in the first place. Sometimes it works out fine, sometimes it doesnt.

If you needed surgery and found out it was going to be a little expensive, would you just do it yourself and hope for the best? Some people will spend their last penny protecting their physical health but hate the idea of spending any money to protect their financial health and will try to conduct financial surgery on themselves. I think spending money on either is a crappy situation for the record and want to make sure my financial health is cared for in the same manner as my physical health. IMO, of course.

 

[bdoleary]

Thanka for posting - great information

 

[Goofy DVC]

Thank you very much for this info. Very helpful.