Heckerling Institute - An Estate Planners Dream Week

Depending on your passion, March Madness, Fashion Week or the Indianapolis 500 could be what you look forward to immersing yourself in every year. For estate planners, we look forward to the annual Heckerling Institute sponsored by the University of Miami School of Law.  For one week each January it is chance to go back to the classroom, and immerse yourself in what is working, what is not, a what is on the horizon for estate planning and tax law.

So next week I will be in Orlando as a student to refresh my knowledge, renew the creativity bank and reconnect with the theoretical of the law as opposed the practical day to day.  I will be tweeting updates to #heckerling and posting my thoughts about new and old techniques in the weeks to come.

This is a great opportunity to pick others minds, so comments about what you would like to know would be welcome.  I am sure lots of commentary will focus on what to do in our 365 days of estate tax repeal.

Should a Loved One be Driving? Ask the DMV Medical Review Unit

I often have spouses or children expressing concern about a loved one driving.  This stems from a real fear that as a person gets older, suffers from dementia,  or is being treated for a medical condition, their reflexes and judgment may slow. While these conditions are difficult on their own, they can lead to tragedy if the person suffering from reduced abilities is behind the wheel of a car. They could damage property, or more importantly, injure or kill themselves or others.

What is a family to do?  In New Jersey a family member, physician, judge or police officer can request a Medical Review of the persons license and right to drive through the Medical Review Unit of the Motor Vehicle Commission (still the DMV in my mind).  

This is a serious step as it could lead to a person's loss of freedom of movement.  It cannot be done anonymously - the reported driver will be advised of who sent the letter.  However, it allows family members a means to partner with experts in determining if it is safe for a loved one to be driving.  

To request a Medical Review you must contact the Medical Review Unit in writing and provide them with the following information:

If you see these signs and want to request a medical review

  • Write a letter to MVC (must come from a family member, physician, judge or police officer):
  • Provide as much of the driver's information as possible: name, date of birth, address, driver license number and medical condition(s)
  • Include your relationship to the driver
  • Report the signs of impairment and safety concerns you have observed (see chart above)
  • Anonymous reports cannot be considered. Upon request, drivers will be told who reported them
  • If MVC's Medical Review Unit determines that a suspension or restriction is necessary, they will contact the driver by mail


Randolph NJ Schools Possibly Failing - Why?

Randolph NJ, where I live and our son goes to school, is a typical suburban neighborhood in Morris County, NJ - the 5th wealthiest county in the country according to Wikipedia.  We moved there in large part because of the supposed quality of the public school education.  

Its school budget time of year again, and the news in New Jersey is not good.  We are facing a $9,000,000,000 (that $9 billion) deficit in the state, and a minimum $2,000,000 deficit in the Randolph School budget (out of a total budget of about $76 million).  All the news I have been hearing is how we need to do with less this year - but I was thinking that we have good, strong, solid school system, we just need some belt tightening.

Well, imagine my surprise to read a Daily Record article that we have a FAILING school system. That's right, Randolph High, Randolph Middle and one of our Elementary schools "received an "early warning" for a one-year lapse in reaching testing requirements."  Now, I am not here to debate No Child Left Behind and the testing it mandates (I am not a supporter).  However, it is the law of the land, and effects how our public schools are funded and operated.    

One of the more disturbing things about this is that I had to learn of my child's failing school district from the newspaper - nothing was sent to parents or township residents, and it is not on the school district news page.  

I am not an educator - I don't know what the issues are from their perspective.  I am not being critical of the test scores, they are what they are, and are good in the sense that they highlight  what are clearly issues in the Randolph NJ education system.  However, I am a parent and a taxpayer, and feel that it is reasonable to expect that a school district of Randolph's supposed quality and significant funding not only meet minimum standards, but leave them in the dust in terms of the quality of education being offered to our children.

A conversation with Mike Huckabee on Tax Policy

Mike Huckabee Today former Arkansas Governor and Presidential Candidate Mike Huckabee spoke at the Morris County Chamber of Commerce Annual Meeting.  During a round-table session with Chamber's Board of Directors I had the opportunity to ask Governor Huckabee about his thoughts on our current tax system.   Now, I am a self-admitted tax junkie - I am totally fascinated by how the tax system influences the economy and behavior and how little critical thought politicians on both sides of the aisle seem to give to it.  So, I thought to myself, here is an opportunity to see what a former (?) politician would say about tax policy. 

To paraphrase my question:

Governor Huckabee, here in New Jersey we are in the most expensive state to live in and the most expensive state to do business in from a tax perspective.  How is it that the government's share in our work could be productive to our businesses instead of having a dampening effect?

Gov. Huckabee's first answer was to first invite me to move to Arkansas - apparently the tax environment is much friendlier.  But all joking aside, he made some very insightful comments, which I thought I would summarize here:

  • Corporate Tax does not exist. He expressed amazement of the fundamental lack of understanding in the American populations that corporations do not pay tax, they collect tax.  Think about it - when there is a new tax on oil companies, gas prices go up; on food companies, food prices go up; on banks, bank fees go up.  Taxes are a cost of doing business that is passed along to the ultimate consumers of good and services - you and me.  
  • A FAIR tax would jumpstart the economy.  Gov. Huckabee said that he used to advocate a flat tax, but now advocates a FAIR tax.  I have to say I am not a flat tax proponent (it is regressive - affects poorer people more as they must spend dollars on necessities - and anything to address the regressiveness takes away from from the simplicity of a flat tax) and I knew nothing about the FAIR tax until today.  Gov. Huckabee explained it as a tax on consumption - you buy gas, you pay tax; you buy oil to make gas, you pay tax.  It changes the tax from on productivity to one on consumption.  He inspired me to go out and learn more - so more posts will be had on this subject.  I will be visiting the FAIR Tax website today and reading The Fair Tax Book that Gov. Huckabee recommended.
  • Eliminate tax penalties for bringing offshore dollars into the US as an immediate solution to our fiscal crisis.  Right now, if you make money outside the US, you are taxed when you bring it into the US and potentially subject to penalties of 50% or more if you haven't previously reported the dollars.  Gov. Huckabee estimated 130 billion in offshore dollars that US companies and taxpayers won't bring back into our economy because it costs too much.  Eliminate those taxes and billions will flow into the economy from sources other than the US taxpayers pocket.

Gov. Huckabee shared that when he discussed the fair tax with his accountant he thought the accountant would dismiss the idea because it would put him out of work.  The accountant replied that he would like the idea where he could spend his time helping companies build their businesses instead of figuring out what their fair share of tax is. I will read more on the subject and see if I agree.

Undue Influence in a Will Contest or Estate Administration

I received a call yesterday similar to many others I have received over the years.  Essentially, Dad died and the client just found out that shortly before his death he named one child beneficiary of lots of accounts, leaving essentially nothing passing under the Will, which had divided everything equally between 3 children.

Lou Ann Anderson, the Bell County Legal News Examiner has an article today about celebrity cases of undue influence.  The stories are similar - shortly before death a new Will is executed or other property transfers done that undo a lifetime of the decedent's intent. These cases include Brooke Astor (her son and attorney were sent to jail for trying to defraud hundreds of millions from charity), Melvin Simon of Simon Shopping Malls fame (his Will months before he died was changed to leave all to his wife, and take out $150 million in bequests to charities), John "Buck" Jones, owner of the Carolina Panthers (his Will was changed a month before his death to leave control of Company to his wife instead of 3 employees as had been his long standing plan).

While these celebrity cases are titillating because of the names and dollar amounts involved, the same situation involves New Jersey families all the time.

There are competing concerns.  First, a person is free to leave their money to whomever they please (other than 1/3 to a spouse) - children do not have a right of inheritance.  Second, a person is not required to leave money equally among a group - many times one child gets more in the Will than others because the parent perceives that child's need or reward to be greater.  

However, it is the person making the gift who is allowed to make these decisions - not the person getting the gift.  The problem of undue influence arises when somebody essentially takes advantage of a person's reduced physical or mental state, or a situation of fear or dependency, and influences them to make an action they would not have otherwise takes.

The issue for a person who is claiming undue influence cases is one of proof.  How do you prove a person was influenced to make a change to their estate plan and it was not an independent decision?  There need to be witnesses and documents.  Do you have to prove the undue influence, or does the person who got the money have to defend the gift?  Kenneth A. Vercammen, Esq. has an excellent summary of the issues in Undue Influence As Defense To Will Or Power Of Attorney (New Jersey).

Generally, the person claiming undue influence (ie, the person getting less) has the burden of proof to show a court there was undue influence.  See Conners v. Murphy, 134 A. 681, 682 (N.J.Err. & App. 1926); Pascale v. Pascale, 549 A.2d 782, 786 (N.J.1988). However, if the the person who benefited from a gift is in a confidential relationship with the person who made the gift (an attorney in fact under a POA, a person who the person who made the gift is dependent upon), then the burden of proof shifts to the person who got the gift to prove that the person making the gift had independent counsel in making the gift.  See Haynes v. First National State Bank of New Jersey, 432 A.2d 890 (N.J. 1981); Pascale v. Pascale.

The presumption of undue influence is easier to raise with lifetime transfer then with transfers in a Will.   Some lessons from this are that  if you think that you were harmed by undue influence, gathering facts and acting quickly is key.  If you plan to disproportionately benefit your heirs, you should seek legal counsel to act to protect that gift from a claim of undue influence.

Image: Simon Howden / FreeDigitalPhotos.net

No Estate Tax in 2010 - What Opportunities Might there be?

 My two prior posts have been about the  federal tax impact for single individuals who die in 2010, and the federal tax impact for married individuals.  In summary the results for singles were not good, and for marrieds were worse – the "death" of the estate tax creates a capital gains "trap" for survivors.  While all this will be moot if Congress does as they have promised and create an estate tax retroactive to January 1, 2010, they haven’t acted yet, and as of January 1, this is the law.

What planning can be done in this environment?

Can you just say “whoo-hoo”; I’ll give everything to my children.  Hold on there – the federal estate tax is repealed in 2010, not the federal gift tax.  Each person still has a lifetime exemption of $1,000,000 – if you make gifts in excess of that in 2010, you will be subject to the federal gift tax at a rate of 35%.

However, the generation skipping tax (“GST tax”) is repealed in 2010.  The GST Tax essentially says that you can only leave up to $3.5 million to grandchildren without paying a separate tax of 55%.  The theory behind the GST Tax is that the government should share in the wealth at each generation.  If grandma leaves everything to granddaughter, the IRS might need to wait 75 years until tax can be collected again.  If assets go the children, the IRS might only have to wait 30 years to tax again.  So, in 2009 you could leave up to $3.5 million to grandchildren without GST tax. In 2010, you can leave everything to grandchildren without an additional tax.  For wealthy families, this could mean a huge amount passing to lineal descendants with the only tax cost(s) being capital gains (click here for an explanation of the 2010 capital gains tax trap for estates).

The estate plan you had in 2009 and will need again in 2011 won’t really make sense in 2010 unless they make the estate tax retroactive.  Do you need to go out and totally revise your plan? Not necessarily.  If you have a terminal situation however, it definitely bears looking at your current plan to make sure it addresses how to plan to minimize capital gains taxes instead of estate taxes.

Gifts to grandchildren may be a winning strategy in early 2010.  Also, for anyone who is terminally ill, a change of an estate plan to leave assets to grandchildren may be a winner as well (although if the estate plan isn’t changed, disclaimers may be able to be employed by the children to a similar effect).  And it will bear looking at the estate plan of anyone who is terminally ill.


Image: Danilo Rizzuti / FreeDigitalPhotos.net