Real Estate Tax Appeals, Financial Powers for College Students, Fiscal Cliff - February The Fein Print

 The newest edition of The Fein Print is here!  The highlights:

  • It's real estate tax appeal season.  In the last few years many NJ residents have seen the fair market value of their home decline– often significantly – to the point where it makes good sense to file a real estate tax appeal. Here we give you some pointers.
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  • Financial Planning for College Students.  it’s tough letting go, but as the apron strings get snipped it’s important to know you can still help your children protect their health and finances from uncertainty and risk.
  • The Fiscal Cliff and your Estate Plan.  The showdown is over, but now that the dust has settled, what should be done with your will, trust and estate plan?

Planning for Your Social Media Life When You Die (Video)

What happens to your Farmville account when you have bought the farm?  Pretty much anyone who is reading this has a digital life, footprint and assets.  The problem is that your state laws (except for 4 states - not New Jersey) are very behind in saying who controls your digital assets when you die.  Who gets to say if your Facebook account is memorialized or deleted?  Can your spouse or kids get access to your gMail account (perhaps the only place you are getting all those digital account statements)?  

Lawyers.com wanted their visitors to know the answer to these questions, and asked me to give them some of the advice we speak to client's about who want to know how to incorporate their digital assets into your estate plan.  The best part?  They sent a production team to make a video on the topic, so sit back and take 3 minute education break:

 

What does it mean to be "family" with 21st century science?

In law school we learned about the "fertile octogenarian" - a theoretical construct about what would happen to a property distribution scheme in an estate plan  if you had some wacky birth order situation (ie: my great-uncle is 60 years younger than me).  Back in 1995, this was largely theoretical.  Not so today in age of reproductive medicine advances and frozen embryos. It is quite possible in 2012 to have a biological child of yours born 1, 2 or 5 or more years after your death.  Did you mean to provide for this child that you never met in your Will?   You Will likely says "after my spouse dies, everything to my issue".  Your "issue" are your biological descendants, who this after-born child would be.  While this may seem just weird, it is entirely possible in toady's age,

The US Supreme Court actually just considered this issue.  A couple had frozen embryos, and about 9 months after the father died, the embryos were implanted and twins were eventually born.  The mother applied for social security for the twins, and the issue came up of if the children are "children" for the purposes of social security.  While it might seem very harsh to say that the children don't get benefits, when it comes to estate law you also need to bear in mind that an estate must end - it can't be held open forever waiting for heirs to come into being (an issue that didn't really exist 20 or more years ago).

In Astrue v. Capato the Supreme Court ruled that the Social Security Administration must look to state intestacy law to determine if a child would receive benefits under these circumstances.From a planning perspective, you should look to your own estate plan to determine who you think should be your descendants for purposes of distributing your estate, as merely relying on biology has a new meaning in 21st century medicine.

Deconstructing a Trust - A Rosetta Stone for Trust Terms

It is a fact of life (or a result of law school) that attorneys tend to speak "legalese".  This means that we can take a perfectly well known English word - like "income" - ascribe a very specific meaning to it, and then bandy the word about without you having the benefit of  knowing the specific definition we are referring to. So what is "income", or "principal" for that matter, from a trust or estate planning perspective?  And what makes up a trust anyway?

Trusts are a legal construct (see - more legalese).  This means that a trust doesn't exist in a tangible sense.  Instead, it is "formed" on paper (the "Trust Agreement") and given life by the people who carry out the terms of the trust.  Who are those people?

"Grantor" or "Settlor" - The person who creates the trust. 

"Beneficiary" - The people the trust is made for, or intended to benefit.

"Trustee" - The person who operates the trust for the benefit of the Beneficiaries.  

If you think of a trust like a small business, the Trustee is akin to the President, and the Beneficiaries are like the Shareholders.  Everything that the Trustee/President does is for the benefit of the Beneficiaries/Shareholders.

A Beneficiary can be further described as having rights to "income" and/or "principal".

Income - For trust purposes income is defined as interest and dividends. Capital gains are generally not part of the trust definition of income.  So a person entitled to income would be entitled to any interest on bond payments, or any dividends on stock, but not the proceeds from the sale of an asset that resulting in a capital gain.

Principal - Principal is the bulk of the trust.  This is what the Trustee invests and distributes to the beneficiaries.  Any capital gain would be added back to income to be reinvested.

There are myriad ways how income and principal can be designed to be allocated to the beneficiaries, and the level of discretion the Trustee has regarding those distributions.  However, that is a subject for another post.

New Year's Resolution - Look at that Will or Estate Plan

Early January is a great time of year.  Everyone is full of enthusiasm for all we are going to accomplish this year.  Maybe you even sat down over the weekend and made a list of goals for 2012. One of your 2012 goals may very well be "Get a Will", "Review my Will", of "Find out if I need a Will."  Luckily, unlike some other New Year's Resolutions, meeting these goals is easy.

First, why do you need a Will?  We have answered this an some other estate plan "overview" questions with "Why do I need a Will?  And other frequently asked questions about Estate Planning". You can use this short article as a starting point about:

  • Why do I need a Will?
  • What happens if I die without a Will?
  • What is a "Living Will"?
  • Do I need a Power of Attorney?
  • What is a Trust?
  • What is a Living Trust or Revocable Trust?
  • Will a Will or a Revocable Trust help me save taxes?

Next, if you have an estate plan or Will already, is it still working for you?  Have you planned for today's tax laws, as opposed to the ones in place when you originally  put the plan together?  Are your named fiduciaries (Executor, Trustee, Guardian) still appropriate?  Has there been a material change in your circumstances so your current Will or estate plan just doesn't fit you anymore?  To address these questions and many others we have created a detailed "Estate Plan Review Checklist" to help you determine the suitability of your current estate planning documents.  The Checklist includes both questions to ask about your estate plan, and explanation of why to ask them. Questions asked on the Checklist, and the reasons for them, include:

  • Do you have the 3 documents every estate plan must contain? (Will, Living Will/Health Care Proxy, Power of Attorney)
  • Have you moved since you last updated your estate planning documents?
  • Do you have a separate personal property designation?
  • Is any person receiving your personal property a minor (under 18)?
  • Do you have any specific gifts or bequests you want to make?
  • Are your total combined assets, including life insurance death benefits, greater than $675,000?
  • Do you own assets held in joint accounts, or where you have a named beneficiary?
  • Are your residuary beneficiaries correct?
  • Are assets being distributed to your beneficiaries outright or in trust?
  • If you currently have a trust established, are the terms still appropriate?
  • Do any of your beneficiaries have special needs?
  • *Does your estate plan contain provisions to allow you and your family to be as flexible as possible in meeting your goals?
  • *What authority does the Trustee have to distribute the assets in the trust?
  • Are your alternate beneficiary designations appropriate?
  • Are your Executors, Trustees, and Guardians still the appropriate people, in the appropriate order?
  • If you have a taxable estate (assets exceeding $675,000), have you and your spouse reallocated ownership of and title to your assets to minimize estate taxes?
  • Is your General Durable Power of Attorney more than 10 years old?
  • Does your General Durable Power of Attorney continue to name appropriate attorneys-in-fact?
  • Does your General Durable Power of Attorney allow for Medicaid planning?
  • Does your Health Care Power of Attorney continue to name appropriate Health Care Representatives?
  • Does your Health Care Power of Attorney reference the Health Insurance Portability and Accountability Act (“HIPAA”)?
  • Does your Living Will clearly state your desire about what medical treatment you want to receive or refuse in a terminal situation?
  • Does somebody know where all of your estate planning documents are?
     

Considering that 88% of New Years Resolutions fail, why not look at your estate plan to find out how to keep at least one of those resolutions this year?

Happy 2012!

Image: Grant Cochrane / FreeDigitalPhotos.net

Inheriting a Home and Loan - New York Times

A recent interview with New York Times reporter Vickie Elmer inspired my post "What Happens to the Mortgage when Property is Transferred to Beneficiaries at Death?".   Vickie took some of my thoughts, and those of other attorneys and loan officers, to provide a framework to "Inheriting a Home and Loan".

Some points from the article to consider:

  • It’s like getting a gift with a string,” said Judith D. Grimaldi, a principal of Grimaldi & Yeung, an estate planning law firm in Brooklyn. Thirty-one percent of people 65 and older, in fact, have home mortgages, according to the Census Bureau. “Most of my clients just end up selling the house,” Ms. Grimaldi said, “taking the proceeds and saying, ‘Thank you, Mom.’ ”
  • The survivors, meanwhile, should look at the inheritance of property from a practical, economic perspective. “You need to look very strongly at whether you can afford to maintain the mortgage and maintain the property,” Ms. Wheatley-Liss said.
  • Although there may be some emotional attachment to the home, having [the home] appraised can help determine whether it’s worth keeping. “The question would always be: ‘Are you protecting equity?’ ” said Michael McHugh, the president and chief executive of Continental Home Loans in Melville, N.Y.
  • The survivors should contact the lender early on to let it know that the borrower has died and that they are the heirs, or the executor of the estate, and to determine the loan’s status. Mr. McHugh suggests sending the lender a copy of the death certificate and a letter from the estate’s lawyer.
  • It is also important to determine whether the deceased relative has stayed current on the property taxes, if they are not paid through the lender.

Image: jannoon028 / FreeDigitalPhotos.net

What Happens to the Mortgage when Property is Transferred to Beneficiaries at Death?

Generally speaking, if you transfer a piece of real property subject to a mortgage to another person, that transfer violates the "due on sale" clause in your mortgage, essentially making the mortgage immediately due in full.  In the course of buying or selling property, you would pay off the mortgage upon the sale of the property.  However, what happens when the property is transferred due to the death of the owner?

Federal law provides some exceptions to the "due on sale" clause when the property subject to a mortgage (other than a reverse mortgage) is being transferred as a result of the person's death. While a full list of the exceptions to the "due on sale" rule can be found in The Garn St. Germain Depository Institutions Act of 1982, (U.S.C.) 1701j-3(d)(8), for estate planning purposes, property owners should be aware that the "due on sale" clause will not apply to:

  • a transfer by devise, descent, or operation of law on the death of a joint tenant or tenant by the entirety;
  • a transfer to a relative resulting from the death of a borrower

So, if you own property jointly as (1) joint tenants with rights of survivorship, or (2) tenants by the entirety (for married persons only),  with any person (relative, friend, business partner, life partner) and that person dies, you get full ownership of the property by operation of law (i.e.:  the property does not pass through the person's Will, but instead passes directly to you as the joint owner), AND the mortgage continues, with no alteration to its terms.

If you give the mortgaged property to a person through your Will, a Trust, or intestacy if you don't have a Will, AND the person is your relative, then the mortgage can continue upon the transfer of the property to the new owners.  

Some planning notes:

  • The exception applies to properties with no more than 4 units (i.e.: a multi-unit property with 5 or more units would not qualify for the exception)
  • The exception includes a transfer of stock in a co-op
  • Same sex couples should beware that they may not be deemed a "relative" for purposes of inheriting property subject to a mortgage; it may be better planning to hold title as joint tenants with rights of survivorship during both partners lifetimes
  • Just because a person inherits the property and the mortgage won't be called, doesn't mean that the beneficiary can afford the mortgage.
  • In doing estate planning you should consider if the beneficiary can in fact maintain the property you are leaving them. 
  • When inheriting mortgaged property, you should consider if you can afford the current mortgage.

Two questions that I couldn't find quick answers to and I would appreciate feedback on:

  1. Who is a "relative" for purposes of the Garn St. Germain Act?
  2. Does a transfer upon death to a trust for the benefit of a relative come within the exemption?

 

Cheap Dollars to Replace Estate Taxes? Survivorship Term Insurance

The fact is some people just have a taxable estate - particularly here in New Jersey where a married couple with assets in excess of $1,350,000 ($675,000 estate tax exemption x 2) will pay a New Jersey estate tax before the assets go to their children.  One way to "replace" these lost dollars is through life insurance - specifically "survivorship" or "second-to-die" life insurance that pays dollars when the second spouse dies - normally the time the estate taxes are due.  The theory is that if you have an anticipated $500,000 estate tax bill, and you purchase $500,000 of second-to-die insurance, then you have only paid pennies on the dollar because the total premiums paid are less than the total death benefit / estate taxes due.  

Many families are familiar with this concept as their financial planner, insurance agent, accountant or attorney might have brought it to their attention.  Some common concerns of clients are the cost of the second-to-die insurance, and the fact that they don't know what the future may bring and they may not need the insurance (if you are getting insurance purely to replace estate tax dollars, and the estate tax is eliminated, then the reason for the insurance is no longer there).

One possible "bridge the gap" solution that was recently brought to my attention is survivorship or second-to-die term insurance, as opposed to permanent insurance.  Term insurance expires at some point in the future, so there may be a lower premium at the beginning.  Apparently these polices also allow you to "convert" to permanent insurance in the future. In an uncertain estate tax world this type of product may allow you to take a "wait and see" approach to estate tax planning and may be worthwhile to discuss with your professional advisers.

Steve Jobs' Estate Plan - Private Business can remain Private with a Revocable Trust

Steve JobsI think that history will compare Steve Jobs with Thomas Edison in the effect that his visionary influence had on the world, and the speed with which it spread. You can thank Steve Jobs for revolutionary inventions from the mouse to the iPad.  He changed the way we communicate forever.

Much has been said about what an intensely private person Steve Jobs was - he put his business and ideas in the spotlight, not himself.  It is likely his estate plan will also be that private - which I think is a good thing.  Remember how Jacqueline Kennedy Onassis valued her privacy - and then her Will became available for all to see when she died?  Why should I have a right to know who she benefited and how?  Why should you?  It seems so rude that in death the public has a right to know that which they would never have learned during the person's life.

I am sure that Steve Jobs had excellent estate advice.  It is likely that his estate plan consisted of trusts that were designed to keep his ultimate distribution of assets private.  His Will is going to be a "Pour-Over Will" where the sole provision is "I give anything I own to my trust."  While the Will would be a public record document, the trust will not be.

While you might not have a net worth of $6.7 billion, you may very well have an estate plan that you consider to be nobody else's business.  In that case, you too can use a Revocable Trust as a Will substitute. You still have a Will, which will be filed as a public record upon your death, but that Will merely directs all your asses to the Revocable Trust.  You testamentary wishes and distribution scheme will be set out in the Revocable Trust, which is not a public document.  Thus, the only people who know who got what and how are your heirs and beneficiaries. 

No-Contest Will Clauses in New Jersey - Don't Bother

Cut MoneyI'm sure we have all seen the TV dramas where a Will reading is portrayed in which ridiculously rich grandma shocks the family by leaving a child a token bequest ("my antique car" or "$50,000") and has a provision in the Will that if the child challenges the Will then they get nothing.  This is known as "No-contest" or "In terrorem clause". (Don't things sound more important in Latin?)

In New Jersey, "No-contest" or "In terrorem" clauses belong in the world of fantasy.  N.J.S.A. 3B:3-47 provides that “a provision in a Will purporting to penalize any interested person for contesting the Will or instituting other proceedings relating to the estate is unenforceable if probable cause exists for instituting proceedings.”  Probable cause is such a low standard that the New Jersey Practice Series in describing In terrorem clauses says "The testator usually wants to prevent a person from contesting a will, whom he does not want to benefit. There is no way of doing this."  End result?  No-Contest clauses are unenforceable in New Jersey.

So what is a person to do who really, really, really does not want a family member to benefit when they die, and furthermore, knows that the person that they are cutting out is a litigious pain in the xxxx who will delight in using their death to threaten and emotionally blackmail the actual beneficiaries?  First, share your concerns with your estate attorney, in detail, so he or she can make sure that sufficient evidence exists in the file to defend a Will challenge.  Next, try to communicate your desires to all your family members.  We have seen much litigation that might have been avoided had the now decedent recognized that leaving people guessing as to why they did "x" or "y" is breeding grounds for a lawsuit. Finally, understand that the legislative presumption is to allow your Will to be questioned after your death and consider using alternative means such as lifetime gifts and non-probate assets to effectuate your intent.

Nevada Asset Protection Trusts - New Statute Strengthens Asset Protection Laws

When you think of Nevada, ways to lose your money, not keep it, may first come to mind as you think about the Las Vegas strip, casinos, and all those games of chance.  However, for attorneys counseling clients on how to keep control of their assets, Nevada is one of the best jurisdictions out there.  Why?  The Nevada legislature has made it a goal to attract new business by creating laws that allow people to legally protect their assets from unknown claims that arise in the future.

How so?  In Nevada, you can create a trust for the benefit of yourself and your family, and future creditors cannot seek payment from the assets in the trust.  This can be very attractive for successful business owners or professionals such doctors and lawyers who have a higher than normal risk of liability claims.  Oh, and Nevada has no state level income tax, so assets in Nevada Trust may pay less tax on earning then if those same assets were located here in New Jersey or New York.

The Nevada Trust Reporter advises that the Nevada legislature has taken steps to strengthen this asset protection law through newly signed legislation that further bolsters their assets protections laws starting October 1, 2011.  The article gives a detailed overview of relevant legislative changes.

Image Courtesy: http://en.wikipedia.org/wiki/File:Las_Vegas_89.jpg

Estate Plan Basics - How Can Property be Transferred at Death?

ABC's of Estate PlanningAs part of a lecture series I am giving, I am providing attendees with an overview of estate planning (separate from tax planning or asset protection planning, which are other topics in the series).  It occurred to me that it is always good to go back to basics to provide a context both for estate planning and other foundation concepts, as they create a foundation for many of the points raised in this blog.  

There are essentially 2 ways property can be transferred upon your death - Probate and Non-Probate.

Probate transfers are ones where the transfer is of property in your own name at the time of your death, with no beneficiary designation.  Examples might include a house owned by John Smith, or a bank account in the name of Betty Peterson, with no beneficiary.

By contrast, Non-Probate transfers are ones where the property passes outside of probate due to how the property is titled or a beneficiary designations.  We say that these assets pass on a person's death "by operation of law". Examples include:

  • Joint accounts
  • Property owned as Joint Tenants with Rights of Survivor ship (JTWROS) or Tenants by the Entirety
  • Transfer on Death and Pay on Death Accounts
  • Life insurance naming anyone other than the insured's estate as beneficiary
  • Retirement Plans (IRA, 401(k), 403(b))  naming anyone other than the participant's estate as beneficiary

Probate property is distributed to beneficiaries depending on if a person died Testate (with a Will) or Intestate (without a Will).  

If a person dies with a Will (Testate), then the Will controls who gets the probate assets when the person dies.  The Will has no effect on non-probate assets.  We often run into the unfortunate situation when the Will leaves the assets to Person A, but there is a joint account with Person B.  This is great if this is what the decedent intended, but can be a mess if it was not.

If a person dies intestate, they still essentially have a Will because the state that they resided in when they died will govern who gets the assets.  The obvious problem here is that New Jersey may not leave your assets to whom you want.  For example, in a second marriage, the spouse gets essentially 50% of the assets, and the children of the decedent share the other 50%, and get them at age 18.  This may not be your plan, so you are free to create a Will to create your own plan of distribution in the event of your death.

Next in the series - A Will says:  Who gets What, When and How.

College Bound Checklist should include a Power of Attorney and Living Will...

GraduationThe Wall Street Journal recently reported five pieces of advice from financial advisors for families of college-bound children to consider. #5 on the list: Help children protect their health and finances from uncertainty and risk.

Veronica Dagher reports:

Once a child turns 18, parents no longer have the legal authority to access the child's medical records or make health or financial decisions for the child, says Laura Mattia, a Fair Lawn, N.J., certified financial planner. 

That loss of control over a child's care "is a hard thing for a parent to hear," she says, but families need to create a "game plan" to address the unexpected.

It should include three documents—a health-care directive, a HIPAA release and power of attorney—which together allow parents to access a child's medical records and make decisions on the child's health care and finances if necessary.

Ms. Mattia gave this advice to a client whose child was going to study in London for a semester. The client initially was shaken by the realization that she could no longer make crucial decisions on her daughter's behalf without taking legal action, Ms. Mattia says.

This is really good and practical advise.  Those who are long-time readers might recall that I have said from time to time there are situations where I refer people to legalzoom.com.  This is one of them because I tend to get a call the day before the child is leaving that these documents are needed right away.  While I suggest that it would be valuable for an attorney to help the family understand the importance and significance of these documents, something is better than nothing.

On a practical note, if you have a joint account with your child, you will be able to continue to access the account once the child turns 18.

Image: Ian Kahn / FreeDigitalPhotos.net

What's In an Estate Plan - The Wealthy and Wise Episode 2

Check out the second episode of The Wealthy and Wise

In this episode we acknowledge that that estate plans can seem remote, mysterious, complicated and expensive when you don’t know “What makes up an estate plan” and don’t have an overview the information necessary to make informed decisions about your estate.We clear the air on the episode of The Wealthy and Wise as we talk to you about:

What makes up an estate plan?
What happens to your assets if you die without an estate plan?
Determining your net worth from an estate perspective
Sorting out powers of attorney, living wills, health care proxy and advanced directives
Your beneficiaries – who gets your assets, how and when?
Is the government your beneficiary?
How are trusts tools to protect money?
Probate v. Non-Probate assets
And much, much more

The goal of The Wealthy and Wise, as always, is to educate you about how you can take steps in your own life to protect and build your wealth. How’d we do? We’d love your questions and comments, either below or to questions@thewealthyandwise.com. You may find yourself featured in an upcoming episode or podcast!

Facebook, Flickr, YouTube, Twitter - Where does it go when you do?

Man on LaptopAnyone reading this blog post likely has a rich social media life - you keep up with friends and family on Facebook, you share pictures on Flickr and videos on YouTube and the like, you may have a following you tweet to, you are active on message boards, you blog, or you are active in one of the thousands or other social media sites that have become part of the fabric of our lives.  This begs the question asked by Ken Strutin in the New York Law Journal: "What Happens to Your Digital Life When You Die?"

The problem - law has not kept up with society, or a Strutin puts it "Courts and legislatures have only begun to reckon with the disposition of digital assets when no one is left with the knowledge or authority to conclude the business of the cyber-afterlife."

The first question - does an executor even have authority to have access to or control of your digital afterlife?  Some states, like Oklahoma, have created laws granting that authority - most have not.  What does that mean for you?  Your Will should specifically grant your executor the right to access your social media and cyber-sites.

Does your cyber life have tangible value?  Are you addressing who should get that value should you no longer be here?  Do your parents want your e-book business, or would your sister be able to make better use of it?

Finally, regardless of the legal authority to access your digital life, have you given your family the means to by sharing passwords?  I've previously blogged about the importance of having this information somewhere that someone can access - and updating it regularly - in Your Online Afterlife and You Die - and Your Passwords Die With You.

Thank you to Furia Rubel Communications for bringing this article to my attention.

Military Power of Attorney and Advanced Directives

U.S. Army Staff Sgt. Kevin Reese and his military working dog GrekUnder the "learn something new every day" heading, Pet Trust Law Blog reports today on a federal statute providing for a Military Power of Attorney for service personnel.    The statute (US Code Title 10, Section 1044b) providing for Military Powers of Attorney has some interesting provisions:

  • A document will be a "Military Power of Attorney" if it is notarized in any state, or as set forth in US Code Title 10, Section 1044a (dealing with what military personnel have the power to act as notary)
  • A  Military Power of Attorney does not have to meet the format or substance of any State's laws to be deemed valid. So, if the document is a Military Power of Attorney, but it doesn't meet a state's standards (ie: there are no witnesses, or a specific form isn't used) it still needs to be given full force and effect.
  • The document should be specifically identified as a Military Power of Attorney per Section 1044b according to specific language prescribed by regulations (but failure to properly identify it will not make it invalid).
  • If a person is missing in action, the power of attorney will continue in full force and effect during that time.

There are similar provisions for Advanced Medical Directives found in  US Code Title 10, Section 1044c.

And what does this all have to do with pets?  As blogger Dan Meek points out, "A Special Military Power of Attorney for Pets can designate an individual or individuals to care for and maintain your pet (s) during your absence, and authorize any and all medical care necessary, including major surgery and humane disposal, as deemed necessary by the Veterinary Service".

While it is important for every adult to have a Power of Attorney to allow someone else to make financial decisions if they cannot. it is critical for military servicemen and servicewomen.  If I wasn't aware of these special provisions, I am guessing other estate planners might not be as well. The military provides the documents - we planners might consider adding into our talks a 20 second did you know infomercial on Military Powers of Attorney and Advance Medical Directives. 

Photo courtesy of soldiersmediacenter.

What happens to your Will when another beneficiary is born?

You Will usually says "I leave my estate to my children" or maybe "to my grandchildren" or "to my children, and if a child isn't living, then to their children".  You will notice that no names are being used.  Guest blogger Stacey C. Maiden, Esq., Of Counsel to our Tax, Trust, Estates and Elder Law Practice Area,  today looks at the question of what happens when new children or grandchildren are born after the Will is executed.

A common question from our estate planning clients, who name children, grandchildren or great-grandchildren in their Wills, is “what happens if another child, grandchild or great-grandchild is born or adopted? Do I need to update my Will?” New Jersey has a statute which addresses the issue of the after-born or after-adopted child (N.J.S.A. 3B:5-16) and we can draft language to specifically include any after-born or after-adopted children, grandchildren or great-grandchildren in the Will. But what if the Will does not contain this sort of language and the beneficiaries are great-grandchildren?

The New Jersey Appellate Court recently considered these facts in the unpublished case, In the Matter of the Estate of Francis Marie Ackerson Yetter, Deceased, (A-0971-09, decided December 22, 2010). In her Will, Mrs. Yetter left certain shares of stock to two named great-grandchildren, who were her only great-grandchildren at the time. After Mrs. Yetter signed her Will, two more great-grandchildren joined the family. The after-born great-grandchildren argued that the devise should be treated as a class gift, entitling them to share equally with the great-grandchildren identified in the Will.

The Court considered the circumstances and overall testamentary scheme, and agreed, finding that Mrs. Yetter did not intend to omit her after-born great-grandchildren. The Court applied the doctrine of probable intent, which allows the Court, as far as possible, to ascribe to the testator “those impulses which are common to human nature,” finding that excluding two of her great-grandchildren from her Will would be against the “common human impulses” of a great-grandmother who otherwise always treated her family fairly and equally.

Year End Sale on Gift Tax - The Fine Print

That's right - the gift tax is on sale this year, but the opportunity is closing fast.  You have until December 31, 2010 to act on the biggest gift tax sale I have seen in my years of practice.  But what is the fine print?

  • Each person has a $1 million exemption from gift tax for gifts during their lifetime in excess of the annual exclusion amounts of $13,000 per gift recipient per year. 

 

  • In 2010 only, gifts over $1 million are taxed at 35%.  In 2009 the tax rate was 45% and its scheduled to go up to a maximum rate of 55% in 2011. 

 

  • There is no generation skipping tax on gifts made to grandchildren (or further generations) in 2010.  This creates an opportunity to shift wealth from grandma to grand-kids and leave Uncle Sam out in the cold.

So who is this sale targeted at?  Families where the oldest generation is "set" financially and can afford to give away dollars now, their children are already independently successful and don't "need" mom and dad's money, and the family goal is to maximize the amounts distributed to future generations.

Many families are surprised at the wealth of the oldest generation - those "old fashioned" values of saving dollars, deferred gratification and not buying things you can't afford has lead to large amounts of wealth.  The one year only gift tax sale is worth a family conversation over Thanksgiving to see if planning can be done now to reach the family's goals at a much lower cost. 

Image: Salvatore Vuono / FreeDigitalPhotos.net

The Art of the Estate Plan

So, is estate planning an art or a science? The Wall Street Journal finds today that "Estate Planning: It's an Art, Not a Science".  The article posits:

"It is logical that an estate plan should offer a clear map of what a person owns, but this isn't always the case. Sometimes that person doesn't have an accurate balance sheet to start with, and chooses not to update it or to share every detail. Bad communication between attorneys and advisers may also create trouble."

While I grant that all these things may be true, the article seems to miss the point that the creation of the estate plan is based on a snapshot in time.  Although the estate attorney will certainly discuss possible future events, nobody has a crystal ball, so it is impossible to know exactly what assets a person will have at the moment in time when they die, or even what the laws will be that affect those assets.

One other troubling point that I find is that the article seems to imply that there should be assets left when person dies. Many an estate planning attorney will tell you that the best estate plan is to spend all your money before you die; the problem of course being that we don't know exactly when that date is. Often times the client may have more wealth when they created an estate plan than they have when the plan is actually carried out. This is particularly true these days given the Great Precession. Remember that these are the person's assets to use as they see fit, desire, or need to until the point in time when they pass away; there is no right of inheritance.

So what must the most artfully designed estate plan contain? Two things: flexibility and clarity. One reason for working with an attorney to create an estate plan is to make sure that you've explored questions about the possible future so this flexibility can be built into your plan. What if you have less money? What if you have more? What if your children are 25 versus 35 versus 55? All of these things need to be considered.

A fair point made in the article is that many times the client doesn't understand their estate plan, even though they sign the documents.  While the actual documents themselves may contain "legalese" or significant and sometimes convoluted tax provisions, there is no reason why the attorney should not clearly communicate the structure of the estate plan to the client.  Our office prepares both a summary letter and a flowchart summarizing exactly what each client's estate plan contains. Many times I find that it's the flowchart that the client refers to year after year as we review their estate plan to make sure their wishes are still being carried out.

Is a Will a Will? The Devil is in the Details

If you mean for a Will to be your Last Will and Testament, will it be?  While the answer is "most likely" my colleague Don Vanarelli, Esq. has a great post outlining a set of facts where the decedent clearly intended her Last Will and Testament to be different, but that details of execution prevented if from being admitted as such.

In Don's post "A Draft Will That Was Not Reviewed By The Client Before Death Cannot Be Admitted To Probate" he discusses the recently decided case of In re Macool where a client went to her attorney with a handwritten note of changes to her Will naming a new beneficiary, the attorney dictated a draft revised will in the clients presence, the client made an appointment to come back to sign the revised Will, but the client tragically died a mere hour after leaving the attorneys office.  So, with all of her clear intent to make a new Will, was Ms. Macool successful?  Sadly, the answer is "no" because even though Ms. Macool had all the intent in the world to make a new Will, none of actions rose to a level to meet the formal requirements to create a Will.

Bear in mind that a Will only comes into play when you are dead, and by definition you can no longer discuss your intent with anyone.   As a result, there are fixed formal requirements in the law for what a document must "look like" to be deemed a Will.  New Jersey even has relatively liberal requirements as to what can be a Will as it allows 3 categories of Wills:

  1.  A Formal Will signed by the decedent and witnessed by 2 people (N.J.S.A. 3B:3-2(a)).  Think here of the Will drawn up be a lawyer and executed in her office.
  2. A holographic Will - a writing intended to be a will that is entirely in the deceased person's handwriting and signed by him or her (N.J.S.A. 3B:3-2(b)).  This is the original DIY will - I write out what I want to happen to my stuff on my death and sign it.
  3. An Intended Will - a document that is neither a Formal Will nor a Holographic Will if there is a writing where it can be proved by clear and convincing evidence the decedent intended the document to be their Will (N.J.S.A. 3B:3-3).

Although a document or writing added upon a document was not executed in compliance with N.J.S.A. 3B:3-2, the document or writing is treated as if it had been executed in compliance with N.J.S.A. 3B:3-2 if the proponent of the document or writing establishes by clear and convincing evidence that the decedent intended the document or writing to constitute (1) the decedent’s will;

Even with all these outs, the court could not find that Mrs. Macool had effectively created a new Will.

  1. She clearly didn't sign a Formal Will.
  2. Her handwritten notes to her attorney weren't signed, so those could not qualify as a Holographic Will.
  3. She had never even looked at the draft Will the attorney drew up, so that couldn't be an Intended Will. 

While the Court clearly made its decision within the law, the issue here is that the law did not provide a means for the Court to provide justice for Ms. Macool.  Her last wishes were clear and not in doubt, but since the communication of those last wishes did not meet the technical requirements, the Court could not enforce them.  Once also cannot help wondering why if her wishes were so clear as the record suggests, the unintended beneficiaries wouldn't follow them out of a sense of rightness.

The lesson to be learned?  If you want your Will to be a Will, make sure that you have executed it within the bounds of the law.

Death,Taxes and the NFL - Does Your Business have a Plan for the Final Exit from the Field?

If you or your family owns a business, you've heard from many advisors "You need to have an exit strategy".  Now, this normally refers to cashing out of your business by selling to an employee, bringing on a family member, merging with another company, or selling out of the business. But what if the exit strategy you need to be creating is to plan for when you leave this earth altogether?  As Julie Garber points out today at Julie's Will & Estate Planning Blog, taxes at the death of the owner can kill a business; but with advanced planning, this does not need to be the situation.

Case in point, Julie refers to a story that at least "one NFL franchise is going to be shopped around beginning this month because the owner is working on his estate plan and is looking to sell a 30% interest in the team."  This makes sense.  Sports franchises are worth millions, and sometime billions (Forbes.com lists all NFL franchises by value here - the Cowboys top the ranks at 1.8 Billion, the Giants are 4th at $1.2 billion, and the Eagles are 7th at $1.1 billion - a value that certainly did not show up on the field at their home opener on Sunday). 

Why look to plan now?  Well, with the estate tax scheduled to return next year with a top tax rate of 55%, a failure to plan could result in that NFL franchise needing to be sold to raise money for taxes.  While this is a failure to plan scenario, but that isn't going to mollify the fans who already need to pay $160 a ticket if you are a Cowboys fan to see your team (thus demonstrating the incomprehensibleness of being a Cowboys fan in the first place to those of us in the northeast).

Your business may not be on quite the scale as an NFL franchise (the Jaguars as the least valuable franchise in the NFL still comes in at a healthy $725 million) but a failure to plan an exit strategy that includes an analysis of how estate taxes might effect your business could put your business out of the game for good.

Considering Becoming a Florida Resident? Cut those Ties to New Jersey

Truth - New Jersey is the most expensive state to die in.  Consequence - A great estate planning technique is to not be a New Jersey resident when you die.  

Many people have second homes in Florida and say "well, I'll just become a Florida resident." While this is a great idea, it is not always so simple to carry out.  Guest blogger Steven A. Loeb, Esq. points out below that there are threshold requirements to becoming a Florida resident.  If you don't carefully meet the Florida requirements, and you continue to maintain a presence here in New Jersey (ie: you still have a home here) then you run the risk of New Jersey claiming you are still a resident of the lovely garden state, and thus subject to its tax scheme upon death.  New Jersey has an state estate tax with a $675,000 threshold, Florida has no estate tax - so getting Florida residency right has real bottom dollar consequences.

In today's legal environment, the question of an individual's state of residency can be quite important in determining tax implications, both while the individual is alive and upon their death. Each state where an individual resided and owned property upon his/her date of death will make its own determination regarding the decedent's domicile (i.e. a legal term having a meaning of residing in that state with an intent to remain indefinitely).

Often, an individual wishes to relocate to Florida in order to take advantage of many of the tax favorable statutes in that state. However, many times problems arise when the relocated individual maintains significant contacts with the former state, which creates doubts as to whether residency was changed to Florida.

There are several steps you can take to clarify that you have in fact become a Florida resident in case a tax return is audited by your former state claiming that the state of residency was not changed and there is an attempt to subject the entire estate to tax in the former state.

Steps in Becoming a Florida Resident

1) File a Declaration of Domicile in the Town Clerk's office in the county of residence;
2) Register to vote in Florida and actually take the time to vote in elections;
3) Be physically present in the state of Florida on average for 8 months out of each year (at least 6 months and 1 day);
4) Change your primary care physician and all additional physicians to the state of Florida;
5) Have all prescriptions transferred to a pharmacy in the state of Florida;
6) Register your car in Florida and obtain a Florida driver's license. and notify your insurance carrier that you are now a Florida resident;
7) File Income Tax Returns as a Florida resident;
8) Purchase or rent a house or condominium in Florida and actually move into that location;
9) Transfer primary bank accounts to a Florida bank: and
10) Draft a Last Will and Testament, Power of Attorney. and Living Will/Health Care Directive stating that you are in fact a Florida resident.

These are just some of the necessary action items to consider when relocating to Florida. In order for the taxing authority of your state to not challenge your domicile/residence either during your lifetime and upon your death, it is important to consider the above information when relocating, as well as to get professional advise about your personal circumstances.

Deirdre's note - A great blog about Florida Law issues can be found at South Florida Estate Planning Law authored by my colleague David Shulman.

 

Who controls "You" when you die?

Lots has been written about who controls your "money and stuff" when you die, but who gets to make decisions about "You"?  Who gets to say what your funeral service looks like, whether there'll be a burial or cremation, where your ashes might be scattered, or cryogenics or other alternatives?  Your might be shaking your head about the need to ask such a question, but I was just told a story that falls squarely within this question.  A gentleman passed away overseas. He told his brothers he wanted to be cremated, and the ashes scattered, but his ex-wife and children want the body back for a funeral and burial. Who gets to decide?

According to New Jersey law, the the first person who gets to decide what is done with "you" when you die, is you. NJSA 45:27-22 states that you can appoint a person in your Will to control your funeral disposition of the remains. That person does not need to be your executor, and the funeral/disposition can occur prior to the probate of the Will (very important as the Will cannot be probated until 10 days after death).

But what if you didn't appoint someone?  In that event, the statute directs that certain people or groups of people are given the authority to make the decision, in order of priority:

(1) The surviving spouse of the decedent.
(2) A majority of the surviving adult children of the decedent.
(3) The surviving parent or parents of the decedent.
(4) A majority of the brothers and sisters of the decedent.
(5) Other next of kin of the decedent according to the degree of consanguinity.
(6) If there are no known living relatives, a cemetery may rely on the written authorization of any other person acting on behalf of the decedent.

Going back to the example above, if the children are 18, they would be allowed to say will be done with the gentleman's remains, even though he orally told his brothers that he wanted to be cremated and did not want have a funeral. This underscores the point: if you want the person who makes decisions about what happens to "you" to be you, you must make your wishes known in your Will and appoint someone to carry them out.

An additional wrinkle in the example I gave is that the person passed away in another jurisdiction, not even another state, but another country. The laws of that jurisdiction will have priority over the laws of New Jersey in dealing with this question, but the laws of the other jurisdiction may defer to the laws of New Jersey law to answer the question, so it is still critically important that you make your wishes known in your Will.

Image: Arvind Balaraman / FreeDigitalPhotos.net

The Unintended Consequences of Marriage from a Healthcare Perspective

Beware of Second Marriage Nuptials even with a Prenuptial Agreement - Courtesy of guest blogger Steven A. Loeb, Esq.

Marriage is defined as [a]n act of marrying or the rite by which the married status is effected; especially the wedding ceremony and attendant festivities or formalities; or an intimate or close union ("marriage." Merriam-Webster Online Dictionary. 2009.) However, what a dictionary will not tell you is the fundamental concepts of a marriage and the resulting law governing a spouse’s obligation to support his/her husband or wife. Many of our clients are involved in second, third, or even fourth marriages today. One of the governing laws regarding marriage which most individuals are unaware of is commonly referred to as “the law of necessities.” This law, although well recognized and enforced in New Jersey, is rarely (or never) considered by an individual in the decision process of whether to get married. Basically, the law of necessities doctrine pertains to a spouse’s obligation to support the “necessities” of the other spouse during the course of their marriage.

While in many circumstances pertaining to a second marriage situation, entering into a pre-nuptial agreement is a beneficial idea to preserve the assets for the intended beneficiaries of each spouse following their death. However, in many states, the pre-nuptial agreement, while one of its intended purposes is to maintain that the debts of each spouse remain with said spouse, the intended judgment can be clouded when medical emergencies occur. Under New Jersey law, a hospital has the unfettered right to pursue an action against either spouse for most medical procedures, regardless of what your prenuptial agreement says.

In New Jersey, a spouse has a duty to provide for the “necessities” of the other spouse so long as the husband and wife are living together. Under New Jersey law, most courts would hold a spouse responsible for their other spouses medical bills provided they were living together during the period when the medical bills were assumed.

A recommendation is prior to entering into any marriage situation, an overview of one’s financial assets must be reviewed and a discussion pertaining to asset protection, estate planning, Medicaid planning, and the pitfalls to be prevented from a creditor protection standpoint must be addressed. 

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Who gets your stuff when you die? Personal property dispositions

Courtesy of guest blogger Stacey C. Maiden, Esq.  I note as an aside that the question of who get what personal property (jewelery, artwork, china, family photographs, furniture) can often be the biggest source of tension when administering an estate, even if the monetary value is only a fraction of the overall estate.

I was recently reviewing a Will for a client who indicated that she may wish to update her estate plan to leave some specific personal property to various people. Certainly, I could prepare a Codicil to her existing Will to add these bequests, which would mean legal fees and signing the document with the same formalities as a Will. But New Jersey law permits the use of a separate list or memorandum to dispose of tangible personal property not otherwise disposed of in the Will (other than money), which can be created either before or after the execution of a Will. The advantage is that the separate list or memorandum needs only to be either in the testator’s handwriting or signed by him, and can be changed at a whim – no need to go back to the attorney if you decide the china should go to Betsy instead of Susie.

I routinely include language in the Wills I prepare reserving “the right to dispose of certain items of my tangible personal property by a written statement prepared pursuant to N.J.S.A. 3B:3 11.” However, the Will I was reviewing for the client did not have any language referencing the use of a separate list or memorandum.

Revisiting the New Jersey statute and Uniform Probate Code §2-513 (upon which the statute is based), it seems that without reference to the use of a separate writing in the Will itself, the writing can’t be used. The New Jersey statute reads that “[a] will may refer to a written statement or list to dispose of items of tangible personal property…”, thus conditioning the use of the statement upon its reference in the Will. The Official Uniform Probate Code Comment backs this up, stating that as “part of the broader policy of effectuating a testator’s intent and of relaxing formalities of execution, this section permits a testator to refer in his will to a separate document disposing of certain tangible personalty.”

The use of separate writing to dispose of personal property is a topic I cover with clients when discussing their estate plans. It’s important to make sure the Will includes appropriate language for our clients to take advantage of this valuable estate planning tool.

 Image: Suat Eman / FreeDigitalPhotos.net

Your Online Afterlife

What happens to your Facebook chats, Flickr photos,LinkedIn connections, and Twitter witticisms when you die. Will your friends and family have access to your "digital memory"?

The short answer: "No".  in fact, getting friends and family access to your passwords, and thereby your social media identity, is most likely strictly forbidden in the privacy policies of the social media venues you frequent. While you're Personal Representative (executor, trustee, administrator) it may be able to access this information, it may also require a court order to do so.

So what can be done to safeguard your online persona? KATU out of Seattle to reports today that "Digital death coverage is a growing business. There are websites that help you bequeath your accounts to others and inform your online friends that you’re dead."

One such website has the the warm and fuzzy name of deathswitch.com.  Apparently the site will continuously since you an e-mail, and if you don't respond within a certain period of time, carry out your "final instructions". I didn't put a link in, because when I went to the site, it crashed my browser.  This highlights the problems with any kind of "online vault". Who's running it? What are they doing with the information you're putting in there? Are you putting your online passwords in one place, that could then be accessed by other parties for malicious purposes?

A better solution?  Treat your online persona with the same amount of care that you treat your online financial records.  I previously posted You Die - Your Passwords And User Names Die With You (way back in 2007), but the advice holds true today.

The best way to address concerns raised by virtual assets in the electronic age from an estate planning and estate administration perspective is to employ some practical advice:

  • Create a spreadsheet of login and password information
  • Update the spreadsheet WHENEVER a change is made
  • Save the spreadsheet to a removable media format (CD, DVD-R, USB Flash-Drive, etc).
  • Store the removable media format in a safe location that your spouse, power of attorney, key adult child(ren) and attorney are aware of (safe deposit box, fireproof vault, drawer in the house where the important stuff is).
  • If you password protect the file, make sure that your spouse, power of attorney, key adult child(ren) and attorney are aware of the password
  • MOST IMPORTANT - Update the spreadsheet whenever a change is made

Photo Attribution: http://bit.ly/9hz6Kh

Holographic Wills and Undue Influence - Watcha talkin about Willis?

Actor Gary Coleman's life and death were tragic in many ways.  Unfortunately, some of circus that engulfed his life followed after death due to confusing estate planning, as an article by Jun Li  at Celebrity Justice highlights (quoting yours truly).  

Coleman prepared a Will in 2007 using an attorney, leaving everything to ex-girlfriend Anna Grey..  In 2007 he  purportedly hand wrote out a new will (a "holographic will') that left his estate to his then wife, Shannon Price.  He and Price divorced in 2008 but Price claims that had a common-law marriage after that point.  And you thought his exploits during life were confusing.

In some states, such as Utah (where Coleman died) and New Jersey holographic wills are legal, so long as they adhere to certain requirements (all in the person's own handwriting, witnessed by 2 persons being common requirements).  

An issue that often arises with holographic wills, especially those made when someone is ill, is undue influence.  There are very limited grounds to overturn a person's Last Will and Testament.  One of those grounds in undue influence, which is to say that a person had undue authority over another when they were making out their will which may have lead a person to name them as a beneficiary our of fear instead of desire.  This issue can arise frequently when a senior has made a handwritten will disproportionately favoring a caregiver child during a period of illness.  

For those who do wish to make a disproportionate distribution to a caregiver child, be aware that a holographic will may not stand up under scrutiny.  This may be an instance where an attorney should be involved to make sure that your wishes are fully enforced after you are gone.

65% of Americans Don't Have a Will - Staggering as 100% will die someday

Why don't people create a Will?  Reasons I have heard range from I don't have enough money to worry about it, I trust xyz person to take care of it, it is too complicated or expensive, to people who sincerely believe that if they make a Will they may die.  

Apparently, all these reasons and more are very strong as  Forbes.com reports that 65% of Americans do not have a Will. The article, brought to my attention by Michael Rinne, outlines some of the reasons people give for not making a Will.

I understand all the reasons why for many people making a Will is not a priority.  There are oodles of things not a priority in my life.

However, for parents of minor children, the only place to name Guardians for your children upon your death in is your Will.  Whatever reason you have for not thinking you need a Will, it is superseded by your need as a parent to provide for who will care for your children in the event of your death.  

To make it easy, go to www.legalzoom.com and have a Will prepared on-line if seeking professional services is not a priority at this time.  I have blogged before on the pros and cons of computerized Wills, and an article on the subject is being talked about on Twitter today, but in the case of naming care for minor children, something is definitely better than nothing.

What are your thoughts on why 65% of Americans don't have a Will?

Charitable Remainder Trust - Give your tax dollars to charity instead

Jensen Law Offices has a great post summarizing the mechanics and usefulness of a Charitable Remainder Trust or CRT.  A CRT is one of those great tax techniques where you get to have your cake and eat it too.  

A CRT is a split gift between a charity and your family.  For example - you leave a portfolio in a trust where your children get 7% a year for their lives, and when the child dies, the charity gets the balance of the portfolio.  Your estate is entitled to a tax deduction (since NJ still has an estate tax, this is relevant in 2010 as well as 2011 and beyond when the federal estate tax reappears).  Your children get an income stream for live, and the charity has the reminder upon their deaths.

Note that when you have a taxable estate charitable giving at its most basic is taking dollars that your family would not have gotten anyway (because they had to go to taxes) and directing them to charity. With a CRT you are compounding this by getting the tax benefits and giving the family a stream of dollars.

 

Image: Salvatore Vuono / FreeDigitalPhotos.net

Disclaimers - Saying "No" to Your Inheritance

The New York Times ran an article this week "Saying ‘No Thanks’ to a Bequest".  In the article, Deborah L. Jacobs explores how a disclaimer provision either included in an estate plan, or created after death, can achieve some estate tax savings in this environment of uncertainty about the federal estate tax this year or next.

In an estate plan a "Disclaimer" is when a beneficiary says "No, I don't want that part of my inheritance."  Now, why would a person not want an inheritance?  Well, for a spouse, a disclaimer is used more accurately to say "I don't want to take my inheritance outright, and therefore it should pass to a trust where I am a beneficiary." This trust could capture the exemption amount from federal estate taxes if and when the federal estate tax comes back.  A disclaimer creates flexibility in a period of uncertainty as the spouse doesn't have to decide now if it makes sense to fund the trust, they can wait and see what the tax laws are at the time the first spouse dies.

The article outlines how a disclaimer works, the benefits of disclaimers (flexibility being key) and some of the drawbacks (what if the spouse doesn't disclaim, or accepts the assets so they can't disclaim).  However, I think the article misses one key point about how using disclaimers to create trust can create inflexibility.  If a person sets up a trust in their Will and directs that it be funded (i.e.: put $1 million is this trust) instead of allowing it to be funded through a disclaimer (i.e.: I spouse disclaim $1 million which will now pass to a trust), then the trust can give a person a "Power of Appointment" over the trust.  

A "Power of Appointment" essentially allows a person to change who gets the trust funds and how after the death of the decedent.  This is incredibly powerful in using a trust.  A trust will last for years or decades after your death.  Unless you have a crystal ball, you don't know what will happen to your beneficiaries, or what the tax laws will be in the future.  By setting up a trust for your spouse and children, and giving your spouse a Power of Appointment, your spouse has the ability to change how your children eventually get your assets after your spouses' death.  For example, if a child has a health issue, your spouse can change the trust to leave more to that child, or to leave it to the child in trust instead of outright.  Without the Power of Appointment the child might get money that would negate other benefits he was receiving.

So how to balance the flexibility of a disclaimer with the flexibility of a Power of Appointment? In New Jersey, where we have a state level estate tax of $675,000, we recommend a "3-Part Will".

  • Part 1 - An amount equal to $675,000 goes to a family trust with a power of appointment in favor of the surviving spouse
  • Part 2 - An amount equal to the difference between (1) the federal estate tax exemption amount (if any) and $675,000 go to the spouse - the spouse can disclaim this amount to a family trust if it makes sense from an estate tax perspective
  • Part 3 - The balance to the spouse  

 

Who Will Raise your Children? 12 Questions to Consider in Naming a Guardian

Naming a Guardian for minor children is one of the most challenging things to do as a parent - and the most important. While I have never taken a poll, I believe that disagreement over who should be Guardian, or a fear of angering a family member, are the key reasons why young families don't carry out their intention to make a Will.

While naming a Guardian is certainly difficult - the emotion of just to considering the idea, the enormity of influence the Guardian  will have over the children - not taking action is worse.  If you don't name a Guardian, you are leaving it to a judge who never met you and doesn't know your children to decide who raises them - trust me when I say that a total stranger deciding who will raise your children is much worse then any hurt feelings you are worried about.

While the question of  Guardianship is hard, it is one of those things that you need to do as a parent - part of the package.  Luckily, I came across this great blog post today at Jensen Law - 12 Tips For Choosing A Guardian For Your Children.  This article is a wonderful primer on how to deal with a difficult question and reach a decision.  It counters the desire to procrastinate by creating a roadmap to get to an answers.  Some ideas?  Think beyond the obvious choices - friends may be better guardians than family; focus on love and value, not wealth.

Last point - the ONLY place you can name a Guardian is in a Will. If you have children, go to Legalzoom.com to at least get a Will in place TODAY.  A computer generated Will is far superior to nothing a all.  Don't let your natural desire to avoid a difficult and unpleasant decision leave your children with no parental guidance at a time they need it most. 

Image: Dynamite Imagery / FreeDigitalPhotos.net

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.

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

Computer Generated Wills - The Wall Street Journal's Take

Wall Street Journal - Before It's Too Late: A Test of Online WillsCan you create a Will using a computer program or online? Of course you can.  The Wall Street Journal has an article today comparing different computer programs to do just that.

The better question is: Should you create a Will using a computer program or online?  The answer, like all answers to questions that have variables and complexities, is "maybe".

As Joel Schoenmeyer points out today in Death and Taxes -- The Blog:

The biggest program with the article is that it leaves out the most important question: did the documents accomplish what they were supposed to? By "supposed to," I mean "do the documents leave property to desired beneficiaries in the most efficient manner, with no ambiguities and the fewest tax consequences, and are documents valid under the relevant state law."

For some, computer generated Wills are a cost effective solution.  I have referred people (generally single without children) to legal zoom to get a basic Will.

For many, it is the variables and complexities that need addressing. New Jersey has a $675,000 estate tax exemption and allows personal property to be distributed by a separate written letter (personal property being your jewelry, pictures, furnishings, etc.). New York has a $1 million estate tax exemption and does not allow personal property to be distributed via a letter - it must be in the body of the Will. California is a community property state, which means that couples have different rights to property (real estate, investments, etc.) in California than New Jersey - and those property rights continue even if they used to live in California when they got the property but now live in New Jersey. I prepare Wills all the time, and I would not try to address a California property law question without getting advise from someone who practices there.

 The answer to "What should my Will say" depends on the questions asked. If not enough questions are asked, or if the right questions are not asked, then the Will might not solve your problems. While there is definitely a place for computer generated Wills, they aren't the solution for everyone, just as much as getting a lawyer prepared Will is not the solution for everyone.

Two touchstones in my mind of if you should see an attorney to invest in an estate plan - Do I have a taxable estate (remember to count death value of life insurance)? Do I have children? In these situations a lawyer may do a better job of asking questions and explain why the questions are important and what is behind them than a computer model.

Joel ends his post by noting:

[From WSJ] 'Each site purports to yield documents that clearly outline our intentions in the event of our demise or death, although we didn't hire a lawyer to review them. We're hoping that we—and our heirs—won't have to worry about it any time soon.'

There you go -- the author has spent $X on these programs, and has no idea whether they do what she wants them to do.

 

Does your Estate Plan reflect Who You Are Today?

I came across this interesting article "8 Life Stages of Estate Planning".  The premise is simple, but often overlooked in today's busy lifestyle.  You aren't the same person at 45 you were at 30, or at 65 you were at 45, or at 85 you were at 65 - your estate plan should reflect the you of today, not who you were yesterday.

1. Young, Single and Carefree - Until you turn 18, your parents make financial decisions for you.  Once you hit that magic age, they no longer have the legal authority to do so.   Give them the power to make decisions for you if you can't by at least having:

  • A General Durable Power of Attorney naming your parents to make financial decisions for you if you can't
  • A Health Care Proxy/Living Will naming your parents to make medical decisions for you if you can't

2. Single, but Committed - Unless you have a Will or Trust that says otherwise, upon  your death all your assets will pass to your parents or siblings.  You may want to create a Will or Trust that names your partner as beneficiary, or perhaps name them as a beneficiary of life insurance or IRA or 401(k), or own assets in joint name with a right of survivorship.

3. We're Engaged! - Congratulations, but face the fact that a lot of marriages don't work out.  A Prenuptial Agreement can protect assets you acquired before marriage so they can be security for you if the marriage ends.  Parents, if your children don't get a prenuptial agreement, you may want to change your estate plan to leave inheritances in trust instead of outright to your children to protect them from claims of equitable distribution in a divorce.

4.  Just Married - This is a major life change that calls for taking another look at all your estate planning documents.

  • Update your Power of Attorney and Living Will/Health Care Proxy to name your spouse (or other appropriate person).
  • Create a new Will or Trust benefiting your spouse and perhaps other family members.  Bear in mind that when you get married your spouse becomes entitled to some part of your estate when you die (typically 1/3 to 1/2) just by virtue of being married.
  • Change your Beneficiary Designations on things such as life insurance, pension, 401(k), IRA, 403(b) - the beneficiary does not automatically become your new spouse just because you got married.  Speak to your Human Resources department about such things as health insurance, flexible spending accounts, health savings accounts, etc.

5 - The Joys of Parenting - You MUST, MUST, MUST create a new Will naming a Guardian for your minor child.  The Will is the only place you can name a Guardian, and as difficult as it may be to consider this decision, it is incumbent upon you as a parent to provide for who will care for your child if you can't - it is not fair to your family or your child to leave the decision to some overworked judge.

You should also consider revising your Will to leave any assets passing to your children in trust until such age as they can manage them.  You will need to name a Trustee (who can be different from the Guardian or the same) to manage the money until a certain age.  I recommend mandatory distributions be no earlier than 25 (they may still be in school at that age) and staggered over time (such as 1/2 at 25, the balance at 40) so the child has time to learn financial skills before the dollars are turned over to him or her.  The Trustee should have broad discretion to make distributions from the trust to the child before the mandatory distribution ages.

You may also want to consider life insurance (particularly term insurance) at this point to create additional assets for your spouse and children in the event of your death.

6 - The Agony of Divorce - Divorce is a reality.  In some states becoming separated or divorced cuts any benefits to or fiduciary roles of your former spouse  - in other, it doesn't.  You need to change your Will to reflect your new status.  You may need to change your Will or Trust once during the separation stage and once when the divorce is final.  Some people still name their former spouse in some roles, others don't want the person in their life ever again.

Divorce does not automatically rescind all Beneficiary Designations.  So just like you did when you got married, you need to change your Beneficiary Designations on thing such as life insurance, pension, 401(k), IRA, 403(b).  Speak to your Human Resources department about such things as health insurance, flexible spending accounts, health savings accounts, etc.

If you get re-married, you need to consider how to best provide from children from one marriage and a spouse and children from another marriage.  You may wan to consider life insurance owned by a trust to create an additional pool of assets upon your death.

7.  The Middle Years - Here, your estate may be increasing to the point you need to consider estate tax planning.  In New Jersey, estate tax planning is relevant for estates over $675,000.  You may want to create trusts within your Wills or Trust that are designed to minimize estate tax so more of your assets eventually pass to your children.

You may also want to look at long term care insurance at this point to create a source of dollars to pay for your care should you become ill and need assistance as you age.

8. The Golden Years - At this point, you likely know what you have and know how you spend it.  Your plan needs to be focused not so much on "What happens if I die?" (as all your prior planning addresses that), but "What happens if I live?".

You may want to engage in a gifting strategy, either to reduce taxes, or just to see your beneficiaries enjoy while you are still here.  You can do outright gifts, pay for grand-children's education, gift real estate or businesses over time, or a myriad of other strategies.

You may also be concerned about asset protection - either for yourself if you get sick, or in how your beneficiaries receive assets.  Trusts can be designed to make sure only the beneficiaries have the benefit of the assets, not their creditors or spouses.

Fleeing Florida? More News on Florida Exodus

I love being ahead of a news story.  

I blogged back in August: Moving From Florida?? A Reverse Trend that May Prove Expensive for Residents -  noting that Florida is seeing its first population decline since demilitarization after World War II and that its tax revenue system may be to blame.  The result may be that Florida may be losing its status as the go-to residence for New Jerseyans looking to get out from under New Jerseys tax system particularly its low $675,000 state tax exemption.

 That post of course raises the question of where else is a person to go?  I noted in "Southern States a Tax Lure for New Jersey Residents?" that other states are going out of their way to try to attract retirees as new residents through the structuring their state tax system to give retirees a financial incentive to transplant to sunnier climates.

Now it seems that TIME magazine has caught up to the story in their feature "Florida Exodus: Rising Taxes Drive Out Residents".  TIME notes:

There are many things public officials probably shouldn't do during a severe recession, but no one seems to have told the leaders in Floridaabout them. One thing, for instance, would be giving a dozen top aides hefty raises while urging a rise in property taxes, as the mayor of Miami-Dade County recently did. Or jacking up already exorbitant hurricane-insurance premiums, as Florida's government-run property insurer just did. Or sending an army of highly paid lobbyists to push for a steep hike in electricity rates, as South Florida's public utility is doing.

For states, attracting new residents is good for business - more people equals more revenue. If Florida can't manage its budget in a way that will continue to attract residents, perhaps other states will start offering "deals" to retirees so that dollars will go further in your silver years. perhaps say "CA$H for Change of Address" program is in the making.

 

 

 

Who is to Say You Can't Make a Gift? Undue Influence Over Lifetime Transfers

If a person has a Will and dies, and a beneficiary doesn't like the terms, one grounds for challenging the Will is that the testator (person making the Will) was subject to undue influence when he made it. An example would be a person with 4 children leaving 100% of his estate to one child, who the person relies on.  This doesn't mean that a person can't leave there assets to whomever they please, just that there are situations where people take advantage of a person's fragility to have assets funneled to them.

What happens when a person makes a gift during his lifetime and another party challenges that gift before the person dies?  The recently issued opinion in  Estate of Claudia L. Cohen v. Robert Cohen, Law Div. — Bergen Co. (Koblitz, P.J. Ch.) indicates that under New Jersey case law, the only people who have legal standing to bring a legal action to undue a lifetime gift are:

  • The Grantor (person who made the gift)
  • The Guardian of the Grantor, so long as the Grantor is still alive
  • The Executor of the Grantor (or Administrator of the estate if there was no Will), if the Grantor has died

So what if you have a situation where your mom is living with your sister, and she is transferring assets to your sister, and you think mom doesn't really understand what she is doing, or is scared to say 'no' to your sister?  The answer might be to seek a Guardianship over mom if she is no longer competent and the Guardian can then pursue the gifts made under undue influence.  

Southern States a Tax Lure for New Jersey Residents?

 Where is a retiree to go? If Florida is possibly becoming more expensive as I blogged about in  Moving From Florida?? A Reverse Trend that May Prove Expensive for Residents, and if New Jersey is too expensive as I talked about in Taxed Enough? Looking at Leaving NJ? Domicile and Residency are Key Questions, where is good.

Well, apparently both Georgia and Alabama are vying for your business.  Bizjournals.com reports that Peach State is Great for Retirees and Alabama is Tax Friendly for Retirees.  North Carolina is in the mix too with Kiplinger: N.C. ranks high for retirees

All three states have low income tax, low property tax, and limited or no state level estate tax.  It costs less to live and less to die.  I told a story earlier where being a North Carolina resident saved a client $230,000 in estate taxes.  So what do ya'll think about moving south of the Mason Dixon line?

Taxed Enough? Looking at Leaving NJ? Domicile and Residency are Key Questions

It seems that my in box is full of information on better places to live than New Jersey from a cost perspective (personally, I love the shore and NYC and Philly and skiing all being within 2 hours drive). I got a very thoughtful piece from my friends at RegentAtlantic Capital entitled "When You've Paid New Jersey Enough".  In the article, Bill T. Knox, "reviews the key factors that should determine whether someone who has lived in NJ and then establishes a home outside the state will be successful in escaping the state’s income and death taxes."  

Bill looks at New Jersey domicile and residency from the income tax and estate and inheritance tax perspective.  Domicile is a very tricky question - it is where you intend to be without intending to move.  So if you intend to be an Florida resident, but keep your New Jersey home and all your bills coming here, did you really leave New Jersey domicile?  

And why does domicile matter?  Well, New Jersey income tax applies to all income earned by New Jersey "residents", and the New Jersey Estate tax is levied against a New Jersey resident who dies.  Clearly, if there is a question, New Jersey would like to claim that you live here and you should pay here.  So, if your domicile and residency are supposed to be elsewhere, you need to make sure that you have dotted all "i's" and crossed all "t's" to make that happen.

Quick story - A client of mine died January 1, 2009.  She had changed her residency and domicile to North Carolina in the year before her death.  Her estate is approximately $3.5 million.  Had she dies a New Jersey resident she would have owed New Jersey approximately $230,000.  As a North Carolina resident, her estate tax bill is $0.00.  How is that for some effective Estate Planning???

In "When You've Paid New Jersey Enough" Bill provides a quick checklist of key domicile and residence issues.

Guardians for Children - A Good Result from the Michael Jackson Circus

Over the past several weeks I have gotten a number of calls that started this way "I don't need an estate plan, but I need to name Guardians for my kids - the Michael Jackson situation got me thinking."

Unfortunately, the term "estate planning" is off-putting; many people think they need to have loads of money to have an "estate plan". All that you need to benefit from an estate plan is something that you want to protect - that could be your business, your money from taxes, your charitable goals, or your children.

A basic estate plan consists of a Will (who gets my stuff when I die and how do they get it), a Financial Power of Attorney (who can make financial decisions for me if I can't), and a Health Care Power of Attorney (who can make medical decisions for me if I can't). 

A Will is the only place you can name Guardians for your minor children.  The ONLY place.  So, everyone with kids needs an "estate plan" because they need a Will.  

Think about all the decisions you make for your children every day.  Shouldn't you take action to determine who would make those decisions if you can't? Who would communicate your values to your children?  Who would make sure they have the life experiences when they are young that are important to you?

I'm not saying its an easy decision in all instances - family situations are difficult.  I am saying you should never leave it up to a judge you never met and who doesn't know you or children to figure our who the person who raises them should be.

Pets - More Than Companions to Seniors

In an odd bit of news re elder care, a cat that offers comfort to nursing home patients in their final hours. While it is a touching story, it highlights for me how many seniors die alone, and how many have pets that are their constant companions in later life that will need continuing care and provisions when their owner passes away.

Cat plays furry grim reaper at nursing home: "PROVIDENCE, R.I. - Oscar the cat seems to have an uncanny knack for predicting when nursing home patients are going to die, by curling up next to them during their final hours." Click here for full article.
Many seniors are truly worried about what will happen to their feline and canine and other companions if they are no longer able to take care of them. A client may have adult children, grandchildren and even great-grandchildren who are settled and secure, but when they come to see me, they have stress about providing for the loved one in their life who can't provide for themselves. A couple of thoughts:

Put practicality first. Make sure people know you have a pet, and arrange for a family member or friend to agree to be responsible for "emergency care" if you fall ill. This person needs to be able to get to the pet (has keys to the house) and be aware of the pets needs.

Arrange for long term care for your pet in your Will. This can take a variety of forms, such as a direction as to who gets the pets, matched with a monetary bequest or not, or a pet trust, or making arrangements with a company that provides care for pets for the balanace of their lives when their owners have died.

Do your heirs a big favor: Choose IRA (and other) beneficiaries

Category: Estate Planning

While I have blogged on this idea before (Retirement Accounts and Beneficiary Designations - Myths and Misconceptions ), the intro to this article Do your heirs a big favor: Choose IRA beneficiaries reminds me of what we commonly see at the death of the second spouse - the Will had provided for contingencies, so no new estate planning was done. Unfortunately, the second spouse had no idea who was named as a contingent beneficiary on insurance, retirement plans, etc., and sometimes those dollars go to unintended beneficiaries (whether they be children or Uncle Sam).


"After the recent death of his mother, James B. from Santa Barbara had a sit-down talk with his father, covering family finances.
'My father doesn't need to change anything, he's set up for life,' James said in an e-mail, 'but not changing anything means he wants to leave everything exactly as he had it with Mom. He says that his will sorts everything out, but I'm afraid we're missing something here.'
What James' father is missing is a named beneficiary on his individual retirement account; his wife was the beneficiary, but her death and the absence of a contingent beneficiary means the money will go the estate. The will eventually will sort things out, but the error will turn a lifetime of savvy investing into a Stupid Investment of the Week."

Why is not looking at your IRA beneficiaries not wise? Because often the default beneficiary is the estate. From and IRA perspective, and estate is not a favored beneficiary. Human beings as beneficiaries have the right to stretch-out their inherited IRA's over a period of time - thus deferring any income tax on the dollars in the IRA. Estates as beneficiaries must have the entire IRA distributed within 5 years, thus triggering payment of all the income tax on the dollars.

Estate Planning - Men v. Women (these are the jokes)

Category: Miscellaneous Musings

A totally non-serious estate planning tale, but good for a chuckle....

Estate Planning

Dan was a single guy living at home with his father and working in the family business. When he found out he was going to inherit a fortune when his sickly father died, he decided he needed a wife with which to share his fortune.

One evening at an investment meeting he spotted the most beautiful woman he had ever seen. Her natural beauty took his breath away.

"I may look like just an ordinary man," he said to her, "but in just a few years, my father will die, and I'll inherit 20 million dollars."

Impressed, the woman obtained his business card. Three days later, she became his stepmother.

Women are so much better at estate planning than men.

A Practical Approach to a Power of Attorney

I always tell clients that just having a General Durable Power of Attorney is not enough - you need to have a broad and flexible General Durable Power of Attorney that will aid your attorney in fact, not hinder them. Remember that this will need to be used to make financial decisions for you, when you cannot otherwise make them for yourself. This is not the time to be entering into a debate about what limitations you might have been intending - make limitations clear, or not at all.

In a recent blog posting Make Your Durable Power of Attorney Work, Elder Law Answers echos this point in discussing the practical elements of a General Durable Power of Attorney. Some key points below:

An essential part of any estate plan is the durable power of attorney, through which you appoint someone else to handle your financial and legal issues in the event you are unable to do so because of illness, disability or incapacity. The problem with these documents is that not all financial institutions accept them all the time, and it's hard to predict which will and which won't ahead of time.

Why won't your bank or investment house accept your validly executed power of attorney? Because they are worried about liability in the event:

* The document in fact was forged.
* You had revoked the power of attorney before its use.
* The person you appoint exceeds the powers you gave him in the power of attorney.

In any of these cases, the financial institution may be held liable for any losses you incur. On the other hand, it may also be held liable for losses you incur if it unreasonably refuses to honor your power of attorney.

So, what can you and your estate planning attorney do to make it more likely that your appointment of an agent will be accepted? This question is answered by Daniel A. Wentworth, Esq., Senior Legal Counsel with Fidelity Investments in the November/December 2003 issue of the American Bar Association's Probate & Property journal. Attorney Wentworth recommends taking the following steps:
* Grant general powers in the document so that there is no risk the agent exceeds her authority.
* Also include specific powers clearly authorizing the actions the agent is likely going to need to take.
* Don't use "springing" powers of attorney that don't go into effect until you are incapacitated or, if you do, be very clear about what triggers their effectiveness.
* If you're appointing more than one person, clearly permit them to act separately (unless you really don't want them to).
* Sign several originals so that they are available for different financial
institutions to review.
* Sign a new power of attorney every few years so that there's less likelihood that it may have been revoked and there's a long-term record of your desire to appoint your particular agent.
* If available, also sign any powers of attorney form offered by the financial institutions in which you have funds.

To read the Probate & Property article, go to: http://www.abanet.org/rppt/publications/magazine/2003/nd/wentworth.html

A Different Approach to $700,000,000,000.00 "Bailout"

I can't seem to stop reading about this "bailout" or No Banker Left Behind Act. It is like watching a car wreck in slow motion - you would do something if you could, but you don't have the power to stop it.

Then, I came across the below that I think offers a better way to look at a bailout. Apparently, Sweden found itself in a strikingly similar bank credit crisis back in 1992:

The country was so far in the hole in 1992 -- after years of imprudent regulation, short-sighted economic policy and the end of its property boom -- that its banking system was, for all practical purposes, insolvent.

Sound familiar?

From the NY Times' How Sweden Solved Its Bank Crisis:

But Sweden took a different course than the one now being proposed by the United States Treasury. And Swedish officials say there are lessons from their own nightmare that Washington may be missing.

Sweden did not just bail out its financial institutions by having the government take over the bad debts. It extracted pounds of flesh from bank shareholders before writing checks. Banks had to write down losses and issue warrants to the government.

The article goes on to say that Sweden spent about the same percent of its GDP (4-5%) on is 1996 bailout of the banks, but took equity back so the out of pocket to the government (ie the taxpayers) was really only 2%.

I am thinking I am liking the Swedish plan much better than take all my money, do what you like, have no oversight, and no real change plan I see now - oh, and I really love that we have to do it NOW or life as we know it will end, when as we know it is already long past.

Is Favoring a Caregiver Child in a Will Unequal?

Category:Estate Planning

Joshua C. Tate, Esq., a professor at Southern Methodist University - Dedman School of Law; University of Pennsylvania Law School, writes a compelling new article about the need for revised thinking is testamentary planning to incorporate unequal distributions to reflect the contributions of a caregiver child.

Abstract: Almost all U.S. states allow individuals to disinherit their descendants for any reason or no reason, but most of the world's legal systems currently do not. This Article contends that broad freedom of testation is defensible because it allows elderly people to reward family members who are caregivers. The Article explores the common-law origins of freedom of testation, which developed in the shadow of the medieval rule of primogeniture, a doctrine of no contemporary relevance. The growing problem of eldercare, however, offers a justification for the twenty-first century. Increases in life expectancy have led to a sharp rise in the number of older individuals who require long-term care, and some children and grandchildren are bearing more of the caregiving burden than others. Recent econometric studies, not yet taken into account in legal scholarship, suggest a tendency among the American elderly to bequeath more property to caregiving children. A competent testator, rather than a court or legislature, is in the best position to decide how much care each person has provided and to reward caregivers accordingly. Law reform, therefore, should focus on strengthening testamentary freedom while ensuring that caregivers are adequately compensated in cases of intestacy.

Survey Says! Majority of Americans don't have Wills

Category: Estate Planning

In looking for some statistical evidence of the extent to which Americans don't have an estate plan, I came across this Lexis-Nexis Press Release: Majority of American Adults Remain Without Wills, New lawyers.comSM Survey Finds. Of note:

  • "[O]ver half (55 percent) of all adult Americans do not have a will, a new survey shows, a percent that has remained virtually unchanged over the past three years."
  • "Among non-white adults, the lack of wills is even more pronounced. Only one in three African American adults (32 percent) and one in four Hispanic American adults (26 percent) have wills, compared to more than half (52 percent) of white American adults."
  • "Living wills (also known as medical directives) have jumped in popularity since 2004. Two in five adults (41 percent) now have living wills in place, a full ten percent more than those who had one just three years ago. "
  • "[T]wo in five (38 percent) American adults report assigning a power of attorney for healthcare purposes, compared to 27 percent in 2004."

Any for answers to the key question "Why don't you have a Will?" Survey Says! the top three are:

"• Ignorance is bliss: One in ten (10 percent) American adults who do not have any elements of an estate plan say it's because they don't want to think about dying or becoming incapacitated.

• Where to begin?: Similarly, nearly one in ten (9 percent) adults say they don't have an estate plan in place because they don't know who to talk to about creating such documents. This percentage nearly doubled from 2004 (5percent).

• But I don't need a will: Nearly one in four (24 percent) of adults say their biggest reason for not having an estate plan is a lack of sufficient assets. This was also the top reason cited in the 2004 survey (21 percent)."

Ah, but since a Will is the only place to name guardians for your children, shouldn't that be "sufficient"?

Parsippany lawyer's practice a senior matter

Category: Elder Law

Elder law is pressing for seniors and their families. The biggest barrier to planning is lack of information. I was happy to do my part this past Sunday in the Daily Record article "Parsippany lawyer's practice a senior matter".


Parsippany lawyer's practice a senior matter
She's one of 39 N.J. attorneys who specializes in elder law
By MARK KITCHIN • Daily Record • April 27, 2008

Deirdre Wheatley-Liss gets the same type of phone call several times a week. It's usually from a man, often a war veteran in his 60s. The house he bought 40 years ago for $4,000 is worth $400,000 now. He and his wife have spent their life raising their children and putting a little bit of money away for their retirement.

Now, one of them is sick and perhaps in need of long-term care and they are wondering, because of the skyrocketing costs of health care, if they will be able to keep their house.
"People call up thinking that their problems are so much different than everybody else," Wheatley-Liss said. "In reality, a lot of them are looking at the same problems."
And those problems are getting larger and more numerous.

Click here for the entire article.

Ledger's will leaves nothing to daughter - Parental Responsibility to Prepare a Will?

Category: Estate Planning

While Heath Ledger's death may have been an accident, his failure to provide for his minor child is an example parental hubris I see all too often in parents of young children.

Yahoo News reports that Ledger's will leaves nothing to daughter : "Heath Ledger's will leaves nothing to his former girlfriend and their 2-year-old daughter because it was never updated after they became part of his life."

Parents of young children don't intend to die, but part of being a parent is being responsible for life of another person who cannot take care of themselves. Yes, you are young. Yes, you are healthy. Yes, life is good. However, as Mr. Ledger's unfortunate example shows, you can have it all, and bad things can happen to you too.

What I find particularly concerning is that Mr. Ledger was undoubtedly surrounded by scores of financial advisers - accountants, money mangers, attorneys. While I have probably heard all the reasons why a person can't make out a Will to protect their kids ("I don't have time", "I don't have enough money for it to matter", "I can't pick a guardian") all of these seem rather weak in retrospect. I assume if Mr. Ledger could have predicted his untimely death, he would have made sure his daughter was taken care of. While his family has said they will step up to the plate, shouldn't a parent do more then leave their child's future to the best intentions of others? Shouldn't a parent take the time to map that future out - just in case?

February Dubbed "Let's Review our Will Month"

I have dubbed February as "Let's Review our Will Month" and it is rapidly coming to an end. To help you and those in your network look at this critical document and determine if what the Will says continues to meet the maker's goals and needs, I have developed an Estate Plan Review Checklist.

The Estate Plan Review Checklist is a detailed checklist poses questions to help a person evaluate the suitability of their current estate plan. Some questions posed include:

* Do you have a (i) Last Will and Testament, (ii) General Durable Power of Attorney, and (iii) Health Care Power of Attorney/Health Care Proxy/Living Will? Every complete estate plan must contain at least these 3 documents.

* Have you moved since you last updated your estate planning documents? If you moved from one state to another, there may be questions of the interpretation or validity of your existing estate planning documents in your new state of residence. Generally, estate planning documents executed in one state will be valid in another state, but your new state of residence may have specific statutes or tax laws that are not addressed in your existing estate planning documents. You may want to contact an attorney in your new state of residence to advise you as to what might need to be updated.

* Do you have a separate personal property designation? This is a separate writing where you indicate who should receive specific items of your personal property such as photographs, jewelry, art work, etc. If you have one, you should review it and make sure that it is still is an expression of your wishes. If you don't have a personal property designation, you may want to consider creating one so that specific items will go to specific people.

* Is any person receiving your personal property a minor (under 18)? If so, your estate plan should make provisions for that property to be held by the minor's Guardian until he or she attains an appropriate age.

* Do you have any specific gifts or bequests you want to make? Any gift of a cash amount or of an asset other than personal property should be stated in your Will. If you have given away a specific asset to a person in your existing Will (i.e. your shore house), be sure that the asset still exists. Also, your Will should provide for what happens if the specific asset is sold during your lifetime.


and many more.....

Your Estate is Going to the Dogs

Category: Estate Planning

This news story about estate planning for pets is not as rare as you might think. For many people, the care of their beloved pets is a primary concern should they become ill or pass away.

3 Md. dogs enjoy $800,000 inheritance - Yahoo! News: "The dogs -- named Buckshot, Katie and Obu-Jet -- inherited $400,000 and a house in Hagerstown with the death last year of owner Ken Kemper. Altogether, their estate is worth about $800,000.

The beagle and two Labrador mixes were strays when Kemper adopted them. They now live at their house with caretaker Roy Grady.

They might not be aware of their wealth, but they do know that on one night a week Grady treats them to spaghetti dinner, with meatballs and garlic bread."

Interestingly, I find that people with pets and people with small children share the same rationale/excuse for not preparing an estate plan "We can't agree on who to name to care for our children/our dogs should we die." Now, I remind people with children that not naming guardians is a true dis-service to your kids because if you don't name Guardians a total stranger who you have never met will name Guardians - and you might not like who they name.

The difference is that with children the law provides a mechanism to provide someone to be in charge of them and the cost of caring for them if you can't (not that this should be an excuse for not creating a Will and naming Guardians). With pets, there is no built-in protection of laws to provide for a home, costs of food, medicine, etc., and most important, loving guidance and supervision. You the owner must do that or your best friend may end up in the pound. This doesn't need to be a difficult or insurmountable task - it just requires a bit of forethought and planning. Some ideas:

+ Leave your pets to a relative who will love and care for them. Give the person a cash bequest to cover potential costs of care.

+ Don't know who to leave the pets to? Direct your Executor to find an appropriate home, and give your Executor the ability to make a cash bequest up to a certain amount to cover the costs of care.

+ Create a "Pet Trust" for the care of the your pets during their lifetimes. In the news article above, the pets house went in the trust and the trust paid to maintain their home, as well as acquire a care-giver for them. Make sure you consider mechanism to have an outside party verify the caregiver is doing a good job.

+ Research an "old-age" home for pets and leave your pets to them together with the requested bequest from the pet home.

Whatever you do, tell the person who is the immediate caregiver if you are hurt that they need to take the pets into their care immediately. After all, your pets can't call in the phone to order a pizza if nobody gets out their chow at the normal time.


Charitable Deduction Denied - Single Trust has Charities and Non-Charities as Beneficiaries

Category: Estate Planning, Estate and Inheritance Tax,

The U.S. Court of Appeals for the Third Circuit (which controls District Court decisions in New Jersey) finds that the Internal Revenue Code prohibits an estate from claiming a charitable deduction when the proceeds of a single trust are distributed to both charitable and non-charitable beneficiaries. Galloway v. U.S. (3rd Cir. 6-21-2007), No. 06-3007.

James Galloway created a single trust under which the beneficiaries -- his two children and two charitable entities -- would receive an equal, one-quarter share in the proceeds. Upon Mr. Galloway's death, the Pennsylvania Department of Revenue determined that $399,079.33 would be distributed to charitable entities.

Before reading on, some better solutions to meet Mr. Galloway's goals might have been have been:

  • Flat amount bequest to chartity
  • Percentage bequest to charity before transferign the balance to a trust (ie - make the division to the charities and then directe that the amoun to the children go in a trust)
  • Set up a Charitable Remainder Trust or Charitable Lead Trust, which are statuorially authortized divisions of bequests between a charity and one or more induviduals
  • Name the charity as a beneficiary on a non-probate asset such as an IRA or other retirement plan

The trustee of the estate, Edmond Galloway, then claimed a charitable deduction in that amount on the federal estate tax return. Based on Internal Revenue Code § 2055(e), the IRS disallowed this charitable deduction and computed the estate's liability to be $306,604.57. Mr. Galloway paid the additional tax due and then filed a refund claim, which was denied by the IRS.

Mr. Galloway filed a complaint in the U.S. District Court for the Western District of Pennsylvania claiming that the trust did not fall under the purview of IRC § 2055(e). Mr. Galloway argued that the only kind of such "split-interest" trusts that Congress intended § 2055(e) to cover are trusts in which a non-charitable beneficiary has a life interest and the charitable beneficiary has a remainder interest. The complaint was denied and Mr. Galloway appealed.
The U.S. Court of Appeals, Third Circuit, affirms and holds that the clear, unambiguous language of IRC § 2055(e) disallows any charitable deduction where an interest in the same property passes to both charitable and non-charitable beneficiaries.

To download the full text of this decision in PDF format, go to: http://www.ca3.uscourts.gov/opinarch/063007p.pdf .

DWL Speaking at Financial Conferenece

Category: Elder Law, Estate Planning, Estate and Inheritance Tax, Business Law and Planning, Tax Law and Planning, Probate and Estate Administration, Financial Planning, Miscellaneous Musings

I am excited to be speaking at the Garden State Women Magazine 6th Annual Financial Conference & Networking Event on May 12 at the Park Avenue Club in Florham Park. This is an exciting day where New Jersey's top insurance, real estate, legal and financial professionals will provide women with the information and guidance needed to take charge of their financial future. Click here for more details.

Don't Be Anna - Name Guardians for Minor Children

Category: Estate Planning

Continuting our series of what we can learn from the Anna Nicole Smith situation, she did not name a Guardian for her daughter. Putting the unique questions of paternity aside, this case highlight why all parents must have Wills.

I have said it before, but it bears repeating - If you have minor children, you MUST HAVE A WILL TO NAME GUARDIANS IF YOU DIE. If you do not have a Will, you HAVE NO GUARDIANS.

General statistics say 7 out of 10 people don't have a Will. The reason I most frequently hear when I ask why people don't have a Will at semiars: "I don't have enough assets." My response: "Do you have children?" Because if you do, the Will is the only place that you can name a Guardian. The reason I most frequently hear about why there is no Guardian: "We can't decide between Relative A and Relative B." While this is a hard decision, as parents it is one you need to make. If you can't decide, you expect a judge who doesn't know you, your family, your children or your value to make a better decision? And, if you are concerned enough that your children aren't raised by Relative A, shouldn't you make provisions so that can't happen? Putting it in the hands of a court is like playing roulette with your children's rearing. A clear case of "Don't Be Anna".

Don't Be Anna: Take a Look at the Will

Category: Estate Planning, Probate and Estate Administration

While wholeheartedly agreeing with Joel Schoenmeyer's initial comments below, I too find Anna Nicole Smith's Last Will and Testament fascinating, for all the wrong reason.

Problems with Anna Nicole Smith's Will :: Death and Taxes Blog: "I've stayed away from blogging about the Anna Nicole Smith situation so far, as I'm not particularly interested in the tabloid aspects of Ms. Smith's life. However, another estate planning attorney e-mailed me a copy of Ms. Smith's Will (here as a pdf), and I had to take a look. I found it fascinating for reasons other than the fact that Ms. Smith lived a very messy life."


Joel goes on to look at a mess of contradictions in the Will about who is to inherit. You would think that a person who had legal representation up to snuff enough to take her husband's probate issue before the United States Supreme Court on a question to true legal merit, would be more careful about her own will. Not that I have a crystal ball, but I predict this one will be tied up in court for just as long.

Another Hidden Cost of Dying - The Surety Bond

Category: Estate Planning, Probate and Estate Administration

A spot-on examination of the requirement for a surety bond in an estate administration from Joel Schoenmeyer, Esq. at Death and Taxes Blog.

On the Subject of Surety Bonds: "Surety bonds are like an insurance policy for an estate and its beneficiaries. What are you insuring? That the executor or administrator isn't going to run off to Tahiti with the estate's assets."

I also use Tahiti as an example of where the nefarious fiduciaries are going with you money.

Surety bonds can be expensive and fall into the category of "things to be avoided". How to avoid the expense to your estate - create as will. As Joel points out in his posting: "The executor doesn't have to obtain one if the decedent's Will waives the surety bond requirement. If the Will DOESN'T contain such a waiver, or if the decedent died without a Will, the executor will have to make surety arrangements."

Also, if you have a Will, but don't have a named Executor or Successor Executor, you will also need a surety bond in NJ. This means that if your Will from 15 years ago names your spouse and then your father, who has since died, a codicil is in order at a minimum to name appropriate successor executors to avoid the bonding requirement.

You Die - Your Passwords And User Names Die With You

Category: Estate Planning, Probate and Estate Administration

As part of every Estate Planning consultation these days, I ask not only "Where do you keep your assets" (ie: what institutions do you use for banks, brokerage accounts) but "How do you access your assets?" The point of the second question is to find out if the client takes advantage of electronic account access, and if so, who else shares access to those accounts.

I was reminded for the importance of this from the article: wcco.com - When Passwords And User Names Die With The User: "Security experts warn us to keep our passwords and user names under lock and key. But what happens after a loved one dies? How do survivors get access to information and documents kept squirreled away in safe deposit boxes and hard drives for years?"

The questions is even more prevalent when there is no hard data. Many people don't receive paper account statements and only access bank and brokerage accounts online. Or there are direct deposit or direct withdrawals set up only online. In this case, an executor may not even know about the assets until a tax statement comes in January, or by running an escheated asset search (escheated assets are assets that are turned over to that state if the institution can't find the owner).

First, the motivation for taking the steps below is avoiding the alternative - going to court for an order to get access to the accounts (if your executor even knows where the accounts are).

The best way to address concerns raised by assets in the electronic age from an estate planning and estate administration perspective is to employ some practical advice:
  • Each spouse keeps a spreadsheet of Institution Name, Website, Account Number, User Name, Password
  • The spreadsheet is updated WHENEVER a change is made
  • Save the spreadsheet to a removable media format (CD, DVD-R, USB Flash-Drive, etc).
  • Save the removable media format in a safe location that your spouse, power of attorney, key adult child(ren) and attorney are aware of (safe deposit box, fireproof vault, drawer in the house where the important stuff is)
  • If you password protect the file, you need to make sure that your spouse, power of attorney, key adult child(ren) and attorney are aware of

If putting all this in a safe place and telling key people of it concerns you because the key people have access to your accounts, you need to rethink the key people.

MOST IMPORTANT - If you make any changes to the information on the spreadsheet, update the spreadsheet and put in back in the safe (but well communicated) location.

FAQ: General Durable Power of Attorney

Category: Estate Planning, Financial Planning

Following numerous recent questions about what a General Durable Power of Attorney is and can do, a primer from Findlaw.com:

FAQ: Durable Powers of Attorney for Finances
Learn about the simple way to arrange for someone to make your financial decisions should you become unable to do so yourself.

How does a durable power of attorney work?
When does a durable power of attorney take effect?
What does an attorney-in-fact do?
How do I create a durable power of attorney for finances?
What happens if I don't have a durable power of attorney for finances?
I have a living trust. Do I still need a durable power of attorney for finances?
Can my attorney-in-fact make medical decisions on my behalf?
When does a durable power of attorney end?

An important caveat - in New Jersey and many other states, your attorney-in-fact cannot make gifts unless the power to make gifts is specifically authorized. This is very important from many perspectives: a failure to include a gifting provisions can stunt the ability to Medicaid planning, while, on the other hand, a gifting provision can be abused if the attorney-in-fact uses the gifting provision to transfer assets to himself or herself.