A SPLIT DECISION… YOU AND THE IRS

 

This is not a catchy story, just a practical tax-related one that most people do not yet know about.

Less than two weeks ago we finally got forms to report estates for people dying in 2010… THEN THEY CHANGED THE LAW!

On December 17 the estate exemption was reinstated effective January 1, 2010. The federal estate tax exemption was set at $5 million per person. This will be federal law for two years. Estates can choose to remain under the old 2010 law, but that is not advisable for most estates (run the numbers and compare!) The Washington State exemption remains at $2 million per person; I have idea if or when that will change.

When a spouse dies, if the Will or Trust contains tax planning, there is an opportunity to claim two estate tax exemptions. In other words, married people, through a "trust split" written into their Will or Living Trust, can effectively use two exemptions and keep all assets available for the surviving spouse. The complicating factor is that the federal and state exemptions are NOT the same number in Washington State.

Let me illustrate with two examples. THIS IS NOT LEGAL OR TAX ADVICE – CONSULT YOUR OWN LEGAL OR TAX COUNSEL USING YOUR FACTS!

Let's say we have a combined Washington estate (both spouses added together) of $2.2 million. The estate plan says give all to survivor unless he/she disclaims. Survivor's share of estate is kept in his or her name or Survivor Trust share; disclaimed amounts are allocated to a separate Shelter Trust that uses the decedent's exemption…

There are two basic choices:

I. Survivor keeps all. Here, when survivor dies, under current law $200,000 might be subject to Washington State inheritance tax. Estimated TAX IS $20,000.

OR

II. Survivor disclaims $200,000 or more to reduce taxable future estate to $2 million. Survivor could disclaim the fully allowable $1.1 million (½ of the community property).

a) Survivor must establish a trust share to own those disclaimed assets. This is a small hassle.

b) Survivor will also have to annually file an IRS Form 1041 to report income tax on the Shelter Trust.

c) Under current estate tax law, no tax at death of Survivor. WOULD SAVE $20,000 Washington Inheritance Tax. Is the hassle worth it to you?

d) You could gift assets or spend them on yourself instead.

 

NOW, what if the combined estate is $5 million?

SAME PLAN DESIGN; but if Survivor keeps all when survivor dies, under current law $3,000,000 would be subject to Washington State inheritance tax when he or she dies. Estimated TAX IS $390,000.

OR

Survivor disclaims $2,000,000 to fully fund the Shelter trust without triggering a tax now. This is LESS than ½, but completely uses the State and most of the Federal exemptions.

1) Survivor must establish a trust share to own those disclaimed assets. This is a small hassle.

2) Survivor will also have to annually file an IRS Form 1041 to report income tax on the Shelter Trust.

3) Under current estate tax law, no tax at death of Survivor.

4) Is it worth it to you? SURE LOOKS LIKE IT TO ME. Split!

Use current state exemption of $2mm for that amount to go to Shelter Trust to avoid triggering a state tax now and both state and federal later. (Note that you COULD overfund and pay only state inheritance tax of $50,000 to hopefully avoid a combined state and federal tax later.)

If you suffered the loss of a spouse in 2010, I want to offer my sincere condolences. Keep in mind that your loved one did this planning to benefit you and future heirs too. It was a thoughtful and unselfish act and another nice memory of someone who thought of others.

223,000,000 GUNS OR SO… THINK THIS MIGHT BE A PLANNING ISSUE?

Folks are on both sides of the issue of gun ownership. We all know that there are a lot of things in life that are dangerous: cars, chainsaws, rugby, commercial fishing… and guns.

Lately I have been pondering the issue of individual responsibility. I often people cite their "constitutional rights" as if that was the total equation concerning gun ownership. But it seems to me that rights and responsibility for their exercise go hand in hand.

On to a concept fairly new for me: the gun trust. It's usually a living trust used to purchase a suppressor or other regulated firearm without the necessity of going through the local Chief Law Enforcement Officer for permission… often denied without much chance to fight it. With a trust you can apply directly to the BATFE for a tax stamp.

Some gun shops give out trusts for free to promote sales, without considering the consequences. You may even be tempted to draft your own or to download a trust from the Internet. Talk about DANGEROUS… Let me explain a bit.

About a year ago I overheard a discussion about a "free living trust" that would simplify the process of acquiring a suppressor, short barreled rifle, or something similar regulated by federal law. Sounds good, right? I mean the trust was "free…"

I did some research and discovered a number of firearms-related issues. The major one I call the "Accidental Felony."  With 223,000,000 or so firearms in this country, and people passing away each year, guns go from owner to owner very often. Consider that a well-meaning friend or family member that follows the terms of your estate plan might possess or transfer a firearm WITHOUT COMPLYING WITH LOCAL, STATE AND FEDERAL LAW. If the transferee of the firearm is unable to legally possess it… you can see how the problem gets bigger and bigger.

For example, failing to observe the Gun Control Act of 1968, Title II, concerning "National Firearms Act" firearms can result in 10 years in prison and a fine of $250,000… per count. Other similar laws are on the books for every type of firearm. These laws are nothing to ignore. Again, somebody can accidentally violate them.

In Washington State persons other than felons and some other prohibited categories can own any type of rifle. Here's another example… you can own any rifle like an AR-15. It is the civilian version of the M-16 and is semi-automatic like many other types of rifle. However, some states call it an "assault rifle" and prohibit private ownership. What if you, from Washington, give it to your brother in your Will… he lives in the other state… next, what if he was convicted of domestic violence… which prohibits his ownership of ANY firearm under federal law in my example…

See the accidental problems that simple, legal ownership followed by transfer of a gun can cause?

 

CONSIDER THIS:

1. Firearms are part of the American ethos, part of the landscape.
    
2. Often, firearms are heirlooms and some have significant financial value too.
    
3. Local, state, and federal laws abound; they are not really in synch. They affect possession, ownership, transfer etc. etc. of all classes of firearms... which makes it VERY DANGEROUS to simply distribute them via a normal Will or normal Living Trust. These tools contain NO SPECIFIC GUIDANCE on how to do so without committing the "accidental felony."
    
4. Many gun stores give away free living trusts merely to expedite their sale of an NFA item. The ones I have seen are amateurish at best, defective and void at worst. What a questionable practice, and one that creates danger for customer AND gun shop AND innocent parties who rely on them in future…

SO WHAT IS A GUNDOCX TRUST AND WHY DID I CREATE IT?How do you allow others to use your firearm without breaking the law? What if your spouse goes to sell, give away, or loan your firearm when you are travelling, or you are disabled, or you pass on? Can I own a machine gun in another state, legally, when I live in this state which doesn't permit me to own it?

I created GunDocx to deal with all of these issues, and more. Attorney Foss Hooper joined my team of one, and we invented a complete trust system to help you acquire, possess, and transfer your precious firearms collection during your life and thereafter, REDUCING AND HOPEFULLY ELIMINATING THE CHANCE OF SOMEONE COMMITTING THE ACCIDENTAL FELONY.

GunDocx is one of a growing family of special purpose trusts available from Brislawn Lofton, PLLC. Special Needs, IRA Preservation, Asset Protection, Minor Child Auto and Charitable Income Trusts are only a few of them. Give me a call or send an email if you have an issue that cries out for creativity… we just may have something that will delight you.

The Tax "Deal" - the Forecast is Dark Clouds on the Horizon

My fellow member of WealthCounsel, Richard Wohltman of Alexandria, VA,  posted this relevant commentary on the Tax “Deal” currently being ushered through Congress. 

There has been a lot of talk this month about the "deal" to extend the Bush tax cuts. That "deal" also includes a substantial increase in the amount that can pass to your heirs without paying any federal estate tax. The 'exemption amount' will be increased to $5,000,000 per person.

The stated reason for that increased exemption amount is to help 'small' business owners and family farmers pass the business or farm to their heirs without having to pay estate taxes. It also means that all but a very limited number of multi-millionaires will have to file and pay federal estate tax.

Dark Clouds are Forecast.

There really are dark clouds on the horizon even if the "deal" is passed by Congress before the end of the month. The increase in the exemption is going to add billions of dollars to the federal deficit. The Treasury is going to have to borrow that money and we are all going to have to pay taxes or have benefits reduced just to pay the interest on those loans. And the day will come when the loan will have to be paid in full.

There is a more pressing problem, however, for estate planning. The "deal" only lasts two years! At the end of 2012 we will find ourselves right back where we are now -- facing a stupendous increase in the number of estate tax returns and tax payments when the exemption amount falls to just $1,000,000 starting January 1, 2013. The problems from the end of the Bush tax cuts (and the increased exemption amount from the "deal") return in 2o13. The uncertainty of how all of the estate and gift taxes will be interpreted once the large exemption disappears is the big grey cloud on the horizon for estate planners.

Estate planning attorneys have been hoping for some stability in estate tax policy so plans can be designed based on a clear expectation of how estate taxes will be calculated when death occurs. That stability disappeared with the Bush tax cuts. Estate planning attorneys all knew we were faced with the potential return to the 'old rules' with only a $1,000,000 exemption in 2011 and had to plan for the return of the middle class taxable estate. The same lack of stability continues since we can only look at what happens at the end of the next two years.

What does all this mean to you?

Don't think that the "deal" will make your estate planning easier just because you don't have Five or Ten Million Dollars. The vast majority of our clients require extra tax planning if the exemption returns to 1 Million Dollars.

Your estate planning lawyer must assume that the lower exemption will return and is forced to include options to address the substantial estate tax liability that will return in 2013. Your estate plan will continue to require more complication just to protect your family and your business with the automatic termination of the "deal" in 2013.

Where's the silver lining?

Just remember, if there is a silver lining in every grey cloud, that doesn't mean that the grey cloud is gone.  Don't let the proposed silver lining blind you to the limits inherent in any "deal" that lasts only two years!

The Federal Estate Tax Lapsed for 2010

The federal estate tax lapsed for 2010, and barring no action by Congress it was scheduled to return on Jan. 1 with an exemption of $1 million per person and a maximum rate of 55 percent. 

I have good news to share with you.  The long wait for action to address the unknown status of the federal estate tax may be approaching an end.  In a December 6, 2010 online posting by the New York Times, they reported that President Obama announced a tentative deal with Congressional Republicans on Monday.

An excerpt of the article appears below, and a link to the full article is included.  The accompanying photo by Joshua Roberts of Reuters appeared with the article.

Mr. Obama made substantial concessions to Republicans. In addition to dropping his opposition to any extension of the current income tax rates on income above $250,000 for couples and $200,000 for individuals, he agreed to a deal on the federal estate tax that infuriated many Democrats. The deal would ultimately set an exemption of $5 million per person and a maximum rate of 35 percent — a higher exemption and far lower rate than many Democrats wanted.

http://www.nytimes.com/2010/12/07/us/politics/07cong.html?pagewanted=1&_r=1&nl=todaysheadlines&emc=a2

 

But the NY Times article also cautioned that the deal is not supported by all parties.  So resolution may be within sight, but it is not yet a finalized deal. 

“The House Democrats have not signed off on any deal,” Representative Chris Van Hollen of Maryland, who has been representing House Democrats in formal negotiations on the tax issue, said Monday night. “We will thoroughly review and discuss the proposed package in the caucus.”

Some senior Democrats said an agreement by Mr. Obama to accede to Republican demands on the estate tax could lead to a revolt among lawmakers.

With this positive news in the air, it may be time to schedule a meeting to adjust your estate plans to maximize the impact of this likely change in the federal estate tax law.  Call me for an appointment, or leave a comment with a question below.

 

NEWS FLASH: Yankees Beat the Miami Dolphins!

Yes I know, that's impossible. But the heirs of George Steinbrenner, who died recently at the age of 80, certainly came out ahead of the heirs of Joe Robbie, the former owner of the Miami Dolphins who died in 1990.

Steinbrenner's timing couldn't have been better. His heirs will inherit the team without having to pay any estate taxes on a $1.1 billion estate. See “How Steinbrenner Saved His Heirs a $600 Million Tax Bill” from the Wall Street Journal here.

Contrast this with Joe Robbie. When he died in 1990 the heirs had to sell the football team and the stadium at fire-sale prices in order to pay a whopping $47 million estate tax bill.

Unlike most owners Joe Robbie built his own stadium entirely with private capital. The stadium had to be sold along with the team and it no longer bears Joe Robbie’s name. For more details see “Yankees vs. Dolphins: Steinbrenner’s Final Victory”

You could say, "Yeah, but his heirs are still wealthy." True. But it really isn’t just about money. Robbie's intentions were defeated; his family was removed from the success he worked so hard to build from his very modest depression-era beginnings. Estate planning affects the heart as well as the pocket book.

(What happens to the ultra-wealthy can happen to any small business owner…often with more devastating results. I’m always available to share my experience and knowledge to create a better estate plan.)

 

My thanks to my associate Greg Turza who practices in the state of Illinois for this clever commentary on estate planning. 

 

Benjamin Franklin does estate Planning

Benjamin Franklin is largely known today for his key roles in the American Revolution, the formation of the United States, and his diplomacy with France.  But Franklin was also a very successful businessman.  Starting with absolutely nothing, he built a substantial fortune.  And he capped it off by demonstrating keen skills developing his estate plan.  His approach to estate planning is addressed in a posting by my WealthCounsel colleague, Suzann Beckett who practices in Connecticut.  I hope you enjoy this quasi history experience while admiring Ben Franklin’s adroit estate planning skills.

Estate planning, the Franklin way

The subject of Ben Franklin came up the other day in conversation. More specifically, the subject of Ben Franklin's visionary approach to estate planning, came up during a discussion of how the average person can make the most of their wealth for posterity.

Benjamin Franklin was many things. Born into humble circumstances, Mr. Franklin very literally ran away from home, then followed up his running away by working, innovating, persevering, and struggling to ultimately become one of young America's wealthiest and most respected citizens. He knew a thing or two about math and the compounding of interest, too.

For those who are truly curious, a version of Benjamin Franklin's Last Will and Testament is available online, from the Franklin Institute. Included is a codicil to the original Will, that should give anyone pause. Franklin's significant wealth is apparent, as is evidenced by the extraordinary number of homes, land, and valuables he details in his Will. But the relatively minor sum of one-thousand pounds sterling mentioned in the codicil, which would be equivalent to roughly $4,000 at the time – is particularly impressive for those of us who would like to make an impact on the generations to follow, even if we do not have the financial capacity to astound the neighbors at the moment.

Franklin specified that the money should be held in trust. Two trusts, actually. One-thousand pounds sterling was provided to the city of Boston, where Franklin was born, and one-thousand pounds sterling was given to Philadelphia, the city that is most commonly associated with Franklin as his home. Both funds were specified to be held and invested, in a specific manner, and maintained for two-hundred years. A significant amount of time, certainly. But Franklin wasn't looking for returns that could be looked down on as small potatoes. He was looking to shake the world. And he did. He has. He continues to, and will for years to come.

You see, Franklin's $4,000 investment has grown to millions of dollars in the interim. The funds he put away for posterity have done exactly what he hoped they would do. And through careful management, they have continued to grow, and expand in value through good times and bad.

Now admittedly, most of us don't think two-hundred years into the future – and most of us don't have massive estates like Mr. Franklin had. But almost all of us can find a way over the course of our working lives to put away a few dollars in the hopes that we can make the lives of our children and grandchildren more comfortable and satisfying than ours may have been.

If Franklin's Will proves anything, it is a tangible demonstration of how a well intentioned gift, well managed, well planned, and well executed, can change the lives of generations to follow.

It's something to think about, isn't it?

 

Benjamin Franklin exercised far more farsightedness in his estate plan than most of us feel the need for.  But Franklin did reveal the powerful benefits to be gained from well thought out plans.  His clever employment of the principal of compounding into his estate plan is admired to this day.  Bravo to Benjamin Franklin – for executing an estate plan that has spanned several centuries.  I am available to assist you with an estate plan to span a decade or two, and I would enjoy the challenge of assisting you with an estate plan for several centuries……if you wished to follow the lead of Benjamin Franklin.

Disabled and no Medicare to help!

There is a “gap” in Medicare coverage for those who are disabled and under 65.  Richard Wohltman describes his concern about this “gap” below.  Wohltman and I are both members of WealthCounsel – a nationwide Community of Estate Planning Practitioners.  He is located in Alexandria, VA and I find his views valuable, because he is frequent lecturer on Estate Planning and related issues.  And he is also a contributing author of Ways & Means - Maximize The Value of Your Retirement Savings. 

 

"More than 50 million people in the United States have disabilities, a number that is growing rapidly as the population ages. Experts say disability will soon affect the lives of most Americans." Patricia Bauer.

 

If you are unlucky enough to suffer a disability when you are under 65, you may find that Medicare is the only way your health care costs can be paid. If you or a loved one becomes disabled and are unable to work, you may be extremely frustrated to discover that there is a long delay before you are qualified to receive Medicare assistance. The general waiting period is two years after they start receiving Social Security Disability Income.

 

Andy Hook is a respected elder law attorney in Virginia who wrote about this dilemma in his article "Waiting for Medicare" in the September 17, 2010 edition of the Oast and Hook News.

 

"A recent Kaiser Health News article addresses the issue of Medicare and persons younger than 65 years of age who have disabilities. Under current federal rules, such persons are not eligible for Medicare until two years after they start receiving Social Security Disability Income. . . . Congress created the waiting period in 1972 when Medicare was expanded to cover persons with disabilities. The waiting period was designed to control costs and to ensure that only those with ongoing, severe disabilities received Medicare coverage. According to the Kaiser Family Foundation, approximately seventeen percent of Medicare’s 47 million beneficiaries receive disability benefits."

 

Andy notes that the waiting period is shorter for people with certain specified disabilities, many patients face extreme financial hardship during the extended waiting period. The new health care program may eventually remove barriers for patients to be eligible for private health insurance, the only answer to this unhappy situation is in Congress' hands.

 

"Edmund Haislmaier, a senior policy research fellow at the Heritage Foundation, said that eliminating the waiting period “is always going to be an issue in Congress. Some of it is money, some of it is politics, too. For members of Congress, irrespective of party or where they stand on the issue, it’s kind of all-or-nothing because if they did it for some diseases, they’re immediately going to be inundated with ‘Why didn’t you do it for us?’” Some groups, however, such as the Huntington’s Disease Society of America, are asking Congress for specific waivers from the waiting period for their diseases. They believe it may be more politically feasible to press for relief for specific diseases, because the cost of doing so would be less than the cost of across-the-board relief."

 

You can find Andy's complete article at "Waiting for Medicare"

 

I guess we all assume that health care is something we will be able to obtain if we are disabled. I know that I was upset after reading Andy's article. I think you will be too.

 

Your local elder law attorney may be able to help you find alternatives and opportunities if you or a loved one has to face this unfortunate situation.

**********

The fact that my colleague, Richard Wohltman, finds this information upsetting surely means that you may be unaware of this “gap” in Medicare coverage.  Please contact me if you have questions….or please comment on this posting.

Can a DIY Will cost you a bundle?

In this age where all the information you ever wanted can be found on the internet, it is no surprise to encounter articles like the one in Forbes magazine raising concerns for those who save now on a Do-It-Yourself Will only to leave an expensive nightmare for their heirs.  I enjoyed this brief commentary by my WealthCounsel associate, Suzann Beckett.  I hope you also enjoy it.

 

Punctuation is important. For instance, consider the difference between a period and a comma. Sure you might think of one as a point of ink, as opposed to a point of ink with a tail. But if you misplace that comma and insert a period instead – that little error of grammar could just cost your heirs a legal tussle like you never dreamed was possible.

It's true. I swear.

Then again, filling in the blanks can be a nightmare in disguise, too. Imagine using a DIY Will package that innocently asks you to, “Insert Name Here.” No problem, right? Well, no problem unless you attach a dollar figure to that line, and fail to include a name. You might just inadvertently have directed a substantial sum of money to, “Insert Name Here,” whomever that might be. If nobody catches the error, your heirs just might be stuck with a battle royal over what you meant to write, as opposed to what your Will actually says.

Deborah L. Jacobs outlines these two disasters of DIY estate planning, as well as some notable others, in an intriguing column featured on Forbes.com. You can find the full Forbes story here.

Jacobs makes some excellent points about the importance of taking estate planning seriously, whether you are wealthy or not, famous or anonymous, a DuPont or a Miller. We all suffer the same tendency to put off the inevitable – sometimes until the inevitable beats us to the punch.

Anyone who even dreams that estate planning doesn't matter should read Jacobs excellent article if for no other reason than to understand better how a rancher could have lost $3.5 million in estate taxes, as a result of an effort to economize on the cost of having a will drawn up. You may also be entertained, or horrified by the story of how a simple note from the late CBS reporter, Charles Kuralt, could have led to a legal battle that lasted 6 years.

It's a subjective question, to be sure. But it's one worth asking ourselves. Where is the real savings found, up front in the estate planning phase of life, or possibly later, assuming no legal wrangling results from using DIY legal forms and software packages?

The author of the Forbes article on DIY Wills is a lawyer who took a turn to writing and journalism.  The Forbes article is likely a precursor to her new book that is being released soon.  There are many horror stories of people who took a shortcut in their estate planning.  Rather than dwell on these wills gone bad, I’d rather talk about the wills done well where I assisted people to truly plan their estates in a way that met their objectives.  Call me if I can help you in pursuit of your estate planning objectives.

Do It Yourself Estate Planning

Forbes Magazine’s September 7 issue had a thought provoking article on “Do It Yourself Wills”.  My WealthCounsel colleague in Montana, Mark Josephson, took the conversation one step further with the commentary he shared.  I hope you find this informative. Josephson begins,  “My Larsson estate commentary and a recent article on Forbes.com regarding the pitfalls of do-it-yourself estate planning,  The Case Against Do-It-Yourself Wills  got me thinking about some additional comments.  I could not agree more with the overall point made in the Forbes article.  I do disagree with some of the details.  The Forbes article talks about the famous Montana court case involving Charles Kuralt (remember he was the famous CBS broadcaster who labeled Montana's Beartooth Highway as the most beautiful drive in America) and his handwritten love letter to his mistress.  In a case that went to the Montana Supreme Court FOUR times, his handwritten love letter was ruled to have given his valuable Montana property to his mistress and to add insult to injury Kuralt's family had to pay the estate taxes due on the Montana property because the handwritten letter did not coordinate with the tax clause of his professionally drafted Will. The article reminded me of another Montana case, The Estate of Dern, in which case Mary and Clifford Dern, who each had children from a different marriage, bought a trust package from a non-lawyer and also attempted to amend it themselves four times -- sometimes having proper signatures, sometimes not.  In the end, the children ended up suing Mary with the case ending up in the Montana Supreme Court.  I think Justice Nelson in that case summed up the whole do-it-yourself thing as best as I've ever read.   He said: Given the facts of this case, it is appropriate to make a further observation. If nothing else, our decision here should serve as a warning of the pitfalls of the "canned," "fill in the blanks," "one size fits all" trust instruments that are increasingly being sold to unsuspecting members of the public, particularly senior citizens, by salesmen, many of whom have no professional qualifications whatsoever and some of whom are little better than scam artists. ... In truth, few areas of the law are more technical, complicated and prone to financial disaster than estate planning and trusts, nor more demanding of the sort of individually tailored advice and assistance that can best be obtained from a competent attorney and tax professional. This case, unfortunately, proves that point.  [my emphasis added]”

From his position on the bench, Justice James C. Nelson of the Montana Supreme Court certainly offered a stern warning on the “DIY Wills”.  The Judge’s views seem to have been formed long before the Forbes 9/07/2010 article, but his sentiments seem to parallel the Forbes article.  I’d like to serve as the ounce of prevention by serving as your “competent attorney” that the Judge refers to in his above commentary.   

Estate Planning Traps

This is a helpful bit of information that my fellow estate planning colleague, Mark Josephson, posted from his law offices in Montana.  He’s relatively new to blogging, but I think he’s done well with this information in a summary format.  I am reposting his information to share with you. 

I seem to be on a roll this morning over the pitfalls of do-it-yourself estate planning.  Here is list of Common Pitfalls and Traps I've had in my basic estate planning handout for clients:

1.  “I’m too young to worry.”  Reality: If you die young with a spouse and/or children you need to protect your loved ones.  Also, by planning early you have the power of leverage/appreciation.

2.   “My estate is too small.”  Reality:  If not planned, a smaller estate can suffer greater percentage shrinkage than a large estate due to increased administration costs necessary in a non-planned estate.

3.   “I’m leaving everything to my spouse, so estate tax doesn’t matter.”  Reality: Leaving everything to a spouse just postpones tax and wastes the dead spouse's estate tax “coupon”:  Wasting a coupon meant wasting $1,575,000 in tax savings in 2009.

4.  Believing one size fits all.  Corollary: You get what you pay for.

5.  Not paying attention to who you have on what and how: Beneficiaries of life insurance, annuities and retirement accounts.  Wrong people get the wrong property.

6.  Failing to consider trusts as vehicles to pass wealth during life or at death.  Convenience trusts, irrevocable life insurance trusts, “Crummey” power trusts, intentionally defective grantor trusts, GRATs, QPRTs (for cabins or vacation homes).

7.  Not planning for your disability; not avoiding a “living probate”.

8.  Not having any will or trust, handwriting it yourself, or having them prepared without proper analysis for your situation.

9.  Too much in joint tenancy with right of survivorship; disproportionate ownership by husband & wife.  Joint tenancy is convenient but it can ruin an estate plan if not used correctly.

10.  Failing to name guardian of minor children.

11.  Failing to prepare business succession plan.

12.  Failing to plan for estate liquidity and/or tax payment alternatives.

13.  Having too little life insurance.  If you, the money maker dies, what is your family going to live on?  Often life insurance is the only affordable way to solve the problem.

14. Not realizing life insurance you own on your own life is included in taxable estate for federal estate tax. While the proceeds may be income tax free, they are not necessarily estate tax free if you own a policy on your life.

15.  Not considering lifetime gifting program:  Children, grandchildren, charitable techniques.

16.  Not considering alternative operating entities.

17.  Procrastination:  Letting indecision lead to inaction.  Usually, doing something is better than doing nothing.  See my post below on How to Avoid Vapor Lock

18.  Lack of Communication.  While your estate is private, you should discuss matters with those you intend to have care for you or handle your affairs after your death.  Often better planning happens when the younger generation is included and aware of what's going to happen.

19.  Not keeping estate plan up to date.  You should review your estate plan at least every few years. 

20.  Believing a magic bullet exists or “This won’t happen to us.” 

21.  BEWARE of “constitutional,” “pure,” or “common law” trust schemes. 

Remember:  If it sounds too good to be true, it is.

 

I enjoy having Mark as a colleague.  For your information Mark does good work, and his firm, Josephson Law Firm,  has received the highest rating through Martindale-Hubbell and is listed in the Bar Register of Preeminent Lawyers.  Additionally, Mark Josephson has recently been selected by his peers for inclusion in the 2010 edition of The Best  Lawyers in America.® 

If you have questions about any points Mark makes in this post, please leave them as a “comment” below, or call my office.

 

"Dragon Tattoo" Estate Drags On

A recent post by fellow estate planning attorney, Greg Turza offered an interesting commentary illustrating the need to clearly identify who your heirs are.  I hope you find this an interesting story about this famous author and his death without a will.  

Stieg Larsson, the author of the best selling novel “The Girl with the Dragon Tattoo” (now a movie), died in 2004 without a will. His heirs are still fighting it out with Larsson’s live-in girlfriend of 32 years. She and Larsson never married which leaves Larsson’s heirs as the sole beneficiaries of his estate.

Swedish law is the same as many states on this issue. If you die with no spouse and no children your heirs are your siblings and your parents. In Larsson’s case this means his father and his brother. Apparently, the basis for the girlfriend's claim is that she was involved in the editing of his novels. For more details see the story here.

You may be surprised to see who your “heirs” are if you died without a will. It depends on the relationships you have by blood or marriage who survive you. To determine who your heirs are under our state laws, you might want to spend a quick hour with me to get up to speed on this.

One other interesting aspect of the case is that all three of Larsson’s novels were published after he died so the value of his estate at the time of his death was probably nil. But as it turns out, even if he had great wealth at the time of his death Sweden repealed its estate tax in the same year of his death, 2004! If only the United States would follow suit.

If Steig Larsson had spent an afternoon with me, he would have avoided many of these problems.  And the lives of his heirs would have been considerably less stressful.  If you want to avoid Steig Larsson’s fate, please contact me, and let’s meet.  If you’d like to read Larsson’s trilogy, you can find it here:  Millennium Trilogy.

ILL WILL calls for a WILL with special terms

Not surprisingly situations occur that drive a person to disinherit a child or heir.  My colleague in Wealth Counsel, Greg Turza , offered the following comments, and I am sharing them with you. 

Has one of your children run off and joined a religious cult where he was taught to reject his parents? Or become a compulsive gambler--or even worse -- a criminal?

Disinheriting a child who has become estranged from his family is often understandable. Knowing how to do it right is critical if you want to avoid court battles over your estate when you are gone.

Generally, children have no right to inherit under a will or trust. In Illinois you can exclude a child from your will or trust simply by omitting the disinherited child’s name. But this can lead to costly litigation.

Suppose after you die the disinherited child claims that the omission was inadvertent? Or a product of “undue influence” by the children who were included? Costly litigation will erode their inheritance.

To avoid this calamity the best policy is to specifically mention the disinherited child and state explicitly your decision. For example: “I acknowledge the existence of my son Michael Smith but have decided to make no provision for him as beneficiary.”

Remember, sometimes children are disinherited simply because they are wealthy or because the other children need more help. In such a case consider as an alternative: “It is not for lack of love and affection that I have decided to make no provision for Michael Smith in this instrument.”

Not surprisingly, to disinherit a child or heir requires attention to detail.  Knowing how to do it right is critical to preserve your estate from expensive court battles when you are gone.  If this is a topic we should discuss, call me or leave a comment here.  

Bankruptcy can be an estate management tool

Bankruptcy can be a vital estate planning tool for some.  My colleague Suzann Becket is a fellow member of Wealth Counsel.  She recently posted the below suggestion that bankruptcy is one tool that fits into your estate management tool set.

What do Abraham Lincoln, MC Hammer, Johnny Unitas, and Walt Disney have in common? They all filed bankruptcy at some point in their lives. These men were all at the top of their field at some point in their professional lives. In some cases, such as Lincoln and Disney, the bankruptcy came relatively early. By taking stock of their situation, and availing themselves of the legal remedy to shouldering a debt they felt they could never recover from, Mr. Lincoln and Mr. Disney were able to start fresh. They both went on to great things afterward.

Johnny Unitas was a superstar quarterback for the Baltimore Colts, while MC Hammer was an entertainer with a highly lucrative career. But having a substantial income does not guarantee that business mistakes, lawsuits, or bad investments won't take their toll. In the case of Unitas and Hammer, their peak earning years were behind them when their financial troubles became insurmountable. Each of them sought bankruptcy protection and both of them were able to recover from their fiscal woes…..

It is likely that much of the public is not aware that bankruptcy can take multiple forms, depending on whether it is filed under Chapter 7, Chapter 11, Chapter 12, or Chapter 13. You may be able to determine which option is best suited to your circumstances by doing a little independent research. But you should never fear the process based on the feeling that you are on your own with no where to turn for help. That is just not the case.

There is also at least a slim possibility that part of the reason some people are resistant to the idea of filing for bankruptcy protection is the fear of embarrassment. The idea of being perceived as a deadbeat who is trying to run out on their obligations may cause some people who would benefit from the law, to continue to struggle and suffer the stress of serious monetary shortfalls month after month. Perhaps it would be worth reminding those people that the intent of the law is to provide options and solutions, not to ridicule an individual who has fallen on hard times, in many cases through no fault of their own.

Henry Ford, Mickey Rooney, Kim Basinger, Debbie Reynolds, and Donald Trump have all filed for bankruptcy protection. Yet their fame and their accomplishments are not diminished by the fact that their finances have left them suffering through sleepless nights, and mounting stress levels at one time or another.

Seeking bankruptcy protection is certainly nothing to be taken lightly.   But it can be argued that it shouldn't be avoided unnecessarily, either.  Perhaps it is of comfort to some when they realize that they may feel admiration for others who have found themselves in difficult times and sought the legal protection afforded by bankruptcy law. Maybe it is worthwhile to know that we are truly not alone during some of the more stressful and worrisome periods of our lives.

You may not consider bankruptcy as a first option tool in estate planning, but you should always keep it in mind as a potential tool.  Times have changed, and bankruptcy is no longer a sign of failure.  Rather it has become a business tool as well as a personal tool in managing your estate.  If you wish to explore the benefits of bankruptcy, be aware that knowing how and when to use this tool can be critical to preserving your estate from expensive court battles.  If this is a topic we should discuss, call me or leave a comment here.  

Eye-catching New Offices

One of the most recognized architects in the Puget Sound area is Vassos Demetriou.  His distinctive designs are well known, and his combination of eye catching design with practical functionality is much appreciated by the clients who own his designs. 

We’re quite excited that our new offices are being co-located on the top floor located of a building that Vassos specifically designed for his firm and a few other select tenants.  These new offices are located just off Lake Washington Blvd. and less than a block from one of Kirkland’s most inviting lakeside areas – home of our former offices -- Carillon Point.  We’ve kept our views of Lake Washington and the Olympic Mountain range in the distance.

And we’ve gained new offices that are more efficiently laid out, so they are highly functional for our tight-knit legal team.  Yes, it is ideal space for building delivering quality legal documents efficiently and accurately.  But it is also human-scaled space that lends itself to building the relationships between our team and our clients, so we develop intuitive understandings of each other.  

Tom and I practice “for ourselves” but not “by ourselves.”  Good understanding between us can allow us to often leapfrog the time-consuming exchange of information to identify goals and ambitions when time is of the essence.

Thanks to Vassos and his team we now have a human-scale office environment that supports our goal to become the personal partner in managing with our clients their legal affairs.

You’ll find us at our new address after our one block office move.  

5555 Lakeview Drive, Suite 201
Kirkland, WA 98033

Free parking below and a nice view above. 

Include your Digital Assets in your Estate Planning

"Digital" used to mean counting on your fingers.  Now, it means storing millions of bits of information in little 0s and 1s... so you can find it when you need it.  So, before we leave the topic of Digital Assets, I have one more excerpt from an article by Dennis Kennedy, who is an information technology lawyer and legal technology writer who publishes a monthly column in the ABA Journal.  You can find the full text of the article at http://www.abanet.org/lpm/lpt/articles/ftr03103.shtml. The rapid explosion of digital information and accounts is making this a topic of interest to nearly everyone of us.

Inventory Your Digital Assets.

I spent a large part of my early legal career as an estate planning lawyer.  In the case of either death or incapacity, the first important step is to track down and identify all of the assets, liabilities and other concerns that must be addressed.  Once an inventory is created, you can move forward with marshalling and collecting assets, identifying outstanding liabilities and paying them in a timely fashion, and dealing with outstanding issues, such as turning off utilities, canceling credit cards, arranging for storage or disposal and the like.

In the real world, your family and designated successors (personal representative of your estate, trustee of your trust or attorney-in-fact under a durable power of attorney) will be aided immensely by any list of assets and liabilities that you can prepare for them and leave in a place that is easy for them to obtain.

In your digital world, you also want to help your successors by creating an inventory.  The more detailed and accurate the better, of course, but even a small start can be of help.  Here are some of the things I suggest that you inventory:

• Hardware.  Inventorying your hardware seems like an easier project that it actually will be.  I suggest that you create a list of your hardware with a summary overview of what is on it.  Creating the inventory is likely to be an eye-opener for you.  You are likely to find that you have important information not only on the computer system you use everyday, but also on multiple other computers.  Many of us have at least one laptop and one or more desktop computers.  Many people keep copies of vital information on their work computers.  Where do you back up information?  You might have many USB flash drives, USB hard drives, backup CDs or DVDs.  There might be important pictures still on digital cameras and even information on iPods or other devices.
  
• Software.  Do you use Quicken or another financial program?  What income tax preparation programs do you use?  Do you create spreadsheets or Word documents with important financial information?  If you blog, is there a program that someone would need to use to post news to your blog?
  
• File structures.  Your inventory should sketch out the main folders and places where you keep personal, financial and client files and documents.  For someone like me, I also have audio and video of presentations and podcasts that I’d want someone to be able to locate and deal with.  You might have important collections of family photos or videos or work in progress.
  
• Online presence.  Create a list of your Web site(s), blog(s), Facebook and other social media accounts, online backup sites, online sites where you store documents, photos or other files, and listservs, groups or other sites to which you belong.
  
• Online accounts.  Amazon and other shopping sites make it easy for you to create accounts and include credit card information.  You might also have online access to bank and investment accounts.  In fact, in many cases, you might no longer be receiving paper statements for accounts.  If you don’t identify these accounts, it will be difficult for your successors to even know that they exist because there simply will be no paper trail.  Also, make a list of all the e-mail accounts you have and use.  Many of us have several e-mail accounts these days.
  
• Work information.  Lawyers might have access to client sites, collaboration sites, online document repositories or other information that no one else knows about.  In addition, they might have access to software, online tools or online databases that someone taking over their work will need to have.  In some firms, lawyers might have important network passwords, backup media or other digital assets the existence or value of which is not realized until they are gone.
  

At this beginning point, you really want to gather and collect as much information as you can for your inventory.  You can work on organizing and prioritizing later.

This is a new area of estate planning, and this information is helpful to trigger our thinking about our digital lives…..and which parts of our internet interaction, our home computer, and our business computer have become our digital assets that should be part of our estate planning.  My suggestion is that digital assets are  well worth organizing and treating as assets of your estate. Your comments or suggestions are welcomed to this blog.  And I am available to discuss  steps for managing your digital assets beyond the above list…..if advisable, let’s talk.

Who takes care of your Estate's Digital Assets?

The following is an excerpt from an article by Dennis Kennedy, an information technology lawyer who authors a monthly  column in the American Bar Association Journal.  You can find the full text of the article at http://www.abanet.org/lpm/lpt/articles/ftr03103.shtml

Andy Olmsted was a rare individual, in no small part because he is one of the few who thought carefully about what would happen to his online presence if he were to die. A popular blogger, Olmsted wrote a post before he left for service in Iraq, along with instructions for his survivors to post it to his blog in the event he was killed in action. Unfortunately, it had to be posted. I read the post on the day it appeared in 2008, and I re-read it when I prepared to write this article. It remains for me one of the most moving posts in the history of blogging http://obsidianwings.blogs.com/obsidian_wings/2008/01/andy-olmsted.html.

Tips for Providing Digital Assistance After the Death of Another

It’s also possible that either as a survivor, you might find yourself in a position where you need to handle someone’s digital affairs. I have a few tips.

• Find knowledgeable technical and legal help.
• In the case of a death, try to get to contact lists, e-mail accounts and social media accounts to notify friends who the deceased would want to be notified.
• Change all passwords as soon as possible.
• Try to understand the totality of the person’s online presence and identify some of the people he or she has interacted with most for assistance, especially in the social media platforms.
• Do not start closing accounts, shutting down hosting and e-mail, or taking other drastic steps until you have a good sense of the individual’s presence and what you are ultimately going to do with it. Keeping a Web site up for a year or more will not be expensive. Shutting it down too early and losing valuable data could be quite expensive.
• Be slow to delete, but when you delete or dispose of computers and drives, delete in accordance with forensic standards so data cannot be retrieved by others.
• Spend $100 on an external USB hard drive and make a copy of all hard drives, flash drives and other data and keep them in one safe place. Once you start to go through the data, you can keep another drive with the “good stuff.”
• Make copies of Web sites and other online accounts.
• Locate all the financial information and client records as soon as possible and aggregate and isolate them.
• Remove credit card information from shopping accounts.
• Err on the side of keeping e-mail, documents and photographs for family members.

Being Ready

Having just completed a Technical Animal Rescue Course (with Swiftwater Component), I have been thinking about being ready. As a 54 (almost 55) year old man, jumping into Class III rapids in a drysuit, helmet, and rescue vest did not seem like such a great idea… once I did it. The first few moments were actually terrifying as I could not get a breath. Then, as I adjusted to the thrashing water and allowed my equipment to buoy me, I relaxed and worked my way out. I eventually drifted onto a flat boulder that created a huge eddy, kind of washed up on it actually, and caught my breath. A deputy sheriff in my class swam up and said, "Boy, I saw you floating peacefully to the rock and figured you really knew what you were doing. So I followed you over." Of course I said, "That was the plan." Yeah. Right.

Like standing on the Top of the World.

Most of us jump into things then get surprised about what happens next, just like me in the middle of the Skykomish River. Yes, I had some great training, great equipment… but I lacked experience. Now that I have some, I can see how things could have been handled better. That's what experience teaches… how to get a better result next time.

Doing it oneself is the American way. We prize the solitary win. I just wonder at the cost, sometimes.

My practice is all about readiness.  I am your readiness coach for disasters and also everyday occurrences.  While I focus on legal tools and strategies, and integrate my advising with financial advisors and CPAs, I also want to help my clients and their families be physically safe and secure.

Here are some tools you can use to plan so you can protect yourself and loved ones from harm.  If you want to know what's up in Western Washington, here is how to get alerts: http://www.rpin.org/rpinweb/AllHazards.aspx

First, prepare your family using some handy forms: http://www.ready.gov/america/publications/allpubs.html

Second, if you are a business owner, you should check out this link to prepare your business for natural disasters: http://www.ready.gov/business/publications/index.html.

You can even prepare Muffy and Fluffy… after all, pets are fuzzy people too.

http://www.ready.gov/america/getakit/pets.html

Take care. And please contact us at Brislawn Lofton, PLLC if you would like our help to bulletproof and arrange your legal and financial affairs for success.