When and Why You Might Turn Down An Inheritance
February 25, 2010
Would you ever turn down an inheritance?
Your first reaction might be “Of course not!” But don’t speak too soon. Most estate plans are created at least in part to protect heirs (generally spouses and children) from the sometimes devastating blow of estate taxes; but with the estate tax in a confusing state of flux this year some of these plans won’t work as their creators intended—and heirs may end up looking for a way to protect themselves against the unintended consequences of well-intentioned estate plans.
With the threat of the return of the estate tax in 2011 for estates valued over $1,000,000, the surviving spouse of a person dying this year may now have good reason to consider a timely disclaimer. Doing so may eliminate tax as assets pass on down to the couple’s children. For more information on how this works, see our article entiled “Repeal of Estate Tax May Warrant a Fresh Look At the Use of Disclaimers To Avoid Death Tax”
Although the use of a Disclaimer may be a good solution in some cases, there are no easy general answers to the question of whether you should exercise the right of disclaimer. Much will depend upon the state of the estate tax law at the time of your loved one’s death. One thing is clear, however: most people would be well advised to include the option of disclaimer in their trust or wills, “just in case”. If you have any questions whatsoever about an inheritance—or about your own estate plan—contact your elder law or estate planning attorney for help.
10 Tips for Potential (or Existing) Trustees
February 21, 2010
The creation of a trust and estate plan includes spending a certain amount of time choosing the people who will be your fiduciaries—the people who will carry out your wishes. One of the most important fiduciaries is your trustee, who is involved in just about every aspect of the administration of your trust. Most people choose someone close to them to serve as trustee: a best friend, son or daughter, brother or sister. Choosing someone who knows you and your family to serve in this role can be beneficial in many ways, but if that person doesn’t have a financial or legal background the responsibilities can be overwhelming!
If you want to give your trustee a head start (or if you’ve been nominated as a trustee and need a little help yourself) read more about “9 Do’s and 1 Don’t” of being a trustee. These suggestions will help a potential or new trustee better understand their responsibilities and the scope of the job to come. Advice such as #1, “Do read the trust document”; or #3, “Do keep the best interests of the beneficiaries in mind at all times” may seem obvious now, but it’s not always so clear when you’re beset by insistent and emotional relatives. The more technical tips such as #2, “Do create a checking account for the trust”; and #9, “Do file income tax returns for the trust” are invaluable starter-steps for someone who has never done this before.
But the most important tip to remember is the one don’t: #10, “Don’t fly solo. Get professional advice to make sure you are correctly fulfilling your role.” If you or the people you’ve chosen as your trustee are ever in doubt, please don’t hesitate to call our office for help.
News and Updates About the Estate Tax
February 17, 2010
A month and a half into 2010 and Congress’ failure to stop the lapse in estate tax is still making waves. These two trusted news sources explain why having “no estate tax” this year should worry you.
One of the first reasons you should be worried, as revealed by this article in the Wall Street Journal, is that a larger base of estates will actually end up paying more this year rather than less; “Under last year’s law, estates up to $3.5 million, or $7 million for married couples, were exempt from federal tax. This year that law has been replaced by a fiendishly complex levy raising taxes on the assets of those with little as $1.3 million. It will affect the heirs of at least 50,000 U.S. taxpayers who die this year, whereas the old law affected only about 15,000 estates a year.”
Another main cause of worry, explains the New York Times, is the possible reinstatement of the estate tax by congress, effective retroactively; “The general view is that Congress wants to, and should, re-enact the estate tax retroactive to the beginning of this year,” [says tax specialist Ian Shane] “In January, February or March that’s easy, but as the year goes on it becomes more difficult.”
Of course the biggest worry estate planners have is the effect this year-long lapse will have on existing plans. Couples who already have an existing estate plan are advised to get their documents reviewed—and possibly revised—to prevent “standard clauses” from having unanticipated effects. As Joanne Johnson, head of the American wealth advisory service of J. P. Morgan explained to the NY Times, “It’s common to find language like ‘I hereby fund this trust to the maximum amount I can shelter from federal estate tax.’ The rest can then pass tax-free to the spouse. Such wording is risky as long as the estate tax is off the books… because there is no maximum.” What ends up happening is that everything goes into the trust for the kids, leaving the spouse with nothing.
What is the lesson here? The lapse in the estate tax may not be the boon it first appears to be. Talk with your estate planning attorney to find out how the new laws may affect your family.
The Question of Competence
February 15, 2010
One of the things estate planning attorneys have to deal with in their line of work (most often with elderly clients) is the question of whether or not a client is competent to sign their legal documents. Every principal (or person executing the documents) must be competent, and most attorneys—most people—can make this assessment based on observation, experience and instinct during the course of interaction; but every once in a while a situation arises that is not so clear, or a family member will express concern about the principal’s ability to understand and sign legal documents.
How can you tell if a person is competent? In her book Senior Moments author Jacqueline D. Byrd quotes law professor Peter Margulies’ six factors to determine capacity:
- Ability to articulate reasoning behind a decision
- Variability of the client’s state of mind
- Appreciation of the consequences of a decision
- Irreversibility of a decision
- Substantive fairness of a transaction
- Consistency with lifetime commitments
Byrd goes on to say that for the purposes of determining whether or not a person is competent to sign a will or trust, however, the requirements may be slightly different; more focused on whether or not the principal has a clear knowledge of his or her assets, has a full knowledge of the persons to whom the estate is being left, and is able to reasonably formulate and express a plan for the disposition of the estate.
The unfortunate truth about elderly illness is that competency in a person afflicted with the beginnings of Alzheimer’s or Dementia can often change from day to day or even hour to hour. If there will be any question at all about the competency of the principal the safest thing to do is to have mental examination performed by a doctor, and even perhaps include a video of the will signing. While the video is NOT a legal substitute for the Will or Trust, it can show mental competence at the time of signing if it is properly handled. Of course the very best way to ensure mental competence is to create your estate plan early, before age or dementia becomes a factor.
Make Your Memoirs a Part of Your Legacy
February 12, 2010
As members of a melting-pot nation, Americans place a high value on family stories and history. We love to know when and why our ancestors came to this country from “the home land”; but we also enjoy the simple stories about how mom and dad met, or how grandpa served in the military. These stories help us define who we are and where we came from—they give us a sense of belonging.
But the sad fact is that most of us don’t think about asking our parents or grandparents about their stories and histories until it’s too late. All too often it’s after grandma passes away and you’re going through her belongings that you find old books, photos or letters and wish you could ask about them.
This is part of the reason why writing memoirs, or a family history, has become so popular in recent years. Although the thought of “writing your memoirs” may seem daunting, it doesn’t have to be difficult. In fact, it has become so popular that there are quite a few books and tools out there to help guide you through either writing your own history or interviewing older relatives to record theirs. One simple technique used in our own family: turn on the camcorder and interview Grandma. It can be done in short segments over weeks or months. Over time, you will have a wonderful treasure that you can replicate on DVD and share with the entire family.
Nothing seems more natural than including your memoirs as part of your estate plan. When you create an Estate Plan you plan to pass on your estate (property, assets, and wealth) to your loved ones; but that is only part of what you’ll want to pass along. An Estate Plan can also include your history and experience as part of that wonderful inheritance. Our firm can help take care of your assets, but only you can preserve the wisdom and experience that makes your history so unique. Don’t wait until it’s too late.
Living in a Digital World
February 8, 2010
Do you have an e-mail account?
Do you participate in Facebook or other Social Networking sites?
Do you do any of your banking, bill paying or investing online?
If you answered yes to any of these questions then you might want to think about this next question… what will happen to all of your online assets and accounts when you die?
As we move further into the 21st century more and more of our lives are moving into the digital realm. This includes friendships, networking, business and banking. The beauty of this is that it gives us unprecedented freedom and global access; the downside is that huge portions of our lives are locked away behind password protected accounts, many of which our friends and relatives aren’t even aware of. Online accounts are incredibly convenient, but they can create huge problems if your executor or agent has no way to retrieve your online passwords, assets or contacts after you die.
Some large online service providers are developing policies to deal with the transfer of accounts upon the death of the user, as noted in this article by Alejandro Martínez-Cabrera, “but the process is rarely a simple one.” Some companies require a death certificate before they will agree to shut down an account or turn over the contents, but rarely will an online company transfer actual ownership. It could take months or years of headaches and frustration before your heirs have access to any assets or information locked behind these online protections.
What this means for estate planning is that when you talk to your attorney about your will or your trust it’s not just about physical assets anymore; digital and online accounts and assets must be part of the conversation.
Jinies.com