If you feel that you pay too much in taxes, Brett Arends of the Wall Street Journal has some tips to help you save on taxes in the future. Much of his article is tongue-in-cheek, but the suggestions are valuable ones. Of special interest to our firm and our clients are four of the tips nestled in the middle of the article:

Give to your family. “Until the end of 2012 you can give $5 million, tax-free… In addition you can give $13,000 a year to each recipient — each child or grandchild — and a spouse can do the same. So a married couple with, say, three children and eight grandchildren can give another $286,000 a year, on top of that one-off $10 million. Over ten or twenty years that really adds up.”

Put your grandkids—and great grandkids—through college. “Money paid directly to schools or colleges escapes estate taxes.” Furthermore, if you contribute to a 529 educational savings account that money can be tucked away—and eventually used by the student for whom it is intended—tax free (so long as it is used for educational purposes.)

Buy life insurance. Proceeds from a life insurance policy can go to your beneficiaries tax-free upon your death, although you may have to make some arrangements ahead of time. The article states that “Typically you put the policy in an Irrevocable Life Insurance Trust… The premiums that you pay annually are gifts to the beneficiaries… And when you die, the proceeds of the policy go to the trust, for the beneficiaries, free of estate tax.”

Talk to an estate planner. “There are other moves that can cut your estate tax, too. A Qualified Personal Residence Trust can slash the estate taxes on a residence. A Grantor Retained Annuity Trust, or GRAT, can slash them on an investment portfolio. So, too, can setting up a Family Limited Partnership. Financial planners say this is a great time to put investments — like stock — into a GRAT.”

If you have questions about these tax-saving strategies, or other strategies that can help you preserve your estate for your heirs, please contact our office. We can help you determine what your best options are to help protect your assets—and your family—in the years to come.

Estate planning is a subject which has a significant impact on women—in fact, this article in Forbes suggests that estate planning may affect women even more than men because “Among Americans 65 and older, 42% of women, but just 14% of men are widowed. Women’s longer life expectancy, combined with their tendency to marry older mates and their lower lifetime earnings means they are far more likely to see their living standards compromised in retirement if proper estate planning isn’t done.”

How can women ensure that this doesn’t happen to them? The best answer is for women to be involved in the estate planning process—not just the issue of guardianship, but financial issues as well. Talk to your partner about what happens if (as is likely) your spouse passes away first leaving you a widow. Talk to your spouse and your family about how the remainder of your estate should be distributed upon your death. And don’t discuss the topic in vague terms, bring your estate planner or financial planner into the conversation and talk about cold, hard numbers.

Our firm understands that this is not the easiest conversation to begin. Talking about money in our culture has generally been considered a “dirty topic,” not to mention that nobody likes considering their own (or their spouse’s) mortality, but the consequences of avoiding the discussion can be disastrous.

If you’d like to start a conversation about estate planning with your family but aren’t quite sure how, the Forbes article mentioned above has quite a few excellent suggestions, including “start with current events or an anecdote about other people. Perhaps it’s a movie you saw, a book you read, a news report about someone your age who recently died or a sudden death in your community.” If you’re trying to bring up the subject with your parents as opposed to your spouse you may want to consider telling them “I just did my own estate plan. Don’t you think you should update yours?”

Alternatively, you may simply want to print out this blog post (or the Forbes article) bring it to your spouse/parent/children and read it together. Getting the conversation started is the hardest part, but it’s also the most important. If you can get the ball rolling, our firm can help with everything else.

This timely article in U.S. News and World Report remarks that “celebrities and non-celebrities alike often leave their estates in disarray when they die. That lack of awareness and planning can make death more stressful and more costly for family members as they struggle to quickly plan a funeral and think about dividing up family property while grieving.”

All too often our office is contacted by family members who are overwhelmed with the task of probating or administering a poorly planned estate. Sometimes these bereaved relatives are dealing with overwhelming and confusing debt, or terrible family infighting, but more often than not they are simply trying to make their way through the long and arduous process of probating an estate without the benefit of a will or trust.

One of the many things we can learn from the life and death of Amy Winehouse is that even in the midst of troubled times it is possible to think clearly about the future. If you’d like to start planning for your family’s future, please contact our office today.

Here are some of the most important things you should know about your Power of Attorney:

• A Power of Attorney is only effective during your lifetime; it gives your agent (or attorney-in-fact) the power to act for you while you are alive.
• A Power of Attorney can be created to go into effect immediately or only become effective when you become incapacitated.  This latter Power of Attorney is called a Springing Power of Attorney because it “springs” into effect once it is proven that the predetermined conditions (generally incapacity of  you, the principal) have been met.
• A Power of Attorney can be revoked at any time so long as you have mental capacity.
• A Power of Attorney is for financial and legal issues only.  A health care agent is appointed in a separate document (to be discussed in our next blog post.)

Because your Power of Attorney grants your agent-in-fact such broad powers it is of the utmost importance to choose an agent who will not only be able to make wise decisions for you,  but who will also have your best interests at heart. While a Power of Attorney does grant an agent very broad powers, there are ways to build a system of checks and balances into the document; some of these include requiring your agent to keep detailed records and present these records to the principal (you) or other named individuals, or using restrictive language in the document itself which sets limits on the agent’s power.

There are two basic kinds of trusts—revocable and irrevocable. Revocable means that it can be revoked or changed so long as the grantor (the person who created the trust) is still living and is competent to do so. Logically enough, an irrevocable trust generally cannot be changed once it has been signed.  The reason this question of revocability is so important is because a trust is not merely a set of instructions for how your wealth should be distributed, a trust actually owns the property placed within it, with the person or people serving as trustee (usually for a revocable trust this is the grantors themselves, while they are living) controlling the trust property within. It is for this very reason that trusts can be such a powerful and flexible tool for tax planning and estate planning.

The specifics of your trust will vary greatly depending on what you hope to accomplish.  Parents of young children may wish to include a general trust for the benefit of all the children, with distributions made to their guardians as necessary. This general trust can be split into separate individual trusts when all of the children have reached a certain age or graduated from college. Parents (and often grandparents) may want to include education trusts under the umbrella of their revocable living trust. Many families feel it is important to include instructions for charitable giving in their estate plan, and may choose to set up a charitable trust with their children or grandchildren as trustees. Pet owners often create pet trusts to ensure that their animals will be well cared after the owner has died.

A trust, much more than a simple will, allows the grantor far greater control over his or her assets—and for a longer period of time—which is why trusts are particularly useful for anybody entering into a second or third marriage, or for any parent who worries about the choices a beneficiary might make once they come into their inheritance. Unlike a simple will, trusts are designed to withstand the test of time, allowing you to leave a legacy that can last for decades.

Every parent knows that the time after the birth of a new baby can be a tired, busy and chaotic transition, and updating their estate plan is probably the last thing on any new parent’s mind. But after the first few months, when things have calmed down and you’ve settled into a routine, updating your estate plan to include and provide for your new little one should take top priority.

Here are a few things new parents will want to consider as they prepare to update their estate plan:

• Guardians for your child. Who are the people who will raise your child if the unthinkable should happen to you and your spouse? Many people choose close family members, others choose trusted friends.
• Keep your child’s inheritance in trust. Settling your entire estate on a 5, 10 or 16 year old is never a good idea.  Consider instead creating a trust for your child which will provide for him until he reaches maturity.
• Trustees of your child’s inheritance. Who do you trust to invest and distribute the estate for your child while she is still a minor? Some parents choose to have the guardians also serve as trustees; others prefer to nominate separate trustees and guardians who will work together, providing a natural system of checks and balances.
• Providing for your child’s special needs. If your child has special needs he will need special planning to ensure that his needs continue to be provided for. Ask us (or your own local estate planning attorney) about a special needs trust.

Guardians, trustees, trusts and special needs planning are the very basics of estate planning for families with minor children, and should serve as a jumping off point for further discussion with your estate planner.

Unfortunately, an elderly parent’s ability to manage their own money may cease before they are willing to ask for help. In these cases, it may be up to their children and loved ones to step in and help as best they can.  What follows is a list of some non-invasive, non-offensive steps adult children and caregivers can take to help aging parents manage their finances.

• Ask for a list of important people and information you might need in case of emergency. This list would include contact information for an attorney, financial advisor, primary care physician, and insurance agent.
• Ask where your parent keeps important documents and how an executor or advisor could access those documents upon your parent’s death or incapacity.
• If your parent is willing, discuss their estate plan with them, including who they have chosen as their agent or executor, and what you can do if something happens.
• Ask your parent to make a list of monthly bills, expenses and account numbers. Although your parent may not want to hand over this information right away, the list should be stored with other important estate planning documents so that it can be accessed in case of emergency.
• As you keep track of your own financial deadlines (tax filing deadlines and the like) set up reminders for your parent as well.
• Ask that your parent list you as an “emergency contact” with their utility services, so that you would be informed if your parent’s service is in danger of being terminated.
• And finally, talk to your parent as often as you can. Keeping open lines of communication is the very best way to stay informed about the abilities and well-being of your aging parent.

1. Neglecting to fund your trust. A trust can be a wonderful tool for protecting your assets; flexible and customizable, a useful trust can be created for just about every situation.  But a trust is like a strongbox—if you don’t fill it up it has nothing to protect.  Accounts and assets must be put in the name of your trust for it to work as you’ve designed it to.

2. Not enlisting the help of an estate planning attorney. There are a number of Do-It-Yourself will and estate planning programs out there that promise you a full estate plan for a cheaper price; but estate plans are complicated things, requirements change depending on your state of residence, the size of your estate, the age and situation of your beneficiaries, and much more.  If you aren’t able to work with an attorney to create your plan, at the very least we urge you to have an attorney review your plan before you sign it.

3. Neglecting to mention previous estate planning documents, or making unofficial changes in the margins of documents that have already been signed. When creating a will or a trust or any other common estate planning document it is usually necessary to revoke any previous documents so there is no confusion about which document is current and valid.  Neglecting to do this can end with your assets tied up in probate court for months or years—or even worse, invalidating both documents completely.

4. Putting your plan somewhere safe—somewhere so “safe”, in fact, that nobody can find or access it! People recognize that estate planning documents are things of value, and as such should be protected in a locked filing cabinet or safe deposit box.  Wherever you choose to store your documents, be sure one or two trusted individuals have not only the knowledge of where the documents are, but also the ability to access them.  An estate plan does no good if it cannot be accessed when it’s needed.

5. And finally, one of the most common missteps that can sabotage your estate plan is failing to update your plan regularly. Not only do federal and state laws change periodically (as we have recently experienced) but you will undoubtedly experience changes in your own life and fortune.  Failing to update your plan to keep up with the law or with your own life can result in an estate plan that is as useful as a car you neglected to maintain—it may look fine on the outside, but it simply won’t run anymore.

“In her most savvy business move, Taylor licensed her name to Elizabeth Arden and came out with several perfumes, including Passion, White Diamonds, and Black Pearls. Her fragrances have reaped a reported $200 million in sales over the years. Perfumes are one of the highest margin products out there, which is why celebrities love them. Taylor was doing it before anyone.”

Furthermore, a recent article in ABC News reports that Elizabeth Arden has no plans to discontinue the Taylor brand anytime soon. “White Diamonds remains a best seller almost 20 years after its 1991 introduction, a testimony to her transcendent and enduring appeal… Our best tribute to Elizabeth Taylor will be to continue the legacy of the brands she created and loved so much.”

The question now is, what will happen to this sizeable (and growing) fortune now that Ms. Taylor has passed away?  ABC News has some guesses: “On the question of what could happen to her estate now that she has passed away, many speculate it will be distributed to her four children and 10 grandchildren [with whom she is reported to have been on good terms]… And Taylor most likely bequeathed a substantial amount of money to her charitable work. Taylor was a devoted AIDS activist, helping form the American Foundation for AIDS Research in 1985 and the Elizabeth Taylor AIDS Foundation in 1991.”

Thus far no last will and testament has been released, which suggests that Ms. Taylor may have had a trust, an document which typically ensures privacy.  While it is only our speculation at the moment,  given what we do know about Ms. Taylor, it is not unreasonable to believe that her estate will be split between her family and her charitable endeavors, especially the AIDS Foundations to which she gave so much in life.

The federal estate tax is set (for at least another two years) but we still expect some states to continue making changes to their own estate tax.  The fact is that state governments are caught between a rock and a hard place.  According to an article in Forbes Magazine,  “The changing state landscape… reflects a lot of ambivalence by state officials themselves. They want the estate tax revenue, but worry about chasing wealthy seniors across state borders.”

If you’re looking for an estate-tax-friendly state to which to retire you can check out the link to the map in the Forbes article; but before you move be sure to do your research.  Just because a state has no estate tax (or a high exemption amount) one year doesn’t mean it won’t change the next.  The best strategy is to be familiar with the state’s history.  How long has their estate tax been in place? Has there been any legislation proposed recently regarding the tax? How likely is it that their tax policies will remain the same as they are when you move?

Illinois recently made changes to the state laws regarding estate tax, and other states that are most likely to make changes in the future include Hawaii, Ohio, Connecticut and Vermont. “But don’t count on these efforts… even if you get relief one year, the levy can go up again the next.”

As always, the best strategy is to plan ahead, review your plan often, and have a knowledgeable estate planning attorney on your side.

You know what you want for your child, you want him to live as contentedly as possible, with loving guardians and engaged in activities which will bring pleasure and peace. But how can this dream be achieved on the limited assets that Medicaid recipients are allowed to have without losing their government benefits? How can responsible parents safely leave an inheritance to their special needs child? For many parents, part of the answer to that question is having a special needs trust.

Unfortunately, not all parents are aware of the benefits of a special needs trust, or how easy it can be to create one—with the right help. A special needs trust is the vessel that will hold your child’s inheritance (from you or from another source) without disrupting that child’s government benefits. It gives your child the funds they need beyond the basic living expenses provided by SSI or Medicaid.

If your family could benefit from a special needs trust, please contact our office for more information. A special needs trust is not the kind of document that can be found in a software package or created from a standard trust template. The needs of your child are unique, and should be addressed as such.  For more information, click on  “Special Needs Planning”.

The many celebrity news stories we saw last year provide all the examples we need of what can happen when you plan well (as was the case with Brittany Murphy’s estate plan) or when you neglect your estate plan—or even worse, when you fail to plan at all. Here are some celebrity examples of common estate planning pitfalls and mistakes:

Failing to update your estate plan. We tell all of our clients how important it is to review and update your estate plan every 2 to 5 years; Gary Coleman provides a prime example of what can happen if you neglect to follow through on those updates and reviews. “[Coleman] created a handwritten codicil to his will in 2007 leaving much of his estate to his wife, Shannon Price. After they divorced, however, Coleman never updated his will or created a new one. That led to a court fight after he died about whether Coleman was still married to Price. Even though they never officially tied the knot for a second time, Price claimed they had a ‘common-law marriage,’ which would mean that the handwritten will would be valid.”

Failing to fund your estate plan. A revocable living trust is a wonderful tool, but it’s just an empty vessel until you fund it by re-titling your assets in the name of your trust.  Michael Jackson created what is most likely a wonderful living trust, but his failure to fund it properly means that 2010 saw “The estate of Michael Jackson… dragged on with no end in sight.”

Waiting too long to create your plan. If you are a senior citizen, waiting too long to create your plan leaves you open to the exploitation or undue influence of acquaintances or family members who might try to take advantage of you.  Even if nothing of the sort has taken place, just the suspicion of undue influence can land your estate in a lengthy court battle. “Does the Anna Nicole Smith case come to mind? The United States Supreme Court ruled in 2010 that it will hear her case for the second time. Did she wrongly take advantage of her 90-year old husband, or did his son use fraud and other improper means to stop the billionaire from leaving money to Anna Nicole?”

We can all benefit from the very public airings of these celebrity estates.  We stand ready to help you avoid the mistakes listed here, plus many more.  The new laws of 2011 provide the perfect opportunity to create a plan (or update your existing plan), and ensure that your family will be well protected now, and in the future.