Estate Planning Articles

Florida has a new law on powers of attorney. The law is important for anyone who recently moved to Florida, as well as anyone who lives elsewhere but owns a vacation home there or regularly spends time in the state.

Florida will no longer accept powers of attorney unless they are signed by two witnesses and notarized. Also, powers must take effect immediately, rather than only if the person becomes incapacitated.

Power of attorney documents that were signed before October 1, 2011 are still valid in Florida even if they don’t meet these requirements, but:

• A bank or other institution in Florida can refuse to accept an out-of-state document unless the agent provides a letter from an attorney saying the document is legally valid in its home state; and [Read more...]

People are sometimes concerned that after they die, a beneficiary (or more likely a non-beneficiary) will go to court to contest their will. Typically, a disgruntled would-be heir might claim that the person who made the will wasn’t mentally competent, or was under undue influence from some other person. These types of will contests can be very expensive, and they can cause a lot of emotional hardship within a family.

Recently, a handful of states have allowed people who make a will to go to court while they’re still alive and have a judge rule that the will is valid – thus preventing a will contest.

These states include Alaska, Arkansas, Nevada, North Dakota and Ohio. Similar legislation is pending in Delaware.

Even if you don’t live in one of those states, you might be able to obtain a court ruling there, such as by putting your assets into a revocable trust and hiring a trustee in that state. [Read more...]

A Texas man put some ranch property into a trust. The trust was designed to pay regular income from the property to the man’s son. When the son died, the ranch was to go to his grandson.

The trustee (a bank) entered into a long-term lease for the property. The result was that when the son died, the grandson didn’t get the ranch all to himself; instead, he inherited it subject to the lease, which meant he couldn’t immediately sell it.

The grandson sued the bank trustee. But a Texas appeals court sided with the bank. [Read more...]

If you own land that you want to pass on to your heirs, but you also want to make sure that some historic, scenic, or agricultural value will be maintained and not destroyed by future development, you might be able to accomplish this with a “conservation easement”…and also save taxes at the same time.

A conservation easement is a restriction on your land that says it can never be developed in certain ways. When you create such an easement, you give it to a charity – usually one that has been created to preserve some historic, scenic or agricultural heritage. In some cases you can also give the easement to a government agency.

After that, the charity or agency has the right to enforce the easement and prevent such future development. [Read more...]

Did you know that your will does not determine who gets your IRA or your 401(k) account when you die?

That’s right – these accounts are “non-probate” assets, which means they’re not covered by your will. Instead, they will generally go to whatever person you named as the beneficiary when you set up the account.

Similarly, your will doesn’t determine who gets your life insurance – that will go to the named beneficiary on the policy. And your brokerage account might have a beneficiary as well.

So as part of your estate plan, it’s essential from time to time to review your beneficiary designations.

For example:

• You’ve remarried, but you want to leave your 401(k) to your children from your prior marriage. Under federal law, even if you name the children as beneficiaries, your account will go to your new spouse – and not your children – unless your new spouse signs a waiver. [Read more...]

Before you name someone as an executor or a trustee in your will – or before you agree to be an executor or a trustee – it’s a good idea to review exactly what responsibilities are involved.

These are serious jobs, and sometimes people don’t give enough thought to which person should be chosen.

Often, people simply name a spouse, a child, or a family friend. This might seem like a logical choice, and the person might expect to be given such a role, but that doesn’t mean they’re necessarily the best person for the job – particularly if they’re not detail-oriented, good with figures, and adept at handling money. Many people who quickly agree to act in these roles later come to regret it.

An executor’s job typically lasts about a year, and involves a lot of responsibility. Most executors hire an attorney and sometimes other professionals to help them through the steps and make sure they don’t make any mistakes. However, you’ll still want to pick someone who is willing and responsible enough to handle the often difficult and time-consuming tasks.

These tasks typically include:

• Locating the deceased person’s will (the original, not a copy) and filing it for probate.
• Obtaining a death certificate, obtaining an estate tax ID number from the IRS, and setting up an estate bank account.
• Notifying beneficiaries and other potential heirs. [Read more...]

When choosing a beneficiary for a retirement plan, it’s important to understand how your spouse will be treated under the plan. The rules are different for 401(k)s and IRAs. With a 401(k) plan, a surviving spouse is the automatic beneficiary of the plan. If you want to name someone other than your spouse as a beneficiary, your spouse must agree to this in writing.

There are some exceptions; for example, the rule might not apply if you and your spouse have been married for a very short time. But in general, it’s a strict rule. In fact, even if your spouse signed a prenuptial agreement saying that he or she has no right to your 401(k), that might not be good enough, because he or she wasn’t your “spouse” at the time of the signing. On the other hand, this rule is not true for an IRA. Surviving spouses are not automatic IRA beneficiaries.

In a recent case, a husband rolled his 401(k) into an IRA after he retired. He named his children as the IRA’s beneficiaries. After he died, his wife claimed that she was entitled to the account funds as his surviving spouse. She argued that because her husband had rolled his 401(k) into the IRA, she should receive the same protections that the 401(k) had given her. But a federal appeals court in California disagreed, deciding that the IRA rules applied even if the funds originated in a 401(k).

In general, whether you have a 401(k) or an IRA, it is important to regularly check your beneficiary designations to make sure they are current and fit with the rest of your estate plan.

In a recent case, a Texas man inherited $400,000 in cash from his aunt. The man’s ex-wife went to court and claimed that as a result, his child support payments should be increased. The Texas Court of Appeals agreed with the ex-wife. It said that even though the $400,000 wasn’t wages or earnings, it was still a “resource” that had to be considered in determining how much the father had to pay for his two children.

Now, we don’t know what the aunt’s feelings were. It’s entirely possible that she was happy to use her money to take care of her nephew’s children. However, she probably never considered that after her death, a large portion of her assets would end up under the direct control of her nephew’s ex-wife. It’s a good bet that the aunt might have been happier if she had put the $400,000 into a trust that would benefit the nephew and his children. In that way, she would have had control over how the money was spent for their benefit – rather than the ex-wife. [Read more...]

The new tax law, which temporarily raises the estate and gift tax exemptions to $5 million, has many important implications. Almost everyone should have their estate plan reviewed in light of this significant change.

Here are just a few of the other important consequences:

•  Many wills that were drafted years ago need to be revised right away. Frequently, these wills were set up to avoid taxes by giving children an amount of property equal to the estate tax exemption, and having the rest go to the surviving spouse. For instance, if the exemption amount were $600,000, then $600,000 would go to the children (or to a trust for the children), and the rest would go to the surviving spouse (or a trust for the spouse). [Read more...]

Congress has created a temporary “window” – between now and the end of 2012 – in which many people can save a lot of money in estate and gift taxes. You might be able to take advantage of this opportunity by transferring significant assets to a trust. But as they say on TV, hurry – this is a limited-time offer from the federal government.

During 2011 and 2012, the federal estate tax exemption will be $5 million, meaning the tax will be applied only to estates that are larger than that. Importantly, the lifetime exemption from the federal gift tax has also been raised, from $1 million to $5 million. The gift tax applies to transfers of assets. In general, any person can give any person up to $13,000 a year without there being any gift tax. If you give someone more than $13,000 in a calendar year, then the excess is subject to gift tax. [Read more...]

A new idea for people who set up long-term trusts is that of the “trust protector.”

A trust protector is different from a trustee. A trustee’s job is to administer the trust on a day-to-day basis according to how it is written. A trust protector’s job is to “protect” the trust by making very occasional changes to its rules as needed to further its goals.

The idea is to keep a long-term trust serving the purposes you intended, despite inevitable changes in family situations and tax laws. [Read more...]

Clarence Smith Sr., a Florida resident, decided he no longer wanted to have to manage his finances. He signed a power of attorney document authorizing his son to handle his affairs. Clarence owned a bank account jointly with a female friend from his retirement community. His son became suspicious about some withdrawals from the account and contacted the bank. He asked the bank to transfer $64,000 from the joint account into an account owned solely by Clarence.

Before doing so, the bank contacted the joint owner. She objected to the transfer. She also told the bank that Clarence’s son was trying to steal his money. The bank then refused to transfer the funds.

Shortly afterward, the “friend” withdrew all the money in the joint account, leaving Clarence with nothing. Clarence died a few weeks later. His son sued the bank on behalf of Clarence’s estate. A jury sided with the estate, finding that the bank acted wrongly in refusing to honor the son’s power of attorney, and awarding the estate $64,000 in damages.

If you or an elderly relative is hiring someone to provide care in their home, you should be aware that the “nanny tax” may apply.

Generally, the tax applies if you hire someone and pay them $1,700 or more a year. Here’s what’s involved:

• You must pay the employer’s share of Social Security and Medicare taxes for the employee. That’s 6.2% of wages for Social Security and 1.45% for Medicare. [Read more...]

Here’s something you probably never thought about: Just because someone leaves you money or other assets in a will, that doesn’t mean you have to take it. You can also just say, “No, thanks.”

(Actually, you have to do more than that. You have to sign an official document called a “disclaimer.”)

Why on earth would someone turn down a bequest? Well, it turns out that in some cases, doing so can save a family money in the long run. [Read more...]

A health care proxy states who you want to make medical decisions for you if you’re not able to make them yourself. A living will provides a roadmap as to how you want those decisions to be made. It’s a very good idea to create these documents, and to review them on a regular basis.

Here are some things to consider:

Has your state recently adopted a “standard” health care proxy form? Some states have adopted a particular form by law. It might not be necessary to use this form, but you might want to do so, because doctors and hospitals will be more familiar with it and using it might avoid delay and confusion about whether to accept a document. [Read more...]

If you intend to leave your children equal shares of your estate, don’t forget to consider any money or property held jointly with a child. If you have recently added a child to a bank account, own property jointly with one of your children, or have set up a payable-on-death account with a child as the beneficiary, you might want to revise your will, or at least reconsider how the asset is titled.

Here’s why: Property in a joint account passes outside of your estate. If you add a child to one of your bank accounts, perhaps as a convenience because the child is helping to manage your finances, the account will pass to that child alone when you die. This is true for any property held in joint tenancy, or any property in a payable-on-death account. [Read more...]

Many people include charitable gifts in their will. Not only do they want to help certain charities, but doing so can reduce estate taxes. But suppose that at some point, it becomes clear that your estate will likely incur little or no estate tax. You might consider removing all or part of such a bequest from your will, and instead making a gift while you’re still alive. Doing so could give you a large income tax deduction, while having no effect on your estate tax – leaving more assets for your heirs.

You might also want to amend your will and your power-of-attorney document so that if you become unable to manage your affairs, your agent can “pre-pay” a charitable bequest while you’re still alive in order to save taxes in this way. [Read more...]

The federal estate tax is back in effect as of January 1, 2011.

As a result of a last-minute compromise in Congress, the estate tax will be temporarily reduced for two years. In 2011 and 2012, the tax will apply to estates over $5 million, at a rate of 35%. However, unless Congress changes the law again, after 2012 the tax will apply to any estate over $1 million, at a rate of 55%.

As a result, the estate tax is no longer a problem just for the rich. A huge swath of the middle class could now be affected if, at some point in the next few years, the value of their house, their retirement savings and the proceeds of their life insurance tops $1 million.

In addition, many states have their own estate taxes and their own rules, and these can be less generous than the federal rules in some ways.

That makes it critically important to plan your estate – or re-evaluate your estate plan – if you haven’t already done so.

[Read more...]

It’s not for everyone, but certain people can save a lot of taxes by making large gifts to family members or others before the end of 2010, and paying a gift tax on the transfer.

In general, you can give up to $13,000 to as many people as you like each year without having to pay gift tax. Also, you can give up to $1 million above that limit over the course of your lifetime, and defer the tax. You won’t have to pay gift tax now, but the amount of the gift will reduce the credit that can be taken against estate taxes when you die. [Read more...]

There are many reasons you might want to leave more assets to one child than to another in your will. One child might have a greater need, or have been more loyal over the years, or have gone out of his or her way to be a caretaker. [Read more...]

A lot of people are converting their regular IRA or old 401(k) plan into a Roth IRA in 2010. That’s because Congress lifted a number of restrictions on these conversions this year. It also gave people who convert in 2010 a special one-time benefit: Rather than reporting the resulting income on their 2010 tax return, they can choose to report nothing for 2010, and then report half the income on their 2011 return and half on their 2012 return.

However, you might be better off recognizing all the income in 2010. To decide, you’ll need to do some tax homework. [Read more...]

Many older people would like to make significant gifts to their grandchildren, in order to help them and in order to reduce the size of their own estate for tax purposes. But they also worry that the grandchildren won’t be able to handle large sums of money.

The good news is that you can give each of your grandchildren up to $13,000 a year without incurring any gift tax. If you’re married, your spouse can also give each grandchild up to $13,000 a year.

The bad news is that young people are notoriously immature with money, and simply handing a young adult up to $26,000 a year won’t necessarily result in the wisest and most cautious financial decisions.

However, there are ways that you can “give” money to grandchildren for tax purposes, but retain control over it at the same time. [Read more...]

A Florida couple created a trust to benefit their grandchildren. The trust stated that it was to benefit only grandchildren who were related by blood. One of the couple’s sons got divorced in 1971. A girl, Catherine, had been born during the marriage. The son acknowledged the girl as his child and paid child support for her.

In 1999, however, when Catherine was 32 years old, a DNA test proved that she wasn’t really the son’s daughter.

In response, the other grandchildren went to court and argued that she shouldn’t be able to collect from the trust, since she wasn’t related by blood. [Read more...]

When two or more people own real estate, the relationship between the owners is known as a “tenancy.” There are a number of different kinds of tenancy. Understanding the differences is important, because different kinds of tenancy can mean different rules for whether an interest in the property can be inherited outside of probate and whether creditors can claim the property.

Tenancy comes in three main forms: tenancy in common, joint tenancy, and tenancy by the entirety. Each form has its advantages and disadvantages. 

Tenancy in common. With a tenancy in common, each owner has a percentage interest in the property and can transfer that interest however he or she wants. For instance, one tenant might own 60% of the property, another might own 35%, and a third might own the remaining 5%. The owner of the 5% can sell that interest, or leave it to someone in a will. The person who buys or inherits the land will then become a tenant in common with the other owners. The main advantage of a tenancy in common is that it allows the owners the greatest flexibility to transfer the property as they wish. [Read more...]

Not only are people living longer these days, but there’s a growing trend of widows and widowers remarrying in their 60s, 70s and 80s. A remarriage late in life can bring happiness, but it can also create complexities for estate planning.

For most elderly people who remarry, the chief issue is that they want to look out for their adult children and make sure those children have an inheritance. Lack of estate planning can result in a new spouse receiving the assets that could have gone to adult children and grandchildren. [Read more...]

The federal estate tax expired at the end of 2009, and believe it or not, the lack of an estate tax is creating a serious problem for many people who have not revised their wills in a while.

The federal estate tax applied in 2009 to estates of more than $3.5 million. It is slated to come back in 2011, and apply to estates of more than $1 million. Most people expected that Congress would “fix” the estate tax before it expired, and there would be a new exemption amount, such as $3.5 million, for 2010 and beyond. [Read more...]

When a Texas millionaire died, he left all his money to a trust.  He ordered the trustee to support his second wife in the standard of living she had enjoyed while he was alive, if her own income and resources weren’t sufficient to do so.  Once that was done, the trustee could use the trust to benefit the children of his first marriage. [Read more...]

Some people are worried that after they die, family members may be unhappy about certain provisions in their will and may try to challenge the will in court. This is particularly true if one child is getting less in the will than others, for instance.

Here are some ways to head off a will contest:

• Talk to your heirs now about what you’re doing and why. Many will contests are triggered because a relative is surprised to discover after a death that they have been disinherited or treated differently from others. Letting the person know ahead of time won’t necessarily prevent a lawsuit, but it can make it less likely. [Read more...]

Ordinarily, there’s no estate tax on assets that pass at death to someone’s spouse. But that’s true only if the surviving spouse is a U.S. citizen. If the spouse isn’t a citizen, then the estate tax generally applies…unless you set up something called a “Qualified Domestic Trust,” or QDOT.

Instead of leaving your assets directly to your spouse, you can put them into a QDOT for his or her benefit. When you die, there is no estate tax on these assets. Your spouse can receive income from the trust during the rest of his or her lifetime. When your spouse dies, the assets will then be taxed as though they were part of your estate (not as though they were part of the spouse’s estate). [Read more...]