Archive for 2012
AN ESTATE PLAN FOR SANTA CLAUS
What if Santa and Mrs. Claus decided to do an estate plan? Although they would doubtless be great clients, the actual plan could be challenging.
What is the size of the Claus estate? It is extremely hard to calculate, even for Mr. and Mrs. Claus. Their accountant merely shrugs when asked. Unless estate taxes are totally repealed forever, Santa has a tax problem. Santa’s toy making business is prospering. He has enough inventory to supply every child on earth with at least one toy each year. There are now over 6 billion people on earth, and if just half of those are children, and if Santa spends just $20 on each child, he is spending 60 billion dollars per year on Christmas gifts alone. Apparently this formal gifting program is not reducing the size of his estate nor his tax liabilities sufficiently since he’s continued to do this since the 4th century.
Another consideration for Santa’s estate plan will be caring for the hundreds of elves that work in his shops and are apparently totally dependent on his largess for survival. There are no known relatives to serve as guardians in the event of Santa and Mrs. Claus’s joint demise. And even if relatives can be tracked down, it is doubtful that they will have the wherewithal to care for so many dependents. We might want to consider starting a charitable organization that establishes homes, jobs, and caretakers for these magical little people.
Santa has also invested a lot of time, money, and love in his wild animal preserve. Besides the normal elk, caribou, and polar bears, Santa has successfully bred a unique species of flying reindeer and at least one with a light-emitting snout. It’s likely that several world zoos will be clamoring to add these animals to their collection, but it would be advisable for Santa and Mrs. Claus to make some of these decisions ahead of time, and use these charitable opportunities for further estate tax planning.
Obviously, death isn’t the only concern for the Clauses. If Santa were to be disabled by a collision with an aircraft, a fall from his sleigh on a fast take-off, or a gunshot wound from someone who mistakes him as a burglar, the business could be in trouble. Mrs. Claus has had her hands full taking care of the elves, and hasn’t had a lot of direct involvement with the toy making. It might be wise to pick some key elf employees from executive management who can be trained to take over. Perhaps an ESOP is appropriate, or a pre-negotiated buy-sell agreement. Due to his advanced age (approximately 1600), and the fact that he is overweight and smokes, life insurance is also unlikely – but should not be ruled out because of his overall good health and vitality.
One other issue to be considered is citizenship. Although we think of Santa as an American icon, he was actually born as Nicholas of Myra in Anatolia – which is now southwestern Turkey. Rumor has it that he met Mrs. Claus while watching the annual tree lighting at Rockefeller Center in New York. If Mrs. Claus is a U.S. Citizen, proper tax planning will require her to at least prepare a Qualified Domestic Trust.
Obviously, planning for Santa and Mrs. Claus will be a daunting task requiring our best efforts. Like Santa, our firm wishes you a “Merry Christmas to All”, Happy Holidays, and a Happy and Prosperous New Year.
Happy holidays from all of us at Cramer Law Center! We truly appreciate your support which has helped make this another year of steady growth for our practice.
We hope that everyone will be able to spend time with family and friends this holiday season. For parents with adult children, we encourage you to consider telling them about your estate plan. Most people avoid this discussion because it involves two sensitive topics: money and death. However, explaining your will or trust and your desires for final arrangements is one of the greatest gifts you can give your children. Making clear what you want, and why, will provide peace of mind all around.
Adult children may also wish to initiate this talk with their parents. We are happy to facilitate family discussions at our office for our clients. Anyone else needing a little help may find this article useful: http://www.forbes.com/sites/ashleaebeling/2012/11/21/generations-apart-talking-turkey-over-turkey/
We wish everyone a healthy and prosperous New Year! Please note: our office will be closed on December 24, 25, and 31, 2012 and January 1, 2013. We will be holding our year-end planning retreat on December 26, 27, and 28 and therefore will be unavailable except for emergencies.
DEFINITIONS OF FAMILY: YOURS VS. THE STATE’S
With the holiday season in full swing, you are likely thinking about and spending time with your loved ones, your “family.” Chances are, they are not all related to you by blood. Most of us have spouses, in-laws, stepchildren, stepparents, or even friends that we consider to be part of our family. Sometimes we are more tightly bonded with these people than with our actual blood relations.
Unfortunately, the state of Florida defines “family” much more narrowly for the purposes of intestate succession (who gets your stuff if you die without a will). Your current spouse is your closest family member under Florida law and will get everything if you have a “traditional” family. However, as soon as you get into a blended family situation – i.e. either you or your spouse had a child with someone else – things get messy. Your spouse will have to split your assets with your kids in the proportions dictated by the state, regardless of what you would have wanted. Stepchildren are left out altogether because they are not considered “family” unless you have legally adopted them.
Florida law’s preference for blood relatives can produce even less desirable results if you die without a spouse, children, or a will. We recently had a case where a man’s assets, primarily his home, were split between more than a dozen blood relatives (siblings, nieces and nephews), many of whom did not even speak to the decedent, rather than going to the few people, including his girlfriend of many years, who actually took care of him.
The state’s intestate definition of “family” is one size fits all, meaning that it often fits no one. If you don’t agree with the people that definition includes and, especially, excludes, you need to make your definition of family clear with a will or trust.
2012 LONG-TERM CARE BY THE NUMBERS
Long-term care has been on our minds this month at Cramer Law Center because November is National Long-Term Care Awareness Month. To further your awareness, here are the latest long-term care statistics for this year:
- Annual Rate for Private Nursing Home Room….$90,520
- Annual Rate for Semi-Private Nursing Home Room….$81,030
- Annual Base Rate for Assisted Living….$42,600
- Annual Rate for Private Nursing Home Room….$94,535
- Annual Rate for Semi-Private Nursing Home Room….$83,950
- Annual Base Rate for Assisted Living….$38,808
*Jacksonville, Florida Average:
- Annual Rate for Private Nursing Home Room….$81,395
- Annual Rate for Semi-Private Nursing Home Room….$75,190
- Annual Base Rate for Assisted Living….$39,192
These numbers are staggering as-is, but it gets worse. Some nursing homes and many assisted living facilities have an additional charge for patients needing memory care for Alzheimer’s or dementia. And although assisted living facility base rates look appealing next to nursing home rates, they don’t include services such as personal care and medication management, each of which can cost hundreds of dollars per month.
Have you planned for long-term care? There is no time like the present to contact your financial advisor and inquire about how best to prepare your finances to meet these potential expenses. You should also meet with an attorney to discuss the legal planning that will best protect you and your loved ones in the event such long-term care becomes necessary.
Click to view the full survey, including data for all 50 states and many major metropolitan areas: https://www.metlife.com/assets/cao/mmi/publications/studies/2012/studies/mmi-2012-market-survey-long-term-care-costs.pdf
CHOOSING AND TRAINING FAMILY TRUSTEES
One of the most important decisions we ask our clients to make is who they want to take over as successor trustee of their trust after the client’s disability or death. Many of our recommendations for this position are obvious; a trustee must be willing to take on the responsibility, should be a person or institution that the client trusts wholeheartedly, andideally has some relevant experience or knowledge. After (and sometimes despite) hearing this advice, most of our clients want to name family members, usually their spouse or adult children, as their successor trustees.
Naming a family member as trustee is not necessarily a bad idea, but it is crucial that you be honest with yourself, and your attorney, about your family dynamic. For example, we recently had a case where a mother named one responsible, level-headed child to serve as her successor trustee. However, her trust (not drafted by us) provided very little guidance to the successor trustee, which made it difficult and stressful for the successor trustee to deal with the demands of her greedy, bullying sibling. If the drafting attorney had asked the right questions, and the mother had been honest about her children’s personalities, detailed instructions and protections for the successor trustee child could have been built into the trust.
Another concern about leaving your trust in the hands of a family trustee is that he or she may not have the requisite knowledge or experience for the job. However, we believe that, with proper training, most family members can smoothly administer a trust without first passing the CPA or bar exam. At Cramer Law Center, training for family trustees and other estate plan “helpers” on what to do in the event of a disability or death is just one of many services we offer to our estate planning clients.
CONDITIONAL GIFTS – INHERITANCE BASED ON MARRIAGE, RELIGION, OR BEHAVIOR
In the 1999 movie “The Bachelor,” a young man (Chris O’Donnell) frantically proposes to his girlfriend (Renée Zellweger) and a succession of past girlfriends in the days before his 30th birthday. The reason for the man’s urgency is that his grandfather’s will states that he must be married on that date or he will miss out on a multi-million dollar inheritance. If you have seen the movie, you likely thought it was a far-fetched plot; however, it is legally feasible to condition gifts in a will or trust on the marital status, religious observance, or other behavior of the intended recipient.
Many conditions on inheritance have been upheld by courts, including conditions requiring a potential beneficiary to be or become married or, on the other hand, to remain unmarried before receiving a gift. It is also permissible to state that your spouse will not be provided for if he or she remarries after your death. Provisions requiring that a beneficiary only marry within a certain religious or ethnic group are often accepted by courts. A donor may also legally mandate certain personal behavior from a recipient in order for the gift to be made, such as abstaining from drugs or alcohol, avoiding involvement in criminal activity, or earning a college degree.
However, there are some pitfalls to watch out for with conditional gifts. You may not require a loved one to act illegally in order to receive his or her inheritance. You also must watch out for conditions that violate “public policy”, which is legal speak for anything that goes against our societal values. For example, requiring your daughter to divorce her husband, whom you hate, in order to inherit would likely be considered against the public policy of promoting marriage. If you are considering leaving any of your assets conditionally, you should consult with an estate planning attorney to ensure that your intent is clear and that any requirements you set will survive a challenge.
THE VALUE OF CONSISTENT PLANNING
With the Walk to End Alzheimer’s coming up this weekend and National Long-Term Care Awareness Month starting today, elder law is on our minds. So, this is the perfect time to share an elder law story that illustrates the value, and importance, of consistent planning.
Our client, “Diana”, thought that her father, “Fred”, had taken care of his disability planning by executing a power of attorney, naming Diana as his agent, several years ago. However, when Diana’s mother, “Mary”, died, Mary’s former caregiver took control of Fred and his affairs. The caregiver introduced Fred to an attorney who revoked the power of attorney to Diana and drafted a new power of attorney, as well as other documents, in favor of the caregiver.
Diana was forced to spend a significant amount of money to go to guardianship court to fight for the right to help her father take care of himself. The caregiver has isolated Fred from his family and tells him awful lies about his daughter. She may even have influenced Fred to change his estate plan. This is a dire scenario, but unfortunately not an uncommon one.
We include comprehensive disability planning documents in our estate planning packages as a matter of course. More importantly, we have our clients re-execute all of their documents every two years so that we build a record of consistency. If Fred had given a power of attorney to Diana in 2006, 2008, and 2010, his intent would be clear and the court likely would have thrown out the new power of attorney early on, allowing Diana to protect Fred and his assets from the predatory caregiver.
STATE INHERITANCE TAX – ANOTHER DANGER OF DO-IT-YOURSELF PLANNING
An elderly couple recently learned the hard way that do-it-yourself disability planning can have serious unintended consequences. Like many people before them, the couple followed the advice of friends, their friendly neighborhood banker, or (our favorite) “Marge” at Burger King, and added their daughter’s name to their bank account. This was their way of ensuring that someone would be able to handle their finances if one or both of them became disabled.
No one, not even the bank where the account was located, thought to tell the couple that they had essentially made their daughter a one-third owner of the account. The couple didn’t find out until, after the untimely death of their daughter, they discovered that they owed state inheritance tax on the one-third of the account that their daughter “owned” at her death. They had to pay thousands of dollars in taxes because state law said that the couple had “inherited” their own money!
The couple in this story lived in Pennsylvania, one of seven states with a state inheritance tax. Although Florida is not currently one of the seven (the others are Indiana, Iowa, Kentucky, Maryland, Nebraska, and New Jersey), state law is ever-changing so it is always best to consult with an attorney rather than trying to do your own estate or disability planning. With proper legal advice, the Pennsylvania couple could have achieved their objectives and saved thousands of dollars by simply executing a well-drafted durable power of attorney.
For more on this story, see http://pubs.aarp.org/aarpbulletin/201210_DC/?pg=6&pm=2&u1=friend#pg6 .
IT’S ESTATE PLANNING AWARENESS WEEK!!
Hopefully we do our part to increase awareness of the need for estate planning every week with our blogs and newsletters, but we just had to make sure you knew that this week is National Estate Planning Awareness Week. Congress officially designated the third full week of October as National Estate Planning Awareness Week in 2008, stating that:
“[I]t is estimated that over 120,000,000 Americans do not have up-to-date estate plans to protect themselves or their families in the event of sickness, accidents, or untimely death; …
[M]any Americans are unaware that lack of estate planning and `financial illiteracy’ may cause their assets to be disposed of to unintended parties by default through the complex process of probate; …
[C]areful planning can prevent family members or other beneficiaries from being subjected to complex legal and administrative processes requiring significant expenditure of time, and greatly reduce confusion or even animosity among family members or other heirs upon the death of a loved one; [and] …
[T]he implementation of an estate plan starts with sound education and planning, and then may require the proper drafting and execution of appropriate legal documents, including wills, trusts, and durable powers of attorney for health care; ….”
House Resolution 1499, 110th Congress (2008).
Although we are often disgruntled with what Congress does (or fails to do), we think that this time they got it right. Please feel free to share this information, or any of our other newsletters or blogs, with your loved ones. We also invite you to attend one of our Truth About Estate Planning workshops, “like” us on Facebook, or “follow” us on Twitter to increase your own awareness.
WHAT SHOULD I DO WITH MY INHERITED IRA?
As employer pension plans go the way of the dodo bird and social security becomes less secure, we are seeing more and more of our clients have planning for their retirement with individual retirement accounts (IRAs). In fact, it is becoming common for IRAs to make up a significant percentage of a client’s total assets, especially when he or she is at or near retirement age. Because so much wealth is likely to be passed to the next generation through IRAs, it is important for IRA owners and potential beneficiaries to know how to get the most out of inherited IRAs.
In a traditional IRA, the money you put in is allowed to grow tax-deferred (you don’t pay taxes on gains as they are incurred). However, at a certain age (70 ½), you will be required to start taking distributions in an amount that is based on your life expectancy. You will pay income tax on these required minimum distributions (or any other distributions you choose to take).
If you leave your IRA to your spouse, the account can “roll over” into your spouse’s name. This means that the required minimum distributions will be based on your spouse’s (hopefully longer) life expectancy, allowing for a longer deferral of taxes (often called a “stretch out”). Your spouse can name younger beneficiaries to take over the IRA next, producing an even longer stretch out.
What if you leave your IRA to someone other than your spouse? The rules change a little; no “roll over” is allowed. An individual beneficiary can either cash out the IRA or retitle the account. While cashing out may be tempting, it will result in immediate tax consequences. The alternative is to stretch out the distribution schedule (and thus the tax-deferred growth) of the IRA by changing the title so that required minimum distributions will be based on the beneficiary’s life expectancy.
If you’re thinking this sounds complicated, don’t worry; you also can take advantage of IRA stretch out opportunities through proper trust planning. For more information, call us to set up a free estate planning consultation or see How to Handle Inherited IRAs by Jane Bryant Quinn: http://www.aarp.org/money/investing/info-10-2012/how-to-handle-inherited-iras.html