GETTING MARRIED? PLAN TOGETHER – Why Use an Estate Planning Attorney to Prepare a Prenuptial Agreement
People contemplating marriage often consider the advisability of a prenuptial agreement, particularly in a second marriage. What difference does it make if you go to a divorce attorney to prepare the prenup or seek the advice of an estate planning lawyer? Plenty! Let me share a recent story with you that comes from my work as a Jacksonville, Florida estate planning lawyer.
A client came to me after being told by her fiance’ that she would have to sign a prenuptial agreement prepared by “his” attorney. This was less than two (2) weeks prior to the scheduled wedding ceremony. She was assured by her fiance’ that she was being asked to sign a “standard” prenup. However, its terms sought to have the soon-to-be wife waive every legal right she conceivably could have acquired as a result of the marriage and also stated that the parties’ assets and funds would at all times be kept separate during the marriage. As you might suspect, my client was quite upset and felt blind-sided by this request. She pushed back by refusing to sign the agreement and presented a counterproposal for, perhaps, more than she otherwise would be legally entitled. This upset the prospective husband. Rocky negotiations ensued and the wedding was postponed.
What is the moral of this story? Tone and context is as important as content. By going to a divorce attorney to prepare the prenup, it was presented in a threatening manner. The prospective husband presented it to the prospective wife as a precondition to the marriage from “my attorney”. This caused bitter feelings and led to angry negotiations. Contrast this scene to the couple instead sitting down with an estate planning attorney to discuss how “we” want “our” financial arrangements during the marriage (and beyond) to unfold. The estate planning lawyer will counsel and provide options to this couple for what “we” want to accomplish; protection of children from a prior marriage, their family issues, asset protection, etc. and the role that a prenuptial agreement will play in their overall estate plan. The parties thus are able to begin their marriage discussing difficult financial and legal issues together in a supportive environment, instead of apart in an adversarial one.
The choice of an attorney, including the type of attorney, to prepare a prenuptial agreement is an important one. If you or one of your friends are contemplating taking this step, please carefully consider the different outcomes that may result from this decision. Plan together, for the journey of marriage…
TO DELAY IS HUMAN, TO GET ON WITH IT DIVINE
Why do people wait so long to consult a lawyer about estate planning? Most people are aware that this is something that needs to be done. Most people can find the time to do it. The culprit is procrastination. There is a natural tendency to postpone difficult tasks that don’t have to be done right away. To sit down with an attorney to discuss preparing a Will, forces you to think about the world when you are not in it. Doing so can lead to protection for your family. Finding a way to tackle procrastination can lead to a positive outcome in other areas of life as well.
What if you are beyond the point of procrastination and you are now into the realm of superstition. You believe it would be “tempting fate” to make a Will. Why court the evil eye? With your luck, you will make a Will and then get run over on your way to Kinko’s to make copies for your family. You haven’t even bought cemetery plots yet, what’s the rush? Well, what if superstition works the opposite – like carrying an umbrella and then it doesn’t rain? No, superstition is not a good reason to put off estate planning.
I hear you…I hear you. Nevertheless, most people who finally make their way into our office to do their estate planning find a comforting peace of mind after the planning is completed. What are you really waiting for?
MARCH 17TH IS ST. PATRICK’S DAY!
The Irish have observed St. Patrick’s Day on March 17th for more than a thousand years. Traditionally, Irish families would attend church in the morning and celebrate in the afternoon with dance, drink and a feast consisting of bacon (not corned beef) and cabbage. Today, St. Patrick’s Day is celebrated all over the globe. The world’s oldest civilian parade, the New York City St. Patrick’s Day Parade, features over 150,000 participants and is attended by nearly three million people. Boston, Chicago, Philadelphia, Savannah and other cities also host massive parades.
Clearly, St. Patrick achieved an enduring legacy. Yet very little is known about the man himself, what he truly believed and valued most in life. Would he approve of green hats, green rivers and green beer (perhaps consumed with a wee bit too much exuberance)? We simply do not know. And, of course, Cramer Law Center was not there to help him make his wishes known, by designing a customized estate and legacy plan.
Fortunately, many of you have allowed us to create such a plan for you and your loved ones. A plan that provides for your financial and healthcare needs today, and ensures you give what you want, when you want, to whom you want… today, tomorrow and beyond. A plan, in short, that protects your loved ones and legacy. It is important to note that for your plan to continue to serve as an accurate expression of your wishes, you should have it reviewed and updated at least once a year, or whenever a significant change takes place in your life or that of your family.
So this St. Patrick’s Day, don’t just think about whether you should have corned beef or bacon with your cabbage. Think about your legacy, and contact us to make sure your plan addresses any changes to your personal or family situation.
END OF LIFE PLANNING
Two of the statements I hear most frequently from seniors are “I don’t want to go into a nursing home” and “I don’t want to be put on machines”. However, without proper legal documents in place, your medical decisions may end up out of your hands. This delicate subject seems to be difficult for many families to even bring up. Although we know there is a need to prepare, we tend not to want to think about someone in the family becoming terminally ill or tragically injured. Sometimes a diagnosis comes that leaves a family time to prepare, but many times there is an unexpected crisis which can leave a family reeling to making decisions. Many people lack understanding or misunderstand advanced health care directives. We are happy to explain the designation of healthcare surrogate, living will, power of attorney or even how guardianship works.
If you or someone you know has ever made one of the two statements at the beginning of this article, we invite you to stop in and talk with us. There is never a charge for an initial consultation to explore your estate planning goals.
GIFTING AND THE GIFT TAX
Many people are confused about the rules which apply to giving gifts. There is good reason to be confused. First, there are two different gift tax exclusion figures, which change frequently. Then, there is the question of basis. This newsletter will attempt to provide a basic understanding of the gift tax rules.
First, there is an ANNUAL EXCLUSION. The amount of the annual exclusion for 2011 is $13,000. With this exclusion, you can give a gift to any one person in the amount of $13,000 or less and not have to report it or even file a gift tax return. If your spouse also wishes to make a gift to an individual, a married couple can effectively give away $26,000 to any member of individuals without having to file a gift tax return.
Then there is the LIFETIME EXCLUSION. The lifetime exclusion was $1,000,000 through 2010, but for the years 2011 and 2012 has been temporarily increased to $5,000,000. If you give away more than $13,000 to an individual at any one time, you must report it to the IRS on a gift tax return. However, you will not be subject to gift tax until you have given away a cumulative total of $5,000,000 over your lifetime. For couples, this means there is a $10,000,000 lifetime gift exclusion. For example, if you wish to give your son a $50,000 gift for a down-payment on a new house, you simply file a gift tax return to report this gift and apply $50,000 of your lifetime gift exclusion to eliminate any tax being owed.
As you can see, there are a wealth of opportunities presented in 2011 and 2012 to utilize gifting strategies as part of your estate plan. However, we must remember that property received as a lifetime gift generally takes a “carry over” basis. This means that the basis in the hands of the person who receives the gift is the same as it was in the hands of the person who made the gift. Thus, if given a gift of stock that was purchased many years ago for $1,000, but is worth $10,000 at the time of the gift, the basis is $1,000. This means that if the person who received the gift turns around and sells the stock for $10,000, the gift recipient will owe $9,000 in (capital gains) income tax.
However, if the property is left to beneficiaries in a Will or a Trust and received after a decedent’s death, then that property takes a “stepped up” basis meaning that in our same example, the stock recipient would have basis of $10,000 and there would be no capital gains tax due if the beneficiary turned around and immediately sold this inherited stock.
One final concept to be aware of is the difference between a “completed gift” and an “incomplete gift”. Here is an example of which many people are not aware. If you put a child’s name on the deed to your house, you have made a completed gift at that moment of the full value of your house, or at least the value of the interest you have deeded to your child. This gift must be reported on a gift tax return. On the other hand, if you put your child’s name on your bank account, you have made an “incomplete gift” and it will not be completed until the child actually withdraws money from the account to use for his or her own benefit. When the child does withdraw money, you must report the gift.
Gifting also has serious implications if you are going to need to apply for Medicaid benefits within five (5) years of making certain gifts. So, you can see that there are both opportunities and pitfalls with respect to gift giving. As a Jacksonville, Florida Estate Planning attorney, my purpose is to guide my clients so as to maximize the opportunities and minimize the pitfalls.
FEBRUARY IS RESPONSIBLE PET OWNERS MONTH
According to the Humane Society of the United States, 39 percent of U.S. households have at least one dog and 33 percent have at least one cat. Together, we own more than 77 million dogs and 93 million cats! Then there are the 12 million birds and 7 million horses, together with our tropical fish, ferrets, hamsters, gerbils, guinea pigs, lizards, snakes, turtles…you get the picture. We Americans really love our pets.
Responsible Pet Owners Month was created to remind us about the importance of properly caring for our companion animals. What does responsible pet ownership entail? Much of the emphasis is on dogs and cats, since they are far and away the most popular. Spaying or neutering stands at the top of the list. Every year, 8 million cats and dogs, many of them strays, wind up in animal shelters across the country. Of these, more than half are put down.
Responsible pet ownership of a dog includes proper training, feeding a balanced diet, cleaning up after your dog on walks, regular grooming, providing plenty of attention and exercise, and making sure your pet has an up-to-date identification tag implanted, or at least on a collar.
As an estate planning law firm, we think this is also a good time to remind you that while companion animals are sometimes our very best friends in life, they are often not provided for in estate plans. Shelters and veterinarians euthanize an estimated 500,000 pets each year when their owners die before them. While an outright gift to an animal is void under law in some states, the creation of an honorary trust for the care of your beloved animal companions is generally permissible. For example, you can leave your pet to a specific caregiver and create a trust to benefit the caregiver, with specific instructions on how to utilize the funds left for the pet’s care.
The main objective of using a trust to care for your pet is to provide a flexible method for managing financial assets for the benefit of any pets that survive you. By using a trust, you can designate a party to act as guardian or caretaker for the pet. Furthermore, a trust allows you to leave specific instructions concerning the standard of care and special needs of your beloved companion animal.
In honor of Responsible Pet Owners Month, we suggest that you give your beloved companion some extra treats this week. But not too many—that would be irresponsible!
UNCERTAINTY ABOUT ESTATE TAX: WILL IT DISAPPEAR? A history lesson.
In our last newsletter, we outlined some of the highlights of the temporary extension of the estate tax that will be effective from January 1, 2011 through December 31, 2012. What will happen next? Is the estate tax likely to disappear or even remain “as is” with lower rates and a more generous personal exemption than at most any time in history? Well, let’s take a look at the history of this tax.
American governments have taxed estates, at least on a temporary basis, since the founding of this country. The first estate duty was imposed by the Federalists to finance an undeclared war with France. Abraham Lincoln imposed a temporary inheritance tax during the civil war. A third, temporary estate tax was enacted to fund the Spanish-American War. Then, in 1916, the current estate tax law was enacted and has remained in existence ever since.
Who were the champions of the idea of an estate tax in the early part of the 20th Century? It was a Republican President, Theodore “Teddy” Roosevelt (“TR”), who was the modern champion of the estate tax. In 1910 TR stated: “We grudge no man a fortune in civil life if it is honorably obtained and well used.”… “We should permit it to be gained only so long as the gaining represents benefit to the community…” The really big fortune, the swollen fortune, by the mere fact of its size, acquires qualities which differentiate it in kind as well as in degree from what is possessed of men of relatively small means. Therefore, I believe in a graduated income tax on big fortunes, and … a graduated inheritance tax on big fortunes, properly safeguarded against evasion, and increasing rapidly in amount with the size of the estate.”
TR was not alone in advocating for an estate tax. Supreme Court Justice, Louis Brandeis, said, “We can have concentrated wealth in the hands of a few or we can have democracy, but we can’t have both.” Even one of the nation’s wealthiest men at the time, Andrew Carnegie, testified in Congress in favor of an estate tax as the best way to address wealth concentration. So, the estate tax never was intended to be solely a device for raising revenue for the federal government. Rather, it was meant to address the phenomenon of a small number of Americans controlling large amounts of the country’s wealth, which was considered a national problem at the beginning of the 20th Century. This period has been referred to as the “Gilded Age”.
When the estate tax was enacted in 1916, the richest 1% of Americans owned more than 50% of the country’s wealth. By 1976, the amount of the nation’s wealth controlled by the richest 1% had fallen to only 20%. Over that time, this greater disbursement of wealth fostered growth of a strong middle class. However, the tax policies of the last 35 years have reversed the trend. Today, the wealthiest 1% own more than 33% of the country’s wealth.
So, has the estate tax accomplished the goals of its supporters? Is it a necessary component of our democracy? Only time will tell how the political debate over the estate tax plays out.
NEW ESTATE TAX LAW: EFFECTIVE JANUARY 1, 2011 – DECEMBER 31, 2012
We begin the New Year with temporary estate tax relief. The key word is “temporary.” Congress, at the last minute, finally has acted to modify the estate, gift and generation-skipping transfer taxes. However, this modification of the estate, gift, and generation skipping transfer taxes will last only for two years, unless Congress passes a more permanent law. If Congress does nothing, on January 1, 2013, the estate tax exemption will be reduced to $1,000,000.00 and the estate tax rate will increase to 55%. Essentially, the last Congress has “punted” forward the sunset provisions of EGTRRA (the Economic Growth Tax Relief Reconciliation Act) for two years. No one can predict what will happen then. This newsletter will highlight the key elements of this temporary estate tax relief.
1. First, the estate tax has returned. However, it has returned with a much larger personal exemption of $5,000,000.00 and a lower 35% tax rate.
2. Second, the gift tax is reunified with the estate tax, so that everyone now also has a $5,000,000.00 lifetime gift tax exclusion amount and a 35% gift tax rate.
3. Third, the generation skipping transfer tax exemption will be Five Million Dollars ($5,000,000.00) in 2011, indexed for inflation beginning in 2012. The GST tax rate for 2011 and 2012 will be 35%.
4. Fourth, there is now “portability” of the unused exemption between spouses. This means that a husband and wife together essentially have a $10,000,000.00 exemption, the unused portion of which can pass between spouses without any special estate planning being required. In the past, we have often used two trusts, in husband and wife planning, to obtain such a doubling effect of the exemption amount. However, such portability is assured only for two years and the availability of this portable exclusion amount requires an election to be made on a timely filed estate tax return. Moreover, the provision does not allow a surviving spouse to use the unused generation skipping transfer tax exemption of a predeceased spouse. So, we likely will continue to recommend trust planning for many of our clients.
What is the effect of this temporary estate tax relief on estate planning going forward? The $5,000,000.00 gift exclusion amount and GST exemption beginning in 2011 provide an individual with the ability to make $5,000,000.00 in lifetime gifts to family members or others without having to pay gift taxes; and provide couples with the opportunity for making gifts of up to $10,000,000.00 without having to pay gift taxes. This paves the way for immediate gift planning opportunities to reduce the value of your gross estate. This can be done by giving simple gifts or by utilizing leveraging strategies such as gifts to grantor trusts and other techniques to effectively transfer far more than $10,000,000.00 out of your estate. However, gifting strategies should consider the cost basis rules. Let us know if we can assist you in the gift planning process.
There still are several reasons for continuing to use bypass trusts at the first spouse’s death, such as asset protection and flexibility, which we will discuss in detail at our “Truth About Estate Planning” workshops throughout the upcoming year.
WHO CAN BE THE PERSONAL REPRESENTATIVE OF A FLORIDA PROBATE ESTATE?
As a Jacksonville, Florida Probate Lawyer, I often am asked who can be appointed personal representative in a Florida probate estate. In Florida, the term “personal representative” is used, rather than the term “executor” or “executrix” as the title of the person who is under a duty to settle and distribute the estate of a decedent in accordance with the terms of the decedent’s Will and the Florida Probate Code.
If there is a Will (a testate estate), the person nominated in the Will to serve as the personal representative, or his or her successor, has preference in appointment. If the persons nominated are unwilling or unable to serve, then the person selected by a majority in interest of the beneficiaries (persons entitled to the estate) has the next priority. A third priority in a testate estate is any devisee (person who inherits) under the Will. If more than on e devisee applies to serve as personal representative, the court may select the one best qualified.
If there is no Will (an intestate estate), then the surviving spouse has first priority to serve as personal representative. Next would be a person selected by a majority in interest of the heirs. Third would be the heir nearest in degree. Again, if more than one such heir applies, the court may select the one best qualified.
Who is not qualified? A person is not qualified to act as a personal representative if the person has been convicted of a felony, is under the age of 18 years, or is mentally or physically unable to perform the duties. A nonresident cannot qualify as a personal representative unless that person is a blood relative of the decedent, a legally adopted child or adoptive parent of the decedent, or the spouse of a blood relative.
As a Jacksonville, Florida Probate Lawyer, I can answer your questions about qualifications and preferences in appointment of personal representatives in probate cases in Clay, Duval, Nassau, and St. Johns counties, and any other area in Northeast Florida.
PRENUPTIAL AGREEMENT AS PART OF THE ESTATE PLANNING PROCESS
As a Jacksonville, Florida Estate Planning Attorney, I frequently am preparing prenuptial (or “antenuptial”) agreements for clients. Prenuptial Agreements are not just necessary to plan for divorce. A prenuptial agreement is also an essential estate planning tool, particularly in second marriages.
From an estate planning perspective, we most often see prenuptial agreements in cases of second marriages when one or both of the parties individually owns real and personal property which they are bringing into the marriage. In Florida, married parties acquire certain rights in the property of their spouse unless an interest in that property is waived through a valid prenuptial agreement effectively segregated in some fashion. Florida laws concerning the “elective share” and “homestead” property convey certain rights to spouses and dictate how certain assets will be divided at the death of the first spouse.
Thus, an antenuptial agreement should address property acquired before the marriage, property which will be acquired during the marriage, debts which preexisted the marriage, how assets acquired during the marriage are to be divided, who can manage and dispose of certain assets during the marriage and how will property be divided in the event of a divorce. So, in cases of second marriages, particularly when there are children from prior marriages, the prenuptial agreement is an important part of the planning process. You can protect your wealth and your children by signing a prenuptial agreement, having a current trust or will and paying very close attention to how assets acquired during the marriage are titled. This way, you can have peace of mind even if you don’t live “happily ever after.” That is why we are preparing prenuptial agreements as Jacksonville, Florida Estate Planning Attorneys.
