Archive for Wills
ANOTHER ESTATE PLANNING HORROR STORY FROM THE REAL WORLD – SECOND MARRIAGE MISTAKE
We recently had a client inquire about challenging his stepmother’s will. Our first thought, and perhaps yours, was that the desire to challenge came from a history of animosity between the client and his stepparent, something we see all too frequently. However, in this case, the client was actually fond of his stepmother – that is, until she died with a will that left all of his father’s assets, including the family home, to her children.
Our client’s father (we’ll call him “Bill”) made a classic second marriage planning mistake: his only estate plan was a simple “I Love You” Will that left everything to his second wife, if she survived him, and then to his children. Bill’s intent, according to our client, was to take care of his wife first, and then his kids. His plan may have worked in a first marriage where Bill and his wife only had children with each other (but even then, only if the wife did not remarry before her death and had an identical will).
However, what actually happened is that when Bill died before his second wife, she received his assets with no strings attached. She could have made an estate plan that included Bill’s children as well as her own, but she was under no legal obligation to do so. Therefore, we had to advise our client that a will challenge would be fruitless because he and his siblings had no legal right to their family home or to any of the other property their stepmother received from their father.
We were truly sorry to have to deliver such bad news to our client. But what makes it worse is that Bill easily could have achieved his true objective of taking care of his wife for the rest of her life, and then leaving an inheritance for his children, with proper trust planning. Unfortunately, in second marriage situations, what an “I Love You” Will really says is: “I Don’t Care About My Kids.”
“I LOVE YOU” WILLS – THE PERFECT PLAN FOR COUPLES?
Still looking for that perfect gift for your valentine? If so, you may be thinking an “I Love You” Will – really anything with those three little words in it – might do the trick. But what exactly is an “I Love You” Will?
When wills and trusts lawyers talk about “I Love You” Wills, we are referring to a simple will that leaves everything first to your significant other and then to your children. The name comes from the fact that we usually design these wills in pairs for happy couples who love each other and the responsible adult children that they had together. If you are lucky enough to lead such an idyllic life, an “I Love You” Will might be a suitable estate plan for you.
However, there are many issues common to the rest of us that are not adequately addressed by an “I Love You” Will. For example, such a will does not make any plan for the possibility that your significant other or one of your children will be disabled and/or receiving government benefits at the time of your death. An “I Love You” Will also does not address who will care for your minor children, or how that care will be paid for, should something happen to you. In fact, it doesn’t even address how you would like to be taken care of if you were to become mentally disabled.
Planning your estate can be a wonderful gift to your loved ones – and yourself – but you should consult an attorney to make sure you are getting true peace of mind and not a false sense of security. If you would like more information on “I Love You” Wills or any other type of estate plan, we are here to help.
NEW ESTATE TAX LAW – TIME TO EXHALE?
So, it appears that we did not go off the first “Fiscal Cliff” and some momentary “permanence” has been given to the Estate Tax Law. In the just passed “American Taxpayer Relief of 2012,” Congress kept in place the 2010 estate tax law with its Five Million Dollar ($5,000,000.00) personal exemption, adjusted annually for inflation. The only thing the lawmakers actually changed is the gift and estate tax rate, which has gone up to a top rate of forty percent (40%) from a previous maximum of thirty-five percent (35%). The exemption amount in 2012 was 5.12 million dollars, per person. The 2013 exemption amount is reported to be 5.22 million dollars per person. This amount of money either can be given away during lifetime or after death; it also can be given or devised to grandchildren without occurring any additional generation skipping tax.
Congress also increased the gift tax annual exclusion to Fourteen Thousand Dollars ($14,000.00). Remember, you can give away $14,000.00, per year, per person, to any individual(s) you choose, without it counting against your 5.22 million dollar lifetime exemption.
Can we now exhale? Will we ever have to worry again about the personal exemption reverting back down to $1,000,000, per person, as was only hours away from happening on January 1? I must give you the typical lawyer answer, “it depends”, and here’s why: the estate tax has been around almost 100 years. Throughout that time, an average of about 2% of all adult deaths resulted in taxable estate tax returns being filed. Under the current law, it is estimated that only 0.2% of all adult deaths will result in taxable estate tax returns. In order for the estate tax to continue to generate taxable estates at its historic 2% average, the personal exemption would have to be reduced to about 1 million dollars ($1,000,000.00). Yes, we have the lowest estate tax rates ever and yes, Congress seems to have made those tax rates permanent. However, in looking at the historical perspective, coupled with upcoming “fiscal cliff” (automatic spending cut) deadlines and a growing federal deficit, you have to wonder how long these historically low rates can be sustained.
The best way to stay abreast of continuing congressional volatility and changes in the estate tax laws is to have an ongoing relationship with an estate planning attorney, such as we provide with our Annual Maintenance and Updating Program.
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.
JOINT BANK ACCOUNTS
We constantly preach that how an asset is titled to is the most important factor in determining whether an estate plan will work. Many people do not give sufficient thought to coordinating the way their assets are titled with the way they want those assets to be handled in the event of a disability or after death. A glaring example is the “joint bank account.”
Florida law provides that any deposit or account made in the name of two persons who are husband and wife shall be considered a tenancy by the entireties unless otherwise specified in writing. One must be very careful when opening a bank account to review the bank’s form to make certain that the box checked “tenancy by the entireties” is checked, because if it is not, or if a different box is checked, then this presumption likely will disappear. What is important for married couples to understand is that bank accounts owned as tenancy by the entireties are owned by both spouses. This means that one spouse may not transfer money from such an account without the consent of the other spouse. On the other hand, if the accounts were joint tenancies with the right of survivorship, either spouse could terminate that joint tenancy by transferring the funds to another account or simply by withdrawing the funds altogether.
So, you can see that checking the right (or wrong) box on what appears to be a fairly harmless bank form can make a big difference in the respective rights of a husband and wife to the funds in that account.
PLANNING FOR SPECIAL ITEMS IS ESSENTIAL PART TWO – COLLECTIBLES
Last week, we wrote about a unique automobile that sparked a legal battle and ultimately fell into the wrong hands due to a lack of planning. We encouraged everyone who owns any kind of special item to plan now to avoid expense and stress later. This is especially true for collectible items, such as art, coins, stamps, antiques, etc.
Early planning for collections is crucial due to tax and valuation issues. When a collector passes away, the IRS wants to know how much his estate is worth, including collectibles. Although it can be difficult to determine the value of a collection, it is an important consideration for both lifetime and estate planning. If you have a good idea of what the IRS thinks your collectibles are worth, your estate planning attorney will be better able to advise you on estate and gift tax considerations. Depending on your situation, you may need to consider gifting or selling your collection during your lifetime.
Of course, many collectibles hold sentimental value for their owners, making tax and market value concerns secondary to the desire to keep the collection in the family or intact. When this is the case, timely planning is again the best solution. As a first step, we recommend evaluating your family’s appreciation of your collection and their willingness to maintain it. As with all other aspects of planning, knowing your family and sharing that knowledge with your lawyer will help you get the best plan possible.
PLANNING FOR SPECIAL ITEMS IS ESSENTIAL
We recently came across a case where a man owned an automobile that had a high value both sentimentally and monetarily. However, like many clients we have seen over the years, he put off estate planning until he was on his death bed and then did only a simple will. Shortly after the man’s death, his estranged son showed up with the title to the automobile dated one day before the man’s death and with an obviously forged signature. After a long civil and criminal court battle and thousands of dollars of attorneys’ fees later, the second wife gave up and let the estranged son keep the automobile.
Even though most of us don’t own historically significant automobiles, you probably do own at least one item that holds special meaning for you. It may be a piece of jewelry that your grandfather bought your grandmother, an antique clock that has been in your family for centuries, or even a beanie baby collection. Whether your special item is worth thousands of dollars or has only sentimental value, it is essential to plan so that it will end up in the right hands.
The result in the automobile case is almost certainly not what the man would have wanted to happen to his prized possession. And it would have been easy to avoid the stress and expense endured by his wife with proper estate planning. We say it often but it is worth repeating: executing and maintaining an estate plan during your lifetime almost always costs less than doing nothing.
LEAVING ASSETS UNEQUALLY, BUT FAIRLY
Our clients sometimes feel that dividing their assets unequally between their children is the “fair” thing to do. There are many reasons that a parent might want to leave more money to one child than another. One child might have a greater need for financial assistance based on mental or physical disability. Or the parent may have made unequal gifts between his children during his lifetime and want to even things out. Another possibility is that the parent has received significantly more caregiving or other assistance from one child.
Regardless of the underlying facts, we advise clients who choose an unequal distribution to explain this decision to their children. This can be done in your estate planning documents themselves, through lifetime conversations, or via written or recorded messages kept with your estate plan. We believe, and experts agree, that communication is an amazingly powerful tool to avoid family feuds.
We at Cramer Law Center are looking forward to spending time with our families as we head into the Memorial Day weekend. If you will be with your children (or parents) for the holiday, we urge you to consider talking to them about how you (or they) intend to leave assets and why.
For more information, see “Leaving a Fair Will” by Jane Bryant Quinn: http://www.aarp.org/work/retirement-planning/info-05-2012/how-to-leave-a-fair-will.html, or call us to set up a free estate planning consultation.
“THE PLAYERS” OF ESTATE PLANNING
The beginning of May always brings national attention to the Jacksonville area when the Players Championship comes to town. For one week each year, the Players is the hot ticket in town and for good reason; the tournament, which is part of the PGA tour, brings international golf superstars to town and raises millions of dollars for local charities. As Jacksonville estate planning attorneys, we find two different meanings in the words “the players”: we are reminded of all the positive energy that flows through the city at the time of the tournament, but also think about the players of estate planning.
Your estate planning “players” are the people you choose to protect your assets during your lifetime and distribute or manage them after your death. This would include the trustee(s) of your trust, the executor(s) of your will, and anyone to whom you have given a durable power of attorney. Other important players are those individuals to whom you have granted access your health care information or the power to make health care decisions for you, such as your designated health care surrogate.
The players you choose for your estate plan should be people that you trust completely and who know you well enough to make the decisions you would have made. They must also be willing and able to perform their duties. If it has been more than a couple years since you designated your estate planning players, you should review them to ensure that your choices are still appropriate and relevant today.
GEORGE WASHINGTON: ESTATE PLANNER
I have just returned from Indianapolis where I attended the 49th Collegium of the National Network of Estate Planning Attorneys. I wanted to share the highlights of my trip, including continuing my technical education, benefitting from the experience of preeminent colleagues, and a reminder of estate planning done right by one of the founding fathers.
I first took an intensive two day course concerning irrevocable life insurance trusts. An “ILIT” is a technique that can be used to allow life insurance proceeds to escape the estate tax. Although this has not been that much of a concern in recent years with the individual estate tax exemption ranging from $3.5 million to $5 million, if that exemption is lowered to $1 million on January 1, 2013, as is currently the law, then we expect many more people will inquire about setting up ILITs. Besides the technical component of the education, we also learned from life insurance professionals about concerns that life insurance policies previously placed inside ILITs run the risk of “blowing up” (becoming far more expensive then anticipated) and sabotaging the purpose for which the ILIT was constructed. This highlights the importance of monitoring the performance of your ILIT on a regular basis.
Besides having the time to focus on legal technical subjects, what I most enjoy about these gatherings is learning best practices from leaders in the estate planning field. We heard from Susan Bradley, author of the book “Sudden Money,” and from John A. Warnick, chairman of the Purposeful Planning Institute, concerning ways to go above and beyond the norm to assist our estate planning clients to “leave their wisdom along with their wealth.”
Passing on wisdom along with property is one of our core planning philosophies, and I was reminded that it goes back to the time of the founding fathers. In George Washington’s Last Will and Testament, he left his collection of swords to his nephews and, in addition to personal observations directed to each nephew, he said the following:
“These swords are accompanied with an injunction not to unsheathe them for the purpose of shedding blood, except it be for self-defense or in the defense of their country and its rights, and in the latter case, to keep them unsheathed, and prefer falling with them in their hands to the relinquishment thereof.”
Estate planning really can provide the setting for bringing out the very best in people. We would be happy to help you hand down your life experiences as well as your assets.
