North Carolina Estate Planning Blog : North Carolina Estate Planning Lawyer & Attorney : Trust Counsel, PA : Trust Administration : Serving Chapel Hill, Durham, Raleigh, Pittsboro, Orange County, Chatham County

Budget negotiators for the North Carolina House and Senate agreed on tax breaks in the 2008-09 spending plan, which include, most notably for me and many of my clients, a repeal of the state gift tax.  North Carolina is one of only four states with a gift tax.  The others are Tennessee, Connecticut and Louisiana.

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Many of us could use more insurance for estate planning  purposes, such as financial security  for loved ones or payment of estate taxes. Most of us also have an unused asset, our insurance capacity. That is the amount of insurance for which we could qualify and is based on the projected value of our assets at life expectancy. For most people, the capacity is unused because of a reluctance to pay hefty insurance premiums.

Suppose you could obtain the insurance now, while you are healthy, and let a lender pay the premium?  With premium financing, using the life insurance contract as the primary collateral, that is possible.  The result is significant life insurance coverage at very little cost.

After obtaining the insurance, you will have several options options available:

• Your health may deteriorate and the best course of action could be to pay off all the loans and keep all the insurance.

• Or you could keep some of the insurance and sell some of the insurance. Then you could use the proceeds from the sold insurance to pay for the insurance you keep.

• Or you could just sell all the insurance coverage and keep the proceeds for your heirs.

When done properly, the financing programs allow you to buy now and decide later, based on the circumstances, how much coverage you may want.

The exit strategy of selling the insurance allows you to profit, even though you keep none of the insurance coverage.

To avoid estate taxes, the policies are owned by an irrevocable life insurance trust.

Everyone’s situation is unique, of course, and these plans can be specifically tailored for your circumstances.  However, premium financing is generally available only to those with multi-million dollar estates.  Folks of more modest means must get life insurance the old-fashioned way - by paying for it.

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As a result of the ever-rising gas prices, the IRS has increased the optional standard mileage rates for July 1 through December 31, 2008.  For business, the rate is now 58.5 cents per mile, and 27 cents per mile for medical and moving.  The charitable rate remains unchanged at 14 cents a mile.  See Announcement 2008-63.

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These days, just about everyone should take care to protect their assets from possible lawsuits or other problems.  Here are 13 things to watch out for:

1. Don't keep money in a joint account, even with a spouse. 
2. Don't own the car of an adult child, or keep him or her on your policy.
3. Don't own vehicles jointly with your spouse.
4. Don't go without sufficient umbrella liability insurance.
5. Don't own rental real estate in your own name.
6. Don't own real estate jointly with someone other than your spouse without a "buy-sell"  or joint ownership agreement.
7. Don't leave property, including life insurance and retirement benefits, directly to minor children.
8. Don't operate a business as a sole proprietor.
9. Don't let other people operate any of your motor vehicles, but if you do, make sure your insurance policy covers them.
10. Don't sign a joint income tax return with your spouse if you have any suspicion that he or she is not reporting all income, over-stating deductions, or is otherwise acting fraudulently or negligently.
11. Don't co-sign or guarantee loans to family members or friends.
12. Don't serve on the board of a non-profit organization unless it has sufficient errors and omissions insurance for directors.
13. Don't get married without a comprehensive prenuptial agreement.

While this list can help get one started on an asset protection plan, there is no substitute for seeking the counsel of an experienced attorney to ensure that you and your family are fully protected.

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The Renewable Energy and Job Creation Act of 2008, the latest version of legislation featuring several tax extenders, alternative minimum tax relief and energy provisions failed to pass the Senate.  Championed by Senate Finance Committee Chair Max Baucus, the bill faced stiff opposition from Republicans who objected to the tax offsets, most notably taxing offshore deferred compensation of hedge fund managers and delaying a business tax interest deduction until 2019.

Baucus has already crafted a revised bill, the Energy Independence and Tax Relief Act of  2008, which should be submitted to the Senate next week.  Democrats oppose any tax extenders without tax offsets.

See my earlier postings under the heading Pending Legislation for a more detailed description of the tax extenders, which include the IRA charitable rollover.

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Bruce and Kathryn Barbee, an elderly North Carolina couple, owned a $450,000 vacation home.  Since Bruce was legally blind, he relied on his wife to sign documents for him. After Kathryn went into a nursing home, their long time friends (the defendants) came to visit bearing a contract to rent the vacation property for $300 a month, with an option to purchase it for $150,000. The defendants had a notary public come with them.  During the meeting, Kathryn signed the contract. When Kathryn died, Bruce sued to set aside the agreement based on his ignorance of the content of the agreement and the fact that he did not authorize Kathryn to execute the agreement for him. The Defendants filed a motion for summary judgment, which was granted by the trial court. On appeal, the Court of Appeals set aside the summary judgment, ruling that where issues of undue influence and adequacy of consideration were raised, summary judgment was improper.

Barbee v. Johnson et al., No. COA07-510, 1008 N.C. App. LEXIS 887 (May 6, 2008)

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With all of the universities in this area, this recent change in the law dealing with deferred compensation (IRC Section 409A) may be of interest to many local readers.  The new law may affect faculty who have a 10 month teaching contract but elect to be paid over a 12 month period.  See this AAUP Tax Alert for details.

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Parents of minor children would be well-served to view this video, Estate Planning for Parents, which features my WealthCounsel colleague Alexis Martin Neely on the Today show.  Neely is a California lawyer and author of a new book for parents about  planning for the care of their kids.  Says Neely, "estate planning is a gift for those you love the most."  I agree wholeheartedly.  Make sure your kids will be well cared for, financially and otherwise, if you are suddenly no longer around.

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I recently came across a publication entitled If Something Should Happen - How to Organize Your Financial and Legal Affairs.  The booklet is authored by Marla Brill and is published by the American Institute for Economic Research.  Copies can be ordered from the website.

The booklet provides a concise overview of basic estate planning information, including health insurance and burial issues.  It also has several pages for recording important estate, financial, insurance, and medical data.  Having the information in this format could save hours of time and worry for your loved ones.  For $10, I think it's well worth the money.

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