Estate Tax: Back to the Future
This article on Trusts & Estates journal's website discusses a very real possibility - a return in 2011 to the estate tax laws of 2001. Briefly, that would mean a $1 million exemption and a 55% rate.
The Dirty Dozen - 12 Estate Planning Mistakes
As Halloween approaches, here's another reason to be scared - failure to do proper estate planning. Make sure you have not committed any of these common mistakes that I see all too often:
- No trust provisions for minor children as beneficiaries of a will.
- Not updating your plan when you move to another state.
- Having a will, but neglecting the other important documents (durable power of attorney, health care care power of attorney, living will and HIPAA authorization).
- Expecting that jointly owned bank accounts or other property will pass under the terms of your will.
- Expecting that life insurance and retirement accounts will pass under the terms of your will (the beneficiary designation controls).
- Not naming successor fiduciaries (executor, agent under powers of attorney, etc.)
- Failure to update beneficiary designations for life insurance and retirement after divorce, death of a beneficiary, etc.
- Not informing your family/executor were you have stored your original estate planning documents.
- Not reviewing and updating your plan every few years to take into account changes in your situation and applicable laws.
- Having a living trust, but failing to transfer your bank and brokerage accounts, certain real estate, etc. to the trust to obtain the advantages of avoiding probate.
- Writing or marking on the original documents in an attempt to change a name or other information.
- Not having an estate planning attorney help you complete your plan - isn't your family and your property important enough to spend the money to have your plan done correctly?
The really frightening thing is that these mistakes only apply to those who have attempted to do some estate planning; most people have made the ultimate mistake of not planning at all.
IRS Publishes Retirement Plan Guide for Small Businesses
To help small business owners steer their way through all of the retirement plan options available, the IRS has come up with the IRS Retirement Plans Navigator. The site contains a comparison of the various plans and other helpful information and links.
Reverse Mortgages can be Hazardous to your Equity
The National Consumer Law Center has come out with a report detailing the risks of reverse mortgages for senior homeowners. Because of high fees, interest rates and other issues, I generally do not recommend reverse mortgages, although for some they may be the only feasible way to access cash.
Another Estate Tax Bill Introduced
On October 15, 2009, Rep. Schrader (D. Oregon) introduced "The Small Business and Family Farm Estate Tax Relief Act of 2009" ( H.R. 3841), which would "repeal carryover basis for decedents dying in 2009, and "increase the estate tax exemption to $5,000,000" and "reduce the maximum estate and gift tax rate to 45 percent" for decedents dying after December 31, 2009.
Trouble is, carryover basis is to apply to decedents dying in 2010, not 2009. Seems this bill needs to be amended to correct the description of what it would do.
Uncertainty in Future of Estate Tax No Reason to Delay Planning
Check out this aptly titled article on webcpa.com - The dangers of postponing estate planning until Congress clarifies the law. Don't let the expenditure of a few hours or a couple of thousand dollars keep you from putting a plan into place that could avoid unintended financial problems for your family and/or save them hundreds of thousands of dollars in taxes. Estate plans are not meant to be a "once and done" solution. Regular updates are necessary, just like tuneups for a car. Without regular maintenance, your car will eventually breakdown and be useless. The same could be said for an estate plan.
Regular Updates to Will Important
This article from WSJ online on the effect on changing estate tax exemptions on what's left for the surviving spouse describes just one reason why.
Responsibilities of Guardians in North Carolina
I'm leaving on vacation tomorrow, so it's a hectic day in the office, but I wanted to share the link to the pamphlet Responsibilities of Guardians in North Carolina, which is published by the NC Administrative Office of the Courts.
It provides a good summary of requirements and prohibited acts for guardians of minors and incompetent persons. However, it should not substitute for the counsel and services of an experienced guardianship attorney. In my view, it is important for ALL guardians to have a lawyer they can turn to to ask questions, prepare petitions and accountings, etc. The consequences of doing the wrong thing, or failing to do the right thing, are too great, and could even result in personal liability for the guardian.
Guardians should also be aware of the North Carolina Guardianship Association, which offers certification as a guardian and a guardianship manual.
Be back the week of October 19th...
When NOT to use a Living Trust
Practically every day, I discuss with clients the pros and cons of revocable living trusts. In my opinion, the positives generally far outweigh the negatives, but living trusts don't make sense for everyone. There have been innumerable articles and blog postings about the advantages of using a living trust for estate planning, but I thought I'd approach the topic from a different angle - why might you not want to use a living trust:
- You want the court to dictate how your estate is handled - all those rules have to be there for a good reason, right?
- You favor supporting the government, so you like the idea of your estate paying thousands of dollars in court fees.
- You believe everyone's testamentary dispositions and assets should be public record, including your own.
- You want your executor to experience the joy to traveling to another state to handle probate in the location in which you own your timeshare, land, vacation place, etc.
- You know your executor will enjoy filling out and signing lots of forms; after all he or she has nothing better to do.
- You know your family will not mind waiting for all the minute details of probate to be completed before the estate is closed and the assets distributed.
- You are glad that the court clerks are kept busy, so a several month delay in approving a final account is no big deal.
- And finally, you favor supporting lawyers, so you don't mind your estate paying thousands of dollars in attorneys fees for ensuring that the court requirements of probate are met.
If even one of these statements describes you, then maybe you aren't the right candidate for a living trust. ;-)
I Inherited Real Estate - Where's My Deed?
I often have clients ask about "getting a deed" when they inherit real property. My response is usually "you don't need one." In North Carolina, in most cases, no deed is necessary to transfer and evidence ownership of inherited real estate.
North Carolina law provides that "[t]he title to real property of a decedent is vested in his heirs as of the time of his death; but the title to real property of a decedent devised under a valid probated will becomes vested in the devisees and shall relate back to the decedent's death, subject to the provisions of G.S. 31-39." North Carolina General Statutes Section 28A-15-2(b).
What this means is that (1) if someone dies without a will, his or her next of kin (as determined under NC law) immediately own the property; and (2) if someone does will a valid will, the beneficiaries of the property under the will immediately own the property. In both cases, the administrator or executor of the estate can sell the property only if necessary to pay debts and expenses. An exception is if the property is devised to the executor of the will with instructions to sell the property.
Other than a sale necessary to pay debts and expenses, once the real property is vested in the heirs or beneficiaries, it can only be sold if all of the new owners and their spouses agree. If the parties cannot agree on the sale, or if one of the owners or spouses is unavailable, a court proceeding for partition or sale in lieu of partition must be filed. This is a long and expensive process. If a minor child becomes the owner of real property, it also cannot be sold without a court order.
Since deeds are not necessary under North Carolina law, the evidence of ownership for inherited real property is (1) the death certificate and (2) the probate file (with the will, if any). If the real property is located in a county other than the county of the decedent's residence, these documents must also be filed in the county in which the real property is located.
Because of the complications involved under this system, often the best way to transfer real estate is with a living trust. A living trust generally gives the trustee the power to sell and avoids many of the problems inherent under NC law. This is particularly true for residents of other states who own property in North Carolina.
Estate Tax Discussions Very Popular
Here's a link to an article from Evan Cooper at Investment News about a recent webinar on the federal estate tax that the magazine hosted - geared for financial advisors but worthy reading for all those interested in what will happen with the estate tax. There were no definite conclusions by the panel, but most experts agree that estate taxes are likely to go up, rather than down.
One listener, J.B. Stroll, commented: "Having listened to the presentation, I thought a major take-away was that Congressman Rangel had intimated to a speaker that the proposal would be for a "patch" with the existing 2009 rules for one more year. There wasn't time for congress to deal with revamping of the estate taxes." (Emphasis added). This is consistent to what I have heard.
As an estate planning attorney, here's one recommendation from the article I certainly endorse: "When your clients have anything remotely related to estate planning to consider, find a competent estate-planning attorney with whom to work. This stuff is so complicated already — and likely to become even more complex — that your clients will thank you a million times over for helping them get their estate plans in order. A lifetime of hard work can disappear as a result of one tiny mistake, so be ultracareful."
