Pennsylvania Estate Planning Lawyer & Attorney : Jakubik Law Firm : Serving Philadelphia, Chestnut Hill, Mt. Airy

This is probably the most frequently asked question for any estate-planning attorney. Anyone with any property at all, whether real or personal, or with children ought to have a will. Even a person who has nothing may be instantly worth a large sum of money at death, if they are killed through someone else’s negligence or are well insured. For a divorced person with minor children, a will eliminates arguments over who will manage any assets or money left to the children (e.g., an ex-spouse). If you do not have a will, then the state decides who gets your property. In addition, the court will decide who will be your Personal Representative and it may be necessary for that Personal Representative to obtain a bond at the expense of the estate. If you prepare a will, then you can direct that the bond be waived.

Source: The Harry Thomas Hackney, P.A. Florida Blawg

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Neil Hendershot, who publishes the Pennsylvania Elder, Estate and Fiduciary Law Blog, was kind enough to put up a post about this blog earlier today. I wanted to take this opportunity to thank Neil for his kind words, and also for publishing a blog that is a tremendously valuable resource for anyone who either practices trusts and estates law in Pennsylvania, or who has any interest in the field. Neil's blog is the gold standard, and I urge anyone who reads this blog to make Neil an every day read.

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Like many, I have been following with some interest the progress of Rupert Murdoch's bid to buy Dow Jones, the publisher of the Wall Street Journal. My interest has been especially piqued by the role that a series of what appear to be some very complex Bancroft family trusts play in the matter, not to mention the role that the family trustees and lawyers are playing. The weekend edition of the Journal ran an interesting story on the status of Mr. Murdoch's bid that outlined the divide among the Bancroft family members, as well as the role that the various trusts play in the drama. What especially caught my eye was this little bit:

Family lawyers were scrambling Friday to change the voting structure of the biggest Bancroft trust so it would better reflect the views of all the beneficiaries. The trust's overseers include Christopher Bancroft, a prominent family member who has been outspoken in his opposition to the deal. The restructuring could dilute Mr. Bancroft's influence over the stock now held in the trust.

I have not seen the trust documents that govern the trust in question, and I do not have any knowledge of the terms. I wonder, though, whether it is particularly appropriate for the lawyers to try and restructure the trust to suit the needs of particular beneficiaries under a particular set of facts. If its that easy, part of the purpose of the trust (and in the case of a family such as the Bancrofts. to be sure there are tax reaosns for the trusts) is defeated. It can't be that simple. I will be fascinated to see  how this plays out and, if Mr. Bancroft is on the losing side, whether there will be litigation over this effort to divide the trust. And of course there is a planning lesson here for others. If you have particular wishes, be sure that they are explicitly addressed in your planning.

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If you are a business owner, your business likely represents a substantial portion of your net worth. Ultimately, your share of the business may very well comprise the most significant portion of your estate when you die. If you are a sole proprietor or are otherwise the sole owner of the enterprise, of course, the business will pass at your death in the manner you direct (assuming you have properly planned your estate!) If you have partners, or if you are a shareholder in a closely held corporation, however, it is critical that you have a buy-sell agreement in place. The buy-sell agreement will govern how your share of the business is to be disposed of, and will also set the price for which your share will be sold. It can also direct how the purchase of your share is to be funded. As Robert Cavanaugh outlined in an article that he authored on this subject, a properly drafted buy sell provides several significant advantages to business owner:

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Joel Scheonmeyer at the Death and Taxes blog published the following very interesting post that ought to be of great interest to anyone thinking of funding a living trust with real property:

A few weeks ago, I posted (here) about obtaining lender approval when placing property into a living trust. I then received an interesting e-mail from reader Richard Barid of the Savannah, Georgia law firm of Smith Barid, LLC. Mr. Barid pointed me to a portion of the US Code (12USC1701j-3(d)(8), which can be found here) that seems to indicate lender approval isn't needed. To quote the relevant parts of 1701j-3 (the emphasis added is mine):

(a)(1) the term “due-on-sale clause” means a contract provision which authorizes a lender, at its option, to declare due and payable sums secured by the lender’s security instrument if all or any part of the property, or an interest therein, securing the real property loan is sold or transferred without the lender’s prior written consent;

(b)(2) Except as otherwise provided in subsection (d) of this section, the exercise by the lender of its option pursuant to such a clause shall be exclusively governed by the terms of the loan contract, and all rights and remedies of the lender and the borrower shall be fixed and governed by the contract.

(d) With respect to a real property loan secured by a lien on residential real property containing less than five dwelling units, including a lien on the stock allocated to a dwelling unit in a cooperative housing corporation, or on a residential manufactured home, a lender may not exercise its option pursuant to a due-on-sale clause upon... (8) a transfer into an inter vivos trust in which the borrower is and remains a beneficiary and which does not relate to a transfer of rights of occupancy in the property
[.]

Mr. Barid [sic] adds that it's still a good idea to talk to a client's lender, for professional courtesy and to avoid surprises.

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Yesterday's Wall Street Journal had an interesting article about the possible tax consequences to the poor schmoe who catches Barry Bonds' presumably soon to come record breaking home run ball. The question is whether the lucky spectator who grabs the ball is liable for tax on the value of the ball, and if so, when any tax would become due. The IRS isn;t commenting on the matter - and appears to have no intention of issuing a tax bill - evidently still suffering from the adverse publicity it received the last time there was a home run of consequence. When, during Mark McGwire's pursuit of Roger Maris's single season record, and IRS official was asked what would happen if the fan who caught the record breaking ball returned it to Mr. McGwire, the official stated that the poor fan would face a hefty gift tax bill. After a deluge of criticism, the IRS issued a statement to the effect that, under the circumstances suggested, there would be no gift tax bill. But there are a lot of unanswered questions. What if the ball catcher gifts the ball to the Halon-profitl of Fame, or a charitable non-profit? What if he or she gives it to one of their children, or someone else? What position will the service take? What if Bonds is indicted after the season ends, and the ball becomes worthless? Interesting questions all. Tax isn't ALWAYS dull.

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One of the more absurd developments in the tax planning arena during recent years has been the move by some practitioners to obtain patents for certain tax planning strategies. If successful, the applicants would be in a position to prohibit other practitioners and their clients from making use of the patented strategies - some of which, while creative, do not rank as discoveries along with penicilin, the computer microchip or a blockbuster pharmaceutical - or force them to pay royalties for using particular strategies. Congress, for once, appears poised to re-introduce a dose of sanity. It has been reported that the House Judiciary Committee approved an amendment to the Patent Reform Act that would essentially put a halt to this silly practice. Here's hoping that common sense, and the Boucher-Goodlatte amendment, prevails.

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Traditional gender roles are fading fast. Gone are the days of Donna Reed and June Cleaver. However, gender still makes a difference. One of the areas in which we see a difference is estate planning.

Why is that?

Women continue to live longer than men do. In fact, according to MsMoney.com 75% of women will become widows at some point in their life. A woman is an average 56 years of age when she is widowed.

It may not be fair, but women are the ones affected by poor planning because, statistically, women live longer—an average of 6.7 years longer.

There are several myths women commonly hold about estate and retirement planning:

Myth #1

I’m not old enough to worry about it, yet.

Planning is important at any age. You are not just planning for what happens to your assets at your death but, also, for who will take care of things if you become incapacitated. Furthermore, while you are young and your children are still minors, it is important to select guardians to raise them if something happens to you.

From a financial perspective, if you start saving early, it will be much easier to have a comfortable retirement. Remember, on average, women are only 56 years old when they become widows. Husbands may not be around when it comes time for retirement.

Myth #2

My estate isn’t big enough to worry about estate taxes.

Maybe it isn’t today but it may be by the year you die. The amount you can pass free from estate taxation under current law goes down in 2011 to $1 million. Meanwhile, the average person’s assets continue to grow.

For example, over the long run, a broad measure of large U.S. stocks, the S&P 500 index, has increased (on average) 10.4% annually since 1926. That means it doubles approximately every seven years. So, if you have over $500,000 today (appropriately invested) and you expect to live more than seven years, you could have a taxable estate! By starting early and planning, you can minimize estate taxes.

Myth #3

If I hold property by joint tenancy, I do not have to worry about estate planning.

Joint tenancy can be a simple way to avoid probate and having to re-title assets upon the death of one spouse. However, if joint tenancy passes all of the dead spouse’s assets to the surviving spouse, we increase the surviving spouse’s estate even more and compound the estate tax problems. Further, joint tenancy is not a solution to the problems of incapacity.

Women live longer than men and are likely to survive their husbands, having to pick up the pieces after their husbands’ deaths. This is why, despite the many myths out there, estate and retirement planning is critical for women.

Estate and retirement planning can be a complex puzzle. A qualified estate and retirement planning attorney can help you put all the pieces together. With a well-planned estate and retirement, you can rest easier. Your future will be secure.

You will have laid the foundation for a great life. You will have guarded against incapacity and the death of your spouse or partner. Finally, you will have set your children off on the right path. It’s amazing what a little bit of planning can do!

Source for post: Prudent Planning blog.

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It seems like everyone has their favorite top ten list of common or egregious estate planning mistakes. A couple of weeks ago, I shared with you another blogger's list of common mistakes. More recently, Morningstar published its own "top ten" list. One of the interesting things, to me, is that there is less overlap among the lists than one might expect. One explanation for this is that there are so very many mistakes that you can make when planning your estate and financial affairs, especially if you try to do it yourself, or are advised by attorneys and financial advisers who fail to focus on your goals and aspirations. In any event, I think that Morningstar provides a valuable list of issues to consider and to discuss with your advisers. The list is reproduced below the fold.

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Succession planning can sound intimidating. But taking the proper steps now to designate how your business will operate if you are unexpectedly unable to work can save your loved ones and business partners from future headaches and arguments.

“If you own a small business, planning for the future is especially critical,” says Wynne Whitman, a New Jersey-based estate lawyer and co-author of Wants, Wishes, and Wills (Financial Times, 2007). Such planning should not only include specific arrangements that designate who will step in for you in the case of your death, but also if you become incapacitated.

“You really want it to be clear to your employees and your family exactly what is supposed to happen if you’re in a car accident and out of the office for six months,” she adds. One way to do this is to obtain a power of attorney through either your corporate attorney or estate lawyer to authorize who will legally act on your behalf in business matters. This could include a spouse, a son or daughter whom you have been training, or a trusted employee.

Without a power of attorney, a court action to appoint a guardian may be necessary if you become incapacitated. This is not only expensive and time-consuming, but also very public. The court may ask for documents proving your company’s assets – as well as your illness – when deciding a guardian, whom may be someone you would not have originally chosen.

Whitman recommends that entrepreneurs make sure that their partnership agreements and operating agreements have provisions in place for both the death and incapacitation of a member, including buy/sell agreements which designate how the other owners can purchase a deceased or incapacitated member’s shares. Without one, your partners may argue over how to value your interest and disagree on who should have the right to purchase the shares from your estate if you pass away or must leave the business. (To afford your partner’s shares, you may want to consider purchasing a life insurance plan that would pay you a premium in the event of a partner’s death. For more on buy/sell agreements, see our Success Guide to Estate Planning.)

However, for sole proprietorships, similar documents may not exist.

“If you’re a sole proprietor, it’s unlikely that you have any kind of operating agreement,” says Whitman. She urges single owners to consult with an attorney to make sure their succession policies and procedures are clear. Also, she recommends that sole proprietors obtain life insurance and disability income insurance to help their family absorb the lost income and pay for estate tax obligations, which may prevent them from having to sell the business.

“It’s not the happiest subject to discuss, but I find that people make better decisions when they’re feeling well and death isn’t imminent,” says Whitman, who urges her clients to consider these possibilities when their heads are clear. “The expense, the cost, the time, and the heartache that’s left to your beneficiaries and your employees if you don’t do any planning, are really catastrophic.”

But the focus, she adds, should not rest solely on your business.

“It’s really hard to focus your attention on your personal needs; we always seem to put ourselves last,” says Whitman, who finds that entrepreneurs are no more likely to prepare for their personal obligations than other people – including proxies to act on your behalf in legal and health care matters, as well as wills to designate how your assets should be distributed after your passing. “If you’re a successful businessperson, you need to not only consider the future success of your business, but also the future success of your family.”

Source for post: Success Magazine

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I read this article from the front page of the New York Times this morning, and I thought that folks might be interested. There are so many good advisors out there, I hate to hear stories about the ones who don't put their clients' interests foremost.

Here is a summary of the article, courtesy of the National Academy of Elder Law Attorneys:

Tens of thousands of financial advisers are working hand-in-hand with insurance companies to market themselves to older Americans using impressive-sounding credentials like “certified elder planning specialist,” “registered financial gerontologist,” “certified retirement financial adviser” and “certified senior adviser.”  Many of these titles can be earned in just a few days from for-profit businesses, and sound similar to established credentials, like certified financial planner, that require years of study, difficult tests and extensive background checks. 

“The degree isn’t worth the paper it’s written on,” said T. Kevin McElreath, a financial adviser in Milford, Mass., who took the certified senior adviser exam but does not use the credential. For many agents, he said, “it’s a scam, a way to put a title on a business card that impresses gullible seniors.” Many graduates of these short programs say they only want to help older Americans.

But they are frequently dispensing financial counsel they are unqualified to offer, advocates for the elderly say. And thousands of them are paid by some of the country’s largest insurance companies — including Allianz Life, Old Mutual Financial Network and American Equity Investment Life Insurance — to sell elderly clients complicated investments that economists say most retirees should never own.

Source: New York Times (8 July 2007)

Source for post: The Estate Planning Law Group blog.

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While I will confess to being a dog lover (and proud owner of an 11 year old Basset Hound, pictured here), I have never quite understood the notion of providing for a pet in a will or establishing a trust for that purpose. Many think that folks who do these things are, well, perhaps a little dotty (not that I share that view). It is a fact, however, that on an annual basis Americans spend more money on their pets than they do on their children. An increasing number of states, furthermore, have enacted legislation recognizing the validity of "pet trusts." If you are concerned that your dog, cat, chinchilla or other pet is cared for according to your wishes after your death, you will find the following post from the Adopt a Dallas Pet - Online PetWork blog of interest:

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One of the standard, and critical, documents in most clients' estate plans is a durable power of attorney for financial affairs. These powers of attorney enable the client's selected agent to manage his or her financial affairs in the event that the client should become incapacitated. A properly drafted power of attorney can be critical in enabling the client's family to avoid time consuming, and costly, court proceedings involving the client's financial affairs in the event of incapacity. Unfortunately, many financial institutions will often refuse to honor a power of attorney, even when the document was lawfully executed. Institutions will refuse to honor these agreements for a variety of reasons, including concerns as to whether the document was forged and whether it has been revoked or superseded by some other agreement. Not surprisingly, financial institutions are typically driven by a motivation to try and limit their own liability in these cases. Several years ago, Daniel Wentworth published an article in the ABA Section of Real Property, Probate and Trust Law's publication "Property and Probate" in which he recommended several steps for attorney's to take in drafting powers of attorney to maximize the likelihood that they will be honored. Mr. Wentworth's advice was well taken when the article was first published, and it is still good advice today:

* Grant general powers in the document so that there is no risk the agent exceeds her authority.
* Also include specific powers clearly authorizing the actions the agent is likely going to need to take.
* Don't use "springing" powers of attorney that don't go into effect until you are incapacitated or, if you do, be very clear about what triggers their effectiveness.
* If you're appointing more than one person, clearly permit them to act separately (unless you really don't want them to).
* Sign several originals so that they are available for different financial institutions to review.
* Sign a new power of attorney every few years so that there's less likelihood that it may have been revoked and there's a long-term record of your desire to appoint your particular agent.
* If available, also sign any powers of attorney form offered by the financial institutions in which you have funds.

Any power of attorney that observes these guidelines is far more likely to be honored than not. Thanks to the Elder Law Answers Blog for this post on the subject.

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As mentioned in my last post, Joel Schoenmeyer, of the Death and Taxes blog, has put together an outstanding multi-part post on the gift tax. Here is the second part of Joel's excellent gift tax primer:

6. The gift tax is NOT a tax that applies on each and every gift you make. Rather, there are a number of credits or exclusions that a taxpayer can rely upon to avoid the tax.

7. One of the simplest of these can be found in Section 2503(e) of the Internal Revenue Code (the "Code"). It's the "Ed Med" exclusion, which exempts the following from gift tax:

any amount paid on behalf of an individual— (A) as tuition to an educational organization... for the education or training of such individual, or (B) to any person who provides medical care...with respect to such individual as payment for such medical care.

"Educational organization" and "medical care" are both defined elsewhere in the Code. One important point: the payments have to be made directly to the educational organization or medical care provider -- payments made to Daughter to reimburse her for these payments, or made to Grandson to be used for such payments in the future, don't count.

8. There's also an "annual exclusion" from gift tax -- you can give up to a set amount ($12,000 this year, but it changes with cost of living) to as many individuals as you want without any gift tax implications. That means 12K to each child, to each grandchild, to each niece or nephew, to each person listed in the Chicago telephone directly, all with no gift tax. You don't even have to file a gift tax return for these gifts.

9. One wrinkle to the annual exclusion discussed above (which can be found in Section 2503(b) of the Code): it only applies to gifts of a "present interest." In other words, if you give $12,000 to Grandson in a cash he can use right now, you qualify. If, instead, you give $12,000 to a trust for Grandson but he can't access the money right now, you don't get to use the annual exclusion for that gift. Obtaining the annual exclusion for gifts to a trust is what's driven the use of crummey trusts, which I blogged about here.

10. A husband and wife who both want to make gifts can elect to "split" their gifts. Let's say that my wife and I want to give $24,000 to each of our children. If I write a check for that amount from my own account, and get my wife's consent on a gift tax return we file, then the gifts will be treated as having been made one-half ($12,000) by me and one-half ($12,000) by my spouse. We both get to use our annual exclusion. The split gifts provision is in Section 2513 of the Code.

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The Death and Taxes Blog - in my opinion one of the finest, if not THE finest - trusts and estates blog anywhere, has run a very interesting and informative two part post on the federal gift tax. This is one of the more confusing topics involved in the family wealth planning area, and Joel Schoenmeyer, the publisher of Death and Taxes, is to be commended for doing such a fine job. You can read part I of Joel's two parter on the gift tax here.

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As I noted in an earlier post, I am firmly convinced that one of the primary, if not the primary, purpose of estate planning is for you to implement your vision, and fulfill the hopes and dreams that you have for future generations of your family, and to transmit your values to those future generations. In this vein, Jennifer Sawday posted the following at the California Estate Planning Blog:

One of the facets of estate planning is the opportunity to make a difference in the lives of your loved ones and support the causes you most care about. You may also have the ability to leave a legacy after you pass away.

Some things to think about when it comes to legacy planning:

1. Think about charities and causes that are important to you. Describe which ones you would like to support with financial resources before or after you pass away.

2. How would you like to be remembered by your family and friends?

3. Personally imagine some of the ways you can leave a lasting impression. Write down your thoughts.

4. Suppose you had $1 million to give upon your death, how would you allocate this money?

Your thoughts, answers and questions would be the basis of a good discussion with your estate planning attorney to see how an effective estate plan can achieve your objectives and leave a lasting impression.

Jennifer's questions provide an excellent means of focusing us on those things that are important in family legacy planning: what are your hopes and dreams for your family? What values do you want to communicate to the rorld and to your heris? What is your passion, and what is your vision for the future generations of your family? That - and not tax savings - is what estate planning is all about.

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Most people know that they should have a will, but few individuals understand how important it is to select the right executor to help manage their affairs and distribute their assets to heirs upon their death. Picking the right executor will mean that loved ones will receive their inheritance on a timely basis. Picking the wrong one could lead to lengthy delays, tax problems and possibly even a "will contest."

To provide a better understanding of why it is so important to select a capable executor, we'll explore in this article what happens to your estate after you pass away and how the executor is involved.

Your Estate Is Opened

To officially "open" your estate in the U.S. and begin the process of probating your will, the executor will file paperwork with the county, in which he states that he is the executor and will be representing the estate. The executor must also then notify creditors and other interested parties of your death and their right to make a claim against your estate.

Some probate courts will require that certified letters be sent to potential creditors. Others simply require that a notice be published in a local newspaper. But in any case, it is up to the executor (with some help from the court) to identify those creditors and properly notify them. To be clear, notification errors could lead to lawsuits from beneficiaries, heirs or creditors. Therefore, the task definitely warrants a mature individual.

So what is probate? For those unaware, probate is a process conducted by a court (typically referred to as a probate court) that determines the validity of the deceased person's will. The court also helps to identify and locate beneficiaries and supervises the distribution of assets.

Collecting Assets

It is the executor's job to take an accurate inventory of the deceased person's assets. This includes making a list of all bank, brokerage and retirement accounts, as well as any property the deceased owned. Additionally, an inventory of personal effects, such as collections, antiques or other valuables, must be tabulated and presented to the probate court for review.

Obviously, this can be an extremely time-consuming task. It may mean going through the deceased person's personal paperwork for information, interviewing heirs or perusing ownership documents at the local town hall. And again, the information is expected to be accurate and complete so that the heirs receive their inheritances on a timely basis.

Managing The Estate

The executor is charged with using the estate's funds to pay any bills that the deceased had outstanding (such as utility or credit card invoices) at the time of his or her death. The executor must also collect any money that is owed to the deceased. This is extremely important, because the money must then be passed on to the beneficiaries according to the provisions of the will.

If a business is involved, the executor may have to buy or sell certain assets, make payroll distributions and otherwise temporarily run the enterprise (or at the very least, find someone to do it) until it is passed on to heirs (again, as per the provisions of the will).

In short, this means that having a business-savvy executor is also a must.

Dealing With Taxes

It is up to the executor to find an attorney or an accountant to calculate any estate taxes that are due (or do it themselves) and then to file the appropriate tax return to make the payment. In addition, the executor is responsible for filing a final income tax return (Form 1040) for the deceased. The purpose of this is to pay any taxes that are due on income that was earned in the last year of the deceased's life, or to receive any refunds (which would ultimately be passed to the beneficiaries). Again, these tasks require an intelligent, disciplined individual who is able to appreciate the implications of his or her duties.

Closing The Estate

This is a process where the executor must prove to the probate court that he or she has adequately notified all potential creditors of the deceased's death. The executor must also prove to the court that he or she has paid all bills and taxes that were due. As part of the process, the executor may also have to show releases from the state that all liabilities have been settled and provide a thorough accounting of any income earned or disbursements made by the estate after the death of the deceased.

Distributing Assets

After all debts have been settled, it is up to the executor to distribute the assets to heirs as per the provisions of the deceased's will. This may mean paying funds to heirs directly, or, if the will provides for it, funding a trust for minors.

While this may sound like an easy task, it isn't. After all, the executor may have to deal with jealous family members or others who feel cheated that they didn't get their due. Therefore, it's up to the executor to meet with and explain the distributions to heirs--in other words, to be a "people person." Incidentally, the goal here is to prevent will contests (where an entity files suit trying to obtain funds not bequeathed to them in the will) that could drag the distribution process out even longer.

Choosing The Right Person

Most people tend to choose a family member or a close friend to act as an executor and to administrate their wills upon their death. But because of the intricacies that go with the job, people must realize that the most competent person (not the closest in relation) should be chosen. As mentioned before, this does not mean that the chosen individual must do everything themselves. Executors are allowed to hire others to help with various aspects of the process (such as an accountant to help with the taxation portion).

With that in mind, if you don't have a friend or a relative who you think can complete these duties in a satisfactory manner, don't worry--attorneys, accountants and other professionals can act as an executor for a fee, usually derived from the deceased person's estate. And while that fee may be in the hundreds or even thousands of dollars (depending on the size of the estate and difficulties involved) it may be worthwhile, especially if it means that your family will receive their inheritance intact and on a timely basis.

The bottom line is that most people assume that being an executor is an easy task that can accomplished by anyone, but because the probate process is so involved and may entail interaction with tax and legal professionals, only an intelligent, dependable person should be named as executor.

Source: Forbes.com

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Even if your kids are grown up with families of their own, you can probably remember scenes of intense sibling rivalry when they were younger. In some families, that competition continues into adulthood; for others, it recedes as children age and mature. But it can all come flooding back while trying to divide up your estate after your death as your kids argue over who gets what.

If you die without a will, a court will decide, based on state law, who will inherit your property. In most cases, the result might be contrary to your wishes. Think of all the assets youve accumulated: house, car, jewelry, investments, family heirlooms and more. It is simply not enough to say let them just divide it evenly or work it out themselves, says Gerald A. Youngs, president of the National Association of Estate Planners & Councils (NAEPC). This is sure to create problems and expenses due to probate laws, state laws and court appointed strangers making family decisions.

Continue Reading...

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Mitchell Port, of the California Tax Attorney Blog, published an excellent post a couple of weeks ago in which he outlined the ten biggest estate planning mistakes. Reproduced below is Mitchell's top ten list:

1. Failure to Make Gifts to Reduce Estate Taxes. Easy gifting options include the $12,000 annual exclusion, $1,000,000 lifetime gift exemption, and unlimited tuition/medical gifts. In a 45% estate tax bracket, each $12,000 gift saves $5,400 in estate tax.

2. Failing to Protect a Child's Inheritance. A child's inheritance that passes outright to the child is not protected from creditors, divorce, or estate tax at the child's death. To protect the inheritance, it may be better to leave assets in trust for such child's benefit. If desired, the child can be named as the co-trustee of the trust along with a third party.

3. Failure to Pursue Sophisticated Estate Planning Tools. Explore techniques to reduce estate taxes and/or protect assets. Consider the family limited partnership, charitable trusts, qualified personal residence trust, and sale of assets to children.

4. Wasting $2,000,000 Exemption When First Spouse Dies. The $2,000,000 exemption is wasted when assets are left outright to the surviving spouse. Instead, the Will should create a bypass trust to be funded with $2,000,000 of the decedent's assets, saving up to $900,000 of estate taxes (assuming a 45% estate tax rate). WARNING: Naming the spouse as beneficiary of life insurance/retirement plans prevents such assets from going into the bypass trust. Also, if the house goes outright to the survivor, the decedent's portion cannot be used if needed to fully fund the bypass trust. The impact on the overall plan should be considered before making such a bequest.

5. Wasting $2,000,000 GST Exemption. This results in needless estate taxes at the deaths of children. Instead, consider segregating $2,000,000 ($4,000,000 for husband and wife) of assets in trust for the benefit of children for life and then to grandchildren, free of estate tax at each child's death.

6. Life Insurance Policies Owned by the Insured. The proceeds of life insurance are subject to estate tax when the insured owns the policy. For example, $1 million of coverage taxed at 45% leaves only $550,000 coverage after tax. Transferring ownership of life insurance to an irrevocable life insurance trust (or having the trust buy new coverage) removes the proceeds from the estate, provided the insured lives for three years after the transfer.

7. Poor Timing of Retirement Plan/IRA Distributions. Penalty taxes arise if retirement plan/IRA distributions are too small, too early, or too late. Devise a distribution strategy and beneficiary designations to maximize income tax deferral, but with due consideration of these penalty taxes. Consider designating a charity as beneficiary to avoid estate tax and income tax.

8. Failure to Plan for Lifetime Contingencies/Disability. This may result in a court-supervised guardianship. Plan ahead by executing a power of attorney for management of property and personal affairs, advance health care directive and living trust. Be wary of "standard form" documents.

9. Lack of Liquidity to Pay Estate Taxes. Illiquidity can result in forced "fire sale" of real estate or a family business within nine months of death in order to pay taxes. In this situation, it is advisable to explore life insurance and plan for the orderly sale of assets.

10. JTWROS ("Joint Tenants with Right of Survivorship") Ownership Designation on Brokerage or Bank Accounts. This designation prevents such accounts from being funded into the bypass trust when the first spouse dies, potentially wasting the decedent's $2,000,000 exemption (and costing up to $900.000 in extra estate taxes). This also applies to "P.O.D." (pay on death) accounts and "Trust" accounts payable to a named beneficiary (example: "A, Trustee for B"). While these designations avoid probate, other problems arise instead. Multiple party accounts should be set up as tenants in common.

Source for post: California Tax Attorney Blog. Thanks to Michael Bonasera of the Ohio Trust & Estate Blog for this post on the subject.

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Friday's Wall Street Journal published a fascinating article about what those in the philanthropic world call "stretch" donors - folks who make charitable gifts and bequests that are beyond what would be expected given the donor's financial circumstances. Such donors choose to forego purchasing vacation homes or funding their own retirements or children's education funds in favor of making substantial philanthropic gifts. It appears, according to the Journal article, that the incidence of such "stretch" gifts is increasing, and the average age of the donors is moving lower. My initial reaction upon reading the story - especially the part about the Mississippi neurosurgeon who decided to give away 99% of his net worth, and now faces uncertainty with regard to his own retirement, as well as his 3 year old's college education - was that, in most cases, these folks were terribly irresponsible for putting their own "feel good" philanthropic notions ahead of their own familes' security. As I continued to think about it, though, I realized that, as with so very many things in life, its not as simple as all that, and first reactions can be wrong.

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When planning and effectuating a family wealth plan, one of the more significant decisions that you may need to make will involve the naming of a trustee or trustees to administer various kinds of trusts that you may establish (much more about the nature and uses of these trusts will be discussed in future posts). Jennifer Sawday recently posted a helpful discussion of things to consider when deciding whom you will name as trustee at her California Estate Planning Blog. Jennifer identifies the following as issues to consider when selecting a trustee:

1. Does your loved one have time to commit to fulfilling the many duties of being a trustee?

2. Does your loved one have the knowledge and information necessary to manage the assets in your Trust?

3. Are there any terms of your Trust that could present a conflict of interest to your potential trustee?

4. Do you have conflicts in your family that could present problems for the trustee?

5. Does your Trust hold assets that may force the trustee to make difficult decisions like dealing with a family-owned business?

6. Is the cost of a professional trustee a consideration?

7. Is the loved one also a beneficiary of the Trust?

Of course this is not an exhaustive list, but its a pretty good start. I would also add that many of these questions ought to be considered when you are choosing an executor for your estate, as well. If you have any questions, concerns or doubts during this process, talk with one of your advisers. They can always help to guide you through the process and think through the issues that need to be considered before these critical decisions are made.

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Since the day President Bush signed the Economic Growth and Recovery Act of 2001 into law, speculation about the future of the federal estate tax has been a favorite parlor game of estate planners, financial professionals and others with skin in the game. As you likely know, the 2001 act provided for staged increases in the federal estate tax exemptions, culminating in a complete repeal of the tax for the year 2010, and then a re-imposition of the pre-act $1 million exemption in 2011. Most take it as a given that those with sufficient assets to worry about whether the repeal is or is not made permanent most likely would benefit from a permanent repeal. I happen to share this view (although I do not believe that tax savings are necessarily the primary concern in estate planning, about which you will see much more here in the future). Not everyone, however, shares this perspective.

Justin Parr, writing on Lightship Mutual's blog, The Daily Compass argues here that a full repeal of the estate tax would actually negatively impact more people than it would benefit, as a repeal would eliminate the rule that provides that heirs receiving property at the transferor's death take the property with a stepped up tax basis to the fair market value of the property as of the date of death. With repeal, Parr asserts, the normal gifting rules would apply, with the recipients taking the property at the transferor's basis, and subject to capital gains tax if the property has increased in value.

Parr may well be right on the technical issue (although, if Congress were to do the right thing and make the repeal permanent, it remains to be seen how the legislation would be written and how, or even whether, the tax basis issue would be addressed), and he is certainly right that arguments can be made on both sides of the moral question of the propriety of death taxes. It would appear that Mr. Parr would disagree with me that repeal of the estate tax is the right thing to do, from both a moral and policy perspective. Where we would agree, however, is that the uncertainty that Congress created with the one year repeal makes proper planning especially challenging and confusing for clients. For that reason, if for no other, Congress should resolve once and for all the issue of what will happen with the estate tax after 2010.

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Courtesy of Steve Seel at the Thorp, Reed & Armstrong law firm, Pennsylvania's Uniform Trust Act is now available online at this link. This is a tremendous resource for Pennsylvania trust and estates practitioners, and Steve is to be commended for providing this service. Thanks to Neil Hendershot for this post on the subject.

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Anyone who owns and operates a business should, without question, have an estate plan in place, and should regularly consult with appropriate advisers, including a CPA, estate planning attorney and financial adviser, to assure that the plan is up to date and adequate to achieve the owner's goals under current circumstances. In this vein, it is important to bear in mind that estate planning is NOT solely about the estate tax (although to be sure, minimization of the taxes imposed on family wealth transfers is a significant concern).  As this recent article from Business Week magazine correctly points out:

The simple answer is to think ahead. It's true that estate planning appears to be first and foremost about death and taxes. But a good plan is much more than that: It's really a strategy to keep your business going. An estate plan will protect your company—and family—if you or your partner die or get divorced. It will allow you to indulge your philanthropic streak and can smooth any bumps that may arise when passing your company to the next generation. "A big chunk of this is transition management," says Paul Vogel, president and CEO of the trust division for Enterprise Bank & Trust in Clayton, Mo.

I highly recommend that you read the article in its entirety. But the take away is this: if you are a business owner, you need to do some planning, and the sooner you start the better off you are.

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The July issue of Money magazine contains an interesting article that discusses the problems that some folks encounter when they come into an unexpected inheritance. Nice problem to have, most might think, but it truly is the case that some are overwhelmed, and even paralyzed, by the notion of what to do with their new found funds (psychologists even have a name for the phenomenon - "Sudden Wealth Syndrome"). The article provides some fairly solid advice for those who happily find themselves in this position:

• Take a breather and wait before making any but the most critical decisions about what to do with the money.

• Consult with an accountant or financial professional, as well as an estate planning attorney.

• Allocate funds first to address any urgent financial needs, such as paying down high interest credit cards.

• Make a wish list and prioritize how you will allocate funds left over after resolving imminent needs.

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