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

Jean Chatzy, Editor at Large for Money Magazine has written a great article in which she discusses what I think is a great idea for folks trying to figure out what to give their college graduating kids for a gift. Chatzky discusses a friend's decision to give her child a session with a financial planner. I think that this is really a great idea (even better if you include a seesion with an estate planning lawyer!) I will, from this point forward, recommend to my clients that, if they have not already done so, they arrange such sessions.

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The Wills, Trusts & Estates blog, reflecting on recent news stories reporting that certain lawyers at large New York law firms are bow billing their clients at the rate of $1000 an hour, wonders whether any estate planners have breached that mark. I expect that it is possible that there might be trusts and estates practitioners at some large firm that has not jettisoned its practice who might bill at that level, but I tend to doubt it. In my view, as I discussed here, hourly billing is a bad practice, designed mostly to reward lawyers for spending hours on things, and not necessarily solving their problems. I believe that all lawyers, and estate planning practitioners especially, should embrace alternative billing methods, and charge their clients based upon value added and not time spent.

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The clock is ticking for Congress to show a backbone and put in place a permanent solution to the estate tax. Until then, tax planning for individuals is a mess of “what ifs” and looking for an oracle to determine which year we will die in. The latest attempt to clean up the mess created by the Economic Growth & Tax Relief Reconciliation Act of 2001 is HR 3170, currently pending in Committee in the House of Representatives.

HR 3170 would continue to increase the estate tax exemption in smaller increments from the $3 million mark in 2009 up to $4.75 million in 2014. The rate of tax would be linked to the capital gains rate, 15% until 2010 and then 20%. The deduction for state death taxes paid would be eliminated in 2010. And in an interesting move, the Executor of the first spouse’s estate could “give” any unused estate tax exemption to the surviving spouse. This would have an interesting impact on families that for some reason would prefer to not equalize estate values for tax planning purposes.

Who knows how far this Bill will get. Hopefully some meaningful resolution on the estate tax is not far off, although it could easily go unresolved until after the next presidential election.

Source: Connecticut Medicaid and Estate Planning blog

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The USA Today recently ran a very interesting article on what appears to be a growing trend in the country toward more use of lifetime transfers of wealth. What is especially encouraging is that such wealth transfer techniques as charitable trusts and inter vivos, or living, trusts, are finding greater use among those outside the reaches of the very high net worth families. As I have commented previously, any family wealth plan should, to the extent feasible and advisable, incorporate lifetime gifts and other lifetime transfer techniques. The USA Today article would suggest that more people are thinking about their family's future and their own legacies, and are doing proper planning to achieve those goals. And that, as Martha Stewart would say, is a good thing.

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Crain's Cleveland Business reports that estate planners are seeing an increase in the number of clients who are asking about the use of so-called "incentive trusts" as a part of their estate plans. Such trusts are designed to place restrictions on the distribution of funds to heirs, ordinarily tying such distributions to certain life benchmarks, such as finishing college. Whether such trusts are advisable is, of course, a function of the individual client's circumstances and desires. Trusts may be used, moreover, to help insulate family assets from unfortunate events that may be beyond your heirs' control, such as liabilities arising from accidents or unsuccessful investments, or divorce settlements. Discussion of these issues should be a part of the planning process for all clients. Its your family, and your legacy.

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When you first think about estate planning it is often only about dollars and cents. Who gets what, how to minimize taxes, how to avoid probate. We often forget that the people we love will be facing one of the most emotionally trying times of their life. Yes you need to take care of the financial aspects of your estate but you should also try to incorporate the emotional needs of your loved ones.

Something you should consider is writing an "ethical will". An ethical will is not a legal document, it is like a final chance to communicate with you loved ones. Ethical wills are a way of sharing some of the wisdom you have accumulated over your lifetime. It can be a short letter to your heirs or a long document that includes things like your family history, a statement of your beliefs, and stories about your life that shaped the way you lived. You can include things like where the money your leaving came from, what it meant to you, and how you would like to see it used. If your children or grandchildren are very young, writing an ethical will can provide a link that can reach through the years.

The hardest part is always where to begin. Some ideas that can get you going might be:

* I am most grateful for..
* The most important gift I ever received..
* My parents taught me..
* From my grandparents I learned..
* What mattered the most in my life..

Look at an ethical will as an opportunity to connect your life with future generations, it can be a satisfying experience.

Source: Oak Street Advisors blog

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When my children were little, one of their favorite expressions was, “But it’s just not fair.” And I often hear the same protest from a potential client who wishes to object to a loved one’s will on the grounds that they were either promised something, the will was supposed to have been rewritten, or the terms are not fair.

Unfortunately, in most cases, the message that I have to give in response is, “You are right, but the law in will contests is such that you don’t have a case.”

I

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The answer to the above question is, in my view, everyone. The thought was prompted by this post by Leanna Hamilll at the Massachusetts Estate Planning and Elder Law Blog, in which Leanna answers a reader's question as to whether married people need to have health care powers of attorney in place. As Leanna so cogently explains, of course they do. And so do you. And so do I.

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Your children mean the world to you. You’ve done everything within your power to meet their needs and to ward off dangers. You keep a watchful eye out for them, whether they’re swimming in the ocean or wandering too close to the edge of the Grand Canyon. You provide for their needs, from putting food on the table to buying new clothes for school.

We cannot protect our children from every risk in life. When they grow up, they will make some mistakes, just as we did. However, we can afford them some financial protection by leaving their inheritance in trust.

A trust can help because it holds legal title to assets, even though as beneficiary, your child will hold beneficial title. By leaving your assets to your child in a “Family Access Trust,” he or she could still get to the assets at any time. He or she could even remove all the assets from the trust, if desired. Yet, while assets remain in the trust, the trust can protect the assets from your child’s divorcing spouse and, in most states, keeps your child’s future ex-spouse from taking your child’s inheritance.

A Family Access Trust will not act to protect assets from other creditors, however. In order to accomplish that goal, you need a “Family Sentry Trust,” which is a discretionary trust for the benefit of your child. Distributions to your child are made by the person (Trustee) you appoint to make decisions for the trust.

Your child could be a Co-Trustee, but could not act alone to make distributions. Your child could be named as the Investment Trustee and, in that capacity, could direct how the assets are invested. A Family Sentry Trust protects your child from most of their creditors, subject to state law. An additional benefit is that, with a Family Sentry Trust, the assets are not taxed to your child’s estate for estate tax purposes.

You’ve spent your life building your legacy. That legacy will become your child’s inheritance. Keep that inheritance from being attached by future ex-spouses or other creditors. A qualified estate planning attorney can help you provide for your children, and not their creditors.

For more helpful information about estate planning, please visit www.smithbarid.com.

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Noted philanthropist Brooke Astor has died at the age of 105, the New York Times reports. Mrs. Astor, whose care and maintenance was the subject of highly publicized litigation, was better known for her generous support for causes great and small. May she rest in peace.

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Joel Schoenmeyer over at Death and Taxes has published an interesting post that asks some interesting questions about the tax implications of celebrity autographs and the like. Joel's post raises slightly different issues than my recent post about the possible tax implications of, for example, catching Barry Bonds' 756th home run ball, but the questions are somewhat related and no less interesting. Last weekend a friend of mine was lucky enough to attend Cal Ripken's induction into the baseball Hall of Fame, and was even more lucky to get Cal's autograph. Suppose my friend had had Cal sign a cap or jersey that Lou Gehrig, whose record for consecutive games played Ripken broke, had actually worn. Would that autograph add value to the memorabilia in excess of the $12,000.00 annual gift tax exclusion? Probably. Would the IRS experience a black eye bigger than what it suffered after the McGwire home run ball fiasco discussed in my earlier post? Absolutely. Are we likely to ever see the day when the IRS treats celebrity autographs as taxable gifts? Not very.

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It has long been my belief that the billable hour system, bu which many attorneys charge their clients and earn their livings ( and as I do, too for some matters, by way of disclosure) creates an inherent tension between the attorney's interests and those of the client. If the attorney is being paid by the hour, doesn't he or she benefit from taking as much time as possible, or at least as much as the client will be willing to pay for, in completing a task? Of what possible benefit is this to the client? This is a primary reason that I have started to use alternative fee arrangements such flat fees and the like, for more matters, with the goal ultimately of using such arrangements in all cases. Even some in biglaw are now seeing the light. In an article in the August 2007 issue of the ABA Journal, best selling author and Chicago litigator Scoot Turow fairly well lays bare the flaws in the billable hour system. Whether Turow's large law firm colleagues follow his lead or not, however, I intend to continue to pursue a full transition to alternative fees. legal fees, like fees for any other service, should be based on value added. My clients deserve nothing less.

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I would be remiss if I did not point you to the final installment of Joel Schoenmeyer's excellent 4 part post on the gift tax. Without further ado or embellishment, here is part four:

A final word...

16. I've tried to give a number of practical hints on gifting over the years, focusing on things that can be done without an attorney. That being said, there are a lot of gifting situations that simply require the assistance of a professional, and maybe more than one professional:

-you are making gifts of a future interest

-you are making gifts that exceed the $12,000 annual exclusion amount

-you are involved in non-traditional gifting relationships -- loaning money to a child, selling property to a child for less than its fair market value, naming a child as a joint tenant, etc.

-the property being gifted has valuation issues. Obviously it's easy to figure out the value of a gift of $10,000 in cash -- it's $10,000. But what about assets like real estate, or a painting, or a minority interest in a partnership? These are far trickier, and the IRS is far more diligent about auditing in these cases.

Source for post: Death and Taxes

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I apologize for what some might think is a morose or macabre bent we've taken here the last few posts, but a post that I saw recently on Jennifer Sawday's California Estate Planning Blog got me to thinking about funeral instructions. when I first sit down with a new client to talk about estate planning, one of the things I always ask is whether they have any particular wishes with respect to their funeral or the disposition of their remains. Not surprisingly - to me, at least - most folks tell me that they haven't given it much, if any, thought. Perhaps you would rather leave those decisions to your family. That's fine. If you have particular wishes, though - if you want to be cremated and have your ahses strewn over Yankee Stadium, or want a particular form of service, like a New Orleans Jazz funeral, or music (I want the clergy at my funeral all to wear black birettas - long story) - you need to make them known. I usually advise my clients to prepare a separate document outlining the fuenral wishes, and to provide a copy to their spouse, their children, and to put a copy on file at their church or synagogue, as well as in their safety deposit box. A colleaue of mine puts the instructgions in the will. That's fine too, althougb I also advise the separate letter, for a variety of reasons. The long and short of it is, put it in writing and make it known.

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If you were to die tomorrow, would your heirs know where to find your will, or who your lawyer or accountant are? Would they know at which banks you had accounts, what credit cards you held or whether you had a safe deposit box? What about who your investment adviser is, or where to find your life insurance policies? These are the kind of nitty gritty detail questions that your family, and your estate, will need to deal with after your death. The lack of complete information can impede your executor's ability to close your estate expeditiously, and can cause headaches for your family and heirs during the administration of your estate and beyond. In her column in this month's Money Magazine, Jean Chatzky discusses a way to address these issues and aide your heirs in coping with the details: a "death letter." Such a letter ideally provides your family with all of the important information they will need - the names and contact information for relevant advisers, information about bank accounts, insurance, safe deposit boxes and more. I highly recommend that you read Ms. Chatztky's column, and that you seriously consider leaving your heirs a "death letter."

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A couple of weeks ago I shared with you the first couple of posts in a four part series that Joel Schoenmeyer had done at the Death and Taxes blog on the federal gift tax. Here is part 3 of Joel's informative discussion:

11. The last major credit or exclusion from gift tax is called the "unified credit." It's found in Section 2505 of the Code.

12. The unified credit is currently $1 million, which means you can give away up to $1 million during your lifetime without owing gift tax. Note that this credit works in tandem with the annual exclusion amount. So, for instance, if you gave $100,000 to your daughter in 2007, you would get the $12,000 annual exclusion, and your unified credit would be reduced by only $88,000 (100 - 12).

13. The unified credit used to be, well, unified -- it was tied to the estate tax credit. In other words, there was one credit amount, which could be used during life or upon death.

14. In cases where you make gifts that exceed the annual exclusion, you'll still need to file a gift tax return, even if no gift tax is due. This is so the IRS can keep track of (and potentially challenge) the amount of your unified credit remaining.

15. With all this in place, would anyone ever need or WANT to pay gift tax? I don't know about "want," but in cases involving high net worth individuals, it may be better to make gifts now, and pay gift tax instead of estate tax. Obviously you lose with respect to time value of money (it's better to pay tax later rather than sooner), but you gain a couple of ways:

-You get property and its future appreciation out of the estate. The $1 million you give away today may be worth $2 million (or $3 or $10 million) when you die.

-The estate tax is calculated on the total value of the decedent's estate, including the money being used to pay the estate tax. That's not the case with the gift tax.

Source: Death and Taxes blog

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