Celebrity Mistakes on Forbes.com

This was really interesting. I just hit some of the highlights but you will find the full pictorial article included in the link at the bottom.

Marlon Brando
Angela Borlaza, actor girlfriend, claimed Brando gave her the house she lived in. She settled with the executors of his estate for $125,000. She also claimed Brando promised her continued employment with a company he owned, and settled that claim out of court.

Leona Helmsley
When she died in 2007, Helmsley will left most of her $5 billion estate to charity, created a $12 million trust for her dog, Trouble, and completely cut out two of her four grandchildren. The two grandkids sued her estate, claiming she wasn't mentally fit to create her will and trust. The case settled, with Trouble getting $2 million, and the two grandkids sharing $6 million.

Brooke Astor (you know this story if you have been following my blog).
In October 2009, socialite Brooke Astor's son Anthony Marshall was convicted of fraud and grand larceny relating to his handling of his late mother's estate. The 14 counts of which a New York jury found Marshall guilty included misusing his power of attorney over her financial affairs by giving himself a retroactive $1 million raise for managing her finances.

Ted Williams
In his will, baseball's Ted Williams said he wished to be cremated. But his two children from a second marriage produced a grease-stained note saying he wished to be put in biostasis after his death, and they froze his body after his death in 2002. His eldest daughter fought to have his body unfrozen and cremated, but gave up the fight when she ran out of money.

Heath Ledger
When actor Heath Ledger died at age 28 in 2008, he had a will, but it was written three years before he died, prior to his relationship with Michelle Williams and the birth of their daughter, Matilda Rose. The will left everything to his parents and sister. When Ledger's uncles raised fears that his father wouldn't properly care for Matilda Rose, Ledger's father said he would.

Princess Di
At her death in 1997, Princess Diana left a detailed will, naming her sister and mother as executors. She also wrote a separate "letter of wishes" asking her executors, at their discretion, to divide her belongings among her sons and her 17 godchildren. But instead of getting stuff worth an estimated 100,000 pounds, each godchild got only a small personal item.

Chief Justice of the Supreme Court Warren Burger
Mr. Burger died in 1995 with a $1.8 million estate and a will he typed up himself. His family paid $450,000 in estate taxes, something that could have been avoided. His executors had to pay to go to court to get approval to complete administrative acts, such as selling real estate, that typically a well-drafted will would have allowed without court approval.

Jimi Hendrix
Mr. Hendrix died at age 27 in 1970 without a will. Under state law, his dad, Al, got everything, leaving his close brother Leon with nothing. Al built Hendrix's musical legacy into an $80 million venture, but in his own will cut out Leon and his family, in favor of his adopted daughter through a later marriage.

Doris Duke
Tobacco heiress Doris Duke, who died in 1993 with a fortune estimated at $1.3 billion, named her butler as executor and as trustee for a huge charitable foundation. After the butler's lifestyle and spending habits were called into question, he was removed from his duties by a probate judge, then reinstated by New York's highest court. A settlement agreement created a board of trustees to manage the foundation.

Full article can be found at:


http://www.forbes.com/2009/11/24/princess-di-heath-ledger-brando-personal-finance-investment-guide-2-09-celebrity-estate-mistakes_slide_2.html

Roth Conversions

All of a sudden my mailbag is full of articles about Roth Conversions. While this may be a good idea, be careful, it certainly isn't for every client. Let me start with some background.

The benefit of Roth is you can withdraw earnings tax-free AND you do not have to take minimum withdrawals upon reaching 70 1/2. Traditional IRAs did not have this benefit, and to be frank, I have been assuming all along they were going to take this gift horse away.

Beginning next year higher-net-worth individuals who earn $100,000 or more in a year will be eligible to convert their traditional IRA to a Roth IRA. Previously, it was only those under this limit AND married couples filing jointly. No more in 2010.

Now, higher net earning individuals and business owners that do not want to withdraw the money and would like to be able to pass it along to their children or grandchildren income tax-free will get their wish. Everyone on board? Not so fast.

A Roth conversion is expensive. There's a big up-front cost. Converting $20,000 some taxpayers could owe $5,000 to $7,000 in taxes for the 2010 return, depending on their income tax bracket. You could convert all the money in your IRAs or part of it, depending on your tax situation.

A high net worth person who converts $100,000 from a regular IRA to a Roth IRA could owe $35,000 in taxes based on the highest tax bracket for 2010. Plus, if that person is younger than age 59 1/2 , they're likely looking at a 10% penalty of they take the money out of a regular IRA specifically to pay the tax. Next year, only, you can pay the tax over two years BUT based on your tax rates for each year. If Congress takes no action, current federal income tax rates could jump to 39.6%, up from 35% in 2011.

Therefore, to decide whether it is worth the conversation, you need someone that can run the numbers based upon your reasonable expectations. You are looking to see if it is cost efficient to pay the tax now to save on taxes later. If you may need the money within 15 years and you expect your income tax rate to be lower in retirement, conversion may not be such a great idea.

My best,

Jim

Astor Case

As you may recall, I have been following the case of Astor Brooke, and her son Anthony who has been on trial for awhile. When the guilty verdict came in, I didn't blog on this since it was found all over the wire services. Russ Wiles, a reporter for the Arizona Republic, had a great column last week on the lessons to be learned from this case. See "Astor Case Has Lessons For All of Us", October 18, 2009. The fact that the jury found Anthony guilty of theft from his incapacitated mother, his use of "her" power of attorney to steal from her entered center stage. Mr. Wiles points out that this is a wake-up call for people that use powers of attorney.

Our office prepares financial and health care powers of attorneys for almost all our clients. Great tools that enable the person you trust to take care of your affairs when you are no longer able to. Companioned with a trust, the power of attorney is an ideal way to avoid conservatorships. In my opinion, these documents are almost always an essential part of the estate plan. But as the article points out, there are pitfalls.

These documents have a lot of power. If it is a general durable power of attorney, there may be multiple pages and provisions authorizing the agent you selected to act in almost any financial transaction. The article goes on to say that the Astor case illustrates that the person selected must be responsible, diligent and reasonably astute.

The article went on to discuss certain changes being considered in the law. Currently in Arizona, there are civil and criminal penalties against those that abuse the power of the documents. Some feel more is needed. It has been my experience that most families or loved ones fail to oversee the actions of the agent and by the time abuse is discovered, the funds are spent with no ability to extract restitution from the wrongdoer.

The Uniform Law Commission, which is a group of scholars that promote exactly what their name implies, wants to make additional changes: 1. Provide third-party reviews when a spouse, heir, or someone else has reason to believe the designated agent isn't acting properly. Currently, our only options are to file with the court, which costs money, or seek help from the agencies, i.e. the attorney generals' office, Adult Protective Services, etc. 2. Unrelated to the abuse issue, the Commission is dealing with another problem. Sometimes we have a problem getting banks and financial institutions to accept a power of attorney, even if valid and well created. Often the institution will say they want their power of attorney form used or they want a more recent power of attorney. If the person is already incapacitated, this is an impossible request. The Commission is trying to get implemented into law the requirement that the power of attorney presented to the bank, brokerage firm or title company must be accepted. There is a right however for these institutions to seek a review if a reason of concern arises. There are other changes being proposed that may be beneficial.

Mr. Wiles then states that as the population ages with issue of incapacity rising, these powers of attorney will become more prevalent. This will be a great help to this segment of the population but as the Astor case shows, consideration and caution will also have to be part of the process.

My best,

Jim

Question and Answer

Q: I executed my trust 15 years ago and haven't looked at it since. Should I ask an attorney to review it to see if any changes need to be made? If not, when should a trust be reviewed by an attorney?

A: Unfortunately there isn't a perfect rule of thumb here but I will try to give a good one. Have an attorney review your trust, or will, if there are any changes in your family situation such as divorce, marriage, death, or a concern over a beneficiary/heir. Otherwise, once every 3-5 years is a good idea. Of course if you hear about any changes in the estate tax code or local trust law, and think the changes may apply to you, call.

This raises the next question, won't the attorney contact me? Good practice says yes they will but they are not legally obligated to notice you. Most estate plans are a one-time only project. You hire an attorney for a specific job, upon completion, your relationship is over. Most firms will even say this in the final letter from their office. This of course protects the law firm but it does place the burden on the clients to stay on top of changes in their family and the laws. If you schedule period reviews of your estate plan every 3-5 years, then your chances of any changes getting incorporated in your plan are much higher.

Managing Finances After Death of a Spouse

From the October 4, 2009, Chicago Tribune.com, Janet Kidd Stewart reports in the Article How to manage finances after death of spouse that one key is "Organization".

She reports while it is hard to discuss while both partners are alive, you need to do so. Firstly, get organized. She mentions gathering legal and financial documents, including any death certificates you may need, select a funeral home, find a marriage certificate, spousal birth certificates, Social Security cards, insurance policies, military discharge papers, wills and trust documents and all retirement and investment account records.

I cannot agree more. Having all these documents handy in order to avoid the search when the emotional disability caused by death is immeasurable. It isn't long before the phone calls need to be made to the funeral home, social security, brokerage houses, retirement funds and life insurance companies. Most, if not all, will require one or more of these documents in order to start the process.

She next reported on something I see in my practice with mostly older clients. Sometimes the the surviving spouse was not the one that originally handled the financial planning. Now the survivor will need to start thinking about managing money. It can be as basic as never having learned to manage the bank account to what investments are suitable for the survivor. One advice she cites in the article I really like. She cites the advice to let a family member or close friend help to screen calls to avoid scams while the survivor is vulnerable. I'm sorry to say but people scan the obituaries to find their next prey. The article next states the sound advice that "you have to recognize you're still in shock. Don't run out and do something you can't reverse," said Alexandra Armstrong, a financial planner and co-author of "On Your Own: A Widow's Passage to Emotional and Financial Well-Being. "I've spoken to widow after widow who couldn't remember any conversations they had the first month after their spouse died." This is absolutely the case. Yet, you need to take action as soon as you are able. Figure out your budget and seek a trusted advisor to assist with your investments. Our office, or a close and trust family member or friend, can give a referral. You will need to make some lifestyle changes, very often this includes financial changes as well.

I could not have agree with this article more. While this seems to be covering financial planning, this almost always dovetails into good estate planning.

Very best,

Jim

Answer to an Email Question re: Restated Trusts

Q: Is a restatement of trust different than a normal run-of-the-mill trust?

A: A revocable living trust is specifically designed to meet estate planning needs. Like all good estate plans, it is designed to anticipate changes and to accommodate many of the most common ones. However, no matter how thorough an estate plan may be, it simply can't address all the changes in circumstances we encounter in our lives. This is why most estate plans can be amended or revoked.

In most revocable living trusts, the grantor reserves the right to revoke or amend the trust in whole or in part. It's not uncommon for a person to add or delete a beneficiary or adjust the percentage or amount the beneficiary will receive or change a trustee.

Because it is so easy to amend a trust, some people do it on a fairly regular basis. I've seen trusts with eight or nine amendments -- although effective multiple amendments can make a trust difficult to read and follow. At some point, it simply becomes necessary to replace the trust in whole. In some circumstances, the trust document is outdated or fails to provide adequate provisions.

The problem with creating a new trust is that all of the assets titled in the name of the first trust must be transferred into the new one. A fully funded trust agreement takes some work and likely a person does not want to re-title assets. The thought of doing it all over again is probably a bit daunting.

This is where a restatement comes in. A restatement is simply a complete and total amendment of the original trust which replaces it in its entirety. In other words, the restatement reflects the terms of the new trust agreement and replaces both the original agreement and any amendments that may have been made to it.

The great thing about restating a trust is that it refers back to the original trust agreement and its creation. In effect, you have created a new trust agreement but you don't have to re-title the assets into the name of the new trust. Because it simply replaces the original trust agreement, it's already funded.

It's really not that unusual to come across a restated trust. As frequently as people change their minds, it's a wonder that you don't see more of them.

Where Are We On The Estate Tax?

According to to The Hill, if I may quote the title, the "Debate over estate tax likely to wait til 2010" by Walter Alarkon, 9/15/09. This isn't surprising since it is what many of us suspected. The writer states that between the split among Democrats and a very full Fall agenda, it won't happen this year. Some experts and congressional aides have been saying that to buy time, Congress will likely pass a one-year extension in order to deal with the expiring estate tax next year.

Even though the Senate Fiance Committee Chairman Max Baucus considers the estate tax a "must-do" items, it isn't on the committee's schedule, with most of the meetings revolving around the healthcare reform bill.

So where were we while we wait? Both the President and Committee Chairman Baucus want to make permanent the 2009 rate (45% and 3.5M exemption) and indexing for inflation for future years. One strong contender is our own Arizona Senator Jon Kyle, who has joined with a more centrist Democrat Sen. Blance Lincoln, on a 35% rate and increase the exemption to $5 million.

We'll have to see what happens in 2009 but my guess is we will be waiting until next year for final word.

My Best,

Jim

Some comments on recent articles and blogs.

In The Southern.com, it talks about a woman that only had two wishes for her will. One, she wanted to be cremated, and two, she wanted her ashes spread in Walmart. Allegedly she stated that this was the only way she could be sure her daughters would visit her twice a week. Unsure if that is a true story but an interesting approach to one's burial.

Jill Schlesinger, a financial writer and speaker associated with CBS News, wrote the following in her blog a couple of weeks ago:

.... I delivered a presentation about personal financial responsibility. When I conduct these affairs, I try to talk about the sexy stuff (stock market, investing) long enough to hook my audience before telling them one of the great lessons that I learned as an investment adviser/financial planner: people need to think a little bit less about their 401 (k) plans and lot more about their estate planning. The biggest problem that I saw in my 15-year practice was not a poorly-allocated portfolio–it was the astounding number of people who did not have what I consider essential estate documents: a will, a durable power of attorney and a health care proxy.

I couldn't agree more. In my years of practice, I have noticed two types of financial advisers. Some that work with their clients on their entire financial picture, which includes risk management, their financial and non-financial goals, and investment advice. The other type of advisor is the one that doesn't.

The Seattle Times reported on September 12 that a revocable trust won the State's Lotto. I found that interesting. For many years, estate planning attorneys felt that trusts were a superior estate planning document over a will but discovered some resistance in their implementation. For a while, clients were suspicious of a trust and thought that only the wealthy used them. Some financial institutions were reluctant to recognize trusts without going to their legal departments for clarification first. Now we have come so far that a trust is the winner of a lottery. Of course the trust isn't out there gambling but its grantor is, and must have registered its trust as the owner of the Lotto proceeds. We have come a long way in recognizing this superior estate planning device.

My Best,

Jim

Update to Philanthropist Brooke Astor

Brooke Astor:

The prosecution rested its case against son Anthony Marshall and his defense is now putting on their case. Recall that this is a case where the son is being accused of fraud and larceny for trying to take almost 60 million from Brooke Astor, by way of changes to her will , back in 2004. She was diagnosed with Alzheimer's disease in 2000 and she died two years ago at 105.

I don't feel qualified to comment on this criminal trial other than to note certain estate issues that arise. Apparently Brooke's grandsons, one of whom originally started the investigation into his father's care of his grandmother after finding his grandmother living in very poor conditions in spite of her great wealth, stands to lose if the State wins. It seems Marshall Astor entered into a divorce decree with his first wife, the mother of the sons, and agreed that he could not disinherit his sons from the Astor wealth if he ever received it. In other words, if Marshal gets Brooke's money, then upon Marshall's death, it then has to go to his sons. Considering it was the sons that started the domino effect that lead to the prosecution, and even served as witnesses to the prosecution, this finding must be giving them mixed feelings. Of course if the prosecution can prove its case that Marshall Astor either tricked his mom into signing the changed will, or as suggested, forged her signature all together, the the subsequent fight over the inheritance will be a short lived battle in Act II of this family drama that is slated to start when the criminal trial has ended.

Sidenote: who do you think stands to gain the most from proving the change to the will in 2004 was fraud or forced? New York Charities. Several of them. They stand to gain millions in an economy where donations are way down. The charities are the remainder beneficiaries and certainly will not be acting very charitable when the criminal trial ends and the challenge to Marshall's inheritance begins.

Arizona Republic Article on Powers of Attorney

This was in Sundays paper, August 2, 2009, in the Ask Steve column.

The question that was asked in his colum was a follow-up to a health care power of attorney article he ran previously. This one was about the financial power of attorney.

I have discussed financial powers of attorney before. Since I find these very important documents while the person is alive, which is the only time you can use it, I would like to touch on the topic again.

In the article, Mr. Sanghi discusses how financial powers of attorney can be durable or non-durable. Durable means the agent can still use the power of attorney after the person who created it becomes incapacitated. From my perspective, I cannot think of a better situation when you want a power of attorney than those times when you are unable to handle your own affairs. Don't get me wrong, a non-durable power of attorney does have an occasional benefit. For example, you need someone to represent you now for a one time only occurrence.

The other point raised in the article, and I like this as well, is what we call a "springing power of attorney." Let me first explain what this means then discuss circumstance of the use. A "springing" document means in this situation that there is some occurrence that causes the power of attorney to kick in, or "spring" into effect. For powers of attorney this is almost always upon doctors' orders that the principal that created the document is now incapacitated. Until then, the agent has no authority to act on his or her behalf. From my experience, I rarely see the benefit of letting someone have so much control and access to our financial affairs until we are unable to handle it ourselves. Of course if a person is just unable to handle his or her affairs, but is not necessarily "incapacitated", he or she can always create a power of attorney to apply immediately upon its execution.

My best,

Jim

$3.5 Million Estate Tax Exemption? Not Quite

Sure, the current unified credit to avoid a FEDERAL estate tax is currently 3.5 million dollars per person (2009). (For more information on where we are and where we are going, see the posts above). Where you die can be equally, if not more, important. I found a great state-by-state list in the June 2009 Money Magazine. First let me explain Estate Tax from Inheritance Tax:

An inheritance tax is a tax imposed on the people (beneficiaries) who receive property from the deceased. The tax is calculated separately for each beneficiary, and each beneficiary is responsible for paying his or her own inheritance taxes. Those states that have inheritance taxes frequently tax spouses and children of the deceased at lower rates than other heirs.
An estate tax on the other hand is a tax imposed on the deceased's estate as a whole. The executor fills out a single estate tax return and pays the tax out of the estate's funds. The heirs will only be held liable for the tax if the executor fails to pay it.

Here are the exemption amounts, maximum tax rates and the type of tax that is being imposed by all 22 states that impose this tax:

• Connecticut: 2 million; 16%; estate tax
• DC: 1 million; 16%; estate tax
• Illinois: 2 million; 16%; estate tax
• Indiana: varies; 20%; inheritance tax
• Iowa: varies; 15%, inheritance tax
• Kansas: 1 million; 3%; estate tax
• Kentucky: varies; 16%; inheritance tax
• Maine: 1 million; 16%; estate tax
• Maryland: both taxes and top is 16%
• Massachusetts:1 million; 16%; estate tax
• Minnesota: 1 million; 16%; estate tax
• Nebraska: varies; 18%, inheritance tax
• New Jersey: both taxes, starts at $675k; 16%
• New York: 1 million; 16%; estate tax
• North Carolina: 3.5 million; 16%; estate tax
• Ohio: 338+k; 7%; estate tax
• Oklahoma: 3 million; 15%; estate tax
• Oregon: 1 million; 16%; estate tax (even though they call it inheritance tax).
• Pennsylvania: varies; 15%; inheritance tax
• Rhode Island: 675k; 16%; estate tax
• Tennessee: 1 million; 9.5%; estate tax
• Vermont: 3.5 million; 16%; estate tax
• Washington: 2 million; 19%; estate tax

This tax doesn't fall neatly into the stereotypical states you would expect the additional tax. Sure, the high tax states: Vermont, Maine, New York, Rhode Island, Ohio, and the so called Taxachusetts have the "death" tax. It is the states that typically have lower taxes, Tennessee, Oklahoma, and Washington State (that doesn't even have an income tax) that have taken advantage of these taxes. Very interesting.

My Best,

Jim

Quarterback Steve McNair

As you can see, I had a few articles sitting on my desk to blog about. This is my last (and shortest).

You probably heard about McNair's murder by his girlfriend who then killed herself. Very said case. Okay, that was old news. Did you then hear who is the executor of his estate? His wife. It appears they were separated, but not divorced.

The problem appears that McNair never bothered to do a Will. Under most intestate laws, which applies if you do not have a Will, the entire estate generally goes to the spouse. Separation is usually irrelevant-if your married, your spouse takes it. If the decedent had children from a prior marriage, they typically share in the estate.

I would venture to guess that Mr. McNair probably didn't intend that a large part of his estate go to his potentially ex-wife, nor that she becomes the executor of his estate, but who knows for sure. I am sure that if he had done a Will, he would have left behind his wishes for his estate and unlikely would have wanted the State of Tennessee to be deciding who is the executor and who inherits his assets.

My Best,

Jim

3 Legal Papers You Shouldn't Live Without

Moneycentral at MSN.com by Liz Pulliam Weston, July 16, 2009.

This takes us into the other estate planning documents. Most, if not all, people know they need a will or a trust. Yet, estate planners always talk about the Estate Planning Portfolio. This article is a good source for what they are and why they are needed. The documents are:

1. Durable Power of Attorney for Health Care
2. Durable Power of Attorney for Finances
3. Living will

Let me explain a few terms first. Durable means there is language in the document that states that the power of attorney is enforceable notwithstanding the person's eventual incapacity. This is a good clause. I cannot think when a power of attorney is most needed than when the person is no longer able to manage their affairs on their own. Also, Living Will is very often confused with Last Will & Testament and Living Trust. It is neither. I'll go into this below.

The article uses scary scenarios to drive home the point that you need these documents. I will concur that these scenarios are very real and happen way too often but I won't repeat the stories here. Here is the link to the article: http://articles.moneycentral.msn.com/RetirementandWills/PlanYourEstate/3legalPapersYouShouldntLiveWithout.aspx

Basically, the Durable Power of Attorney for Health Care allows your agent to make medical decisions on your behalf in lieu of your own decisions concerning your desires for specific medical procedures, such as surgery or other medical treatment (including the termination of life support systems), in the event you are unable to do so.

The Durable Power of Attorney over Assets (Financial) gives powers over your assets to the person you have named as agent therein. It is called a "springing power of attorney" in that it springs into effect when the contingency of incapacitation occurs (although you may elect to make it effective immediately). This power of attorney helps to avoid a court-ordered conservatorship over your assets in the event of your incapacitation. It also allows such person the authority to sign tax returns and other similar documents for you.

The Living Will sets forth your desires with regard to being kept alive or having your life prolonged by artificial means, when you have a terminal illness or are in a comatose state and all natural hope of your recovery has been exhausted. In the event that such a condition should happen to you, this instrument will serve to give notice that you desire not to be kept alive by such artificial means.

I cannot state how important these documents are. To be honest, I have greater fear of a client's incapacity without leaving a loved one the necessary documents to take care of them then I am concerned about their assets. All are important but these particular documents meet a very personal need that I see too frequently in my practice.

My Best,

Jim

USA Today "Who needs to do will? You do"

This is the Friday, July 10, 2009 section, written by Christine Dugas.

I am a little behind on articles but I wanted to comment on this since I think it is well done and glad to see it covered in a large circulation newspaper.

The tag line under the title is descriptive: "Planning is crucial even if you don't have a lot." I don't want to restate the obvious since this tag line pretty much tells you the basis of the article but the article explains that no matter the size of your estate, planning for our demise is essential. If your estate is simple, it doesn't have to be a complex estate plan or expensive. "Simple" generally means you do not expect to pay estate taxes, you will be distributing your estate outright upon your death to all your heirs and no issues with children will disabilities, contesting your wishes and you or your partner do not have children from a prior marriage.

Everyone, no matter the size of the estate, needs to state who will inherit their property, who will be the executor (personal representative in Arizona), and naming guardians for the minor children. In all states, if you do not have a will, the legislators have drafted a default Will for you. I don't know how you feel about your state legislators creating your will but this thought will get most people into an attorney's office to document their own wishes and plans.

The article suggests that attorneys are not always necessary, and before you criticize me for disagreeing, which of course you knew I would, here are my reasons. In the article itself it mentions frequent errors in wills: lack of signatures, lost wills,, lack of specifics, choosing the wrong executor, and one they didn't mention and I see quite a bit is conflicting or unclear provisions in the will. By paying a little money in the front end, these issue can be avoided. When a prospective client is weighing whether to have an attorney draft their estate plan or do it themselves, I respond that I am okay with this since I either get paid now or your family will be paying me later.

My best,

Jim

Apologies to everyone tired of Michael Jackson "news" but...

We have another famous person worth quite a bit of money, with a mess of an estate. We will likely never forget the mess left by Anna Nicole but the stories are almost always the same with the only changes being the players. It seems to involve assets, debts, and children.

I am relying mostly on the New York Times article in yesterday's paper (NYT, July 6, 2009, by Tim Arango and Ben Sisario, Despite a Will, Jackson Left a Tangled Estate). My understanding is his will dates back to 2002. I believe that was the year his last child was born. That's a good sign from a guardianship standpoint. There have been a couple of matters discussed at preliminary hearing(s), one involving where to place the children (with grandma) and the other was her attempt to take over as executor in spite of the will naming two non-family members in that role (the judge honored the will with a full hearing scheduled to discuss in greater detail at a later time).

What seems to be the biggest mess is capitalizing on his legacy, his debts, and his business interests. If, as we suggest to our clients, they get their affairs in order while they are alive, most of this mess is resolved or easier to manage. Who better to put the affairs in order than the person himself, Mr. Jackson? Sure, in this case I have a feeling Mr. Jackson may always have a mess with debts and his business dealings, but how much simpler it would have been if he would have placed in his will, trust or another agreement, how he wants his legacy handled, which businesses should be kept for the benefit of his children, and what should be done with his home/ranch. While it may come out that some of these issues were addressed, it seems thus far that most were not.

There are aspects of Mr. Jackson' will that I do like. One of the co-executors is an entertainment lawyer with intimate knowledge of Mr. Jackson's assets. What a great idea. Knowledge of the area of law and personal knowledge as well. Great choice in my opinion. The other provision that I have heard thus far is a "no contest" clause. This means if you challenge the will, you may be disinherited. Of course this only affects those that have received anything under the will and sometimes ignored by the courts if there is a good basis for the challenge, but still, can be effective and part of every one of our estate plans.

I may touch on this estate as facts come to light. It will be interesting to see if they find a newer will or how the family and business dynamics play out. Until then...

Buy your children a house?

Not so fast, says an article in the WSJ, (June 22, Getting Personal: Think Twice Before Buying Your Children A Home, writer: Shelley Banjo).

The article discusses the scenario, which is fitting in the current economic situation, where the parents feel they may get a double benefit for buying their children a house: 1) moving assets out of their estate and 2) getting a great deal on a home.

The fear, the writer points out, is that if the high net worth clients have income producing assets, namely securities or a business, and if gifted instead, have a better long-term estate benefit for the folks. Therefore, asset for asset, these income producing assets make better gifts then a house on getting the maximum out of the parent's estate into the hands of the next generation.

If getting the kids into a house is the objective, the article mentions two approaches: 1) give the $13,000 per person gift allowance (between mom and dad, daughter and husband this can be up to $52,000/year). Now, no lifetime gift tax exclusion is utilized yet funds are being transferred out of the one estate to the next. The daughter can now take out a mortgage and use the $52,000 towards a home purchase, annually. The next option, 2) is to loan the daughter the funds for the house. While this doesn't move assets out of the estate, gifting the income producing assets mentioned above can provide an income stream for the child to repay the loan. The loan could even be forgiven down the road but that can be decided much later. Regardless, don't forget the current first-time home buyer credit. This makes buying the house even more affordable.

The article next mentions the QPRT. If parents want to move their primary or secondary residence to their children, this is a great option, especially for depreciating houses. More on QPRTs in another blog entry but suffice it to say that parents get to pass the house to the kids and continue to live in the home.

Great ideas.

The Estate Tax

I don't mean to hit this topic so soon but I noticed something in the papers. There seems to be more newspaper and magazine articles citing an increased interest in keeping the estate tax. This is far different from a few years ago when it was the opposite. All we heard about is the large number of small businesses and farmers being slammed by the estate tax (factually untrue but symbolically worked like a charm for repeal proponents).

The one article that I read recently, which is similar to others, ("Keeping the nation's estate tax in place", Pub. June 8, 2009 in the Concord Monitor) basically is saying that with the mess in the economy and the mounting deficit, the tax is one of the more "harmless" taxes proposed to deal with the nation's situation. This article, as you can imagine, seems to have a pro-estate tax bent. What I like about the article, however, is the history of the issue that it provided. It talks about how 18 of the very wealthy families contributed to a couple of organizations that were part of that successful campaign against what they called the "death tax". Again, this was a few years ago.

So, where are we on the tax? In April, the senate voted to increase the exemption and reduce the rate to 35%. I believe the House is still voting to leave the tax at its current 2011 level, 1 million per person. We will likely see something soon. My point though is how during hard times, people's opinions change and the public may not be as cavalier about a tax and may be thinking "it's better them then me", especially since the very wealthy are not a sympathetic group when the rest of the public is struggling.

Scary Stuff

I recently attended a seminar put on by the American Bankers Assn. and learned some cringe-producing lessons that attorneys have perpetrated over the years. Most of the problems arise when attorneys who are not well versed in estate planning and tax matters mess up. One issue: the practitioner did not satisfy all the statutory requirements to obtain a marital or charitable deduction. For example, in a trust, the surviving spouse was given the income from the trust until her death or remarriage. Because her income interest could terminate upon her remarriage, it was considered a terminal interest trust and therefore did not qualify for the marital deduction. Ouch. Big tax bill.
In another case the attorney did not make a proper allocation of the tax apportionment clauses and used a boilerplate provision stating that the residue would pay the taxes. When it was later discovered that significant assets had passed outside of the trust and will, the residual estate beneficiaries bore a greater portion of the taxes. Unfortunately, the residual estate would have qualified for the marital deduction. That was a double whammy. Not only were the taxes increased but the marital deduction was reduced, and hence the tax burden was increased accordingly.
Other examples include cases where individuals have tried to increase the annual gift exclusion by making gifts to individuals who in turn make gifts back to individuals children. This may seem like a great idea until you get caught. Another case involved a litigator who was asked to draft an irrevocable life insurance trust yet had no estate planning experience. This litigator used a form book and did not have a clue about using Crummey powers. The net result was that the IRS pulled back into the estate all of the gifts for tax purposes because Crummey letter had not been prepared.

Second Article: "Divorce, remarriage can make estate planning especially challenging"

(May 29, 2009 Pittsburgh Post-Gazette. Tim Grant writer).

As mentioned yesterday, I found two good articles I wanted to touch upon. Yesterday dealt with passwords to accounts that should be left with someone so that upon your passing, access can be made by your executor. As I mentioned, that issue covers a plethora of information that should be "passed along" in the event of our demise.

As you can see above, the other article deals with divorce. Since there is so much good information in this article, I would like to summarize its contents here.

The writer uses a family example of a spouse from a 15-year second marriage who discovers that her husband's 1 million dollar IRA is completely under his control. Up to that point, only his children were the beneficiaries in the event of his death and the spouse's children would receive nothing. You get a sense of helplessness from the standpoint of the spouse in this article.

The story continues with the couple meeting with a lawyer who set up the IRA to pay into a trust, that provides for the spouse during her lifetime but apparently all kids share in the amount left over after both deaths. What the article didn't say, but may have been put into place, was that the IRA proceeds in trust could also provide for the children for their life expectancy, a type of spend-thrift trust, that would protect the proceeds from the children's creditors and possible divorcing spouses. (Of course the IRA would not continue for the children's lives but likely the life expectancy of the spouse. The amount paid out however, would be held in trust for their benefit).

The article further discusses the need for estate planning to resolve Blended Family estate planning issues. It quotes a trust officer with a bank in Pennsylvania commenting that relying on a verbal understanding between spouses may not be the best approach, especially if one spouse survives for a number of years after the other and the fact that sometimes things and thinking just changes.

This is a hard one but I believe she is correct. There is that part of me that says that marriage or other committed relationships are meant to have a higher level of trust and not lowered to the trust level of an arms-length business agreement. However, one spouse has just as much right as the other to feel that upon their passing, at least their share of the estate or an agreed upon division of the estate, will go to their children after the eventual passing of their loved one. In my practice, I very often see the surviving spouse changing the original verbal intent of the couple after the first one has died. I don't see any mean spiritedness about this but it has a lot to do with the dual allegiance to both the lost spouse and the surviving spouse's own children. Add the potential for family strife and suspicion and the situation becomes more difficult.

One other tool mentioned is a QTIP trust which provides for the surviving spouse, without a tax on the first death, and the remainder proceeds going to each side's family as mutually decided upon by the couple.

As the article points out, and I completely agree, Blended Families are typically very emotional meetings between the couple and their estate planners. Very often there have been heated discussions between the couple prior to seeking advice with a seemingly impasse hit by both of them. How to balance competing interests and expectations is almost a no-win situation. The advise and guidance of a good advisor can make all the difference with options being discussed that both find acceptable and satisfactory.

Article in Tampa Bay Newspaper

I came across two great articles. I will cover one of these today and another in tomorrow's Blog.

The title of the Article is "A cyber afterlife plan." Basically, the article discussed an online service that protects your passwords to your various online accounts and permits those beneficiaries listed with the service to access these passcodes after your passing.

I don't think I need to comment on this article other than saying that this raises a great point and concern. What I did want to comment on was the larger issue this raises. There are lots of information we retain that may get lost upon our passing. Very often in meetings with surviving family members I will hear "I know my dad had a ____ but I cannot find where he put it or remember what he said about it." This blank can be many things, a safe deposit box, assets in other states, personal property items of value, where you have a pre-paid cemetery lot, banking passwords and the like. Privacy concerns causes us to be more guarded and secretive, this in turn raises the likelihood that if we are not around, this information will be hard, possibly impossible, to recover.

At our office we try to advise our clients on some of these issues but the responsibility of passing this information along falls on the individual to keep good records, keep them in a safe place, but most importantly, remember to tell your designated family member or friend where this information is safeguarded.

Brooke Astor Estate Drama

While this plays out in New York City like a popular soap opera, I cannot help but follow the going-ons of this society matron's family. Probably a guilty pleasure but fascinating to follow.

As you may know, Brooke Astor was THE person on every social calendar in New York City. She was generous with her wealth favoring the library, blindness and "disturbed children." Her motto was alleged to be “Money is like manure; it’s not worth a thing unless it’s spread around.”

While New York society doesn't really interest me, towards the end of her long life, (she lived to 107), her family's dealings with her read like an exam question in an Estates and Trusts law class.

Currently, Ms. Astor's son, Alexander Marshall, is on trial, criminally charged with conspiracy, scheming to defraud and grand larceny. Basically, he is accused of taking his mom's money. I have no idea how the court will find, but the criminal charge is not where this case started.

In 2006, one of Ms. Astor's grandsons, Philip, who is the son of Mr. Marshall, paid a visit to his grandmother. More about how this visit was arranged in a moment. While he was there, he found her apartment to be very dirty and in a condition atypical for her. From this visit he filed a petition for guardianship of Mrs. Astor stating that his father allowed her to live in squalor. Apparently he felt that a woman of this wealth was living way below her means and this grandson sought a change of guardianship in order to provide better for her. Mr. Marshall had another son, Alexander, and while he didn't join in the guardianship proceedings, was noticeably quiet about his father's defense. Family visits were discussed at this later criminal trial. It seems that when these family members visited each other, whether grandmother or father, an appointment had to be made, calendared, and likely only to occur a couple of times a year. Just dropping in was either not allowed or not expected.

This leads me to the criminal trial. Ms. Astor died in August of 2007. The following November, largely started as a result of the prior guardianship proceedings, prosecutors found enough evidence to indict Mr. Marshall for the charges mentioned above. At the criminal trial, which is currently under way, both sons were called to testify against their father.

What started out as philanthropy and a busy social calendar, ended with an elderly woman, living in what appears to have been squalor, possibly taken advantaged of by her own son, with father and son having to face each other in trial on opposite sides of the courtroom. My earlier blog about avoiding financial elder abuse would be my recommendation here if I were an attorney involved in a similar case. Unfortunately, the sadness of these stories are all too real in my practice. Perhaps not as wealthy or well known clients, but still just as heart and family tearing as the events surrounding the Astors.

Article: "Rethink Your Legacy"

Time to Rethink Your Legacy

An article in the June 2009 issue of Money magazine entitled, "Rethink Your Legacy," which I am sure will be widely read, points out the need to review estates given the fact that with the current economic downturn, most people have a smaller net worth. The article asks five issues that the typical family might face.

First, give it now or later? With the greater annual gift tax exclusion now at $13,000 per person and the reduced value of assets, those individuals who can afford it can now give away more to their family members without incurring any gift tax.

Second, equal or "fair"? Except in unusual circumstances, such as a special needs child or a business interest, it is best to divide assets equally among their children. Even though one child may be in a better financial position than another at the current time, conditions can change.

Third, a simple or complicated estate plan? Most individuals can get by with a simple estate plan, but if they need to consider taxes, are in a second marriage, or require certain provisions for their children, different types of estate plans can be of significant benefit. One issue that was not mentioned in the article, however, was the benefit of bequeathing a child’s inheritance through a spendthrift trust to protect them from spouses in the event of a divorce or creditors’ claims. Given the current and even future financial environment, this type of trust makes sense for many.

Fourth, thinking of giving to charity? Remember that each person, or if you are an advisor your clients, need to be careful when they use retirement plan money for charitable bequests so that they do not create income tax problems for your heirs.

Fifth, when to revisit your plan? Obviously, individuals cannot put their estate plans on the shelf and forget them. If the past year has taught us anything it is that economic conditions can change drastically in a short time. Even the best of plans can rapidly become obsolete. The article recommends that individuals contact their attorney every three years or so to review their estate to see if it needs updating.

I suggest that you, or your clients, peruse this article to determine if their estates need updating. We would be happy to review the estates of those individuals whose circumstances have changed since the plan was prepared and update their documents to comply with current rules and regulations and financial circumstances.

Munckin Guardians?

This is the article from the Associated Press yesterday:

ST. LOUIS — The heirs of late "Wizard of Oz" actor Mickey Carroll are suing his caretaker for control of his assets. Carroll was one of the last surviving Munchkins from the 1939 film. He had Alzheimer's disease and died last week in suburban St. Louis at the age of 89. Four months earlier, Carroll signed papers turning control of his assets over to Linda Dodge, who cared for him and his disabled nephew in her home. She still takes care of the nephew, who's in a wheelchair with cerebral palsy. Carroll's other relatives claim Dodge and others took advantage of the actor when he was in the throes of dementia. They estimate that he left an estate of more than $1 million. Dodge denies the claims, calling the disagreement a "family squabble."

I cannot comment on the allegations but I wonder what could have been done ahead of time. I will use this story as if the allegations actually happened.

As a backdrop to this event is the issue of estate family squabbles. Sure, some families get into litigation, most don't, especially when they hear the lawyer insist that the case have some merit and the amount of the attorney retainer. Nevertheless, these cases do happen with emotions akin to divorce-type cases.

Arizona has statutes and case law dealing with vulnerable adults that are taken advantage of. If proven, the estate may be able to recover the loss, if the funds are still around. Better yet is to try to prevent this from happening. If you read the above article, preventing this is easier said then done, but can be done. An issue is time.

If I had a long time to plan, and Mr. Carroll was still very able to create an estate plan, I would put all his assets in a trust and name a successor Trustee. Once Mr. Carroll became unable to manage his affairs, I would seek the statement from his doctor, (and a second opinion doctor to comply with many trusts), saying he was unable to manage his financial affairs. and by trust language, the second successor Trustee named will become the acting Trustee. He or she would then notify all the institutions that manage estate assets and record in the county recorder notice of the change in trustee. With this in place, and notice given on who can sign documents, any transfers by a caregiver or unscrupulous family member will be far more difficult.

If I didn't have very long to plan, and Mr. Carroll was incapacitated, I would do the following, which is more expensive and harder to do (which is typically the case for estates that lack planning).

If incapacity is at all questionable, I would seek an neuro-psych evaluation to declare him incapacitated. With incapacity being proven, I would see a conservatorship hearing to appoint another person in charge of Mr. Carroll's financial affairs, which basically renders him unable to transfer funds without the conservator's consent. With this court order, I would send it to the financial institutions and record in the county where real estate is located in order to put fair warning out there that any assignments of assets are at their own peril. Sure this is expensive and cumbersome, but your best option. Just sending a letter from a doctor and a power of attorney stating that the agent has authority to sign will not, in my opinion, be enough to restrict the transfer of an asset or be considered sufficient notice to third parties that accept transfer of an asset.

A good estate plan, in advance, would have been the best defense to the occurrence above. While he is able, Mr. Carroll is more than free to manage his own affairs, but when necessary, safeguards are in place to protect him for potentially overreaching family and caregivers.

Estate Planning Using Beneficiary Designations - Oh My!

Let me explain the problem with this Get Out of Probate for Free method of estate planning with an example story. This story is all based on real events that gave rise to the same problematic ending but uses various clients to create the entire story:

Ms. Sally Retired owns a house and three bank accounts. She has three children. She comes into our office and creates a will leaving everything equally to the three kids. The estate plan deals with all issues. Afterwards, because her banker tells her of a way for her bank accounts to avoid probate, she decides to save on probate costs and creates POD (pay-on-death) beneficiaries on each bank account, one child per account. In other words, each account transfers to one child, based upon the beneficiary designation on that account. She then dies from a serious illness.

Once the children get the death certificates, they collect on their account mom left to them. Unfortunately, the accounts are various values since she used one for some medical bills and another received additional funds that she received from an inheritance before she died. Needless the say, the children are not happy. They are further upset to learn that mom had refinanced the house because the mortgage broker told her about a great refinancing deal and she used the funds to pay off credit card bills. Like most Arizonans, her mortgage exceeds the equity on the house and is inverted. Come to find out that because she refinanced the house, it is not a purchase money mortgage so if the house is foreclosed, the lender can collect the deficiency amount owed. Furthermore, because mom only had Medicare, the large amounts still owing the medical providers are coming in and they want paid.

Outcome: The kids ask the lawyer if they can not file probate on the Will and just ignore the creditors. Our office tells them that they still need to file probate to resolve these creditors. Even if they don't file probate, creditors can petition the court 45 days after mom's death, get themselves appointed as executor (Persona Representative in Arizona), and sue each of the children to return what they received outside of probate, namely the bank accounts that named them directly as beneficiary, to pay off these debts. I think you know how this ends up. One child feels the others should pay more since they received more from mom's bank account. The others feel that this is a debt of the estate and each heir is equally obligated. Not being able to resolve this, and pretty much hating each other at this point, they get sued by the creditors, then they sue each other, and spend a lot of money in attorney fees to resolve what mom thought was a inexpensive means to avoid probate.

Comments: This story is too often the case. I have yet to see an estate distribute equally and without probate using this beneficiary designation method of estate planning. Too often probate ends up being required and in almost every case, at least one child is hurt and no one is speaking. How much easier if mom would have either just relied upon the Will to divide the assets AFTER the debts were paid or, to avoid probate, placed her house and bank accounts in a trust for a non-probate method to transfer the assets to her kids. So even though there may be a way to equally divide the assets between all the heirs, you still have the issue of debts. The only way to resolve the debts is by probate of a Will or under a trust administration, which tends to be the least expensive method of estate administration.

Where is the Estate Tax going?

I think I get asked this question more than any other. So, to be fair, I ought to give my opinion, or better said, an educated-guess, early in this blog. A year from now I will come back and revisit this topic and we'll see how close I came. Here goes:

It is my opinion, based upon the most recent events in the US Congress, that the Estate Tax will remain well past 2010. Sure, it may go away completely that year as currently on the books, but from 2011 forward, I believe there will be an estate tax. When it will officially change is any one's guess, and my opinion is certainly my best guess as well.

We will very likely see a 3.5 million unified credit per individual, with married couples being able to protect up to 7 million before an estate tax will apply. Of course the married couples will need certain provisions in their trust to take advantage of this double-the-savings advantage.

The tax rate will likely be the 45%. See example below to see how this works.

The step-up in basis will likely continue since the talk about removing the step-up in basis was more in line with what changes would be made to the income tax code if the estate tax was removed.

Let me give you an example. Robert E. Lee, who is widower, has an estate valued at $4,500,000. Royalties from all his Civil War books have paid well. He dies in the year 2011 and the estate tax code provisions that I suggested above is put into place. The first 3.5 million he leaves to his children passes without an estate tax. Of the remaining $1,000,000, Mr. Lee's estate will need to pay $450,000 in estate taxes to the IRS. (It is very unlikely the State of Arizona will see any of this unless the State of Arizona passes an estate or inheritance tax, something that I do not believe is even being discussed at this time). Therefore, the first 3.5 million will go to the kids tax-free and the remaining $550,000.00 after the payment of the estate tax will go to his children for a total of $4,050,000.00.

Swine Flu and Power of Attorney

Just a side note then I will get to the topic of power of attorneys. I have always found it interesting as an estate planning attorney to hear those triggering events that cause individuals to call our office for trusts and wills. A lot of time it is a vacation to another country, air travel, or a tragedy in a family with the problems that occur and the ones that have to handle the mess wanting to get their affairs organized.

The title of this post? As you may have guessed, someone has called our office because of their concern that the Swine Flu will come and they want their affairs in order before it does. I won't comment on the media circus caused by this "potential epidemic", but it reminded me that people seem to need some event in their life to do wills and trusts. Good or bad, it just seems a part of my practice.

Power of Attorney:

I will often get asked why I have a dislike for power of attorney. I want to clarify this, I do like power of attorneys as a minor player in an entire estate plan, but using a power of attorney in lieu of a trust is bad planning. Period.

Here's why: when an individual that is an agent under a power of attorney uses the document to transact some personal business on behalf of the principal (the person they are agent for), too often the institution, whether a bank or a brokerage firm, will either respond that the power of attorney does not address the activity the agent is wanting to perform or the power of attorney has expired. Both excuses are inaccurate however, since firstly, well done power of attorneys will have a general clause to the effect that the agent can perform "...all other tasks necessary for the benefit of the principal" or other like language. And secondly, the statute in Arizona specifically states that the power of attorney document DOES NOT expire unless an expiration date is provided in the document. So the issue isn't' the law. The issue is the institution's own policies. Unfortunately, these issues seem to arise when we need the document the most, when the person we are caring for cannot sign on their own behalf. Changing the power of attorney in order to list the specific activity the institution is wanting to see or creating a power of attorney that is brand new is no longer an option. If you have ever been across the counter from a banker and tried to get them to do something they don't want to, you can understand the frustration and futility of those agents stuck in that situation.

For the above reasons, while I still like power of attorneys as part of entire plan, I still much prefer trusts. Trusts continue to be accepted and honored by these institutions with the successor trustees having much fewer instances of problems trying to transact business or get information on behalf of the individual the trust was created to protect.

What is a Trust?

A "Revocable Trust" is also called a "Living Trust" or a "Family Trust." Trusts are used in a similar way that people use a Last Will & Testament but a trust has a lot more bells and whistles. From here on, I will just call it a "trust".

Now, if you already know how trusts work, skip the long discussion below and just read the bullets underneath the following explanation. If you REALLY want some foundation on what a trust is, keep reading.

A trust is usually created by an agreement. The person that expresses his or her wishes in the agreement is called the grantor (or settlor). Usually this same person is the Trustee, a type of manager of trust affairs. And finally, all trusts must have a beneficiary, again very likely the same person. This person then puts all his or her assets into this trust. The grantor still has control over the trust assets, and the ability to change or terminate the trust at any time. Let me make it clear here that the person that sets up the trust and puts his or her assets into the trust almost always is the only beneficiary with complete control over the assets. Family members, other than a spouse or partner, are not in the picture at all until the person passes away.

Perhaps the most common reason to establish a revocable living trust is to avoid the expense and delay of probate. Furthermore, if someone becomes unable to take care of him or herself, the successor trustee appointed in the trust can step in a take care of the person for as long as needed. You don't get this with a will. Ultimately, when the person dies, the successor trustee passes the trust property to the children or other estate beneficiaries according to the grantor's objectives. As you can see, the trust, while intended to transfer assets easily upon our death, can be used to take care of us during times of physical or mental need.

Bullet points about a Revocable Trusts:

• A husband and wife can do a single trust to take care of both of them until the last one is gone.
• I am seeing a lot of parents setting up a trust to first take care of them, then take care of their children when they are gone. The days of just leaving the entire estate outright to the children is becoming less and less. We all hear the stories and understand what a bunch of money can do to young people. By holding it in trust long after the parent has died, the funds can be kept out of the hands of the child's creditors, divorcing spouses, and that child's own folly.
• It isn't an Irrevocable Trust or a Living Will. You may also need these but these are entirely different documents. I will talk about these at some later date.
• Trusts for pets? Yes, in Arizona.
• Asset Protection? None. If you put all your assets in your revocable trust, your creditors can get access to these assets as easily as they could if the assets are in your name. If you give your trust a name that is different than your last name, such as the Bill and Becky Trust, it will be a little harder for people to find out what you own. This is more of a privacy issue than asset protection.
• Tax benefits? Depends. Income tax benefits? Nope. Estate tax benefits? Yes, if you are subject to estate taxes, a husband and wife can do a few things to save on these taxes. Don't worry about this unless you are close to the tax threshold of $3.5 Million Dollars.
• Costs? Usually trusts are part of an estate plan that includes powers of attorney and other needed documents. The entire estate plan starts around $1,500 and goes up from there. An attorney can hear your situation and give you a better idea. If you pay less for your trust, all bets are off.

Putting your personal residence into an LLC

Great idea, Right? Wrong. Don't get me wrong, I love LLCs. Easy to form, easier to maintain than a corporation, and gives you good asset protection. Done correctly, it will shield your personal assets from business liabilities AND it makes it harder for personal liability creditors to go after your business assets. For example, I want to create a company that manufacturers eye glasses, so I form Eye Glasses LLC, if the glasses end up causing blindness, sure, I may very well lose the company, but I won't lose everything I personally own to all those people that bought my glasses (yes, I know this is an old Steve Martin movie but it is after lunch and the best idea I can come up with). Works great. Note, I said above, if done correctly.

Like a corporation, the LLCs were created as an entity to hold, manage, and operate a business. Let me restate it, a business. Unfortunately, there are entities out there advertising that you can shield your assets from creditors by putting them in an LLC. This includes, they argue, your home, car, bank accounts, etc. We had one such email today from an "asset protection expert" stating this is a good strategy and used an IRS regulation to make his point. A very brief look at this position will reveal that the basic premise fails.

In Arizona, a corporate or LLC entity must have some business purpose if you are going to expect the judge to tell a creditor they cannot go after the assets inside the LLC. An LLC is intended to be a business entity with a business purpose. Managing a home, while it may seem like a business, clearly is not. Some of these entities go even further and tout the tax benefits of depreciating and expensing out these personal assets as though it were a business and thereby "saving on their personal income taxes". I won't even go into why that will fail but will recommend they start putting their affairs in order since they may be going away for awhile.

The Morning After

Well, tax day has come and gone. While everyone is still thinking about taxes, or as I like to say, suffering from a tax hangover, I wanted to let you know a couple of interesting tax facts:

• Arizona does not have a death tax or an inheritance tax. We use to have an estate tax but it was phased out with the changes of the Federal Estate Tax code. While some estates may pay an estate tax to the Feds, (th 2009 threshold is 3.5 million dollars before you pay a tax), you will not be paying any of this tax to Arizona.
• Most people pay more in state and local taxes than they do in federal taxes. If you factor in the various sales and use taxes, income taxes, property taxes, excise taxes (e.g. liquor, cigarettes, gasoline) and other state and local taxes imposed on the average taxpayer, you'll find that over half the money that you pay to the government never leaves the state.
• If you have a child, you usually get to claim more deductions. In our fractured society, however, the tax code is a mess when it comes to dealing with divorces. The question is basically which parent gets to claim what? There are all kinds of rules, but one of the stranger ones has to do with…kidnapping. If your child is kidnapped, you may get to claim the child tax credit and so on. Being a tax issue, there are some strange rules. For instance, the kidnapping cannot be by a family member! If your brother drags your child off to Canada, you get no deduction. You can read IRS publication 501 to figure it all out if you are insanely bored.
• I like this quote: "The hardest thing in the world to understand is the Income Tax." - Albert Einstein

The Mess They Left: Wall Street Journal

Did you happen to see the April 13, 2009 article on WSJ.com? Below the caption the author states: "Many people die with nothing in order. Here's some help sorting it all out."

Usually when I see these tag lines I start figuring they will recite 2 or 3 common errors that keep getting rehashed in the media. This article, however, is a little different. The main theme was keeping things in order. Suzanne Barlyn, the writer, started by stating that one large problem is missing wills. How right she is. Almost every day an attorney will post on a lcoal listserve a missing will or trust. The family believes the loved one created a will but they cannot find it. Is it sitting in a safe-deposit box? Lost in boxes? While "lost in boxes" is certainly a misnomer, by the time you sort through a lifetime of accumulation, probate should have been started long ago. Bottom-line: keep the Will handy and easily found. The family may need quick access to the estate to pay bills, funeral expenses, etc.

The writer then talked about the financial records. On many occasions family members bring into our office boxes, sometimes bags, of records, trying to sort statements dating back 20-30 years from current statements. What do you do about old statements besides contact the company and ask if the account still exists? This takes a lot of time and very often fruitless. Sometimes we just have to look at current tax returns and watch the mail to see what comes in, often after the first of the year. Her suggestion, and mine as well, is keep it organized. Keep current statements organized and destroy old statements and records that are no longer needed.

The article then talks about dividing up the personal property. I don't get why it is, but family members seem to really go at each other over these often sentimental but valueless items. Arizona recognizes personal property lists that everyone can draw up on their own and list who should receive which personal items (must be personal property and no cash). This settles a lot of issues before the family member dies. Some clients will even ask their children which items they want, decide what is fair, then fill out the sheets. This is a great idea.

Taxes. The last issue raised in the article discusses ill persons who fail to file returns leaving the remaining executor or successor trustees to fill in the gaps and complete the returns. If we have a hard enough time doing our own taxes, imagine trying to figure out someone else? Especially if the paperwork is everywhere and cumulative. Sometimes this issue cannot be avoided however. Fortunately, the IRS can sometimes be understanding. If taxes are owed, especially prior years, take your time getting the information together, notify the IRS of the death, and they may forgive the penalties on the late filing and late payment (not the interst, just the principal).

So I guess my point is other than getting your estate papers done, keep it in order. It will have an impact, positive or negative, on the family when they are dealing with a lot of their own emotions and problems after you are gone.

Article in Alaska Journal

Here is the link: http://www.alaskajournal.com/stories/041009/mon_money004.shtml

I see that alot in my practice. Someone will come in with their will or trust and believe that everything, including the life insurance, will just go to the heirs. Wrong. If you have an older life insurance policy, the beneficiary may very well not be the current primary heir of the will or trust. While a divorce decree will automatically cut out the spouse as beneficiary, the back-up person(s) may not be what was intended. Once he or she dies, however, intend is irrelevent to the language of the policy. Review review review all life insurance, retirement account and other beneficiary type policies to make sure they conform to your wishes.

Welcome

Welcome to my new blog. I'm Jim Knollmiller and I am a senior partner at Brown & Arensofksy, LLP. I will let you read my credentials on the right but only say this so you can have some confidence in some of the topics I write about. Another attorney in my office, Kevin McFadden, will sometimes blog for me. I welcome you and hope to have interesting topics to discuss.