$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...