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Estate Planning Blog

Monday, May 18, 2015

Refusing a Bequest

Most people develop an estate plan as a way to transfer wealth, property and their legacies on to loved ones upon their passing. This transfer, however, isn’t always as seamless as one may assume, even with all of the correct documents in place. What happens if your eldest son doesn’t want the family vacation home that you’ve gifted to him? Or your daughter decides that the classic car that was left to her isn’t worth the headache?

When a beneficiary rejects a bequest it is technically, or legally, referred to as a "disclaimer." This is the legal equivalent of simply saying "I don't want it." The person who rejects the bequest cannot direct where the bequest goes. Legally, it will pass as if the named beneficiary died before you. Thus, who it passes to depends upon what your estate planning documents, such as a will, trust, or beneficiary form, say will happen if the primary named beneficiary is not living.

Now you may be thinking why on earth would someone reject a generous sum of money or piece of real estate? There could be several reasons why a beneficiary might not want to accept such a bequest. Perhaps the beneficiary has a large and valuable estate of their own and they do not need the money. By rejecting or disclaiming the bequest it will not increase the size of their estate and thus, it may lessen the estate taxes due upon their later death.

Another reason may be that the beneficiary would prefer that the asset that was bequeathed pass to the next named beneficiary. Perhaps that is their own child and they decide they do not really need the asset but their child could make better use of it. Another possible reason might be that the asset needs a lot of upkeep or maintenance, as with a vacation home or classic car, and the person may decide taking on that responsibility is simply not something they want to do. By rejecting or disclaiming the asset, the named beneficiary will not inherit the "headache" of caring for, and being liable for, the property.

To avoid this scenario, you might consider sitting down with each one of your beneficiaries and discussing what you have in mind. This gives your loved ones the chance to voice their concerns and allows you to plan your gifts accordingly.


Monday, May 11, 2015

Business Succession Planning Tips

Business succession plans contemplate and instruct regarding any changes in future ownership and management of a business. Most business owners know they should think about succession planning, but few actually end up doing so. It is hard to think about not being in charge of the business you have built up, but a proper succession plan can ensure that your business continues long after you are there to run it, providing an enduring legacy.

Here are a few tips to keep in mind when you begin to think about putting a succession plan into place for your business.

  • Proper plans take time - often years - to develop and implement because there are many steps involved. It is really never too early to start thinking about how you want to hand off control of your business.

  • Succession plans are a waste of time unless they are more than a piece of paper. Involving attorneys, accountants and business advisors ensures that your plan is actually implemented.

  • There is no cookie-cutter succession plan that fits all businesses, and no one way to develop and implement a successful plan. Each business is unique, so each business needs a custom-made plan that fits the needs of all parties involved.

  • It may seem counterintuitive, but transferring a business between people who are familiar with the business - from one family member to another, or between business partners - is often more complicated than selling the business to a complete stranger. Emotional investments cannot be easily quantified, but their importance is real. Having a neutral party at the negotiating table can help everyone involved focus on what is best for the business and the people that are depending on it for their livelihood.

  • Once a succession plan has been established, it is critically important that the completed plan be continually reviewed and updated as circumstances change. This is one of the biggest reasons having an attorney on your succession planning team is important. Sound legal counsel can assist you in making periodic adjustments and maintaining an effective succession plan.

If you are ready to start thinking about succession planning, contact an experienced business law attorney today.


Monday, April 27, 2015

Problems with Using Joint Accounts as a Vehicle for Inheritance

When deciding who will inherit your assets after you die, it is important to consider that you might outlive the beneficiary you choose.  If you have added someone to your financial accounts to ensure that he or she receives this asset after you die, you might be concerned about what will happen should you outlive this person.

What happens to a joint asset in this situation depends upon the specific circumstances. For example, if a co-owner that was meant to inherit dies first, the account will automatically become the property of the other co-owners and will not be included in the decedent’s estate.  However, whether it is somehow included in this person’s taxable estate, and is therefore subject to state death tax, also depends on state law. Assuming the other co-owners were the only ones to contribute to this account, and that the decedent did not put any of his or her money into the account, there may be state laws that provide that these funds are not taxed.  The other co-owners might have to sign an affidavit to that effect and submit it to the state department of revenue with the tax return. Also, if the decedent’s estate was large enough to require the filing of a federal estate tax return ($5,340,000 in 2014) the same thing may be needed in order to exclude this money from his or her taxable estate. You would generally state that this person’s name was placed on the account for convenience, and that the money was contributed by the other co-owners.

If you are considering adding someone to your financial accounts so that they inherit it when you die, you should contact an experienced estate planning attorney to discuss your options. 


Monday, April 20, 2015

Leaving a Timeshare to a Loved One

Many of us have been lucky enough to acquire timeshares for the purposes of vacationing on our time off.  Some of us would like to leave these assets to our loved ones.  If you have a time share, you might be able to leave it to your heirs in a number of different ways. 

One way of leaving your timeshare to a beneficiary after your death is to modify your will or revocable trust.  The modification should include a specific section in the document that describes the time share and makes a specific bequest to the designated heir or heirs. After your death, the executor or trustee will be the one that handles the documents needed to transfer title to your heir. If the time share is outside your state of residence and is an actual real estate interest, meaning that you have a deed giving you title to a certain number of weeks, a probate in the state where the time share is located, called ancillary probate, may be necessary. Whether ancillary probate is needed will depend upon the value of the time share and the state law.

Another way you could accomplish this goal is to execute what is called a "transfer on death" deed. However, not all states have legislation that permits this so it is imperative that you check state law or consult with an attorney in the state where the time share is located. A transfer on death deed is basically like a beneficiary designation for a piece of real estate. Your beneficiary would submit a survivorship affidavit after your death to prove that you have died. Once this document is recorded the beneficiary would become the title owner.

It is also important to investigate what documents the time share company requires in order to leave your interest to a third party. They may require that additional forms be completed so that they can bill the beneficiary for the annual maintenance fees or other charges once you have died.

If you want to do your best to ensure that your loved ones inherit your time share, you should consult with an experienced estate planning attorney today. 

 


Monday, April 13, 2015

For How Long Should a Business Keep Tax Records?

There are many reasons for retaining tax records. They can be a useful guide for business planning, for tracking receipts and expenses, and in cases where the company or shares are being sold to outside parties.

The IRS expects taxpayers to keep records for as long as they are needed to administer any part of the Internal Revenue Code. In other words, if you fail to keep records, and an item in a past return is questioned, you may not have the documentation you need to defend yourself and avoid taxes and penalties. In addition, insurance companies and creditors may wish to see tax returns even after the IRS no longer does.

What is the "Period of Limitations" for a Tax Return?

Generally, you must keep records that support income and deductions for a tax return until the "period of limitations" for that return elapses. This is the period during which you can still amend your return to get a refund or credit and during which the IRS can still assess more tax. It varies depending on the circumstances surrounding each return.

  • If you owe additional tax, but you haven't seriously underpaid, committed fraud, or failed to file a return, the period is 3 years from the date taxes were filed.
  • If you failed to report income that you should have reported, in excess of 25% of the gross income that you did report, the period is 6 years.
  • If you filed a claim for credit or refund after you filed your return, the period is the later of 3 years after the return was filed or 2 years after tax was paid.
  • If you filed a claim for a loss from worthless securities or a bad debt deduction, the period is 7 years.
  • If you filed a fraudulent return or failed to file a return, the period is unlimited.

Note: Returns filed before taxes are due are treated as though they were filed on the due date.

Other Periods of Limitations

Additionally, if you are an employer, you must keep employee tax records for at least 4 years after the later of the date the tax becomes due or the date it is paid.

For assets, you should keep records until the period of limitations elapses for the year in which you sell the property in a taxable transaction. You will need records to compute depreciation, amortization, or depletion deductions and to add up your basis in the property for purposes of calculating gain or loss. A business law attorney experienced in tax matters can further guide you in relation to your specific situation


Monday, March 23, 2015

Executors Fees

An executor's fee is the amount charged by the person who has been appointed as the executor of the probate estate for handling all of the necessary steps in the probate administration. Therefore, if you have been appointed an executor of someone’s estate, you might be entitled to a fee for your services.  This fee could be based upon a variety of factors and some of those factors may be dependent upon state, or even local, law.

General Duties of an Executor

  1. Securing the decedent's home (changing locks, etc.)
  2. Identifying and collecting all bank accounts, investment accounts, stocks, bonds and mutual funds
  3. Having all real estate appraised; having all tangible personal property appraised
  4. Paying all of the decedent’s debts and final expenses
  5. Making sure all income and estate tax returns are prepared, filed and any taxes paid
  6. Collecting all life insurance proceeds and retirement account assets
  7. Accounting for all actions; and making distributions of the estate to the beneficiaries or heirs.

This list is not all-inclusive and depending upon the particular estate more, or less, steps may be needed.

As you can see, there is a lot of work (and legal liability) involved in being the executor of an estate.  Typically the executor would keep track of his or her time and a reasonable hourly rate would be used. Other times, an executor could charge based upon some percent of the value of the estate assets. What an executor may charge, and how an executor can charge, may be governed by state law or even a local court's rules. You also asked whether the deceased can make you agree not to take a fee. The decedent can put in his or her will that the executor should serve without compensation but the named executor is not obligated to take the job. He or she could simply decline to serve. If no one will serve without taking a fee, and if the decedents will states the executor must serve without a fee, a petition could be filed with the court asking them to approve a fee even if the will says otherwise. Notice should be given to all interested parties such as all beneficiaries.

If you have been appointed an executor or have any other probate or estate planning issues, contact us for a consultation today.


Monday, March 16, 2015

Your Wishes in Your Words

During the estate planning process, your attorney will draft a number of legal documents such as a will, trust and power of attorney which will help you accomplish your goals. While these legal documents are required for effective planning, they may not sufficiently convey your thoughts and wishes to your loved ones in your own words. A letter of instruction is a great compliment to your “formal” estate plan, allowing you to outline your wishes with your own voice.

This letter of instruction is typically written by you, not your attorney. Some attorneys may, however, provide you with forms or other documents that can be helpful in composing your letter of instruction. Whether your call this a "letter of instruction" or something else, such a document is a non-binding document that will be helpful to your family or other loved ones.

There is no set format as to what to include in this document, though there are a number of common themes.

First, you may wish to explain, in your own words, the reasoning for your personal preferences for medical care especially near the end of life. For example, you might explain why you prefer to pass on at home, if that is possible. Although this could be included in a medical power of attorney, learning about these wishes in a personalized letter as opposed to a sterile legal document may give your loved ones greater peace of mind that they are doing the right thing when they are charged with making decisions on your behalf. You might also detail your preferences regarding a funeral, burial or cremation. These letters often include a list of friends to contact upon your death and may even have an outline of your own obituary.

You may also want to make note of the following in your letter to your loved ones:

  • an updated list of your financial accounts with account numbers;
  • a list of online accounts with passwords;
  • a list of important legal documents and where to find them;
  • a list of your life insurance and where the actual policies are located;
  • where you have any safe deposit boxes and the location of any keys;
  • where all car titles are located; the
  • names of your CPA, attorney, banker, insurance advisor and financial advisor;
  • your birth certificate, marriage license and military discharge papers;
  • your social security number and card;
  • any divorce papers; copies of real estate deeds and mortgages;
  • names, addresses, and phone numbers of all children, grandchildren, or other named beneficiaries.

In drafting your letter, you simply need to think about what information might be important to those that would be in charge of your affairs upon your death. This document should be consistent with your legal documents and updated from time to time.


Monday, March 9, 2015

What is a Pooled Income Trust and Do I Need One?

A Pooled Income Trust is a special type of trust that allows individuals of any age (typically over 65) to become financially eligible for public assistance benefits (such as Medicaid home care and Supplemental Security Income), while preserving their monthly income in trust for living expenses and supplemental needs. All income received by the beneficiary must be deposited into the Pooled Income Trust which is set up and managed by a not-for-profit organization.

In order to be eligible to deposit your income into a Pooled Income Trust, you must be disabled as defined by law. For purposes of the Trust, "disabled" typically includes age-related infirmities. The Trust may only be established by a parent, a grandparent, a legal guardian, the individual beneficiary (you), or by a court order.

Typical individuals who use a Pool Income Trust are: (a) elderly persons living at home who would like to protect their income while accessing Medicaid home care; (2) recipients of public benefit programs such as Supplemental Security Income (SSI) and Medicaid; (3) persons living in an Assisted Living Community under a Medicaid program who would like to protect their income while receiving Medicaid coverage.

Medicaid recipients who deposit their income into a Pool Income Trust will not be subject to the rules that normally apply to "excess income," meaning that the Trust income will not be considered as available income to be spent down each month. Supplemental payments for the benefit of the Medicaid recipient include: living expenses, including food and clothing; homeowner expenses including real estate taxes, utilities and insurance, rental expenses, supplemental home care services, geriatric care services, entertainment and travel expenses, medical procedures not provided through government assistance, attorney and guardian fees, and any other expense not provided by government assistance programs.

As with all long term care planning tools, it’s imperative that you consult a qualified estate planning attorney who can make sure that you are in compliance with all local and federal laws.


Monday, February 23, 2015

Paying for Your Grandchildren’s Education

The bond between a grandparent and grandchild is a very special one based on respect, trust and unconditional love. When preparing one’s estate plan, it’s not at all uncommon to find grandparents who want to leave much or all of their fortune to their grandchildren. With college tuition costs on the rise, many seniors are looking to ways to help their grandchildren with these costs long before they pass away. Fortunately, there are ways to “gift” an education with minimal consequences for your estate and your loved ones.

The options for your financial support of your heirs’ education may vary depending upon the age of the grandchild and how close they are to actually entering college. If your grandchild is still quite young, one of the best methods to save for college may be to make a gift into a 529 college savings plan. This type of plan was approved by the IRS in Section 529 of the Internal Revenue Code. It functions much like an IRA in that the appreciation of the investments grows tax deferred within the 529 account. In fact, it is likely to be "tax free" if the money is eventually used to pay for the college expenses. Another possible bonus is that you may get a tax deduction or tax credit on your state income tax return for making such an investment. You should consult your own tax advisor and your state's rules and restrictions.

If your granddaughter or grandson is already in college, the best way to cover their expenses would be to make a payment directly to the college or university that your grandchild attends. Such a "gift" would not be subject to the annual gift tax exemption limits of $14,000 which would otherwise apply if you gave the money directly to the grandchild. Thus, as long as the gift is for education expenses such as tuition, and if the payment is made directly to the college or university, the annual gift tax limits will not apply.

As with all financial gifts, it’s important to consult with your estate planning attorney who can help you look at the big picture and identify strategies which will best serve your loved ones now and well into the future.


Monday, February 16, 2015

Role of the Successor Trustee

When creating a trust, it is common practice that the person doing the estate planning will name themselves as trustee and will appoint a successor trustee to handle matters once they pass on.  If you have been named successor trustee for a person that has died, it is important that you hire a wills, trusts and estates attorney to assist you in carrying out your duties. Although the attorney that originally created the estate plan would most likely be more familiar with the situation, you are not legally required to hire that same attorney. You can hire any attorney that you please in order to determine what your obligations are.

 If the decedent had a will it is common that the successor trustee is also named as the executor.  Although the role of executor is similar to that of trustee, there are technical differences. If there was a will, you should consult with an attorney to determine if a court probate process will be required to administer the estate. If all assets were titled in the trust prior to the person’s death, or passed by beneficiary designation, such as in the case of life insurance and retirement plan assets (such as 401ks, IRAs, etc.), then a court probate may not be needed. However, if there were accounts or real estate in the person’s name alone that were not covered by the trust, a court probate may be necessary.

During the probate process, all of the deceased person’s assets must be collected and accounted for. This includes all bank accounts, stocks, bonds, mutual funds, investment accounts, retirement assets, life insurance, cars, personal belongings and real estate. All of these assets should be valued and listed on one or more inventories. Depending upon the value of the assets, an estate tax return may be needed. You should be aware of any final expenses, the person’s final income tax returns, and any creditors. Although this process is lengthy, once all of the appropriate steps are taken, the assets will be distributed and the estate will come to a close. 

If you have been named a successor trustee, an experienced estate planning attorney can help you through this process and make sure you carry out your legal duties as required.  Contact us for a consultation today.


Monday, February 9, 2015

When Will I Receive My Inheritance?

If you’ve been named a beneficiary in a loved one’s estate plan, you’ve likely wondered how long it will take to receive your share of the inheritance after his or her passing.  Unfortunately, there’s no hard or and fast rule that allows an estate planning attorney to answer this question. The length of time it takes to distribute assets in an estate can vary widely depending upon the particular situation.

Some of the factors that will be involved in determining how long it takes to fully administer an estate include whether the estate must be probated with the court, whether assets are difficult to value, whether the decedent had an ownership interest in real estate located in a state other than the state they resided in, whether your state has a state estate (or inheritance) tax, whether the estate must file a federal estate tax return, whether there are a number of creditors that must be dealt with, and of course, whether there are any disputes about the will or trust and if there may be disagreements among the beneficiaries about how things are being handled by the executor or trustee.

Before the distribution of assets to beneficiaries, the executor and trustee must also make certain to identify any creditors because they have an obligation to pay any legally enforceable debts of the decedent with those assets. If there must be a court filed probate action there may be certain waiting periods, or creditor periods, prescribed by state law that may delay things as well and which are out of the control of the executor of the estate.

In some cases, the executor or trustee may make a partial distribution to the beneficiaries during the pending administration but still hold back sufficient assets to cover any income or estate taxes and other administrative fees. That way the beneficiaries can get some benefit but the executor is assured there are assets still in his or her control to pay those final taxes and expenses. Then, once those are fully paid, a final distribution can be made. It is not unusual for the entire process to take 9 months to 18 months (sometime more) to fully complete.

If you’ve been named a beneficiary and are dealing with a trustee or executor who is not properly handling the estate and you have yet to receive your inheritance, you should contact a qualified estate planning attorney for knowledgeable legal counsel.


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