Not Just Estate Tax Anymore

Anyone who has been following our blog knows that the expiring Bush tax cuts (including the repeal of the estate tax this year and the tax’s reinstatement next year) have given lawmakers no end of trouble as they struggle and debate—and debate and struggle—to agree on new tax legislation moving forward. In fact, The Wall Street Journal calls the issue “a ticking time bomb,” while the New York Times warns that “an epic fight is brewing.” It seems that the only thing everyone does agree on is that something has to be done before December 31, 2010.

Unfortunately, according to both news sources, politics takes precedence over legislation.  “The tax fight will serve as a proxy for the bigger political clashes of the year, including the size of government and the best way of handling the tepid economic recovery,” warns David M. Herszenhorn of the NY Times, “’…this is code for the role of the federal government, the debate over the size of government and the priorities of the nation.’”

According to David Wessel of the WSJ party lines are clearly drawn.  “The Obama administration is pressing to extend the Bush tax cuts for everyone with an income under $250,000 a year and to raise taxes on those above. A recent Pew/National Journal poll found that only 11% of Democrats favor extending all the Bush tax cuts.” Meanwhile, “Republicans are happily staking out the no-new-taxes turf, playing to their traditional constituency. Pew says 52% of Republicans favor extending all the Bush tax cuts.”

It would certainly give taxpayers some comfort if legislation could be passed quickly and decisively, but Herszenhorn warns that it’s not likely to happen, “Given the partisan gridlock of recent months, there is a chance that the battle could go down to the last minute, or even — in the face of a stalemate — that the tax cuts could be allowed to expire completely, a development that… lawmakers in both parties say could be the worst outcome.”

Either way, the best advice we can give our readers is to be prepared.  Just because lawmakers keep putting off a decision doesn’t mean you should.  Talk to your attorney about the best way for your family to weather the coming storm.  Be aware of changes to tax laws and update your estate plan accordingly.

The Comfort That Comes With Planning Ahead

Everybody thinks it won’t happen to them.  Or rather, everybody knows it’s going to happen to them eventually, but nobody thinks it’s going to happen tomorrow, or next week, or even next year.  The “it” of which I speak is, of course, death. It is this perceived immortality that allows so many people to put off their estate planning until it is too late.

But today’s blog post is not a cautionary tale about a family who put off their planning and regretted it, today’s post is about the peace and relief that forethought and planning brings not just to your family, but to you as the person making the plan.

In this article in Market Watch Chuck Jaffe tells the moving story of his brother Rob, who insisted 2 years ago on creating an estate plan even though he and his wife were both healthy.  As Jaffe puts it, “While not pleasant subject matter, it was not morbid… you’d rather be drinking lemonade on the veranda, but it wasn’t a sharp stick in the eye.”  However, when Rob became unexpectedly ill in May of this year the estate plan turned out to be a comfort to Rob and his family—such a comfort, according to Jaffe, that Rob “made me [Chuck] promise that I would write about him… when his time was up, because his story would help others.”

“People need to understand… how big a blessing it is to know — when their time comes — that they have everything in order, that they don’t need to stress or worry about how things they worked their whole life for are going to turn out. … I would not want to waste a minute of my life now having to do estate planning or worrying that I live long enough to get documents filed or whatever garbage comes with it… Focusing on death and dying while you are living, that’s easy; having to focus on death when you are dying, that would be unimaginable.”

In our business we frequently see how much easier it is for people to create a plan when they’re healthy, as opposed to the stress that comes with creating a plan when they are sick. Thank you Mr. Jaffe for sharing your brother’s moving story.  We hope that your (and your brother’s) words will help motivate others to take comfort in planning ahead.

Should You Pre-Plan Your Own Funeral?

In just about every will or trust you will find something about the estate “paying the deceased’s final expenses,” otherwise known as funeral and/or memorial costs. As a small portion of what can sometimes be a very large and intricate document, this “final expense” clause can seem unimportant—but we know better.

A funeral comes at a time when the death of a loved one is recent and close, and many people are still in shock and in some cases struggling with the reality of loss. Funerals help grieving loved ones come to terms with death and say their final goodbyes… but for the person planning the funeral the experience can sometimes be a frustrating, painful, and expensive experience. Planning ahead for your own funeral—discussing it with your loved ones and even including your wishes in your estate plan—can remove this burden from their shoulders when the time comes.

Although pre-planning a funeral is essential, pre-paying for a funeral can actually be detrimental. According to The Funeral Consumers Alliance there are just too many things that can go wrong, “[prepaying for] funerals may not cover every item of service you and your family expect, and there’s often no guarantee the money you pay today will keep up with inflation to pay the cost of the service you’ve picked out.” In addition, “many state laws don’t offer much protection for your prepaid funeral money.” If you change your mind or move out of the area there’s no assurance that you’ll get your money refunded. That having been said, although pre-paying may be a no-no, but setting aside funds—in an account, CDs, or a specially designated insurance policy—is always a good idea.

Talking about your wishes for “final disposition of your remains” is something that should always be discussed with your estate planning attorney. Whether you choose to pre-plan your funeral or not, having some basic instructions in your will or health care directive for your preferences regarding burial, cremation, organ donation and so on will be a huge help to your loved ones during a difficult and emotional time.

Estate Planning Advice for Ex-Pats and World Travelers

Estate planning can be a pretty involved affair, even for people whose lives are fairly straightforward; but if you are an ex-patriot, have dual citizenship, or plan to leave assets to family members in another country the estate planning process can by downright mind-boggling. This is because each country is going to have its own laws regarding heirs and distribution, while some governments (according to this article in the New York Times) will even “require their citizens or residents to pass assets on to people other than those whom they would choose.”

The United States has avoided these “forced-heirship” laws (although your state’s laws regarding distribution of assets in the absence of a will or estate plan may feel like forced-heirship), but these laws “are prevalent in many parts of the world, notably the Middle East, where Islamic law predominates, and continental Europe.”  If you are a United States citizen residing in one of these “forced-heirship” countries—or if you are a citizen of one of these countries residing in the United States—you will definitely want to talk to your attorney about how best to protect your family and your assets.

Just how you will go about building your web of protection will depend on a number of variables, including your citizenship, your country of residence, and in which country the assets were acquired or are held. Most estate planners agree that a trust is generally the best way to go about protecting your assets, but a trust may not work in every situation.  “The legal systems that have forced-heirship rules tend not to recognize trusts.” You may find that you’ll have to set up a will or estate plan in two places: one in your country of origin and one in your country of residence.

And of course international estate planning is not all about heirs and distribution—especially if you have young children. International guardianship documents should be carefully drafted and should include provisions for temporary guardians, travel arrangements, and medical powers of attorney for minors.

Living in a global community has its pros and its cons—the best way to successfully span two countries or cultures is to be flexible… and be prepared!

One Man’s Trash is Another Man’s… Heirloom?

Families have a way of acquiring great numbers of treasured objects and mementos: photo albums, antique books, Wedgewood China… a mounted deer head?  You just never know what’s going to end up in the trash-heap and what will be kept and passed on to the next generation.  Ellen Lupton mentions in her recent article in the New York Times that she and her husband kept the Wedgewood China and (surprisingly enough) the deer head.  But the question she puts forth is… why?

Lupton’s article, entitled How to Lose a Legacy, makes the point that the difference between old stuff as trash and old stuff as treasure lies largely with you and how you choose to leave all this stuff to your heirs. “You can’t buy an heirloom at Pottery Barn or IKEA. It comes via gift, bequest or a heated sibling brawl.”

Lupton says early on in her article that “Even folks in the ‘die broke’ crowd, determined to enjoy their remaining assets rather than leave them to the ungrateful grandkids, may secretly hope the family will love and honor their dearest possessions.” But secret hopes aren’t of any use to your children or grandchildren after you’ve passed away.  Part of the job of an estate planner is to help you express these secret hopes to your heirs and leave your treasured possessions in safe and appreciative hands.

Of course your heirs are going to have minds (and memories) of their own, and your treasured silver cake platter could still end up in the local antique store; but the best way to keep your treasures in the family is to make sure your family knows your wishes.  If they know how much your grandmother’s English tea set meant to you (and why it meant so much to you) it’s going to mean that much more to them.

You may share a life and history with your heirs, but you can’t expect them to read your mind.  If you can put your stuff into context—let each heirloom tell a part of your story and reflect a meaningful relationship—the legacy you leave will be priceless.

Will Billionaire Steinbrenner’s Death Inspire Congress to Reinstate the Estate Tax?

Common superstition says that famous deaths come in threes, but the death of New York Yankees owner George Steinbrenner on July 13 makes four billionaire deaths in 2010. It’s hard to deny the significance of such events in a year when there is no estate tax.

According to the Associated Press Steinbrenner’s family is set to receive a tax break of “about $328 million” because of the estate tax repeal this year. This number, along with the millions of dollars saved (that would otherwise have gone to pay estate taxes) by the families of Dan L. Duncan, Walter Shorenstein, and Mary Janet Morse Cargill may inspire Congress to take action on the issue of the estate tax before the year is over. The Washington Post quotes Senator Bernard Sanders of R.I. as saying, “In the midst of this terrible recession, the idea of giving billionaires a massive tax break is obscene… Already we have four billionaire families who are not paying taxes — Steinbrenner’s being the last one. Many billions are being lost. We have to address that reality right now.”

Although there is still some talk of the possibility of the estate tax being reinstated retroactively, most lawmakers and attorneys agree that the further into 2010 we get the less likely this becomes. But missing out on the estate taxes of four billionaires has to hurt, and the members of Congress are not likely to drag their feet much longer. One way or another, we can soon expect to see the issue of the estate tax become a hot topic of debate in Washington. Our firm will keep you abreast of any changes to the law that could affect you, your loved ones, or your estate.

Communication is Key: Talk to Your Doctor About Your End-Of-Life Wishes

Part of creating an estate plan is talking to your spouse, your family—and yes, your attorney—about your end-of-life wishes. A living will or healthcare directive is an essential part of any estate plan. This is the document in which you nominate the person or people who will make healthcare decisions for you when you are unable.  It is also in this document that you specify what treatment you would (or would not) like to have at the end of your life. It is in this document that many people specify their do not resuscitate (DNR) orders; and once they’ve created and signed this document they think they’re all done.

Not quite.

Studies have shown that even with perfectly executed healthcare directives many patients receive treatment they specifically did not want; this is because their wishes are unclear or have not been communicated to medical providers.  Some states have found a way to prevent this miscommunication… with a program called Physician Orders for Life-Sustaining Treatment, or POLST.  “The program involves an innovative medical form that is signed by a doctor, allowing patients to specify what kind of care they want at the end of life, such as feeding tubes and other medical interventions.”

The key here is that the medical form is signed by the patient’s doctor.  This requires patients to include their primary care physician in their decisions regarding end-of-life care—or at the very least notify their physician of these wishes—with excellent results.  A study published in the Journal of the American Geriatrics Society found that “patients with the Physician Orders for Life-Sustaining Treatment forms had much less unwanted hospitalization and medical interventions.”

This is wonderful news if you’re in a state like California or Oregon, which already has the POLST program in place.  But it doesn’t mean you’re out of luck if you happen to reside in a non-POLST state.  Even without the official POLST program, the key to having your end-of-life wishes respected is communication; communication with your doctor, with your family, and with the nursing or caregiving staff most likely to be attending you in an emergency situation.

If you are concerned about having your wishes followed, don’t hesitate to talk to your doctor and/or nursing staff about your living will or healthcare directive.  Even have them read and sign off on it if necessary.  After all, a healthcare directive is a wonderful tool, but it doesn’t do much good gathering dust in your filing cabinet.  Make sure your family and medical staff are aware of your end-of-life wishes.

Heirs Pay the Price for a Do-It-Yourself Estate Plan

A recent article in U.S. News and World Report has brought the battle between professional estate planners and Do-It-Yourself document proponents out into the open.  As author Kimberly Palmer points out in the article, lawyers believe Do-It-Yourself is dangerous when it comes to estate planning, and they will certainly tell you so when asked.  But here’s the thing—estate planning lawyers rarely get asked.  EP attorneys don’t get D-I-Yers coming into their offices to ask questions; it’s the heirs of the D-I-Yers who will have to come in and hire an attorney when the Do-It-Yourself will doesn’t function properly.

There is a lot of legal knowledge, personalization, and attention to detail that goes into an estate plan, even if you are young and think you have negligible assets. The U.S. News article quotes one Brooklyn-based attorney as saying “Unless you are single and have absolutely no money…you need an estate planner.” There are just too many things that can be forgotten, misunderstood, or just plain go wrong; and a small mistake can lead to big problems, even to the extent of invalidating your entire plan.

For example, did you know that…

  • Although a will doesn’t usually have to be notarized, most states do require you to sign it in the presence of witnesses?
  • You should always nominate at least one back-up guardian for your minor children in case your first choice is unwilling or unable?
  • Although there is no estate tax in 2010, many heirs will actually end up paying more because of capital gains taxes?
  • Your will becomes a public document upon your death, leaving your heirs open to criticism, claims and contest suits by predators and disgruntled relatives?

These are issues that could completely de-rail all your good intentions in a Do-It-Yourself document, but would be easy for an estate planning attorney to anticipate and address. Contact our office (or your own trusted, local attorney) to ensure that your estate plan is current, comprehensive, and complies with all state and federal regulations.

No Estate Tax Means No Need to Plan, Right? . . . Wrong.

Since the estate tax was repealed at the beginning of this year many people have rejoiced in the thought that there’s no need to create an estate plan. While it may be true that for the moment, at least, your assets don’t need to be protected from outrageous estate taxes, there are still a number of reasons why it is not only beneficial but essential to have a plan in place for your finances after you pass away.

Attorney and accountant Bob Carlson has written an article in InvestingDaily.com in which he enumerates four reasons to create an estate plan even without the motivating factor of estate taxes (he calls this Legacy Planning):

  1. Financial Security
  2. Continuing management and caretaking
  3. Protection (from creditors, predators and lawsuits, if not from taxes)
  4. Other tax burdens (such as state taxes, capital gains taxes, gift taxes, etc.)

There are many things we do in our lives not because we have to, but because we know it’s the right thing to do.  Estate planning is no different.  Creating an estate plan is not just about taxes, it’s about you and your family planning for the future.  Creating an estate plan is about being there for your children even after you’ve passed away; it’s about protecting them, providing for them, and even teaching them fiscal responsibility.

Will the lack of estate taxes in 2010 lead you to ignore these other important reasons to protect your family and plan for the future?

How to Plan for the Future While Estate Tax Debate Continues in the Senate

With all the estate tax proposals currently floating around the Senate the future of the estate tax is anybody’s guess… but that doesn’t mean we’ll stop trying to figure it out. A recent article in the Wall Street Journal touches on some of the more recent (and more controversial) proposals floating around Washington.

The proposal that is currently getting the most attention comes from Vermont independent Sen. Bernie Sanders and three Senate Democrats who say that “It’s time for multi-millionaires and billionaires to pay their fair share.”  And pay they would!  According to Sanders’ proposal “the [estate tax] exemption would be $3.5 million for an individual or as much as $7 million for a couple, with a tax rate of 45%. But estates with taxable assets between $10 million and $50 million would pay a 50% rate, and estates valued above $50 million would pay 55%. A further 10% surtax would apply to assets above $500 million.”

Of course, it’s too early to get worked up just yet, Sanders’ proposal is just one of many right now, and the debate still rages in the Senate with no clear winner in sight.  Of course, if no action is taken the estate tax will come back in 2011 with a 55% tax rate on estates above a mere $1 million.

Either way, you’ll want to be prepared, and the only way to do that is to keep in contact with your estate planner and make sure that your plan is designed to handle anything.  Although it may be tempting to wait to update your estate plan until a clear decision is made, all that really does is leave your family unprepared if something should happen to you while the tax is in flux.  Contact our office to find out what adjustments should be made to your estate plan to keep your family protected while lawmakers continue to debate the future of the estate tax.