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Tuesday, May 10, 2011

"Final Instructions"

Your “instruction manual” for your children or survivors should begin with the basics.  First, do you have a Trust and Will?  If so, have you written instructions for your kids (survivors) to follow at your death or disability? 

In regards to your estate, are you concerned about probate and taxes? If so, you have done a good job to provide for your heirs and save unnecessary costs, fees, and taxes. If not, you  may be leaving your kids  with no clues as to what to do and no instructions  for them to follow.  It's a well known habit that when all else fails, we read the instructions. But if we are left with no clues or instructions, what do we do? We waste a lot of time and money that tends to diminish your estate.

If you have a Trust,  then you  likely already have an instruction manual  stating your goals as to who gets what and when they get it. The duties of your Successor Trustee are set forth in your  Trust document and it is his/her fiduciary responsibility to abide by the law and the Trust. The Trustee must collect and manage assets, pay your debts and taxes and seek advice of counsel. Your goals to protect your loved ones can be carried out, if you state your goals loud and clear in your Trust.

Your “Final Instructions” may include specific distributions of special stuff /memorabilia/heirlooms/investments/etc  to go to certain people. Instructions will  often  include tax planning for married couples, disability planning when you become unable to manage your financial affairs prior to death, and who you want to be in charge of your property when you die or are disabled. Provisions may be made in your trust for protecting your children from predators and special instructions will protect your disabled children.

Do you have a plan to protect your children in the event your surviving spouse remarries? Do you care if a child is disinherited? Do you want to protect a spendthrift? If you plan your Will and Trust with lots of “baby sitter” instructions, your children may be protected for life, and your grandchildren too.    At the minimum,  Final Instructions are important to avoid the consequences of doing nothing.  I encourage you to take the time now to meet with an estate planning attorney such as myself to create or review your Final instructions.

Thursday, March 3, 2011

Benjamin Franklin Does Estate Planning

Benjamin Franklin is largely known today for his key roles in the American Revolution, the formation of the United States, and his diplomacy with France.  But Franklin was also a very successful businessman.  Starting with absolutely nothing, he built a substantial fortune.  And he capped it off by demonstrating keen skills developing his estate plan.  His approach to estate planning is addressed in a posting by my WealthCounsel colleague, Suzann Beckett who practices in Connecticut.  I hope you enjoy this quasi history experience while admiring Ben Franklin’s adroit estate planning skills.

Estate planning, the Franklin way.

The subject of Ben Franklin came up the other day in conversation. More specifically, the subject of Ben Franklin's visionary approach to estate planning, came up during a discussion of how the average person can make the most of their wealth for posterity.

Benjamin Franklin was many things. Born into humble circumstances, Mr. Franklin very literally ran away from home, then followed up his running away by working, innovating, persevering, and struggling to ultimately become one of young America's wealthiest and most respected citizens. He knew a thing or two about math and the compounding of interest, too.

For those who are truly curious, a version of Benjamin Franklin's Last Will and Testament is available online, from the Franklin Institute. Included is a codicil to the original Will, that should give anyone pause. Franklin's significant wealth is apparent, as is evidenced by the extraordinary number of homes, land, and valuables he details in his Will. But the relatively minor sum of one-thousand pounds sterling mentioned in the codicil, which would be equivalent to roughly $4,000 at the time – is particularly impressive for those of us who would like to make an impact on the generations to follow, even if we do not have the financial capacity to astound the neighbors at the moment.

Franklin specified that the money should be held in trust. Two trusts, actually. One-thousand pounds sterling was provided to the city of Boston, where Franklin was born, and one-thousand pounds sterling was given to Philadelphia, the city that is most commonly associated with Franklin as his home. Both funds were specified to be held and invested, in a specific manner, and maintained for two-hundred years. A significant amount of time, certainly. But Franklin wasn't looking for returns that could be looked down on as small potatoes. He was looking to shake the world. And he did. He has. He continues to, and will for years to come.

You see, Franklin's $4,000 investment has grown to millions of dollars in the interim. The funds he put away for posterity have done exactly what he hoped they would do. And through careful management, they have continued to grow, and expand in value through good times and bad.

Now admittedly, most of us don't think two-hundred years into the future – and most of us don't have massive estates like Mr. Franklin had. But almost all of us can find a way over the course of our working lives to put away a few dollars in the hopes that we can make the lives of our children and grandchildren more comfortable and satisfying than ours may have been.

If Franklin's Will proves anything, it is a tangible demonstration of how a well intentioned gift, well managed, well planned, and well executed, can change the lives of generations to follow.

It's something to think about, isn't it?

Benjamin Franklin exercised far more farsightedness in his estate plan than most of us feel the need for.  But Franklin did reveal the powerful benefits to be gained from well thought out plans.  His clever employment of the principal of compounding into his estate plan is admired to this day.  Bravo to Benjamin Franklin – for executing an estate plan that has spanned several centuries.  I am available to assist you with an estate plan to span a decade or two, and I would enjoy the challenge of assisting you with an estate plan for several centuries……if you wished to follow the lead of Benjamin Franklin.

Thursday, March 3, 2011

Estate Planning Traps

This is a helpful bit of information that a fellow estate planning colleague posted from his law offices in Montana.  He’s relatively new to blogging, but I think he’s done well with this information in a summary format.  I am reposting his information to share with you. 

I seem to be on a roll this morning over the pitfalls of do-it-yourself estate planning.  Here is list of Common Pitfalls and Traps I've had in my basic estate planning handout for clients:

1.  “I’m too young to worry.”  Reality: If you die young with a spouse and/or children you need to protect your loved ones.  Also, by planning early you have the power of leverage/appreciation.

2.   “My estate is too small.”  Reality:  If not planned, a smaller estate can suffer greater percentage shrinkage than a large estate due to increased administration costs necessary in a non-planned estate.

3.   “I’m leaving everything to my spouse, so estate tax doesn’t matter.”  Reality: Leaving everything to a spouse just postpones tax and wastes the dead spouse's estate tax “coupon”:  Wasting a coupon meant wasting $1,575,000 in tax savings in 2009.

4.  Believing one size fits all.  Corollary: You get what you pay for.

5.  Not paying attention to who you have on what and how: Beneficiaries of life insurance, annuities and retirement accounts.  Wrong people get the wrong property.

6.  Failing to consider trusts as vehicles to pass wealth during life or at death.  Convenience trusts, irrevocable life insurance trusts, “Crummey” power trusts, intentionally defective grantor trusts, GRATs, QPRTs (for cabins or vacation homes).

7.  Not planning for your disability; not avoiding a “living probate”.

8.  Not having any will or trust, handwriting it yourself, or having them prepared without proper analysis for your situation.

9.  Too much in joint tenancy with right of survivorship; disproportionate ownership by husband & wife.  Joint tenancy is convenient but it can ruin an estate plan if not used correctly.

10.  Failing to name guardian of minor children.

11.  Failing to prepare business succession plan.

12.  Failing to plan for estate liquidity and/or tax payment alternatives.

13.  Having too little life insurance.  If you, the money maker dies, what is your family going to live on?  Often life insurance is the only affordable way to solve the problem.

14. Not realizing life insurance you own on your own life is included in taxable estate for federal estate tax. While the proceeds may be income tax free, they are not necessarily estate tax free if you own a policy on your life.

15.  Not considering lifetime gifting program:  Children, grandchildren, charitable techniques.

16.  Not considering alternative operating entities.

17.  Procrastination:  Letting indecision lead to inaction.  Usually, doing something is better than doing nothing.  See my post below on How to Avoid Vapor Lock.

18.  Lack of Communication.  While your estate is private, you should discuss matters with those you intend to have care for you or handle your affairs after your death.  Often better planning happens when the younger generation is included and aware of what's going to happen.

19.  Not keeping estate plan up to date.  You should review your estate plan at least every few years. 

20.  Believing a magic bullet exists or “This won’t happen to us.” 

21.  BEWARE of “constitutional,” “pure,” or “common law” trust schemes. 

Remember:  If it sounds too good to be true, it is.

Thursday, March 3, 2011

Filing for Bankruptcy: What Can You Protect?

With 1.6 million Americans expected to file for Bankruptcy this year, we know that at least these 1.6 million and very likely many more researching the bankruptcy option have been asking the same basic questions.  “What can I protect?”   “What will be left?”

A recent article in the Wall Street Journal Digital Network addressed these very questions.  My colleague in Nevada, Lizette Sundvick, offers a summary commentary on this article.

Some may opine that we are climbing out of the recession, but the effects are still wearing on us. According to estimate by the American Bankruptcy Institute, more than 1.6 million Americans are expected to file for Bankruptcy this year, with 42% of filers citing “job loss” and another 65% citing “income reduction” as the determining factor. Against this backdrop, it’s unfortunate that bankruptcy hits responsible persons the hardest because they likely have the most to lose. If you are filing this year, then you may have a great deal you wish to protect. I thought I’d share some tips from a recent article onSmartMoney about what you can protect.

  • A Home: The protection afforded your home depends on your state of residency.  In addition, different states offer different acreage allowances for city and rural properties. Beyond that, the equity you have in your house also can be important to protect, because most states have an exemption allowing a certain amount of that equity to remain with the homeowner in the event that the home is sold by the bankruptcy trustee.
  • Tax-Exempt Retirement Funds: These are usually safe, and IRAs usually can be protected up to $1.17 million per person. Don’t, however, try to dump other assets (i.e., from investments that are not protected) into the retirement fund. This is a no-no.
  • A Car: Trying to retain the car is similar to retaining the house, since your level of protection depends on the laws of your state of residency. If the value of the car is below the exemption limit, and it is owned by the filer, then it can be kept. Otherwise, equity up to the exemption can go to the filer in the event of sale. Of course, in the 16 states that allow the federal “wild-card” exemption, the rest of the value of the car may be covered and the car itself retained, but this itself depends on state laws and exemptions.
  • Life Insurance Policy: If the policy is term-life insurance, then it is generally safe. Whole-life policies are generally regarded as investment vehicles, however, and in that case it will depend on state exemption levels.
  • College Savings: If college savings are held in a 529 plan or a Coverdell account, there are a couple of factors you need to know. If the account is only 2 years old, it is only protected up to $5,000. However, if the account is older than 2 years, it will be safe for so long as the beneficiary is not also the filer.

Generally speaking, the biggest factors are the state-specific exemption levels and allowances. Be sure you obtain competent professional advice to protect your interests (and stay out of hot water).

If you're worried about the future and how you can guard against economic fallout, we can give you some reassurance.  Give me a call to discuss your options.  If you have a question or two, please submit as a comment to this blog post, and I’ll respond in the comment thread or address in a fresh blog post.   

Thursday, March 3, 2011

"My Mother Took Care of Me, So I'm Going to Take Care of Her."

I’m often asked the question, “What are the options for a baby boomer with aging parents?”  I was pleased to see this posting by my fellow Wealth Counsel member Suzann Beckett practicing in West Hartford, CT.  She offers one answer for the many baby boomers facing aging parents wishing to remain in their homes but lacking the financial means. 

Medicare benefits without Life of Poverty

The New York Times recently ran an outstanding article, detailing the basics of Pooled Trusts. Most American's are not familiar with the term, or the tool – but thanks to the Times, a much larger audience had the opportunity to read about a means of caring for aging family members, while intelligently keeping the wolf away from the door.

The unfortunate reality for many of us is that a time may come when we can no longer manage to personally provide appropriate care for a loved one in our own home, or in their own home for that matter. But at the same time, we may not have the financial capacity to afford private care providers that would be able to fill the gap.

Pooled Trusts are designed to bridge that void.

Rather than reiterate the content of a well written and very informative piece, I will simply recommend that anyone with an elderly family member read this piece, if for no other reason than to gain some basic insight into an option that may be available and viable, in certain circumstances.

You can find the story on the Internet at:

As a woman who has faced these issues in my personal life, with my own family members, I am intimately aware of the emotional and financial drain that advancing age and health issues can impose on a family. In order to deal with these issues to the best of our ability, we need to be aware of our options, and informed regarding the pros and cons of each of those options. This story is a good step in the right direction on that count.

I am so pleased the New York Times published Tara Siegel Bernard's excellent article on this very important topic.

This is good information on one way that baby boomers can prevent their aging parent(s) from going into a nursing home.  If this topic of “pooled trusts” is something that you would like to know more about, I am available to meet with you.

Thursday, March 3, 2011

ILL WILL calls for a Will with Special Terms

Not surprisingly situations occur that drive a person to disinherit a child or heir.  My colleague in Wealth Counsel, Greg Turza , offered the following comments, and I am sharing them with you. 

Has one of your children run off and joined a religious cult where he was taught to reject his parents? Or become a compulsive gambler--or even worse -- a criminal?

Disinheriting a child who has become estranged from his family is often understandable. Knowing how to do it right is critical if you want to avoid court battles over your estate when you are gone.

Generally, children have no right to inherit under a will or trust. In Illinois you can exclude a child from your will or trust simply by omitting the disinherited child’s name. But this can lead to costly litigation.

Suppose after you die the disinherited child claims that the omission was inadvertent? Or a product of “undue influence” by the children who were included? Costly litigation will erode their inheritance.

To avoid this calamity the best policy is to specifically mention the disinherited child and state explicitly your decision. For example: “I acknowledge the existence of my son Michael Smith but have decided to make no provision for him as beneficiary.”

Remember, sometimes children are disinherited simply because they are wealthy or because the other children need more help. In such a case consider as an alternative: “It is not for lack of love and affection that I have decided to make no provision for Michael Smith in this instrument.”

Not surprisingly, to disinherit a child or heir requires attention to detail.  Knowing how to do it right is critical to preserve your estate from expensive court battles when you are gone.  If this is a topic we should discuss, call me or leave a comment here.

Wednesday, February 23, 2011

Do It Yourself Planning

Forbes Magazine’s September 7 issue had a thought provoking article on “Do It Yourself Wills”.  My Wealth Counsel colleague in Montana, Mark Josephson, took the conversation one step further with the commentary he shared.  I hope you find this informative. 

Josephson states: “The Case Against Do-It-Yourself Wills got me thinking about some additional comments:

The Forbes article talks about the famous Montana court case involving Charles Kuralt (he was the famous CBS broadcaster who labeled Montana's Beartooth Highway as the most beautiful drive in America) and his handwritten love letter to his mistress.  In a case that went to the Montana Supreme Court FOUR times, his handwritten love letter was ruled to have given his valuable Montana property to his mistress and to add insult to injury Kuralt's family had to pay the estate taxes due on the Montana property because the handwritten letter did not coordinate with the tax clause of his professionally drafted Will.

IN another Montana case, The Estate of Dern, in which case Mary and Clifford Dern, who each had children from a different marriage, bought a trust package from a non-lawyer and also attempted to amend it themselves four times -- sometimes having proper signatures, sometimes not.  In the end, the children ended up suing Mary with the case ending up in the Montana Supreme Court.  Justice Nelson in that case summed up the whole do-it-yourself thing as best as I've ever read.   He said:

 “Given the facts of this case, it is appropriate to make a further observation:

 “If nothing else, our decision here should serve as a warning of the pitfalls of the "canned," "fill in the blanks," "one size fits all" trust instruments that are increasingly being sold to unsuspecting members of the public, particularly senior citizens, by salesmen, many of whom have no professional qualifications whatsoever and some of whom are little better than scam artists. ...

 In truth, few areas of the law are more technical, complicated and prone to financial disaster than estate planning and trusts, nor more demanding of the sort of individually tailored advice and assistance that can best be obtained from a competent attorney and tax professional. This case, unfortunately, proves that point.”

Justice James C. Nelson of the Montana Supreme Court certainly offered a stern warning on the “DIY Wills”.  The Judge’s views seem to have been formed long before the Forbes 9/07/2010 article, but his sentiments seem to parallel the Forbes article. 

Let it serve as the ounce of prevention by serving as your own “competent attorney” that the Judge refers to in his above commentary.

Beware of those offers to “…put the law in hands” or others offering certain legal forms over the Internet.  These providers fail to clearly inform the unsuspecting public that they are simply a:

1) clerical service with those provided by an attorney; 

2) they are not a law firm or attorney nor a substitute for an attorney or law firm; 

3) they were sued by several attorney generals [including State of Washington] for selling, transferring or disclosing consumer  confidential information to 3rdparties.  

Finally, when you get their packaged forms you are on your own on what to do next.   So you should carefully weigh the pros and cons of being your own “competent attorney.” 

My recommendation is that your decision should not be based solely on cost as; in the end it may be more expensive for you and your love ones. You should look at Estate Planning costs as part of the cost of protecting your investment.  So you decide how valuable it is to protect your hard earned $$$.

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