5 Reasons Why You\’re Not too Young to Save a Goldfish
It’s hard to believe that summer fun is nearly over and soon laser focus will target the school year, getting those year-end business deals done, and dare I say – holiday planning. Over the summer, my newsletter introduced topics on planning and I’ll end the summer with articles on estate planning for the various life stages. Also, joining me as a guest blogger this month will be a well-respected attorney and colleague, so stay tuned. Now, onto the first life stage where estate planning matters: Young adult working singles. Many people ask, “Why would a young person gainfully employed, but a young single adult nonetheless need estate planning?” The answer is for the same reason older adults need it – to protect themselves and their families, e.g., their parents. Christopher’s Yarn After college graduation, Christopher was offered an entry level position at the company for which he worked part-time while in college. His starting salary didn’t approach 6 figures, but was sufficient to afford him a nice apartment. So he moved out of his mom’s home after about 7 months of work and rented a place with a roommate, Alex. Since Chris telecommuted a couple of days a week, he also had a well-equipped home office. One day, the weather forecast was gloomy, so Chris decided to work from home. He was glad he did because early that afternoon a severe thunderstorm started raging. Chris was number crunching on a report that was due that evening when suddenly his computer froze; the cursor wouldn’t move; control-alt-delete wouldn’t work. Chris bent down and flipped the switch on the power strip and ZAP! That evening when his boss didn’t get the report, she e-mailed Chris and waited for a response. When there was no word from Chris the next morning and he didn’t show up for work, his boss phoned HR. HR tried phoning him but kept getting his voicemail. Later that afternoon, Alex returned home from spending the night at a friend’s. He unlocked the door and saw Chris sprawled across the floor of his home office. Chris’ mother was a single parent who worked 2 jobs to help Chris through college. After he moved out, she quit one job and took a long vacation with a friend in Mexico. Alex had her phone number but couldn’t get through. The only other relative Chris mentioned was an older brother who Chris said couldn’t be trusted to watch a goldfish. Alex called the medics but was stunned. Chris had no healthcare powers of attorney, no property powers of attorney, no life insurance, no will, and an irresponsible brother. He and Alex only met a few months ago, so Alex didn’t know his medical history. Whether Chris survived or not, I can’t say for sure, but upon his employment for 6 months, I would have given Chris the following 5 tips: You can authorize a successor agent under a healthcare power of attorney, who can make healthcare decisions on your behalf if you become incapacitated. Renter’s insurance is very helpful if you telecommute; perhaps not against lightning strikes, but definitely against thieves. A property power of attorney can authorize someone other than an irresponsible brother to manage your bank account and bills while you’re hospitalized. Life insurance will help your mom pay for your services so she won’t have to struggle financially. A will allows you to ensure that your irresponsible brother doesn’t get the goldfish. If you think you’re too young for an estate plan, think again before it storms.
7 Money-Savers before Googling, Binging, or Yahoo!ing \’Wills\’
This sucks as a topic sentence but the truth isn’t always tasty, so here goes: Contemplating death is not something most folks like to think about. Yet, if you want your transition to be as smooth as possible for your loved ones, recognizing the emotional turmoil they will undoubtedly be experiencing, having your affairs in order is a loving and thoughtful way that can prevent further turmoil. However, before you Google “wills,” take the time to consider what you want for your family in the event of an unexpected tragedy or the inevitable. Taking sufficient time to thoughtfully deliberate about your intentions before you meet with an attorney will also save you money on attorneys’ fees, and who doesn’t want to save money these days? Your considerations should probably start with your loved ones: If you have minor children or dependents, then they will need a guardian. If you have a pet or pets, then you should consider who would be best and willing to care for your cockatoo or kitty. If you own a home, then who should pay the mortgage? Are the beneficiary designations on your retirement accounts accurate? What should happen if 1 of your 2 children becomes disabled? Should the distributions still be absolutely equal? What type of gift should you consider for your niece or best friend’s daughter who’s also like a daughter to you but you have 2 other children? Who gets your favorite blue sweater? Many questions that we need to have answers for to get our affairs properly situated, don’t involve money. Still, the sooner we can answer, “What if?” and “Who?” the sooner we can create a sustainable peace of mind over both our financial and personal affairs.
Love & the Law: Case Histories At-A-Glance
Updated May 27, 2023 Recently, courts across the country have handed down several decisions involving LGBT relationship rights. Additionally, June 12 was the anniversary of the U.S. Supreme Court ruling in Loving v. Virginia, which held that laws prohibiting interracial marriage were illegal. Because the U.S. Supreme Court is the final arbiter of what is law in the United States, many speculate that the Court is going to eventually rule on the issue of same-sex marriage. So over the course of the next couple of months, I’ll provide a little case history on the decisions below (Griswold, Loving, Bowers, Romer, Lawrence, Prop 8, and Windsor) considered landmark decisions by many in the area of privacy and relationship rights. Windsor v. U.S. is not a Supreme Court case, but may be headed there just the same, and Proposition 8 (\”Prop 8\”) involves the California statute banning same-sex marriages that was ruled unconstitutional by the Ninth Circuit. Proponents of Prop 8 have already stated that they will appeal it to the the U.S. Supreme Court. Why does this matter to estate planners? Because we plan for families and the recent decisions are pointing toward a fundamental shift in the national, legal definition of family.
Love & the Law: The IRS v. NY
Edie and Thea had been together for more than 44 years; they became one of the first registered domestic partners of New York; and as Thea\’s health began failing dramatically, the couple legally married each other in Toronto, Ontario, Canada. When Thea died a few years after their lifelong relationship and marriage, the federal government refused to recognize their marriage and taxed Edie\’s inheritance from Thea as though they were strangers. Under federal tax law, a spouse who dies can leave her assets, including the family home, to the other spouse without incurring estate taxes. Ordinarily, whether a couple is married for federal purposes depends on whether they are considered married in their state. New York recognized Edie and Thea\’s marriage, but because of the so-called the \”Defense of Marriage Act,\” or DOMA, the federal government refuses to treat married same-sex couples, like Edie and Thea, the same way as other married couples. After spending decades together, including many years during which Edie helped Thea through her long battle with multiple sclerosis, it was devastating to Edie that the federal government refused to recognize their marriage, their loving and solemnized dedication to each other. With representation by the American Civil Liberties Union, the New York Civil Liberties Union, and the law firm of Paul, Weiss, Rifkind, Wharton & Garrison LLP, Edie challenged the constitutionality of DOMA and seeking a refund of the estate tax she was unfairly forced to pay. Edie alleged that DOMA violates the Equal Protection principles of the U.S. Constitution because it recognizes existing marriages of heterosexual couples, but not of same-sex couples, despite the fact that New York State treats all marriages the same. On June 6, 2012, Judge Barbara Jones ruled for Edie and against the IRS, stating that Section 3 of DOMA as it applies to legally married same-sex couples for purposes of estate taxation is unconstitutional. Though this isn\’t a Supreme Court ruling and, therefore only persuasive outside of NY, it is a large and critical step in the undoing of DOMA. The Love & the Law Episodes: Brief Case History | Contraceptives | The Color of Love | The IRS v. NY | Privacy? No. Sex? No. History? No. Liberty? Yep. Pt 1 | Privacy? No. Sex? No. History? No. Liberty? Yep. Pt 2
80% Get It Wrong…
In the digital age, it\’s rare that potential clients haven\’t done research before contacting our firm. So, when speaking or meeting with them, it\’s important to hear what they\’ve found. Sometimes it\’s factually correct, but not for their case; sometimes it\’s factually incorrect with respect to their case; and often the pieces just don\’t fit together at all. So then I say, \”Think about this…\” And, as colleagues continue to criticize DIY services, as online legal documents services proceed with IPOs, and as folks continue to ask me to opine, I thought these few facts may be worth sharing:
3 Lessons from Summer Disaster Flicks
One hallmark of summertime in the U.S. is the onslaught of disaster movies. For me, there’s nothing like a great “the-world-is-under-attack-so-blow-‘em-up-real-good!” movie. So when temperatures crept into the 80s and trailers for “world under attack” started showing on TV, I couldn’t help but think about the “disaster” provisions in estate planning documents, aka “contingent beneficiary” provisions. Also, while reading a couple of cases and thinking about questions frequently asked by clients, I knew I had a winning screenplay, or a half-way decent blog post. So grab your popcorn and enjoy the move…I mean post. Ornery old Great-Grandma Cornelia Stamper decides to write her will and leaves one of her oil wells to her son, Harry. She names it “Harry Stamper’s Well.” Before she dies, though, Harry marries Anna and he and Anna have a daughter, Grace. Cornelia isn’t so keen on Anna, so she draws up a trust leaving income from the “Family Stamper’s Well” to Harry for his life and upon Harry’s death, the income from the well should be distributed equally among Cornelia’s heirs. Cornelia dies at the grand old age of 98 and Harry then draws up a trust leaving Harry Stamper’s Well to Grace and continues his life’s work – drilling in Alaska. Suddenly one day, Harry learns from his buddies at NASA that an asteroid is headed for Earth. Harry then changes his trust and adds a charitable contribution provision, giving part of the income from Family Stamper’s Well to the Red Cross and Medicins Sans Fronteirs and the rest to his descendants. Also, Grace has a trust created and leaves the income from Family Stamper’s Well to the same 2 charities. Fortunately, Harry’s NASA buddies blow the asteroid up real good and none of the particles cause any damage to Earth. A year later, while drilling near Russia, Harry is told that aliens attacked Earth and wiped out all his relatives including, Grace. Harry’s heart can’t take it and he dies. However, Grace actually escaped the attack but is the only Stamper left. Grace’s friends, David and Steven, however, blow up the alien ship real good and things return to normal – kinda. Half the world’s population is gone, so the Red Cross and Medicins Sans Frontiers have a lot of work to do. They are counting on Harry’s gift and know that the funds are available because the banks were saved. Go figure. Accordingly, they hire a lawyer; lots of us survived. But their meeting with the lawyer didn’t go well. My clients know why because these were their questions: 1. Can income from a life estate be given away by the owner of the life estate? In other words, could Harry bequeath income from Family Stamper’s Well? No. Cornelia left the income to Harry for his life only and then to Cornelia’s heirs. So unless Grace is feeling charitable during her lifetime, the nonprofits are out of luck until Grace dies. 2. What would have happened if Grace died in the alien attack but Family Stamper’s Well had dried up? In other words, what happens when the “gift” is no longer in the estate? If Grace knew the well was drying up and didn’t change her trust to provide for this event, then the gift would be considered “revoked,” or \”adeemed\” in legalese, and the charities out of luck. If Grace didn’t know and say the well was destroyed by the aliens, then the gift is still considered revoked unless she provided in the trust that the loss should be covered by insurance. 3. What would have happened if Grace died and she didn’t name anyone to take the income? That’s the real disaster. With all of the Stamper beneficiaries dead and no charity named, the income and well would probably go to the remaining population – bankers and lawyers.
Debunking Estate Planning Myths & Developing Weath, pt 5
Finally finishing the “Debunking Estate Planning Myths” series, as discussed in part 4, revocable living trusts let individuals place more than land into a trust. Doing so typically prevents beneficiaries from going through probate, allows other vehicles to grow tax free, and keeps the terms of the estate distribution private. Also, not only do trusts save beneficiaries the time and expense of opening a probate estate, but trusts also minimize estate tax exposure for beneficiaries. Tax minimization relates directly to another intermediate but classic estate planning tool and technique – an irrevocable life insurance trust (ILIT). ILITs are a combination of 2 estate planning tools, a trust and life insurance, used to minimize estate tax burdens for beneficiaries. Life insurance proceeds that would be considered part of the estate are used to fund a trust and deemed removed from the estate altogether. A number of criteria have to be met, such as using a policy that the insured has no interest in the policy, e.g., does not withdraw the cash from a cash value policy. However, if we think about it, typically we don’t buy life insurance for investment purposes but only for income replacement purposes. So if we’re not planning to use the life insurance, then why not let it benefit our loved ones in more than one way and place it in an ILIT? Using particular language in children’s trust provisions is another way to provide beneficiaries with the time needed to mature before having substantial means placed into their hands. Provisions with this language are called “staggered mentoring” provisions, which instruct the trustee to distribute certain percentages of the total trust funds to the children at ages 25, 30, and 35 years, for example. Parents also can place conditions on distributions so that a child doesn’t receive a distribution unless he or she performs on at least an average academic level in college and becomes a productive member of society. Mentioning this tends to result in a few “likes” by parents on my Facebook page. Trusts are also used to provide enhanced tax minimization for the surviving spouse. By using the federal marital deduction and other available elections, families can defer the payment of estate tax payments of the first spouse until the second spouse’s death. Another way that trusts are used is to provide for surviving spouses, partners, and children using retirement proceeds. Typically, beneficiaries should be named directly on retirement accounts. Under certain situations, the retirement account should be maintained as an “inherited” account, and occasionally a trust should be named beneficiary where the individual beneficiary is dependent on a trustee. The trustee then pays out the proceeds over the lifespan of the beneficiary as opposed to the original account owner. Because trustees are the actual legal owners of the trust property, beneficiaries may be protected from creditors because trustees can be given sole discretion to distribute funds, and may pay institutions, such as colleges and hospitals directly. Part 1 | 2 | 3 | 4 | 5
Blood or Money? Making Fiduciary Designations that Maintain Family Harmony
Tons of articles have been published advising individuals and couples about what to bring to or how to prepare for a meeting with your estate planning attorney. Most of these articles provide the typical list: financial statements, copies of tax returns, mortgage statements, retirement information, and so forth. Not surprisingly, few articles discuss the “hard list”: names of successor guardians for the children, names of successor trustees – particularly if the children have trusts, how special gifts will be distributed, and who should hold title to the home for asset protection purposes. A previous post discussed guardians but another issue that couples may want to consider is how to maintain family accord for the children’s benefit when a member from one spouse’s side of the family may be emotionally closer to the children than a member from the other spouse’s side, but both families want to be involved in the event of an emergency. Under those circumstances, the harmonious decision to name Uncle Louie Guardian and Uncle Gus as Trustee, for example, may be not-so-harmonious. Baby Gina’s and Big Brother Brett’s Uncle Louie on Mama’s side and Uncle Gus on Papa’s side may in fact have a great relationship. However, designating one guardian and the other trustee may place a strain on the relationship that would cause Robin to reconsider his relationship with Batman. Consequently, designating one person as both guardian and trustee would probably be more prudent. Plus, Uncle Gus might even appreciate it once you shared with him the critical and long list of duties a trustee must agree to undertake. Still, what if Uncle Gus is a control freak and would wreak havoc on the rest of you and your spouse’s living days if some authority wasn’t given to him? In that case, you could make Uncle Gus the Executor of the estate. But what if that wasn’t enough? Perhaps he would be satisfied with being the successor trustee of the family trust funds that remained after the children’s trust was fully funded. And if Uncle Gus wasn’t satisfied with that and Uncle Louie refused to switch places? Then consider the following 2 options: Creating a solid co-trustee agreement between the 2 uncles; or Designate a corporate trustee to manage the children’s trust. Sometimes to maintain family accord, retaining a reasonable corporate trustee is the only option. Yes, money leaves the estate but at least it\’s money and not blood.
2 Lessons from a Single Mom Held Hostage
One of the most important steps a single parent can take to protect his or her child is to plan for the unexpected. I don’t point it out often, but the fact is that one of the primary services offered by the Law Offices of Max Elliott is helping people plan for the day they die. Nobody likes to think about this, let alone talk about it, especially parents – moms and dads. Given that challenge, consider the following true story (with identifying characteristics changed): Molly and Sheldon had been dating for a couple of years but weren’t ready to get married. Sheldon was a struggling actor and Molly was fresh out of college. However, circumstance resulted in Molly having Sheldon’s little girl, Amy. Sheldon and Molly decided against marriage or entering into a Civil Union but both loved Amy dearly. One day while returning from work, Molly was killed in a car crash. Fortunately, she had life insurance. BUT… 1. She listed Amy as the primary beneficiary with no further instruction. 2. She listed Sheldon as the contingent beneficiary with no further instruction. 3. She didn’t tell her only other remaining “next of kin” about her “final wishes.” So… Molly’s body was sent to a funeral home selected by her only remaining next of kin, who could not afford to pay for the funeral services but, when meeting with the funeral home director and Sheldon, mentioned the life insurance policy. The funeral home agreed to perform the services that week only if they could be guaranteed payment through the insurance proceeds. For this to occur to the satisfaction of the funeral home, Sheldon, who was on Amy’s birth certificate, would still have to go to court and agree to open an estate for Amy and a lawyer, referred to Sheldon by the funeral home, would have to be named trustee. The bottom line: If Sheldon didn’t want to take the funeral home up on its offer, during one of the most challenging times of a person’s life, I might add, he had to find the money elsewhere within 24 hours. Taking the funeral home’s offer meant: Retaining an attorney that neither he nor Molly knew to represent their little girl. Designating an attorney neither he nor Molly knew to be trustee for their little girl’s sizable estate at least temporarily; and here’s the other burn… Paying thousands of dollars of little Amy’s money to an attorney and a funeral home in order to hold Molly’s services within a reasonable time. This is a grim, real life story but I implore you to take and pay forward the critical lessons: DO NOT designate minors as primary beneficiaries of life insurance policies, retirement accounts, and the like. DO communicate to your loved ones your final wishes, so you and your loved ones won’t be held hostage.
A Fiduciary\’s Lesson on IRS Pre-emption
On April 11, 2012, the Second District Appellate Court of Illinois filed an Opinion emphasizing the importance of a fiduciary’s role in trust and estate planning. As a fiduciary, an executor or trustee typically has the responsibility to ensure items such as the estate’s value and the relevant taxes are calculated correctly and, subsequently, paid. Accordingly, it is important for individuals to select appropriate fiduciaries. It is equally important for those approached to be fiduciaries to understand the scope of duties involved and the consequences if those duties are not performed properly. Case on point: People of Illinois v. Kole, No. 09-L-892. The Lay of the Land In 1993, Anthony F. Crespo named Julius Kole as executor and successor trustee of the Anthony F. Crespo Living Trust. Crespo died in 2002 and Kole paid $127,000 in Illinois estate taxes. Kole also filed a request for an extension to file the Illinois estate tax return, which was granted. Six months later, he filed the Illinois return reporting an approximate $81,000 estate tax liability. The Illinois Attorney General’s office received the return and issued a “Certificate of Discharge and Determination of Tax,” stating that, based on the information provided, the estate taxes were fully paid and, therefore, the estate was clear of any liens from the State. The Certificate of Discharge also relieved Kole from any personal estate tax liability for the Crespo estate. However, an IRS audit of the federal estate tax return reported in 2006 a revised value of the estate, increasing the value from more than $2.1M to $4.4M. This, of course, increased the Illinois state tax liability. Consequently, Illinois sued Kole, personally, seeking the additional estate tax owed plus penalties and interest, amounting to more than $300,000. The Arguments Kole first argued that the plain language of the Certificate of Discharge had relieved him of the obligation to pay additional taxes. The State replied that the Certificate of Discharge was routinely issued upon initial filings, which were based on the information provided at the time. So the initial issuance did not negate the need for supplemental filings if new information resulted in additional taxes owed. Kole’s response to the State, however, was enough to cause this reader to question her eyesight: “[Kole] admitted that the estate never paid any additional tax to Illinois or filed a supplemental return, but he then objected on hearsay grounds to the contents of the IRS Report.” Commentary and Conclusion To use the common vernacular, “Hearsay? Really?” Kole’s argument about the Certificate of Discharge’s plain language meaning at least had some merit, but arguing that an IRS Audit Report is hearsay was quite colorable. Even non-lawyers have watched enough Law & Order to learn the public records and business records hearsay exceptions. The trial court, however, agreed with Kole’s plain language argument. The Illinois AG appealed and the Appellate Court reversed the trial court’s decision (see Lesson #2, infra). Lessons Choose a fiduciary who will obtain a correct valuation and pay the appropriate taxes due – whenever they\’re due; A Certificate of Discharge isn\’t really final until the IRS says so; and Take great care in accepting a fiduciary role.