5 Mentoring Tips from the Grave
As a wills and trusts attorney, frequently, clients or friends ask me how they or their parents can prevent young, adult beneficiaries from wasting their “hard-earned” inheritance. I explain that this can be managed in at least 5 ways: Use hard cold facts and an iron club. Tell them that the money was hard-earned by you and don’t leave them anything but a videotape of the family history. Leave all the money and possessions to charity. Bribe the youngsters and hope for the best. Of course, these are 2 actions that make most lawyers’ skin crawl. Educate the little people from the time they get their first piggy bank from Grandpa. Use conditional provisions that don’t “offend public policy.” This means that, while you can’t disinherit your child from marrying outside his ethnicity and can’t tell him he won’t get a dime unless he divorces his current spouse, you can cut the cord if he becomes a lifetime criminal. You can shorten the cord if she becomes a lifetime substance abuser. And you can make the cord’s length dependent on grades and gainful employment. “Staggered mentoring,” which I’ve mentioned before, is another tool. With a “staggered mentoring” provision, Grandpa leaves Hermoine 30% of her pot of gold when she turns 25, another 30% when she turns 30, and the balance at the age of 35. My favorite is a combination of 3 through 5, but as my favorite contracts professor said, “If it walks like a duck and squawks like a duck, it ain’t a beagle.” So, if Hermoine’s been in and out of jail since the age of 16 and she’s 25 now, education, at least of the financial planning kind, isn’t probably going to work.
Second Marriages, Drunken Debauchery, & Children Left Behind
Often couples with no children think that they don’t need a will because their spouse will fulfill their wishes with respect to extended family. Sometimes it works; often it doesn’t. Though we can hope, we simply cannot predict what the future will hold for us or our loved ones, which is why planning is critical. Incapacity can strike in more ways than one leaving our extended family members or favorite charities empty: Gina and Lisle were in their second marriage. Gina was a widow when she and Lisle met. Her first husband was a generous man, with no extended family, so he left Gina the bulk of his estate. Lisle’s ex-wife retained a very good divorce attorney, so she ended up with nearly everything he owned, including the shirt off his back. Fortunately for Lisle, his ex found a wealthier second husband and Lisle was eventually able to buy a new shirt. Neither Gina nor Lisle had children but both had siblings and Gina had nieces and nephews who captured her heart. Lisle only had one brother, Jake, a scoundrel and leech, living off relatives and women who took pity on his substance abuse and inability to stay employed for longer than a couple of weeks.* One day, Lisle received a call from a hospital. Gina had been admitted after slipping and falling on an icy intersection crosswalk. She broke her ankle as a result of the fall. Lisle arrived at the hospital and the doctor told him that while treating Gina, they noticed she had an irregular heartbeat. They wanted to examine the cause and decided to keep Gina for a few days and run tests during that time. After running the tests, doctors determined that Gina had severe blockage but before the hospital could treat the blockage, Gina developed a bacterial infection. And this bacteria was very resistant. The bacteria was so resistant and Gina’s immune system so compromised by the blockage that she never recovered and died in the hospital. Gina left no will or trust but had a verbal understanding with Lisle that part of their combined estate was to go to Gina’s nieces and nephew to assist with their college education. However, as Lisle floundered in grief after Gina’s passing and became gravely ill himself a little more than a year after Gina\’s death, he fell victim to Jake’s undue influence and the nieces and nephews never got a dime. Sometimes it’s not your incapacity but the disability of others that may undermine your wishes if you haven’t a solid plan in place. *Whether he realizes it or not, Jake is incapacitated with respect to Illinois law, whose definition of incapacity includes, “because of gambling, idleness, debauchery or excessive use of intoxicants or drugs, so spends or wastes his or her estate as to expose the person with disability or dependents to want or suffering.”
5 Reasons Why the \”Permanent\” Exemption Matters to You
Many people probably know that Congress made permanent the Federal estate tax, which is $5 million, indexed for inflation, per person and $10 million per married couple. This means that approximately 98% of Americans will not have taxable estates on their deaths with respect to the government’s estate tax. A sigh of relief for many families could be heard across the land. However, folks shouldn\’t sigh too heavily because the same matters that existed before for individuals and families were not eliminated by Congress’s act. So the following are 5 issues that have nothing to do with the federal estate tax but are still very important to protecting yourself and your family: You have children. Even families with modest-sized estates should ensure that their children are cared for according to their wishes and values if a tragedy occurs. Minor and disabled children are of primary concern. I’ve written before that without a will that nominates a guardian, minor or disabled children may be placed with someone a parent would consider less than ideal. Beyond that, consider retirement proceeds. If a minor or even young adult child is the beneficiary on a retirement account, depending on the language of that account, Uncle Sam may still take a large bite or equally troubling, a relatively young adult may come into a large sum of money in one fell swoop. You aren\’t married BUT you are in a loving committed relationship with someone. So that means your significant other or partner, while being able to benefit from your lifetime exemption, cannot benefit from portability. Also, the same issue with respect to retirement proceeds as mentioned above also apply in this scenario. If your unmarried in the eyes of the federal or state government but you and your partner have a child, just bring the issues of number one right on down. You are a professional or small business (smallbiz) owner. Unfortunately, we Americans are a litigious bunch. If we believe we have suffered an injury related to professional services, e.g., doctor, lawyer, dentist, or a small business, then many of us have no problem pursuing litigation that will cost much more than the malpractice insurance covers. Estate taxes have little or nothing to do with covering your assets from multimillion dollar litigation. You have income producing assets. The federal government and many state governments tax beneficiaries on 2 levels: estate and income. If your daughter\’s trust has income producing assets, such as the 3-flat apartment building you gave her, then there is a likelihood that the trust will have to pay income tax. How much depends on how well your team works to protect you. Still, like number 3, this has nothing to do with estate taxes. You live in a \”decoupled\” state. Some states are \”coupled\” with the Federal estate tax regime, meaning their state\’s lifetime estate tax exemption is identical to the Federal government\’s. However 28 states are decoupled, and most of those states, unlike Illinois, have a significantly lower estate tax exemption amount. So that means that while estate tax may not be due to Uncle Sam, it may be due to Uncle Quinn – Illinois\’ governor, for example. Estate taxes were a primary focus of estate planning because no one likes paying taxes. Well, estate taxes are no longer a primary focus and those other issues still need to be considered, just like they did before December 31, 2012.
2 Very Important Ps in a Smallbiz Estate Plan
Knowing why and when to start succession planning (read here) allows us to move on and address the personal and professional practical considerations of succession planning. The first personal consideration can be assessed by thinking about the following questions: What do YOU want from your succession plan? Do you want your business to continue after you retire, to stop when you have sufficient income to retire, both – which would be similar to semi-retirement, or something else? The 4 basic personal goals surrounding succession planning are: (1) creating a legacy; (2) obtaining sufficient income to retire completely; (3) both – creating a legacy and semi-retirement; or (4) something else, perhaps creating a new career entirely. Once you’ve answered these questions, next you should consider another personal matter and how it aligns with the answer above. This helps define realistic objectives. This personal consideration involves your dependents: Who depends on you now? Who is likely to depend on you in the future? And what might that dependency look like? Being an emotional and psychological support weighs heavier than we often know. So, if this type of support isn’t managed well, it will drain our energy, time, and motivation. How we sustain this loving nature without harming ourselves will be discussed in another week or so, but let’s move on to look at other dependencies. Sometimes supporting someone financially is easier than providing emotional support; sometimes it is not. Perhaps you have or someone you know has family members who phone when the electric bill is too high, when the basement has flooded, or when the church needs a new roof? Perhaps you have a relative whose spouse or partner passed away leaving a minor child to be taken care of by a single parent? Often connected to emotional and financial dependency is physical dependency, typically accompanying caring for a disabled loved one. Your succession plan must account for of these factors and possibilities or your objectives may fall short and you or loved ones may suffer. Once completing this difficult work, we can address the less difficult matters – professional considerations. Last week’s digression, covers the first professional consideration, which is deciding your business’s legal entity, i.e., a LLC or S-Corp. In very limited situations, would one actually consider a sole proprietorship, partnership, or C-Corporation, so those entity choices weren’t discussed. Having decided on a legal entity, the next professional consideration is your market. Who is your market and how can you differentiate your business from your competitors? First just think about the people who may want or need your services or product, e.g., women with bird cages that need regular cleaning. But what if you’re already in business? One idea, for those who provide personal services, is to take the average age of your oldest and youngest client; next consider the source of your highest quality referrals who fit within that average; and then of those clients, what work did you find most enjoyable: talking to the birds, letting them fly around the house, or making their cages shiny? After creating this “niche,” the issue of differentiation remains, which requires performing a lot of research – the competition, customer demand, external variables, and more. After compiling your research, you should be able to determine how you can differentiate your business from your competitors. And yes, we’re still talking about succession planning because to create a winning succession plan, you have to create a winning business. And why is succession planning important to estate planning? If you\’re a smallbiz owner, what are you going to do with the business you once owned? A good estate plan will help answer that question. The Smallbiz Success Series: Decision 3 | Succeed Today | Personal & Practical Points | Relax & Retire
How Do I Love Thee? Let Me Count the 8 Articles
On Valentine’s Day it may seem off-kilter to some to read an article on death, but not here in the Shark Free Zone. The interesting truth about estate planning is that it can be a genuine measurement of how much someone loves you. If we consider the 8 basic articles that are found – or should be found – in wills, the evidence is undeniable. So, from a potential beneficiary’s perspective, hoping he or she is loved, let’s look: Article 1: Family. Love = your name is in this article. Article 2. Definitions. Love = your name is listed in the “partner” definition since you and the testator (person writing the will) are cohabiting, i.e., unmarried and un Civil Unionized, because Illinois doesn’t recognize in-state Domestic Partnerships or common law marriage. Article 3: Guardianship. Love = if you’re 14 years old (why are you reading this?), your parent or parents have named at least 2 other individuals to take care of you, just in case… Article 4: Debts, Taxes, Expenses. Love = The estate has sufficient funds to cover memorial services, credit card debt, taxes, and any other bona fide expenses that belonged to the dearly departed and not you. Article 5: Personal Property. Love = you get the Beatles White album, first edition. Article 6: Residuary Estate. Love = you get a whole lot more than the Beatles White album, first edition. Article 7: Personal Representative. Love = your name isn’t listed, so all you have to do is accept the Beatles White album, first edition and any other bequests; and you don’t have to worry about a greedy beneficiary trying to sue you for breach of fiduciary duty, such as not handing over the Beatles White album, first edition. Article 8: Disaster Awaits. Love = hoping this article isn’t triggered.
4 Estate Planning Facts Everyone Should Know
1. You have an estate and a plan even if you’ve not done anything. The answer to how this is possible is found in the definition of “estate” and the law – at least for the state of Illinois. Your estate is everything you own – tangible and intangible. It includes retirement benefits, debts owed to you, your bicycle, your bodily tissues and organs, whatever may be in your bank accounts, and whatever remains of your coming paycheck after obligations are paid. Probate assets of those who die without a plan or a will in Illinois will be distributed according to the laws of intestacy per the Illinois Probate Act of 1975 as amended. Accordingly, debts, your bike, your bank accounts, and your paycheck will go to who the laws of intestacy and the court decides. So, regardless of what you possess and your actions, you have an estate plan. 2. Your estate plan, even the one you don\’t know about, is in effect during your lifetime. Documents you sign at medical and dental treatment facilities before being treated, and even some sporting events, typically involve you implicitly designating your “next of kin” to act on your behalf if you became incapacitated. Sometimes, this isn’t who you think it is. Since you’re going to sign these forms anyway, wouldn’t you rather make an actual decision before the dental cleaning? 3. Family and friends fight over stuff and the fight can become war. Love is love until death and then it becomes war. Folks will fight about could be grandma’s old cookie jar, gold coins, or memorial arrangements. Nevertheless, once a battle ensues, the only real winners are the litigators; they get most of the cookies. Considerations for this fact include: apathy for one\’s family; family harmony; good karma; and increasing the wealth of trial attorneys.* 4. The most important decision you can make in estate planning is not what to give away or who to give it to, but who will manage it or give it away for you. Even if you don’t interact with a certain individual regularly, they protect the cookie jar. These individuals, called “fiduciaries,” include personal bankers, financial planners and advisors, accountants, lawyers, trustees, agents under powers of attorney, guardians, and executors or personal representatives. A large part of guardianship and estate litigation involves the “breach of fiduciary duty,” where the fiduciary has dipped his or her hand into the cookie jar. Sometimes the fiduciary is a family member; sometimes a long-time, trusted friend and advisor; and sometimes not such a long-time friend but is still trusted. Thus, even if you’re not at the point of naming an executor, perhaps you should carefully consider who is going to step into your shoes and manage your finances if you become seriously ill or just go for an annual check-up; then designate someone…in writing. A thoughtful and appropriate designee may prevent abuse, breach, litigation, and possibly war. * Some of my dearest friends are trial attorneys.
The Issue of Issue, Deers, and ART
A couple of days ago, I read an article on alternative reproductive technology, “ART,” and posthumously born children. It reminded me of conversations and cases about heirs that I’d also recently encountered. The article, conversations, and readings affirmed for me that the question of who is an “heir” or “issue,” while initially may seem simple to answer, can be complex. Thirty years ago, the definition of “child” found in a will or trust may have been a few sentences. Today, that definition is – or should be – a few paragraphs. Consider the following: Jeremy and Jessica were in a loving, committed, cohabiting relationship for more than 10 years and were unmarried because they refused to institutionalize their relationship. Still they wanted to have a baby, but Jay was sterile. However, Jeremy’s best friend, Keith, agreed to b a sperm donor. Eventually, they found a clinic that would perform the procedure and Keith was asked to sign a consent form. One statement on the form provided that Keith waived all rights of parentage with respect to the child that would be born to Jeremy and Jessica using Keith’s sperm. He was to check that box if he agreed with this statement. Keith thought about his significant other, Karen. He and Karen were also in a long-term relationship and discussed marriage and children a few months ago. But no definitive plans were made. Keith was in his early 40s and very successful; if he and Karen didn’t work out, he reasoned that this could be his only chance at quasi-parenthood. He decided not to check the box and think about it more but he signed the form. Jessica underwent the procedure the day Keith signed the form. Then, the 3 left the clinic; Keith headed home to Karen. Unfortunately Keith never arrived home. He was killed when a deer darted out in front of his car and Keith swerved onto a patch of ice, careening him and his car into an oncoming semi-tractor trailer. Karen was more than distraught because she was going to tell Keith about the bundle of joy that was produced when she and Keith had far too much to drink a couple of months ago. Keith died without a will, so who will eventually inherit his estate? Illinois law provides that posthumously born children are children of the decedent. Consequently, if both ladies were successful giving birth, then both children would have been Keith\’s heirs. This also illustrates the importance of another provision now becoming a standard in wills and trusts – the genetic reproductive material provision. If Jessica chose to store Keith’s sperm until a day she was more fertile and Keith died before that day with a will that had a genetic reproductive material provision, then Jessica could have been precluded from using his sperm. Keith could have also changed the definition of children in his will to expressly disinherit any children born of ART except those born during the time he is in an intimate, cohabiting relationship with the mother of said child. Still, all this presupposes that Keith would not have wanted 2 daughters. The point? No one can predict who or what our family will be or look like, but when we make a decision about what part or all of that family may look like, we need to write it down in a legal instrument ASAP.
3 New Year\’s Resolutions & the Great Cliff Compromise
On December 31, 2012 the United States Senate passed what I like to refer to as the “Great Cliff Compromise” and sent the bill to the House for its blessing. Knowing the House as being one of the most unpredictable entities within the U.S. government, speculation abounded as to whether the blessing would come or whether the bill would be cursed upon and sent back or rewritten in which case the Senate would curse it. However, for reasons that will likely remain with Representative House Leader Boehner and is compatriots, on January 1, 2013, the House voted for the Great Cliff Compromise. Now, many lawmakers, policy wonks, and concerned citizens don’t consider this so “great” or a “compromise.” They aren\’t seeing fireworks of the pretty, sparkly, ooo-ahhh, kind. Instead, they have visions of gray skies and storms in their heads. The disdain lies with the fact that spending cuts were not addressed, and neither was the debt ceiling. And it is the issue of spending cuts that causes as much, if not more, contention between Democrats and Republicans than increased taxes on the affluent. I’d love to see a poll on that one without “both” and “neither” being offered as a choice. Sorry, I digress… So the brow-furrowing continues because over the cliff we went, landed without too many bumps or bruises, but with another nosedive staring America in the face in two months. Still, the Shark Free Zone is most concerned, at least for now, with that part of the parachute involving estate planning. While both Congressional chambers have a lot of work to do to prevent the nosedive, the uncertainty surrounding the federal lifetime estate tax exemption is primarily gone. Some pieces about annual gifting and GSTT indexing must be ironed out but according to esteemed colleagues, they are “being worked on.” Therefore, the lifetime federal estate tax exemption remains at $5 million and indexed for inflation and the marginal rate of the excess of $5 million increased from 35% to 40%. If you were worried because you didn’t have a chance to gift your gazillion dollars away in 2012, you may have time… If you were concerned that you gave a bazillion dollars away but that, upon your death, your loved ones would still have to give more than half to Uncle Sam in taxes, you can relax, probably… BUT, if you’ve not done anything, such as downloaded a power of attorney and had it signed and notarized; confirmed life insurance designations weren’t minor children; or talked with family…even the most harmonious of U.S. Congresses won’t be able to help your loved ones. Not comparing myself to the likes of Biden or McConnell by any stretch of the imagination, may I suggest a few New Year’s Resolutions? Revisit your existing plan; or Create your plan; or Talk to your family about wanting a plan. You have at least 363 days to go…or until the next bipartisan Congressional vote decides to repeal the law and lower the tax rate…
3 Ways A Will Is Not Cake (de Gateaux)
One primary reason many individuals in Illinois use a revocable living trust is to avoid the court process known as probate. Why do people want to avoid probate here? Well, probate is: Time consuming, requiring at least 7 months, typically 13 – 14 months, and sometimes longer to complete; Costly, at least $2,500 if there is no litigation, i.e., a claim made against the estate; and Public and so anyone in the public domain can view for himself or herself what a cheapskate the testator was or who got disinherited. However, even if your beneficiaries can wait a year, no claims will be lodged, $2500 is un morceau de gateaux, and no one gets disinherited, a few additional reasons make trusts more attractive than wills, especially with respect to gifting: You want to ensure your children or grandchildren have an opportunity to attend all 4 years of college and a good graduate program without financial aid angst. Trusts provisions known as “staggered mentoring” provisions and a separate educational subtrust help in this situation. If you and your spouse want to leave the family residence to your children, but you still want to maintain control of the residence during your lifetime, a QPRT (“qualified personal residence trust”) may do the trick. If you live in a state that does not match the federal estate tax regime, such as Illinois, and you want to leave more to the children by minimizing the amount of estate taxes your beneficiaries will have to pay both Uncles – Sam and Quinn, instead of the normal two-pot trust, a three-pot trust may work. As with most estate planning vehicles, trusts also have disadvantages in gifting, such as trust fees and administrative costs if the estate is very large. Additionally, unless the gift is given completely away, or you opt for an asset protection trust, it will be more difficult to use federal and state lifetime estate tax exemptions. Still, the advantages of having a trust, for many Illinois families, outweigh the disadvantages irrespective of the income bracket because every family is unique and minimizing taxes isn’t the only type of protection afforded by trusts. Disclaimer Woman Caveat: The materials provided in this blog, The Shark Free Zone, and throughout the website for The Law Offices of Max Elliott, Ltd. are for educational purposes only. By reading these materials, no attorney client relationship has been established. Additionally, because of the very complex nature of estate planning, one should not attempt to create or draft a trust on your own but seek the counsel of an estate planner. Finally, IRS Circular 230 Notice: \”To ensure compliance with requirements imposed by the IRS, we inform you that any U.S. tax advice contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code of 1986, as amended, or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein.\”
4+ Million Reasons and a Kid
It\’s sometimes difficult to understand the federal and state (for my purposes, Illinois) estate tax regimes and how they may affect you and your family. So this post and next week\’s post will try to explain visually and very simply, what the implications may or may not be. And this visual is so simple that it serves a dual purpose – it illustrates why some things should be left to graphic designers and not clipart. This week shows what can happen through December 31 of this year. Next week, you\’ll get to see 2013. 7 Points to Ponder: If you\’ve a minor child, then doing it yourself (DIY) is a bad idea; If you\’ve real property, then the Small Estate Affidavit probably won\’t work in Illinois; If you\’ve more than $100K in personal and/or real property, then a DIY will likely end with your loved ones in court; A trust should generally always include a will but court shouldn\’t be part of the deal; If loved ones end up in court with a sizable estate on a dispute regarding the estate\’s value, then they may also end up with a tax bill; The typical cost to probate a will in Illinois (take it to court) starts at about $2500; If the trust is valid and the estate is under $5.12M, then both Uncles should walk away empty-handed.