Team Estrogen Needs to Plan Now for Now … and Then
For my male readers, I’m shouting one out for the estrogen team, today. You\’re more than welcomed to stay and share this post with the hub of your life, but I’ll return to the neutral zone with the next post. Recently, I shared a number of articles via Twitter and LinkedIn about the supposed trepidation women have when it comes to estate planning, particularly managing their financial affairs. As a female lawyer in a practice area traditionally held by men, I must admit those articles ruffled my feathers. I contend that women are not afraid of talking about money or estate planning matters, we often just don’t think we have the time. The role of the female is still that of the family hub– mother, daughter, spouse, partner, sister. Being the family hub requires a great deal of time and effort. Add to that our occupational responsibilities and community obligations and it’s perfectly understandable why we focus on the “now” and not the “then.” Yes, we are fully aware of the fact that if we take some time now, we could make “then” better. However, as a single parent when: a presentation to a major client is due on Monday, the kids have to be taken to gymnastics and birthday parties and Sunday school, Mom needs help with her new ottoman, Sis wants a review of the web site of your annual “sisterhood vacation” hotel, as chair of the silent auction committee you have to complete the donations list by Friday night, and you still have to exercise, cook, and pick up the cleaning (housekeeper not in the budget), “converting my 401(k) into …” doesn’t really make it to the top of the list. Next, is the fact that we know we’re the hub and the emotional gravity accompanying that realization. I don’t know too many women who readily give thought to when they won’t be around to see their grandchildren, nieces’ weddings, or best friend’s daughter’s college graduation. It is a very painful and counterintuitive thought for women. Fear has little to do with it. We simply love our families and friends and cannot fathom not being there for them. Nevertheless, Ladies, as painful, counterintuitive, and time consuming as it may be, we owe it to our families and ourselves to sacrifice a manicure, to miss a committee meeting, to reschedule a conference call, to say a prayer and let Sis choose the hotel, so we can take care of “now” and “then” now. The list of reasons for doing this is not exhaustive and are compelling: Your retirement savings may be dwindling unnecessarily; Your widowed father living a few states away may have a new BFF with less than charitable thoughts about Dad’s annuity; An in-state college may not afford your son the best educational opportunity for his mechanical engineering career; You might be able to withdraw income now from grandma’s IRA (progressive grandma!); Your current income may be beneficial for a retirement vehicle that may not be as readily available when your income rises past a certain point; You may want to go on sabbatical but, who’s going to mind the store, literally; Instead of a place where Mom will be bored silly playing checkers, you may want to send her cruising 6 months a year; and You want your partner to be able to visit you immediately after major surgery. Minding our retirement and estate matters now actually makes us, the family hub, stronger. If you want, I’ll take notes at your next committee meeting, so you can meet with a reputable CFP.
DOMA Forces Same-Sex Couples to Commit Fraud
In June of this year, 2011, Illinois enacted the Civil Union Act, which provides that all the rights, benefits, and obligations of Illinois spouses are also attributed to Illinois Civil Union partners. A little more than a month later, on July 24, New York enacted the New York Marriage Equality Act, legally recognizing same-sex marriages. Other states continue this progressive and important march toward ending love discrimination while other states remain firmly entrenched in their discriminatory public policies against the LGBT community. Differences between states and discriminatory laws and policies will continue and remain in force until DOMA is repealed. So, it’s important that members of the LGBT community who are partnered in civil unions or are same-sex spouses, their loved ones, and professionals servicing them understand the implications of their status, based on DOMA. President Bill Clinton enacted DOMA (the “Defense of Marriage Act”) in the wee hours of one morning in 1996. The law stipulates that the U.S. federal government only recognizes marriage as between one man and one woman as husband and wife and “spouse” means a person of the opposite sex with respect to his or her husband or wife. Consequently, any spousal benefits derived through the federal government, and there are approximately 1,138 of them, are unavailable to civil union partners or same-sex spouses, despite state laws. Yes; Illinois provides that civil union partners are afforded all the rights, benefits, and obligations of spouses but despite that language the federal government, through DOMA, tells same-sex couples “not in my backyard.” Tax benefits are one backyard where same-sex couples experience discrimination because of DOMA. For example, the divorce settlement between heterosexual couples is tax-free. However, for same-sex couples, the payee ex-spouse or ex-partner must generally pay taxes on any divorce settlement received. More importantly, as an annual fiscal household matter, same-sex couples must file income tax forms that are fraudulent on one hand because the forms don’t reflect the true nature of the relationship, requiring individuals to state that they are “single,” when they are legally married or partnered. State income tax in Illinois is coupled with federal income tax, so even if a couple’s union is afforded the same “benefits” per Illinois law, that couple cannot take the marital tax benefit on either the state or the federal income tax form. Finally, if it’s not enough that same-sex couples are discriminated against in tax treatment with respect to income and divorce, same-sex couples also face the insult with respect to death. To illustrate: Debbie and Janet entered into a legal civil union on June 5, 2011. On July 12, Janet passed away, leaving an estate valued at one million dollars to Debbie. If Debbie were married to “John” and not a civil union partner of “Janet,” Debbie would take the estate tax free. However, Debbie was partnered with Janet and, thus, will have to pay approximately $350,000 in estate taxes. A case similar to these facts, Windsor v. United States, is why the current administration stopped defending DOMA. It is a discriminatory law promulgated by a country that is supposed to consider all people equal in the eyes of the law. How can a law that requires individuals to falsely claim who they are be constitutional?
Eyebrow Raising ILITs
I’ve mentioned before in this blog that many people who are employed are wealthier than they believe themselves to be. One reason for this is because certain assets are unused during the purchaser\’s lifetime and are subsequently overlooked when that individual creates his or her estate plan. The most popular of these instruments is life insurance. If you’ve something other than term life insurance, your life insurance policy, in addition to other benefits, if placed inside a trust may be used to even the distribution between your beneficiaries if your assets are difficult to divide. For example, let’s say you own a home valued at $300,000 and about $50,000 in cash. Let’s also say you have 2 daughters, Ivory and Jade. Ivory loves the house, lives there with you now, and wants to remain in it, whereas Jade doesn’t want to have anything to do with it. Well, if you sell the house and split the proceeds, that’s not being very nice to Ivory. On the other hand, if you give the house to Ivory and only leave the $50,000 to Jade, that’s not being very nice to Ivory. Moreover, leaving the decision to your two gems to battle out after you’ve passed away is just plain mean. This is where life insurance may be beneficial. If, using the above example, you’ve a policy that’s worth at least $250,000, you could use that to even the distribution. Of course, to keep the example simple, we’ve not accounted for real estate taxes, mortgage payments, and so forth. However, a good estate planning team should be able to assist you in dividing the assets so that everyone is relatively satisfied. Furthermore, if additional nuances are involved, a trust can also be the owner of a life insurance policy known as an Irrevocable Life Insurance Trust (ILIT). However, the trust must be drafted properly, taking into account how the premiums are paid, and how the beneficiaries are notified of the funding of the trust for premium payments by way of “Crummey Letters.” Other components of your estate plan must also be considered, such as retirement and public benefit plans. Still, using life insurance and a trust generally provides a number of benefits if properly implemented. The proceeds are removed from your estate, which may reduce your gift and lifetime estate taxes, the distributions to your beneficiaries are generally income tax free. Also, these types of trust may act as a credit shelter. Finally, because a trust is involved, typically probate is avoided. So if your spouse jokes around like mine does, about being worth more dead than alive, just do what I do: grin and raise an eyebrow.
With This Estate Plan, You May Take My Coat
Individuals sometimes ask me, why, if they are not millionaires, do they need an estate plan, ending with something akin to, “I’m not rich; I don’t have anything.” My response is usually the typical T&E (Trusts and Estates) mantra, “You don’t need to be ‘rich” to need an estate plan.” Furthermore, the converse is generally true – the smaller estates need equal, if not more, protection. Moreover, non-millionaire employees are “richer” than they think. Like an IRS person once said, “Stop thinking it’s your money.” So, if you\’ve been steadily employed, don’t think that the federal government sees you as a pauper, irrespective of your current financial woes. Acknowledging that these are horrendous economic times citizens worldwide, I must say that millions are also fortunate. They are employed; have retirement or profit-sharing plans; have life insurance; and they have a house, which may be worth less than what they paid for but they still own a home. My “Who Killed Kenny” winter down coat is worth less than what was paid for it but, considering January in Chicago, it would take a permanent move to my favorite desert oasis to get me to sell that coat. Pardon my slight digression, though I think you got the point: It may feel like you’re managing paycheck-to-paycheck, but even so, you may find solace in the midst of this economic maelstrom. Consider your retirement plan. It may have taken a beating over the summer, like most of our financial accounts. However, you may still be able to use your plan to your advantage in the long-term and/or to your loved ones advantage. The 2 most popular retirement accounts are 401(k)s and Individual Retirement Accounts (IRAs). A 401(k) is typically a qualified plan where your employer matches your contributions. Teachers often have 403(b) accounts that operate in basically the same way as a 401(k). While 401(k) contributions are tax deductible, generally any income earned is taxed on withdrawal. Additionally, once you reach 70 ½, you must make a required minimum distribution (RMD). With a 401(k), your spouse is presumed to be the beneficiary, so if you designate other beneficiaries in your will, your spouse must waive their right to the distribution in order for the other beneficiaries to take. Also, because 401(k) plans are governed by federal law, civil union partners cannot be designated spousal beneficiaries of 401(k) plans. IRAs provide a little more flexibility than 401(k)s, because there is no RMD at any age and withdrawals from Roth IRAs are not taxed. However, the maximum contribution is significantly lower than that of a 401(k) and an IRA account may not even be available if you also have a 401(k). Still, unlike a 401(k), with an IRA, there is no presumption of a spousal beneficiary, so who you names as beneficiary, even if it is your civil union partner or same-gender spouse, is the beneficiary. If that person passes away, then the beneficiary will be the person named next or if there’s no contingent, the distribution will follow the state’s testamentary code. Equally important, you can provide for your grandchildren by creating IRAs for them, so that the distribution that would be made to your children is instead rolled over into accounts for your grandchildren. So before you think you’re “not rich,” consider your retirement plan. Basic it may be, but if properly implemented, it could provide you with comfort like my \”Who Killed Kenny\” coat on those cold, January, Chicago days.
Caring for the Truly Needy with Trusts
Parents and individuals with elderly loved ones occasionally have more than the usual health, education, maintenance, and reasonable support (aka “HEMS”) issues in terms of planning for the future. I was a babysitter for a number of years for a young girl stricken with severe cerebral palsy. Her parents were in their late 40s\’/early 50\’s. Mom stayed at home and Dad owned a small business. I always wondered what her parents would do if her father suddenly lost his small business or if something, heaven forbid, happened to him. Certain types of trusts provide a unique way of planning for scenarios just like that. They’re called “Special Needs Trusts” and are carefully drafted to ensure that the special needs of loved ones such as disabled children, parents, or the elderly are properly cared for. You may be thinking that the government provides benefits, and wondering about the value of these instruments. Well, as many disabled individuals, elderly, and their family members can tell you, government benefits are rarely sufficient en toto to cover all of the expenditures and provide a quality of life that was provided when one or both parents’ or family members’ income supplemented those benefits. So Special Needs Trusts provide a way to truly provide for those who will not be able to provide for themselves because of disability or infirmity. However, as mentioned, these trusts must be drafted carefully so as not to create a situation where your loved one suddenly becomes ineligible for government benefits because of an increased income. Certain benefit programs are need-based and income from a Special Needs Trust may result in disqualifying your loved one from the program. Again, this doesn’t happen just to the disabled, but folks receiving Medicare and certain Veteran’s benefits are also affected. So the good news is your attorney has a way, with a Special Needs Trust to help you provide for a disabled or elderly loved one. The caveat is that your attorney must be mindful of the needs-based benefit programs that can turn a good supplemental plan into a plan made of quicksand.
Thanks But No Thanks: The Benefits of Disclaiming Aunt Val\’s Gift
Occasionally, a person may receive a gift under a will or a trust that they think would be more appropriate for their descendants. In these situations – and if the trust is drafted appropriately – the person usually has a legal right to say, “Thanks, but no thanks,” to the gift. At that point, the gift then “passes” to the person’s descendant(s) or beneficiary(ies). This means that the law will consider that initial recipient dead, i.e., having “predeceased” the testator, with respect to that particular gift and, as a result, the proposed recipient’s descendants take the gift. Why would you disclaim a gift? You don’t need the gift but your descendants might. For example, if Grandpa passes away leaving his house to your father, but Dad has his own home and a retirement condo, Dad may decide that you – a young professional with student loans – may benefit from owning the home more than Dad. So, Dad says in a writing that appropriately describes the gift and is delivered to the appropriate party, “Thanks, but no thanks. I, Dad, am unequivocally and expressly refusing the house … bequeathed to me by my father …” Once Dad’s disclaimer is accepted, if you\’re the only child, then you get the house. If you have siblings, then, generally, you will need to determine with your siblings how best to divide the interest in the house. You can’t afford the responsibility. If you and your partner are urbane empty-nesters, perfectly content with your 2-bedroom city dwelling, do you want the 4-bedroom home in the suburbs that Aunt Val left you with all the maintenance and tax bills that come with it? Probably not. However, your adopted daughter who now has newborn twins and a 3-year-old could probably use the extra space. So you say in writing, “Thanks but no thanks” to Aunt Val’s lush suburban family home. You want to avoid creditors. If you refuse a gift, a creditor claim cannot attach to your interest in the gift because under the law you never had any interest in the gift once your disclaimer is accepted. However, the area of the law using disclaimers as a way to avoid creditors is rapidly closing this loophole, so creditor claim avoidance probably isn’t the most prudent use of this testamentary mechanism. Disclaimers, simple at first blush, are like most legal tools – devilish in the details. If you’re considering disclaiming a gift, below are a few points to discuss with your attorney: Whether or not the property will be completely yours if it is currently held in joint tenancy with you and 2 other tenants; The irrevocability of disclaiming; Your action to date regarding the interest in the property; and Tax implications, which should be considered sooner rather than later. In the world of wills, trusts, and estate planning, the intent of the testator is a cardinal rule. Yet, sometimes the intent of the testator and the needs of the heirs conflict. Using a disclaimer may help resolve that conflict.
Who Takes the Eggs? ART and Estate Planning Considerations
As technology’s digits crawl through the nooks and crannies of our physical world and cyberspace, the legal consequences and questions emerging keep even us non-IP lawyers quite busy. Considering assisted reproductive technology (\”ART\”), family law was the premier practice area for getting caught in ART\’s web. Few lawyers realized the effects ART would have on estate planning and, even as the effects became clear, only a fraction of states passed laws providing legal guidance. Fortunately, Illinois is a state that considered ART in its laws and included laws for in vitro fertilization in the Parentage Act. Additionally, the Probate Act states that children born after a parent’s death (“posthumous” children) are to be considered having been born during the parent’s lifetime. So, what does all this technolegalese mean? Well, in terms of inheritance and/or estate planning laws, it means conversations should be had between Illinois spouses if conception is a challenge or an impossibility for one or both spouses.* The conversations are necessary because of 2 vital estate planning tools often used by couples, Health Care Powers of Attorney (“HCPOA”) and Property Powers of Attorney (“PPOA”), which can also provide instruction for ART cases. Yes, lawyers love acronyms. In Illinois, a posthumous child born via ART typically emerges in 1 of 3 ways: Use of frozen sperm; Use of a frozen embryo; or Use of a frozen egg. Furthermore, obtaining frozen sperm or eggs may not only occur after incapacity but also may occur after death, which is when estate planning mechanisms are triggered. When creating an estate plan, couples usually consider a bunch of “what ifs,” e.g., “what if I become disabled while we’re still in the “prime” of our lives and haven’t had kids yet?” A HCPOA is a tool that requires making those decisions but, consequently, eases the fears associated with the “what ifs.” Accordingly, when considering ART, a HCPOA could, for example, authorize the implantation of frozen sperm or eggs. Of course, other considerations would naturally follow, such as, how one abled-parent and one disabled parent would raise a child. Still, ART combined with the law creates a reasonable and protected possibility for having a family, when that likelihood, outside of adoption, didn’t exist before. Another equally interesting issue relates to the PPOA. But, you say, “That’s about property.” Yes, it is. In a 1993 California decision, Hecht v. Superior Court, which is used by several states, the Court determined that frozen genetic reproductive material, such as sperm and eggs, is property for the purpose of leaving a gift in a will (aka “devise”). Here, you might think the conversation would be easy – women can leave their eggs to their partners; but, not so fast. What if the eggs are frozen, then the relationship is legally dissolved, the donor spouse remarries, and then passes away? Who gets the eggs if the second spouse doesn’t want any (more) kids? She could disclaim them and pass them to her descendants or siblings; that would be interesting. The future brothers and sisters of the former partner? Should the reproductive material be destroyed? Who do you think should get the eggs? * The term “spouses” and \”partners\” are interchanged in this context because the terms are synonymous in Illinois law.
The 3 Tenancies and Your Planning: It’s Not about Rent
In the legal field, we use and create terms and phrases that sound familiar to non-legal professionals, but are strangers when a legal professional provides the actual definition. Take, for example the term, “tenancy.” It sounds like it’s related to renting property, and it is – sort of, sometimes as when you’re discussing leases. However, when discussing legacy planning, it’s a much larger animal. In legacy planning, lawyers primarily discuss 3 tenancies, most of which involve real property or bank account ownership, not renting. Tenancy in common is the most basic type of tenancy ownership. A tenants in common relationship between 2 people over a house, for example, means that one party controls interest in one half of the house, and the other party controls interest over the other half. Either party can sell, lease, mortgage, or devise their interest in half of the property. However, if the other party passes away, generally the surviving party does not get the other half of the property; the survivor is left with his or her interest alone. The remaining half is either bequeathed or passed to the decedent’s heirs via state law.People are rarely tenants in common with respect to bank accounts; this type of arrangement is usually crafted for prenuptial agreements or settlement agreements and, then, the focus is often the parties’ contribution to the account. Joint tenancy with rights of survivorship, on the other hand, allows the surviving party in the above example with the house to own the whole house. Joint accounts are also very common with respect to bank accounts, checking or saving. So, if Grandpa has a bank account and you are on the account as a joint holder, when Grandpa passes away, all of the funds in that account become yours, under most circumstances.However, joint tenancy is the animal that can become a beast for parents trying to leave property for children. Placing a house in joint tenancy with right of survivorship to a child could trigger a taxable event for the child. Additionally, suppose you have 2 children, the house, and life insurance. The house is worth $200,000 and the life insurance benefit is $200,000. You might think that leaving the house to one child and designating the other as beneficiary on the life insurance policy would be an even split. Yet, the child with the house may have to pay estate or gift taxes on the home, leaving the gifts to your children unequal. Tenancy by the entirety is joint tenancy for married couples. This may seem straightforward because most people know that transfers between husband and wife are not taxable events. But, what if the transfer was from husband to husband or wife to wife? Because the IRS doesn’t recognize husband to husband or wife to wife transfers, the survivor of the couple may be facing a taxable event like the child with the house. So when thinking about gifts or transfers of property, careful planning is needed to avoid these non-rental sticky wickets.
3 Reasons for Essential Family Talks and How to Manage Them, Despite Science-Fiction and Poker
Lawyers are no different from other groups when it comes to disagreeing with each other and, in fact, are probably worse. So while attending a recent seminar on trusts and estate planning, I was pleasantly surprised when my colleagues and I all agreed on one thing: People don’t like having the conversations needed for drafting adequate trusts and planning for the future, especially Baby Boomers and young couples. For example, a friend once told me that he and his wife hadn’t revisited the issue of guardianship for 13 years because it created such a stir the first time. Understandable. What man wants to tell his wife that instead of his mother-in-law, he’d rather have the kids raised by Darth Vader? Disclaimer: My friend did not say that about his wife’s mother. Baby Boomers don’t like talking about this issue because we cannot fathom that the world will continue to exist without us. Similarly, young couples, especially young parents, tend to believe that they are the world. Why not? Still, conversations about retirement and the Golden Years are essential and should be had a lot sooner than the appearance of the first strand of grey. How can we lawyers help if the conversations are sidestepped? Well, we try to provide compelling reasons for having these important chats, such as the following: If you’re a couple in your 20s or 30s the world is at your feet and you should do what you can to protect your world. Have you thought about your values and who in your families, outside of your partner, most accurately reflects those values? When you take vacations without the children and/or pets are you comfortable that your values are supported or do the children need reeling back in when returning from 3 weeks with Grandma? Perhaps you should gently suggest that Uncle Bob or Aunt Carol help Grandma out a few evenings. However, if Grandma rebukes the suggestion by playing the “grandparent trump card”: “I’m a grandparent and can do what I want for my grandchildren,” tell Uncle Bob or somebody to be at Grandma’s a few times a week. When Grandma huffs, blame it on a lawyer. Leaving the healthcare debate for another time, if you’re a Baby Boomer, you probably know that medical wonders abound to provide you or your parents with the physiological retirement deserved. Have you found a way to ensure that when their knees need replacing, Mom or Dad will be able to recuperate in the manner to which they’ve become accustomed without sacrificing your lifestyle or their independence? If, when approaching the subject, they start moaning about you deserting them and them living out their final moments with cold mashed potatoes and a checkerboard, suggest interviewing in-home, part-time caregivers and a cruise that gives AARP members discounts. If that doesn’t work, blame the cold potatoes on a lawyer. If you are a small business owner, your business may be your most valuable asset. When you are ready to release the reigns, at least a little bit, are you and your family comfortable with your individual successor or the successor management? Maybe one family member knows the business inside out and the other family member has no clue but 2 people are needed to run it. Update your business plan and bring the other family member in on management selection of neutral parties. If he or she doesn’t want to be involved from that perspective, blame the million-dollar IPO that the family member got locked out of on an accountant.
Why There\’s a \”Trust\” in Trustee, Part 1 of 2
Trust and Estates 101: No trust will fail because it doesn’t have a trustee. Thus, if a trust creator (\”settlor\” or \”grantor\”) doesn’t designate a trustee but has a beneficiary, the court will appoint a trustee for the beneficiary. Why? Because the beneficiary must be able to hold someone accountable in court if the terms of the trust aren’t met. So, the trustee has an obligation to the beneficiary or, in legal terms, the trustee is in a fiduciary relationship with the beneficiary. As a fiduciary, the trustee is held to a high standard of duty to the trust and primary beneficiaries. A trustee must act wisely with respect to the trust assets, managing them to both preserve and, if possible, grow the assets. The trustee can\’t use the assets for their own benefit, even if they are also a beneficiary, without consent from the other beneficiary or beneficiaries. Additionally, the trustee can\’t give the beneficiary’s rights to receive the assets to someone else unless the terms say otherwise. Example: If the Trust terms say only Beneficiary Barbara can receive a Trust distribution, Collector Carter shouldn\’t receive a distribution without a court order. The right to receive that distribution belongs to Barbara only. Finally, if the trust has multiple beneficiaries, the trustee can\’t favor one beneficiary’s needs over the other unless, again, the trust dictates such. This is one reason why, occasionally, bank trustees (\”corporate fiduciaries\”) are often preferred over close friends or family members. And it\’s also why family members sometimes refuse to act – they don\’t want to subject themselves to a potential lawsuit. Therefore, a trustee should be someone the settlor thinks will be loyal to the terms of the trust and not compromised by a relationship with a beneficiary, or a creditor for that matter. This is also why considerable thought should be given to who you name as trustee. Part 2