Estate Planning Bits

Alternatives to estate planning Trusts

When a person passes away, assets in their name alone will pass through probate. Even if the person has a Will, the Will must be probated in order to provide orderly distribution of the assets as intended. However, some people go to great pains to avoid probate.

One option is to establish a living Trust. Any assets in the Trust at the time of death are not probated, and thus also avoid the court proceeding that allows for the estate to be settled without probate publicity and expense, while also normally providing for a more expeditious settlement. However, this does require establishing a separate document that must be signed, and assets must be transferred to the Trust prior to incapacity or death. Otherwise, the assets may have to pass through probate upon death in order to then flow into the Trust through the Will.

An alternative would be to make the asset joint, which provides for survivorship. If either of the joint owners dies, then his or her share passes to the other joint tenant. However, in the event that one person becomes involved in a divorce, gets sued, has credit problems, etc., then that share of the assets may be countable and accessible by that person’s creditor. This is far from the intended result, but it will be the situation if the person does not remove their name from the account prior to the problem occurring.  Also, in the event that the person who established the joint account dies, then the entire account is owned by the surviving joint owner, which may not be the intended result.

Another alternative would be to add a beneficiary to certain assets. Certainly, life insurance policies, IRAs, 401(k) Plans, and other similar retirement assets may list a beneficiary. Upon the death of the owner, the assets pass outright to the beneficiary without the need for probate, and most entities will also allow for multiple beneficiaries, as well as contingent beneficiaries. These forms should be updated from time to time to be sure that the proper names and allocations are listed, as family issues and relationships change.

It is also an option to name a beneficiary on stock accounts and bank accounts. The stock accounts can be worded transfer on death or TOD, while the bank accounts may be worded as payable on death or POD. Upon the death of the owner, the beneficiary merely needs to verify the death of the owner with a certified death certificate, and the funds will be transferred directly to their name. This also occurs without the need for probate and provides the owner with the security of knowing that the assets will not be available to the beneficiary until death. There are pros and cons of each of the above techniques, and it is important to be sure that the correct decision is made for each particular asset.

By: Hyman G. Darling, Esq.

EXPATS and taxes

The Heroes Earnings Assistance and Relief Tax Act of 2008 (HEART) was recently passed. The major intent of this was to provide $1.2 billion dollars in tax relief for members of the military, provide for premature retirement plan withdrawals, deal with eligibility for the earned income tax credit, and other provisions.

Part of this Act was also needed to offset the cost by re-writing of the tax consequences of abandoning U.S. citizenship. It was estimated that just shy of 500 Americans renounced their citizenship in 2007. Evidently, many of these individuals felt that the tax advantages of getting beyond the reach of the IRS motivated them to renounce their citizenship and become a citizen of another country.

In general, those who do relinquish their citizenship will be treated as having sold all of their assets for the fair market value on the day before the expatriation date. In that situation, all of their net unrealized gains would be taxable, and the new provision of the Act covers those with a net worth of over $2 million or who had average annual net income tax liability during the proceeding five years of $124,000 ($139,000 in 2008 after adjustment for inflation.)

In addition, the first $600,000 of gain would be tax free (also adjusted for inflation after 2008.). Under prior tax law, after ten years, an expatriate was immune to any gift tax in the United States. There are new rules for the donees who may owe tax on the transfer of funds received from a former U.S. citizen who expatriated. A significant change was that the obligation has passed from the donor to the donee, much like the prior law of many years ago regarding inheritances taxes. In those cases, the estate was not liable for the tax, but rather the inheritor.

This is also similar to an IRA situation where the beneficiary pays income tax on the amount received, but the person who died did not have to pay tax on the funds while they were alive, even though they passed the assets to another person.

In any event, if anyone is considering expatriating or has received funds from an expatriate, it is important to be familiar with the new rules so that there will not be penalties or interest accruing from gifts or transfers.

By: Hyman G. Darling, Esq.

Green burials explained

Lately, there has been a movement to educate consumers of alternative burials. One such movement asks consumers to consider a “green burial.” A green burial is aptly named because it aims to provide ecological soundness.

A conventional burial in the United States typically involves embalming, a casket made of hardwood or steel, and a concrete grave liner or vault.

A green burial in contrast, usually entails a biodegradable wrapper and no embalming. The grave is typically marked by a flat memorial stone or other grave marker such as a tree or other planting. Computer mapping such as a GPS is often used to locate the grave. Advocates of a green burial argue that this technique conserves resources, protects groundwater and returns bodily nutrients back to the land. The cost of green burials is significantly lower than conventional burials. One estimate puts the cost of green burial at under $3,000.00 whereas the average funeral nationwide costs approximately $6,500.00.

The proper document to provide your burial instructions, which may include a conventional burial, cremation or green burial, is the Health Care Proxy. A experienced estate planning and elder law attorney can prepare this document accordingly so that your burial instructions are carried out properly.

By: Todd C. Ratner, Esq.

James Brown – The saga continues - estate planning for blended families

The legal battle over James Brown’s estate continues, despite an apparent break-through agreement between the respective parties. Specifically, the settlement provides that one-half of Brown’s assets would go to his charitable trust to educate his grandchildren and needy students in and Georgia and South Carolina.

The remainder would be split between Brown’s surviving spouse and some of Brown’s adult children. However, this is in contrast to the dispositive provisions provided in Brown’s Will and Trust.

Louis Levenson, an attorney for some of Brown’s adult children said that “…[r]ather than take the delay, rather than pay the cost and rather than risk an all-or-nothing outcome, the parties who were most interested…elected the wiser course, which was a settlement.” A significant portion of Brown’s estate has been lost due to this lawsuit. Nevertheless, the Judge said approval of a settlement will have to wait because of tax risks.

James Brown situation is one of a blended family. In the Brown case, Tomi Rae Hynie, the woman who says that she is Brown’s final spouse and the mother of his young son, claimed that the Will and Trust were not valid.

Blended families now outnumber traditional nuclear families. And, the number is likely to grow, based upon current divorce statistics and trends. Estate planning for blended families is complicated and potentially caustic. The circumstances surrounding the merging of two families, typically divorce or the death of a spouse, often produce emotional and psychological consequences that can have considerable and unpredictable effects. Even when blended family members seem to get along, estate planning can be complex. The potential for suspicion and acrimony among blended families can be so great that some people simply choose to avoid addressing the issue of inheritance altogether or to not update their estate planning documents until it is too late.

Regardless of whether children are reared in a traditional nuclear family or in a blended family, great care should be give to protect any inheritance, both for them and from them. As per the case of James Brown, an inheritance can quickly diminish through will contests due to lack of proper planning.

By: Todd C. Ratner, Esq.