Sunday November 29, 2009
Estate planning myth: The only way to treat your children or other beneficiaries fairly is to make sure that in the end they each receive an equal share of your estate.
Estate planning reality: Making it truly equal is an impossible task that should be avoided at all costs.
The recommendation: OK, so you bought your oldest daughter her first car and you paid for your youngest daughter's plastic surgery and you put your only son through Harvard. So what? Each of your children is unique and has unique needs, and with those unique needs comes differing costs and expenses. Keeping a running tally of who got what and when they got it will drive you crazy. And have you thought about cost of living differences and inflation? How will you take these things into consideration? Don't, and don't try to make it equal. In the end someone will probably feel slighted or less loved, but the bottom line is that it really doesn't matter because there will be things that they took for granted or don't remember that can't be quantified in any monetary form.
Saturday November 28, 2009
Does Montana have an estate tax? The answer is no, currently Montana does not collect an estate tax, although things were different a few years ago before major changes took effect with regard to federal estate tax laws. Prior to January 1, 2005, Montana, like many other states, collected a separate state estate tax, called a "pick up tax," that was actually equal to a portion of the overall federal estate tax bill. Montana also does not collect a state inheritance tax as the Montana legislature repealed its inheritance tax effective January 1, 2001.
On January 1, 2005, the state pick up tax was officially phased out under the provisions of the Economic Growth and Tax Relief Reconciliation Act ("EGTRRA"). In response, some states that used to collect a pick up tax chose to enact laws that allow the state to still collect a state estate tax. But Montana, like 31 other states, did nothing, and so Montana does not currently collect an estate tax. The number of states that do not collect an estate tax used to be 32, but Delaware recently enacted a state estate tax beginning on July 1, 2009. For a complete list of the 19 jurisdictions that assess an estate tax at the state level and their current estate tax exemptions, see the State Estate Tax Chart.
One thing to keep in mind is that the pick up tax is scheduled to come back in 2011 due to the sunset of EGTRRA, and if this happens then the Montana estate tax will come back. Of course, no one really believes that Congress and President Obama will allow EGTRRA to sunset. Instead, it is anticipated that at the very least a one year patch will be enacted that will keep the federal estate tax in place and possibly bring back the pick up tax, which has already been proposed by H.R. 2023, introduced by Rep. Jim McDermott (D-WA) in April 2009.
Friday November 27, 2009
Last week the attorneys helping Mechelle McNair, the widow of murdered NFL quarterback Steve McNair, probate her husband's estate filed a petition asking for over $51,000 in legal fees and costs with the Davidson County, TN, probate court. Unlike states such as California and Florida that provide for a graduated schedule of reasonable attorney's fees for settling an estate based on a percentage of the value of the estate, Tennessee law simply provides that probate attorneys will be compensated in an amount that is reasonable given the circumstances. Thus, the attorneys representing Mechelle McNair are required to document what they have done on behalf of Steve McNair's estate and then get the probate judge's permission before paying themselves from the estate assets. And because all probate pleadings are public court records, you can actually view the contents of the affidavit filed by attorney David J. Callahan III by following this link: Affidavit of Attorney's Fees and Costs.
Given the value of the estate - about $19.6 million as reported on the estate inventory - and the things that the attorneys have had to deal with since McNair's death on July 4 - the sale of Gridiron 9, a restaurant located in Nashville; documents filed by Mississippi resident Clover Lee claiming that her teenage daughter was an heir at law of McNair (a paternity test proved that the claim was false); and objecting to King's Island amusement park, located outside of Cincinnati, Ohio, including a replica of the murder scene in a Halloween exhibit - the amount of fees requested appears to be quite reasonable to me. And keep in mind that this is only the first request for fees and costs. There is still much more to deal with given that the probate attorneys will have to prepare and file both a Tennessee estate tax return and a federal estate tax return. Under Florida law the minimum attorney's fees for an estate valued at $19.6 million would exceed $195,000, so the $51,000 requested is surely just the tip of the iceberg.
If you think that it's a shame that the probate of Steve McNair's estate is such a public affair, then don't be like him. Steve McNair's failure to make an estate plan not only will cost his family a fortune in estate taxes and legal fees, but it will also cost them emotionally since all of the intimate details about his family relationships and financial matters are part of the Davidson County public records. A fully funded Revocable Living Trust, which is a private agreement and does not get filed with any court, could have saved the McNair family both time and money not to mention have spared them from all of the public scrutiny.
Wednesday November 25, 2009
Keeping with the theme of the past few estate planning terms of the week - Living Will, Living Trust, and Power of Attorney - this week's estate planning term is another type of estate planning document - Pour Over Will.
A Pour Over Will is a special type of Last Will and Testament that is used in conjunction with a Revocable Living Trust. A Pour Over Will simply states that anything you own that is still titled in your individual name and has not been funded into your Revocable Living Trust on the date of your death will be "poured over" into the trust through the probate of your Pour Over Will.
If all goes as planned with your Revocable Living Trust, then your Pour Over Will won't be needed. But as we have seen recently with the estates of Michael Jackson and Sen. Ted Kennedy, both of whom had Pour Over Wills that have been admitted to probate, this type of will is often needed to settle the final affairs of a deceased person.
