Saturday November 7, 2009
While the federal estate tax is currently scheduled to disappear on January 1, 2010, the federal gift tax is here to stay with the lifetime gifting exclusion amount remaining at $1,000,000 for 2010.
Aside from this, the IRS recently issued Rev. Proc. 2009-50, which states that in 2010 the annual gifting exclusion amount will remain at $13,000 per gift to a non-spouse and the annual gifting exclusion amount for gifts made to a spouse who is not a U.S. citizen will remain at $133,000.
The only gift tax change that will take effect in 2010 will be the reduction of the highest gift tax rate from 45% down to 35% - now don't get too excited.
Friday November 6, 2009
Estate planning myth: Since you can't decide between naming cousin Sue and uncle Bob as your Executor and Successor Trustee, you can simply name XYZ Bank to serve as your Executor and Successor Trustee.
Estate planning reality: To date I have not found a bank or trust company that is willing to serve as the Executor of an estate or Successor Trustee of a trust without knowing two things:
- The net value of the estate or trust assets that will need to be administered.
- The type of estate or trust assets that will need to be administered.
Why does the bank or trust company want to know this information? Because banks and trust companies are in the business of making money and so they need to be assured that they will get paid while serving as an Executor or Successor Trustee. So if the value of the estate or trust is under a specific dollar amount or is made up of illiquid assets, then chances are the estate or trust will not be able foot the institution's bill. Aside from this, banks and trust companies do not want to deal with assets such as primary or secondary residences, valuable personal effects, or businesses - instead they are best equipped to handle cash and liquid investments.
The recommendation: If you want to name a bank or trust company to serve as your Executor or Successor Trustee, then consult with the bank or trust company before doing so to insure that your estate or trust will be accepted by the institution. If so, then you will need to submit drafts of your will and/or trust to the bank or trust company so that their legal department can review the documents and request any changes or additional provisions. If not, then you will need to find an alternative Executor or Successor Trustee.
Thursday November 5, 2009
Estate planning myth: Everyone who has an estate plan was instrumental in creating it and understands what it says and does.
Estate planning reality: Many estate planning attorneys fail to think outside of the box when planning their clients' estates. In other words, many estate planning attorneys have a specific type of estate plan that the attorney will draft for 99% of his or her clients. For example, the majority of an attorney's clients may have Revocable Living Trusts, broad powers of appointment for the surviving spouse, trusts for beneficiaries until the age of 30, and the requirement that there always be two trustees serving together. Did the clients make these specific choices after discussing all of the options with their attorney, or did the attorney simply tell the clients that this is the type of estate plan that they should have? Does the client understand why they have a Revocable Living Trust, what a power of appointment is, or why they need to have two trustees instead of just one? Too frequently estate planning attorneys think that they know what is best for all of their clients when in reality each and every client is unique and so their estate plan should be unique.
The recommendation: Don't let your estate planning attorney decide all of the details about your estate plan. If the attorney tells you that you must plan your estate in a certain way, then understand why and don't be afraid to ask about other options. This is the only way you will be able to understand your estate plan.
Wednesday November 4, 2009
This week's estate planning term - Living Will.
A Living Will is a legal document designed to give your loved ones and doctors written instructions as to what type of medical treatment you want to receive, or do not want to receive, if you are seriously injured and not expected to recover or if you suffer from a terminal illness. Usually a Living Will offers three choices:
- Do nothing for you except keep you comfortable with medication to alleviate pain.
- Do nothing for you except feed and hydrate you artificially if you cannot feed yourself and keep you comfortable with medication to alleviate pain.
- Perform every heroic measure possible to save your life.
In my experience 99% of my clients choose option #1, 0.8% choose option #2, and only 0.2% choose option #3. And this breakdown does not vary by age - the vast majority of clients both young and old choose option #1. And yet without a Living Will in place doctors are forced to go with option #3, which leads right into the most famous case that illustrates the need for creating a Living Will - that of Terri Schiavo, a 26-year old Florida woman who slipped into a persistent vegetative state in 1990 after collapsing in her home. Her husband and parents then fought for the next 15 years over whether or not Terri should be taken off of life support. Finally in March 2005 a Florida court ruled that support should be removed and Terri died a few days later. And since Terri Schiavo was only 26 when she became ill, her story also demonstrates the need for everyone, both young and old, to make a Living Will.
