Estate & Gift Tax Update - What Will the Annual Exclusion Be for 2010?
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.
Estate Planning Myth vs. Reality #5 - Should You Name a Bank or Trust Company as Your Executor or Trustee?
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.
Estate Planning Myth vs. Reality #4 - Do You Really Need to Understand Your Estate Plan?
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.
Estate Planning Term of the Week - Living Will
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.
Will the No Contest Clause in Your Estate Plan Work?
No contest clauses made national headlines a few months ago when Michael Jackson's mother, Katherine Jackson, asked the judge presiding over her son's estate to determine if the no contest clause contained in the Michael Jackson Family Trust would prevent Katherine Jackson from challenging the appointment of the permanent executors of the estate and trustees of the trust.
What is a no contest clause? A clause written into a will or trust that is designed to prevent your heirs from contesting the terms of your will or trust. How? By providing that if an heir challenges any provision of the will or trust, then the heir will get nothing.
In September Judge Mitchell Beckloff ruled that the no contest clause contained in the Michael Jackson Family Trust would not be triggered if Katherine Jackson questioned who should be named as permanent executors and trustees. So this begs the question - do no contest clauses really work? Deborah Jacobs explored this in a recent article for The New York Times - Clauses Aimed at Keeping the Heirs Quiet.
The bottom line - no contest clauses should not be relied on as the only way to discourage your heirs from challenging the provisions of your estate plan. There are other obstacles that can be put in place such as discussing the terms of your estate plan openly, honestly, and frequently with your family; leaving just enough to an heir to discourage a will or trust contest (as Ms. Jacobs points out, if you leave an heir nothing, then they have nothing to lose if they challenge your estate plan); or making systematic changes to your estate plan that progressively reduce the share of an heir that will then force the heir to have to invalidate an entire series of wills or trusts.
Of course, as the article points out, in Florida no contest clauses have been rendered completely invalid by state statute (this was pointed out to Ms. Jacobs by none other than me - read what I said here). But guess what? I still put no contest clauses in all of my Florida clients' estate plans. Why? Because it may be just enough to discourage a disgruntled heir; or Florida could change its laws; or the client could move to a state where the clause will become valid. Doing everything possible to prevent a will or trust contest is just one of the many services that a good estate planning attorney provides to his or her clients.
- Choice of Permanent Executor of Michael Jackson's Estate Deferred
- Judge Beckloff Rules - Katherine Jackson Can Challenge Appointment of Permanent Executors
- What is a No Contest Clause?
- What is a Will Contest?
- Who Can Contest a Will?
- What Are the Grounds for Contesting a Will?
- Your Estate Planning Attorney, Your Trusted Advisor
Dodger Blues - Be Careful of What You Tell Your Estate Planning Attorney
Two weeks ago Jamie McCourt was fired by her husband, Frank McCourt, as the chief executive of the Los Angeles Dodgers when the team was eliminated from the playoffs by the Philadelphia Phillies, and last week Mrs. McCourt filed for divorce. She claims that her husband had no business firing her because they are co-owners of the team and she wants to be reinstated immediately. In support of her claim, Mrs. McCourt stated, "Frank has no right to purport to terminate me. We are co-owners of the Dodgers. Not only has Frank publicly held us out as co-owners of the franchise, he has also admitted this fact in front of our estate planning counsel." Apparently there is documentation that was prepared by the McCourts' estate planning attorney which shows that the couple are 50-50 owners of the Dodgers as community property.
The lesson to be learned here, particularly by married couples who hire the same estate planning attorney to prepare their estate plan - be careful of what you tell your estate planning attorney because the attorney-client privilege is waived when the attorney represents both spouses. As the McCourt case shows, having the same attorney represent both spouses in the preparation of their estate planning documents could come back to bite one or both spouses in the event the marriage ends in a divorce.
Estate Taxes by State - Does Michigan Have an Estate Tax?
Does Michigan have an estate tax? The answer is no, currently Michigan does not collect a state 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, Michigan, 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.
On January 1, 2005, the pick up tax was officially phased out under the provisions of the Economic Growth and Tax Relief Reconciliation Act ("EGTRRA"). In response to these changes in federal law, 18 states and the District of Columbia chose to enact laws that allow the assessment of a state estate tax. But the Michigan legislature did nothing and as a result Michigan no longer collects a state estate tax.
One thing to keep in mind is that the pick up tax, and therefore the Michigan estate tax, is scheduled to come back in 2011 due to the sunset of EGTRRA. But no one really believes that Congress and President Obama will allow this to happen. Instead, it is anticipated that at the very least a one or two 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.
- Understanding Death, Estate and Inheritance Taxes
- What is the Pick Up Tax?
- State Estate Tax Chart
- What is the Future of the Federal Estate Tax?
- Sept. 17, 2009 - One Year Patch Likely to End Federal Estate Tax Repeal in 2010
- Oct. 22, 2009 - Estate Tax Repeal - Update on Predictions About the New Federal Estate Tax Law
- Michigan estate tax information from the Dept. of Treasury website
Tips on Avoiding Living Trust Mill Scams
In response to a recent decision by the Ohio Supreme Court to fine two California-based companies nearly $6.4 million, the Ohio Department of Insurance and the Ohio Attorney General's Office have teamed up to issue a joint warning about the deceptive practices of so-called "Living Trust Mills."
In the typical set up a business touting itself to be an expert in the field of estate planning will solicit seniors by mail or on the telephone and entice them to attend a free seminar about trusts, wills and taxes. Attendees of the seminars are warned about the expenses and hassles associated with probate and are told that a Revocable Living Trust will solve all of these problems. The joint warning points out that in most cases the individuals presenting the seminars are not licensed attorneys. Instead, they are insurance agents looking to sell unnecessary insurance, annuities and other financial products to unsuspecting seniors and collect the high commissions associated with such products.
The joint warning offers some excellent tips to residents of any state who are contacted by a company that purports itself to be an expert in estate planning:
- Do not allow yourself to be pressured into purchasing an estate planning product. Ask for time to consider what the company or individual is selling.
- Determine if any complaints have been filed against the company or individual by calling the Better Business Bureau and your Attorney General's Consumer Protection Division.
- Ask the sales representative to provide you with identification and a description of his or her qualifications, education and expertise in estate planning.
- Contact the state Department of Insurance or the Department of Commerce to see if the individual is a licensed insurance agent or securities broker.
- Contact the local bar association to verify if the individual selling trust services has been admitted to practice law in your state.
- Consult with a lawyer or financial advisor who is knowledgeable in estate planning before considering a living trust.
The bottom line - only a qualified estate planning attorney can help you put together an estate plan that will work for you and your family.
If you are a Ohio resident and believe that you have been the victim of a "Living Trust Mill," contact the Enforcement Division of the Ohio Department of Insurance at 800-686-1527 or file a complaint online at their website. You can also contact the Ohio Attorney General's office at 800-282-0515 or visit their website.
- State warning senior citizens about recent trust mill scams
- California Living Trust Mills Fined Over $6 Million by Ohio Supreme Court
- California "Living Trust Mills" File a Motion for Reconsideration of Fine
- Qualities to Look for in Your Estate Planning Attorney
- 7 Tips for Finding an Estate Planning Attorney
- Ten Steps to Creating a Good Estate Plan
California "Living Trust Mills" File a Motion for Reconsideration of Fine
Last week I reported on two "Living Trust Mills" that were slapped with a $6.39 million fine by the Ohio Supreme Court with regard to scaring unsuspecting Ohio seniors into purchasing inappropriate estate planning documents and annuity products. On Monday the two California-based companies, American Family Prepaid Legal Corp. and Heritage Marketing and Insurance Services Inc., filed a motion for the Ohio high court to reassess its decision because the companies claim it was based "on incorrect information" and in any case they will not be able to afford to pay the fine. Meanwhile The Columbus Bar Association, which had filed a complaint against the companies as far back as 2002, called the motion "wholly without merit."
Estate Planning Term of the Week - Joint Tenants With Rights of Survivorship
This week's estate planning term - Joint Tenants With Rights of Survivorship.
Joint Tenants With Rights of Survivorship is a type of joint ownership of property where two or more people own the title to an asset together and simultaneously. When one owner dies, the surviving owner or owners immediately become the new owners of the property. As a result, property owned as Joint Tenants With Rights of Survivorship passes outside of probate instead of to the deceased owner's heirs at law or under the terms of the deceased owner's Last Will and Testament or Revocable Living Trust. This type of ownership can be used with bank and investment accounts, stocks, bonds, business interests, and real estate.
Beware - Joint Tenants With Rights of Survivorship is usually not the default form of ownership when an account or real estate is held by two or more people. Instead, property owned by two or more people without a clear indication that it is to owned with rights of survivorship is owned as Tenants in Common.