Category: Estate Planning

As I was reading about the recent disaster in Haiti this past weekend, I started thinking about all the nurses, doctors, firefighters, police officers, and teachers I know – some of the many occupations that are dedicated to caring for others.  I consider it a privilege to have many of them as clients.  Even so, I see a gaping hole in the protection of those who protect others.  For example, take nurses and teachers (I pick them because I know many personally).  Their life’s work is to care for and/or educate those around them.  What a truly giving and noble calling.  And yet I know several such individuals whose own family is left incredibly exposed to a tragic event.  This exposure takes several forms: no life insurance, inadequate savings, no retirement planning, and yes, no estate planning.  And beyond that, I see them spending so much time caring for others that they neglect taking care of themselves, whether it be a nice dinner with their husband/wife, a special day of pampering, shopping, or family time, or just some time to relax or exercise.

So I encourage those of you who are in these great professions . . . take the needed time to take care of yourself and your family.  It will give you an amazing amount of peace of mind.  And if I can help in any way, please let me know.

They all have something in common.  What could it be?  They are all items that are chosen based on the value each individual places on them.  For example, if having a big screen TV is not all that important to you, you’ll settle for an “average size TV,” or none at all.  If you want to watch your favorite sporting event, movie, or play a video game like you are in it, then you spend the money to get one.  You value it above other items you could have spent that money on.  Why do folks spend more to buy a Honda than a Kia?  Because they place value on the reputation Honda has for making quality vehicles that are comfortable and reliable (and I’m not saying that Kias are not).  If they want a car to get them from point A to point B, they may not find as much value in Honda’s reputation.

Estate planning is the same way.  I have found a misconception among some estate planners I talk with – they think that certain groups of people are not interested in estate planning.  What I’ve found in my practice is that it is all about the value folks place on estate planning.  Many of the people they don’t think will move forward with estate planning because of cost, leave the meeting in their nice car, drive home to their nice house, and watch their favorite show or movie on their big-screen TV with an impressive surround sound system and fancy 1 billion function remote (ok, the last one was an exaggeration).  So it all comes down to value . . . if you value something at or above the cost to acquire it, you get it, unless you truly don’t have the funds to do so (and we’ve all probably done it even in that situation).

It is encouraging to me to see how many families I meet with value estate planning.  Sure, I believe it’s a critically important life item, but it’s what I do for a living so I’m expected to say that.  However, the families I meet with are not required to think, believe, or say that, and yet they do.  And I’m grateful to be a part of it.

I honestly don’t even know why I’m posting this other than to share a good thing in a world full of so much bad news.  I would love to hear your comments.

So you may have read my post about the estate tax leaving us for 2010 here, and wondered, “what on earth is this carryover basis thing he’s talking about?”  And if you weren’t wondering that, pretend you were (or leave the page), because here is the (relatively) short answer.

For estate planning purposes, carryover basis means that when you sell an asset you must use the basis (typically the “cost”) of the person you received the asset from, to determine your gain (e.g. “profit”).  So, if  Great Uncle Joe purchased a 1957 Chevy BelAir Hardtop for $5,000 in 1957, it’s worth $45,000 when he dies, you inherit it from him when he passes, and then you sell it for $50,000 a couple of years later, you will pay tax on the difference between what you sold it for and what he paid for it . . . $45,000.  I’m not an appraiser of classic collector cars, so these number could we way off.  This is considerably different than how it used to be (see my previous post “Hasta La Vista, Estate Tax” to learn more).

Congress, in an effort to “soften the blow” a little bit , amended section 1022 of the internal revenue code to allow for a basis adjustment (i.e., increase the basis) of $1.3 million for non-spouse beneficiaries and $3 million more ($4.3 million total) for spousal beneficiaries (the first number is only $60,000 for a non-resident who is not a citizen of the US).

Clear as mud, right?  If you would like to know more or would like clarification on any of this post or the previous one, just let me know via comment or the Contact Us section of our website.  Here’s to an exciting 2010!

As you may (or may not) have heard in the popular press, your favorite news site, or from reading this post at South Florida Estate Planning Law written by my colleague David Shulman, the estate tax is officially repealed as of 12:00am January 1, 2010.  Seeing as Congress has mere hours to pass legislation to change that, I see the repeal being a pretty sure thing.

So what does that mean?  As it currently stands (for the remaining hours of 2009), an individual has a $3.5 million estate tax exemption (a couple can increase that to $7 million with proper planning).  The estate tax is set to disappear for 2010, as stated above.  Some are calling it the “throw mama’ from the train” year . . . as in, die in 2010 so that your estate is not subject to estate tax.  That’s all well and good, and I’m sure it will benefit many folks who pass away in 2010.   However, as Paul Harvey used to say, “now . . . the rest of the story.”

Accompanying the repeal of the estate tax is a change to the “basis” treatment for estate assets.  Basis is (typically) what you paid for an asset.  As you likely know, when you sell an asset, you pay tax on the “gain” – the amount you sold it for minus what you paid for it (basis) – sometimes more commonly referred to as “profit.”  In 2009 (and many years before), you get a “step up” in basis on the assets of someone who passes away.  This means that the beneficiaries who receive your assets have a basis in those assets equal to the assets’ value on the date of death.  They get to use that basis if/when they later sell the assets.  Here’s an example:

Date of death: 12/31/2009
Total asset value: $3 million
Dying person’s basis: $1 million
Estate tax: $0 (under the $3.5 million exemption amount)
Asset basis for beneficiaries: $3 million (“stepped-up” to value on date of death)
If the beneficiaries later sell the assets for $3.5 million, they will pay tax on only $500,000 – the amount the assets sold for minus their basis.

With the 2010 estate tax repeal comes a change to those basis rules.  For 2010, the stepped-up basis is limited to $3.0 million in assets passing to a spouse and (more importantly, I think) a $1.3 million aggregate amount (so, in effect, up to $4.3 million for a spouse, but only $1.3 million for non-spouse).  So, the estate doesn’t pay any federal estate tax, but what does it mean for the non-spouse beneficiaries?  Let’s use the same example as above:

Date of death: 1/1/2010 (what a difference a day makes!)
Total asset value: $3 million
Dying person’s basis: $1 million
Estate tax: $0 (estate tax repealed)
Asset basis for beneficiaries: $2.3 million ($1 million basis of the person who died + $1.3 million “step up”)
If the beneficiaries later sell the assets for $3.5 million, they will pay tax on $1.2 million – the amount the assets sold for minus their basis (which had only the limited step up).

As you can probably imagine, the amount of tax on the additional $700,000 is a fairly significant number, especially when you consider that it is very unlikely that taxes will go down anytime soon (sorry for getting a little bit political).  On top of that, there is a looming paperwork nightmare.  Can you imagine?  How are you going to prove what the dying person’s basis was, especially for some of the more uncommon assets?  Valuation will become a larger headache than it already is.  Sure it can be done, but what an incredible hassle.  As a matter of fact, a friend of mine is a supervising attorney in the estate and gift tax department of the IRS and she said that the IRS is sorely prepared to deal with such a paperwork avalanche.  For sure there will be a lot of additional searching, researching, and organizing that will need to be done.  It will be interesting to see how much additional cost will be associated with this, in professional fees (lawyers, CPAs, financial advisors, etc.) and otherwise.

Oh, and one more thing.  Did you catch the missing word?  Gift tax.  Nope, gift tax is not going away.  It stays in full effect throughout 2010.  Apparently, Congress was concerned that if the gift tax went away, wealthy taxpayers would make large gifts to family members in lower income tax brackets (a valid concern).  So, the gift tax exemption remains at $1 million.

And wait . . . there’s more!  The law that put the estate tax repeal into effect (the Economic Growth and Tax Relief Reconciliation Act of 2001) is set to “sunset” in 2011, returning the estate tax and gift tax to what they were before the law was in effect.  Curious to know what that was?  I knew you would be.  The estate tax exemption was (and will go back to) $1 million.  That’s right . . . $1 million!  And the tax rate will be 55%!  Sure, that’s a significant amount of money and you may be thinking “no big deal, it’s a million bucks,” but consider the example above.  If all goes as scheduled, if our example person died in 2011, the estate tax on the estate would be $1.1 MILLION (55% of $2 million)!  The beneficiaries will miss out on $1.1 million of additional inheritance.  Now THAT is a significant number.  Keep in mind that this can be “fixed” with proper planning.

So there you have it.  That is what is supposed to happen as things stand on the books right now.  Will it actually happen?  Well the repeal will definitely occur if Congress doesn’t act today.  The question is, for how long.  Consensus seems to be that Congress will address the issue next year.  What will they do?  I’m not sure and I don’t think anyone knows for sure.  The most common idea I’ve heard is that they will retroactively extend the current $3.5 million exemption and 45% tax rate.  We’ll see.  2010 will be a very interesting year for us estate planners, that’s for sure!

One thing I am fairly sure of (cue the Arnold voice) . . . It will be bbbaaaacckk!

Happy New Year everyone!

Have you or your wife/husband ever said that?  I know I have.  As a matter of fact, I found myself saying it several times recently as I worked to clean up the disaster area that is my workspace at home.  I was trying to find some tax information and found myself sifting through brokerage statements, insurance statements, automobile repair receipts (yes, I keep those), my (living will, trust, power of attorney) estate planning documents, and many other documents that are vital to our family (ok, maybe the auto receipts are not).  All of these documents were lumped together in a pile, which made the task tedious and very frustrating.  So, I began putting them in their own folders and filing them in the safe.  After a decent amount of time passed, I gave up on that as well, realizing that it was taking away from what little time I had to spend with my family.

A couple of days later I was thinking about how 2010 is almost upon us and how a new year gives us a blank slate and a fresh start, in many respects.  Many people develop “New Year’s Resolutions” to lose weight, become a better person, give more to charity, spend more time with their family, and many other admirable goals.  What about getting our financial and legal life in order?  What would that entail?  Knowing that many families have the same mess of legal and financial documents that caused my recent frustration, I thought it would be a good opportunity to help others (and myself) start the year of right by getting their legal and financial life in order.

To help Grand Rapids families in this endeavor, I am “super sizing” my Family Wealth Planning Session and adding in a Whole Family Wealth Audit.  And the best part for you is that I am waiving the usual fee for this session for those families who schedule their Whole Family Wealth Audit and Family Wealth Planning Session in January (a $1,250 value!).  Why am I doing this?  My recent experience with document frustration and my passion for helping growing families provide and protect what matters most to them (family and finances) and ensure they make the best legal and financial decisions throughout their lives.  Although you could do this anytime throughout the year, there is something refreshing about getting it done at the beginning, so you can benefit from it for the rest of the year (and the years to come).  And the best part is that all you have to do is bring the documentation with you.  I will organize the Family Financial Freedom Notebook as we talk about the importance of the various items.  It doesn’t get much easier than that!

In the planning session I will go above and beyond my usual education about what would occur if something happened to you, how to name guardians and protect/provide for your children, how to preserve, protect, and grow your financial assets, and how to pass on your intangible assets (values, insights, stories, and experiences).  You will also walk away with a Family Financial Freedom Notebook designed to organize all your family’s important legal and financial documents.  If you already have legal documents, insurance policies, financial plans and/or tax strategies in place, we’ll review all of it to make sure everything is set up the right way.  And if you don’t, we’ll make sure you leave with a roadmap for everything you and your family need for total peace of mind.  I have already discovered the value of getting this level of organization put in place as I’ve created my own Family Financial Freedom Notebook, and I look forward to helping you with yours as well.

If you agree that this would be a great way to start off your new year and ensure your family has planned and prepared for the years to come, call our office to schedule your January planning session at (616) 827-7596.  Make sure to mention this blog post to get the planning session fee completely waived (NO COST!).  Due to demand and limited availability, we are offering this on a first-come, first-served basis, and we are limiting them to the first 10 people who call.  I look forward to helping your family in what I’m sure will prove to be a great 2010!

I just read a good article discussing the need for estate planning even when you are not “Old” or “Rich.”  You can find the article here: http://www.knoxnews.com/news/2009/dec/03/dont-wait-till-youre-old-or-rich-estate-plan/ Although I don’t agree with all the statements that are made in the article, such as using online forms, I do think it provides a very informative and “real” point of view on why planning when you’re younger is advantageous.  I’ve always said it is easier to plan when you don’t think it matters.  It’s when you’re back is up against the wall due to age, health, or other reasons, that planning becomes more difficult, as the decisions seem more “real.”  So what do you think?  Please share your comments.

PHILADELPHIA, Pa., November 17- On the heels of releasing their best-selling memoir about their experience after the death of both of their parents, Liz and Diana Welch, authors of the “The Kids Are All Right”, have partnered with Personal Family Lawyers® throughout the United States and Canada to ensure all parents know what they need to do to make sure their kids would never be left without a clear plan if anything happens to their parents.

The four Welch siblings ranging in age from age 8 to age 19 were split up after the death of their mother, soap star, Ann Williams. While it’s true the Welch kids did turn out even better than all right in many respects, they can’t help but wish their mother had planned better for their care, which became nearly impossible once she was diagnosed with cancer.

With the objective of ensuring that no children ever again are left without a comprehensive plan for their care, Liz and Diana Welch talked at length with nationally recognized legal expert and founder of the Family Wealth Planning Institute, Alexis Martin Neely. During this talk, the Welch sisters recounted the painful loss of their parents within years of each other, how they fared in the absence of guardianship directives, and what it was like for the four Welch children to be separated after the death of their parents. They also discussed what parents need to know about naming legal guardians and resources for getting the process started totally free.

“Especially in times of economic hardship, many parents think drafting a will or naming guardians for their kids is a ‘luxury’ and out of the question. But as the Welch’s story makes clear, it’s far more expensive and painful for children be left as orphans and financially uncared for than it is to sit down and draft these documents with a lawyer in the first place,” says Mike Lichterman, the Personal Family Lawyer in Grand Rapids, Michigan.

In honor of the Welch siblings and their new book, Personal Family Lawyers® throughout the United States and Canada are offering a free Family Wealth Planning Session (including guardian nominations) to parents at http://www.PersonalFamilyLawyer.com. Use the certificate code Welch.

In the event there is not a Personal Family Lawyer or other attorney dedicated to Estate Planning in your neighborhood, you can create legal documents naming guardians for your children at the free Kids Protection Plan website. http://www.mikidsprotection.com

The heading of this post is also the name of a great book that I just finished reading, “The Kids Are Allright.”  The book is written by Liz and Diana Welch, two of the four children around whom the story centers.  The Welch children grew up in a privileged atmosphere: a father who was a successful business man (or was he?) and a mother who was an actress and soap opera star.  Through an unfortunate turn of events, they were orphaned in the mid-1980’s.  This book describes their life before and after their parents died, how it affected them, and,ultimately, how they overcame the struggles.  At its root, the book is a story of the human spirit and how the bonds of family (and siblings in particular) can overcome even the most difficult circumstances.  There is an important legal message here too – you must plan for your children’s care in your absence.  The story really brings that point home as you see the struggles faced by the Welch children upon their mother’s death.  Arranging their care and providing for them was an absolute mess because their mother had neglected to properly plan (understandably so as she battled cancer in her final years).  I encourage everyone to read this book to get a real life example of the important of proper estate planning.

As an added bonus, a personal friend (and attorney), Alexis Martin Neely, recently interviewed Liz and Diana Welch to discuss the book and estate planning.  I encourage you to listen to this call.  You can find it here:  http://bit.ly/4A6KpE.  Although it will make more sense if you have already read the book, it is valuable whether you have or have not.  Please share your thoughts after reading and/or listening.

And as a reminder, I am available to hold guardianship workshops for parent groups.  It is very beneficial whether it be a school (public or private), a home school group, mom’s group, dad’s group, or some other parent group.  Parents will walk away with the information they need to know about proper planning and having nominated long-term guardians for their children.  Best of all, it is FREE!  If you or someone you know  is interested in having me conduct a guardianship workshop, please call (616) 827-7596 and talk with Paula.

Shocking title?  Not as shocking as the conclusions that may be drawn based on your reading of this article (http://bit.ly/2fdkiV) about Patrick and Karen Hankins.  I was shocked myself when I read it.  Did you catch what they mention at the beginning?  That he was in foster care.  Foster care is a great service offered to care for children and I applaud the families that give of themselves to care for children that end up in “the system” due to unfortunate incidents.  There are many ways children can end up in foster care, one of which is their parents passing away without properly planning for their childrens’ care.   Did he end up in foster care because his parents didn’t plan?  Would they have planned if they knew, ultimately, how his life would turn out?  Would planning  for his care with someone he knew (family or friend) made a difference?  I don’t know the answers to these questions.  What I do know is that planning can be be the difference between a child’s “success” and their “failure.”  What do you think?

Just read a great article here (http://bit.ly/3sPZ5r) about 12 common estate planning mistakes.  I would add the following to the list:

13. Having a living trust and failing to change your beneficiary designation on life insurance and contingent beneficiary on your retirement accounts to the trust (when advisable)
14. Only appointing guardians of your minor children for the long-term (the short-term implications can be frightening if not planned for properly)
15. Not naming enough “backups” for fiduciary, guardianship, and conservatorship positions
16. Not planning properly for uncommon children after a second marriage

Do you find any of these surprising?  What additional items would you add?

While reading today’s USA Today, I came across a good article  in the Money section entitled “5 Myths about wills – and what you should really do” (http://bit.ly/49gIDj).  The article gives some great advice from attorneys and counselors from around the country, addressing such myths as estate planning only being for the rich, a will keeps you out of probate, and that estate planning only needs to be once and then you’re all set.  The only point of contention I have relates to the discussion of do-it-yourself wills.  Ms. Hanks states that such programs (like Quicken’s WillMaker Plus and LegalZoom) are fine for a basic will because courts are typically “client-friendly with respect to wills,” and “judges want to honor people’s last requests.”  In general, that may be true.  The bigger issue I see is that using a do-it-yourself program may not accurately convey your last requests.  If it doesn’t ask an important question or you don’t understand the question it does ask, what do you do?  What good is having a court honor it, if the document is wrong?!  The advice and direction of an attorney is very important in this respect.  No matter what your economic situation, I strongly recommend discussing your estate planning with an attorney.  If you are unable to afford to do so, please know that there are income-qualified legal assistance groups that may be able to help.

Unless you were born into an Über-rich family (and sometimes even then), your parents’ probably never discussed estate planning when you were growing up and didn’t have any kind of relationship with a personal lawyer (at least not one you remember discussed with fondness!)

It’s not a surprise. 70% of people die without even a Will. So, why would you need to take action now, when you are so young?

Because you are financially smarter than your parents and you care more about the people you’d leave behind than the 70% who die leaving their loved ones in the lurch.

You may be young (or young at heart), but you likely have more far more wealth than your folks already; you certainly have bigger dreams, and there’s a good chance you have kids.  It’s not your age that matters when it comes to planning. Your vision and your family circumstances determine whether you need to plan and when to start.

Regardless of how much money you have in the bank, if you have kids at home, you want to be the one who decides who would take care of your kids in the short-term and who would raise them for the long-term, if you were in an accident. You definitely don’t want to leave that up to a court to decide.

Choosing who will take care of your kids and legally documenting your decisions is estate planning … if you have kids, you need it.

If you do have a decent amount of money in the bank  or own any real property, you will want that money to get to your family as easily as possible if anything happens to you. The State has a plan for your money, but it’s one that will make life difficult for your loved ones. If you don’t plan, your family will have to deal with the Court, not have access to your assets for 6-12 months and they’ll pay a load of unnecessary expenses that you could have avoided if you had planned ahead. You definitely don’t want to leave the people you love with a mess because you didn’t take care of things.

Giving your loved ones easy access to your money if you are in an accident is estate planning … if you have money in the bank or own even one piece of real estate, you need it.

And, if you have a big vision for your future, you want to set up your business in such a way that it can never be taken from you if you get divorced or sued and so that when you die, your family won’t lose half of it to the government. Yes, there are ways to totally protect what you are building and they are a lot easier to put in place when your company isn’t worth much, like when you are just starting out in your 30s.

Showing the Universe you mean business about your business and setting it up so that it grows protected for your family is estate planning … if you have a big vision for your future, you need it.

Last, if you want to pass on much more than just your financial wealth and leave the world a better place, you need to set forth the intention to do that and then take action steps throughout your lifetime to capture the intangible assets that are most often lost when someone dies, like your intellectual, spiritual and human assets. It’s about who you are and what’s important to you.

Creating a structure and plan for passing on your values, insights, stories and experience is estate planning …. If you want to leave the world a better place, you need it.

So, what do the old rich guys know that you should know too?

The most important thing to know is that estate planning is really not a do it yourself process. Sure, you can prepare your own will, trust or health care directive, but real deal, make a difference for your loved ones estate planning (what I call Family Wealth Planning) is about far more than documents; it’s about making the very best decisionsfor yourself and the people you love most so you can leave the world a better place.

Think about the old rich guys …. the guys whose family wealth has grown at each generation –Rockefeller, Carnegie, and Ford to name a few – all had personal lawyers advising them and their family after they were gone and long before they amassed their wealth. Because of these relationships, they left long lasting legacies that improve the world. Contrast that with rich guys like Joe Robbie, Powel Crosley, Jr., and Cornelius Vanderbilt who were once the wealthiest men in America and whose fortunes have been almost entirely dissipated to estate taxes, lawsuits, divorces and general affluenza.

So, learn from the old rich guys who did it right. Show the Universe you are serious about your business by getting control of your financial future. Leave your family with a legacy of true family wealth. If you want to leave the world a better place, even on a small scale, now is the time for you to begin planning your estate.