Monday, January 29, 2007

Another Hidden Cost of Dying - The Surety Bond

Category: Estate Planning, Probate and Estate Administration

A spot-on examination of the requirement for a surety bond in an estate administration from Joel Schoenmeyer, Esq. at Death and Taxes Blog.

On the Subject of Surety Bonds: "Surety bonds are like an insurance policy for an estate and its beneficiaries. What are you insuring? That the executor or administrator isn't going to run off to Tahiti with the estate's assets."

I also use Tahiti as an example of where the nefarious fiduciaries are going with you money.

Surety bonds can be expensive and fall into the category of "things to be avoided". How to avoid the expense to your estate - create as will. As Joel points out in his posting: "The executor doesn't have to obtain one if the decedent's Will waives the surety bond requirement. If the Will DOESN'T contain such a waiver, or if the decedent died without a Will, the executor will have to make surety arrangements."

Also, if you have a Will, but don't have a named Executor or Successor Executor, you will also need a surety bond in NJ. This means that if your Will from 15 years ago names your spouse and then your father, who has since died, a codicil is in order at a minimum to name appropriate successor executors to avoid the bonding requirement.

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Tuesday, January 23, 2007

You Die - Your Passwords And User Names Die With You

Category: Estate Planning, Probate and Estate Administration

As part of every Estate Planning consultation these days, I ask not only "Where do you keep your assets" (ie: what institutions do you use for banks, brokerage accounts) but "How do you access your assets?" The point of the second question is to find out if the client takes advantage of electronic account access, and if so, who else shares access to those accounts.

I was reminded for the importance of this from the article: - When Passwords And User Names Die With The User: "Security experts warn us to keep our passwords and user names under lock and key. But what happens after a loved one dies? How do survivors get access to information and documents kept squirreled away in safe deposit boxes and hard drives for years?"

The questions is even more prevalent when there is no hard data. Many people don't receive paper account statements and only access bank and brokerage accounts online. Or there are direct deposit or direct withdrawals set up only online. In this case, an executor may not even know about the assets until a tax statement comes in January, or by running an escheated asset search (escheated assets are assets that are turned over to that state if the institution can't find the owner).

First, the motivation for taking the steps below is avoiding the alternative - going to court for an order to get access to the accounts (if your executor even knows where the accounts are).

The best way to address concerns raised by assets in the electronic age from an estate planning and estate administration perspective is to employ some practical advice:
  • Each spouse keeps a spreadsheet of Institution Name, Website, Account Number, User Name, Password
  • The spreadsheet is updated WHENEVER a change is made
  • Save the spreadsheet to a removable media format (CD, DVD-R, USB Flash-Drive, etc).
  • Save the removable media format in a safe location that your spouse, power of attorney, key adult child(ren) and attorney are aware of (safe deposit box, fireproof vault, drawer in the house where the important stuff is)
  • If you password protect the file, you need to make sure that your spouse, power of attorney, key adult child(ren) and attorney are aware of

If putting all this in a safe place and telling key people of it concerns you because the key people have access to your accounts, you need to rethink the key people.

MOST IMPORTANT - If you make any changes to the information on the spreadsheet, update the spreadsheet and put in back in the safe (but well communicated) location.

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Friday, January 19, 2007

FAQ: General Durable Power of Attorney

Category: Estate Planning, Financial Planning

Following numerous recent questions about what a General Durable Power of Attorney is and can do, a primer from

FAQ: Durable Powers of Attorney for Finances
Learn about the simple way to arrange for someone to make your financial decisions should you become unable to do so yourself.

How does a durable power of attorney work?
When does a durable power of attorney take effect?
What does an attorney-in-fact do?
How do I create a durable power of attorney for finances?
What happens if I don't have a durable power of attorney for finances?
I have a living trust. Do I still need a durable power of attorney for finances?
Can my attorney-in-fact make medical decisions on my behalf?
When does a durable power of attorney end?

An important caveat - in New Jersey and many other states, your attorney-in-fact cannot make gifts unless the power to make gifts is specifically authorized. This is very important from many perspectives: a failure to include a gifting provisions can stunt the ability to Medicaid planning, while, on the other hand, a gifting provision can be abused if the attorney-in-fact uses the gifting provision to transfer assets to himself or herself.

Thursday, January 11, 2007

Create a Will instead of a Role for "Probate Genealogists"

Category: Estate Planning, Probate and Estate Administration

I just came across this press releaseGrowing Role for Probate Genealogists and thought to myself, "What is a probate genealogist?" not having heard the term before. Looking into it more, it seems that "probate genealogist" encompasses "heir-search" companies that identify to heirs to an estate through their biological relationships.

In my practice, finding heirs has been an issue on several occasions - all of which had one thing in common - the person who died had assets and no Will. These people died intestate (without a Will), and the assets were distributed to relatives per the New Jersey intestacy statutes (otherwise known as "the Will the State of New Jersey created for you that you didn't know about").

I am surmising that needing to use a "probate genealogist" is an expensive process. It also implies that you have no idea who will be receiving an inheritance from you, because if they were known to you, they would probably know you were dead and could claim their rights without being "located" by a third party.

Taking the time to make a Will seems like such a simpler and more logical alternative. Some things to consider in this example:
  • If you don't make a Will, the State where you reside has one for you via its Intestacy Statues
  • The Intestacy Statutes may give you assets to people you either don't know (remote relatives) or don't like (close relatives)
  • You are not required to give your money to your relatives - you can leave it to a friend, church, charity, organization, or even your pet in many states.
  • You worked hard to create your assets - shouldn't you make the effort to direct where they go if you aren't here? I have never come a across a person who truly "didn't care" where there assets went after being asked a few questions.

Thursday, January 04, 2007

Retirement Accounts and Beneficiary Designations - Myths and Misconceptions

Category: Estate Planning, Tax Law and Planning

At the start of the new year, many people take a look at their qualified retirement plans (IRA, 401(k), etc.) as they plan savings goals for the new year. But what if you aren't the one getting the benefits, because you have died? How are the benefits getting to your family? Below is a list of some Myths and Misconceptions about Retirement Plan benefits (which can also be thought of a as a list of what NOT to do).

  1. My Retirement Plan is distributed the same as my Will. WRONG! Your Retirement Plan is distributed according the Beneficiary Designation you complete for each Retirement Plan.

  2. If I don't name a Beneficiary, my Retirement Plan will be distributed to my Estate. MAYBE. Some Retirement Plans say that if there is no beneficiary, it will pass to your Estate. Others give a list of people who will receive the plan in order of priority (spouse, children, etc.). However, if a Retirement Plan is payable to your Estate, there are negative income tax consequences (remember - you haven't paid any income taxes on these assets yet) that are best avoided. Also, for domestic partners or similar, there are never any default provisions for payment to the surviving partner - a Beneficiary Form must be completed.

  3. If my spouse is named as Beneficiary and we are divorced, she is automatically no longer the Beneficiary. WRONG! Unless you act to change your Beneficiary Designation, your ex-spouse is still your primary beneficiary - not a situation you want to be looking down on from the great beyond. File the Change of Beneficiary when you file for separation.

  4. If my minor children are named as Beneficiaries, and I created a trust for them in my Will, then the Retirement Plan will be distributed subject to those trust terms. WRONG! Unless you name the trust created for your children as the Beneficiary of the Retirement Plan, your darling angels will get access to all the Retirement Plan funds at the mature age of 18 (or 21).

  5. I know who are my Designated Beneficiaries. MAYBE. Many times a person thought they filed out a Beneficiary Designation, but didn't, or thought they named Contingent Beneficiaries, but didn't, or thought they named a trust for this children, but didn't. You should check or change your Beneficiaries today. A Change of Beneficiary form can usually be downloaded right from the website holding the assets.

Friday, July 14, 2006

Ding Dong - RAP (Rule Against Perpetuities) is Dead in PA

Category: Estate Planning

This post will likely be of most interest to the lawyer readers - who recall with dread the interaction of the Socratic method and the Rule Against Perpetuities or RAP from law school.

In essence, the Rule Against Perpetuities (RAP) states that no trust can last longer than (1) the lives of all the then living beneficiaries at the date of the grantor's death (ie: the children and grandchildren and great-grandchildren living when the person who created the trust dies), plus (2) 21 years from the death of the last person identified in #1.

This creates a problem for estate planners, as many times a person's goal is to create a "dynasty trust", where the seed money for the trust can be used to benefit multiple generations indefinitely. The Rule Against Perpetuities can also have some unintended consequences of the timing of trust distributions. For estate planners and law students alike, the Death of RAP (Rule Against Perpetuities) is a good thing.

There has been a trend among the states to abolish RAP, as it is a carryover from old medieval English Law, where feudal lords and a serf system ruled the day. New Jersey abolished its RAP provision in 1997 (so long as you elect out of RAP in the trust document) and other states have moved so as a way to increase the trust business in those states (Delaware and Alaska come to mind).

Now, according to the PropertyProf Blog, PA is joining the trend.

Pennsylvania Abolishes Rule Against Perpetuities

Last week, Pennsylvania enacted legislation that among other things abolishes the rule against perpetuities for interests created after December 31, 2006 (the link is to the Senate bill; the Governor approved the bill on July 7).

Monday, July 10, 2006

Attorney-In-Fact Under POA can make Gifts - If Gifts are as Contemplated in Will (NY)

Category: Estate Planning, Probate and Estate Administration

What happens when a person creates a Will and a Power of Attorney, and the person named under the Power of Attorney uses the Power of Attorney to make gifts to himself, and those gifts effectively change the testamentary scheme set out in the Will? In New York, a new ruling by the Appeals Court (the highest court in New York State) says that those gifts won't stand, regardless of a broad gifting power granted in the Power of Attorney, unless those gifts (1) are in the principal's best interest, and (2) conform to the principal's overall estate plan. In the Matter of Ferrara (N.Y., No. 92, June 29, 2006).

In New Jersey and New York, you need to specifically give your attorney-in-fact the ability to make gifts to himself or herself. This is commonly done by adding a paragraph the the Power of Attorney as the attorney-in-fact is usually a family member who gifts might be made to in any event (ie: a spouse or child). In my form of document, I have for years had language that the attorney-in-facts gifts must conform with the principal's estate plan precisely to avoid the mis-use of the power of attorney described in In the Matter of Ferrara. My thought is that the use of gifting powers within the Power of Attorney is necessary and desireable, as it is impossible to judge now how you may want to distribute your assets in the future (look at the DRA changes in the Medicaid law in 2006). However, it is also reasonable to limit the gifting of assets to be in the context of the the estate plan that you already have in place, so as not to allow a person's goals at death to be defeated merely by giving flexibility to use your assets as you would during life.

In 1999, George Ferrara executed a will bequeathing his entire estate to The Salvation Army. In 2000, Mr. Ferrara, who was single and had no children, signed a durable power of attorney called the "New York Statutory Short Form" appointing his brother, John, and a nephew, Dominick Ferrara, as his attorneys-in-fact. Mr. Ferrara initialed a typewritten addition to the form that enabled the attorneys-in-fact to make gifts to themselves without limitation. Dominick claims that this provision furthered his uncle's wishes that Dominick have all his assets. Mr. Ferrara died three weeks after executing the power of attorney. During those three weeks, Dominick transferred about $820,000 of Mr. Ferrara's assets to himself.

After learning of Mr. Ferrara's will, The Salvation Army began proceedings against Dominick to recover the assets. The trial court dismissed the petition, ruling that the presumption of impropriety when an attorney-in-fact makes self-gifts had been eliminated by changes to New York's laws in 1997. General Obligations Law § 5-1502 and 1503. The new law directs that an attorney-in-fact is authorized to make annual gifts of $10,000 or less to specified beneficiaries, but may do so only for purposes reasonably deemed to be in the principal's "best interest." The law also allows for additional language to be added permitting unlimited gifts. The trial court held that the best interest limitation does not apply to this additional language. The Appellate Division affirmed and The Salvation Army appealed.

The Court of Appeals of New York, the state's highest court, reverses. The court finds that nothing in the law suggests that the best interest requirement is waived when additional language increases the gift amount or expands the potential beneficiaries. "The Legislature intended [the relevant section] to function as a means to customize the statutory short form power of attorney, not as an escape-hatch from the statute's protections," the court writes. The court goes on to rule that "best interest" does not include the kind of unqualified generosity to the holder of a power of attorney practiced by Dominick, "especially where the gift virtually impoverishes a donor whose estate plan, shown by a recent will, contradicts any desire to benefit the recipient of the gift."

Monday, June 05, 2006

Medallion Guarantee of Stock Certificates - A Good Thing, But to be Avoided

Category: Estate Planning, Probate and Estate Administration

Have any stock certificates? Real ones, on the fancy, colorful paper? If so, at some point you, or your Personal Representative (Power of Attorney, Executor, Trustee, etc.) will need to deal with having those stock certificates "Medallion Guaranteed" in order to sell or transfer them.

According the Securities and Exchange Commission article “Signature Guarantees: Preventing the Unauthorized Transfer of Securities":

If you hold securities in physical certificate form and want to transfer or
sell them, you will need to sign the certificates or securities powers. You
will probably need to get your signature "guaranteed" before a transfer agent
will accept the transaction. Although it's an inconvenience to get your
signature guaranteed (emphasis added) the process protects you by making it
harder for people to take your money by forging your signature on your
securities certificates or related documents. Transfer agents insist on
signature guarantees because they limit their liability and losses if a
signature turns out to be forged. One way to avoid having to get your signature
guaranteed is to have your securities held in street name, meaning that your
securities are held in the name of your brokerage firm instead of your name
(emphasis added).

An investor can obtain a signature guarantee from a financial institution –
such as a commercial bank, savings bank, credit union, or broker dealer – that
participates in one of the Medallion signature guarantee programs.

A Medallion imprint or stamp indicates that the financial institution is a
member of a Medallion signature guarantee program and is an acceptable signature
guarantor. By participating in the program, financial institutions can guarantee
customer signatures with the assurance that their guarantees will be immediately
accepted for processing by transfer agents.

Transfer agents can refuse to accept a signature guarantee from an
institution that does not participate in the Medallion program or that is not
recognized by the transfer agent. While guarantor firms can charge a fee for
their services, they often don't and offer them as part of their customer

While getting stock certificates Medallion Guaranteed may not be impossible, it is a hassle (the SEC actually calls it an “inconvenience” in the article) – especially when you are not the owner, but the owner’s fiduciary (executor, trustee, attorney-in-fact, etc.). More importantly, it is a hassle that can be very easily avoided by taking all your stock certificates to a broker and turning them over into a brokerage account. The discount broker fees are very small. You are not giving up any control. You are gaining a huge amount of convenience (to buy and sell yourself without getting a Medallion Guarantee) as well as giving a “gift” to your fiduciary by making your estate infinitely easier to manage. Also, if there is a fire or other disaster, your brokerage accounts won’t disappear, but your stock certificates might. If you aren’t here to have them re-issued, those assets may never pass to your family.

Thursday, June 01, 2006

Estate Planning Throughout Your Life - A Series of Articles

Category: Estate Planning

From The Motley Fool, a great quick series of articles about Estate Planning at any stage of your life, from young single adult to retirement.

Estate Planning Throughout Your Life [ Commentary] May 31, 2006: "This series of articles will address common estate-planning needs for the situations that typical people face during various stages of their lives. Although the topic is vast and complicated, with lots of traps for the unwary, these articles will give you the basic information you need to ask informed questions and to get appropriate assistance along the way.
To read all of the articles in the series, click below:

Estate Planning: Winding Down
At a certain point in life, things begin to get simpler again. Children grow and start out on their own. Thanks ...

Estate Planning: Bringing Up a Child
As any parent knows, caring for a child involves a huge amount of responsibility. Infants and toddlers need full ...

Estate Planning: Single and Starting Out
At first, the concept of estate planning for the young seems silly. You might ask, "Why do I need estate planning? ...

Estate Planning: Single and Getting Ahead
After a few years of earning money, you've done all the right things. Perhaps you've used the Fool's Credit Cards ...

Estate Planning: Retired and Comfortable
You've made it to the end of your working life, and now it's time to reap the benefits of all of your hard work. ...

Estate Planning: Two's Company
Getting your individual estate planning under control is a significant step on the path to financial security. ...

Thursday, April 20, 2006

The Cost of Gifting Your Home

Category: Elder Law, Estate Planning, Tax Law and Planning

This brief article from outlines why there may be a large cost of making a gift of your home to your children now, instead of continuing to live in it an bequeathing it to your children at your death.

"First and foremost, your child or friend's basis in the house will be what you paid for the property, plus major improvements. Because this cost you paid years ago is probably much lower than today's soaring home value, there's a chance tax will be owed on a subsequent sale.

For example, if you purchased your home in 1970 for $60,000 and it is now worth $450,000, your child's basis would be $60,000 if you chose to transfer the home to the child as a gift. If the married child sells the home 10 years down the road for $760,000, their tax liability would be on $200,000 ($760,000 minus the $60,000 basis, minus the $500,000 exclusion for married couples). Taxpayers in the 15 percent tax bracket would thus owe the Internal Revenue Service approximately $30,000 in capital gains tax."


If the child did not live in the house, there would not be a "$500,000 exclusion for married couples" as outlined above. That only applies if the child and his or her spouse lived in the house for 2 years or more before sale. If you gifted the house to a child and you continued to live there, upon sale the child's basis would only be $60,000, leaving $700,000 subject to capital gain.

Also, while the federal capital gain tax rate is generally 15%, the state may have an additional capital gain rate. For example, in New Jersey, the capital gain rate is 7 1/2%, bringing the total combined capital gains tax rate to 22 1/2%, which on a $700,000 sale would be $157,500 - not chump change.


First, for Medicaid planning it may be worth the potential capital gains tax cost to remove the asset from your "available assets" so that the house does not have to be sold to provide for your long term care.

Second, it is possible to gift part of the house now, and keep enough of it to get a "step-up in basis" at your death. For example, if you give away the house, but retain the right to live there during your lifetime (a "life estate"), then the house will be part of your taxable estate. This means that your children's basis in the house upon your death would be the date of death value, $760,000 in the above example. Thus, if the children sold the house for $760,000, there would be no capital gain. But beware of the trap that keeping the asset in your taxable estate may cause an estate tax issue (New Jersey's estate tax exemption is only $675,000) just to avoid a capital gains tax issue. (A last point that here the NJ estate tax rates, which range up to 16% on amounts over $675,000 would be far less then the combined federal and state capital gains rates of 22.5% on $700,000 of gain.)

Thursday, April 06, 2006

Special Needs Children - 10 Questions to Ask About Their Financial Future

Category: Estate Planning, Financial Planning

Press Release courtesy of Yahoo Finance:

MassMutual, Easter Seals help families create a more secure future for their child with special needs
If you're a parent raising a child with a disability, your child's health and comfort typically come first and foremost. But it's just as important to prepare for your child's financial future to help ensure a safe, secure and independent life ahead.

With more than 3.6 million U.S. children between the ages of 5 to 15 with a disability(1), financial experts say it is crucial for many parents to recognize they can take a few simple steps now to help ensure security for their child in later years. Massachusetts Mutual Life Insurance Company (MassMutual) and Easter Seals today issued a set of guidelines -- 10 questions and answers people should consider to help lay the groundwork for a secure financial future for their child with special needs.

MassMutual and Easter Seals urge parents of children with special needs to ask themselves the following questions:

1. Am I getting the right advice? Since laws affecting people with disabilities change frequently and require specific expertise, it's helpful to seek the expertise of a financial representative and an attorney who specialize in estate planning for families with special needs children. Consider asking other parents for references or check with local advocacy groups, such as the local chapter of Easter Seals, before embarking on your selection.

2. How should I develop an estate plan? Developing a detailed estateplan that best its your family's situation is essential to ensureyour child's long-term needs are met after you have passed away. Your estate plan -- which can include wills, trusts, durable powers of attorney, health care proxies, and other documents -- will outline how you would like your financial affairs handled and identify a guardian or guardians who will care for your child after you die. Consult an attorney and financial services professional who have a thorough understanding of your state's disability laws to develop a comprehensive plan for the future.

3. What kind of government benefits is my family eligible for? Be sure you're aware of any federal programs that may assist your family. Your child may be eligible for benefits under Medicaid, Medicare, the State Children's Health Insurance Program
(SCHIP), or the Children with Special Health Care Needs (CSHCN) provision of the Social Security Act. Visit the Web sites for these entities to check eligibility requirements.

4. Am I making the right choices with my health plan? Raising a child with a disability means you may incur high health care costs, so it's important to understand and maximize benefits under your health insurance coverage. Know which services and procedures are covered, which are not covered and how to appeal if a claim is denied. If you and your spouse both work, compare health plans and select the one that's best for your child.

5. Have I communicated my life care plan to close family members and friends? While the generosity of friends and family members is welcomed, a well-meaning friend or relative may inadvertently disqualify your child for benefits if he or she gives a gift or bequest that exceeds state limits. Once your estate plan is complete,
notify close friends and relatives of your life care plan. If your friends or relatives want to include your child in their wills, your attorney can assist.

6. What are the financial needs of my child's guardians? When you name a guardian for your child, ask yourself: Would the guardian need additional income to care for your child if you died? Would special funding be required for home renovations, specially equipped vehicles or in-home health aides? Should you plan for childcare services if, for example, your guardian worked full-time? If the answer to any of these questions is "yes," discuss these needs with your financial representative or attorney.

7. If I die unexpectedly, how will my child's guardian know what to do? A letter of intent, written by you, would provide detailed information about your child and instructions to assist those who will care for your child upon your death. Information typically includes emergency contacts, medical history, preferred living
arrangements, education or work arrangements, recreational preferences and behavioral challenges.

8. When should I apply for guardianship as my child becomes older? Many parents assume they will retain guardianship of their child, regardless of age. However, once your child reaches age of majority (typically at age 18 or 21, depending in which state you live), you must file for legal guardianship. In many cases, the guardianship process is merely a formality. But it's important to remember that guardianship is a court appointed procedure.

9. Where do I want my child to live in the future? When your child reaches adulthood, he or she will have the option of living in an apartment, house, condo, or an assisted-living environment. Whatever option is chosen, it's important to begin thinking about this when your child is still young, as early as 10 or 11. Waiting times for placements in assisted living facilities can be as long as 10 years for the best facilities. If your child wants to live independently, he or she will need the financial resources and money management skills to do so.

10. What other long-term issues do I need to consider? While housing is a primary long-term issue, there are a number of other matters that must be addressed, including: education, work opportunities, recreational programs, lifestyle, daily transportation, medical costs and custodial care. Projections for each of these factors should be accounted for when determining your child's financial needs in your child's life care plan.

For more information, visit
to order three free financial guides:

* Making Plans, a financial guide for people with Down syndrome and their families.
* 2006 Resource
Guide, the source of information published by MassMutual for people with disabilities and other special needs.
* With Open Arms, a financial guide for families with disabilities.

(1) U.S. Census Bureau, 2003 American Community Survey Summary Tables.

Thursday, March 23, 2006

American's Favorite Estate Plan Idea? Do Nothing!

Category: Estate Planning

I have written before about what happens if you don't have a will ("Married and Don't Have a Will? New Jersey Has One For You"), but I thought the beginning of this article summed it up nicely:

Writing a good will � it's all relative - Personal Finance - "No one wants to acknowledge their own mortality, especially in writing. This is probably why avoiding doing so is the favored estate plan for many Americans. "

The article goes on to point out that 70% of adults have no estate plan (and think how many have children????); and that 1 out of 3 affluent adults have no estate plan (a gift to the government in taxes).

If you don't make a Will it doesn't mean that you don't have one - it just means that you didn't write the one you have. For those who don't write their own Will, there are intestacy statutes that say who gets what and how. A comment from the article: "Letting the state decide may save the decedent a few hours of thinking through their exit plan, but it can be exceedingly costly and aggravating to those left behind. Ultimately leaving a will is a much better legacy than dying without one."

The law empowers you to make your own choice about who gets what and how - a failure to plan leaves you with a plan, but that plan may fail your family.

Wednesday, March 01, 2006

The Emergency "Vacation" Will

Category: Estate Planning

Having just gotten back from vacation (in case you were wondering where the blog went) I have been thinking about the not infrequent phone calls I get that go something like this “Help, I need a Will. I have 2 children and my wife and I are going on vacation in 5 days and we don’t have Wills!!!!”

Well, the first reaction (to be thought and not necessarily said to the prospective client) is – if you have children, why don’t you have a Will? A Will is the only place where you can name Guardians for minor children. In a Will you can create trusts to hold and manage assets passing to your children – minor or otherwise (Remember what you were like at 18/21? Would you give large sums of cash to your younger self?).

Of course, a Will isn’t a fun think to think about – it’s more of a necessity, like health insurance. And even though it is far safer to fly than drive, many people only think of the fact that life’s little necessity of a Will is missing when they are taking a long trip somewhere. Hence the emergency “Help!” phone calls.

What to do if you need a Will in a hurry? Get a referral to an attorney who does a lot of estate work. A good estate planning attorney can prepare a “temporary” Will for you on rather short notice. In this Will, you can expect to name Guardians (as well as Executors and Trustees) and set up a trust to hold in assets for your children. What you will likely NOT get is any kind of tax planning to save taxes when passing dollars to your children (remember (1) in New Jersey, if you and your spouse both die in short proximity to the other, it is likely that only one exemption of $675,000 will exist; all assets above that will be subject to estate taxes, and (2) life insurance death benefits are part of your taxable estate unless you have done planning to remove them from your estate). This type of planning takes review and analysis of your assets, which likely cannot be done under your time constraints.

The moral? While it is better to have some Will then no Will, it is best to have planning done in advance, not under pressure, so a will can be created that best meets your needs.

Thursday, February 09, 2006

Looking for the Perfect Valentine's Day Gift - Create A Love Drawer

Category: Estate Planning, Probate and Estate Administration

Now, before you get thinking "those" thoughts, a "love drawer" here is not what you might think. It is a catchy term for giving your family the gift of having all your financial records in one place, and letting them know where that place is.

From CBS News Setting Up A Love Drawer February 7, 2006�13:34:28: "Still looking for that perfect Valentine's Day gift? Presents like candy, flowers or jewelry are always nice - but financial author and radio host Dave Ramsey tells The Early Show co-anchor Rene Syler that a real gift of love can be giving your family peace of mind in case something happens to you.

Ramsey has come up with a concept he calls the 'love drawer.' It's a place where you keep together important documents, such as wills, insurance and financial information.

'It's an ideal Valentine's Day gift if you're smart enough to put chocolates and roses with it,' Ramsey jokes. 'It's an ideal gift. When you're a real man, a real woman, the way you say 'I love you' to your family is you're prepared. You've got your act together if something happens to you. "

The need for a "love drawer" is very real. In assisting a family with administering the estate, sometime the most difficult part of the process is finding out what the deceased person had. Not to be facetious - but given the nature of an estate administration, you can't exactly ask the person "where is your original will??". Not only is this frustrating, but can be very costly in terms of increased legal fees (if a copy of a will needs to probated for example, or the time spent tracking down whether or not an asset even exists before a date of death value can be obtained) as well as increased expenses (banks and brokerage houses charge for having to go back through their records when you don't have them).

So consider setting up a "love drawer". In there should be copies of:
Living Will.
  • General Durable Power of Attorney.
  • Last Will and Testament.
  • And all Trusts created by you, where you are a Trustee, or where you are a beneficiary
  • Last years statement for all bank accounts, investment accounts, annuities, IRA's, 401(k), life insurance (basically, anywhere you have assets).
  • Any stocks or bonds you hold in certificate form. To do your family a real favor, transfer those stock certificates to a brokerage account.
  • A list of your advisors and their contact information, including your attorney, accountant, financial planner, investment advisor, insurance agent.
  • Your burial wishes.
  • A list of who should get what personal property.

So give a little love this Valentine's Day season.

Tuesday, February 07, 2006

Sounds too Good to be True? Financial Scams Targeting Seniors on the Rise

Category: Elder Law, Estate Planning, Financial Planning

An article on an unfortunate trend from - Financial scams expected to boom as boomers age addressing the issue of aggressive marketing of estate and financial planning seminar to seniors, where the products offered through the seminars don't meet, or are inappropriate for the senior's needs.

"While people 60 and older make up 15% of the U.S. population, they account for about 30% of fraud victims, estimates Consumer Action, a consumer-advocacy group.

As this gargantuan generation of boomers starts to retire, 'You're going to see more of these seminars and more of these sales pitches,' says James Nelson, assistant secretary of state in Mississippi. 'Wherever retirees are congregated, you're going to have these people preying on them.'"

There is real money controlled by baby-boomers, which unfortunately can make them targets for unscrupulous marketers of products. The article states that "[b]oomers have more than $8.5 trillion in investable assets. Over the next 40 years, they stand to inherit at least $7 trillion from their parents, research firm Cerulli Associates estimates."

This does not mean that all seminars geared to estate planning and financial planning are scams - just the opposite is more likely true. Seminars are a wonderful opportunity for attorneys and financial planners to educate the public about complex areas of the law that may effect them, as well as investment opportunities to reduce those risks. But, you should exercise some caution and common sense in following up from these seminars. Some things to keep in mind.

  • Only a licensed attorney in your state can prepare a Will, or should prepare any estate planning document, including a trust. You can contact your state or local bar association to see if the attorney is in good standing and if any complaints have been successfully filed against him or her.
  • You and your goals and needs should be an attorneys first concern - not the goals of your children, the financial planner, or the attorney. If you don't feel that your goals and needs are the first priority, see some-one else.
  • There are no magical solutions to estate and tax planning - there are tried and true techniques that an experienced estate planner can apply to your situation. If someone claims to have the secrets of a good estate plan, you need to know that there are no secrets.
  • There is no one magic financial product that solves all woes - as with estate planning, the right product for you must be tailored to your specific asset mix, income, needs and goals. An experienced financial planner will not recommend a product until he or she has analyzed your needs. And be sure to ask for (1) the charges for the product, (2) the agent's commission, and (3) any penalties that might exist in liquidating the product.

If you do think you have been a victim of fraud, there is a sidebar in the article talking about your options.

Monday, February 06, 2006

Personal Property Distribution in Your Will - The Small Stuff Really Matters

Category: Estate Planning

This article from a local Maryland Paper - the Herald-Mail reminded me of one of the strange truths about administering an estate after someone dies - the biggest issues are often over the items with the smallest extrinsic value, but the largest emotional value. For the most part, if you have a will, the distribution of your "main assets" (bank account, stocks, bonds, real estate, etc.) is pretty cut and dried - liquidate the assets, pay expenses, and divide up by the percentages set forth in the will. In most cases, that means that each child gets an equal share, and there are limited issues (unless there is a claim of undue influence, etc.).

However, it is not so cut and dried when it comes to your "stuff" - think here clothes, furniture, jewelry, decorations, family photos - items that may have no value to anyone outside of your family, but a huge value to your family members. Combine that with the fact that most personal property clauses in a Will are something like "To my then living children, to be divided among them as they shall determine, or if they cannot agree, as my executor shall determine. Any items not so distributed shall be liquidated, and the proceeds distributed to such children."

The problem comes in when the children don't agree - and this disagreement is set against a context of a lifetime of family jostling between siblings. You may think neither child would want your collection of crystal pigs for example - but wait to see the fireworks that fly when one child takes the pigs because "Mommy wanted her to have them" and the other children don't agree. The issue here isn't the thing itself, as much as the memories attached to it. Memories are harder to divided up into equal percentages than a bank account.

Some possible solutions?

In New Jersey, pursuant to NJSA 3B:3 11, you can write a letter stating who gets what for your personal stuff and sign it - no need to go through the formalities of a Will. This informal letter can only control the distribution of your "stuff", not your hard assets. However, it is very useful as you can keep changing it without having to go back to the attorney.

In other States (like New York) that do not allow for a personal property distribution, one idea is to a formal codicil (amendment)to your will to address personal property. You should see your attorney each time you want to change the codicil, but at least you will only be changing a smaller document.

Another idea is the "Stand in Line and Pick" concept - somewhat like the football draft. It goes something along the lines of kids drawing numbers, and then child with the highest number getting to pick any item (or from a specified group of items such as photo albums, jewelry, keepsakes collections, guns) and then the next in line can pick and so forth.

However, if you absolutely want an item to go to someone (1) let all your children know, while you are alive, that it is your wish for your engagement ring to go to your eldest grandson for example, not just the family you are leaving the item to, so there is no miscommunication down the road, (2) write down, whether formally or informally as your state allows, where you want your assets to go.

Thursday, January 19, 2006

NY Budget Proposal - Eliminate Estate Tax; State Takeover Medicaid Costs

Category: Elder Law, Estate and Inheritance Tax

From - Pataki proposes $110.7 billion budget: "Gov. George Pataki proposed a $110.7 billion state budget plan Tuesday that would reduce property, income and business taxes by $3.2 billion even while pumping up spending on education and energy independence." This article outlines the basic budget package proposal.

Key agenda items are (1) elimination of the New York Estate Tax, and (2) a state takeover the Medicaid program, which is currently administered on the county level, and funded through through the joint efforts of the county, the state and the federal government.

One response to the proposed elimination of the New York Estate Tax from - Elimination of estate tax will cost state millions:

"In the budget unveiled Tuesday, Pataki proposed doubling the amount free from the state's estate tax to $2 million starting in 2007, bringing the exemption in line with federal rules. The exemption would rise to $3.5 million in 2009, and the tax would be eliminated in 2010. While federal law calls for the federal estate tax to be restored in 2011 with a $1 million exemption, New York's tax would disappear permanently.

It could be difficult, however, to get the plan through the state Legislature, where Democrats are looking at it with a critical eye. The state estate tax is expected to bring in $868 million during the fiscal year ending March 31."

One response to the Medicaid issue from ABC affiliate : 'At the county level, Pataki proposed a $1.1 billion state takeover of Medicaid costs.
"Counties will no longer have spiraling Medicaid costs that push county property tax higher," said Pataki.
"It's good news," said Chemung County Executive Tom Santulli. "But we've got a lot of work to do."
Santulli says the county will still have to foot a $120 million Medicaid bill despite Pataki's proposal.
"That's in growth, not in existing program," Santulli explained. "The program is no smaller than it was before."'

Wednesday, January 18, 2006

US Supreme Court - Oregon's Assisted Suicide Law Legal

Category: Elder Law, Estate Planning, Miscellaneous Musings

From Wills, Trusts & Estates Prof Blog - the United States Supreme Court Upholds Oregon's Assisted Suicide Law:

"The United States Supreme Court has upheld Oregon's assisted suicide law in a 6-3 opinion released today (January 17, 2006).

In 2001, United States Attorney General John Ashcroft determined that assisted suicide was not a legitimate medical practice and thus doctors who prescribe the deadly drugs would be in violation of the Controlled Substances Act (CSA)...

In today's opinion, authored by Justice Anthony Kennedy, the court recognized that the federal government has the authority to punish drug dealers and pass rules for health and safety but that in the case of Oregon's"

See also: Supreme Court Upholds Oregon Suicide Law, AP, Jan. 17, 2006.

"The Supreme Court upheld Oregon's law on physician-assisted suicide yesterday, ruling that the Justice Department may not punish doctors who help terminally ill patients end their lives.

By a vote of 6 to 3, the court ruled that Attorney General John D. Ashcroft exceeded his legal authority in 2001 when he threatened to prohibit doctors from prescribing federally controlled drugs if they authorized lethal doses of the medications under the Oregon Death With Dignity Act....

A Pew Research Center for the People and the Press poll released Jan. 5 found that 46 percent of Americans support a right to assisted suicide while 45 percent oppose it. Assisting suicide is a crime in 44 states, including Maryland, as well as the District. It is a civil offense in Virginia. In three states -- North Carolina, Utah and Wyoming -- the law neither prohibits nor permits assisted suicide. Ohio's Supreme Court has decriminalized assisted suicide, but state regulations do not condone it.

State referendums supporting assisted suicide have failed in California, Maine, Michigan and Washington. A bill failed in Maryland in 1995 and 1996."

Thursday, January 05, 2006

One Trust, Two Trusts, Can you Merge Trusts?

Category: Estate Planning, Tax Law and Planning, Probate and Estate Administration

From the blog Rubin on Tax, a summary of PLR 200552009, issued December 30, 2005, discussing the tax consequences of two trusts with similar trust merging for administrative reasons (who wants to administer and pay administration expenses on 3 trusts when you can do it for just one?):

"In a recent Private Letter Ruling, the IRS provided that where several identical trusts combined into one trust with similar terms, and all the trusts held similar assets, the merger would not generate gain or loss to the trusts or their beneficiaries. The IRS further went on to provide that the tax attributes of the trusts merged into the new trust, such as net operating loss carryforwards and tax basis, would carry over to the new trust."

Note that a private letter ruling or PLR is only authority for that taxpayer, and cannot be relied upon by any other taxpayer. However, it is an example of the IRS's analysis of certain issues.

In doing estate planning, consider how well the distributive terms of any irrevocable trust you create, such as a life insurance trust or ILIT, match the distributive terms of your Will, or other testamentary document. To the extent that the trust terms for your children match, for example, then the Trustee may be able to combine the insurance trust with the trust created under your Will and only administer one trust per child. The key to being able to match these terms over time is to give someone a power over your irrevocable trusts to modify the distribution terms to the beneficiaries, so that as you modify your will over time, the trust terms can follow.

Wednesday, December 28, 2005

Tis the Time For New Year's Resolutions

Category: Elder Law, Estate Planning, Business Law and Planning, Tax Law and Planning, Financial Planning

Ah, the presents have been opened, you have been eating cookies and leftovers for days, and the commute is remarkably smooth this week - it must be the week before New Years. With each New Year comes New Year's Resolutions - those things you are absolutely and positively going to do in 2006 (or meant to do in 2005 or 2004 - lets be honest). Some thoughts to consider for 2006's list:

  • Don't have a Will, Power of Attorney or Living Will? Get one. Search through prior posts here for some consequences of failing to plan. See the article Make a will: Your #1 family New Year's resolution for more reasons to plan.
  • Have a Will? Haven't looked at it in 5 years or more? Get it out, dust it off, and read it. Does it say what want? Do you understand it? If not, call an attorney and have it reviewed.
  • Own a business? Get a business succession plan in place. Without a business succession plan, your family is likely to receive pennies on the dollar for the value of your business at your death.
  • Got insurance? Review your insurance - health, disability, life, long-term care, property. Are you really covered for your needs? Do you understand your coverage? Have you had your insurance reviewed by a professional in the past 3 years or so? Insurance can be a large annual outlay - you should be sure you are getting the best return for your investment. Most professional insurance agents will give you a free review.
  • Planning to retire? How are you financing your plan? A meeting with a financial planner may give you ideas as to how good of a job you are doing getting to where you want to be. Again, the meeting is likely to be free.
  • Kids going to college? Do you have a plan beyond hoping that there will be enough equity in your house in interest rates stay low? Look into a 529 Plan (try for more information) . See what a financial planner has to say.
  • Have an accountant? Can him or her and make a meeting to discuss your tax profile and ideas to reduce taxes - note that dropping a bag off at the office on April 8 is not a meeting. Your accountant is an expert,particularly with income taxes, those most likely to effect you. Why not take the time to reduce the governments share of your earnings? Call TODAY for last minute year end planning items (see Happy new year! Now, call your accountant )
  • Don't have an accountant? Consider whether a tax professional could help you pay less. You still have time before December 31 to change your tax profile for 2005. (See 5 Year-End Tax Tips and Year-End Tax Tips from ABC News)
  • Have seniors in your family? Consider how they are doing and ways you can help. Would Medicare D save them any money? Go the AARP website for tools to find out the answers. Could they use help with driving, cooking, housekeeping? Consider a service (and speak to your accountant about the tax deductions). Are they safe and secure in their homes? If not, consider alternates within the family and in the community.

None of these thoughts are sexy or exciting, but they do fall under the heading of things a responsible adult should be doing, and items high on this years New Years Resolutions (otherwise known as The Great To Do List).

Wednesday, December 07, 2005

The Estate Planning for Pets Foundation

Category: Estate Planning

A resource I was just introduced to - The Estate Planning for Pets Foundation: "This web site is devoted to providing a broad-based information resource for pet owners, and the professionals who assist them, in estate planning for their pets. All too often, pet owners encounter professionals who are directly or indirectly dismissive of their desires to make sure their pets receive adequate care. The underlying assumption behind this web site is that the reader takes the issue of estate planning for pets seriously. "

It includes Frequently Asked Questions, and Legal Resources, including sample language. For many people their pets are their family, and this site lends great assistance to how to plan for the care and comfort of these special family members as part of their testamentary plans.

Monday, December 05, 2005

Thank you Mr. Binger - Single Estate Tax Payment = 1/7 Minnesota's Budget Surplus

Estate Planning, Estate and Inheritance Tax

The State of Minnesota got an unexpected boon this year - to the tune of an unanticipated state estate tax payment of $112 million (note this is just the estate tax payment to Minnesota; the federal estate tax payment would be separate and above). This payment alone put the state into surplus territory for the year - The estate tax payment is so large it equals one-seventh of the state's projected 2006-07 budget surplus of $701 million.

The who's, how's and why's of the situation are sketched below and detailed by the Minneapolis St. Paul Star Tribune:

Who: James Binger, former chairman of Honeywell, theater entrepreneur and onetime part owner of the football Vikings, who died in November 2004 at age 88.

How: Apparently, Mr. Binger intended to be charitably generous with his estate, but to focus on end-of-life medical research, not to necessarily benefit the State. Shortly before his death he changed a $200 million bequest from a private foundation to a long-time business associate and friend.

Why: A private foundation creates a tax deduction; a friend creates a tax liability. The last minute will modification changed his charitable beneficiary from the foundation to the State of Minnesota - whose residence should give thanks to Mr. Binger for his unexpected holiday gift.

Monday, November 28, 2005

A Role for Lawyers after all? DIY Will almost Creates Unnecessary Estate Tax

Category: Estate Planning

Ah, DIY - the independent Do-It-Yourselfer who has kept Home Depot and similar stock on the rise. Why pay someone else to do it when you can do it yourself? Can't you be your own expert? While there are many, many things you can DIY in your home, and in terms of how the law effects you, there is still a role for those trained in the task at hand and who focus on it daily. Much as building a desk is worlds apart from adding a new level to a home, a computer generated residential lease is worlds apart from a Will. In each case, the key differences lie in the scope of the project, as well as the unseen critical details that someone untrained may easily miss. You no more want your estate plan to be ineffective then to have your new addition collapse.

One such situation is a client of mine who created a Will on a computer, signed it, did not have it witnessed, and was fortunate enough to die after February 27 of this year (prior to that date, unwitnessed computer generated wills were not valid in New Jersey). Now the only issue is whether the unwitnessed Will is valid - a key issue in that the Will states that the decedent had an estranged daughter to whom he wanted nothing to pass. The purported Will leaves everything to the brother, but if it is not valid, then under the intestacy statues, everything passes to the daughter, in direct contradiction to the decedent's stated intent. Estate planning is fraught with formalities, which are intended not to impeded you, the DIYer, but to protect you. Bear in mind that an estate plan is an expression of your wishes to be carried out after you are dead - the formalities ensure that those wishes can be carried out by other people.

Another such situation is the recent case of Marie L. Sowder v. United States; No. CV-02-0136-WFN. The case and problem are described in more detail at Steve Leimberg's Estate Planning Newsletter #893 (November 21, 2005) at (fee service). Here, the decedent generated his own will. In leaving the balance of his estate to his wife, he wrote the following:

"All the rest, residue and remainder of my estate, both real and personal, of every nature and wherever situate, of which I may die seized or possessed, I give, devise and bequeath unto my wife, Marie L. Sowder, if she survives me, and if she does not survive me, or dies before my estate is distributed to her, to my issue me surviving, in equal shares per stirpes."

Now, to a layman, this is a straightforward bequest to the surviving spouse. As assets passing to a spouse generally do not generate any tax, Mrs. Sowder filed a federal estate tax return fully expecting no tax to be due on her. Right?.... Wrong. To the IRS and any tax attorney, the language or dies before my estate is distributed to her, creates a "terminable interest". Instead of $0 tax, a tax liability of $828,678 was assessed for estate taxes and more than $133,000 for interest. Quite a large "oops".

A "terminable interest" is more fully described in Leimberg's Estate Planning Newsletter #893 as follows:

"Interests in property which do NOT qualify for a marital deduction include certain so-called "terminable interests." Terminable interests are those interests that, although they MAY go to the surviving spouse, might also "terminate".

Fatal terminable interests are ... those that might operate so that the surviving spouse does not actually become the sole and absolute owner, and if they do, might still pass to some person OTHER than the surviving spouse or his/her estate because of the mere lapse of time, the occurrence of an event or contingency, or the failure of an event or contingency to occur." See IRC Sec. 2056(a).

Here, the estate was saved from having to pay the unnecessary tax because (1) the decedent's state of residency, Washington, had a statutory policy of "fixing" problematic terms in wills after death based on evidence of the decedent's intent, and (2) strong, clear and convincing evidence of the decedent' intent to reduce taxes existed. While the tale turns out well for the Sowders, the moral might be that when doing DIY, not all projects, be they building or legal, are the same, and that the professionals are there for a reason.

Thursday, October 27, 2005

Financial Planning For Kids With Special Needs

Category: Estate Planning

From Financial Planning For Kids With Special Needs: "Many parents with physically, emotionally or developmentally disabled children have not secured the child's financial future, a survey conducted for MetLife found.

Sixty percent of parents don't expect their child with special needs to be financially independent, but 68% of parents haven't written a will, and 29% have done nothing to plan for the child's financial future.

Parents are aware of the need to make plans, but 66% say there is little financial planning information available that focuses on children with special needs. Surprisingly, 85% parents turn to their doctor for financial advice. "

A child with special needs requires special planning. Some questions to consider:

  • Is the child mentally competent? If not, you may need to seek a guardianship after age 18.

  • Does the child have his or her own money? Perhaps from a court settlement? If so, consider placing the funds in a (d)(4)(A) Special Needs Trust. This type of trust is authorized by federal statue to allow the child to have funds, yet qualify for state and federal program for people with special needs, including house and medical care. This is done by limiting trust distribution to the child's non-support needs, and requiring that any public dollars expended on the child's behalf be repaid from the trust at death.

  • Will the child be inheriting money from parents or otherwise? Inherited funds should also be held in a carefully crafted trust so that the inheritance does not disqualify the child from any public benefits or programs. A trust created by a third party can have more flexibility in giving the assets to the disabled child, and do not need to have the pay-back provision of a (d)(4)(A) Special Needs Trust.

Thursday, September 22, 2005

Annual Gift Tax Exclusion rising to $12,000 in 2006

Category: Estate Planning, Estate and Inheritance Tax

The amount that you can give to a person without using any of your lifetime annual exclusion will increase from $11,000 to $12,000 in 2006. Between a couple, they will be able to give away $24,000 to any person with no gift tax consequences. This increase will obviously increase the effectively of any estate tax minimization strategies such as an insurance trust; children's or grandchildren's trusts; family limited partnership or family LLC transfers; etc.

Thursday, September 15, 2005

5 (Early) Year-End Estate and Financial Planning Tips

Category: Estate Planning, Estate and Inheritance Tax, Financial Planning,
Some tips to think about now to put your estate plan and finances in a better position come 2006:

1. If over 701/2, convert from traditional IRA to Roth IRA
2. Name a charity as beneficiary of an IRA
3. Take more than Required Minimum Distribution from IRA and buy life insurance
4. Give gifts/fund 529 plans
5. Review your assets and domicile

Robert Powell: Top 5 (early) year-end estate-planning tips - General News - Personal Finance describes each of these tips in detail.

Monday, September 12, 2005

Grandma's Got A Boyfriend, Now What?

Category: Estate Planning, Financial Planning

Grandma's Got A Boyfriend, Now What? - takes a look at some financial and estate planning issues facing older adults who are combining households but have grown families. A person in this situation needs to consider the competing desires of providing for their new spouse, or their children or other descendents. These can be incredibly difficult decisions to make, from who is going to get what to who will be the fiduciary to make medical or financial decisions, or to act as Executor or Trustee. Being that these are situations where there are two factions (new spouse and existing children) that have economically opposed interests, these are also situations ripe for litigation. Furthermore, the cost of long term care becomes an issue as each spouse is responsible under the law of most states to provide care for the other spouse, a potentially financially draining issue.

While the issues facing older adults as they combine households are not easy ones, they can be minimized with some honest conversations and pro-active planning. Some questions to consider:

* Who is being named on the Living Will/Health Care Proxy to make medical decisions? Consider the Schiavo case where there were two warring factions over health care decisions.

* Who is being named on the Power of Attorney? You need to consider that you will have ongoing joint expenses with your spouse, but that your children will be concerned if they cannot participate in your finances if you are incapacitated. You may want to consider naming your spouse and child together.

* Who is a joint owner of assets? Joint assets pass to the surviving owner on death, regardless of what the Will says. So, if you have a joint account with a child, that child receives those assets, not your spouse. Similarly, if you own your house jointly with your spouse, it passes to your spouse on death, regardless of who paid for it.

* Who receives your assets at death? You will need to balance the welfare of the surviving spouse versus that of your children. Also, there may be tax considerations in that assets passing to a trust for your spouse may be able to defer the eventual taxation of those assets. Some people get paralyzed by this decisions between two camps of loved ones - you need to remember that if you don't make a will, the state will divide your assets as it sees fit.

* How will long-term health care costs be paid? In most states, a person is responsible for the health care and support costs of a spouse. This can be a considerable issue for seniors, as long-term care costs can bankrupt a person. Also, a wealthier spouse's assets would be at risk due to the health care of a less wealthy spouse. Once answer for this is to purchase and maintain long-term care insurance. Where one spouse is wealthier then the other, it might even make sense for that spouse to foot the bill.

Friday, August 26, 2005

Savings Bonds (Part 1) - Learning More about those Bonds

Category: Elder Law, Estate Planning, Tax Law and Planning, Probate and Estate Administration, Financial Planning

Many people have invested in saving bonds at one time or another, or another has done so for them. For the most part, they sit in a safe deposit box until cash is needed (or you remember that you have them). However, there may be a need to find out more about the bonds or liquidate them as part of estate planning, estate administration, or elder law, or just sound financial planning for yourself.

Savings bonds are investment in the US government. There are various types of bonds, that earn interest in different fashions, and have unique tax consequences. Luckily, there are some wonderful resources on the web to cut through all of this information.

The US Government provides a very informative website at that goes through the purchase and redemption of various government investments (T-Bills, T-Notes, T-Bonds, I Bonds, EE Bonds, HH Bonds) and explains the differences between the various investments.

There is a very useful toolbox a the website for determining the current and future value of your investment:

Have Your Treasury Securities Stopped Earning Interest?

Savings Bond Wizard

Savings Bond Calculator

Growth Calculator

Savings Planner

Tax Advantages Calculator

Another excellent site is This is a commercial site oriented to financial planning. It does have excellent step-by-step guides on bond redemption, including the practicalities of redemption and guidelines to the tax consequences.

Wednesday, August 24, 2005

Married and Don't have a Will? New Jersey has one for you

Category: Estate Planning, Probate and Estate Administration

Surprise! If you don't make your own Will, the State of New Jersey has one for you. While this might seem like a generous thing, the question is whether the will that New Jersey made for you matches what you would like done with your assets.

Survived by Spouse, not survived by parents or descendents: 100% to Spouse.

Survived by Spouse, and survived by descendents of both spouses (ie: no step-children: 100% to Spouse.

Survived by Spouse and a parent, but no descendents: the first 25% of the estate (no less than $50,000 and no more than $200,000) PLUS 50% of the balance of the estate to Spouse; the remaining balance of the estate to parents.

Survived by Spouse and a descendant who is not also a descendant of the Spouse (i.e.: a stepchild): the first 25% of the estate (no less than $50,000 and no more than $200,000) PLUS 75% of the balance of the estate to Spouse; the remaining balance of the estate to children.

Tuesday, August 23, 2005

The Value of an Inheritance? Preserve the Family History

Category: Elder Law, Estate Planning

This story from San Francisco reminds us that the memory of a loved one is not about the size of the bank account inherited, but the family history - Baby boomers value family history over inheritance: "[B]aby boomers say their parents' personal keepsakes, family stories and final instructions are more important than the oft-publicized trillions of dollars they're expected to inherit."

Those memories, stories, values and wishes can be easily lost. Why not take some steps today to preserve them?

  • Get those old family stories on tape. When I was a child, I had to "interview" my grandmother for a class project. On those tapes is her history, from her memories of when Queen Victoria died (1901), how she came over to Ellis Island, being an immigrant in America, and traveling home to Ireland to see the changes of her home country over nearly a century. Maybe this could be a project for the kids during the next family gathering - put that digital camcorders to use.

  • Identify who is in old family pictures. You may have inherited the dusty box of family photos. Many times the older generation can identify who is in them - knowledge that can be later lost. You can even copy them all to the computer and upload them to a family website to get everyone's comments as to who is who, and allow others to download copies.

  • Have a frank conversation about burial options. In the event of an unexpected death, the last thing you want to be doing is find out what a person "would have wanted". Discuss burial, cremation and what to do with the ashes. What kind of remembrance would the person want? One client wanted everyone to wear purple to the funeral as it was her favorite color.

  • Create a list of who gets what personal property. Many times one to the most contentious issues in an estate administration is who gets the jewelry, artwork, etc., and what happens to any personal items nobody wants. You may decide to let your kids duke it out among themselves. Or, you may want to create a list identifying items of special significance to go to friends and family members.

  • Appreciate what is being given to you. Many times children don't have an expectation of inheritance and downplay it ("I don't need or want your money", they say to their parents, "I just want you.") However, I have found in my practice that the older generation, who survived depression and are proud to still be independent and debt free, are equally proud to have something to give. So be gracious in your acceptance of gifts, and remember how much harder it was for them to create what it is they have given you then for you to create it yourself.

Monday, August 22, 2005

Best Places to Die?

<Category: Elder Law, Estate Planning

It is quite a tongue-in-cheek question, but is there a best place to die? Being that I practice in New Jersey and New York, which both have a state estate tax and state income tax, significant numbers of clients move to other jurisdictions (e.g. Florida) as they get older to avoid those taxes. However, I don't know of any that have really thought about quality of end-of-life issues as another point of consideration in where they settle down to spend their golden years. has prepared a list of "Best Places to Die", looking at health care and long term care quality. Looked at by reverse rankings, it is also a list of "Worst Places to Die" list.

Of the "Best Places to Die", Utah ranks number 1. New Jersey ranks 46 (ouch!) and New York ranks 30. Note that Florida only ranks 21, scoring high marks for legal protections granted to the elderly, and low marks for quality of health care.

The States are further sub-ranked by Quality of Health Care (New Hampshire scores number 1 here, New Jersey 43 and New York 24); Legal Protection (Delaware tops the list, with New Jersey getting a grade of "B" and New York a grade of "B+"); and Most Likely to Die in a Nursing Home (here Rhode Island gets the dubious honor of top grade with 45% of its residents with cancer likely to die in an institutional setting. New Jersey and New York both come in at 20%)

The premise of Best Places To Die - is: "In America, the way we die is largely determined by where we live. Geography dictates what kind of care is provided to the dying and whether death following a long illness occurs at home, in a hospital or in a nursing home. But don't move just yet. Patients can gain control over how they die by talking about end-of-life care with their families and physicians. If patients speak up, sheer numbers will force the health care system to take better care of the dying. Over the next 30 years, the number of people older than 85 will more than double to 9 million."

Tuesday, August 09, 2005

Practical Thoughts for an Agent under a Power of Attorney

Category: Elder Law, Estate Planning

The simple General Durable Power of Attorney ("POA") is arguably the most important document in a person's estate plan. A properly drafted POA will let another person make financial decisions for you when you are not able - such as if you are incapacitated, or on even on an extended trip out of the country. As you age, a POA could also assist you in avoiding a costly and burdensome Guardianship provision - if you have not named someone to act on your behalf, the court will have to.

While many articles have described questions regarding the formation of a Power of Attorney (an excellent FAQ from the Office of New York State Attorney General Eliot Spitzer can be found here), one items that is discussed less often is what does it mean to be named an agent under a POA? If you are acting as agent to your spouse, or in a limited capacity (ie: a real estate closing) then the responsibilities of being an agent under a POA are not that burdensome. However, if being named agent under a POA involves suddenly managing another persons finances, with which you have no familiarity, the task can seem enormous.

Below are some practical tips that focus on what it means to act as a Power of Attorney, emphasizing the need to be organized and to understand your role as another person's agent. Note that the person executing the POA is the "principal" and the person empowered by and acting under the POA is the "agent":

  • An Attorney to Advise You: If you find yourself suddenly acting as an agent under a POA, one of the first things you should do is speak to an attorney to clarify your role and advise you of some do's and don'ts. Not all POA are drafted the same: some have broad sweeping powers, others very limited powers that only apply in a small set of circumstances; some allow gifting or modifying beneficiary designations, others do not; some give the agent total discretion, others give the agent limited direction. You cannot act as the agent unless empowered under (i) the Power of Attorney document itself, and (ii) state law. Sometime state law will fill in powers not stated in the POA itself; other times state law might limit or forbid an action stated in the POA.

  • Understand that you are a Fiduciary: When you are acting as an agent under a POA, you are acting in that person's best interest, not your own. Being named a fiduciary is being in a position of trust. This is manifest in clear concepts, like don't take another person's money for yourself (such as making accounts joint so they go to you on death, not through the Will). However, this tenent also colors all your actions as agent: how you invest, who you invest with, how you budget, who you pay and when, how you deal with third parties, how and if you take compensation. A general rule is that you owe the principal a higher duty of care then you would pay to yourself, as most people take shortcuts here and there that are not permissible for a fiduciary.

    Furthermore, as a Fiduciary, you are not only responsible to the principal, but to other interested parties that might question you on the principal's behalf, such as other family members, a third party who you are dealing with, or a court. If a court were to find that you did not act in a prudent manner as a Fiduciary, or that you are self-dealing (ie: taking advantage of being an agent to forward your own interests) then you can be found personally liable for any waste of the assets.

  • Get a good Accountant: If the principal had an accountant, a top item should be to set up a meeting with him or her. At the meeting, you can learn about a person's customary income and expenses, as well as find out all the account information by looking at copies of the 1099s and other supporting income tax documents in the accountants files. Armed with this information, you will be in a position to take two more important steps (i) consolidate and control assets, and (ii) budget for income and expenses.

  • Consolidate Assets and Income: When you are examining someone else assets, you will find it is amazing how many large and small accounts people can have (remember when you got a free toaster if you opened a new account?) When the multiple accounts are yours, they tend to be an annoyance, generally to be dealt with on another day. When the accounts are another persons, and you aren't familiar with them, nor the underlying investment, multiple accounts present a huge headache. First, you need to have all account statements directed to you. Next, as a Fiduciary you need to have a reasonable investment scheme. This is all much easier to accomplish with one or two accounts then ten. So, you may want to direct assets to be consolidated. Beware, however, of the tax consequences of large scale liquidation. You may want to speak to a financial planner with a tax background before you act.

    Also, you should try to get all income direct deposited to a single account from which you can write checks. This can be arranged with most employers, pension plans and investment houses.

  • Prepare a Budget: Once you know the assets, anticipated income stream and expenses, prepare a budget to forecast where you will be if things don't change in 6, 12, 18 months. Then factor in the cost of anticipated changes (ie: might a move from assisted living to a nursing home be required?). Do you have enough money? If not, what other sources of financing the costs of living are available (Medicaid, Long Term Care insurance, Reverse Mortgage, etc.) From the budget you will be able to work with the Financial Planner to prepare an investment scheme to meet the principal's needs.

  • Communication is Key: Do yourself a favor, tell your the principal's family what is going on. Get Quicken and email a report on a quarterly basis. Keeping everyone in the loop avoids problem, like your sister claiming she is going to sue you because you stole mom's money. The information in the report would be available if a claim were made anyway, so let everyone know what is going on so the family can deal with issues together.

  • You are not Alone: As a follow up to the point above, another benefit of communication is that other people can help you. Just because you are the named agent, you don't have to do everything. You can delegate tasks to other people. Not only are other family member's there to support you, but there are knowledgeable professionals you can rely on. The principal likely didn't name you as the agent for your financial expertise - the principal probably named you because he or she thought you would make the best decisions. To assist you in making those decisions, professional advisors such attorneys, accountants, financial planners and social workers can inform you of your options, and in some cases reduce your burden by carrying out your wishes.

  • You are not Personally Financially responsible: Unless you did something bad (or are married to the principal), when you are an agent, you are charged with spending the principal's assets on the principal's behalf. You are not obligated to use your own money, and there are laws in New Jersey and other states making it illegal to condition acceptance of a facially valid Power of Attorney on a personal guarantee of the agent named in the documents. Having said this, I have seen many examples of poor drafting in legal agreements, particularly with assisted living facilities and nursing homes, that appear to make the agent liable on the principal's behalf. This might manifest in language that the "agent guarantees the principal's obligations". While you can agree to use the principal's assets to meet his or her obligations, you cannot be forced to put your own assets at risk when the principals run out - you are the agent, not the bank. So rest assured that you can do a good thing for someone you care about without putting yourself at risk.

Don't just deed your house to your child

Category: Elder Law, Estate Planning, Tax Law and Planning MAIL BAG: Mom made a costly error in deeding house to child is an example of good intentions coupled with a lack of understanding of tax laws resulting in a large unexpected tax.

While the owner of their own primary residence enjoys an exemption from capital gains tax on the sale under IRC Section 121, a non-resident owner does not. See IRS Publication 523 for more information.

Here, mom gifted her house to son, and when he went to sell it to pay for mom's care, he found out that he owed capital gains tax on over $400,000 on the sale of the house. He (mistakenly) believed there was no tax on the sale of a home. He misunderstood that the tax exemption only applied (1) to his primary residence, not any residence he owned, and (2) only up to certain dollar limitations ($250,000 for a single person and $500,000 for a married couple).

This situation described in this article could have been avoided by considering several other alternative plan with the house such as:

  • Mom selling house to son for a note - mom's sale is sheltered from tax through IRC Section 121, and son's basis in the house is the purchase price,
  • Mom and son joining together to take out a home equity line so that she can keep the house but pay for her care,
  • A reverse mortgage,
  • A gift to son with mom retaining a life estate so she can always live in the house. The life estate would also include the house in her taxable estate, which in turn means that upon her death the son's basis is the fair market value at time of death (a "step-up" in basis under IRC Section 1014) - son can rent the house to generate income to pay for mom's care if she can no longer live at home.

Planning for Family Members with Special Needs

Category: Estate Planning

Do you have a mentally or physically disabled family member? If so, giving money to that family member, or leaving it to him or her in your Will, without considering the consequences of that action, could cause that person to lose benefits and actually become less secure then before the money was transferred to them.

If a person is mentally or physically disabled, the federal government, the state, and private organizations may all provide aid to this person. Many times, qualification for this aid depends on the person's assets and income. Just giving the person money could actually disqualify him or her from benefits that they are already receiving, including jobs and housing benefits.

Furthermore, if a person is disabled, can he or she manage money? If not, is there a Guardian or other person who should be the manager?

With proper planning, the special needs of a disabled individual can be easily met. A "Special Needs Trust" or "Supplemental Needs Trust" can be created to manage any gift or inheritance in such a manner that the disabled person continues to be eligible for benefits and aid, but has an additional nest egg of assets. The trust can be created as a separate trust document or in your Will. A "Special Needs Trust" or "Supplemental Needs Trust" typically describes a trust where the Trustee is granted unlimited discretion in making distributions to the beneficiary, with the caveat that the distributions should be made in such a manner as to not jeopardize any other benefits and aid the person might be receiving. For example, instead of giving the beneficiary money to purchase a new home, the trust could purchase the home and allow the beneficiary to live there.

If your child is incompetent, and they are an adult, it is critical that you become the child's Guardian. First, this grants you the legal authority to make decisions on behalf of your adult child. Second, it establishes the need for the Guardianship - if you were to die, would another person know where all the medical history is to easily establish the need for the Guardianship in court? Third, it allows you as the Guardian to suggest to the court who an appropriate successor Guardian might be.

Regardless of all the critical reasons to do special needs planning, if you haven't taken any steps to date, you are not alone. A survey discussed in the article
Financial Planning For Kids With Special Needs - found:

* 88% of parents who have children with special needs haven't set up a trust to preserve eligibility for benefits such as Medicaid and Supplemental Social Security.

* 84% haven't written a letter of intent outlining an agreement for the future care of the child.

* 72% haven't named a trustee to handle the child's finances.

* 53% haven't identified a guardian for their child.

These statistics are scary in that the failure to plan will result in an additional burden and costs for the disabled person and his or family.