Florida Estate Planning

Prevent Will Contest/Estate Planning

We frequently read about the protracted, or particularly venomous will contests of celebrity families. But what about your will – and your family? Are you confident that you are leaving a family legacy of peace and harmony, and not a wake of destruction? Bernard Krooks of Forbes recently wrote about how to prevent will contest in your own family.

A will contest is a lawsuit challenging the validity of a last will and testament. A contest may ensue if an heir or family member perceives some inequity or unjustness in the distribution of money or possessions. They may contest that the willmaker lacked mental capacity to execute the will, was under the undue influence of another, or that there is some sort of fraud or improper execution of the will.

Proper drafting of the will can make these types of contests less likely to occur – or succeed. Your will may include a no contest clause, or an in terroreum clause, which is a provision that can be used to strip the inheritance from anyone who contests the will if that person loses the lawsuit. These types of clauses often dissuade disgruntled heirs from pursuing a contest.

Some other tips include:

• Explaining the will to your heirs, or leaving a related letter to be read after your death to help explain some of your decisions.
• You may consider videotaping the signing of the will to help show the court that you signed freely and with the requisite mental capacity to agree.
• To remove the possibility of allegations of undue influence, meet with your estate attorney independently, and without the presence of other family members.

If you are the executor of a will and concerned about disgruntled heirs perhaps pursuing a contest, you may be well-advised to enlist an experienced estate attorney to assist you and ensure that the will is executed according to law.

 

 

Estate Planning/Insights on Wealth and Retirement

 If you are a Baby Boomer who has worked hard, accumulated significant assets, support charitable causes, and plan to continue working through “retirement,” you are not alone! And you won’t be particularly surprised by the findings of a recently released survey by US Trust: Insights on Wealth and Worth. The survey was conducted earlier this year, with 457 high net worth and ultra high net worth individuals, with $3 million or more in investable assets. The survey found a distinct generational mindset among the wealthy – many of whom are Baby Boomers, self-made, first generation wealthy who achieved financial success on their own.

You are probably familiar with some of these insights found by the survey:

 Nearly half of these wealthy individuals plan to continue working in “retirement,” many starting a second career or new business.

• Many also want to be able to travel – remember my post last week about “going mobile” with your business, perhaps even into retirement?
• Many wealthy Americans want to give back to their communities and support charitable causes, and they may need professional legal advice to fulfill those ideals.
• Few have the type of comprehensive estate planning in place that matches the complexity of their estate, their finances and their estate planning goals.
  
  

That last insight, about few people having the type of comprehensive estate planning they really need, may come as a surprise to you – or even to US Trust – but not to me. I see this in my practice every day. Just because you have a simple will in place, or believe the federal estate tax will not affect you, does not mean you have adequate met your estate planning needs. Some common “gaps” that turned up in the US Trust survey include:

• No living will or health care directive
• No durable financial power of attorney
• No revocable living trust
• Inadequate planning for life insurance
• No charitable planning, despite charitable intent
• No written plan for the distribution of personal property
• No business succession plan, in fact only three percent of business owners had a business succession plan in place

 

If you saw yourself in the first paragraphs of this post, you likely saw yourself again in the last few. If you don’t take action, then you are, as US Trust President Keith Banks said, “leaving the legacy of (your) life’s work to chance.”

You can download the full survey report from the US Trust website.

 

 

Estate Planning/Beneficiary Designations

Proper planning can set your estate, your assets, and your family in line for a smooth transition but improper or incomplete planning can bring untold hardship, especially if the matter ends up in court. Courtesy of Bill Singer’s blog through Forbes, here’s another sad story to add to the file of otherwise avoidable legal woes. The entire story and Singer’s commentary are worth reading, but in essence it is the story of Financial Industry Regulatory Authority (“FINRA”) Arbitration 10-02435 (May 9, 2011), or the shortsightedness of one Newman Trowbridge, Jr, Esq..

Mr. Trowbridge opened an IRA in 1994 and named his then wife as beneficiary of the account. Then two things happened: (1) his IRA was taken over by Capital One and his account was reassigned to a new broker (Rick Schenck, Sr.) and (2) he and his then wife underwent what was apparently a terrible and protracted divorce. Mr. Trowbridge later re-married, put his life back together, and continued with his IRA with gusto (he quadrupled the balance) until he suddenly and tragically passed in 2009. At that time, Trowbridge’s estate went to his wife along with all the various accounts for which he named her as beneficiary, but the IRA went to his ex-wife. The story is familiar and you probably saw it coming, but Trowbridge had failed to reassign the beneficiary of his IRA and it has remained under his first wife.

Unfortunately, the story doesn’t end there since the recent widow had attempted to reclaim the IRA. She went so far as to present the broker with a court order stating that all accounts that make up the decedent’s estate must be transferred to the heirs of the decedent, but that didn’t work since the IRA isn’t a part of the estate to begin with. The broker defaulted to the named beneficiary, or the ex-wife. In response the widow tried suing on counts of negligence, amongst other things, since the broker had not carried out his duty by advising the late Mr. Trowbridge to rename his beneficiary. The suit is why this is the story of FINRA Arbitration 10-02435, and why it is all the more bitter since the widow lost the suit and it was held that the broker did his job (the case was even removed from his record.) Instead, the FINRA arbitration placed the blame squarely on Mr. Trowbridge, adding insult to injury since, we can presume and the court admitted, he probably didn’t intend to hand the IRA over to his ex-wife.

The lesson is three-fold. Firstly, you must adapt your plans whenever you undergo a life-change, like renaming beneficiaries after divorces and marriages. Secondly, planning is about making sure your affairs are in order before those plans are needed, that is, fully fleshing out your plans early so an unexpected death doesn’t keep you from finishing the most important details. Finally, it’s a pretty tricky world when you try to undo the damages of incomplete or poor planning, and often an unforgiving one for your surviving family members and loved ones.

 

Estate Planning Women

 

In this article, Forbes’s Deborah L. Jacobs offers an expansive look into the unique position of women in estate law, especially given current developments as of last December, and the unique necessity for women to practice proper estate planning. Among Americans 65 and older, 42 percent of women, but just 14 percent of men are widowed. Women’s longer life expectancy, combined with their tendency to marry older mates and their lower lifetime earnings means they are far more likely to see their living standards compromised in retirement if proper estate planning isn’t done. The article includes a gallery of the “Nine Things Women Should Know About Estate Planning.”

 

 

Estate Planning/Trusts

 

Have you been named the trustee for a close friend or family member? Did you feel honored when they asked? Well, it’s okay to feel honored, as the request does show a high level of trust and respect from your friend or family member. But think twice before accepting this “honor,” especially if there are no professionals on board as co-trustees. Trustees take on a lot of legal risk, especially for any mistakes they make, and there are plenty of ways to bungle a trust. Barron’s recently listed the five most common:

            1) Faulty Records: a trustee has to provide regular comprehensive, accurate accountings to beneficiaries, both primary beneficiaries and the family members down the line who will receive the principal once the trust has been dissolved, also known as the remaindermen. Failure to do so could lead to lawsuits by beneficiaries or remaindermen.

            2) Failure to Diversify: just because a stock is working now, has worked in the past, or has sentimental value doesn’t mean you – as a trustee – should keep it in the investment portfolio. As a trustee, you have a legal duty to thoroughly diversify investments. Investment management is the area that probably leads to the most litigation against trustees.

            3) Biased Distributions: trustees owe a fiduciary duty to the current beneficiaries and the remaindermen. The problem is that many individual trustees don’t realize there is a duty to both, and sometimes their interests conflict. Barron’s tip is to keep records of each decision, citing why you chose as you did and offering supporting documentation.

            4) Expecting a Payday: You may assume that you will be paid a trustee fee for all of your work, and that the payment will be reasonable and paid within a reasonable timeframe. You may be wrong. In reality, it takes a lot of time and effort to get paid, largely because of laws that give beneficiaries the right to voice objections, even start litigation. Their objections can delay your payments. The best thing to do is settle the matter of payments early on.

            5) False Sense of Safety: Few individuals comprehend the extent of the risk they take on when assuming the role of trustee. As Adam von Poblitz, h ead of Estate Planning at Citi Private Bank said, “this is a role that potentially has unlimited liability.” Trustees could be held liable not just for investment losses, but also for profits that could have resulted from more prudent investing.

 

Estate Planning/Global Planning

The fact is that we live in a globalized world: technology and commerce allow us to move about as we please, even across several continents. But remember that technology and commerce do not eliminate the legal borders of nations. Even if your life transcends those borders, your legal status, your tax obligations, and your estate do not. Settling estates, trusts, and the other related taxes can become an expensive headache if you and your family are stretched across the globe.

Last week, SmartBusiness issued a short list of common problems “global citizens” may encounter. For example, it has become increasingly common for a U.S. citizen to own a house in Mexico, but to do so may have involved a “fideicomiso”, which the IRS considers a trust subject to all foreign trust reporting requirements. So, if you purchased a condo in Cancun, you must file both IRS Forms 3520 and 3520-A annually or be subject to significant civil penalties. To make matters worse, after March 18, 2010, if you actually use the condo or let a relative use the condo, the fair rental value for the period of use is subject to U.S. income tax.

What if your spouse is not a U.S. citizen? Spouses are generally able to transfer assets to each other, both during lifetime and at death, without tax consequences. But if our spouse is not a U.S. citizen, things get a little more complicated. You may want to consult a qualified estate planning attorney to avoid unexpected (and unnecessary) gift and estate taxes.

If your estate and your life are spread across the globe then you need to account for some complex issues in your tax and estate planning. For more tips about how to stay out of the IRS’s crosshairs, read the entire article on SmartBusiness.

 

                                

Estate Planning/State Estate Taxes

 

       Just when you thought the estate tax had lost its bite, it turns out more states want to tax your estate.

According to Forbes, the budget troubles and rising deficits hitting nearly every state are making them more aggressive about finding revenue wherever they can – including taxing your estate. Illinois recently became the latest state to impose an estate tax, making it retroactive to the beginning of the year.  All told, 12 states and the District of Columbia now impose a state estate tax of some sort. Eight states enforce an inheritance tax and two states (New Jersey and Maryland) impose both an estate and an inheritance tax.

“It’s a very confusing situation,” says Anita Sarafa, a managing director and wealth advisor with J.P. Morgan Private Bank in Chicago. “You kind of have to prepare for the worst and hope for the best.”

For quick information on your state, Forbes has an interactive map and more information here, and for some number-crunching The Wall Street Journal does some math to figure out the worst places to die in 2011 (little secret there: it is still the double-hit states of New Jersey and Maryland.)

You can learn more about estate taxes on the Estate Tax Practice Center on our website, where you also will find a handy calculator for determining federal estate taxes.

 

Estate Planning IRA Assets

 If you have substantial assets in an IRA – whether a Roth or a traditional IRA – you’re wise to pay attention to how those assets might pass to your spouse or other heirs in the event of your death. Christine Benz of Morningstar Advisors last week wrote a small cache of common wisdom on the subject in the forms of “do’s and don’ts.”

What should you do with your IRA?

• Check with your estate planning attorney before naming your beneficiaries. Remember, your beneficiary designation(s) trump whatever might be in your will, so make sure your estate planning documents and your beneficiary designations work together. An estate attorney also can advise you on the most tax-efficient uses of your IRA assets and warn you about ill-conceived designations, such as naming a minor child or your “estate” the beneficiary of an IRA.
• Consider making a charity the beneficiary of your IRA. Depending upon your situation, this could be a tax-savvy way of supporting your favorite cause.
• Consider whether you should convert a traditional IRA to a Roth account. Again, depending on your individual situation, this could make your retirement assets work even harder for your heirs.

 

 Morningstar’s top list of Don’ts:

• Don’t fail to name beneficiaries for your IRA assets. What happens if an IRA has no beneficiary designation at all? It all depends. If that is not a good answer for you, then be sure you name a beneficiary.
• Don’t neglect updating your beneficiary designations after life-changing events. Major life events, such as marriage, divorce, the birth of a child or the death of a loved one may require changes to your beneficiary designations. Plan to review those designations on a regular schedule.
• Don’t name a minor child as the beneficiary of your IRA. Minor children cannot be named beneficiaries of life insurance policies, retirement plans, or annuities. If you’d like to leave IRA assets to a minor, check with an estate attorney about setting up a trust or a uniform transfers / gifts to minors (aka UTMA / UGMA) account.

 

Estate Planning/Estate Plan Review "Rewrite Your Will"

A new year, a new tax law, and time for a new estate plan – or at least a review of the plan you currently have. Congress has increased the exemption from the federal estate tax to $5 million, leaving fewer than 4,000 U.S. families likely to be affected by the 35% federal estate tax in 2011. This new deal expires in 2012, but experts predict the estate tax exemption will not be reduced.

            This higher exemption, combined with the new “portability” provision throws new light on many old planning strategies. “Portability” means that if a married person dies in 2011 or 2012 without using their full $5 million exemption, the unused exemption is passed along to the surviving spouse, added to their exemption amount, for a combined exemption of up to $10 million in assets that the surviving spouse can transfer to heirs federal estate tax-free.

            What do all of these changes mean to you? Forbes recently ran an article in their Money & Investing section with a good summary. Here are three of their top considerations:

• Everyone still needs fundamental estate planning. Regardless your age, marital status or net worth, you still need fundamental estate planning such as a will, a living will, health care / medical directives, and a durable power of attorney.
• Review your current estate plan. Due to the increase in the applicable exemption amount to $5 million (and a combined $10 million for married couples), some estate tax planning strategies may need to be revised and/or simplified. Especially in light of the new portability provision, some bypass or credit shelter trusts may no longer be necessary, or their terms may need to be changed. Note: Remember that bypass trusts often accomplish important, non-tax goals as well, to include asset protection and estate equalization.
• Plan for state estate taxes. Currently, 21 states and the District of Columbia have estate or inheritance taxes, or both, in place for 2011. The typical exemption amount for estate taxes is only $1 million, and inheritance taxes – levied on the recipient of any bequest – can hit the first dollar (no exemptions). You can find an interactive map showing which states impose estate or inheritance taxes, and their details, here.

 

We offer our clients an affordable estate review consultation. Visit our website to learn more about our estate plan review process.