Real Estate U.S.A.

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2014-01-06T21:14:00.001-04:00

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Estate Planning Elder Law Guide

2012-05-02T13:14:00.009-03:00

Estate Planning: Planning for death to get the assets to whom you want, when you want, the way you want, with the least amount of taxes and legal fees possible.

Elder Law: Planning for disability to get the persons you want to handle your affairs and to protect your assets from being depleted for long-term care.

Introduction to Estate Planning and Elder Law
Practicing estate planning and elder law is one of the most enjoyable and professionally rewarding careers an attorney may choose. Imagine a practice area where your clients respect your knowledge and treat you with kindness and courtesy. They pay your fees in a timely fashion and tell their friends how much they have enjoyed working with you and your firm. At the same time, you are rarely facing the pressure of a deadline, much less an adversarial attorney on the other side of a matter trying to best you. In most instances, you are acting in the capacity of a counselor at law (trusted advisor) rather than an attorney at law (professional representative).

We spend our days meeting with clients, discussing their lives and their families and addressing their fears and concerns. Through our knowledge, training, experience and imagination, we craft solutions, occasionally elegant ones, to the age old problem of passing assets from one generation to another as quickly and painlessly as possible. At the same time, we also seek to protect those assets from being depleted by taxes, legal fees and nursing home costs to the extent the law allows.

The end result of this process is a client who feels safe and secure in the knowledge that, in the event of death or disability, they have all their bases covered. Having achieved peace of mind that their future is well planned and in good hands, they can get on with the business of enjoying their lives. For the attorney, a happy and satisfied client has been added to the practice and another potentially lifelong and mutually rewarding relationship has begun. Let's look at the strategies and techniques we use to achieve this enviable state of affairs.

Major Issues Facing Senior Clients Today
One of the ways that we help clients is in setting up a comprehensive plan so they may avoid court proceedings upon death or in the event of disability. Trusts are used in place of wills for older persons since they do not require court proceedings to settle the estate. Trusts also avoid the foreign probate proceeding required for property owned in another state, known as ancillary probate. This saves the family time in settling the estate as well as the high costs of legal proceedings. In addition, since revocable living trusts, unlike wills, take effect during the grantor's lifetime, the client may stipulate which persons take over in the event of their disability. Planning ahead helps maintain control in the family or with trusted advisors and avoids a situation that may not be in the client's best interest. For example, in the event of a disability where no plan has been put in place, an application to the court may be required in order to have a legal guardian appointed for the disabled person. This may not be the person the client would have chosen. In such a case, assets may not be transferred to protect them from being spent down for nursing home costs without court permission, which may or may not be granted.

Another area in which we assist the client is in saving estate taxes, both state and federal, for married couples by using the two-trust technique. Assets are divided as evenly as practicable between each of the spouse's trusts. While the surviving spouse has the use and enjoyment of the deceased spouse's trust, the assets of that trust bypass the estate of the surviving spouse and go directly to the named beneficiaries when the second spouse dies. Tens to hundreds of thousands of dollars, or more, in potential estate taxes may be saved, depending on the size of the estate. Furthermore, the revocable living trust avoids the two probates that would occur were the clients to use wills, as the couple's estate must be settled after the death of each spouse in order to save estate taxes. We also help to protect assets from being depleted due to nursing home costs. Irrevocable Medicaid trusts may be established, subject to a five-year look-back period, to protect the client's home and other assets from having to be spent down due to the high cost of nursing home care. We use Medicaid asset and transfer rules to protect assets in the event a client requires nursing home care but has done no pre-planning. Through the use of Medicaid qualifying annuities, promissory notes, and housing and care agreements, significant assets may be protected despite the five-year look-back, even when the client may be on the nursing home doorstep.

Five Steps to Estate Planning for Seniors

1. Understanding the Family Dynamics
The first step in an elder law trusts and estates matter is to gain an understanding of the client's family dynamics. If there are children, which is usually the case, we need to determine whether or not they are married. Is it a first or second marriage? Do they have any children from a previous marriage or do their spouses? What kind of work do they do, and where do they live? Do they get along with each other and with the parent clients? We are looking to determine which family members do not get along with which others and what the reasons may be. This goes a long way toward helping us decide who should make medical decisions and who should handle legal and financial affairs. Should it be one of them or more than one? How should the estate be divided? Is the client himself in a second marriage? Which children, if any, are his, hers, or theirs? Sometimes all three instances may occur in the same couple. Here, further exploration of the family functioning will be needed as the potential for hurt feelings, conflicts of interest, and misunderstandings multiplies. In addition, great care must be taken to develop a plan for management, control, and distribution of the estate that will not only be fair to the children from a previous marriage but will be seen to be fair as well. At times, the assistance of the professional advisor in acting as trustee may be invaluable in helping to keep the peace between family members. Finally, this step will also flesh out whether there are any dependents with special needs and which family members and assets might be best suited to provide for such children.

2. Reviewing Existing Estate Planning Documents
The second step in an elder law trusts and estates matter is to review any prior estate planning documents the client may have, such as a will, trust, power of attorney, health care proxy and living will, to determine whether they are legally sufficient and reflect the client's current wishes or whether they are outdated. Some basic elder law estate planning questions are also addressed at this time such as:

a. Is the client a US citizen? This will impinge on the client's ability to save estate taxes.

b. Is the client expecting to receive an inheritance? This knowledge helps in preparing a plan that will address not only the assets that the client has now but what they may have in the future.

c. Does the client have long-term care insurance? If so, the elder law attorney will want to review the policy and determine whether it provides an adequate benefit considering the client's other assets and income, whether it takes inflation into account, and whether it is upgradable. This will allow the practitioner to decide whether other asset protection strategies may be needed now or later.

d. Does the client need financial planning? Many clients that come into the elder law attorney's office have never had professional financial advice or are dissatisfied with their current advisors. They may need help understanding the assets they have or with organizing and consolidating them for ease of administration. They may also be concerned with not having enough income to last for the rest of their lives. The elder law attorney will typically know a number of capable financial planners who are experienced with the needs and wishes of the senior client, including (1) secure investments with protection of principal, and (2) assets that tend to maximize income.

3. Reviewing the Client's Assets
The third step is to obtain a complete list of the client's assets, including how they are titled, their value, whether they are qualified investments, such as IRA's and 401(k)'s and, if they have beneficiary designations, who those beneficiaries are. Armed with this information, the advisor is in a position to determine whether the estate will be subject to estate taxes, both state and federal, and may begin to formulate a strategy to reduce or eliminate those taxes to the extent the law allows. This will often lead to shifting assets between spouses and their trusts, changing beneficiary designations, and, with discretion, trying to determine which spouse might pass away first so as to effect the greatest possible tax savings. Ideally, the attorney should have the client fill out a confidential financial questionnaire prior to the initial consultation.

4. Developing the Estate Plan
The fourth step is to determine, with input from the client, who should make medical decisions for the client if they are unable to and who should be appointed to handle legal and financial affairs through the power of attorney in the event of the client's incapacity. Next, we will consider what type of trust, if any, should be used, whether a simple will would suffice, who should be the trustees (for a trust) or executors (for a will), and what the plan of distribution should be. In order to avoid a conflict, the trustees who are chosen in lieu of the grantor should be the same persons named on the power of attorney. At this point, great care should also be taken to ensure that the feelings of the heirs will not be hurt. Good estate planning looks at the client's estate from the heirs' point of view as well as the client's. For example, if there are three children, it may be preferable that one be named as trustee or executor, as three are usually too cumbersome and if the client chooses only two, then they are leaving one out. If there are four or five children, we prefer to see two trustees or executors chosen. This way, the pressure will be reduced on just the one having to answer to all the others. More importantly, the others will feel far more secure that two siblings are jointly looking after their interests.

If the distribution is to be unequal, it may need to be discussed with the affected children ahead of time to forestall any ill will or even litigation after the parents have died. By considering the relative ages of the children, where they live, and their relationships amongst each other and with their parents, the advisor will generally find a way to craft a plan that accommodates the needs and desires of all parties concerned. Some of the techniques we find useful in this context are to offer a delayed distribution, such as twenty percent upon the death of the grantor, one-half of the remaining balance after five years, and the remainder after ten years. These same percentages may also be used at stated ages, such as thirty, thirty-five, and forty. Also, when leaving percentages of the estate, unless it is simply to the children in equal shares, it is often useful to determine the monetary value of those percentages in the client's current estate. This will allow the client to see whether the amount is truly what they wish to bequeath. Percentage bequests to charities should be avoided so that the family may avoid having to account to the charity for the expenses of administering the estate.

In terms of the type of trust, we are generally looking at several options for most clients. It is important to determine whether there should be one trust or two. In order to avoid or reduce estate taxes, there should be two trusts for spouses whose estates exceed or may at a later date exceed the state and/or federal estate tax threshold. Should the trust be revocable or irrevocable? The latter is important for protecting assets from nursing home expenses subject to the five-year look-back period. Primary features of the irrevocable Medicaid trust are that neither the grantor nor the grantor's spouse may be the trustee and that these trusts are income-only trusts. Most people choose one or more of their adult children to act as trustees of the irrevocable trust. Since principal is not available to the grantor, the client will not want to put all of their assets into such a trust. Assets that should be left out are IRA's, 401(k)'s, 403(b)'s, etc. The principal of these qualified assets are generally exempt from Medicaid and should not be placed into a trust, as this would create a taxable event requiring income taxes to be paid on all of the IRA. If the institutionalized client has a community spouse, up to about one hundred thousand dollars may also be exempted. Notwithstanding that the home is exempt if the community spouse is living there, it is generally a good idea to protect the home sooner rather than to wait until the first spouse has passed, due to the five-year look-back period. It should be noted that the look-back means that from the time assets are transferred to the irrevocable trust, it takes five years before they are exempt, or protected from being required to be spent down on the ill person's care before they qualify for Medicaid benefits. What if the client does not make the five years? Imagine that the client must go into the nursing home four years after the trust has been established. In such a case, by privately paying the nursing facility for the one year remaining, the family will be eligible for Medicaid after just the remaining year of the five-year penalty period has expired.

Although the Medicaid trust is termed irrevocable, the home may still be sold or other trust assets traded. The trust itself, through the actions of the trustees, may sell the house and purchase a condominium in the name of the trust so that the asset is still protected. The trust may sell one stock and buy another. For those clients who may wish to continue trading on their own, the adult child trustee may sign a third party authorization with the brokerage firm authorizing the parent to continue trading on the account. The trust continues to pay all income (i.e., interest and dividends) to the parent grantor. As such, the irrevocable trust payments should not affect the client's lifestyle when added to any pensions, social security, and IRA distributions the client continues receiving from outside the trust. It should also be noted that while no separate tax return is needed for a revocable trust, the irrevocable trust requires an "informational return" which advises the IRS that the income is "passing through" to the grantors and will be reported on their individual returns.

If there is a disabled child, consideration will be given to creating a supplemental needs trust, which will pay over and above what the child may be receiving in government benefits, especially social security income and Medicaid, so that the inheritance will not disqualify them from those benefits.

Finally, with the size of estates having grown today to where middle class families are leaving substantial bequests to their children (depending, of course, on how many children they have), the trend is toward establishing trusts for the children to keep the inheritance in the bloodline. Variously termed inheritance trusts, heritage trusts, or dynasty trusts, these trusts may contain additional features, such as protecting the inheritance from a child's divorce, lawsuits, creditors, and estate taxes when they die. The primary feature of all of these trusts for the heirs, however, is to provide that when the child dies, in most cases many years after the parent, the hard-earned assets of the family will not pass to a son-in-law or daughter-in-law who may get remarried, but rather to the grantor's grandchildren. On the other hand, if the client wishes to favor the son-in-law or daughter-in-law, they may choose to provide that the trust, or a portion of it, continue as an "income only" trust for their adult child's surviving spouse for their lifetime, and only thereafter to the Grantor's grandchildren.

5. Applying for Medicaid Benefits
In the event the client requires home care or institutionalized care in a nursing home facility, an application for Medicaid benefits may be required. Due to complex asset and transfer rules, the application should be made with the aid of an experienced elder law attorney. Again, it is useful in this context for a confidential survey of the client's assets, as well as any transfers of assets, to be filled out prior to the initial consultation. This form of financial survey will be significantly different from the one used for estate planning purposes. As a combined federal and state program, Medicaid asset and transfer rules vary significantly from state to state. A few techniques, nevertheless, will be widely applicable. First, in the event an adult child takes the parent into their home in order to care for them in their later years, a housing and care agreement should be executed so that assets may be legitimately moved from the parent to the child prior to any nursing home care. The adult child will be required to report any payments received under the agreement as earned income on their tax returns. Also, since the family home is usually the most significant asset, consideration will need to be given as to whether the home should be deeded to the client's adult children while retaining a life estate in the parent or whether the irrevocable Medicaid trust should be used to protect the asset.

While the deed with a life estate will be less costly to the client, in most cases it offers significant disadvantages when compare to the trust. First, if the home is sold prior to the death of the Medicaid recipient, the life estate value of the home will be required to be paid towards their care. If the house is rented, the rents are payable to the nursing facility since they belong to the life tenant. Finally, the client loses a significant portion of their capital gains tax exclusion for the sale of their primary residence as they will only be entitled to a pro rata share based on the value of the life estate to the home as a whole. All of the foregoing may lead to a situation where the family finds they must maintain a vacant home for many years. Conversely, a properly drafted irrevocable Medicaid trust preserves the full capital gains tax exclusion on the primary residence and the home may be sold by the trust without obligation to make payment of any of the principal towards the client's care, assuming we have passed the look back period. It should be noted here that both the life estate and the irrevocable Medicaid trust will preserve the stepped-up basis in the property provided it is only sold after the death of the parent who was the owner or grantor. Upon the death of the parent, the basis for calculating the capital gains tax is stepped up from what the parent paid, plus any improvements, to what it was worth on the parent's date of death. This effectively eliminates payment of capital gains taxes on the sale of appreciated property, such as the home, after the parent dies. Both the revocable and irrevocable trusts also preserve any tax exemptions that the client may have on their home, such as senior and veteran's exemptions.

Finally, even with a client already in a nursing home, significant assets may be saved through advanced techniques that are beyond the scope of this guide. Please consult your elder law attorney for further information if you or a family member is in this situation.

Major Mistakes in Estate Planning and Elder Law

1. Failure to address all of the issues.
A comprehensive review of the client's situation should address planning for disability as well as for death, including minimizing or avoiding estate taxes and legal fees and proceedings. A plan should be in place to protect assets from nursing home costs. Like a chess player, counsel should look ahead two or three moves in order to determine what may happen in the future. For example, attorneys will too often place a majority of the assets in the wife's name or in her trust in light of the husband having significant IRA assets in his account. However, since the husband is often older and has a shorter life expectancy, this may result in the IRA assets rolling over to the wife, all of the couple's assets ending up in the wife's estate, and no estate tax savings effected. Another example would be where the client's children are in a second marriage but have children (the client's grandchildren) from a previous marriage. Unless planning is done with inheritance trusts for the client's children, a situation may occur one day where the client's child predeceases their second spouse, all assets pass to the second spouse, and the client's grandchildren, from a son or daughter's prior marriage, are denied any benefit from the grantor's estate.

2. Failure to Regularly Review the Estate Plan
At a minimum, each client's estate plan should be reviewed every three years to determine whether changes in the client's personal life, such as their health, assets, or family history (births, deaths, marriages, divorces, etc.) impact the plan. It is unrealistic to expect a plan established today to be effective ten, twenty, thirty, or more years in the future. Over time, clients will want to change their back-up trustees or plan of distribution. They may wish to add inheritance trusts for their children. They might, after a number of years, wish to change from a revocable trust to an irrevocable trust because they were unable or unwilling to obtain long-term care insurance. The attorney will benefit from the additional legal work needed, and the client will benefit from having a plan better suited to their current needs at any given time.

Conclusion
Despite the knowledge, earnestness and even charm of some of the finest practitioners in the land, clients occasionally do not act on the advice given. As experienced attorneys, we know not to take it personally when clients choose to ignore our advice or perhaps choose other counsel. We know that people don't always do what they need to. They do what they want to and, even then, only when they want to. Recently, a ninety-three year old client told us that she "wanted to think about it" so far as planning her affairs. Experience tells us that this client is not ready to plan at the present time, despite her advanced years, and we respect that choice. On the other hand, we recently had a client come in to see us eleven years after their initial consultation stating that they were now ready to proceed. We prepared their estate plan.

Perhaps the best approach to the estate planning and elder law practice is to follow the four SW's. Some will, some won't, so what, someone's waiting. We move forward, help those who will allow themselves to be helped by us and keep turning towards those to whom our firm's services are appreciated, admired, and sometimes even considered heroic.

Principal attorney Michael Ettinger has been a member of the New York State Bar Association since 1980. He is a law graduate of McGill University in Montreal, Canada and obtained his Master of Laws from the London School of Economics in 1978. Ettinger Law Firm, dedicated exclusively to estate planning and elder law, was formed in 1991. Mr. Ettinger is a founding member of both the American Academy of Estate Planning Attorneys and the American Association of Trust, Estate and Elder Law Attorneys.

Ettinger Law Firm has prepared thousands of estate plans using trusts and Medicaid applications. Their staff of attorneys and experienced Medicaid professionals provide over fifty years of combined experience in estate planning and elder law.

Ettinger Law Firm offices are located throughout New York State in Albany, Fishkill, Nyack, White Plains and Staten Island.

Please visit their website, http://www.trustlaw.com, for directions and more information about estate planning and elder law.

Article Source: EzineArticles.com

Estate Planning from Integrity Life Skills

2012-05-02T13:14:00.008-03:00

Real Estate U.S.A. Blogger

Myths and Realities of Estate Planning - ILIT's and RLT's

2012-05-02T13:14:00.007-03:00

The objective of this discussion is to review some of the myths and realities of estate planning. A number of articles have been written on the subject but let's see if we can't put a different spin on it by keeping it simple. By dispelling some of the common misconceptions, we will have a better understanding of how important it is to take positive action to keep our estate plans in order.

The Economic Growth and Tax Reconciliation Relief Act of 2001 (EGTRRA) threw many individuals for a loop when it came to estate planning. Tax laws are never simple but EGTRRA added a level of confusion rarely seen in advanced planning. For instance, between now and 2011 the federal estate tax is scheduled to decrease, disappear and then spring back to life. According to a Wall Street Journal article dated May 11, 2005, the "...current estate tax law puts estate-tax planners in an impossible situation...". With such uncertainty, some potentially damaging estate planning myths have surfaced. These financial "urban legends" stand in the way of prudent estate planning.

Myth. Because of tax law uncertainty, you should avoid using life insurance trusts.

The irrevocable life insurance trust (ILIT) is probably the most significant insurance related estate planning tool available to you. The irrevocable nature of the trust can provide estate tax savings while the insurance provides a cost effective way to pay estate taxes (depending on age and health). The appeal of an irrevocable life insurance trust is that the death proceeds of the policy are not included in the insured's estate. If kept out of the decedent's estate, the death proceeds will not increase the estate tax burden. The irrevocable life insurance trust is a double winner because, not only are the death proceeds outside the insured's estate, but the proceeds can be available to meet estate liquidity needs.

To insure that the life insurance proceeds will be excluded from the insured's estate, two of the primary requirements that must be met are that the insured must not have any incidents of ownership in the policy and the trust must be irrevocable. Some people believe that, in the face of tax law uncertainty, clients should avoid using ILITs. These same people fear that once a policy is placed in an ILIT, the policy is locked in the trust forever, even in the unlikely event that the estate tax is repealed.

Nothing could be further from the truth. In reality, ILITs can be drafted with flexibility. Some ILITs today are being drafted to give the trustee the discretion to distribute the cash surrender value of the insurance policy to trust beneficiaries during the trust creator's lifetime. This "escape" language builds flexibility into ILITs.

Myth. Estate tax reform, or repeal, would signal the end of charitable giving.

Giving to charity is emotionally rewarding. The IRS also gives you income tax breaks for charitable donations. You may utilize charitable giving strategies as a technique to reduce or freeze the value of your estate. Some people have bemoaned the possibility of estate tax repeal or reform, claiming that it will significantly reduce charitable giving. The argument posed is that if fewer estates are subjected to the estate tax, then fewer people will be inclined to make charitable gifts as an estate tax reduction strategy.

The numbers tell a different story. Since 2001, the estate tax exemption amount (the amount of property each person can pass free from federal estate taxes) has more than doubled. According to the myth, the increasing estate tax exemption amount means that fewer people will be inclined to give to charity. The reality is that during the same time period, charitable giving nationwide rose by nearly $90 billion! If the myth was correct, how could this be?

The steady rise in charitable giving is based upon the fact that charitable giving is a grass roots effort. The vast majority of charitable gifts are made by individuals. Private foundations and corporate gifts account for relatively small slices of the charitable giving pie. 77% of all charitable gifts are made by individuals and there is no indication to believe this trend will reverse itself. America is truly a philanthropic country; estate tax reduction is rarely the primary motivating factor for making a charitable gift.

Myth. Revocable Living Trusts reduce taxes.

A revocable living trust is a separate legal entity that you create to own property, such as your home, other property, or investments. You transfer some or all of your property to the trust. During your lifetime, you control the trust; you can change the trust terms or terminate the trust at any time and take the property back. At your death, the trust becomes irrevocable and may continue to exist for many years. People create living trusts because they're able to retain control over their assets while achieving other goals, such as controlling the manner and timing of asset distributions to heirs, providing for asset management during periods of incapacity, avoiding probate and/or serving as a will substitute (among other things). A common myth is that revocable trusts save taxes.

In reality, for tax purposes, transfers to revocable living trusts are incomplete transfers for tax purposes and do not save any taxes. Revocable trusts may offer many other benefits to a trust creator, but tax savings is not one of those.

Myth. Estate planning is dead.

There is no greater myth than the misperception that estate planning is dead.

Even if the federal estate tax was repealed (which is highly unlikely), there are many reasons for us to continue with our estate plans. Some of those are:

Asset protection
Family business planning
Multi-generational planning
Privacy
Income replacement
Equalization of inheritance
Special needs dependents
Charitable giving

Life insurance is often a crucial component of many, if not all, of these estate planning goals.

Everyone has an estate plan; it's just a matter of how well your plan fits your goals. You owe it to yourself and your family to make sure your estate plan is in order. Conversation is fine, but taking action is crucial. Make the commitment to take at least one step in your estate planning efforts in the next three days. It could be as simple as organizing your paperwork, compiling a list of your assets and/or updating your beneficiary designations. If you do not have an updated will, you should make that a priority. You should also take steps to have sufficient death benefit protection structured in the most tax-efficient manner to achieve your goals.

Anthony J. (Tony) Damoulis
Principal
Family Benefits Planning Group, Inc. http://www.FBPGInc.com An independent insurance organization serving the financial security, benefit risk management and retirement needs of families, the self-employed and small businesses.

Tony may be reached via email at AJDamoulis@FBPGInc.com

Tony has over 38 years experience in the personal, self-employed and small business financial risk and business management and benefits arena. He consults, educates and recommends available and affordable benefits and opportunities in these areas and assists clients with their financial and retirement planning. Over his lengthy and successful career in this profession, Tony has served as an adjunct instructor at the New York College of Podiatric Medicine instructing the new podiatric doctors in practical risk management, he has lectured and consulted in the practical aspects of financial planning and personal risk management, he was the keynote speaker of the 1989 International Insurance Conference and has been published in the 1990 Who's Who & Business Guide in the Caribbean.

Article Source: EzineArticles.com

The 34th Annual UCLA/CEB Estate Planning Institute: A Conversation with Monica Dell'Osso

2012-05-02T13:14:00.006-03:00

Real Estate U.S.A. Blogger

Should You Create an Estate Plan?

2012-05-02T13:14:00.005-03:00

The reasons for needing an estate plan are as varied as the individuals involved and, it seems, the many myths surrounding the subject do quite a bit of harm. For example, do you have to be "rich" in order to need an estate plan? The answer is, "No", one does not need to be rich to need an estate plan. All you need is the desire to pass on to your heirs the greatest amount of the wealth possible that you have preserved during your lifetime.

Among the major benefits of a well-drafted estate plan are minimizing the expense of passing your estate to beneficiaries, decreasing the administrative complexities and ensuring to the extent possible that your distribution wishes are followed.

For example, if you own a home, have minor children or grandchildren, grown children in their own marriages, have been divorced, own a business, or expect to receive an inheritance of your own, you need to seriously consider the benefits of properly planning your estate. Instead of passing problems on to your heirs, you can instead elect to pass on the greatest amount of wealth with the least amount of problems through estate planning.

The largest hurdle, oftentimes, is building a lasting relationship with an attorney who specializes in estate planning. Going through the Yellow Pages, or asking friends for referrals or using the internet is often a haphazard process without much guarantee of success.

Compelling Reasons to Build an Estate Plan

Among the common motivations that compel creation of an estate plan are the following. The more the following reasons apply to any situation, the greater is the need to complete estate planning to not only build and protect your hard-earned wealth but, also, to transfer your wealth with as little depletion and expense as possible. With a proper estate plan in place, you can plan ahead to:

1. Designating who will manage your affairs if you become disabled and when you pass away. If you fail to do so, a court will decide for you not only who receives your wealth but who will make the distributions. You never know who the court will appoint. Keep control of your own destiny!

2. Planning for Medicaid and its impact on your estate if you must go into a nursing home. Nursing homes today can cost as much as $75,000 per year, or more, and a longterm stay can easily impoverish all but the wealthiest families. With proper planning, however, you can shelter assets and keep your family's wealth intact. Because there is a 50-50 chance that the average adult will spend at least one year in a longterm care facility, it becomes painfully clear this type of planning is extremely important.

3. Avoiding probate, during your lifetime and when you pass away. Do you want the court controlling you or your assets? Probate proceedings are public, expensive, and time-consuming and should be avoided whenever possible. Leave your money to your heirs quickly, privately and efficiently by establishing a proper estate plan.

4. Protecting children from a prior marriage if you pass away first. Second marriage planning can be complex and tricky. Expert legal guidance is needed to ensure your assets are preserved and your children of your first marriage will receive the proper share of their inheritance.

5. Protecting assets inherited by your heirs from lawsuits, divorces and other claims. Make sure your assets are inherited by your loved ones, not the people you don't want to receive them, such as their ex-spouses, in-laws, creditors or the IRS.

6. Imposing discipline upon children or grandchildren who may not be capable or experienced in managing wealth. Make sure your children or grandchildren spend their inheritance wisely and protect their inheritance against inexperience and mismanagement by including specific conditions and rewards in your estate plan.

7. Providing for special needs children and grandchildren. The loss of governmental benefits can wipe out your estate. Special considerations and planning is needed to avoid the loss of governmental benefits.

8. Insuring that a specific portion of your estate actually gets to grandchildren, charities, etc. Without planning, a judge will decide who inherits your assets. Pre-planning your estate ensures your intentions and directions are followed.

9. Protecting a portion of your estate if you pass away first and your surviving spouse remarries. Special Trusts, commonly referred to as "A-B trusts", can be crafted to protect your current surviving spouse and to insure that your assets don't end up in the wrong hands. Take action now to protect your family.

10. Addressing different needs of different children. No two children are alike. Customized estate planning can assure that each child's personal needs are addressed in the manner you deem best.

11. Preventing or discouraging challenges to your estate plan. Establishing a well-drafted and comprehensive Revocable Living Trust now makes it more difficult for objections when you are no longer around to speak for yourself.

12. Encouraging and rewarding your heirs who make smart life decisions and preventing the depletion of your estate from those who do not. There can be a point at which giving a child more money can make them less productive and less happy. A Family Incentive Trust can be tailored with financial incentives which encompass your family values and goals to encourage and motivate your children. Such a Trust can be a loving way to support your children while inspiring them to be productive members of society and fostering their sense of self-worth.

13. Assuring an education for children, or grandchildren, despite what they (or their parents) dream of doing with the inheritance. Establishing an educational trust can assure that your children or grandchildren use their inheritance for education and not fund a vacation in Las Vegas.

14. Plan for a "Brady Bunch" family estate plan and assure that a stepparent doesn't spend your children's inheritance and/or provide for a spouse without sacrificing the intended legacy for children of a prior marriage. A divorce and subsequent marriage can have devastating effects on the inheritance you intend for your children if your estate plan is not reviewed and updated. Often times, the original "traditional" estate plan will not meet the needs or provide the protection needed for your new blended family so proper planning is imperative.

15. Pursuing charitable goals you may not otherwise feel you can afford. Considerably cutting probate expenses allows you to also leave a legacy to a charitable organization you admire.

If your wealth or disposition desires fall into any one of the above groups, you should contact an estate planning attorney in your area. Many times, waiting to make a decision about distributing your wealth or deciding who can make decisions for you in case of death or incapacity will result in your dreams for your children and grandchildren, or your favorite charity, never, ever, being realized. Thus, tarrying in creating an estate plan can cause extreme confusion, turmoil and expense for your heirs that can easily be avoided by contacting a highly qualified, trained and tested estate planning specialist in your locale.

The AAEPA is an exclusive membership organization. Since 1993, the Academy has been dedicated to promoting excellence in estate planning by providing its estate planning attorneys with comprehensive document creation software, up-to-date research on estate and tax planning matters and exceptional educational training materials.

Academy attorneys are held to a high educational standard. The Academy expects each attorney to complete at least 36 hours of legal education each year specifically in estate, tax, probate and/or elder law subjects. To ensure this goal is met, the Academy provides over 40 hours of continuing legal education each year. This ensures that Academy attorneys are highly educated and up-to-date in these complicated areas of law. No other legal membership organization sets such rigorous standards for its members.

Article Source: EzineArticles.com

Orange County Estate Planning Lawyer - Free Planning Guide

2012-05-02T13:14:00.004-03:00

Real Estate U.S.A. Blogger

Estate Planning For Unmarried Couples

2012-05-02T13:14:00.003-03:00

Whether of same-sex or opposite-sex unions, unmarried couples face many estate planning issues (and opportunities). Although unmarried couples clearly face challenges that married couples do not, most are challenges that can be overcome with planning. However, because many of the issues discussed in this article are state-specific, it is important that unmarried couples preparing an estate plan seek the counsel of an attorney familiar with the laws of their states of domicile.

Unmarried couples (whether same-sex or opposite sex) have the same estate planning objectives as do married couples. They want to: avoid the costs, delays and publicity associated with probate; eliminate or minimize estate taxes; make certain their assets will pass to whom they want, when they want, and how they want; and protect heir assets from their heirs' inabilities, disabilities, creditors and predators.

Unlike married couples, unmarried couples do not benefit from many of the legal presumptions and default provisions under state and federal law. For example, unmarried couples: are not entitled to the federal unlimited estate and gift tax marital deductions; cannot utilize the tax free "rollover" of retirement benefits in the same manner as a surviving spouse; are not covered under most state intestacy laws that determine who receives a decedent's property if there is no Will; and are not permitted, by most state laws, to elect against a partner's Will and thereby receive a portion of the deceased partner's property.

Same-sex couples have made some strides under the law toward qualifying for the same benefits that married couples enjoy. In Massachusetts, Connecticut, Iowa, Vermont, New Hampshire, and Washington D.C., marriages for same-sex couples are legal and currently performed. In New Jersey, civil union are allowed, which provide state-level spousal rights to same-sex couples. In California, Oregon, Nevada and Washington (state), domestic partnerships are permitted, which provide nearly all state-level spousal rights to unmarried couples. In Hawaii, Maine, Washington D.C. and Wisconsin, domestic partnerships are permitted, which provide only some state-level spousal rights to unmarried couples. And in New York, Rhode Island and Maryland, same-sex marriages from other states or foreign countries are recognized, but they are not performed. Still, 41 states have statutes on the books prohibiting same-sex marriage, including 30 states that also have constitutional bans.

Same-sex couples have made some strides under the law toward qualifying for the same benefits that married couples enjoy. In Massachusetts, Connecticut, Iowa, Vermont, Maine and New Hampshire, marriages for same-sex couples are legal and currently performed. In New York and Rhode Island, same-sex marriages from other states or foreign countries are recognized, but they are not performed. The states of California, Hawaii, Nevada, New Jersey, Oregon and Washington, by way of laws regarding domestic partnerships and civil unions grant persons in same-sex unions a similar legal status to married couples. Still, 36 states have statutes on the books prohibiting same-sex marriage, including some that also have constitutional bans. Only 3 states - New York, Rhode Island and New Mexico - have taken no action in either direction.

Although the U.S. Constitution requires each state to give "full faith and credit" to the laws of other states, the 1996 federal Defense of Marriage Act ("DOMA") expressly undercuts the full faith and credit requirement in the case of same-sex marriage. As noted above, 36 states have passed their own DOMA laws. Thus, because of the conflict between the U.S. Constitution and DOMA, it may ultimately be left to the Supreme Court of the United States to decide the issue of same-sex marriage.

Avoiding State Default Laws

Most unmarried couples will want to avoid their state's intestacy laws. These are the laws that determine who receives a decedent's "probate" estate if he or she dies without a Will. Except for a few states, intestacy laws do not recognize "unrelated persons." However, assets passing to a surviving joint tenant, or payable by beneficiary designation to a person or trust, are not part of the decedent's probate estate and therefore avoid the intestacy laws. Same-sex couples will also want to avoid most states' default laws on matters such as burial desires and priority among persons to act as guardians, conservators, personal representatives, and patient advocates.

Accordingly, unmarried couples should use Wills; Will substitutes (i.e., joint property, beneficiary designations, and payable-upon-death accounts); Revocable Living Trusts; general powers of attorney for financial matters; living wills and health care powers of attorney; and burial directives to avoid any adverse state law. Moreover, when unmarried couples designate partners as beneficiaries in Wills or Revocable Living Trusts, it is possible that disapproving family members may contest the Will or Trust. By including an "In Terrorem" clause in the Will or Trust Agreement, any person contesting the Will or Trust would receive nothing. Such a clause is intended to discourage persons from challenging a Will or Trust in court since nothing material may be gained by the action.

Qualified Retirement Plans

Although not technically a state default law issue, unmarried couples usually do not fare as well as their married counterparts when it comes to qualified retirement plans. Many 401(k) plans and pension plans provide that, upon a participant's death, his or her retirement account is to be distributed in a lump sum. As such, the distribution is fully taxable (as ordinary income) in the year of the participant's death. However, when the participant's spouse is the named beneficiary, the spouse can roll over the distribution into an IRA. Thus, the income tax on the distribution can be deferred until the surviving spouse attains age 70 1⁄2, at which time the spouse can "stretch" the distribution over 27.4 years.

Until recently, a non-spousal beneficiary would have been forced to take distributions of the entire qualified retirement plan within five years after the participant's death or, in some plans, immediately following the participant's death. Under the Pension Protection Act of 2006 (PPA), beginning in 2007, a non-spouse beneficiary of a qualified retirement plan can roll over, via a trustee-to -trustee transfer, the benefits into an "inherited" IRA. The inherited IRA must be titled in the participant's name for the benefit of the non-spousal beneficiary (e.g., "Mary Smith, Deceased IRA f/b/o Alice Jones"). The PPA also permits the post-mortem transfer of qualified retirement plans to inherited IRAs held by trusts for the benefit of non-spousal beneficiaries. Once the benefits are in the inherited IRA, the beneficiary may stretch the benefits over his or her life expectancy.

Domestic Partnership Agreements

As mentioned above, some states have enacted laws allowing domestic partners to register as such. By doing so, unmarried couples will have many of the rights and responsibilities afforded to married couples. However, in the vast majority of states, domestic partners are not recognized. Therefore, it may be beneficial for unmarried couples to define the terms of their relationship in a written Domestic Partnership Agreement (DPA). A DPA works much like a prenuptial agreement for couples planning to marry.

Basically, a DPA is a legally enforceable contract between two unmarried persons that clarifies the rights and obligations of each person in the relationship. Following are some of the provisions typically found in a DPA: A statement of the relative rights in property acquired before the date of the DPA (for example, such property could belong to the person who earned or acquired it); how income earned by the partners will be divided; how living expenses will be shared; how inherited property will be divided, if at all; whether jointly titled assets are to be created and, if so, how they are to be divided in case of separation; how assets will be divided in the event of separation, and whether post-separation support will be provided by one partner to the other; and how assets will be distributed in the event of death.

Beyond addressing financial concerns, a DPA can help set forth other parameters in the relationship thereby helping to clarify and strengthen the relationship. A DPA can also help to avoid potential disputes and misunderstandings by specifying a dispute resolution mechanism such as arbitration. Because some states do not recognize the validity of DPAs, it is important to consult a local attorney.

Basic Gifting Strategies

Like everyone else, unmarried couples having taxable estates will need more than a Will or Revocable Living Trust to reduce the federal estate tax. They will also need to implement a gifting program. While there is a present lapse in the estate and generation-skipping transfer taxes, it's likely that Congress will reinstate both taxes (perhaps even retroactively) some time during 2010. If not, on January 1, 2011, the estate tax exemption (which was $3.5 million in 2009) becomes $1 million, and the top estate tax rate (which was 45% in 2009) becomes 55%.

Federal estate tax law provides an unlimited marital deduction. Assets left to a surviving spouse through a Will, Trust or Will substitute are estate and gift tax free (if the surviving spouse is a U.S. citizen). In other words, a married couple can defer the estate tax until the death of the surviving spouse. Because of the Defense of Marriage Act (DOMA), unmarried couples are not afforded this opportunity - even in those states that recognize same-sex marriages, civil unions and domestic partners. Therefore, unmarried couples whose assets exceed the estate tax exemption will incur federal estate taxes upon the first partner's death, and possibly state death taxes depending on the state of domicile.

Following are some tax saving techniques available to unmarried couples:

Annual Gift Tax Exclusion. This exclusion allows the donor to make tax free gifts of up to $13,000 per donee per year, with no limit on the number of donees or the donees' relationships to the donor. This exclusion is scheduled to increase in amount, as it is now indexed to the rate of inflation. Lifetime annual gifts under this exclusion do not reduce the donor's $1 million lifetime gift tax exemption. (See below) Moreover, a gift tax return (Form 709) need not be filed for such gifts.

In addition, unlimited direct payments of the donee's tuition or medical bills are not subject to gift tax, nor do they count towards the donor's $1 million lifetime gift tax exemption or to the $13,000 annual gift tax exclusion. However, the funds must be paid directly to a qualified educational institution or medical provider. Education costs do not include room and board, books or supplies. Medical costs do not include amounts reimbursed by insurance companies.

Unmarried partners may earn substantially different incomes or have accumulated different amounts of wealth. The gift tax annual exclusion and the exclusion for tuition and medical costs allow the wealthier partner to transfer assets to the less wealthy partner during his or her lifetime. This strategy will be particularly beneficial when the wealthier partner's estate is over the estate tax exemption, the less wealthy partner's estate is below that amount, and they wish to benefit the same persons at the surviving partner's death.

Lifetime Gift Tax Exemption. In addition to the annual gift tax exclusion, a donor can gift a cumulative total of up to $1 million to anyone during his or her lifetime without any gift tax. This is the so-called "gift tax exemption." Gifts in excess of the $13,000 annual gift tax exclusion reduce the gift tax exemption dollar for dollar. Unlike the estate tax exemption, however, the gift tax exemption does not increase.

Any gift tax exemption used decreases, dollar for dollar, the estate tax exemption available at the donor's death. However, the income and appreciation on the gifted property is removed from the donor's estate, thereby reducing the estate tax. Thus, an unmarried couple can use the wealthier partner's gift tax exemption to make gifts to the less wealthy partner so that the overall estate tax of both partners is reduced.

Gifts to Irrevocable Trusts. Unmarried couples are often reluctant to make outright gifts to partners because the donor loses control over the gifted property. By making gifts to an irrevocable trust, the wealthier partner (grantor) can provide the less wealthy partner (beneficiary) with trust income and/or principal as needed, but can also determine where the remaining trust property will pass upon the beneficiary's death or dissolution of the relationship. Moreover, if it's properly drafted, the assets remaining in the trust can pass, estate tax free, to the "remaindermen" named in the trust agreement upon the beneficiary's death.

To be effective for estate reduction purposes, the trust must be irrevocable and the grantor should not be a trustee or beneficiary of the trust. However, the grantor can, within limits, retain the right to remove and replace trustees and, as noted above, the trust can be designed so that the beneficiary-partner is replaced by another beneficiary already named in the trust if the relationship is terminated.

To qualify for the $13,000 annual gift tax exclusion, irrevocable trusts usually contain a provision giving the trust's beneficiary a temporary right to withdraw gifts made to the trust, at least in part. This withdrawal right is often called a "Crummey" power, named after the Federal Court case that validated this technique.

Irrevocable Life Insurance Trusts. Unmarried couples often purchase life insurance for the benefit of the surviving partner to help supplement future income lost from the inability to do a spousal rollover, and the inability to receive pension survivor benefits. Life insurance can also be used to create an estate to provide financial security for the surviving partner, or to create the liquidity with which to pay estate taxes.

While life insurance proceeds are generally income tax free to the beneficiary, they are still part of the insured's gross estate and are subject to estate taxes. Accordingly, if the insured has a taxable estate (after including the face amount of life insurance), it may be advisable to transfer his or her life insurance policies to an Irrevocable Life Insurance Trust (ILIT).

If the life insurance policy is owned by and payable to an ILIT, the insurance proceeds will be both income and estate tax free. However, if an existing policy is transferred to an ILIT and the grantor-insured dies within three years of the transfer, the death proceeds are brought back into the grantor-insured's estate. This problem can be avoided if the ILIT is the initial owner and beneficiary of a new policy.

Gifts to an ILIT can be made with the grantor-insured's $13,000 annual gift tax exclusion using "Crummey" powers (See above) and/or with the grantor-insured's $1 million gift tax exemption. As mentioned above in connection with gifts to irrevocable trusts, the grantor-insured should not be a trustee or beneficiary of the ILIT. Besides keeping the insurance proceeds out of the grantor-insured's estate, the ILIT allows the grantor-insured to set the parameters upon which his or her partner (as the beneficiary of the ILIT) will receive trust income and principal. The ILIT should also be drafted so that, if the beneficiary is no longer in a relationship with the grantor-insured, another person (already named in the ILIT) automatically becomes the new beneficiary.

Before transferring a policy to an ILIT, applicable state law must be examined to determine if the ILIT has an "insurable interest" in the grantor-insured. If not, the insurance company might not be required to pay the death benefit. It may be possible to avoid this problem by having the insured purchase the policy and subsequently assign it to the ILIT. Under most state laws, the insurable interest requirement applies only to the initial owner and not to a subsequent assignee. As mentioned above, however, if a policy is assigned to an ILIT and the insured dies within three years of the assignment, the death proceeds are still includable in the insured's gross estate. One possible technique to avoid the three-year rule would be for the insured to sell the policy to an ILIT that is designed as a grantor trust.

Advanced Gifting Strategies

For unmarried couples with very large estates, fully utilizing the $13,000 annual gift tax exclusion and $1 million gift tax exemption may not be enough to significantly reduce the overall estate tax. Gifts in excess of the $1 million gift tax exemption are taxed at the same rates as estate transfers. In light of possible estate tax repeal or reform, many people are reluctant to make taxable gifts to reduce estate taxes. Therefore, effective estate planning for persons with large estates must involve strategies that help freeze or reduce the value of assets at minimal gift tax cost. Following are some strategies the wealthier partner can use to shift future appreciation to the less wealthy partner while minimizing taxable gifts to the maximum extent possible:

Low Interest Rate Loans. One simple way to shift potential appreciation from the wealthier partner to the less wealthy partner, without incurring a gift tax, is to make an interest-only loan. The loan must bear interest at the Applicable Federal Rate (AFR) published monthly by the IRS. The less wealthy partner reinvests the loan proceeds, and the appreciation in excess of the AFR will pass to the borrower free of gift tax and will also be excluded from the lender's estate. For the last several years, the AFR has been at all-time lows, making this strategy particularly beneficial. The loan should be documented with a promissory note.

Family Limited Partnerships or LLCs. A Family Limited Partnership (FLP) or Family Limited Liability Company (FLLC) allows the wealthier partner to make gifts to the less wealthy partner on a "discounted" basis while retaining some measure of control over the gifted partnership/membership interest. For example, the wealthier partner could transfer property to an FLLC in exchange for a 1% voting interest and a 99% non-voting interest. The nonvoting interests are then gifted to the less wealthy partner (either outright or in trust). The wealthier partner maintains control over the FLLC's assets through the voting interests by naming him- or herself as the manager of the FLLC. Moreover, the gift tax value of the non-voting interests may be discounted because they lack control and marketability.

Besides the tax reasons for creating an FLP or FLLC (i.e., discounting the value of the property for gift tax purposes and removing the income and appreciation on the gifted property from the donor's estate), there is also a variety of non-tax reasons for using an FLP or FLLC. As mentioned above, the donor can retain control over the management of the entity's property and the distribution of its profits. Assets in an FLP or FLLC are protected (to a degree) from creditors, and FLPs and FLLCs facilitate the making of gifts in much more efficient ways than direct gifts of property, particularly when real estate is involved.

The substantial benefits of using FLPS and FLLCs have subjected their use to increased scrutiny and challenge by the IRS. A recent line of case law has complicated the task of estate planners in advising clients on the use of FLPs and FLLCs. Thus, the proper structuring, administering and defending of the FLP or FLLC must be placed in the hands of a knowledgeable attorney.

Grantor Retained Income Trusts. A Grantor Retained Income Trust (GRIT) is an estate planning tool that has been around for many years. However, the Revenue Reconciliation Act of 1990 effectively eliminated the GRIT as a wealth transfer technique among "family" members. But GRITs are still a viable tool for unmarried couples - one of the few areas of the tax laws where an unmarried couple has an advantage over a married couple.

A GRIT is an irrevocable trust whereby the grantor (the wealthier partner) transfers assets to a trust while retaining the right to receive all of the net income from the trust assets for a fixed term of years. The net income must be paid at least as frequently as annually. At the expiration of the fixed term of years, the remaining trust principal is either distributed to the remainder beneficiary (the less wealthy partner) or held in further trust for the benefit of such beneficiary. However, if the grantor does not survive the fixed term, the assets in the GRIT are included in his or her estate, but any gift tax exemption used in establishing the GRIT is restored. Thus, the grantor is no worse off than if no GRIT had been created. In many cases, it might be advisable for the grantor to create an Irrevocable Life Insurance Trust to own a policy on his or her life to provide the liquidity - both income and estate tax free -to pay the increased estate tax that will be owed if the grantor fails to survive the GRIT's term.

The gift tax value with a GRIT will be only the value of the remainder interest (i.e., the difference between the full value of the property transferred to the GRIT and the present value of the grantor's income interest). The idea is to select a term that will give the present value of the grantor's income interest a substantial value (using the IRS's monthly published discount rate), but that the grantor is likely to outlive.

A big advantage of a GRIT is that if the assets transferred to the GRIT generate income at a rate lower than the IRS's discount rate for the month of the transaction, the net effect is to undervalue the gift to the remainder beneficiary. In contrast, where the remainder beneficiary is a family member, the Internal Revenue Code requires the payout to be a fixed annuity, a so-called Grantor Retained Annuity Trust, or GRAT.

The gift tax value can be further reduced if the assets transferred to the GRIT qualify for valuation discounts (such as an interest in a family limited partnership). It is possible, with a long enough term and a large enough valuation discount, that the gift tax value will be nominal. Appreciation of the asset's value during the fixed term thus escapes estate taxation. The GRIT should be drafted so that, if the grantor and the beneficiary are no longer in a relationship, then another person already named in the GRIT automatically becomes the new beneficiary.

SUMMARY

The laws affecting unmarried couples are changing rapidly. Certainly more changes are likely, even challenges in the federal courts to the Defense of Marriage Act. The different rules concerning property rights from state to state add complexity to the situation, particularly for same -sex couples who move from a state recognizing civil unions or same-sex marriages to a state that does not. For unmarried couples it is important to have some form of estate planning to prevent state default laws from disinheriting their partners. Finally, because unmarried couples with large estates do not have the benefit of the unlimited marital deduction and other advantages that married persons enjoy, they need to aggressively seek out alternative solutions to maximize assets, reduce estate taxes and make use of powerful techniques not available to married couples.

TO THE EXTENT THIS ARTICLE CONTAINS TAX MATTERS, IT IS NOT INTENDED OR WRITTEN TO BE USED AND CANNOT BE USED BY A TAXPAYER FOR THE PURPOSE OF AVOIDING PENALTIES THAT MAY BE IMPOSED ON THE TAXPAYER, ACCORDING TO CIRCULAR 230.

Julius Giarmarco, J.D., LL.M, is the Chair of the Estate Planning Group of Giarmarco, Mullins & Horton, P.C., Troy, Michigan.

http://www.disinherit-irs.com

Article Source: EzineArticles.com

Basic Estate Planning Part 15 of 15

2012-05-02T13:14:00.002-03:00

Real Estate U.S.A. Blogger

The Necessity of Estate Planning and Trusts

2012-05-02T13:14:00.001-03:00

If you don't have a good estate plan, Uncle Sam, your state treasurer or an attorney may be the happiest beneficiaries when you die. Estate planning and trusts are ways of your family avoiding unnecessary taxation and high payments to an attorney that can erode your estate. Proper estate planning doesn't have to cost a fortune and it puts you in control of the division of assets. It gives you control from the grave on the disposition of your items besides saving dollars that you want to go to your family.

The most important part of estate planning is the creation of a will. If you die intestate, without a will, your state has a plan on how to dispose of your property. The state's scheme uses blood relationships to determine who gets the assets of the estate. While you might have a specific person in mind for a treasured item you know they'd love and cherish, the state's plan might give it to another who would never value it as much. Depending on the family that remains when you pass, it could also pass your estate to family members you don't really like and bypass those that really care about you or took care of you.

If you have dependent children, it's important to select guardians for them if something should happen to you and your spouse. Make certain that you ask the party before you name them as the guardian. While they may be the perfect choice, it's a big responsibility that they may not be ready to handle.

You also name an executor or executrix for the estate in the will. This is the person in charge of distributing the property at your demise. It is best to name an alternate in the event that the primary executor is unable to do the job. You can use a spouse for this or a trusted child. This person overlooks the work of the attorney at the time of your death and arranges for the distribution of your property. If you worry about finding you'll want someone else later, don't. You can change any part of your will at any time.

For those starting on the road to estate planning, you'll need an estate planning checklist. The first item on the list is an assessment of all your assets. You need to identify the type of ownership of all the assets on the list. For instance, if you own the property in joint tenancy with rights of survivorship, JTWROS, the joint owner receives the property when you pass. Most married people own their homes and other large items together. In those cases, tenancy by the entirety is the normal type of ownership. The final type of joint ownership is tenancy in common where each person owns a specific percentage of the property and can sell it. Of course, for individually owned property, you need to list the owner of the property.

List all the life insurance policies on your life or those you own. You also need to list the beneficiary of the policies for your estate planning checklist, the cash value, face value and ownership of each policy. Since life insurance becomes part of your estate, in most states and for federal taxation, these factors all become important for larger estates.

List all other assets you own such as real property, automobiles, personal property, antiques, bank products such as checking accounts, CDs or savings accounts, brokerage accounts and other liquid assets. If you don't have a joint owner, use a POD designation for bank products, meaning payable upon death or TOD for investment accounts, meaning transfer upon death. This gives no ownership to the recipient until you pass and you can change it at any time. The benefit of using these designations is that the asset doesn't pass through your estate, meaning it doesn't go through probate and releases immediately to the POD or TOD. Don't forget to list the name of the institution that holds the asset and the account number.

The final items to list on your estate planning checklist are pension plans, annuities, IRAs and other retirement plans. While these items aren't included in your will unless you name your estate as your beneficiary, they are part of your estate and increase the value of your estate. You don't use a will for these types of accounts since you name a beneficiary. Unlike a will, there is no delay in the recipient receiving the asset. It doesn't go through probate and is uncontestable.

Many people don't want their assets listed in the paper and want to make transfer easier for their heirs. To accomplish this, they use a trust. Estate planning and trusts not only make it easier and faster for the transfer, but you also maintain more control on the disposition of assets and use a professional manager to protect your heirs from themselves or increase the value of the estate. Trusts also are a way to minimize federal and state estate taxes when used properly. Often people with special needs children use trusts to make certain that there is adequate money available for their benefit. If your adult child is a special needs child, make certain that you work closely with an attorney so that your forethought doesn't make them ineligible for Medicaid or other benefits necessary for their care.

One reason for listing all the items on your estate planning checklist and considering the estate planning and trusts is to avoid unnecessary estate tax. Estate tax or state inheritance tax is a portion of the money, after certain exclusions, subject to taxation. While the federal exclusion is quite high, $3.5 million, many of the states have much lower limits. People in special situations, such as cohabitation, should speak with an attorney if they want their life partner to receive their estate since exclusions are very low for this type of situation at most state levels, which causes an increase in taxation.

The federal estate tax includes life insurance policies, even though some of the states exclude life insurance, so the use of estate planning and trusts can be very beneficial to those with large amounts of life insurance. Estate planning and trusts can reduce the amount of tax paid by a considerable amount, simply by changing ownership of the policy or through the use of an irrevocable life insurance trust.

While not everyone has a large estate, no matter what the size, it's best to do estate planning and trusts if a trust is necessary. The initial phase of estate planning and filling out an estate planning checklist can take a while. However, once you have an estate plan, you'll find that it's easy to update it every four or five years if there are any changes.

Alan is a contributing writer for http://www.the-baby-boomers-webplace.com. A webplace where Baby Boomers can come together and discuss the issues facing our generation as well as reminisce about the events, people, music, books, movies and etc. that shaped our lives. Come join us at http://www.the-baby-boomers-webplace.com.

Article Source: EzineArticles.com

Estate Planning in Uncertain Times

2012-05-02T13:14:00.000-03:00

Real Estate U.S.A. Blogger

THE MORTGAGE

2011-05-28T14:28:00.000-03:00

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WHEN A NOTE IS TOO OLD TO COLLECT

The statute of limitations on a demand note begins to run on the date the note is due. Point: If the limitation period runs out under local law, the holder of the note cannot collect. Example: A note was payable 30 days after demand for payment was made on or after September 20, 1967. The statute of limitations provided for by local law was six years so the holder of the note could not collect on it in 1974.

LOW- INTEREST LOANS FOR HOMEOWNERS

Homeowners with Federal National Mortgage Association mortgages may be able to obtain considerable amounts of cash by trading in their mortgages. How it works: They receive a new mortgage worth up to 90 % of the home’s current market value, at a rate almost always well below prevailing rates. Those whose homes have appreciated stand to receive significant amounts. To determine eligibility: Check with the mortgage holder. Source: Credit News .

LATE MORTGAGE PAYMENTS

As long as you pay a mortgage payment within 15 days of the due date; it’s unlikely that the bank will complain. Even bankers admit to juggling their finances this way, with no harm to their credit rating.

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