Estate Planning

Everyone should have a will, a durable power of attorney and a health care proxy. More sophisticated estate planning is advisable if any of the following situations apply:

1. 1. Your estate or the joint estates of yourself and your spouse exceed the estate tax exemption amount (the federal estate tax exemption in 2009 is 3.5 million dollars.
2. You are a resident or non resident alien or are married to an person who is not a citizen of the United States.
3. You have property in a foreign country.
4. You have minor children whom you would not wish to receive their entire inheritance in a worst case scenario when they reach the age of eighteen years.
5. You have children or other people to whom you wish to leave assets who have special needs (such as children with physical disabilities).
6. You own a closely held business.
7. You own real estate in more than one state.

If any of these situations apply, it would be advisable to consider estate planning which is more complex than a simple wills to better meet your needs and desires.

You should review your estate planning whenever there is a major change in family circumstances, financial circumstances or the law. Your lawyer should keep you updated as to changes in the law that may affect you. However, if you become aware of a change in the law that you think may affect your estate planning, you should not hesitate to contact your lawyer to review your plan.

1. You should also contact your lawyer to review your estate plan if any of the following situations apply.
2. You wish to make specific gifts to people not presently included in your estate plan.
3. You wish to remove people from your estate plan.
4. You wish to change the amounts that you leave to people named in your estate plan.
5. The value of your estate has changed significantly.
6. Your health or the health of anyone in your estate plan has worsened significantly.
7. A new child, grandchild, or other person you may wish to include in your estate plan has been born since the time of the execution of your estate plan.
8. Anyone named in your estate plan has been divorced or is experiencing marital difficulties.
9. You wish to name a different person than the person you originally named in your estate plan as executor, guardian or trustee..

If any of these situations apply to you, it is advisable to review your estate plan. Making changes to an estate plan is often a simple and not very costly procedure. Wills may be changed by the execution of a simple amendment called a Codicil. Trusts may also be amended without the necessity of drafting an entire new trust.

If the only certain things in life are death and taxes, death taxes must be the most certain of all. There are two kinds of death taxes. The first and most common kind of death tax is called the "estate tax". The second type of death tax is called the "inheritance tax." An estate tax taxes the value of the assets in your estate at the time of death and the more assets you have, the greater the tax. An inheritance tax determines the rate of tax by the degree of kinship of the person receiving the assets at the time of the death of the asset holder.

The federal government has an estate tax that applies to all estates over an exempt amount. Most of the states have what is often called a "sponge tax". This means that the individual state having a sponge tax, instead of having its own complicated estate tax system, merely takes as its estate tax a portion of the federal estate tax which if not taken by the state would go the federal government. Because it represents a portion of tax money that if not claimed by the state would revert to the federal government, the result is there is no additional state estate tax burden.

Although most states utilize the sponge tax as a death tax, fourteen states have their own estate or inheritance tax.

The federal estate tax includes generally all property which a person either owned at his or her death or which will be passing as a result of his or her death.

Generally if your assets are held in a revocable trust, that is a trust which you control and which you can either revoke or amend, they will be subject to the estate tax.

The IRS often operates by its version of the Golden Rule which is, "if you have the gold you make the rules." Consequently, the IRS presumes that if there are joint owners of property all of its value should be subject to tax at the death of the first joint owner. Fortunately if it can be shown that the surviving joint owner contributed to the value of the joint asset, the amount of such contribution will not be taxed. In addition, regardless of the amount of the contribution , only half of the value of assets jointly owned by a married person may be subject to tax.

Although life insurance proceeds are not subject to income taxes, they are included in the gross estate subject to death taxes if either the proceeds were payable to the deceased person's estate or the deceased person, during his or her lifetime had what is referred to as "incidents of ownership" in the policy. This means that if the deceased, during his or her lifetime, paid the premiums on the policy or kept the right to change beneficiaries, the value of the policy at death will be included in the taxable estate.

The federal estate tax provides an unlimited marital deduction which means that any amount of assets passing at death to a surviving spouse will go untaxed at that time.

The amount of the exemption is in the midst of a phase in which is raising the amount of the exemption from $1,000,000 to $3,500,000 in the year 2009. For 2008 the exemption amount is 2 million dollars and rises to 3.5 million dollars in 2009.

A Family Limited Partnership is a valuable estate planning and financial planning vehicle which is particularly helpful for estates that would otherwise be subject to estate taxes even after utilizing a Marital Deduction Credit Shelter Trust.

A Family Limited Partnership is a business arrangement that permits the division of the partnership's interests between those partners designated as general partners and those partners designated as limited partners. General partners are those partners or entities such as trusts that manage and control the partnership's assets and actions. Limited partners have no say in the ordinary operations of the partnership and have no personal liability beyond their interest in the partnership for any of its debts.

A Family Limited Partnerships is established by a general partner or partners having a general partnership interest in a small amount, usually between two and five percent of the value of the partnership. A trust may be the general partner so you can achieve avoidance of probate and reduction of estate taxes on the general partner's interest. The remaining interest in the partnership is held by the limited partners. The general partner may also be a limited partner. In a family setting often the parents will be the general partners and give limited partnership interests to their children or trusts on behalf of their children.

Yes, a creditor of a partner is not entitled to any of the assets that are in the name of the partnership because the debt that you have is yours personally and not a debt of the partnership. A creditor is generally only entitled to what is known as a "charging order" against your partnership interest which means that the creditor may only receive the distributions that your receive as a general or limited partner. In circumstances where there are claims against you it is common for distributions from the partnership to you to be reduced. You may, however, still receive assets from the partnership during such time in the form of loans or administration fees which may not be classified as distributions which a creditor may take.

Under present gift tax law you may give $12,000 worth of assets to as many individuals as you choose in any calendar year without incurring any gift tax liability or even having to file a gift tax return. This amount will soon, according to recent tax law be adjusted upward for inflation. However, by giving to children or grandchildren or trusts on their behalf for example, interests in a family limited partnership, you are able to give thirty to thirty-five percent more assets without having to pay a gift tax. The reason for this is that the IRS discounts the value of a gift of a family limited partnership interest because of restrictions on the control and marketability of the interests of limited partners. In addition even though you give away interests in your family limited partnership, you still, as general partner, control the assets and determine when distributions will be made. Additionally if you fund a family limited partnership with appreciating assets you are able to take a significant portion of the value and any appreciation in value of those assets out of your estate for estate tax purposes.

In order to withstand IRS scrutiny it is necessary that there be a legitimate business purpose for the family limited partnership. However this standard is not a difficult one to meet. Protection of your assets from creditors is a legitimate purpose as is having a centralized management of a family's assets.

There are many significant advantages to having your life insurance held by an irrevocable life insurance trust. Foremost for many people is the avoidance of estate taxes. Many people are under the mistaken impression that life insurance is not subject to estate taxes. This is incorrect. Life insurance is included in the estate of the owner of the policy regardless of who the beneficiaries of the policy are. However, if the policy is owned and held by an irrevocable trust it is able to totally avoid estate taxes. In addition an irrevocable life insurance trust provides greater flexibility in handling distributions of the proceeds than would be possible under insurance policy settlement options. Multiple beneficiaries may be flexibly treated under "sprinkling" powers conferred on the trustee.

When a life insurance trust is set up that requires the continuing payments of premiums, the creator of the trust usually makes gifts, often on an annual basis, to provide the funds necessary to pay the premiums on the policy. In order to have these gifts qualify as present interest gifts and come within the $12,000 per person exclusion it is necessary to the beneficiaries of the trust (often a spouse and children) to have the right to choose to receive the funds given to the trust rather than have them used to pay the premium. It is expected that the beneficiaries will not make a demand for such funds, but will rather allow them to be used to continue to pay for the premiums for the trust which will eventually bring them a greater amount.

The name for this power within the trust came from the case of Crummey v. Commissioner a 1968 case against the IRS in which this technique for paying for the premiums for life insurance with gift tax exempt funds was recognized by the courts.

If the creator of the trust places an already existing policy into the trust there is a three year waiting period before the policy is protected from estate taxes. If, however the creator of the trust gives money to the trust to purchase the life insurance directly there is no waiting period.

It has been said that it is better to give than to receive although it can also be pretty good to receive as well. Giving is a major component of the estate plans of many people. There are a variety of reasons for making gifts among them the reduction in estate taxes by reducing the giver's estate. The definition of a gift for estate planning purposes is the transfer of property from one person to another without adequate and full consideration in money or equivalent value. What this means in plain English ( a form of language rarely used and much abused in the tax laws) is that things sometimes not thought of as gifts qualify as gifts for estate planning and estate tax purposes. Examples of such gifts include the sale of a real estate for a dollar, the forgiveness of a debt, assignment of a life insurance policy and forgiveness of loan interest.

The federal government and the states of Connecticut, Louisiana, New York, North Carolina and Tennessee have gift taxes. The gift tax is an excise tax on the right of a person to make a gift to someone else. Therefore the gift tax is paid by the giver. The gift tax is based upon the value of the gift. The rate applied for the federal gift tax is the same as the estate tax.

A giver (often referred to in gift tax laws as the donor) can make tax free gifts of up to $12,000 each to as many individuals in a calendar year as he or she wishes. This amount is being adjusted for inflation annually since 1998 and rounded to the next lowest increment of one thousand dollars.

Yes, if the donor is married, and his or her spouse agrees, the gift can be "split" so that up to two exemptions of up to eleven thousand dollars each can be utilized for each gift even if only one of them actually pays for the gift.

It is the responsibility of the donor to file the gift tax. It must be filed, like your income tax return, on or before April 15th of the year following the year in which the gift was made for gifts that either exceed the annual exclusion amount or for split gifts

If you add the name of someone to a bank account to which they did not contribute, a completed gift does not occur for tax purposes until the noncontributing joint owner withdraws money from the account.

When a gift is made to a trust, you are allowed as many eleven thousand dollar annual exemptions as there are beneficiaries of the trust.

Avoidance of Probate has become something of a national pastime for many people. In fact, it may be a desirable goal. Probate is the name of the legal process in each state for the settlement of a deceased person's affairs (referred to in the law as the person's "estate"). The process may be, depending on the complexity of the estate and the complexity of the individual state's laws, an expensive and time consuming process or in many instances, particularly if the estate qualifies for special treatment under the state laws for settlement of small estates a relatively easy process. Despite what many people commonly believe, almost every estate requires some level of probate however, even a large estate may qualify for the simplified estate procedures if proper estate planning had been done prior to death.

Probate is the process provided for by state law for settling the affairs of a deceased person. It includes having the will (if there is one) accepted by the court, identifying the deceased person's probate assets, gathering those assets, paying the deceased person's debts, paying the deceased person's taxes and finally distributing those assets to the beneficiaries of the will or if there is no will according to the state's laws of intestacy.

Assets owned in the name of the deceased person alone are probate assets and at the time of death must be administered through the probate process. Assets that are not probate property pass outside of the probate process and are not subject to the supervision of the courts. Examples of such property are joint property such as joint bank accounts which automatically pass to the surviving joint owner or owners, insurance policies that name as beneficiary anyone or any entity other than the deceased person's estate and the most popular entity for avoiding probate, the living trust.

A living trust is the name for a trust that is created during your lifetime as contrasted with a testamentary trust which is a trust that is contained in your will. You can set up a living trust during your lifetime and be the initial trustee and beneficiary of the trust. In that situation you do not need to get a tax identification number for the trust, but rather can use your own social security number for the trust and you need not file separate tax returns for the trust, but can just declare the income on your own individual tax return, making the trust easy to administer. By placing assets into the name of your living trust during your lifetime, you can avoid having any of those assets be subject to probate at death.

Just about every state has a special simpler probate procedure for smaller estates. The rules for these procedures differ from state to state. In Massachusetts, for example the procedure where there is a will and the probate assets not including the value of a car do not exceed fifteen thousand dollars is called a "Voluntary Executorship"; where there is no will the procedure is called "Voluntary Administration." These procedures are very quick and economical ways to probate qualifying estates which can, in instances where living trusts have been effectively used, include estates with substantially more assets than the fifteen thousand probate asset limit.

There are many different kinds of trusts that serve a multitude of purposes. Trusts are not just for wealthy people; they may be helpful to just about everyone. The simplest form of a trust is a living revocable trust which is a trust that allows you to be your own trustee as well as beneficiary during your lifetime. Such a trust will keep your assets contained within the trust from having to go through probate thus (oops, legalese) lowering your expenses, speeding the estate settlement and increasing your privacy. Other kinds of trusts serve various other purposes from tax avoidance to caring for people with special needs.

A testamentary trust is a trust that is specifically written into your will document. The disadvantage of this kind of a trust is that by being a part of your will, the law requires that the probate court supervise the trust for as long as it is in effect. This eliminates many of the advantages of a trust such as privacy, speed of administration and reduced costs. A better way for many people is a "pour over will" that is separate from your trust that pours over into a separately existing trust written during your lifetime any assets not already into the trust. In this way your trust avoids probate.

There is no difference except perhaps for the fee which you may be charged by your lawyer for the drafting of such a trust. An intervivos trust is just the Latin name for a living trust. A living trust is just the name for any trust which you have created while you are alive as contrasted to one that is contained within your will and does not become effective until your death. It sometimes seems that the more Latin you find in your documents, the more expensive they are.

Yes, a trust supplements but does not replace a will. Even if you think that you have placed all of your assets into your trust during your lifetime, it often is the case that there are assets, such as assets that you may not have received until shortly before death that are not contained within your trust. Without a pour over will to pour these assets into your trust, your probate will, most likely be more expensive and more complicated than if you did not have a will. In addition a will is needed to name an Executor, the person whom you choose to settle your final affairs, pay your taxes and debts and otherwise see to the closing of your affairs.

A typical "lawyer answer" to this question is yes and no. Some types of trusts can protect your assets from the claims of creditors, but many kinds of trusts, such as the living revocable trust of which you are the trustee will not protect your assets from creditors. If you are interested in having your trust serve this purpose, you should make that clear to your lawyer so that your trust can be drafted to achieve this goal.. As a general rule, in asset protection trusts you are allowed little control over the trust.

The most basic device for avoiding estate taxes for married people is the marital deduction credit shelter trust. This is a form of living trust that also has a number of different names for the same trust. It is sometimes referred to as an AB trust or a Bypass trust. Under the federal estate tax there is an unlimited marital deduction. This means that when one spouse dies passing his or her assets to the surviving spouse there is no federal estate tax due at the first spouse's death regardless of the value of the estate. However the real tax bite comes at the death of the second spouse when every dollar above the exemption amount is subject to the federal estate tax. The exemption amount for 2008 is 2 million dollars. The amount of the exemption for 2009 will be 3.5 million dollars. The marital deduction credit shelter trust allows the married couple to take piggy back (another legal term) their exemptions so that at the death of the first spouse to die, the amount of the exemption is segregated into a portion of the trust called the credit shelter which is available for the needs of the surviving spouse, but is not counted in his or her estate at the death of the surviving spouse. In this way you effectively are able to double the exemption at the time of the death of the second spouse to die.

The marital deduction for federal estate taxes which is the provision in the tax law that exempts from estate taxes any amounts left to a surviving spouse does not apply if the surviving spouse is not a United States citizen unless a specific type of trust called a Qualified Domestic Trust of QDOT is used. This trust has specific legal conditions that must be met in order to be effective, but is very helpful where a surviving spouse is not a citizen.

Relatives of people with disabilities often will find that trusts provide tremendous long term benefits for their disabled family members. A trust can be sued to protect the assets from creditors, place control of the assets in individuals or institutions chosen and trusted by the creators of the trust, while allowing the beneficiaries of the trust to become eligible for public benefits. Medicaid and the Supplemental Security Income program which is administered by the Social Security Administration are the two government entitlement programs that most benefit disabled people. Because trust drawn today are intended to exist for the lifetime of the disabled family member, it is reasonable to expect that the SSI and Medicaid programs will change to some degree during these years. The best of these trusts are written anticipating these changes and providing for methods to protect the assets and the interests of the disabled family members even in the event of law changes.

Despite what the name may seem to imply, a Qtip trust is not something you stick in your ear. It is a form of marital deduction trust often used by couples who may have children from previous marriages. A Qtip trust can avoid estate taxes while providing income for a surviving spouse for his or her lifetime. At the death of the surviving spouse the assets remaining in the trust will pass to the children of the creator of the trust.

There are many variations of charitable remainder trusts, but generally they allow you to set up a trust that may pay you or other members of your family income for life. At the death of the beneficiaries the remaining trust assets will pass to the charity of your choice. When you set up the trust you will receive an income tax deduction that can be used to reduce your current income taxes. You may also save on taxes by putting into the trust stocks that were purchased at a low price, but have increased significantly in value. Your charitable remainder trust can sell these stocks without having to pay a capital gains tax which will also help you avoid considerable income taxes. Often people will use the income tax savings from the charitable deduction and avoidance of capital gains taxes to purchase life insurance for their heirs to replace the assets going into the charitable remainder trust. Most often this life insurance is held by an Irrevocable Life Insurance Trust. For details on this kind of a trust see the specific Web site section on Irrevocable Life Insurance Trusts.

Placing your assets into your trust during your lifetime is very important. In the case of the simplest form of trust, the living revocable trust, in order to avoid probate it is necessary that your assets be placed into the name of your trust during your lifetime. Operating such a simple trust where you can be your own trustee and beneficiary is not complicated. You can use your own social security number as the tax identifying number for the trust and need not file separate federal income tax returns for the trust. Rather, you merely include the trusts's income on your own federal income tax return. In the case of marital deduction credit shelter trusts it is critical that your trusts be properly funded in order to avoid estate taxes. If you set up marital deduction trusts, but kept title to your assets in joint names with your spouse, you would not be able to utilize the tax saving provisions of your trust. It is imperative once you have created a trust to discuss with your attorney the steps necessary to properly fund the trust.