Archive for the ‘Estate Planning’ Category

Points to ponder before signing a Will.

Monday, February 15th, 2010

Most people who say they want a new Will tell me they only want a “simple” will.  Few of us can lay claim to living a simple life.   As part of your “estate plan” I have the following questions for you to think about.     Be honest with yourself, your attorney and your family.   If the truth is unpleasant admit it so we can work to make the situation better.

Denial does no one any good.   You cannot fix a problem until you admit a problem exists.    There are solutions for almost every problem if we think about what needs to be done before it comes about.     This article is not meant to provide solutions so much as to help determine what issues should be dealt with.

1.   Do I have children from more than one relationship?

2.   Do my children enjoy being with one another and share willingly?

3.   Do I have any children with psychological, emotional or other behavior problems?

Telling your lawyer before the documents are prepared about possible disagreements among your children allows for planning to reduce disagreement and to appoint the persons who can best deal with any disagreements that might happen.     A Trust is often a good tool to reduce the ability of a “problem” child to cause problems, but it is not the only tool.   Healing emotional wounds now is far more effective and cheaper than letting the family go war in court after we die.   Dispute resolution can be built into our documents if small arguments are likely.

4.  Do I own land in more than one state?

5.   Do I have existing health problems or am I likely to develop health problems?

6.   Do I have adequate savings and/or insurance to pay for any possible health care that I may need after retirement?    (consider Medicare supplemental policies, long-term care insurance,  Medicare prescription policies,  life insurance to fund a trust for spouse or child with special needs,  annuities, etc.)

7.   Do I know how much health care is likely to cost in the future?

8.    Do I have a child or spouse who relies on governmental benefits such as Social Security  (SSI or SSDI),  Medicaid or Medicare for health care?

9.   How many people do I trust who would be willing to accept the responsibility of making health care decisions for me?   Have I actually spoken to these people to make sure they are willing to do so?

10.   How many people do I trust who would be willing to accept the responsibility of paying my bills for me and investing my money or assets?   Have I actually spoken to these people to make sure they are willing to do so?

11.    If  I no longer have family members who are able and willing to help me, do I know how to find trained and bonded professionals to help me with my health care and financial decisions.

12.    If I have a child with severe disabilities do I have an existing care plan  with enough detail and explanation that someone else can step in and take care of my child as I do now or better?    Am I  making adequate plans to fund a special needs trust or  to otherwise provide for more than governmental benefits will provide my child?

If you do not get your wishes down in writing now, how is your family going to know just what you want?   Frequently the planning needs of a family with modest means is greater than for a family with significant insurance or other assets.   There is far more to an estate plan than reducing taxes.   Most of us have far less than one million dollars and do not have the spare money to pay for any medical emergency that may arise.   We need “asset protection planning” more than the wealthy millionaire who can afford to spend money we do not even have.

A good elder law attorney can help guide you through the available solutions to each of the potential problems listed above.   A little planning can go a long way.

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Valuation Discount benefits may disappear

Monday, February 8th, 2010

Many sophisticated tax planners have helped wealthy clients avoid estate taxes by using something called “valuation discounts”.    An asset that cannot be sold is worth less than another asset that can easily be sold.   This is a common concept used in business to value various types of property.    This is especially true in the area of corporations, partnerships and other business entities.

A good estate planner could take a valuable and easily valued asset like land, stock in a corporation sold on a stock exchange or even cash and put it into a limited partnership that had no market on which the interest in the partnership could be easily valued or sold.   Further the person with the valuable property could receive a minority interest in the new partnership and the loss of control would create additional valuation discounts on the value of the partnership.  This is true even though the assets within the partnership remain easily valued and easily sold.

New tax regulations are being prepared that will create a category of “disregarded restrictions” for family owned entities.   This will result in the property being valued for tax purposes as if the container with the value discounts did not exist.   This is going to be a highly partisan and heavily lobbied issue.

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New Income Tax Problems & Probate

Monday, February 8th, 2010

We are finally in the tax year no one thought would really happen.   This year we have no “Death Tax”.

Rule 1:  If you are the Executor or Administrator for the Estate of someone who dies this year make sure you talk to an experienced CPA or other tax preparer.  This is going to be an issue missed by many probate attorneys who do not also work with estate planning or tax issues.

The issues for the beneficiaries on their tax returns are going to be complicated and have to do with something called “tax basis”.  The good news is that this year will be the only year probate administrators will need to deal with this issue.   The tax rules that existed in 2000 will lock back into place and we will again be able to use the step up in basis rules again.

Even better is that for those of us with a small estate  our executor can elect to create a “stepped up” basis  of up to $1,300,000.00 of $3000,000.00 if the property passes to a surviving spouse.

Until this year heirs and beneficiaries received a tax basis on inherited property based on the Fair Market Value at the date of death.   Frequently called “stepped-up” basis.  This is a fairly simple value to obtain and results in very little income tax due when the property is sold by the beneficiaries.   This is especially true if the property was sold soon after the death of their parent or spouse.

Now the  beneficiaries’ tax basis is  the tax basis of the person who died (Decedent).    Generally this will be the amount that the Decedent paid for the property plus certain other amounts spent on the property.

More likely than not, most of the Decedents did not keep the records required to establish the tax basis and the beneficiaries will have no idea of where to look for those records.   This could create large income tax bills for beneficiaries with an executor who did not hire a good tax preparer or persons with larger estates.     On the other hand in a large estate the amount saved on not paying the estate tax more than offsets the additional income tax on gains from the sale of what will probably be long-term capital assets that are taxed at much lower income tax rates.

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Death, Debt and the Surviving Spouse

Wednesday, December 2nd, 2009

Frequently the most expensive time in a person’s life is the last few months of life. Few of usstop to consider the high cost of medical care, including nursing care, that often piles tens ofthousands of dollars of debt on a family. These debts combined with the high cost of a funeral, preexisting debts and the emotional devastation of a prolonged illness or sudden death can overwhelm family members.

The emotional devastation is hard enough to handle without having to deal with creditors who may have little, if any, consideration of the family financial and emotional situation. Fortunately, in Texas, the Probate statutes provide substantial protections to a surviving spouse and minor children.

It is critical that the spouse consider his or her budget and allocate funds to the most necessary expenses. This may seem obvious, but the surviving spouse may also be suffering from health issues that prevent him or her from thinking clearly. Often, the spouse who dies first is the spouse who took care of the family finances and the survivor may not have complete knowledge of the assets, debts and finances.

Creditors may demand that a surviving spouse pay for a debt without consideration of whether the spouse has any legal duty to pay the debt. Debts are a contractual matter and the survivor may have no contractual responsibility to pay many of the dead spouse’s debts. The only responsibility may be to pay from assets within the estate that are not “exempt”. Exempt assets are those assets that may not be taken to satisfy a judgment by an unsecured creditor. The list of “exempt” assets may be found in the Texas Property Code Sections 41 and 42. You will normally see the sections written as Tex. Prop. Code §41.001 et seq. (Meaning each of the following sections in Subchapter 41 concern homestead law).

A creditor is secured if the contract provides that an asset may be taken if the loan is not paid. Usually a secured lender will have provided the original funds to purchase the asset. An oversimplified list of exempt assets includes the home, one car for each person in the family who can drive, most items within the home such as furniture, furnishings, clothing, dishes, food and lawn care equipment. Pensions, life insurance, social security checks and IRA accounts are also protected to one extent or another. The exempt property law for Texas differ from those of other states and the Federal Bankruptcy exemptions. You need to consult with an experience attorney if these type of issues arise.

Sometimes a creditor or it’s agent will demand payment in a manner that is harassing,abusive or by making statements as to what it can legally do that are false. Creditors do not have the right to call you multiple times a day, to make statements about the debt to anyone who is not on the contract (except for authorized agents) to threaten imprisonment or arrest, to threaten to take assets that are not actually security for the debt, to threaten to garnish your paycheck, social security check or other sources of income. If the creditor or it’s agent did any of these actions please contact me or an experienced consumer attorney.

There are many options on how to proceed in probate. One option functions to an extent like a bankruptcy. In a dependent administration creditors are required, when provided proper notice, to file claims with the administrator. The administrator can require proper proof that the debt is valid. Often creditors fail to file a claim or to present the claim correctly.

The Texas Property Code and Texas Probate Code work together to permit the surviving spouse to choose to live in the family homestead for life or minor children until adults. This is subject to the duty to pay the property taxes, maintain the property and pay any mortgage on the property. If other persons own an interest in the home they may have a duty to pay a proportionate part of the principal on the mortgage. The spouse can also set aside certain exempt assets including a car and the household furnishings. The survivor and/or minor children may be to set aside a fund of cash equivalent to one years support depending on the resources otherwise available to the survivor. These exempt assets can be set aside to the surviving spouse or minor children even if the Will provides for a different distribution.

As in bankruptcy, debts are classified as to which debts must be paid according to a set statutory priority. In addition, many assets are not required to be available to pay debts as explained above. Secured creditors such as mortgage lenders and car lenders can be required to choose between taking the asset or accepting payment of the debt if the survivor is not able to pay the debt.

Creditors may also be required to wait for at least six months once the estate is in administration before requiring possession of the property. This is a very complex area of law. Some of the above rights are available only in a probate proceeding, other rights attach even outside probate. For an understanding of how the law might affect you please call me for additional information at 817-795-8843, or email me at ckennedy@texaswillplanner.com

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