New Blog Location – New Web Site

Southern Oregon Estate Planning & Elder Law blog has moved to a new location at http://legacyplanningllc.com/blog/.  It is now a part of our larger web site.  A new format, new layout, and new info.  Visit today!

 

Fall 2012 Elder Law Update Available

 In This Issue:

• Tax Law Allows Married Couples to Reduce Their Estate Taxes

• How to Protect Your Partner Even if You Choose Not to Marry

• Low Interest Rates Good for Borrowers, Bad for Retired Seniors

• Affordable Care Act Likely to Improve Situations of People with Disabilities

To read the newsletter, click here: Fall 2012 Elder Law Update

 

Little Things Can Cause Big Fights When A Relative Dies

A recent article in Forbes Magazine highlights the probability that poor estate planning will result in family conflict after a death.  ”Three adult siblings bickered over who would get this little blue bowl when their grandmother died. It had been a freebie–packaged with a store-bought Christmas pudding during the 1950s.”

Poor Planning Often Results in Family Conflict

In my practice in Grants Pass and Medford as an estate planning attorney, it’s not unusual at all for me to see families torn apart after the death of Mom or Dad.  Often the parents either did no estate planning, or did the typical “1950′s style” fill-in-the-blank, word processed planning offered by many attorneys which fails to consider how estate plans will affect a family emotionally.

Examples of Poor Planning

Here are a couple examples I’ve seen of planning which guaranteed a family conflict:

1. Parents make one child, often the oldest, the successor trustee of their trust.  Even if the kids got along well before, making one child the trustee “in charge” after death of settling the estate and making distributions to the other children unbalances the status quo of power in a family.  This can lead to feelings of suspicion, jealousy and envy.
2. Parents leave everything to one child with the idea that child will “be fair” in distributing assets to the other children.  Not only does this have gift tax implications, but it engenders feelings of jealousy and suspicion on the part of the other kids.  Also, sometimes a child can be tempted by inheriting all of the estate, and rationalizes that Mom & Dad really wanted them to have more because “I took care of them more than the others” or whatever reason they want to rationalize to keep the money.

 

10 Gruesome Estate Planning Mistakes – Part 1

One of the educational seminars I present is called “10 Most Gruesome Estate Planning Mistakes.”  I find that this approach gets attention and helps people to focus not only on estate planning mistakes, but also how to do good effective estate planning.

Mistake #1 – Dying Intestate

Statistics show that only 4 out of every 10 Americans do any estate planning at all.  However, not having a plan doesn’t mean that you’ve chosen not to do a plan; what it means is that the State of Oregon and the IRS have a plan for you!  It won’t cost anything now, but could cost a bundle later.  Also, the plan the state provides might not be the one you want.

Dying without an estate plan (a will or trust) is called dying intestate.  Since many people die intestate, each state has passed laws with their “best guess” of what a decedent would want to happen with their estate.  The first big negative is that this approach virtually guarantees a probate, since there is no living trust in place to avoid having to go through probate.  This typically means a lot more expense in administering the estate, having to deal with court rules and requirements, and a much slower process.  The second big disadvantage is that if the estate is of an estate taxable size, there is no planning built into the State’s plan to gain the maximum advantage and avoid unnecessary estate taxes.

Also, the State’s best guess of what you want often isn’t what you would plan for yourself.  For instance, did you know that if you have a non-joint child and later marry, your estate will be split 50% with the child and 50% with your surviving spouse?  I had a friend who was estranged from his child and assumed that if he died everything would go to his wife.  Wrong!  He needed his own plan to make sure all of his estate would go to his wife, and to avoid the costs and delays of probate.

Mistake #2: Having an “I love you” will

Most couples who have a plan have an “I love you” will.  What’s wrong with that?

For one thing, having a will means that it is probable the estate will be subject to probate, with it’s delays and extra cost.  Rather than doing the planning in advance, the deceased spouse is simply delaying the work that needs to be done to prepare for a smooth and efficient transfer of assets, and instead is handing off the problems to a spouse or loved ones.

A second disadvantage to an “I love you” will is that it can lead to “unintentional disinheritance.”  Let’s say my wife and I have a will, and when I die I leave everything to her.  Now let’s suppose that she remarries and does an “I love you” will with her new husband.  What happens if she dies first?  She leaves everything that I left her, and all of her share of our estate to him.  What do you think the chances are that he will leave a portion of his estate to the children that my wife and I had together?  Most clients I ask this question respond with “Zero”. They’re right. I’ve had clients tell me that this is exactly what happened in their family.  None of the kids got a penny; it all went to the step-father’s family.  This was likely NOT the intended result of poor planning.

“10 Gruesome Estate Planning Mistakes” Seminar in Grants Pass Dec 4th

What to do When a Trustee Won’t Provide an Accounting?

Last week a financial advisor asked me a question about a friend who is the beneficiary of a trust. Apparently the trustee refuses to provide an accounting of the trust funds, and the beneficiary is concerned that the trustee may be misappropriating the funds for his own benefit. Since the beneficiary is dependent on the trust funds for living expenses, the beneficiary is obviously highly concerned, and would like to verify that funds are being used only for her benefit. The advisor wanted to know what could be done to force the trustee to provide an accounting.

Go to Court?

Normally, the only thing that can be done to force the trustee to provide an accounting is for the beneficiary to go to court and have the court require the Trustee to produce a full accounting. Of course, this is expensive and time-consuming. How could this be avoided? A comprehensive trust should contain detailed instructions regarding how a trustee can be removed (perhaps by the beneficiaries or an independent party) without having to go to court. Another excellent alternative is for the trust to provide for a trust protector.

Trust Protector: Batman Waiting in the Bat-Cave

A trust protector is an individual who can be appointed when needed to perform a number of actions that the trust instructions authorize. For instance, a trust protector can be authorized to correct typographical errors in the trust text, interpret unclear provisions in the trust, and replace and appoint new trustees. It is not necessary for the trust maker to select a specific trust protector in advance. In accordance with the instructions in the trust, a qualified person can be selected for the position when there is a need for a trust protector. A trust protector is like Batman, waiting in the Bat-cave until summoned to action. When the Bat-call comes, Batman leaves the cave and does what is needed. When he’s done, he returns to the cave.

Most Living Trusts Not Adequate

Unfortunately, almost all of the living trusts that I review contain no provisions for removing a trustee, nor do they contain any provisions for a trust protector. Most of them are the typical bare-bones, fill-in-the-blank word-processed forms that estate planning attorneys tend to use. For the benefit of your clients, recommend that they have their estate plans prepared by an attorney who does comprehensive estate planning and understands the value of using trust protectors. If they have one of the typical bare-bones plans already, they should consider having their plans redone.

Oregon Voters Reject Phase-out of Estate Tax

On November 6th Oregon voters rejected a ballot measure which would have phased out Oregon’s estate tax over the next several years.  Opponents to the measure argued that the measure was a giveaway to the wealthy and would only benefit 2 percent of the richest taxpayers while the state struggles to fund basic services.

Two Estate Taxes

In addition to being subject to the federal estate tax, Oregon estates are also subject to the state estate tax, which applies to any estate worth over $1M.    With proper advance planning, a couple can avoid taxes on the first $2M of their estate by claiming both tax credit “coupons” through the use of a credit shelter trust, often known as a “family trust,” established at the first death.  Establishing this trust can also provide the advantages creditor, divorce, and remarriage protection.

Need to Plan for Both Coupon Amounts

Because the maximum “coupon” amount has often differed between the federal estate tax and the state estate tax in recent years (this year the federal amount is $5M, the state is $1M), estate plans need to address how to obtain both the maximum amount for federal purposes and the maximum amount for state purposes.  Many of the typical “fill-in-the-blank” trusts that attorneys provide clients contain formulas that plan only to take advantage of the lowest coupon amount, thus potentially losing thousands of dollars in tax savings for clients with larger estates.

Also, it’s important for clients with an estate plan who move from another state to have their plans reviewed when they move to Oregon.  California, for instance, has no state estate tax, so estate planners typically do not include any provisions dealing with a unique state estate tax in their plans.