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If you have a credit shelter trust (also called A-B Trust or
Bypass Trust) you should have your estate plan reviewed. While
the current estate tax exemption is $5 million, it is only good
through December 31, 2012. After that the exemptions drops to $1
million -- unless Congress changes the law.
If your estate is between $1 million and $5 million, you need
to pay attention to what Congress does with the estate tax. If
you die between now and December 31, 2012 and have an estate of
$5 million or less, no estate tax! But you may still want to
have your trust amended so that your spouse is not left with an
expensive and cumbersome credit shelter trust to administer that
has no tax advantage to you.
Why should a married couple consider a credit shelter trust
with the current estate tax exemption at $5 million? Once a
spouse dies and the credit shelter trust is created, the assets
grow forever free of federal estate tax. Since the credit
shelter trust is irrevocable, it also protects to some extent
the inheritance of the remainder beneficiaries if the surviving
spouse re-marries. The better choice may be a disclaimer trust
which gives the surviving spouse the greatest flexibility after
the first death. Call today to discuss your options.
Do you want to be cremated? Do you want your parents,
siblings or children to have to give their permission after you
die? If not, be sure your estate plan includes a funeral home
document of immunity. Call today to discuss creating a document
of immunity.
Essential elements of an estate plan are a will, durable
power of attorney, health care power of attorney, living will,
cremation directive and possibly a trust. The agent in your
health care power of attorney should be someone who has the
ability to make tough health care decisions including removing
life support. Your personal representative, agent under the
durable power of attorney and successor trustee should be the
same individual since each document concerns your finances, but
under different circumstances.
You want your ashes scattered on the ninth hole of your
favorite golf course. Your spouse wants them scattered in the
ocean off the shores of Tahiti. Whoa is that legal? Your spouse
is probably safe as long as she complies with the airline
regulations for transporting ashes. In Arizona, cremated remains
may be buried, entombed, placed in niche, scattered over private
land or over public property although a permit may be required.
Or they can sit forever front and center on the mantle (or
closet).
A “Letter of Last Instructions” can tell where the originals
and copies of your will or trust are located. It should also
tell where your marriage and birth certificates are located.
Where your safe deposit box key is and who has access to it. A
list of your accountant, broker and lawyer is also helpful to
survivors. And do not forget the IRS. Are there any outstanding
issues? Please, please do not use this document to tell who gets
your cash or real property. Leave that to your will. Come see us
and we will ensure the distribution of your estate is done
properly.
Savings bonds can trigger a probate if they are not titled
properly. The government allows you to add co-owners, “pay on
death” beneficiaries or to re-title the bonds to your trust.
Contact us and we will help you through the process.
A trust protector is an individual who can be named in your
trust to serve in a variety of ways. It is an independent third
person who can oversee or make changes to your trust after your
death or incapacity. It must be someone completely trustworthy
who understands you so that he or she can ensure your intent is
carried out after your death.
Egad! My child is going to inherit my estate? A trust can
help stretch out that inheritance for a very long time. You say
your estate is not that large to make a trust cost effective?
Then get to work teaching your children money management skills.
Use their allowance to teach them how much to spend, save,
invest and most important of all, how to donate. Children who
think of others before themselves may not develop the galloping
greedies.
Are your beneficiary designations up to date for your
retirement plans, life insurance or pay-on-death accounts? Life
happens and what may have made sense five years ago is now
totally out of whack. Do you have children? Does a child receive
government benefits from which then would be disqualified if
they received an inheritance outright? Have you re-married? Has
a spouse or child died? Call today for a complete estate plan
review.
Unmarried partners face gift and estate tax consequences for
which they should be aware. For example, joint ownership with
right of survivorship in a residence may be subject to gift
taxes if one partner pays more than the other partner for the
home. Make an appointment today to learn about available estate
planning strategies which would avoid such gift taxes.
A new law became effective in August allowing payments from a
special needs trust for medically necessary personal care
services to a “financially responsible relative” as long as the
payments do not exceed AHCCS’ payment rate. Such payments will
no longer disqualify a the beneficiary who is receiving public
benefits if the trustee of the special needs trusts pays the
parent or spouse for providing those services.
You just moved to Arizona. Do you need a new will? In
Arizona, an out-of-state will is valid if its execution complies
with either Arizona's requirements, the law of the place where
the will was executed or where deceased was domiciled at the
time of death. If you have real estate in different states, you
may want to consider a trust in order to avoid costly ancillary
probate proceedings in the various states where your property is
located.
Probate may or may not be required when you die. It depends
on the value of your estate and more importantly how assets are
titled. Personal property with a fair market value greater than
$50,000, real estate with equity less than $75,000 and wages
under $5,000 can generally pass outside of probate. Some
examples of property which can pass outside of probate are:
property held in joint tenancy with right of survivorship,
assets with beneficiary designations, assets held in the name of
a trust, pensions, IRAs 401Ks, profit sharing, life insurance
where a beneficiary is listed and the new beneficiary deed.
A revocable living trust can be used to reduce federal estate
taxes. Trusts have many other advantages, even for smaller
estates. Foremost is management and control. It can be used to
manage your assets upon incapacity or to determine at what age
and under what conditions the beneficiaries receive
distributions. It can protect your estate from your heirs'
creditors. It also provides privacy. A Will becomes a public
record when it is admitted to probate. Since most "pour-over"
Wills use only general language, the terms of your trust remain
private.
Tax season is a perfect time to reevaluate your estate plan.
Are your assets growing? Are you likely to inherit your parents'
assets? Did you purchase life insurance? Did your spouse die
recently? Are you considering a divorce? Do you have children
under 21? Have your children turned 21 since your last Will? Did
your child recently marry, divorce or die? Have you or your
spouse been diagnosed with a serious illness? Have you moved
recently? Have you been meaning to do a Will, but have been
putting it off? A "yes" answer to any one of these questions
means it is time to make that appointment with an estate
planning attorney.
A new baby in the family triggers many things. One of them
should include a review of your estate plan. One technique is a
new Will which pours over into a trust for your minor child. Per
your trust instructions, the trustee can then manage the assets
until your child turns twenty-one or can stagger the
distributions over a longer period. Preplanning with a trust can
bring you peace of mind and provide a responsible way for your
child to attain maturity before inheriting your assets.
A bank safe deposit box can trigger a probate. The bank may
require that a personal representative be appointed for the
purpose of accessing the contents of the box. If you have a
revocable trust, the solution is easy, title the safe deposit
box in the name of your trust.
Your heirs may avoid a probate even if you fail to plan and
you have a small estate. If you have personal property of less
than $50,00 and real estate with equity of less than $75,000,
your heirs can receive these assets by completing the
appropriate affidavit. Why worry? Make an appointment today!
Your spouse met the person of his or her dreams and it is no
longer you. This unhappy state of affairs affects your estate
also. If you were to die before the divorce is final, your
spouse could still take under your Will or Arizona's intestate
succession rules if you do not have a valid Will. A divorce
decree or an annulment, however, cuts off the ex-spouse-to-be's
rights to your estate. Until your status as husband and wife is
officially terminated, your wayward spouse will enjoy the
benefits of your estate. If you do not feel obligated to fund
the new love nest, you may want to consider executing a new Will
immediately.
If you are taking your first sky diving lesson and do not
have a will, a holographic will may be for you. This is a will
in which the material provisions and your signature are in your
own handwriting. Do not use a computer or typewriter. Also, do
not take a will which has been prepared for you by an attorney
and make your last minute changes in the margin. This would not
qualify as a holographic will or as a formal will under
Arizona's witnessing requirements. When you get back from your
lesson, make an appointment with an experienced estate planning
attorney for a thorough estate plan assessment.
Since August 9, 2001, the new Beneficiary Deed is available
in Arizona. This deed is another way to transfer your home to
your children outside of probate. With a beneficiary deed,
people can transfer ownership of their real property upon their
death to a named beneficiary. Property which is owned as joint
tenants with right of survivorship or as community property with
right of survivorship can also be transferred to a designated
beneficiary upon the death of the last surviving owner. This
type of deed is revocable so that if circumstances change you
can name a new beneficiary. Call today to see if this new type
of deed is appropriate for your estate.
Approximately 70% of the adults in this country do not have a
Will. Of course no one wants to think of their death, so they
avoid planning for that eventuality. As a result, writing a Will
stays on the bottom of their To Do List. People wait until an
emergency to do a Will. This is undesirable because serious
decisions are being made under pressure and possibly when the
person is sick or under stress. Something may be forgotten of
left out. If a person dies suddenly without a Will, their family
will have to contend with a confusing mess. Is that really the
legacy you wish to leave? Move that Will to the top of your To
Do List, today.
Are you property rich, but cash poor? A "Crummey" trust may
be for you. A "Crummey" trust is not a lousy trust. Rather, it
is a type of irrevocable trust whereby you transfer cash to your
heirs and still qualify for the annual exclusion. These trusts
are coupled with an insurance policy, often a "second-to-die"
policy. The policy provides ready cash to your heirs upon your
death for paying taxes and expenses while avoiding having to
sell your property in a down market or at fire sale prices. The
proceeds are also kept out of your estate. There are some
simple, but necessary rules you must follow during your lifetime
in order to take advantage of this great estate planning
technique. Call today to see if a "Crummey" trust is for you.
You may need a trust even though your estate is not over the
unified credit limit (currently $1 million). For instance, a
trust can provide a way to take care of a handicapped child, a
child who has a drug problem or a child who cannot handle money.
The trust can be set up in such a way to allow a trustee to hold
back income or principal or to pay the beneficiary's bills
directly. Even though federal estate taxes might not be a
consideration, careful drafting is required in order to avoid
affecting a disabled beneficiary's eligibility for governmental
benefits.
This your second marriage and you do not have a will. What
happens to your estate if you die first? Your estate passes not
according to your wishes, but according to Arizona's intestate
succession rules. Your surviving spouse is entitled to his or
her share of the community property and to one-half of your
intestate separate property. Your children from a prior marriage
get your half of the community property and the other one-half
of your intestate separate property. If you only have children
from your second marriage, your surviving spouse gets your
entire intestate estate. An estate planning attorney can help
you avoid problems unique to second marriage situations.
Preparing your own will is full of expensive pitfalls. For
example, having two people sign your will is not enough. They
must also attest that they saw you sign or heard your
acknowledgment that the document is your will, that you signed
it willingly, and to the best of their knowledge you were over
the age of 18 years, of sound mind, and under no constraint or
undue influence. Otherwise, your beneficiaries will pay a lawyer
to clean up the mess after your death.
On January 1, 2006, the federal estate tax exemption went up
from $1.5 million to $2 million. This exemption increases
incrementally until 2010 when the estate tax will be repealed
for one year. Unfortunately unless Congress acts, it reverts
back to $1 million in 2011.
Beginning January 1, 2006, the annual gift tax exemption
increases to $12,000 per donor, per recipient. You can always
give more and you will not owe gift tax unless your lifetime
gifts over the annual gift tax exemption adds up to $1,000,000.
Under the Katrina Emergency Relief Act there is a dollar for
dollar tax incentive for donations made to publicly supported
charities up to 100% of adjusted gross income. Generally,
individuals are limited to deducting 50% of adjusted gross
income to charity with a five-year carryover for excess
deductions. This one-time opportunity is for cash donations made
between August 28 through December 31, 2005.
Terri Shiavo’s tragic case reminds us that there are often no
clear lines separating life and death. If you want your last
wishes respected a living will and someone appointed by you as
your healthcare proxy is the best guarantee that your wishes
will be carried out.
Watch out if someone tries to sell you a "Common Law Trust,"
"Constitutional Trust," "Asset Protection Trust," "Business
Trust" or the like. Individuals who hawk these trusts are scam
artists. They promise that if you place your assets in such a
trust you can take personal expenses otherwise nondeductible as
"legitimate" deductible business expenses thereby reducing or
eliminating your income taxes. The hawkers often cite the
constitution or scripture as foundation for creating such
trusts. Your common sense tells you, and if you are not
listening then the law certainly will, that these trusts are
fraudulent. The hawkers are gone with your money and you are
left to deal with the IRS.
It is important for single parents to have an estate plan. It
is critical that there is a will naming the guardian and
conservator for your minor children and what ages they will
inherit your estate. A trusted individual should also be named
as agent to make financial and healthcare decisions for you if
you are incapacitated, say in a car accident. Unless a single
parent makes these critical decisions now, a court will do it
for him or her.
You see ads everyday in the newspaper purporting to sell you
a revocable living trust for an incredibly low price. Often
these businesses are nothing more than trust mills. They claim
that your trust has been "approved" or "reviewed" by an
attorney, yet you never meet with one. They enter your name and
a few details into their computer, hit enter, and bingo you have
a trust. There is very little, if any, individual counseling.
Such trusts may not accomplish your unique goals. After your
documents are signed, you may only receive a letter of
instruction on how to "fund" your trust. If a trust is not
funded, an expensive and time consuming probate may result in
order to transfer your assets to the trust and then out to your
beneficiaries. Financial and healthcare powers of attorney
provided by these companies are often written in such general
terms that they are rejected by banks or hospitals. If you have
a problem or question, there is no one to help you. Attorneys
who practice in this area spend many needless hours dealing with
problems created by trust mills. In this case, the old adage
"You get what you pay for" may mean that you get even less than
that.
An Income Cap Trust (commonly called a Miller Trust) is a
type of trust which helps a person qualify for Arizona Long Term
Care (Medicaid) when his or her monthly income is above the
ALTCS limit of $1,656. Under this trust, the person assigns only
so much of his social security or pension income necessary to
the trust so as to come within the income eligibility limits.
When the person dies, Arizona is entitled to reimbursement from
the trust for the "share of cost" expended on behalf of the
person by ALTCS.
On January 1, 2004, the amount you can give away at death
estate tax free was raised to $1.5 million. You can still give
an unlimited amount to your spouse. The problem comes, however,
when the surviving spouse dies and his or her estate is over
this applicable exclusion amount. If your combined estates are
currently close to $1.5 million, you should see an experienced
trust attorney to determine your options. No one wants to pay
more taxes than they have to!
Have you heard of a Private Fiduciary? That is where a person
who is not a relative or is not named in the governing
instrument serves as a court-appointed personal representative,
guardian or conservator for another individual. In order to
serve as a court-appointed Private Fiduciary, a person must be
certified by the Arizona Supreme Court. This requires completing
an application, six hours of training, passing a written test, a
FBI fingerprint check, posting a bond and taking biennial
training. The private fiduciary's fees must be reasonable and
the person must be absolutely squeaky clean honest.
A beneficiary deed is another way to transfer your home to
your children outside of probate. With a beneficiary deed,
people can transfer ownership of their real property upon their
death to a named beneficiary. Property which is owned as joint
tenants with right of survivorship or as community property with
right of survivorship can also be transferred to a designated
beneficiary upon the death of the last surviving owner. This
type of deed is revocable so that if circumstances change you
can name a new beneficiary. Call today to see if this new type
of deed is appropriate for your estate.
Probating a Will can be done either informally or formally.
Informal probate is where everything is accomplished through
pleadings. Informal probate minimizes court involvement. Formal
probate is litigation whereby a formal court hearing is required
and notice must be given to all interested parties. It is used
in cases where someone is contesting the validity of a Will, for
instance. A probate can start out informal, go formal and go
back to informal depending on the circumstances.
One purpose of probate is to determine that a document is the
actual Will of the deceased person. The first task will be to
appoint a personal representative of the decedent in order to
transfer the assets according to the Will. If the person died
without leaving a Will or the Will is held to be invalid, then
the assets will pass by the laws of intestate succession. These
laws can be confusing especially where there are children from
prior marriages. If you have questions, get the advice of an
attorney practicing in this area.
Probate is more than determining the validity of a Will.
Besides handling decedents' estates, probate includes
guardianships and conservatorships for both minors and adults,
mental health and civil commitment proceedings and Uniform
Transfers to Minors Act. Each area has its own unique
requirements and it is best to seek the help of an attorney who
practices in this area to help you.
If you own property with another as joint tenancy with right
of survivorship and the other joint tenant dies, title to the
property automatically vests with you. To establish that fact,
however, you must provide evidence of the death. A simple way to
clear the title is to complete and record an "Affidavit
Terminating Joint Tenancy" along with a certified copy of the
death certificate. This affidavit will avoid delay if you later
decide to sell the property. An estates and trust attorney can
prepare this document for you for a small fee.
You may give away up to $10,000 ($20,000 for spouses) every
year to another person without implicating the federal gift tax.
Anything above those amounts is considered a taxable transfer
which will use up your unified credit. This $10,000 limit is per
donee. Thus, if a couple has two children, they can give away
$40,000 ($20,000 per child) each year. Giving now (instead of by
Will after you die) allows you to enjoy seeing the benefits of
your gift. Such gifts are often used to help a child purchase a
car, house or start a business. Each family's situation is
different and you would not want to give away money you might
need later.
While you may not be feeling overly generous to the government right now, how about your grandchildren? It is relatively simple to set up a gift under the Arizona Uniform Transfers to Minors Act. You can gift just about anything--cash, tangible personal property, securities, life insurance, annuities, real property to name but a few. Generally, the child does not get the gift until age 21. If you consider that too young because of the nature of the gift, consider doing a trust where you can specify the age or ages of disbursement. See next week's tip to find out why you should be careful as to the value of these gifts.
Do you have a durable power of attorney? This is a document that designates someone to handle your financial affairs if you become unable to do so. This person is called your agent or attorney-in-fact. Spouses often choose each other and then their children as successor agents. This agent can only make financial decisions that are in your best interests. This document is especially handy if you are contemplating travel or surgery soon. Agents beware! In Arizona, an agent who uses your property, assets or money for the agent's benefit is subject to severe criminal and civil penalties. Chose a person you trust completely and add one more component to your overall estate plan.
A Living Will is a statement by you to guide or control the health care treatment decisions which can be made on your behalf in the event of a catastrophe. For instance, you may not want to be artificially administered food and fluids if you are in an irreversible coma or persistent vegetative state. If you are pregnant, you may want life-sustaining treatment if it is possible your baby will develop to the point of live birth. While it is often called the "do not resuscitate" advance directive, it can also be used to instruct the decision-makers that you do want your life to be prolonged to the greatest extent possible.
Do you have a health care power of attorney? This is a document that designates another adult to make health care treatment decisions for you if you become unable to do so. Hospitals routinely require you to complete this document prior to admittance. Accidents happen so it is a critical document to have for everyone over the age of eighteen. An attorney practicing in the area of estates and trusts can prepare a health care power of attorney which complies with Arizona's requirements for a small fee or as part of an overall estate plan. Call today.
A flexible estate planning tool is the personal property list. If your Will authorizes a separate personal property list, you can change who gets what on that list without doing a new Will. Personal property is basically all of your stuff - household items, tools, jewelry and the like. In Arizona, it does not include money, real estate or intangibles such as bank accounts. Your personal property list should be signed by you with the items and the beneficiaries described with reasonable certainty. This list is best left for items of small value with your more valuable property provided for under your Will.
Last month's tip discussed how a revocable living trust can be used to reduce federal estate taxes. Trusts have other advantages. Foremost is management and control. It can be used to manage your assets upon incapacity or to determine at what age and under what conditions the beneficiaries receive distributions. It can protect your estate from your heirs' creditors. It also provides privacy. A Will becomes a public record when it is admitted to probate. Since most "pour-over" Wills use only general language, the terms of your trust remain private.
A revocable living trust is created during the Grantor's life by a transfer of property to the trustee. During the Grantor's lifetime, the Grantor can: be the trustee; amend or revoke the trust; and manage the trust property any way he or she sees fit. The trust becomes irrevocable only upon the Grantor's death. It is often used between spouses to preserve the unified transfer tax credit of both spouses in order to lessen federal estate taxes. There has been some discussion by Congress to eliminate or reduce the federal estate tax. See next week's tip to find out why you may still want a revocable trust even if federal estate taxes do not concern you.
Family conflicts with a second marriage can often be avoided with a Qualified Terminable Interest Property or
"QTIP" Trust. QTIP Trusts are useful in second marriage situations where there are children from a first marriage. The QTIP Trust protects the deceased spouse's children from having their inheritance left to the new spouse while providing the new spouse with some financial security. The surviving spouse must receive at least annually, all income from the QTIP Trust but has only limited access to the trust principal. Upon the death of the surviving spouse, the trust principal passes to the deceased spouse's children. To see if a QTIP Trust is an option for you, consult an experienced estate planning attorney.
For married couples with small estates, the best way to title real estate property may be as "community property with rights of survivorship" rather than the more common "joint tenants with rights of survivorship." At the death of the first spouse, each one-half community property interest receives a new cost basis "stepped up" to the fair market value at the date of the first spouse's death. In contrast with joint tenancy, only the deceased spouse's one-half interest receives the step-up; the surviving spouse is entitled to no such benefit. For appreciating property, titling property as community property may double your capital gains tax savings. To see if this potential tax benefit is an option for your estate, consult an experienced estate planning attorney.
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