Minnesota Estate Planning and Probate

Balancing Gifts from your Estate Amid Soaring Farmland Prices

2012-01-18T08:41:00.000-08:00

For those of us in the upper Midwest, the news that prices for farmland are soaring isn't new. The Des Moines Register had a great article recently about how soaring prices are affecting gifts of family farmland. http://www.desmoinesregister.com/article/20120115/NEWS/301150059/-1/CAROUSEL/As-farmland-prices-soar-will-family-farms-survive-

The article rightly points out that, without proper planning, chaos can ensue if not all children are part of the farming operation. Soaring prices have greatly complicated things as it increases the burden on the farming children to compensate the others to get control of all of the land. There are some ways to address this issue. Giving the farmland to the farming children in your will while taking out life insurance to pay out to the others is one option. Another option is to place the land and operation in a qualifying entity that will control the land and fairly disperse proceeds. If you have a family farm, consider meeting with an attorney licensed in your state to do what you can now to keep the family farm going after you pass away.

2012-01-09T14:35:00.001-08:00

Minnesota Estate Planning and Probate named an MSBA Top 25 Blawg of 2011! Thank you Minnesota Bar Association! Check out the link for more honorees. http://practiceblawg.com/top25/2011-selections/

Considerations in Naming a Non-Citizen as Your Child's Guardian

2011-12-28T13:52:00.000-08:00

Naming a guardian can be one of the most important parts of your estate plan. With increasing movement between countries, the person you trust most to raise your child in your absence might be a non-citizen. What, if any, additional concerns does that raise?

1. Will a court agree?
Naming a guardian in a will lets a probate or family court know what your wishes are as to who should care for your child. In any case, a Minnesota court is going to look at the best interests of the child. Your choice will be a weighty consideration for a judge. They will balance any other issues the citizenship status of your named guardian raises.

2. Will and should your child be as mobile as their guardian?
The lack of US citizenship ultimately means that either your guardian does not live in the United States or there is a chance that they may not be able to renew their residency. Should that occur, will it be possible for your child reside in the guardian's home country? Is that desirable? These questions should be considered before deciding on a guardian. You should also factor the cost of your child's possible immigration into your life insurance.

3. Should your guardian be the trustee of your child's trust?
Most estate plans for parents with minor children include a trust. Most of those parents name the guardian as the trustee for that trust. That normally makes sense. If you trust someone enough to raise your child, you trust them enough to control your child's finances. However, current IRS rules place a heavy burden on trusts that benefit US citizens, but are controlled by non-citizens. Will your named guardian be savvy enough to deal with burdensome IRS reporting regulations or do you need to make other plans? Additionally, if your guardian resides abroad, being a trustee may create tax implications in their own country.

If the person you most trust to raise your child is not a US citizen, there are many additional issues to consider. While ultimately you may still want to name them as your child's guardian, you want to address any issues their citizenship status creates.

Brouhaha Over Paterno Transfer

2011-11-30T13:32:00.000-08:00

Among all of the legal brouhaha the Penn State scandal has raised, there was one going around estate planning circles this month. In July, Joe Paterno transferred the home to his wife for $1. Journalists speculated whether this was to shield assets, therefore an indication that perhaps the coach knew that a scandal might be on the horizon.

Many Pennsylvania attorneys who practice in civil litigation quickly ended this theory, pointing out that Pennsylvania law already exempts the home from judgments. There was really no need to protect the home from creditors. So what's going on?

A simple transfer to a spouse doesn't have great estate planning consequences, unless one is having health issues and such a transfer could prevent control issues from arising or if the transfer is made to a spouse as trustee of a trust. Both appear to the the case. The New York Times had a great discussion of how a transfer to a spouse as trustee of a trust can have great tax benefits. In the end, there really isn't much to have a brouhaha about.

How to get an EIN.

2011-10-31T11:29:00.000-07:00

So, you've been named a personal representative of an estate. You've found the will, met with an attorney, had them file the paperwork with the court and received your letters testamentary. You've gone to the bank to set up an account for the estate and the bank asks for an EIN number. What the heck? First of all, an EIN number, or "employer identification number" is the equivalent of social security numbers for entities, like businesses or estates. Obtaining an EIN number is free, easy and fast. The Internal Revenue Service issues EINs online at http://www.irs.gov/businesses/small/article/0,,id=102767,00.html . Upon entering the requested information, including the social security number of the decedent and your own social security number, you'll immediately be issued an EIN. Once you receive the EIN, let your probate attorney know and give them the number for their records. Unlike a lot of things with probate, this is an issue that can be resolved immediately and at no cost.

Repost: What is an International Will?

2011-09-28T07:27:00.000-07:00

It's almost the end of the month and I'm spending it in Germany on vacation. Rough, huh? In honor of vacation and generally taking things easy, I reposting a blog entry from 2010, with some additional information.

What is an international will?

Just like different US states have different rules about what it takes to make a writing a valid will, different countries have different rules regarding what it takes to make a writing a will. For individuals who reside in a country other than their country of citizenship or own property in another country, these differences can create major headaches when it comes time to probate a will.

In order to prevent just those type of headaches, the 1973 Convention providing a Uniform Law on the Form of an International Will provides for unified requirements to cause a writing to be valid in any signatory country. Following these requirements allows for a one-document fits all affected jurisdictions approach to drafting a will, assuming all the jurisdictions are signatory countries. The convention is a great help for those living in an increasingly globalized society and can be found at http://www.unidroit.org/english/conventions/1973wills/1973wills-e.htm

However, because probate law is ruled by the states and not the federal government, the
benefits of this treaty only clearly apply to residents of those states which have adopted the provisions of the treaty into their probate code. Luckily for Minnesota residents, Minnesota has adopted the provisions in Minnesota Statutes 524.2-1001 et al.

Some of the major additions to a normal will that are requirement for international wills, is for each page to be numbered, for each page to be signed by the testator, and for the will to be witnessed by an "authorized person" in addition to the standard witnesses required under state law. An "authorized person" in Minnesota is anyone licensed to practice law in the state of Minnesota.

If you reside in a country and have citizenship in another or have property in other countries, speak with an attorney licensed in your jurisdiction of residence who has experience with international wills.

Additional information: If the country you are dealing with is not a signatory to the convention, don't be discouraged. Not all, but many jurisdictions recognize the validity of a out-of-state or out-of-country wills as long as it meets the requirements of where it was executed.

The Fertile Octogenarian May Exist

2011-08-17T09:36:00.000-07:00

Yahoo news is reporting that 94 year old Zsa Zsa Gabor may be trying to be the fertile octogenarian.

http://news.yahoo.com/94-old-zsa-zsa-gabor-going-mother-153309072.html

The "fertile octogenarian" is a legal notion that causes good estate planners to plan for additional children born after the will is signed, no matter the age of the testator (person signing the will) or the likelihood that they may have biological children. Who knows, the testator could always adopt... or be Zsa Zsa.

Planning Can Keep a Tragedy from Turning into a Circus

2011-07-29T08:51:00.000-07:00

Anytime someone in their twenties passes away, it's a tragedy. That's the same for Amy Winehouse, regardless of her addiction history. However, from early reports, it appears that proper planning may prevent the tragedy from turning into a legal circus.

http://money.usnews.com/money/blogs/alpha-consumer/2011/07/27/amy-winehouses-financial-legacy

Something this article points out is that her estate plan will likely prevent portions of her estate to be awarded to her ex, Blake Fielder-Civil. This is an important point. Most jurisdictions, whether in the US or in another country, have rules about how an estate will be split out when you don't have a will, what we call dying intestate. These rules use assumptions about how most people would want their estate to be dispersed. However, those assumptions may do something that you don't want to do; for example, apparently in the United Kingdom, filter assets to exes. If you know anyone in your life that you want to make sure doesn't receive your estate, meet with a licensed attorney to review the likelihood that person could receive a portion and what you can do now to prevent a circus later.

Who's in Their Right Mind Anyway.

2011-06-16T08:40:00.000-07:00

A probate court in Pennsylvania is determining whether the heir to the DuPont fortune had the capacity to execute a valid will. http://www.philly.com/philly/news/pennsylvania/123980894.html

In Minnesota, testamentary capacity means that the person executing the will knows the "nature, situation, and extent" of their property, the claims of others on their estate, and be "able to hold theses things in their mind" long enough to make a rational decision in distributing their assets. Check out the case of In re Estate of Torgersen, 711 N.W.2d 545, for more explanation. You don't have to be a financial genius to have capacity, just need to meet those three minimum requirements.

If you are setting up your estate plan and are thinking about disinheriting someone, a good idea is to request that your attorney ask you questions to demonstrate your capacity and record that conversation. That way, if anyone questions whether you had capacity when you made the will, there will be evidence showing that you did. If you're setting up a plan that disinherits someone, speak with a licensed attorney in your area about preventing questions of capacity.

Pre-nups Have a Place in Estate Plans

2011-05-31T10:11:00.000-07:00

There are a variety of good reasons to enter into a pre-nuptial agreement, also referred to as an ante-nuptial agreement, with your soon-to-be spouse and not all of them include divorce. A more important, and hopefully likely, scenario is that you will be happily married until one of you passes away. However, without proper planning, property could pass in a way that neither you nor your soon-to-be spouse intend.

For example, if you have family farm property, normally your interest will go to your spouse upon your death. If your spouse gets remarried and fails to properly plan, their new spouse may get an interest in your family’s property. Additionally, even if you specifically give property to someone other than your spouse in your will, there are statutory rights for the spouse that can only be waived through an ante-nuptial or post-nuptial agreement. This can especially become a concern if you have children from a prior relationship.

If you have family farm land or this will be a second marriage, a pre-nuptial can be a valuable addition to your estate planning documents. If you think a pre-nuptial or post-nuptial might be right for your circumstances, contact a licensed attorney in your state.

Being Late to Your Own Funeral: How to make your funeral wishes known.

2011-04-15T14:06:00.000-07:00

In a final act demonstrating her sense of humor, Elizabeth Taylor gave instructions that she be late to her own funeral.

http://content.usatoday.com/communities/entertainment/post/2011/03/elizabeth-taylor-late-for-her-own-funeral/1

Every once and awhile, I'm asked how to make your funeral wishes known. In fact, some people believe that is the main purpose of a will. However, I don't recommend funeral and burial wishes be placed in a will. A big reason is that it can take some time to locate the will, especially if it is in a safe deposit box that only you have access to. Burial decisions need to be made quickly and some decisions might be made before anyone sees your will.

A better place to put your burial instructions is in your health care directive. Health care directives name the person, the health care agent, who has the power to make decisions regarding your health care if you are incapacitated. It also is a way to communicate your wishes regarding end of life care. While burial wishes do not necessarily fall under the powers of a health care agent, a health care directive can be used to communicate those burial wishes. Once you have your wishes stated in your health care directive, you can share a copy with your named agent.

It is important to note that practically, it may be impossible to ensure your wishes are enforced. Anyone petitioning the court on your behalf won't get a hearing until likely long after you've been buried.

Minnesota Estate Planning and Probate a LexisNexis Top 25 Blog!

2011-04-05T08:14:00.001-07:00

I'm honored to announce that Minnesota Estate Planning and Probate has been named a top 25 estate planning blog in the nation by LexisNexis. http://www.lexisnexis.com/community/estate-elderlaw/blogs/topblogs/archive/2011/03/31/the-lexisnexis-top-25-estate-planning-and-elder-law-blogs-of-2011.aspx Click on the link to find other top 25 blogs and to vote on your favorite. They'll announce the top blog on April 20th. I know I'm going to check out the competition and find some new blogs to follow.

You Don't Have to be American to Fear the Tax Man.

2011-03-14T13:56:00.000-07:00

As Ronald Reagan said, “If it moves, tax it.” This statement is no more appropriate than in the case of those who make movement between nations a way of life. Obviously, American citizens have to deal with estate taxes, or at least know whether their estate isn't big enough to have to pay taxes. However, as a recent article on the Wall Street Journal reminds us, even non-citizens... and, in fact, non-residents may have to be concerned with US estate taxes.

Non-resident, non-citizen decedents, who have real property, personal property or securities located in the United States are liable for estate tax for those assets if the total fair market value of the assets located in the US exceeds $60,000.00. This is unlike American citizens or residents who are liable for their worldwide estate. In fact, if the decedent made significant gifts during their lifetime, that $60,000.00 exclusion could be even lower.

However, that doesn't mean that every non-resident, non-citizen whose US assets exceed $60,000.00 will have tax due. Tax treaties may reduce the amount owed. For example, if you are a German national, the 1998 Protocol Between the US and Germany amending the 1980 tax treaty allows for an exemption equal to the greater of the ratio of property situated in the United States included in gross estate to property included in gross estate wherever situated times the unified credit allowed for citizens in that year or the $13,000 credit allowed to all non-resident non-citizens. The IRS has a handy link to the current tax treaties in force.

If you are a foreign national with American assets, speak to an attorney versed in US estate tax and international tax treaties to determine how you may be affected.

Why does my estate planner need to know if I'm a citizen?

2011-02-22T07:42:00.000-08:00

When I put an estate plan together, I always start out with a will questionnaire so that I have all of the information I need to determine what documents are needed and to draft those documents. One of the questions is the client's citizenship and place of birth. I've had quite a few clients ask why I have that on the questionnaire.

One of the big reasons that your planner needs to know your citizenship is to know what estate tax rules apply to you. I've posted about this issue before, but the basic concept is that the estate tax exemption is not always available to non-US citizens. Another reason is to know if an international will is appropriate and to know if foreign law may apply to certain portions of your estate and plan accordingly.

A basic reason is Minnesota law requires that, for any decedent either born in a foreign country or leaving heirs or devisees who reside in a foreign county, notice for any probate proceeding must be provided to the consul or other representative of that country. Giving proper notice is important, because it starts the window that creditors or possible heirs can bring claims. If proper notice isn't given, claims can be brought against the estate long after the family and personal representative thought the matter was closed. I include a reference in my wills regarding the client's citizenship and location of birth, if in a foreign country, in order to give the personal representive and their counsel a head's up so they can give correct notice.

If you have foreign citizenship or were born in a foreign country, be sure to let your estate planner know. Also, be sure to work with a planner who knows the consequences that your citizenship or place of birth will have on your estate plan.

The 2010 Tax Cut Compromise and Estate Planning.

2011-01-04T15:34:00.000-08:00

Recently, as part of the 2010 tax cut compromise, the President and Congress agreed to put some certainty back into estate planning. As I've addressed in past posts, the federal estate tax exemption increased over the past few years, with a full repeal of the tax in 2010. However, a sunset provision in the tax code meant that the tax was set to return in 2011, with the exemption going back to $1 million. That created some uncertainty for estate planners.

However, the recent compromise brought some certainty back to estate planning. The exemption for the next two years is $5 million at a maximum rate of 35%. However, the compromise also has a sunset provision, which means in two years the exemption will go back to $1 million.

Even if the federal exemption becomes set on a long term basis, that doesn't mean you're in the clear if your estate is approaching $1 million. Many states have their own estate tax and may have their own exemption that does not match the federal exemption. Minnesota's estate tax exemption, for example, has been $1 million for many years and there is no talk of an increase. If your estate is nearing a value of $1 million (and remember that your taxable estate includes most life insurance), speak with an experienced estate planning attorney in your state.

It's that time of year... so what tax issues do I need to worry about with giving gifts.

2010-12-06T11:58:00.001-08:00

There is a federal tax on gifts... that being said, you obviously don't need to file a gift tax return or pay gift tax on every gift you make. If that were the case, we'd all be guilty of violating tax law.

Here are the rules of the road. Each year, each person can give up to the annual gift tax exclusion for each person they are giving gifts to, without incurring a gift tax. This year, that amount is $13,000.00. However, even if you give your adult child a car valued at more than that, you likely won't have to pay taxes.

For gifts that exceed the annual exclusion, the person making the gift can use a part of their lifetime unified transfer credit to avoid taxes. So, if you gift more than $13,000.00 to another person, file the return but consider taking a part of your lifetime unified credit.

Another point to consider, if you are gifting for tax purposes and want the gift to happen this year, you have to make sure the gift is fully transferred by year end. That means if you give a fat check to your favorite nephew on Christmas morning, make sure it gets cashed by 2011.

If you are giving large gifts this year, talk to your CPA and attorney to make sure you avoid unintented tax consequences.

Taking a Break

2010-06-16T13:16:00.000-07:00

Minnesota Estate Planning and Probate is taking a hiatus for a few months. I'm running for the Minnesota House of Representatives and focusing my attention on the race. I'll still get comments and will try to respond in a (somewhat) timely manner. See you in November!

Unintended Consequences of Putting Off Estate Planning

2010-04-15T08:37:00.000-07:00

The Sacramento Bee has an excellent article today about how the recession is effecting estate planning and how putting off estate planning can have unintended consequences.

http://www.sacbee.com/2010/04/11/2668226/personal-finance-estate-planning.html

One of the major issues that can arise is when siblings fight over usually inexpensive but emotionally valuable items. This can easily be prevented through a will. In Minnesota, a personal property list can be created that explicitly states who gets what item. There are some requirements for a valid personal property list and some limits on what it can cover.

If you want to prevent a deterioration of family relationships after you've gone, speak with a licensed attorney in your state

What is an international will?

2010-03-29T06:57:00.000-07:00

Just like different US states have different rules about what it takes to make a writing a valid will, different countries have different rules regarding what it takes to make a writing a will. For individuals who reside in a country other than their country of citizenship or own property in another country, these differences can create major headaches when it comes time to probate a will.

In order to prevent just those type of headaches, the 1973 Convention providing a Uniform Law on the Form of an International Will provides for unified requirements to cause a writing to be valid in any signatory country. Following these requirements allows for a one-document fits all affected jurisdictions approach to drafting a will, assuming all the jurisdictions are signatory countries. The convention is a great help for those living in an increasingly globalized society and can be found at http://www.unidroit.org/english/conventions/1973wills/1973wills-e.htm

However, because probate law is ruled by the states and not the federal government, the benefits of this treaty only clearly apply to residents of those states which have adopted the provisions of the treaty into their probate code. Luckily for Minnesota residents, Minnesota has adopted the provisions in Minnesota Statutes 524.2-1001 et al.

Some of the major additions to a normal will that are requirement for international wills, is for each page to be numbered, for each page to be signed by the testator, and for the will to be witnessed by an "authorized person" in addition to the standard witnesses required under state law. An "authorized person" in Minnesota is anyone licensed to practice law in the state of Minnesota.

If you reside in a country and have citizenship in another or have property in other countries, speak with an attorney licensed in your jurisdiction of residence who has experience with international wills.

I did my will... now where do I put it?

2010-03-29T06:54:00.001-07:00

Okay, so you finally got it together and got a will signed. First of all, good for you! Far too many people put it off, never get around to it and their friends and family are eventually left to clean up an intestate mess. Now, what do you do with the binder, file or otherwise fancy document you left the attorney's office with? Here are some options.

1. Leave it with the attorney. Some offices provide this service and it sounds good, what better place to put it than your attorney's office? However, I wouldn't necessarily recommend it. The main reason is that hopefully you won't need the will for many, many, many years. In that time, the attorney could retire or close shop or the firm could merge with another. This could leave your loved ones scrambling to find the original. Sure, you may have a copy, but many probate courts will put up additional hoops if you can't provide the original.

2. Put it in your safe deposit box. It is secure, but consider that you will not be around to open it up. Check into how your love ones can get access when you're gone. There have been far too many instances where a will is in a deposit box with no one able to get access to it.

3. Check your county courthouse. In my county, Fillmore County, Minnesota, you can deposit your will for a one time minimal fee of around $20.00. This is a great, cost-effective option, because you know the county courthouse isn't going anywhere.

Of course, you can always keep the will in your home, but you should keep it in a waterproof and fireproof safe and let your love ones know how to get access to it if you're not there to do it.

Congratulations on getting that will done, now make sure your investment is taken care of.

Dealing with your E-Estate

2010-02-01T07:45:00.001-08:00

Estate planning and probate generally deal in concepts that have been around for centuries, like life estates and fiduciary duties. However, there's a new frontier in estate planning, your digital estate.

http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2010/01/31/BUEV1BPKAR.DTL

Some companies have popped up to offer services to email your contact list upon your death, provide access to your usernames and passwords to your next of kin, and closing out your facebook account.

As the twitter generation grows older, we may see many people who find this to be a useful service.

Theft from Estate

2010-02-01T07:43:00.001-08:00

The Chicago Tribune is reporting on an alleged $140,000 theft from an Iowa estate.

http://www.chicagotribune.com/news/chi-ap-ia-iowa-estatetheft,0,7766795.story

Unfortunately, theft from estates can happen. When you get your will together, you will name a "personal representative", which is also known as an executor. This person will have the responsibility and access to deal with your financial affairs after your death. This person has a lot of power, so be sure to name someone who you trust with your finances.

If you think a personal representative is not entirely on the up-and-up in dealing with an estate, there are some things you can do if you are a creditor, family member or other interested person. Some examples are requesting an accounting of the estate from the personal representative or petitioning the court to supervise the personal representatives actions. If you are concerned about a personal representative's conduct, contact a licensed attorney.

Can Family Court Trump Your Clear Wishes?

2009-12-31T13:57:00.000-08:00

Last week, the Minnesota Court of Appeals ruled in a case, brought as a part of a divorce, that may have major implications for estate planning.

In re the Marriage of Angell, A09-349, the Court reviewed a family court decision to split insurance and survivor's benefits between parents of soldier killed in Iraq, even when the beneficiary designation clearly named only the mother as beneficiary. Generally, survivor benefits, inheritances, insurance proceeds and the like are considered non-marital property. This designation ends up following the probate courts' rule of thumb, to follow the decedent's wishes.

In this case, the family court used a family law statute which allows the court to award non-marital property, if in the interest of fairness, and split the proceeds. Court of Appeals remanded, or gave it back the lower court, on the basis that the court couldn't apply the Minnesota statute to federal benefits because federal law prohibits attachment to federal benefits and the federal law trumps. However, the ruling leaves open the question of whether the family court can go against a decedent's wishes and give some assets to a beneficiary's spouse when a federal statute is not involved.

It looks likely that this will be appealed to the Minnesota Supreme Court, which may or may not give more guidance.

You can find the case here,
http://www.lawlibrary.state.mn.us/archive/ctappub/0912/opa090349-1229.pdf

The Dark Side of POAs.

2009-12-18T13:58:00.000-08:00

CNN is reporting that the Anthony Marshall trial is entering the sentencing phase.

http://www.cnn.com/2009/CRIME/12/18/new.york.astor.marshall/

Mr. Marshall is the son of New York socialite, Brooke Astor. Mr. Marshall was convicted of grand larceny and scheming to defraud his mother's estate. During his mother's life, he used his power as Ms. Astor's power of attorney to take money out of her estate for himself. Ms. Astor's will left most of her estate, upon her death, to various charities.

This case illustrates the need for caution when executing power of attorneys. POAs are useful tools to make sure your financial affairs, like paying for the heating bill to keep your pipes from freezing... (can you tell I'm writing this in Minnesota, in January?) etc, are taken care of if you are alive, but incapable of doing it yourself. POAs are extremely helpful in a majority of circumstances and everyone should consider executing a POA.

However, care should be taken when choosing who will have that power. A POA is like giving someone a blank check to your entire financial life. If you don't have someone you trust to act in that capacity, it may be better not to execute a POA.

This is especially true in states, including Minnesota, where durable POA's (those which are effective when someone does not have the capacity to make financial and legal decisions) are effective from the moment they are signed. That means that the person you name in your POA, has the blank check even before you are incapacitated.

All the caution in the world may not have prevented the Astor tragedy, but everyone should carefully consider who they name in their POA.

The Never Ending Uncertainty of the Federal Estate Tax

2009-12-15T09:01:00.000-08:00

Oh, the federal estate tax issue. The House recently voted to extend the current tax rate.

http://www.washingtonpost.com/wp-dyn/content/article/2009/12/03/AR2009120304433.html

What does this mean for you? First, a little background. Gifts and estates are taxed by the federal government, and by many states. However, there is generally an exemption allowing estates under a certain amount to be transferred tax free. The exemption from the federal estate tax was, for many years, $1 million dollars. That meant that your estate did not have to pay tax unless your estate was over the $1 million mark. Eventually, this limit didn't only impose tax on the very wealthy, but also on small family farms and businesses, as the entire estate, for tax purposes, includes things like real property, business interests, some types of trusts and life insurance. Congress, taking the position that the estate tax was crippling small farms and businesses, increased the exemption, to $1.5 million in 2004 and 2005, $2.5 million in 2006 - 2008 and $3.5 million in 2009. That legislation had a sunset provision which basically repealed all federal estate tax for 2010 and returned the exemption to the $1 million mark in 2011. This system created a level of uncertainty because it was nearly impossible to predict what exemption would be in place at death. Additionally, the 2010 repeal with the 2011 exemption leads to an absurd result, which the darker humored among estate planners called, the "unplug grandma" rule.

The House bill would keep the 2009 exemption in place for the foreseeable future. However, the uncertainty under the prior system becomes even more unpredictable because the Senate has yet to move on the bill. It seems extremely unlikely that the Senate will touch this issue before 2010, in light of their current fight over health care. What may likely happen, is that the Senate will take a look at the issue sometime in 2010. If they follow the House's lead, and the President is on board, the 2009 exemption may be extended and applied retroactively for all of 2010.

So what should you and your planner be doing? We are in uncertain times when it comes to the estate tax and uncertainty is no friend to a planner. One way to approach the issue is plan for the $1 million exemption which is the likely worst case. Here in Minnesota, that is a common approach, as our state estate tax exemption has remained at the $1 million mark. Also, if this affects you, keep informed. If legislation is enacted that brings some certainty, it would be time to call up your planner and evaluate whether your plan should be changed accordingly.

Common Pitfalls for even the Rich and Famous

2009-11-25T13:31:00.000-08:00

Forbes online has collected an interesting array of estate planning mistakes the rich and famous have made.

http://www.forbes.com/2009/11/24/princess-di-heath-ledger-brando-personal-finance-investment-guide-2-09-celebrity-estate-mistakes.html

Even if you aren't famous, or rich, some of these same mistakes can pose a big problem for those you leave behind. If you don't have an estate plan in place, meet with a licensed attorney so that your estate doesn't repeat other's mistakes.

Was Oilman "Manipulated" to Give to Charity?

2009-11-06T13:56:00.000-08:00

Bloomberg.com is reporting on VERY messy battle on a probate involving a Texas oilman's estate. http://www.bloomberg.com/apps/news?pid=20601103&sid=auPHfoPfzSHA

The gist of the fight revolves around whether the deceased was manipulated into giving to charity, instead of his kids. Perhaps tellingly, only one child is arguing that the deceased was manipulated.

There are some things you can do to lessen the impact of later fights about your will. No-contest clauses and self-proving affidavits help. Also, if a messy probate court battle seems likely, a living trust (as much as I might disparage them in other contexts) may be a good idea. If a family fight sounds less than theoretical in your situation, contact a licensed attorney who can assist you in creating an estate plan that can limit or prevent those fights.

Beware of Trust Mills

2009-10-22T06:56:00.000-07:00

The Law.com is reporting on a bust up of a trust mill in Ohio.

http://www.law.com/jsp/article.jsp?id=1202434692692

What's a trust mill and why are they so bad? A trust mill is a derogatory term we in law land give to business who scare people into paying fees for a living trust, without correctly evaluating whether a living trust is appropriate for the clients needs. The mills overstate the problems of probate and taxes and overstate the role a living trust can have in remedying those problems. They crank out form trusts without legal review, or very cursory review. Most estates will have little to no problems with taxes and probate. In most cases, a living trust is more of a cost and hassle than benefit.

However, it should be stated that in some, specific, circumstances, a living trust may be beneficial. Don't be intimidated by salesmen into paying for an estate plan that may not be beneficial for you. Contact a licensed attorney who can meet with you, review your specific needs and craft a plan that meets them.

Providing for your parent without providing for your siblings... or allegedly abusive stage dad.

2009-10-12T06:53:00.000-07:00

TMZ is reporting that Katherine Jackson, matriarch of the Jackson family, will receive 40% of the Michael Jackson estate. However, she does not get the 40% outright. Rather, the amount is held in trust. The trustees have control of how much is distributed to Kathrine, and upon her death, any remaining funds go to Michael's children.

http://www.tmz.com/2009/10/12/michael-jackson-katherine-jackson-kids-inheritance-trust/

This actually isn't that uncommon. Although there are many reasons to structure a testamentary dispositon (gift through a will) that way, one obvious reason is to protect those assets from other family members. If Katherine received 40% outright, Katherine would have 100% control over what happens to it, both during her life and after her death. Upon Katherine's death, any remaining amount would be part of her estate and go through intestacy or by the provisions of her will. This could result in family members who were specifically excluded from Michael's will receiving assets through Katherine.

Putting estate assets going to Katherine in a testamentary trust (trust set up through provisions in the will), prevents such an occurrence and helps assure that Michael's wishes as to who exactly benefits from his estate remain intact.

If you have specific wishes as to who, and who cannot, benefit from your estate, a testamentary trust may meet your needs. Contact a licensed attorney who can craft a will and testamentary trust that can help assure your wishes also remain intact.

How controlling can I be from the grave?

2009-09-28T07:08:00.000-07:00

A recent Illinois Supreme Court case upheld a will provision which disinherited descendants if they did not marry a fellow Jew.

http://www.google.com/hostednews/ap/article/ALeqM5j8QwP4ZvRjh-5EDghmS7q9wwP_DgD9ATRI300

As in this case, most American jurisdictions follow the general rule that a testator, or one writing the will, has (almost) free reign to dictate how their assets are disposed of upon their death. However, most jurisdictions limit this free reign by allowing courts to strike provisions that are "against public policy". That was the argument in the Illinois case. The descendants argued that the provision amounted to religious intolerance, which they argued is against public policy. The Court demonstrated just how much leeway a testator can be given, stating that the Court was not in a position to ensure that a grandparent treats "grandchildren who reject his religious beliefs and customs in the same manner as he treats those who conform to his traditions".

Minnesota courts have not spoken on whether such religious clauses would be upheld. However, two cases give guidance on how a Minnesota court might evaluate a questionable clause. In its 2008 ruling, In re The Estate of Peka, the Minnesota Court of Appeals upheld a provision that prohibited an ex-wife from living in the testator's house, which was placed in trust for the benefit of the parties' minor child, rejecting an argument that the provision was against public policy in promoting separation between parent and child.

The Minnesota Supreme Court, all the way back in 1897, showed that they are willing to strike down a provision as being against public policy. In Morse v. Blood, the testator stated in his will that his spouse would inherit his estate, but that she would be prevented from giving, either during her life or through her will, "one cent" to either her relatives or his. Among the issues created by this clause, the Court pointed out that if the spouse invited her family over for dinner, she would run the risk that the entire estate would be forfeited. The Court called the provision "mischievous and technical" and struck it down as against public policy.

If you're thinking of putting a ... creative... provision into your will or trust. Remember that, although you will enjoy a certain amount of leeway, you run the risk that a court could strike the provision. Make sure that you meet with a licensed attorney who can draft the provision, which could increase the chances that it would later be upheld by a court.

For a good chuckle....

2009-09-01T06:37:00.000-07:00

CNN recently posted a collection of odd will provisions. Take a look at it when you need a good laugh.

http://www.cnn.com/2009/LIVING/wayoflife/08/31/bizarre.will.stipulations/index.html?iref=mpstoryview

If you're contemplating a will, including if you're thinking of leaving your fortune to your dog Gunter or want to leave your birthday to your friend... as always, talk to a licensed attorney.

Comment Moderation Policy

2009-08-19T08:33:00.000-07:00

This blog is implementing a policy regarding comments... which I'm taking as a sign that at least someone out there is looking at the blog.

Comments will be reviewed before being posted to the blog. Any comments that attach links to commercial sites or are otherwise off topic will not be posted. Comments and links to facillate the sharing of information will be welcomed and appreciated.

I got what? From who? From where??

2009-08-19T07:42:00.000-07:00

Every once in a great while you may find yourself on the receiving end on an estate. Whether it's your beloved grandmother's doll collection or an interest in property worth millions from your distant bachelor farmer great-uncle, there are certain things to keep in mind.

First, you likely do not need to worry about taxes. Taxes on the transfer of the property would have been dealt with through the estate tax, paid before you received the property. If you receive an inheritance that doesn't create income, you will not need to include it in your personal income taxes. However, if your inheritance generates income, for example if your uncle's farm is rented and you receive monthly checks, or if you sell that doll collection, you may have personal tax liability. In that case, you should work with an accountant to properly report that income or gain.

Second, you likely do not need to worry about debt from the estate. In the United States, debt cannot be inherited. Additionally, if the estate was administered through a probate process, debts should have been taken care of through that process. However, if a lien or other debt exists on the property and it wasn't paid off by the estate, you could run the risk of taking the property subject to that debt. If you believe this is the case, you should contact a licensed attorney in order to explore the possibility of disclaiming, or declining, that inheritance.

Finally, and this doesn't come up often but when it does it's extremely important, if you inherit from a distant relative in the old country, you need to contact a licensed attorney who is familiar with international estate planning. Unlike the United States, some other countries allow debts to be inherited. Most countries allow for a limited period to disclaim that debt, but only for a LIMITED period. You need to act quickly in determining whether you are inheriting debt and to disclaim that inheritance. If you don't, what you think will be a golden egg from Opa Fritz could turn out to be a major liability.

If you have received an inheritance and have any questions, including whether you will have a tax liability or whether you should disclaim the inheritance, contact a licensed attorney.

The Power of Joint Tenancy

2009-07-29T13:43:00.000-07:00

One of the many vehicles to transfer real property, or real estate, outside of probate is through owning the property in joint tenancy.

There are two forms of real estate ownership in Minnesota when there are multiple owners. The first is tenants in common. In this form of ownership, the parties each own a distinct percentage of the total ownership in the property. For example, if a husband and wife own property, husband owns 50% of the total property and wife owns 50% of the total property. In this form, if one of the parties dies, their distinct percentage transfers through probate.

The other main form of ownership in Minnesota is joint tenancy. In this form, the parties have an undivided interest of the total ownership of the property. In this case, both husband and wife each own 100% of the total property. This may seem like a minor distinction, but it has a big effect. Upon the death of one party, the other party automatically owns the entire property without the probate process.

In order for the property to be owned in joint tenancy, the deed must specifically state that the property is owned as such. For example, "Property X is granted by Mr. X. to Husband and Wife, as joint tenants." If the deed does not specifically state that it is in joint tenancy, then it is owned as tenants in common.

If you own property with another person, and both of you intent that the other should automatically receive your interest without the probate process, review your deed. If the deed does not state "joint tenancy", contact a licensed attorney to execute and record a deed that does.

Can't stress it enough... if you have kids, you MUST have a will.

2009-06-26T13:45:00.000-07:00

The recent passing of the King of Pop, raises an issue that comes up again and again in estate planning, those with children need to have a will in place.

http://www.cnn.com/2009/SHOWBIZ/06/26/jackson.children.will/index.html

Not only can a will deal with some financial issues, as blogged in my July and August 2008 posts, but it can also be a vehicle to name who you want to serve as guardian for your children. A court may ignore a provision naming a guardian, if it does not serve the best interests of the child, such as if the other parent is living and fit to parent or if the named guardian poses some threat of endangerment. However, if you fail to prepare a will naming a guardian, you leave it entirely up to a judge who is a stranger to your family and may not place your children with the most appropriate caregiver.

If you have children and do not have a will, contact a licensed attorney.

Special Needs and Supplemental Needs Trusts

2009-06-17T14:16:00.000-07:00

I realized I skipped last month. I'll try not to do a cop-out by talking about two, very related, topics: Special Needs Trusts and Supplemental Needs Trusts.

Typically, state and federal governments will ignore trusts and include amounts in trusts as an asset of the beneficiary for purposes of determining eligibility for state benefits. Two exceptions are Special Needs Trusts and Supplemental Needs Trusts. Both trusts are vehicles to allow a person who is recieving disability benefits, additional income and assets to meet needs beyond what the government benefits cover. Essentially, these trusts allow disabled persons to have a lifestyle beyond what the government benefits provide, without jeopardizing their ability to receive those benefits.

Special Needs Trusts are funded by the individual’s own assets. Supplemental Needs Trusts are funded by a third party’s assets. There are strict rules on how these trusts are established, funded and what types of expenses can be paid for by the trust. If you fail to meet these rules, the trust will be disregarded and the trust assets could be counted against the beneficiary. The rules surrounding these trusts are very specific, ridgid and highly technical. If the trust provisions violates an applicable federal or state law, the trust is disregarded. If a Special Needs Trust or Supplemental Needs Trust might be right for your loved one, it is very important that you work with a licensed attorney.

Life Estates

2009-04-28T08:56:00.001-07:00

Something that I've referred to in previous posts is a form of ownership called a life estate. Life estates occur when an owner sells or gives away real property to another, but reserves the right to live on the property for the remainder of his or her life. The person who receives the property has, what's known as, a remainder interest.

Life estates can be useful tools in the estate planning process. This type of ownership can allow the property to be transferred upon death without going through the probate process, because the person who has the remainder interest already owns the property.

Life estates can also have tax benefits. The basis of the property will be the market value at the death, rather than at the time of the gift, which will generally result in a tax savings when the property is later sold.

Life estates can have some benefit for medical assistance planning. Theoretically, medical assistance liens placed on the property for benefits expended for the grantor should disappear upon their death. However, the Minnesota legislature enacted a statute in 2003 which allows medical liens to remain on the property after the grantor's death. Life estates no longer allow property to pass free and clear from any medical liens. However, a life estate may reduce the amount of value of the property that a medical can attach to.

If a life estate seems like a form of ownership that may address some of your estate planning concerns, contact a licensed attorney.

Estate Planning Documents and HIPAA Waivers

2009-03-26T13:49:00.000-07:00

As a part of many estate planning documents, individuals are called on to get medical information about another. The main example is a health care directive which states who is to make health care decisions for you in case you're incapacitated. That person will need to have full access to your medical records in order to make an informed decision. Another document is a trust that states that a certain action will be triggered upon disability as decided by a medical doctor. In order for the trustee to know if the individual is disabled, they will need to have access to medical records and information from the individual's doctor. However, HIPAA can impede these individuals from getting access.

HIPAA, or Health Insurance Portability and Accountability Act of 1996, is a federal law that was enacted to standardize data gathering and sharing in the medical field. A part of this act protects an individuals' health care information from being disclosed. Individuals acting in the capacity as a "personal representative", such as under a health care directive, are specifically allowed to have access to medical information. However, there have been many anecdotal reports of medical providers refusing to release information to the personal representative, citing HIPAA concerns, even in spite of what the federal regulations state. Additionally, there is no exception for trustees, attempting to determine the status of an individual for purposes of the trust.

These problems can be avoided through a HIPAA waiver, signed by the individual. It is a single page document that need not be made a part of the trust or directive, but can be provided to a trustee or personal representative to prevent HIPAA issues.

If you are contemplating a trust or health care directive or already have one in place, which doesn't address HIPAA, contact a licensed attorney.

Will the Nursing Home Take My Farm? The role of medical assitance planning.

2009-02-22T18:52:00.000-08:00

As we get older, the possibility of entering a nursing home, and the concern for how to pay for it, becomes an increased worry for many people. If one requires medical assistance from the state to pay for nursing home care, the state can recuperate what they can by placing liens on certain assets held by the individual, including homestead and farm property. Accordingly, many people worry about what the government can or cannot take and how they can go about it.

First, the state government evaluates whether someone is eligible for medical assistance both by looking at their monthly income and the amount of assets they have. If the state determines they are eligible, the state will pay for the nursing home care. If individuals have made prior gifts during what's called the look back period, the state will "look back" and impute the income to the individual. The state won't go to the recipients of the gifts to recuperate the costs, they just may not find the individual eligible for assistance. Additionally, in many instances, if the individual is otherwise eligible but owns real property, the state may find that person eligible and give assistance, but will place a lien on the property to recuperate the money spent on the care.

Planning ahead is the key for medicare assistance planning. Working with both a licensed attorney in the state that you plan to receive care in and a financial advisor can help you prevent a situation where you need assistance, but either are found ineligible or have your real property incur a state medical lien.

What happens if I don't have a will?

2009-01-18T14:48:00.001-08:00

I'm often approached by people who say they want a will so their property doesn't go to the government. While there's many reasons to have a will (probably a smoother probate and smoother family relations is just one of many reasons), the risk of having the government "take" your stuff merely because you don't have a will is very unusual. So, what happens when there is no will?

When someone dies without a will, it's stated that the individual died "intestate". All states, including Minnesota, have intestacy laws which give a specific order as to who gets how much of the estate. In general terms, a spouse gets first. If there's no spouse, then the children get and so forth. If the decedent died without a spouse or descendants, the parents get first and if no parents, the siblings get and so forth. If there is no spouse or descendants, parents or siblings, then the grandparents get or aunts and uncles if no grandparents and so forth. The main point is that the state of Minnesota is the last resort. If there are no relatives around to claim the estate, only then does the estate go, or escheat, to Minnesota.

There are many reasons to have a will, but probably one of the most minor reasons is to prevent Minnesota from getting your stuff.

What do you mean by an estate plan?

2008-12-01T10:49:00.001-08:00

An estate plan is an umbrella term that refers to a plan as to what happens when someone dies or is incapacitated. Issues to consider are where your stuff will go, who will take care of your kids, who will make my decisions if you can't make them, how to make the probate process quicker and less expensive, continuation of a family farm or business, and what the effect of taxes and state liens will be.

There can be many pieces of an estate plan depending on the needs of an individual. Something that just about everyone should have is a will. Without a will, the state will apply the fallback provisions in state law to determine who gets your property, which may or may not follow your intent. Additionally, dying without a will which can specifically call for an expedient probate process, can cause a longer, more expensive probate process.

Also, everyone should have a health care directive, which states who makes the health care decisions for you in the event of your incapacitation and gives direction as to your wishes. This health care directive needs to include a HIPAA waiver to allow the hospital to release protected medical information to this person.

In the same vein, everyone should consider a power of attorney who can deal with your financial affairs in case of your incapacitation. However, once created, that person has as much right to your finances as you do and you should only execute a power of attorney if you have a trusted individual in place.

Besides these documents, other documents can be executed, trusts established, and business entities created which address your specific needs. This is why it is so important to contact a licensed attorney to look at all of your circumstances to craft an estate plan to fit your needs.

Is a trust a good idea for me?

2008-11-19T10:45:00.000-08:00

A lot of people wonder if they need a trust or if a trust will be a "cure-all" to all issues that could come up after they die. This seemingly simple question is really only properly addressed through determining an individual's goals for their overall estate plan. A trust may play a role in accomplishing these goals.

First, a definition, a trust is a type of ownership where the control of the property and the benefits of ownership are split. A trustee has control of the property and the beneficiary has the benefits of the property. Because pieces of the ownership are split, trusts end up being a useful vehicle to accomplish many types of estate planning goals. These goals include:

1. avoiding or eliminating estate tax
2. avoiding probate
3. becoming eligible for medical assistance
4. farm or family cabin continuation
5. providing for young children or those with special needs
6. allowing another to use your assets to provide for your needs in case of incapacitation
7. using your assets to accomplish a charitable purpose.

If you are interested in using a trust to accomplish some of these goals, speak with a licensed attorney who can discuss your estate planning goals and various legal tools, including trusts, that may help.

What's a TODD?

2008-10-21T13:52:00.000-07:00

The Minnesota Legislature recently enacted legislation allowing the use of "Transfer on Death Deeds", or TODD. The Minnesota Legislature enacted Minnesota Statute 507.071, to be effective August 2008, which establishes the nature and use of TODDs. So what is a TODD and what can it do for you?

A Transfer on Death Deed works a little bit like termination on death accounts that many people have at banks.

With a Transfer on Death Deed, prior to the their death a grantor/owner creates a transfer on death deed which lists the real property that will be disposed of on death. The deed is filed with the county where the real property is located. At death, the property automatically belongs to the recipient listed on the deed.... without the need for probate. It's a lot like a life estate, except that a TODD can be revoked by the grantor/owner for any reason. The grantor/owner has the benefit of use of the property for life, transferring the property upon death without probate, and still retains control in determining who gets the property. A TODD works great in situations where it is advisable for a piece of real property to stay out of probate proceedings.

However, a Transfer on Death Deed isn't the magic wand that some people want it to be. Property transferred by a TODD will still likely be used to determine a taxable estate because the owner retains the power to revoke the deed. Additionally, property transferred by a TODD is still subject to any mortgages, liens or judgments that the property was subject to during the life of the owner/grantor. Therefore, a Transfer on Death Deed will not reduce estate tax or prevent recovery of government benefits.

If you think that a TODD may be right for you, contact a licensed Minnesota attorney.

What is Ancillary Probate?

2008-09-15T13:54:00.001-07:00

In an increasingly mobile society, individuals are owing property in more than one state. Whether it be the lake cabin in Wisconsin, the condo in Florida or an interest in the family farm in North Dakota, owning such property may complicate matters for those you leave behind.

When real property located in another state is "disposed" of (fancy lawyer language for "given") in a will, a separate probate proceeding in that state will have to be commenced. This type of probate is typically called "ancillary probate" (more fancy lawyer language for additional probate in another state that is secondary to the main probate occurring in the state of the decedent's death or domicile). This will require the payment of additional court fees and hiring of local counsel to appear on behalf of the estate. All of this will cost your estate money.

Additionally, ancillary probate might not be able to be started until certain steps are completed in the primary probate occurring in the home state. Ancillary probate, once begun, will also be subject to the calendar of that court, which may cause further delay in wrapping up the probate of the estate.

Another issue is that some states require that personal representatives meet certain conditions, such as residency, that your home state doesn't require. That could mean that the person you've given the power to deal with your estate won't make the cut in another state. In such a case, the court in the ancillary state may appoint another person or a professional to administer the estate, which may cost your estate even more money.

There are ways to avoid ancillary probate which require careful planning in disposing of the property outside of the will. If you have property in another state, let your estate planner know about it. Your estate planner can work with another attorney in the state where the property is located to make sure your estate is dealt with as efficiently as possible, both in time and money.

Seriously, parents need a will.

2008-08-01T09:22:00.000-07:00

Everyone knows that, as soon as they have kids, they "should" get a will. Unfortunately, many people put it off, usually because of the cost, thinking that whatever the intestacy laws of the state they live in will probably do what they would do anyway. Well, one Minnesota law is a good reminder to all of us that relying on intestacy laws may cause a lot of headaches for those we leave behind.

Minnesota Statute 524.2-402(a)(2) provides that if a decedent dies without a will and leaves a spouse and descendants, the spouse will inherit a life estate in the home with the descendants inheriting a remainder interest. That means that both the spouse and descendants own the property at the same time, but that the spouse will have a right to live in the house for the remainder of that spouse's life. The purpose of this law is to give the descendants some right to the estate if the spouse remarries. However, this can create problems in cases where the descendants are minor children.

If a parent and their children hold property in this way, then the parent is prohibited from taking any major action, such as refinancing or selling the home, without the children's permission. If the children are minors, then the parent has to petition the court to allow such action to be taken and the children are usually compensated by getting a portion of the profits on any sale. Additionally, it's possible that the court might appoint a guardian/conservator for the minor child to independently represent the child's interest at the hearing. All of this comes at a cost of time and money and can seriously hinder the parent's ability to deal with the property.

How can this be avoided? Many people have their home in joint tenancy with right of survivorship. In the event of one parties' death, the property automatically goes to the other party without triggering will provisions or intestacy laws. Unfortunately in this case, property is held in joint tenancy only if the title specifically states that it is in joint tenancy. If there is any mistake or question as to the title, it will not be in joint tenancy. If this is the case, then the parties hold the property as tenants-in-common and, upon the death of one party, that interest will pass under will provisions or intestacy laws, including the law that makes children co-owners of the property.

In order to make sure that your spouse will not have to deal with this major headache, find a licensed attorney and get that will done.

Estate Planning for New Parents.

2008-07-08T17:47:00.000-07:00

I was watching a rerun of one of my favorite TV shows, Jon and Kate Plus 8 (it's a reality show that follows a couple with twins AND sextuplets). In that episode, they got a will done... I, the estate planning dork that I am, freaked out that my favorite show was doing estate planning. Anyway, I'm going to go into more detail about a topic that I've touched on in previous posts: Estate Planning for New Parents.

When I refer to estate planning, I'm talking about going beyond drafting a simple will and establishing more complicated mechanisms to deal with your property after your death. The most popular mechanism is a trust, which allows one person (the settlor) to give control over property to another (trustee) for the benefit of yet another (the beneficiary). Trusts can be used to reduce the tax burden on an estate. However, even those whose estates are small enough to avoid tax can benefit from the use of establishing a trust in their will. Perhaps the largest group is parents with young children.

In the event that both parents die before the children have reached adulthood, a trust can give direction to the guardians of the children as to how to best spend the parents estate for the benefit of the children. Also, with a trust, the guardian is not given free reign over the money. Rather a trustee handles the money according to certain purposes laid out in the trust. Additionally, if a trustee is mishandling the children's wealth, a court can review the trustees actions. Finally, with a trust, you can delay the child's outright ownership of the money beyond their eighteenth birthday. As one parent of a sixteen year old said when asked what he thought his child would do if he got a large amount of cash at eighteen, "My kid would party like a rock star."

In the case of parents with more than one child, the most widely used trust is a pot trust. A pot trust initially pools the money in a common pot for the use of all children. The common pot is used because not all children have the same needs growing up and some will need more resources than others. One might have disabilities, or another might have a shot at the Olympics. In this trust there are two ages to consider. You determine the age that the children receive their money, but you also determine at what age the pot is split into equal shares. While many people decide to give the assets to the children at age 21 or 25, those same people will split the pot when the oldest turns 18 so that their college education doesn't suck all of the money out of trust, leaving nothing for the younger siblings.

With any trust you can condition outright ownership of money on certain events, such as marriage or a college graduation. Jon and Kate on my favorite show came up with an interesting plan, giving outright ownership upon college graduation or upon reaching a certain age, whichever comes first. That way, the children have an incentive to finish college in a timely manner, without unduly prejudicing the children who took longer to finish college or choose not to attend college.

Whatever your wishes may be, working with a licensed attorney to include a trust in your will is a great way to responsibly provide resources for your children's needs. Additionally, a licensed attorney can assist you in an extremely important piece that shouldn't be overlooked... making sure that the named beneficiary of your death benefits is the trust, so that the trust is sufficiently funded.

Why do I need a Will?

2008-06-09T17:21:00.000-07:00

Most people know they should have one, but when is it necessary to have a will?

First, an important time to have a will done is when children are involved. In case of you and your spouse's death, your will can name your preferred guardian of your children. Unless that preferred guardian is found to be unfit, that person will be named as your children's guardian by a court. Additionally, because you have let your wishes be known, your relatives are less likely to dispute the appointment of the guardian. Without the guidance that a will provides, you will leave the task of finding the appropriate guardian up to a court and opens up a protracted fight as to who will care for your children.

Second, another good reason to have a will is to simplify the probate process for those you leave behind. With a will, you can request to have an unsupervised probate, which means that your personal representative (the person you have named in your will who will be distributing and caring for your estate) can act without constant court supervision. Additionally, you can waive the need for your personal representative to put up a bond (cash held by the court to make sure your personal representative does his job, but which is generally a huge burden on the representative).

Finally, another good reason to have a will is to keep your family from fighting. Even though you may not have a lot of money for them to fight over, sentimental items may be just a contentious. Family jewelry, china, or gnome collection can cause family members to fight, even if there is little monetary value involved. In Minnesota, a personal property list that is simply signed by the decedent carries the weight of a will if it is referred to in a will. The personal property list can be changed at anytime, allowing one to add items or change who will receive them without redoing the will. However, you will need a will referring to the list to make the list effective.

Wills aren't just for the rich. People of all income levels, or really those they leave behind, benefit from the clear indication of intent and convenience in distributing the estate that a will provides.

You Have the Green Card... Now What? Part II.

2008-05-07T09:23:00.000-07:00

Now for the federal tax issues. The US taxes the transfer of wealth through gifts and estates. Interestingly enough, US estate and gift tax is generally much higher than similar taxes in other countries, even those who are known for astronomically high income tax rates. The US taxes approximately 45% of estates exceeding a certain amount depending on the year, usually $1 million or $2 million. However, US tax laws allow portions of the estate to be exempt for various reasons, no matter how big the estate is. One of the biggest is through marital transfers. Amounts in the estate transferred to a spouse are not taxed. This is known as the marital deduction.

However, the martial deduction is NOT available to spouses who do not have US citizenship. This is the biggest tax difference regarding non-citizens. Why don't non-citizens receive this tax benefit? We have to go back to the reason behind the marital deduction. The IRS is not granting a tax break so much as deferring when the tax is paid. Let's say that Husband dies leaving 5 mil to his citizen spouse. When she dies, she would theoretically have that 5 mil in the estate, which would then, theoretically, be taxed. However, the IRS is not as confident that they will get their money if the spouse is a non-citizen. The thinking goes that once the citizen dies, the non-citizen will go back to their home country. Without the spouse having citizenship or being domiciled in the US, the IRS has no way to tax the amount that went to the spouse.

Is there any way for a non-citizen spouse to avoid estate tax? There are two main ways. The first is through an estate tax treaty between the US and the spouse's country of citizenship. Many of these treaties allow a limited marital deduction. The US-Germany treaty, for instance, allows a martial deduction equal to the amount that is tax exempt in that year. For example, this year estates under $ 2 million are exempt from estate tax. A German spouse would also be able to receive an additional $2 million of the estate tax free under a marital deduction. Your planner should be aware of tax treaties and use the provisions in the applicable treaty to your advantage.

Second, the IRS does not tax amounts set in trust, with an American trustee, for the benefit of the spouse. These trusts are known as qualified domestic trusts, or Q-DOTs. There are some negative aspects of Q-DOTs. First, the spouse will not have control over the money and will have to go through a trustee in order to obtain funds. Second, Q-DOTs must meet certain requirements in order to be considered valid by the IRS. Make sure you are working with a planner who is familiar the the IRS rules regarding Q-DOTs.

With the right understanding of tax treaties and proper use of Q-DOTs, you can minimize or eliminate the tax burden you or your non-citizen spouse may have upon death.

You Have the Green Card... Now What? Part I.

2008-04-10T09:33:00.000-07:00

For the next few posts, I'll be doing a series on a topic that I've had an interest in for a long time: how not being a US citizen can effect estate planning. I'll try to address what a non-citizen, or their spouse, should think about and make certain that their estate planner is considering when constructing an estate plan, including what tax issues to consider. I'll also try to hit on what a US citizen should be concerned with when inheriting property from outside the US. I'll refer a lot to German law because I've specifically looked at the law in that country. Today, I'll mention some non-tax issues to consider when setting up the estate plan.

First of all, if you or your spouse is not a US citizen, make sure your estate planner knows about it. As I post on this subject, you'll see that non-citizens have a lot more to consider and if your estate planner doesn't know your status, the plan will almost certainly not meet your needs. Most good planners routinely address status in the first meeting. If they don't, it might be a sign to move on to a planner with experience in the area.

Additionally, many countries do not follow American notions of what probate and estate law applies to an individual. Most states apply the law of where the person was domiciled (basically, living) or where they died. Some countries, including Germany, apply the law of the person's citizenship. So, a German court, or possibly a US court, would apply German law to a German citizen who lived and died in the US. If this happens, the foreign law will have a big impact on what happens to the estate.

One of the big non-tax issues for the non-citizen is whether the country of citizenship recognizes a children's right to take against the will. In America, a testator (the fancy legal term for the person who make a will) has an unlimited right to disinherit the children... and the children can't do a thing about it. In many civil law countries, a testator doesn't have this right. For example, in Germany, a disinherited child can make a claim for half of what they would have been entitled to, if no will had been in place. This means that if you want to give everything to your spouse, with the idea that the spouse will get taken care of during their life and pass the wealth on to the kids when they die, your kids have the right to interfere with that plan.

This is a lot of information, but gives you an idea of how different law can be between countries and how important it is for your planner to be aware of those differences and how it can affect you.

So, what can a non-citizen do to deal with some of these non-tax issues? A helpful thing for your estate planner to do to deal with the non-tax issues is to put your country's consulate number on speed-dial. Many consulates have a legal department especially for legal questions from their citizens. With a quick call to your consulate, your planner can learn what your country's law is, how it may affect you, and what property it will affect. Additionally, your planner can work together with a planner in your home country to implement your plan and make sure that your will will be recognized in either country. Ultimately, the goal is for your planner to be able to craft a plan to meet your, or your spouse's, particular non-citizen needs.

Making sure ALL of your children are taken care of.

2008-03-05T07:42:00.000-08:00

CNN is reporting what will hopefully be the last in the court hearings regarding Anna Nicole Smith's death.

http://www.cnn.com/2008/CRIME/03/04/smith.heir.ap/index.html?iref=mpstoryview

In summary, a California court ruled that, although Danielynn was not expressly provided for in the will, she will be able to benefit from a trust, created by the will, which was set up for Anna's son Daniel. Daniel predeceased Anna.

Although the story is sure to be tabloid fodder today, it does raise a good point about making sure all of your children (born and yet-to-be-born) are taken care of after you are gone.

Minnesota, like all states, gives very limited to no rights for children to inherit if there is a will which does not provide for them. This is because common law jurisdictions, like the US and the UK, prefer to give freedom to the testator to distribute their estate as they see fit. Other countries, like France and Germany, allow children to take some assets even if the will expressly disinherits them.

The common law approach is great for parents who want to teach their lazy kids a lesson, but can create problems for those parents who want to provide for their kids, yet who don't make the necessary provisions. Although Minnesota, like most states, allow children who are born after a will is executed to get some inheritance, this requires court action and can make the process of getting the assets to the children costly in both time and money.

In the recent Anna Nicole Smith hearing, it appears that a pivotal point for the judge was that the trust provisions expressly allowed for any children born after the execution of the will to benefit from the trust. The lesson is one that can be generally applied to estate planning: if you want something to happen, don't leave it up to a judge. Rather, clearly state your wishes in your will or trust documents. When you meet with your estate planner, be sure to discuss your wishes in the event that children are born after you execute your will.

Welcome

2008-03-04T10:37:00.000-08:00

Welcome to the Minnesota Estate Planning and Probate Blog. This monthly blog will discuss news items and topics relating to estate planning, along with discussions about the basics of estate planning and is meant for the estate planning practitioner and individuals wishing to learn more about estate planning and probate alike.