Why do I need a Will?

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.

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.

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.

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

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.