Estate Planning for Same-Sex Couples

by Garrett Spangler on April 9, 2010

While estate planning is important for everyone, no matter the size of your estate, planning for same-sex couples is an absolute necessity. It’s tricky enough navigating the intestacy laws and making the tough decisions about your finances and medical care with the rights and privileges that are automatically bestowed upon married couples. Same-sex couples face a veritable gauntlet just putting themselves into the same position their opposite-sex counterparts enjoy.

While the needs may be more vital, the basic documents that same-sex couples should obtain do not vary much from other estate plans - including wills, powers of attorney, and living wills. Same-sex couples usually require a little additional planning in the form of inter-vivos or testamentary trusts however, to help pass assets to their partner. These are necessary because same-sex couples do not enjoy the benefits of the marital deduction, allowing assets to pass to a spouse tax-free. With the estate tax exemption set to return to $1 million next year, it is very likely that estate tax will come due even on modest estates consisting of a residence, some savings, and life insurance.

As many same-sex couples are aware, family will be given the rights to make decisions before a partner, without specific designations in place. This means that partners won’t be able to make medical or financial decisions for their partner, and in many cases may even be denied hospital visitation. Similarly, an increasing number of same-sex couples are raising children and need to establish clear guardianship designations. This is necessary because many states will not allow both partners to share custody or adopt a child jointly, leaving the child to government care while court battles determine their future.

If you or someone you know is currently in a committed same-sex relationship, encourage them to do some estate planning. And remember, whatever planning you decide to do should be updated as your life and the laws change.

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Estate Tax Repeal a Boon for Texas Billionaire

by Garrett Spangler on April 1, 2010

The repeal of the estate tax in 2010 has had the potential to allow some huge fortunes go untaxed. While several high net worth individuals have probably been beneficiaries of the repeal, a Texas billionaire is the first widely reported estate to hit the “death lotto”, if there ever was such a thing.

Dan Duncan came from modest means and built a highly profitable corporation around the storage and transportation of oil and gas. According to the Wall Street journal, Mr. Duncan was a local legend in his home city of Houston and not only became the wealthiest man in Houston but climbed to 74th on the Forbes list of the world’s richest people with an estimated $9 billion fortune.

I love this country and the fact that anyone can make something of themselves with some good business sense, hard work, and a little luck. I’m just not sure that even Mr. Duncan, who many have noted was quite a philanthropist, wouldn’t have joined the ranks of other fortunate members of Forbes’ list such as Bill Gates and Warren Buffet who are champions of the estate tax. He may have even changed his Will to give more to charity if he could have anticipated his passing during the unanticipated period of estate tax repeal.

It’s hard to argue against the facts which suggest the divide between rich and poor is ever increasing in this country and many other parts of the world. While some may disagree, I think there is a certain moral obligation that the wealthy have to society at large. It may seem only fair that the family gets to keep the fortune he managed to create during his lifetime but it occurs to me that there is nothing you can do with $9 billion that couldn’t also be done with $4 or $5 billion.

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Jesse had a Pin-Up, Sandra has a Pre-Nup

by Garrett Spangler on March 25, 2010

Jesse James and Sandra Bullock may be headed toward divorce if some reports are to be believed. The juicy question I always ask is, “Was there a prenup?”

According to an E! News source, the two agreed to keep all of their finances completely separate which should make for a nice easy split (if there is such a thing). The report suggested that not only do they keep their incomes and businesses separate, but the home they share in Orange County California is wholly owned by Jesse, while Sandra still maintains her own residence in the Hollywood Hills.

Not everyone can afford to keep their homes, finances, and businesses separate the way that this type of power couple can, but there are lessons which can be learned from their planning. If you have assets prior to getting married, it is always a good idea to put together some sort of agreement in writing, just in case things don’t work out. A pre- or post-nuptial agreement is especially important if you and your significant other are not on equal financial grounds.

It doesn’t have to be a contentious discussion either, many times couples only decide to include certain assets in an agreement and allow everything else to be equitably divided if the relationship ends in divorce. In fact, I would venture to say that if you have difficulty breaching the topic with your dearly beloved, you probably have bigger communication problems than you are willing to admit, which is all the more reason to get something on paper.

Certainly not every relationship ends badly, but enough do that planning is truly a necessity. At the very least, the small amount that you spend on the agreement is insurance for divorce because it will reduce the amount of time attorneys would spend arguing over who gets what for purposes of the divorce decree. If you are getting married after starting your career, or heading into a second or third marriage (or more), you probably have some assets and are versed in the pitfalls of divorce so do yourself a favor and get something in writing. You will only have yourself to blame if things go sour.

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A Small Olive Branch from the IRS

by Erica Intzekostas on March 21, 2010

As Tax Day approaches, here are three new programs and policies that the IRS is offering to help individual taxpayers.

1.  Making Offers in Compromise a Bit Easier. An offer in compromise is a program in which the IRS and the taxpayer agree to settle the taxpayer’s debt for less than the full amount. As many taxpayers have learned the hard way, the IRS has gotten much tougher in recent years in extending offers in compromise. Now finally the IRS is throwing the taxpayer a bone, of sorts. Instead of merely looking at a taxpayer’s prior income, the IRS offer in compromise officers can now look at the taxpayer’s potential for future income. Of course, this new policy is a double-edged sword since if the officer believes that the taxpayer’s future income will be significantly more than past earnings, that too can be taken into consideration.

2. Saturday Open Houses. The IRS will host hundreds of open houses across the country on Saturdays beginning March 27th, with exact times and locations to be announced. During these open houses taxpayers will be able to work directly with IRS employees to ask questions and address issues such as economic hardships and ask questions about special tax credits.

3. Relief for the Unemployed. The IRS will be coordinating with state revenue and workforce agencies to help taxpayers who are unable to meet their tax liabilities due to unemployment or other financial problems. Assistance may include such things as installment payment arrangements. Taxpayers who are unemployed or are otherwise financially strapped can find information and resources on a new page on the IRS website.

More information on these new programs and policies can be found on the IRS’s website.

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Get your revenge somewhere else

by Chris Erb on March 19, 2010

As lawyers, we always stress to our clients the need to keep business affairs separate from personal matters. That applies to everything from bank accounts to the stapler on one’s desk. As I’m reminded today, it also applies to the internet.

Many individuals have a single hosting account which they use for everything. It hosts their business website, their photo albums, and even that little, dark, secret blog they don’t really want anyone to know about. In fact, that blog might be the most important piece to keep separate.

You see, many people revel in the anonymity of the internet to complain about everyone from their Aunt Sally to that behemoth who has responded to their pleas for good service, bad service, or any service at all (you hear that, Sears?). The problem is that some of the complained about don’t take kindly to it, which can often lead to threats of litigation and even interruption or termination of service. That’s probably not going to make a huge difference if it’s just your blog, but if it’s also tied to your business that could spell financial disaster.

By all means, exercise your right to free speech. Just keep it separate from your paycheck.

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Store Bought Wills Part 3 - The Ugly

by Garrett Spangler on March 18, 2010

Welcome to the third and final installment of my thoughts on do-it-yourself Wills and online Will services. So far I have identified several of the positive aspects of these types of products (Part 1) as well as where they break down and are inadequate (Part 2). This post will delve into some “ugly” issues with do-it-yourself planning.

Many believe that their situations are “vanilla” and don’t require professional estate planning. In almost every case however, there are very unique elements which require careful attention and specific language to accomplish what may seem like a simple task. Here are a few examples of common problems I see in form Wills:

1) Stepchildren. Just filling in a form to indicate you want to leave your assets to your kids is easy right? Not so fast, if you have stepchildren, unless they are legally adopted by you, they are not considered your children under most intestacy statutes, including Pennsylvania, and would receive nothing under a such a form Will. To later have a share distributed to a stepchild may take considerable litigation and thousands (maybe tens of thousands) in legal fees.

2) Minor Trusts. A second issue is the timing of distributions of assets to children. Without language that creates a trust for minor beneficiaries, the money will be given outright as soon as they turn 18. An attorney can draft language to provide distributions as you so choose, even if your only asset is life insurance. This could stagger distributions to 21, 25, and 35 or provide requirements such as graduating from college before being entitled to a distribution.

3) Grandchildren. Another common problem with Will forms are leaving assets to grandchildren. While it seems easy to simply swap out “children” for “grandchildren” when completing such a form, the results are disastrous. Giving assets directly to grandchildren eliminates an opportunity for the IRS to tax the assets in the estate of the children if the assets had first passed to them. To combat this loophole, the IRS has a generation skipping tax or “GST” which will cut that grandchild’s inheritance by half. (Currently 45%, 55% in 2011)

4) Law Changes. A fourth major issue faced by do-it-yourselfers is out of date language. An example is this year’s repeal of the estate tax. Most forms provide a formula for potentially taxable estates which will leave nothing to a surviving spouse under the law as it stands today. Most people that got Wills from legalzoom.com in December ’09 probably didn’t realize they would already be outdated in January ’10. The same is true for changes in your own life and good estate planners will remind you of this. If you have gotten married, divorced, had children, bought property, altered your life goals, or simply gotten a little closer to retirement with a larger nest egg, chances are you should update your documents.

5) Miscellaneous. In addition to the issues above, there are a plethora of little things which can make or break your Will or estate plan. The absence of a simple word like “tangible” can completely alter the meaning of a phrase which in turn may require a judge to determine the proper interpretation. Signing the Will properly with proper witnesses or a notary will also make or break your document and the rules vary from state to state so you need the right instructions. Plus, a Will is not the only document you need for an estate plan. Without a healthcare proxy, living will, power of attorney, trust, or standby guardianship you may not be providing for your family as you intend.

So what should you do? My advice it to think long and hard before making a decision. Forms may seem like a deal but take legalzoom.com for example, they advertise Wills starting at just $69, but by the time you add the necessary costs to round out your estate plan (a married couple will each need a Will, powers of attorney for finances, and healthcare proxies at minimum) the total for the cheapest available options quickly climbs to nearly $400 and if you bump up to their more comprehensive premium options you are looking at $700. Plus, these fees don’t even include other charges like the cost of notarizing all of your documents which will run $5-$15 per document depending on where you live. Documents prepared by an estates attorney become appealing when you get to these levels, plus you can ask for advice and take a tax deduction for any specific tax planning you do.

Below are some situations where do-it-yourself estate plans and online form services fall short:

* You own property *

* You own a small business *

* You are married and you or your spouse have children from a previous marriage *

* You have minor children *

* You have significant assets *

* You wish to leave assets to grandchildren *

* You have a disabled or dependent adult child *

* You own a share in a small business *

* You have investments in an IRA or 401(k) *

* You think your Will may be challenged *

* You have a same-sex partner *

* You want to disinherit a spouse or child *

For just a little more, is it really worth it to take a chance on ‘as is’ downloadable form documents instead of consulting an expert? The choice is yours…..

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Store Bought Wills Part 2 - The Bad

by Garrett Spangler on March 12, 2010

Last week I introduced my thoughts on do-it-yourself Wills and online Will services. If you missed it, I encourage you to check it out here. In the article I discussed the positives associated with using these options to write your Will and this week the focus is on some of the concerns associated with preparing a Will or estate plan this way.

1) Advice. While downloads and online services provide you with a Will document, what you are paying an attorney for is the advice they provide you along with the Will. It is illegal for self-help services to offer advice to customers, whether that means answering questions or making planning suggestions for how to accomplish their goals.

2) Information. Questionnaires are used to gather information necessary to complete a Will. No matter how comprehensive they seem to be however, I’ve found questionnaires simply create a jumping off point for a thorough estate planning discussion. While do-it-yourself options seem appealing for privacy reasons, they are unable to follow-up with questions to elicit what is often the most crucial information for planning purposes.

3) Law. Estate planning happens to be an area where there is considerable upheaval at the moment. While online sites attempt to update their forms, they make no guarantees about being current. Good estate planning attorneys not only keep up with changes to federal and state law, but will often follow-up with clients to invite them to reevaluate their documents when major changes in the law occur.

4) Warranty. Online services and form kits include disclaimers stating they cannot be held responsible for problems stemming from their documents. Essentially you are buying a piece of paper “as is” without recourse if the document turns out not to do what you wanted. Even small mistakes can be very costly so spending a little more to have an attorney prepare your documents will ensure you get the right ones for your situation. Plus, should anything go wrong, attorneys stand behind their work and carry insurance to make things right.

While this list highlights some major concerns surrounding do-it-yourself Wills and estate plans it is by no means all-inclusive. I would absolutely recommend that you have an attorney review your documents if you decide to do them yourself or get them prepared by an online service. It may cost you an hour or two of legal time but it will give you some peace of mind that your documents say what you actually want them to.

Unfortunately it is often too late to make changes by the time problems are discovered in Wills and estate plans. Next week we will look at some examples of estate planning gone wrong and common needs that are a little too “ugly” for do-it-yourself kits to adequately address.

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The Good, The Bad, and The Ugly: Store Bought Wills

by Garrett Spangler on March 3, 2010

As an attorney focused on tax and estate planning I have been asked time and again what my thoughts are on store bought Wills. I have put it off in the past but I guess there is no time like the present to do my best to offer an objective look at the positives and negatives of “off the rack” documents. Over the next three weeks I will give you the low-down on the good (Part 1), the bad (Part 2), and the ugly (Part 3) associated with heading over to USA-Zoomy-Build-a-Will.com instead of down to an attorney’s office for the documents to satisfy your planning needs.

Before we go any further, I will honestly tell you that I have a horse in this race. As you will see however, I won’t shy away from the positives associated with the world of Will templates and if it makes sense for you after reading my posts, go ahead and roll with it. What I hope you will takeaway is that there are real concerns that should at least be considered before replacing a professional such as myself (who is experienced, licensed and holds a college degree, law degree, master of law degree, and financial advising background) with a cheap, fill-in-the-blank, “customizable” form.

Now, let’s get started with the positives about the Wills you can buy at a store or online. Part 1 - The Good:

1) Price. First and foremost, do-it-yourself Wills are cheap when compared to the documents drafted by an attorney. Falling somewhere in the $50 - $250 range, Will forms are less than half what you would pay to a reputable attorney to draft a similar document. This is often the number 1 reason websites and software packages are used to create estate planning documents instead of an estate planning attorney.

2) Time. Head on over to your favorite Will site and see how long they suggest it takes to create a Will. Many websites advertise that your “custom” Will can be created in 15 minutes or less. More than likely it will take you longer than 15 minutes just to drive to your attorney’s office to begin the meeting to discuss your wishes. Lives are hectic and this time savings sounds awfully good, especially when the only time many of us seem to be able to find to get personal stuff done is after the kids go to bed.

3) Privacy. People feel good about simply entering their personal information into a template instead of providing it to a stranger. Despite data security online and ethical legal standards of confidentiality, there is something about just buying or downloading some forms and filling them in all by yourself that appeals to people’s sense of privacy.

4) Accessibility. Many people either don’t believe they can afford having a Will prepared or simply don’t think they need one. States have differing rules, but in most states any properly executed document can be admitted to probate as a Will. I always encourage people to get some sort of document in place spelling out their wishes because any Will is better than no Will at all. Do-it-yourself documents at least provide the basic framework of a legal document and I applaud them for opening up the door so everyone has the opportunity to obtain one.

The permeating theme of the positives associated with store bought Wills is clearly the simplicity associated with putting together a document to help protect assets and family. Just providing people with this option has absolutely increased the number of people who now have Wills and that is something to be excited about. Nevertheless, the one-size-fits-all approach has more than its fair share of shortcomings. Next week I will explore some of the negatives associated with creating your own Will.

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Beer at work? Why not!

by Chris Erb on March 1, 2010

olde-school-barleywine.png

A recent tweet by the folks over at Dogfish Head Brewery lamented the impracticality of many employee policies for small businesses. In this particular instance, the lament was over alcohol policies, many of which are strict even for many smaller close-knit businesses but downright unrealistic for a brewery. I deal with the same problem quite often, given that many of my clients are German and are quite accustomed to keeping a case of beer (or even a small keg) in the office for after-hours or company functions.

The most important thing when considering any type of employee policy is to make sure the policy is consistent with your business practices. A strict policy against alcohol or sexual harassment policy with a rigid and complex disciplinary process is only sensible if you’re going to implement it as written. Failure to follow the company’s own procedures is, in many instances, worse than not having a policy at all.

Of course, in an environment where the risks are increased due to a more flexible policy on, say, alcohol consumption there are still steps employers can take to minimize those risks. In the case of alcohol policies, the key is to make sure the difference between alcohol consumption and abuse is clearly outlined in the policy, and to ensure that employees are not impaired while working. A desk worker who has a beer or two at a company lunch may not be working at full efficiency, but probably won’t do all that much to harm employer or employee. On the other hand, a forklift operator continuing work after two or three of the brewery’s Olde School Barleywine (with 15% alcohol) is a bad idea, and the alcohol policy should reflect that. Similarly, a policy which requires a three-step disciplinary procedure and calls for a committee to review alleged infractions is simply unworkable for a five-employee company.

So go ahead, have a beer after work, just be smart about it.

Image from Dogfish Head Brewery website

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Bad Timing for Tax Reform?

by Garrett Spangler on February 25, 2010

I’ve got mixed emotions about the new bi-partisan tax reform bill introduced by Senators Ron Wyden (D-Ore.) and Judd Gregg (R-NH) this week. On one hand I’m happy to see tax is on the minds of our Congressmen, on the other, I’m not sure the current efforts are focused on the right tax at the right time.

Its tax season and that means tax is on the minds of many Americans, not just those of us who have made careers in the field. That would suggest that debuting a new tax reform bill may be perfectly timed to get voters on board with an allegedly simplified income tax structure with fewer tax brackets, a higher standard deduction, eliminating the alternative minimum tax, and creating a flat business tax rate. It may very well be time to revisit the Tax Code and make some changes because the last time a major overhaul occurred was in 1986 under the Reagan administration.

So why do I have mixed emotions? Like the reform proposal claims to be, it’s simple; the wrong tax at the wrong time.

First, its nearly March and no attention has been given to the estate tax laws which were repealed as of the first of the year because no action was taken by Congress. As I’ve written in previous posts, estate plans of many Americans may be adversely affected without the estate tax because they were written based on the assumption that the law would remain in some form, even if the rates and exclusions were altered. If there are tax discussions in Congress right now I think the estate tax deserves to be front and center. What it constitutes; a freeze at 2009 levels, a complete repeal, some other rules? At this point I’d take any form of certainty over its current state.

Second, this is an election year for many members of Congress and that spells trouble for this type of legislation. It’s true that many Americans are fed up with partisan politics in Washington and they may be happy to see that some of their elected officials are reaching out to each other in the interest of their constituents, but it won’t get the necessary time or votes it needs to pass. That’s right, there are too many other pressing issues, such as health care reform, to get time on the floor for discussion. Plus, there will be too many Congressmen posturing to differentiate themselves in an election year to actually garner the necessary votes to pass this type of sweeping legislation.

So “attaboy” Congress, but please don’t take your eye off the ball!

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