Why Bother with Estate Planning?

We’ve all heard the expression, “Nothing is certain but death and taxes.”  While we have little or no control over taxes, we can have a great deal of control over our final days and the distribution of our assets upon our death.  That’s what estate planning is all about.

A comprehensive estate plan has several components.  A last will and testament specifies how your assets should be distributed and to whom they should go.  Through a power of attorney, you select the person who will act on your behalf regarding financial, personal, and legal matters if your are totally incapacitated. And, a living will (also known as a health care directive) provides advance directives to your agent or physician regarding what measures should or should not be taken to sustain life if you are near death and totally incapacitated.

It’s easy for other things to take precedence over putting together an estate plan.  We all assume that we’ll live to a ripe old age and have plenty of time to get prepared. Unfortunately tragedy can strike at any time.  That’s why it’s best to do your estate planning early on. With it comes the comfort of knowing you’ve made the necessary provisions to take care of yourself and your loved ones.  Peace of mind is a good thing!

Getting Legal Help

Estate planning can be complicated.  Experienced Estate Planning Attorney, Elga Goodman, can help you understand your options and can prepare a comprehensive estate plan that reflects your needs and wishes. Contact us today at  973-841-5111.

Beware Life-insurance Investors Bearing Gifts

This post focuses on the risks of a life insurance “investment.”  At a recent cocktail party, an acquaintance enthusiastically shared a proposal he had received from a life insurance investor group.  They offered to help him purchase a large life insurance policy (on his own life), then to repurchase it from him within two years.  Since the proposal required no money down, and his two years of premiums would be paid by the investor group, the promised cash payout seemed too good to be true.  It became very clear that my acquaintance was referring to a risky “SPIN-LIFE” transaction.
SPIN-LIFE transactions are not only unconventional but violate the insurable interest laws in many states.  Participants may be exposing their heirs, and/or their estate to significant legal liabilities and financial burdens.  SPIN-LIFE schemes, which are becoming more common, are perversions of a legitimate segment of the life-insurance market called the life settlement market, which has grown dramatically over the last decade.  (We will examine the life settlement market in a future posts.)
In today’s economic environment, individuals may feel greater temptation to pursue unconventional sources of income.  While SPIN-LIFE transactions may be enticing sources of cash, they violate insurable interest laws in many states and individuals should exercise caution regarding these transactions.  Ironically, once bitten, twice shy may not apply to financial pain. In trying times, we may be more prone to considering riskier, unconventional sources of income.      Back to the cocktail party—after learning about some of the risks associated with a SPIN-LIFE transaction, my acquaintance’s enthusiasm waned.  Just as I encouraged him to seek expert guidance if he decided to proceed with the SPIN-LIFE transaction as a source of income, so I encourage you: beware life-insurance investors bearing gifts. 

Dealing with Uncertainty: 2010’s Estate Tax Mess

Don’t take the 2010 federal estate tax repeal for granted yet, because it not only may be temporary, but may lead to undesirable tax consequences.  By now, most of you have probably heard that the federal estate tax and generation-skipping transfer tax was repealed this year.  Congress failed to prevent expiration of a key piece of estate tax legislation (the 2001 Economic Growth and Tax Relief Reconciliation Act or the “2001 Act”) before December 31, 2009, which has led to a tenuous and uncertain situation with respect to helping clients further their estate plans, and with respect to the estates of decedents who die this year. 

As the law currently stands, the estate of someone who dies in 2010 would not be subject to the federal estate tax.  But these assets may not pass to beneficiaries free from any federal tax.  Inherited property may lose some tax-benefits because its basis will no longer be “stepped up” as was the case under the now-expired 2001 Act.  Instead, these inherited assets will have “carry over” basis, meaning many inherited assets may now be subject to capital gains tax.  The law mitigates this to a degree by allowing the estate’s executor to allocate up to $1.3 million in basis increase among the decedent’s assets, and up to $3.0 million in basis increase among assets inherited by the surviving spouse.  But above and beyond this provision, the capital gains tax may apply.

Furthermore, this year’s repeal may frustrate a testator’s final wishes.  Although a will or trust is drafted for every client’s unique needs, many wills and trusts contain formula clauses pertaining to exemptions.  Under ordinary circumstances, these formula clauses benefit an estate because they provide flexibility in the event the government changes the tax exemption limits (as it has several times over the last 10 years).  Moreover, the use of formula clauses usually saves time and money.  But as a consequence of the 2001 Act’s expiration, formula clauses could fail to work as intended because their language (and interpretation) is tied to the federal estate tax law in many instances.  As a result, assets may not pass to the designated beneficiaries as intended by the testator.

So how do you respond to the uncertainty created by the federal estate tax repeal?  As in many aspects of life where uncertainty is the norm, you can still exercise certainty of action:

1. Stay focused on your long-term wealth preservation goals and revisit your estate planning documents in light of your aims.     

2. Seek help from your attorney and other professionals to understand whether the change in the estate tax law will impact your plans.     

3. With professional assistance, reevaluate what corrections or adjustments, if any, may be required to achieve your goals.     

4. The testator and other concerned parties should consult their attorney about the consequences, if any, of the use of formula clauses in the testator’s will or trust, especially where there is a high probability that the testator may pass away in 2010.  Ensuring that the testator’s wishes will be carried out will help bring peace of mind to all concerned parties.

Finally, note that the federal gift tax was not repealed, and continues to be in effect with a $1,000,000 lifetime exemption and a 35% rate.

Introducing The Trust & Sensibility Blog

Achieving excellence requires dedication and focus.  As a trust and estate attorney for the past 13 years, I have focused on estate- and business-planning strategies that preserve wealth and that ensure my clients’ wishes for family and heirs are fulfilled.  I am dedicated to delivering peace of mind.  While a will or estate plan may be structured in a myriad of ways, I empower clients to develop a strategy that best suits their individual preferences.  I use my in-depth understanding of the law to educate clients on their range of legal options and the impact that various decisions will have on their particular family or business situation.

The law is like a river.  While it generally flows in the direction of human progress, new issues and innovations create rapids and falls along its route.  For instance, the Obama Administration’s new priorities will likely bring change to the law, as will the tumult in the financial markets and uncertainty about the real economy.  And as government and other stakeholders scrutinize many areas of estate law, today’s practices may yield to tomorrow’s new paradigms. 

Through my blog, I will share insight on topics that are essential to wealth preservation, including estate planning, elder law, business succession, taxes, and insurance.  I am enthusiastic about sharing my insights with you in this real-time format.  Please share your feedback and call or email me anytime with comments or questions.  Remember, the best estate and business succession plans bring peace of mind.  I will continue to empower you to make your wealth-preservation choices with clarity and confidence.