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our website is designed to bring current news and
information about us and about the important
developments in areas that affect planning we do for our
clients.
What We Learned From the Terri
Schiavo Case
TEACH YOUR CHILDREN WELL
JUST A FEW REASONS WE DON’T DO “SIMPLE WILLS”
“Beneficiary-Controlled Trusts” Gaining in Popularity
Continued Uncertainty Concerning the Federal Estate Tax
Maryland Enacts Estate Tax “De-coupling” Legislation
HIPAA Privacy Law Affects Health Care Powers of Attorney
Family Limited Partnership Planning Continues to be
Effective
What We Learned From the Terri Schiavo Case
The tragic story of the last 15 years of Terri Schiavo’s
life has certainly focused attention on the important
part a “living will” and medical power of attorney can
play in our clients’ estate plans. As our clients
already know, we have always believed that these
important documents should be a part of every estate
plan. No doubt many of our clients have been comforted
by knowing that, unlike Terri Schiavo, they have made
arrangements for the potentially agonizing process of
dealing with end-of-life medical decisions in the event
that they found themselves in a similar situation. This
is part of the “peace of mind” that we like to think is
the ultimate service our office provides, and we take
pride and pleasure in the fact that our clients assure
their loved ones that they have executed these important
documents. There are three ways that our clients plan ahead to
ensure that their wishes are carried out: (1) a Medical
Power of Attorney designating someone to make the
decision for them, based on the circumstances at the
time; and (2) an Advanced Directive (“Living Will”)
setting forth their own written instructions regarding
the removal of life-sustaining procedures and (3) Health
Insurance Portability and Accountability Act (HIPPA)
Authorization to allow your designated representatives
access to your medical information. While we have always
maintained that the execution of these documents is
essential to any estate plan, the Schiavo case points
out another important lesson: Talk about this issue with
your family! Sure, legal documents are fine, and they
serve a useful purpose. But the Schiavo case points out
the importance of communicating your desires to all of
your loved ones. Perhaps the biggest tragedy of the
Schiavo case was the way it irretrievably fractured her
family. While the motives of her husband and her family
members have been relentlessly questioned and attacked,
the likely fact is that they all loved Terri, and were
doing what they thought she would have wanted them to
do. But, because she had not communicated her wishes to
both her husband and her parents, they were left to
endlessly argue. Although we will never know for sure,
given Terri’s parent’s strong pro-life sentiments, it is
possible, if not likely, that even if Terri had signed a
Living Will directing the withdrawal of food and water,
her parents would have questioned the document if she
had never taken them aside and explained her feelings
and desires. For this reason, we are now making it a
point to urge our clients to make sure that all family
members – not just the health care agent – know about
their wishes. Your Advance Directive planning should be
a two-step process: (1) Execute the documents; and (2)
Tell everyone you love how you feel about these issues.
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TEACH YOUR CHILDREN WELL
While our clients range in age from the twenties to the
nineties, a large percentage fit into those middle-age
years. Many of them have children who have left the
“nest” and started their own families. We all remember
the adventure and challenges of raising youngsters while
struggling to make ends meet financially. Thus, we know
it is often difficult for young parents to set aside the
time and the money to go see an attorney to get a proper
estate plan – including wills, trusts, powers of
attorney and living wills. Most would probably agree that one of the most important
functions of an estate plan is to provide protection for
minor children in the event of the unexpected death of
both parents. Without a will with provisions for a
protective trust for children, a considerable portion of
the estate (for young parents, we are talking primarily
about life insurance) could be lost to taxes and
administrative costs. Just as critical, without a
written plan, the families of both parents are likely to
face disputes about guardianship and the proper use of
the available funds. And to top it off, without a trust,
the orphaned children will receive any money remaining
on their 18th birthday, with no strings attached. Faced
with a choice of studying hard and going to college
versus finding ways to spend an inheritance, what do you
think your grandchildren would do? We have many young clients who have very little in the
way of financial wealth, but with considerable life
insurance. Hopefully, any young couple with children has
at least $500,000 in life insurance. Life insurance
without an appropriate estate plan that includes a trust
for such funds, to ensure the funds are used for
education, health and support until the children are
grown, is, in our opinion, almost being wasted. It
amounts to a pot of cash without any instructions as to
how it will be used. A trust – even a rudimentary one
established under a “simple” will – can provide such
instructions. The tragic case of Terri Schiavo also provides an
example of the importance for young people to do some
planning. Advance Medical Directives and Living Wills
can protect families from the heartache, acrimony and
legal feuding that can result from a catastrophic injury
or disease. It bears noting that the Schiavo case and
most of the other similar cases that have grabbed the
headlines in recent years have involved young people –
not the elderly. There’s a lesson for all of us there, I
think.
As parents, we know that once our children have left the
nest and started their own families, we must leave it up
to them to do what is right for their own families. But
that doesn’t mean we can’t provide a little gentle
prodding, by reminding them of the importance of
protecting their children through the preparation of
wills, trusts, powers of attorney and health care
directives. After all, this is just a continuation of
the lessons we pass down to our children throughout our
lives. So, if you have children with young families, go
ahead and be a nagging parent again – urge them to go
see an estate planning attorney today. Once they see the
peace of mind that comes from proper planning, I can
guarantee they will thank you.
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JUST A FEW REASONS WE DON’T DO “SIMPLE WILLS”
Not a week seems to go by when I don’t have a potential
client or a telephone caller says something like: “I
just need a simple will. How much do you charge?” Boy,
do I find that frustrating! From my perspective, what
this person is really saying, in essence is: “I don’t
really care what happens to my family when I die, and
there’s nothing special about them, so I want to spend
as little as possible. Just give me a basic legal
document that qualifies as a legal will.”
Don’t get me wrong; I certainly don’t expect anyone to
spend money unnecessarily for elaborate, fancy documents
that don’t serve any purpose. However, it’s not just the
Rockefellers, Kennedys and Bill Gates that might want
more than just a “simple” or “basic” will in order to
achieve their estate planning objectives. Here are a few
reasons why we don’t ever do “simple” wills:
- People are like snowflakes – no two are alike. Many
people who contact us seem to think that they only
“need” a simple will, as if preparing a will consists
only of filling in a one-size-fits-all form. We treat
our clients as unique individuals whose families and
loved ones also have their unique qualities. Our
experience teaches us that by spending only a few
minutes with our clients, they quickly see that their
family and circumstances and their goals and objectives
are not such that can be “pigeon-holed” into a form.
Each will or trust we design is specifically tailored to
meet the client’s objectives. Certainly, some wills and
trusts are less complex than others. We always attempt
to make the documents as straightforward and
understandable as possible. But there are many potential
inheritance pitfalls that can be avoided, and many
valuable protections that can be provided by proper
planning. And we believe that our clients deserve to be
educated about the benefits that a more comprehensive
approach can bring.
- Unfortunately, the Tax Laws are not simple, so estate
planning documents can’t be either. Like it or not,
because the government sees death as an opportunity to
collect taxes, there are state and federal estate and
inheritance tax laws. By strategically navigating those
laws, considerable opportunities exist for minimizing or
avoiding such levies. Sometimes, so-called “simple”
solutions create enormous negative tax consequences. In
our view, neglecting to consider the impact of taxes on
the transfer of an estate to your loved ones is
irresponsible.
- Simply leaving property outright to your heirs is
(usually) not good planning. By definition, a so-called
“simple will” is one that just leaves the person’s
property outright to named beneficiaries. An alternative
to an outright bequest is a bequest to a trust. A trust
can be designed to provide the beneficiary with almost
total control over the trust property, assuming the
beneficiary is a responsible adult. Some of the benefits
of a bequest being in a trust are: (1) protection of the
beneficiary in the event of a divorce, lawsuit, or
bankruptcy; (2) ensuring that the inheritance passes to
the beneficiary’s children at the beneficiary’s death,
rather than to a spouse or creditor; and (3) protecting
the inheritance from the imposition of estate taxes.
These advantages cannot be accomplished by a so-called
“simple will.”
- Estate Planning Matters! That is, it is important.
And we believe it warrants spending some time and
attention on it. Like everyone else, we wish our laws
were simple, but the fact is that they are not. Life
throws lots of things at us, and it pays to be prepared
for as many of the bad things as possible. So we prefer
thoroughness over simplicity. We don’t attempt to be the
cheapest – we want to be the best.
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“Beneficiary-Controlled Trusts” Gaining in Popularity
Over the past couple of years, an increasing number of
our clients have been seeking our assistance in
structuring well-designed trusts to pass on their wealth
to their children. Often, these children are already
adults and usually are very responsible. Thus, one might
expect that the client would simply leave the child’s
inheritance to him or her outright, as opposed to in a
trust. However, there are many benefits to leaving a
child’s inheritance in a trust, even if the child is a
responsible adult. Properly structured, a trust can (1)
prevent a child from losing an inheritance in the event
of a divorce; (2) protect an inheritance from a child’s
bankruptcy or a lawsuit; and (3) prevent the inheritance
from being taxed when the child passes the inheritance
on to the next generation. By naming the child as the
Trustee (or as a Co-Trustee) of the trust, the child can
have virtually unlimited control over the Trust. With
such trusts, the inheritance actually becomes more
valuable to the child – as he or she can use the assets
for living expenses, such as mortgage payments, food,
clothing, medical insurance and expenses, the purchase
of a new car, and even vacations, yet also have the
added protections that come with a trust. Thus, it is
not surprising that beneficiary-controlled trusts are so
popular!
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Here are some recent legal developments that may be of
interest:
Continued Uncertainty Concerning the Federal Estate Tax
The 2001 Tax Relief Act has been a “hot topic” since it
was passed over three years ago. As you may know, this
legislation provides for a gradual phase-out of the
federal estate tax, and elimination of the tax entirely
in 2010, but has a “sunset” provision that brings the
old law (with a $1,000,000 estate tax exclusion amount)
back after only one year. Immediately following the
passage of this law there was considerable support among
Republicans in Congress to make the estate tax repeal
permanent prior to 2010. The events of September 11,
2001, as well as the growing deficit problems, have
pretty much dimmed any prospect for the complete repeal
of the tax. It is appearing more and more likely that
the estate tax will continue, although there is
widespread support among both Republicans and Democrats
to increase the exemption amount to at least $2,000,000.
the uncertainty regarding the estate tax makes it
especially important for married couples to review their
existing wills and trusts to make sure that the planning
is flexible enough to deal with their particular
circumstances regardless of what the law is at the time
when the plan will be implemented.
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Maryland Enacts Estate Tax “De-coupling” Legislation
Governor Ehrlich has signed a bill that changes the way
Maryland calculates the estate tax. Note, this bill is
retroactive, in that it applies to decedents who died
after December 31, 2003. Under prior law, the Maryland
tax was linked (“coupled”) to the federal tax, so that
if an estate was below the exemption amount for federal
estate tax, there was no Maryland estate tax. That has
now changed. The federal tax exemption is now
$1,500,000, but the Maryland exemption is only
$1,000,000. This has potentially significant
consequences for many of our clients. Most of the wills
and trusts we have drafted for married couples over the
past 10-15 years have “formula language” that reduces
the federal estate tax to zero. Under the new law, such
formula language may result in a Maryland estate tax of
up to $64,000 at the death of the first spouse, where
none existed before. For this reason, virtually all of
our married clients should come in for an Estate Plan
Review in order to determine if a change in their
documents would be in order. For many of those clients,
a slight “tweaking” of the language in their documents
may be all that is required to save over $64,000 in
potential taxes.
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HIPAA Privacy Law Affects Health Care Powers of Attorney
If you’ve been to a doctor’s office or hospital lately,
the chances are good you have seen the effect of the
Health Insurance Portability and Accountability Act,
commonly referred to as “HIPAA.” This law was actually
passed in 1996, but in September, the regulations
interpreting the Act were issued. The net effect of
these regulations is to make the medical community
paranoid about being sued for releasing medical
information to anyone. Thus, it has become increasingly
difficult to get doctors and hospital staff to deal with
the families of patients when such communication is
critical. In response to these new regulations, we have
made some significant changes in our health care
documents, which we believe will alleviate the problems
that might otherwise be encountered if and when our
clients need to use the health care power of attorney.
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Family Limited Partnership Planning Continues to be
Effective
For many of our higher net worth clients, we have
implemented Family Limited Partnerships (FLPs) or Family
Limited Liability Companies (FLLCs) in order to achieve
many goals, including asset protection, family wealth
preservation and estate tax savings. Despite a solid
core of legal precedents from courts throughout the
country, the Internal Revenue Service has continued to
challenge this strategy in many cases. The IRS seemed to
have garnered an important victory in this battle, in
the Strangi case (which is currently on appeal by the
taxpayer). However, in May, the United States Court of
Appeals for the Fifth Circuit issued an opinion in a
case very similar to Strangi, and it was a resounding
victory for the taxpayer. The case is known as Kimbell,
and knowledgeable commentators throughout the country
are unanimous in hailing this decision as a vindication
for those of us who have assisted our clients with this
innovative planning. Take note, however, that the cases
that continue to issue from the Courts illustrate that
it is critical that those who have established FLPs or
FLLCs operate those entities properly, as a separate
business entity and not as an alter ego of the client.
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