estate planning

Thanks to The Indiana Law Blog for pointing out Same-Sex And Worried About Retirement from the Washington Post.

I usually discuss prenuptial agreements on my Indiana Divorce and Family Law Blog. I use Google news alerts to keep track of news on prenuptial agreements and that is why I am writing about them on this blog. The latest alert came laden with references to stories from the business page. This might be a trend as an earlier post here mentioned. Certainly, it is good for the business writers to acknowledge the importance (and impact) of family law on businesses.

The New Hampshire Business Resource has a fairly good article Protecting your business assets with a ‘prenup’. I do take issue with part of the following paragraph, though:

Stock in a family business owned by one spouse is marital property, and absent a valid prenuptial agreement would technically be subject to division under New Hampshire’s statutes. As a practical matter, however, it is unlikely that a court would order one spouse to transfer shares in a closely held business to the other spouse upon divorce, since judges and marital masters are mindful that post-divorce joint ownership of a business venture is unlikely to succeed. Accordingly, the court is likely to award all shares of stock in a closely owned family business to the spouse related to that family.

After nineteen years, I think that anyone can say what any judge will do about any matter in any particular case. Judges in divorce cases think that if both parties are equally angry then they have done a good job. What makes a prenuptial so useful is removing the surprise inherent in any judge's decision of what makes an equitable division of property.

I will take Indiana. This story from the Times of London, Wills injustice: fit for Dickens?, is worth reading if only to make us appreciate what we got. Here is the key difference between dying intestate (without a Will) in Indiana and in England: Indiana would have let this spouse take only 25% of the estate while in England the surviving spouse got everything.

Do not think I am suggesting that dying intestate is a good thing. It is not. It is just a bit better here than in England.

I sum up a power of attorney as creating an alter ego for the person making the power of attorney. Let me throw in a couple of terms here. The principal is the person creating the power of attorney and attorney-in-fact is the name given to the person getting the power of attorney. The General Assembly set out the powers in a whole chapter under Article 5 of Title 30 and include about everything that anyone can do with money and/or property. Those powers go into effect at a certain time or upon the occurrence of an event.

Along with these powers of attorney there are health care powers of attorney. For this type, the principal designates someone to make medical decisions for the principal.

Generally speaking, a durable power of attorney finds it greatest use when the principal becomes incapacitated so that they cannot carry on with their affairs. With health care powers of attorney that incapacity may be that one is unconscious while the ordinary power of attorney could go into effect when the principal cannot travel to the bank.

During the discussion with the lawyer, one needs to discuss not just the need for the power of attorney but how you want to use the power of attorney. Think about this - how are the bills to get paid if you are in the hospital or Africa? Go beyond bills and think about every sort of activity that requires you to do something by yourself and substitute that for bills. Powers of attorney give someone else the authority to do these things instead of you but only when you let them (that is the designated time to start power of attorney) or when you cannot do them for yourself (occurrence of an event power of attorney).

I think the same reasoning applies to health care powers of attorney. Do you want a certain sort of treatment and want to make sure you get it even when you cannot tell the doctors your wishes? If yes, then you need to get a health care power of attorney.

One thing forbidden the attorney-in-fact is executing a Will for the principal. I bring this up because of an article I ran across in the Times of London: Power of attorney: what can go wrong? The subheadline actually got me to read the article: What happens if your mother leaves all her money to her new home help? What is that a in-home healthcare worker got what would be a durable Power of Attorney and then used it to get a Will. Not likely to happen in Indiana because our statute explicitly states the attorney-in-fact cannot execute a Will. However, other things can happen.

Taking the same outline as the Times' story, I see a potential problem happening without any need for a Will. The power of attorney creates enough power for the attorney-in-fact to make a lot of mischief. I will outline in the near future the ways Indiana protects the principal, but in the meantime I will suggest a simple expedient. Give copies of the power of attorney to the banks handling the principal's money and also to anyone holding money or assets of the principal.

Hoosiers do not often discuss the problems of living together or cohabitation agreements. When we do the topic seems to come up most in terms of gay marriage. What most people here overlook is that more than just gays and lesbians live together. True, heterosexuals living together but unmarried do the marriage option open to them.

You need to think about a a cohabitation agreement whenever either of you intend to mix assets and income without any plan of marriage. When you and your partner intermingle money there always exists the possibility for conflict and the cohabitation agreement provides a means for solving that conflict. Yes, you can go to court and let the court sort out the problem. Consider this post on the New Jersey Family Law Blog with this rather self-explanatory title: Unmarried couples who buy property together should consider a written agreement. The New Jersey factual scenario can occur here Blogger: Sam Hasler's Indiana Divorce & Family Law Blog - Manage Postsin Indiana. You can look at how Indiana's courts have treated these kind of cases here on my Indiana Divorce and Family Law Blog: http://haslerlaw2.blogspot.com/2007/02/living-together-in-indiana-and-then.html .

Cohabitation agreements also serve in another kind of crisis: the death of a partner. Admittedly my views on cohabitation agreements did not originally include more of what I consider basic estate planning. I will say that the Indiana appellate court cases colored my views - they are wholly focused on the breakup of the relationship. My view changed and I think most people today think a cohabitation agreement should include Wills, powers of attorney and health care powers of attorney. Read the New Jersey Family Law Blog post I linked to above for a concurring opinion. Indiana probate law no more protects unmarried persons than do our family law statutes. The financial and emotional investments made with your partner may be lost during a serious illness and/or death.

Remember this as the bottom line for anyone living together and sharing a substantial amount of their income and assets: get a lawyer and get a cohabitation agreement.

I got to admit that I have an aversion against partnerships. I think most attorneys do not like them. Why? Liability. Law school beats us over the head to avoid liability for our clients as much as possible.

Partnerships ooze with liability issues. From your partner's creditors seizing business assets for his debts to your assets being on the line for business creditors, partnerships just scare lawyers. Maybe a partnership between corporations or limited liability companies or between a corporation and a limited liability company.

With all these problems with partnerships why have one with a spouse? Because partnerships can be implied by actions as well as by a formal agreement. Two spouses start a business and even without a formal agreement, a partnership can be created by their acts. Of course, the husband and wife have probably not even thought of talking to a lawyer about the kind of problems they might be getting themselves into. Why spend good money that could go into the business?

If anything goes wrong with the business, then business creditors can go after all the joint assets. Since most businesses fail, what do you think now of not talking to a lawyer?

What would chatting with an attorney accomplish? I repeat that most attorneys would get the business set up as a corporation or a limited liability company. If the clients were adamantly committed to a partnership, then there would need to be a partnership agreement.

If the clients want to keep the business running as long as possible, they need to consider all of the problems including divorce. I think the equivalent of a prenuptial agreement (or a post-nuptial agreement, if already married) needs to be considered regardless of the business type used by the husband and wife. With a partnership and limited liability company having a written document (and a LLC requiring a written operating agreement) setting out how the business shall be run, incorporating some of the prenuptial/post-nuptial's terms does not seem out of place. Based upon that reasoning, they need a separate prenuptial/post-nuptial agreement if the business is to be set up as a corporation.

Then they need to consider their retirement and estate planning objectives. If the business entity is a partnership or a limited liability company, these objectives need expression in the partnership agreement or the LLC operating agreement and for corporations in a separate document.

The following comes from an article in the Scottish newspaper, The Sunday Herald:

Public savings agency National Savings and Investments (NS&I) has just produced its quarterly report which seems to suggest that many of us live in some Walter Mitty world, crossing our fingers in the hope that we can deal with any future financial problems we may face by begging, stealing or borrowing.

Well, most of us may not resort to breaking the law, but when asked if they had any money worries, more than a third of respondents claimed that they didn't - predicting that they will earn more, borrow more, or benefit from a windfall in the future.

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More worryingly, in excess of half those questioned admitted that they did not have a financial plan to speak of, while one in six said that they did not even bother to think about their finances at all.

Now, what is the difference between here and there? I do not think there is much. How many have even considered the basics for estate planning - a Will, a Living Will, a Power of Attorney and a Healthcare of Power of Attorney? Those who have thought about it - have you done more than think?

Do read the rest of the article and ask yourself does this not apply to the United States, too?

That describes my take on the Emma McPeek, et al. v. Charles McCardle from the Indiana Court of Appeals. Mother owns the farm that was in the family for generations when she marries McCardle. When she dies the children from the first marriage file a declartory action requesting the court find mother's marriage to McArdle void. After all, mother died without a Will so McCardle stands to inherit half the farm via Indiana's intestacy statute. Losing the family farm did not please the children.

The children's theory revolved about what makes a valid marriage. The Indiana Court of Appeals described their theory like this:
The children went onto argue that Indiana courts should find the marriage void because it failed to comply with Ohio law. The Indiana Court of Appeals got rid of that argument quickly.

Which leaves the children and step-father to divide the farm that had been in the children's family for years and years.

Marrying someone with children and with property is a recipe for trouble. A Will might have solved some of the problems. A prenuptial agreement would have been a better solution.

What to do after paying on the mortgage for years and having two siblings? I got asked this question a while back and after some thought decided to blog about this kind of problem. What was my answer?

- Bite the bullet and get an estate opened and hope for the best.

The person asking the question did not like my answer. Without a Will, Indiana's intestacy statute divides the house between the three siblings. That puts the sibling who made the house payments for years (and we will call her sibling #1 from here on) on edge. She wants to keep the house and is far from happy that the non-contributing siblings might get a piece of it.

Sibling #1 does not seem to realize that she has one major problem with her situation. She has been paying the on real estate to which she has no title. Without opening an estate, she cannot get title.

What is meant by title? Title means the ability to show that you own the real estate. Specifically, title means a deed. If you would like a more formal definition, try this one:

If she does open an estate and wants to keep the house, sibling #1 has some options. First, I say the estate owes her for the mortgage payments and other costs of upkeep for the house. Second, she has the right to offer to buy the house house by paying to the other siblings their share of the house. So take the amount paid on the house against the shares of the other siblings and pay the difference - if any.

Let me be brutally frank about all those schemes about avoiding probate - I think they are scams. They made a lot of money for the people selling those books and schemes but they did so by working on the buyer's biases against paying inheritance tax and paying attorneys. Unlike attorneys, the sellers of these schemes will not be around when the problems come up and cost more than consulting an attorney, more than Indiana's inheritance tax and far, far more than the book on avoiding probate cost. If you want to avoid probate then talk to a lawyer and do not do it on your own.

A disclosure before going any further - my father is a funeral director. All this means is that I have seen both sides of the pre-need funeral trust issue. My father drummed into me one good, practical use for this kind of trust: it removes the burden from the survivors in selecting the funeral.

What I have learned about funeral trusts since beginning my practice in 1987 is that people think they can put their funeral arrangements in their Wills. No can do. Funeral trusts create the means for people to set out and control their funerals.

In my opinion, estate planning ought to include pre-need funeral trusts. Pre-need funeral trusts provide a valid deduction for Medicare purpose. So for that reasons as well as those I have already given are why I think pre-need funeral trusts need to be included into any estate planning.

Indiana has three statutes relating to funeral trusts: Prepaid Funeral Plans and Funeral Trust Funds Established Before 1982 (IC 30-2-9), Funeral Trust Funds, Payment of Funeral (IC 30-2-10), and Burial Services, or Merchandise in Advance of Need (IC 30-2-13). I will be discussing all of them in other posts.

From the Indiana Lawyer comes High court rules on estate issue:

From New York's Sui Generis blog comes Trusts & Estates Horror Story.

The client finished the estate planning but his intended beneficiary did not. Think about it.

Florida Estate Planning Lawyer Blog has a collection of cases where doing estate planning by yourself lead to trouble. Start with Do it yourself Estate Planning: Bad News Part 5 as it has links to other articles in the series.

You and Yours Blawg makes a really good point in its article, Do your heirs a big favor: Choose IRA (and other) beneficiaries.

Thanks to Wills, Trusts & Estates Prof Blog for pointing out this USA Today article Get yourself a will: Here's a way.

I am a bit more critical of the newspaper article than was the Wills, Trusts & Estates Prof Blog . Having usual depth of USA Today, the article explains very little about the do-it-yourself Will products featured in the story. Wills, Trusts & Estates Prof Blog's Self-Help Estate Planning Techniques Publicized faults the article for this:
I also find the article using the word "drafting" without explaining more scary.
Why scary? Because drafting is the least dangerous point for the do-it-yourself crowd. Execution's dangers go completely unmentioned.

The best uses for a Will drafting software package are these:

1. To get the person using the software to think about how they want to plan their estate.
2. To present a written plan for an attorney to work off of.

Nothing seems so dependent on the Internal Revenue Code as complicated estate planning. By complicated, I mean more than a Will and an estate with less than the minimum for the federal estate tax. Uncertainty in the future of the federal inheritance tax has planners unsure what to do with themselves.

Estate Taxes Flummox Planners
Uncertain Future Fuels Trust Boom; Repeal Odds Wane

By ARDEN DALE
WALL STREET JOURNAL
April 5, 2007; Page D2

"We can help! Our team of experts will guarantee that you pass away in
2010 and avoid federal estate tax."

Gallows humor about estate taxes -- like this Internet spoof -- is in
vogue these days because changes in the so-called death tax have left
even savvy financial planners puzzled. And hope of a total repeal is now
dim because of the shift in power to Democrats in Congress.

"By far the most important estate-planning issue faced by clients and
planners alike is the future of the federal estate tax," said Jeffrey A.
Baskies, a partner in the Fort Lauderdale, Fla., office of law firm
Ruden McClosky.

The nearly century-old levy has meant heirs can see as much as half of
their inheritance go to the Internal Revenue Service.

A 2001 law phased in a series of changes in the tax. In 2007 and 2008,
a tax of up to 45% will be levied on estates over $2 million. In 2009,
the threshold will rise to $3.5 million. In 2010, the tax will be
lifted completely for a year, but reinstated in 2011 at up to 55% on estates
over $1 million.

What happens next is anyone's guess. Last month, Senate Finance
Committee Chairman Max Baucus (D., Mont.) sponsored an amendment to a budget
blueprint that would permanently extend the 2009 rates. But the budget
resolution is nonbinding, and its future is up in the air.

The Fatal Accident Estate Planning Service, the fictitious group
circulating a joke brochure on the Internet, sums it up like this: "If you
don't die on time, your legatees could lose millions of dollars. We
guarantee that you will turn into worm food in 2010 or we pay the estate
tax. That's right. You don't have to worry about lingering comas or
miraculous resuscitation attempts delaying your death and creating havoc for
your executor."

Uncertainty has put a premium on keeping an estate plan up to date so
changes in the law don't create unnecessary taxes or even change how
assets are parceled out among beneficiaries, said Perry Ganz, an attorney
at Tarlow Breed Hart & Rodgers P.C. in Boston.

Rich or poor, facing up to making an estate plan means facing one's
mortality. Many advisers say that getting a client to focus on it is
difficult under any circumstances.

Estate tax questions have provided yet another reason to balk,
according to Len Adler, a wealth adviser in the Palm Beach, Fla., office of
JPMorgan Private Bank.

Some held back in the hopes that an earlier Republican effort to repeal
the tax would succeed. If the tax were to be repealed, why bother
setting up trusts and other tools designed to pass assets on to heirs? Now,
full repeal seems unlikely to many because of the recent Democratic
victory in Congress.

"I think there's less paralysis today than there was a few years ago,
but there's still enough uncertainty that it's getting in the way," said
Mr. Adler.

A boom in trusts -- meant to reduce or avoid the gift tax -- has been
one result of the fog. People once willing to whittle down their taxable
estates by giving away money to friends and family now aren't so
willing. The logic: Don't give away money if the estate tax is about to be
repealed.

The federal gift tax exemption allows a person to give away a lifetime
total of as much as $1 million to friends, relatives or others without
paying federal tax. One may also give away an unlimited number of
annual gifts of $12,000 to any number of individuals without eating into the
$1 million gift exclusion.

"This was a fairly common strategy for affluent folk, but dipping into
the gift tax exemption just to get money out of the estate, when the
estate tax might be repealed didn't make sense to some people," said
Rande Spiegelman, vice president of financial planning at the Schwab Center
for Investment Research.

GRATs, or grantor retained annuity trusts, have boomed as a way to give
lucrative assets to family and friends without paying a hefty gift tax.
A GRAT allows its owner to discount the taxable value of a gift, and is
used to transfer appreciation on hedge funds, private equity, real
estate and other assets without paying gift tax.

Beyond trusts and taxes is the living will. Many people he advises
indicate they don't want life support if permanently unconscious or
unlikely to recover, said Warren K. Racusin, a partner and co-chairman of the
private client services group at McElroy, Deutsch, Mulvaney & Carpenter
LLP in Morristown, N.J. "Should there be an exception if you're right
at the end of 2009?" said Mr. Racusin. "And the flip side is that, if
it's December 31, 2010, is it appropriate to emphasize that the client
doesn't want extraordinary measures taken to remain alive into 2011?"

Write to Arden Dale at arden.dale@dowjones.com1 

Combining estate planning and funerals homes is rather common in my practice. Combining those subjects with cars is uncommon. If you listen to National Public Radio, then you are probably aware of the show "Car Talk." No other show mines the humor in car repair and maintenance as does "Car Talk". I never thought the show would be the subject of a blog post, especially one related to estate planning. Actually, the show was the subject of posts on two different blogs and this is the third. The following is from Charles R. Goerth's blog:

Disposal of remains is not a laughing matter, but laughter can be excused if the remains are one’s own, I guess.

That’s what I concluded upon reading the posting today on Neil E. Hendershot’s Estate Planning Blog relating the Car Talk exchange between Click and Clack regarding use of an automobile to dispose of one’s cremains. (Cremains is the current descriptor in some quarters for cremation.)

Yes, that kind of topic does raise an eyebrow or maybe both. Both previous writers handle the issue quite well, but I came to a stop at this point:

Thinking about what to do with cremains is a question which comes up regularly in estate planning consultation. But first, recognize that this direction for disposition of remains shouldn’t appear in a Will. It should go into a Health Care Power of Attorney.

Mr. Goerth does not explain that a Will does not get probated until after the funeral. As in Pennsylvania, Indiana law gives the person designated to have the power of attorney (they are called an attorney-in-fact) under a Health Care Power of Attorney the power to decide on the principal's (that is the person creating a Power of Attorney) funeral arrangements. However, Indiana law also provides another method for the setting up of funeral arrangements prior to death. This other method is a pre-need funeral trust.

I always mention a pre-need funeral trust to my estate planning clients. The funeral homes do the paperwork for this kind of trust. The client would go to the funeral home of their choice, make their funeral arrangements (and I am including cremation when I use "funeral" here), and an insurance policy is bought to fund the trust. Nothing further needs done by anyone - client, family, or attorney-in-fact - when time comes to make any funeral arrangements. The client receives the funeral that the client wants without imposing upon the attorney-in-fact the hard choice of making funeral arrangements.

Long term costs, it costs a lot, and now the press scrutinizes the industry. The New York Times published an article with the headline Aged, Frail and Denied Care by Their Insurers. Thanks to The Elder Law Prof for pointing the way to the article. Elder Law Prof collected some reactions to the article here. Prior to that post, Elder Law Prof has the post titled Fidelity estimates a retiree needs $107,500 for health care costs based on a story out of Houston. Finally, from the PA Elder, Estate & Fiduciary Law Blog comes links from a four-part series in the local newspaper that brings these issues down to a local level.

VA Family Law Blog has a great post on why people need a Living Will. Even when you get past the specific Virginia issue that seems to prompt the article, I got to say the following reasons apply to Indiana. The only thing I would add is that not only is a Living Will needed but also a health care power of attorney as well as a durable power of attorney. (We call these things advanced directives.)

You might want to read all of Keeping government out of your death: Terri Schiavo is not the only reason you need a Living Will but here is one paragraph that caught my attention:

Would you want to be deprived of food or water if you were in a persistent vegetative state? What about heroic measures, like resuscitation or a permanent electronic breathing apparatus — would you want those things used on you? What if you were terribly ill, like with end stage cancer or advanced Alzheimer’s disease? Talk to your loved ones about it. Then get a Living Will. Whether you want all efforts made, none or something in between, get this inexpensive legal document drawn up to make what YOU want clear for your family and the medical professionals who want to help you. It is the best way to prevent politicians and other officious intermeddlers from making you their political hay.

Butler University has a site devoted to gift planning. While devoted to promoting gifts to Butler, the Office of Gift Planning does a newsletter that is not so obvious in directing gifts to the University and is useful. The website has its uses also; 1) a Tax References link and 2) a Tax Law News link.