September 19, 2010

Giving (and Leaving) Money to Kids

giving kid money.jpgLiza: Is there a rule as to how much money a child can own? And if so, how do I figure out what I can give to a child in my estate? Minors can only own a small amount of money in their own names, it varies from $2,500 to $5,000, depending on your state. But that's just the limit of what a child can own directly. You are free, of course, to leave your children as much of your assets as you want, you just have to make sure that the money is going to be managed for them properly. If you don't make any arrangements, and you die, a judge will have to appoint a property guardian to look after the minor's money until that minor is an adult (18 in most states). This isn't the best solution for several reasons: 1) the property guardian can usually make only limited investment choices; 2) the property guardian will have to report to the court on those investements; and, worst of all from most parent's perspective, 3) the child gets full control over all of the money when they become a legal adult. (I have heard stories about the kid who bought the entire neighborhood motorcycles). A better way to leave money to your children is to make an estate plan. In either your will or living trust, you can leave the money in trust for your children to whatever age you think makes the most sense (maybe 25 or 30), and appoint someone you trust to serve as the trustee (manager of the money) until that time. If that sounds too complicated, you can leave your children money in your estate plan under what's called the Uniform Transfer to Minor's Act (UTMA). This law, which is enacted in every state except for South Carolina and Vermont, makes it easy to leave property to children. You state in your will or trust that the gift to your children is under the Uniform Transfer to Minor's Act in effect in your state, and you name a custodian to manage the money for your kids (a person you trust to take care of the money until your child gets it). State law determines how long this custodial account can last, and it varies from 18 to 25. No separate trust account has to get created, your custodian can open a bank or a brokerage account for your children's benefit,and the money can be used for school, books, bubbles, and whatever else they'll need growing up.

September 12, 2010

Self-Proving Affidavits: Avoiding a Trip To Court


self-proving Will.jpgLiza: Help. What is a self-proving affidavit why do I need one? A self-proving affidavit is a statement, sworn to be true under penalty of perjury, signed by the witnesses who watched you sign your Will. The affidavit says that they swear that you signed the will according to law. In California this means that you appeared to be of sound mind (i.e. not crazy) and that no one made you sign the Will under duress. If it's there, then you have what's called "A Self-Proving Will."  It's nice to have a self-proving Will because later, hopefully much later, when you die and the Will is submitted to probate, your witnesses won't be called to testify to prove that your Will is valid. It's "self-proving" because the affidavit stating that the Will is valid is already attached to the Will itself. If there's a challenge to the Will's validity in probate, the witnesses might be called in to testify, but that's up to the judge, and most Wills aren't challenged anyway. Look to see if the Will you're about to sign has an extra page after your signature where the witnesses swear that you appeared to be of sound mind and not acting under duress.  If it's there, you're set; If it's not there, you don't have a self-proving Will. Nolo's Online Will and WillMaker software will create the affidavit, as will any estate planning attorney.
September 8, 2010

55% Estate Tax? Say it isn't so.

tax dollars.jpgLiza:  I heard that in 2011 a person who dies will have to pay 55% in estate taxes. That couldn't be true, is it? That seems like an awful lot of taxes. is there a way around this? Sorry, but at this point, that's the plan. Unless Congress acts to change the law, the estate tax is scheduled to be 55% as of 2011. The amount that each of us can give away at death free of tax is scheduled to be $1 million, so the tax won't touch everyone, but it will hit many people, since life insurance proceeds are subject to the estate tax. As for getting around it: the obvious answer is don't die in 2011 and hope Congress raises the amount that's excluded from the tax before you do die, but I suppose that's not helpful. You can make charitable gifts, which, in addition to supporting good work in your community will reduce your taxable estate dollar for dollar. If, for example, you have $3 million dollars in assets and give away $2 million to Doctors Without Borders upon your death, you would not have a taxable estate. Also, gifts to your spouse are estate tax free--although their estate will be subject to tax when they die, so that just defers the tax, but doesn't reduce it.

September 5, 2010

Annual Gifts: Yes You Can!

gift tax check.jpgLiza: My mom wants to gift me with a $15,000 check before the end of the year but my husband says that will violate the gift tax rules. I thought the limit was $1 million. What's the rule and who pays the gift tax? You have a very nice Mom. I'm sure your husband is very nice, also, but he's got it wrong. To quote our fearless leader, "Yes, she can!" But she should write that check for $13,000. Here's why. You are totally correct that current tax law allows people to make lifetime gifts up $1 million before they have to pay gift tax. Think of that like a Jamba Juice card, each gift you make gets reported on a 709 gift tax return, and that uses up some of the credit (like buying a smoothie with a $30 card, leaving you with $25 and change left for the next time.) But, your mother and everyone else, is also allowed to make annual gifts of up to $13,000 per person per year, free of the gift tax. (This number is adjusted for inflation now and then.) How cool is that? As long as your mother doesn't give more than $13,000 to any one person, she can give $13,000 to everyone in Cleveland if she wants to, without having to pay a penny in gift tax AND without using up even $1 of that lifetime million dollar gift credit. But $15,000 is over that limit, so unless she wants to give you $13,000 and your nice, but misguided, husband $2,000, she'd have to report it and use up some of her lifetime credit.

September 1, 2010

Wills: Tell Mom to Make One

insurance contract.jpgLiza: My mother has a life insurance policy and that's it. She has no property anymore except for a few odds and ends - she lives with my family. Does she need a will? Yup. It's true that your mother's life insurance policy will go directly to the people she's named as beneficiaries for her policy, but what about those odds and ends?


Creating a will lets your mother name an executor, who will file her last tax returns, notify social security and the state department of health after her death, cancel her cable subscription, and deal with her overdue fines at the library. It's just good house keeping and will (no pun  intended) make it easier for you to tidy up her affairs after she's gone. More than that, you may not know everything about your mom--some of those odds and ends may surprise you. 

Having a will in place will make it possible for you to deal with whatever she leaves behind. My very own Dad, for example, left my sister and I an oil and gas lease in Oklahoma (we call it 'the gusher') that we had NO IDEA he owned. Wills aren't complicated, she can do one herself using Nolo's online Will or Nolo's Quick and Legal Will book. And here's something else she needs: a Durable Power of Attorney and an Advanced Health Care Directive. These documents will help you to take care of her when she gets sick. The Power of Attorney allows you to take care of her financial matters: the Advance Health Care Directive gives you the authority to make medical decisions for her if she can't communicate directly with her doctors. You can make both of these using Nolo's WillMaker, and local senior centers can often help you get free forms to fill out as well.

August 31, 2010

Can You Pre-validate a Will in California?

OKAY2.jpgLiza: I live in California. Can I get my Will pre-validated? No, you can't. Though I can see why you might want to. Pre-validating a will lets you make sure that your Will won't be challenged in court after you die. Instead, you can get a probate court to declare it valid while you're alive, which is handy, since you're actually around to tell the court that it's exactly the way you want it to be if anyone makes a fuss after being notified of what you intend to do. But so far, only a few states allow pre-validation: Alaska, North Dakota, Ohio, and Delaware. Cynically speaking, it's such a good idea that my guess is lawyer lobbies are trying to block it elsewhere, since it would potentially cut down on probate fights after death (and that's what's called a meal-ticket for attorneys.) If you want to read more, here's a good article from FA (Financial Advisor) magazine.
August 29, 2010

Payable on Death Accounts: Tell the Bank

Thumbnail image for PiggyBank.jpgLiza: My Dad has a POD account at our local bank and he says that I can have it and even wrote me a note saying that it is mine. I suggested he contact the bank to make sure that it will go to me but my Dad says that his signed statement is good enough. I don't want to get into a big fight over this. What should I do? If your Dad really wants that account to go to you when he dies, a note to you isn't going to do the trick. What the bank wants is a signed form, on file with the bank, making you the payable on death beneficiary. When he dies, you'll own the account. It's that simple. But if you go down there with a note, they'll just look at you with googly eyes and tell you to go away.Tell your Dad that the bank needs him to go down there and fill out their POD form. Nothing else will do. Life is way too short to argue with banks about much of anything.

May 19, 2010

13 Tips to Make an IRA last longer

Forbes.com recently published a really helpful article that summarizes the ways that those who inherit an IRA, or who are thinking about leaving one to their heirs, can make the best strategic use of that money.

Here's the top three in my opinion:

1) If you inherit an IRA, take out only the required minimum distribution, which is calculated based on your life expectancy. (If you're a surviving spouse, you don't have to start withdrawals until you're 701/2, but everyone else has to start taking money out the year after the owner has died, in most cases).

 

2) If you have an IRA, DO NOT name your 'estate' as the beneficiary. This will trigger the five-year rule, which means your heirs will have to take out all of the money within 5 years, and pay income tax on those withdrawals (if the account is an IRA, Roth IRA's are different).

 

3) Beneficiaries of inherited ROTH IRA's still have to take required minimum distributions, just like those from regular IRA's, starting a year after the death of the owner, but they don't have to pay income tax on those withdrawals. Because the owner of a ROTH IRA does not have to take any money out of those accounts during their lifetime, this can be a way of leaving more money to your heirs than a traditional IRA.

For more information on IRA's and other retirement accounts, you might want to check out The Mom's Guide to WIlls and Estate Planning (Nolo).

May 16, 2010

Congress Reportedly Considering a Roth-Style Estate Tax

Here's an odd news flash: On The Money, a blog of the congressional newspaper The Hill, this week said lawmakers are considering whether to let taxpayers have the option of paying estate taxes in advance so they don't owe that money when they die.

The idea is to let people pay a lower tax rate (reportedly 35%) if they prepay the estate tax they think will be due upon their deaths. This would get more tax money into the government sooner, and in return it would be a terrific deal for those wealthy enough to have to worry about the tax--which is due to return to 55% next year.

Stay tuned to see what becomes of this idea.

April 28, 2010

Write Down Those Passwords, Appoint a Digital Executor

When someone dies, it can be really difficult, if not impossible, to get into their electronic accounts: bank accounts, email accounts, social networking accounts, you name it. One of the last things that my father remembered to scribble down on a notepad was the password to the computer he was leaving my kids. I'd remembered to get his social security number, safe deposit box key, life insurance certificates, and bank records....but I hadn't thought of his password!

Here's a few good tips for those of you with precious digital archives,  The Wills, Trusts and Estates Prof. Blog:

  • Make a list of all of your online accounts and passwords. Decide which ones should be deleted and which ones will pass to your heirs. 
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  • Nominate an executor for your digital accounts. There are companies that specialize in the handling and passing on of this information. 
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  • Include your digital assets and the appointment of your digital executor in your will.
  • For more information on organizing your records to make it easier for your family to track down your important accounts and paperwork, see Get It Together, by Melanie Cullen and Shae Irving (Nolo).

    April 24, 2010

    Senate Budget Panel Approves Plan with 2009 Estate Tax Numbers

    Hmm. Maybe next year's estate tax exclusion won't go down to a million dollars per person. Bloomberg BusinessWeek reports this week that the Senate Budget Panel has approved a spending plan that includes an assumption that last year's estate tax exclusion of $3.5 million dollars, and last year's top estate tax rate of 45%, will be reinstated. That's really good news for  most of us, who don't have that much money to begin with. It means that most people will be able to pass their estates to their heirs without having to worry about the estate tax.

    This may come about via the same reconciliation procedure that the Senate and House used to get health care legislation passed, so, it's not a done deal.

    The story reports that "Senate Finance Committee Chairman Max Baucus, a Montana Democrat who is the chamber's chief tax writer, declined to say yesterday which tax provisions could be approved through reconciliation, which would allow Democrats to pass them in the Senate with a simple majority. Democrats control the chamber with 59 votes. "I have some ideas," said Baucus, adding "we don't even have a budget yet" and "we're getting way ahead of ourselves."

    April 21, 2010

    Study Shows that Advance Directives Help Elders Get the Care They Want

    A recent study in the New England Journal of Medicine found that one in four elder adults need someone else to make decisions for them at the end of their lives.

    "The results illustrate the value of people making their wishes known in a living will and designating someone to make treatment decisions for them, the researchers said," The Associated Press reports. "In the study, those who spelled out their preferences in living wills usually got the treatment they wanted. Only a few wanted heroic measures to prolong their lives.


    As summarized in the LA Times: Those who requested limited care at the end of their lives received it most of the time. The study used data from the long-running Health and Retirement Study, which surveys adults ages 51 and older nationwide. In analyzing data from people ages 60 and older who died between 2000 and 2006, researchers found that of the 398 incapacitated people who had used a living will to request limited care at the end of life, almost 83% received it.

    For a guide to making informed decisions regarding elder care, see Long-Term Care, by Joseph Matthews (Nolo).

    April 17, 2010

    Presidential Memorandum on Patient's Right to Designate Visitors

    This week President Obama issued a memorandum to Kathleen Sebelius, the Secretary of Health and Human Services, that asks the Secretary to use her rulemaking authority to require all hospitals that accept Medicare and Medicaid patients to respect the wishes of patients with respect to who should be allowed to visit them.

    It directs that hospital rules should make it "clear that designated visitors, including individuals designated by legally valid advance directives (such as durable powers of attorney and health care proxies), should enjoy visitation privileges that are no more restrictive than those that immediate family members enjoy. You should also provide that participating hospitals may not deny visitation privileges on the basis of race, color, national origin, religion, sex, sexual orientation, gender identity, or disability."

    This is great news for couples in non-traditional relationships, as well as widows and widowers, and really anyone who needs the love and support of non-family members while ill. And it makes it especially important (although it has always been especially important) for those who want to designate loved ones as their health care agents to complete valid Advance Directives or Health Care Proxies so that these designations have the force of law.

    Read more about advance directives in Nolo's article Living Will, Power of Attorney, or Advance Directive? .

    April 7, 2010

    Hospice: Don't Wait for the Doctors to Bring it Up

    One of the many weird experiences I had during my father's final illness was the tragic disconnect between my father's actual condition and the attitude of the doctors who cared for him. My father was emaciated, with a collapsed left lung, advanced coronary heart disease, and a chronic neurological condition that was causing his nerves to stop working. Bad, right?

    But despite our repeated attempts to get SOMEONE in the ICU to listen to our requests for a discusssion about when it was appropriate to discuss palliative care (treating a patient's discomfort, but giving up on aggresive treatment of the underlying condition), we got nowhere. I mean it was like we were speaking a completely different language.

    The one remotely sympathetic doctor promised us that if, "he felt he was just moving the pieces around he'd let us know." That was excellent, except 2 days later that doctor was out of the ICU rotation and we never saw him again.

    And guess what? After almost a month in the hospital, "moving the pieces around" was pretty much all that happened. In the end, they discharged my father to a nursing home in worse condition that when he entered the hospital -- still with a collapsed lung and now unable to swallow. Pretty depressing. And still, the main doctor insisted my father was "cured."

    What do they teach in medical school? Denial?

    If you are caring for someone who is very ill, and getting nowhere with the doctors, find your local hospice and get their help. Don't expect the doctors to tell you when it's time. Find out if there's a palliative care program at the hospital and get in touch with them, aggresively if possible. (Sometimes the doctors don't want them involved, Argh. It's like the Twilight Zone.)

    For a detailed discussion of hospice care, see Long-Term Care, by Joseph Matthews (Nolo).

    April 4, 2010

    Another Conversation to Have, if You Have Time

    As my father became increasingly ill, he began to send me an occasional list of where his important things were. This began in 1999. I would throw the emails into a file and just sort of avoid the whole issue. It's difficult to take death seriously, even for an estate planner. (Although, in my defense, I wasn't an estate planner back then.) The larger point is that many of us don't really want to imagine the finality of our parent's death.

    But here's the thing, as he lay dying this year, I just, somewhat foolishly in retrospect, figured the list was accurate. I didn't actually double check while I still had time to ask him where things were. It would have been easy. One of the first things that my sister and I did was go to his apartment and take the valuable things (and important papers) back to my house, to keep them safe.

    What we didn't do was look in the box of important papers and verify their existence.  I REALLY wish I'd asked him where that stock certificate was for the 850,000 (!) shares of that start up was. Because it's not under "B" like he said it would be (repeatedly, and often), But it's not there. Or anywhere else.

    And now I can't ask him. So, here's the take away: If you have time to discuss these things with your parent or loved one, do.

    Next blog: how you replace a stock certificate and the mysteries of the transfer agent.

    For a complete guide to organizing your records in order to make it easy for your family to track down your important paperwork, see Get It Together: Organize Your Records So Your Family Won't Have To, by Melanie Cullen and Shae Irving (Nolo).