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Friday, March 22, 2013

Estate Planning Lessons, Part 3: The Family Business

This is a continuation of the series I've been writing on the estate planning lessons taught to me by the recent deaths in my own family.  My father was a dreamer. He left a job with a large company here to follow his dream of having his own business.  He founded that business over 23 years ago and devoted most of his energy to keeping it alive and then to helping it grow.

Upon his death, I learned that the only asset listed solely in his name were the shares of his stock in the company. Further, he had a will that was over 15 years old. I'm not sure that his estate planning lawyer knew about the stock in the company and it doesn't matter now. It has created an estate administration nightmare for our family because his assets were to be divided equally between his spouse and a family trust. What's wrong with that?

1.  They did not want a trust once the kids reached 23 but the will doesn't contain language to that effect.

2.  That tax status of the company is in jeopardy if a trust holds it's stock. Luckily, such events were anticipated and we have a 2-year grace period to decide what to do with those shares before we have issues with the IRS.

3.  The trustee must jump through additional hoops to get the shares and/or dividends from last year to the "new beneficiary" (i.e. the family trust).

All of these issues could have been resolved with careful planning and some knowledge of my father's specific situation and a follow up to see if things had changed.

It is important that you work with an attorney who will take the time to sit and talk through what you want for your family - now and in the future - so your family can avoid these types of headaches later.


Sunday, March 3, 2013

Estate Planning for Gay Familes, Part I: The 4 Essential Documents

Minnesota Lawyer Lists the Critical Documents Every Same-Sex Couple Must Have.

Under current Minnesota (and Federal) law, gay couples do not have any rights to such basic things as: 1) inheriting from each other; 2) making medical decisions for each other; 3) handling financial matters for each other; 4) naming a guardian for a minor child; or 5) continuing to live in the family home if only one partner is listed on the deed.
 

  1.  Will – A will tells who should inherit your property when you pass away, who you want your executor to be, and who will become guardians of any minor children. These issues are all especially important for unmarried individuals. In most states, an unmarried partner does not have inheritance rights, so any property owned by his or her deceased partner would go to other family members. Also, in the case of many gay and lesbian couples, the living partner is not necessarily the biological or adoptive parent of any minor children, which could lead to custody disputes in an already very difficult time.  Therefore, it’s critical to nominate guardians for minor children.
     
  2. Financial power of attorney – A power of attorney (for financial matters) dictates who is authorized to manage your financial affairs in the event you become incapacitated. Otherwise, it can be very difficult or impossible for the non-disabled partner to manage the disabled partner’s affairs without going through a lengthy guardianship or conservatorship proceeding.
     
  3. Advance healthcare directive – A power of attorney for healthcare, informs caregivers as to who is responsible for making healthcare decisions for someone in the event that a person cannot make them for himself, such as in the event of a serious accident or a condition like dementia.
  4. HIPAA Waiver - allows the persons named to discuss your care with a doctor BUT not to make decisions.

If you don't have these documents, your partner may be prohibited from keeping your assets, living in your home, paying your bills, or making your medical decisions.

Call now to protect your family!


Sunday, February 24, 2013

Will or Won’t? Things a Will Won’t (or Can’t) Do

A Minnesota Estate Planning Lawyer Explains the Limitations of Using a Will to Handle Your Estate

Wills offer many benefits and are an important part of any estate plan, regardless of how much property you have. Your will can ensure that after death your property will be given to the loved ones you designate. If you have children, a will is necessary to designate a guardian for them. Without a will, the courts and probate laws will decide who inherits your property and who cares for your children. But there are certain things a will cannot accomplish.

A will has no effect on the distribution of certain types of property after your death. For example, if you own property in joint tenancy with another co-owner, your share of that property will automatically belong to the surviving joint tenant. Any contrary will provision would only be effective if all joint tenants died at the same time.

If you have named a beneficiary on your life insurance policy, those proceeds will not be subject to the terms of a will and will pass directly to your named beneficiary. Similarly, if you have named a beneficiary on your retirement accounts, including pension plans, individual retirement accounts (IRAs), 401(k) or 403(b) retirement plans, the money will be distributed directly to that named beneficiary when you pass on, regardless of any will provisions.

Brokerage accounts, including stocks and bonds, in which you have named a transfer-on-death (TOD) beneficiary will be transferred directly to the named beneficiary. Vehicles may also be titled with a TOD beneficiary, and would therefore transfer to your beneficiary, regardless of any provisions contained in your will. Similar to TODs, bank accounts may have a pay-on-death beneficiary named.

The will’s shortcomings are not limited to matters of inheritance.  A simple will cannot reduce estate taxes the way some kinds of trust plans can. Neither can a will protect the inheritance you leave your heirs from creditors. Perhaps your heirs are young and you would like to make sure they can get their inheritance at certain ages or intervals (marriage, education or having children).

A trust, not a will, is also necessary to arrange for care for a beneficiary who has special needs. A will cannot provide for long-term care arrangements for a loved one. However, a special needs trust can provide financial support for a disabled beneficiary, without risking government disability benefits.

A will cannot help you avoid probate. Assets left through a will generally must be transferred through a court-supervised probate proceeding, which can take months, or longer, at significant expense to your estate. If it’s probate you want to avoid, consider establishing a living trust to hold your significant assets.


Wednesday, February 20, 2013

Estate Planning Lessons, Part 2: Marriage Is Not Enough - You Must Get a Financial Power of Attorney Now

This continues my series on lessons I learned in handling the estates of my parents who both passed away last year. This post will discuss reasons why you should plan things now - do not wait!

I am an estate planning attorney with the knowledge and experience to handle complex issues but found myself running around at the last minute to take care of things for my own father. It turns out that my father had never signed a financial power of attorney.  What does that mean? It means that his wife was unable to handle simple financial transactions on his behalf while he was in the hospital and unable to do things like go to the bank. But they're married you say. For many financial matters, even a spouse does not have the right to act on your behalf. For instance, a spouse may not deal with anything listed solely in your name. This generally includes such things as your retirmenet plan, stocks or bank accounts. 

So, on a Thursday afternoon I was in my office (instead of the hospital) drafting a power of attorney for him to sign so that his wife could take care of some financial matters he thought were crucial in his last few days of life. Then I ran it to the hospital and got it signed and notarized.

You could look at this and note that we were lucky as he was awake, competent and alert enough to know what he wanted done and still capable of signing the Power of Attorney - even one day later and that would not have been the case. Many people simply put it off unti it's too late and the family has to fight to get a conservatorship to be allowed to make decisions they know the loved one would have wanted.

Please plan now so no one is running around trying to get these things done during such a difficult time.


Monday, February 11, 2013

Most Popular Posts of 2012

In looking over the analytics for my website I decided to compile a list of the five most popular posts.

  1. Should I Transfer My Home To My Children
  2. Do Heirs Have to Pay Off Their Loved Ones Debts
  3. Gay Couples Health Care Benefits and Taxes
  4. Understanding the Perils of adding Another Person to Your Bank Account
  5. Joint Bank Accounts and Medicaid Eligibility

In reviewing the numbers I noticed that most people who come to my website are concerned about the financial implications of planning their estates. I will take this into account in writing posts for 2013.


Thursday, February 7, 2013

Estate Planning Lessons, Part 1: Ownership of Property in Another State

As noted in a prior post, the year 2012 was a difficult one for me personally with the loss of both my parents. It has been emotional and trying to deal with the losses and then, on top of that, try to work through their estates with two different sets of family. This is the first post conveying some of the lessons I've learned in my continuing attempt to educate others about the need to work with someone to properly plan your estate.

Even the family of an estate planning attorney can be unprepared for an unexpected event. A week before my father's death I found out that he owned property in North Dakota.  It turns out that my great grandfather had land there and divided it up between his children who did the same all the way down the line so that now my siblings and I own a piece of North Dakota land. At least we will own it once we go through the probate process and have the deed changed to our names.

You may think "Well, you're an estate planning attorney so can't you just take care of that?" Unfortunately for us, I can't as I'm not licensed in North Dakota. So, now we will need to hire a North Dakota attorney several thousand dollars to get the property into our names. No, the irony is not lost on me.

So, this post is to urge you to talk to your loved ones about what you own or ask what they may own so that you can properly manage things now before it's too late. If I would have known about the North Dakota property earlier, I would have urged my Dad to get a trust and deed the property into it so that we would now be able to avoid the hassle, expense and pain of going through probate in another state.


Sunday, February 3, 2013

Should You Borrow From Your Retirement Account?

Borrowing from your retirement accounts: Issues to consider

So you have credit card debt, overdue mortgage payments, or suddenly need to buy a new car. We’ve all been there. You need money now, and your retirement accounts continue to climb. Fortunately, many employers allow you to take out loans on these accounts, but should you really begin spending that money before you retire?

On one hand, there are benefits to borrowing from your retirement accounts. You are essentially borrowing your own money, so the payments you make, plus interest, go back into your account. Since it’s your own money, these payments do not affect your credit score, and most 401(k) loans have relatively low interest rates.

However, there are many risks associated with taking money from accounts like your 401(k). It is recommended that you see a financial advisor before making this decision to address the cost and potential ramifications of the loan.

First consider the reason for taking out a loan, and the multiple options that you face. A dire emergency is the only recommended cause for borrowing from these accounts; some plans even require it. If you’re looking to spend the money on something more frivolous, like a family vacation or a new entertainment system, however, you should consider alternate financing options.

The downside to these loans comes in handling the repayment plan. Interest paid to your own account sounds easy enough, but these payments are subject to taxes. Furthermore, once money is borrowed from your retirement account, it is no longer eligible for tax-deferred growth. Payments you make on the loan come from after-tax assets, so the money you repay into your account can end up getting taxed for a second time once you withdraw after retirement.  

A standard 401(k) loan allows you to borrow up to half of your balance, with a maximum of $50,000. Normally, you have up to five years to repay the loan. Failure to do so within the five-year period means your loan will be deemed an early withdrawal, and will be subject to taxes as well as a 10% early withdrawal penalty.

If you are looking to borrow money from your retirement accounts, carefully consider your repayment plan in advance. It’s especially important to make certainthat you are secure in your employment; if you leave or lose your job, your loan payments will be due within 90 days. Consider borrowing only if interest on a loan from your retirement plan would be less than that of another loan alternative. A final tip: Continue contributing to your 401(k) while you pay off the loan to lessen the impact on your savings.

 


Sunday, January 27, 2013

2013 Changes to Federal Estate Tax Laws

Minneapolis Estate Planning Lawyer Discusses the New Estate Tax Laws

2013 Changes to Federal Estate Tax Laws

I know I promised to post about the lessons I've learned in dealing with the illnesses and deaths of my parents, but I am interrupting that series to post the important changes made by Congress that affect my estate-planning clients.

Changes to income taxes grabbed the lion’s share of the attention as the President and Congress squabbled over how to halt the country’s journey towards the “fiscal cliff.”  However, negotiations over exemptions and tax rates for estate taxes, gift taxes and generation-skipping taxes also occurred on Capitol Hill, albeit with less fanfare.

The primary fear was that Congress would fail to act and the estate tax exemption would revert back down to $1 million.  This did not happen.  The ultimate legislation that was enacted, American Taxpayer Relief Act of 2012, maintains the $5 million exemption for estate taxes, gift taxes and generation-skipping taxes.  The actual amount of the exemption in 2013 is $5.25 million, due to adjustments for inflation.

The other fear was that the top estate tax rate would revert to 55 percent from the 2012 rate of 35 percent.  The top tax rate did rise, but only 5 percent from 35 percent to 40 percent.

The American Taxpayer Relief Act of 2012 also makes permanent the portability provision of estate tax law.  Portability means that the unused portion of the first-to-die spouse’s estate tax exemption passes to the surviving spouse to be used in addition to the surviving spouse’s individual $5.25 million exemption.

Some Definitions and Additional Explanations
The federal estate tax is imposed when assets are transferred from a deceased individual to surviving heirs.  The federal estate tax does not apply to estates valued at less than $5.25 million.  It also does not apply to after-death transfers to a surviving spouse, as well as in a few other situations.  Many states also impose a separate estate tax.

The federal gift tax applies to any transfers of property from one individual to another for no return or for a return less than the full value of the property. The federal gift tax applies whether or not the giver intends the transfer to be a gift.  In 2013, the lifetime exemption amount is $5.25 million at a rate of 40 percent.  Gifts for tuition and for qualified medical expenses are exempt from the federal gift tax as are gifts under $14,000 per recipient per year.

The federal generation-skipping tax (GST) was created to ensure that multi-generational gifts and bequests do not escape federal taxation.  There are both direct and indirect generation-skipping transfers to which the GST may apply.  An example of a direct transfer is a grandmother bequeathing money to her granddaughter.  An example of an indirect transfer is a mother bequeathing a life estate for a house to her daughter, requiring that upon her death the house is to be transferred to the granddaughter.


Wednesday, January 16, 2013

Common Question Wednesday: Should I Add Another Person (Partner or Child) to the Title of the House

Minneapolis attorney specializing in nontraditional estate planning answers the question of whether an individual should add his/her unmarried partner to the deed to a home

As an estate planning attorney specializing in nontraditional estates, I get a lot of questions specific to situations that may not normally be heard as often by one of my more "traditional estate planning" colleagues. I've decided to begin a new monthly post entitled "Common Question Day" to respond to some of these questions.

First up is the most common question I am asked by unmarried couples and seniors looking to make things easier on loved ones.

QUESTION: SHOULD I ADD SOMEONE TO THE DEED TO MY (OUR) HOUSE?

ANSWER:

While I hear this question most often from couples who are not legally married, the answer remains the same for anyone - outside of a legal spouse - considering whether to add another person(s) to a deed to the home. This means that the answer applies to parents considering adding a child, a person wanting to add a sibling or even a friend.

The short answer is that I do NOT recommend adding another person to the title to your home.  This is so for the reasons listed below:

     1.    Lender Consent. If the property is encumbered by a mortgage, the first issue to consider is whether adding another to the deed will violate the terms of your loan documents.

     2.    Liability and Asset Protection. Joining someone else as a co-owner of your property may expose that property to the claims of your co-owner's creditors.

     3.    Loss of Control. As the sole owner, you have absolute control over the property. For example, you alone have the right to decide whether to sell it, and at what price, whether to refinance, take out a home equity loan, and what improvements should be made. However, once another person acquires an ownership interest you will also need their consent in all these matters.

     4.    Gift Tax Consequences. Under the current IRS rules, a person can give away a fixed amount of money or property per person per year ($14,000 in 2013). Any gift exceeding this limit may require the donor to pay gift taxes. If you give an interest to another rather than selling the share at fair market value, it may trigger the requirement to file a gift tax return so you should consult with a tax professional.

     5.    Capital Gains. A transfer by deed during the donor's lifetime (instead of by a Will upon death) can have other adverse tax consequences. If you leave the land to someone in a Will, the heir receives a "step up" basis. This means that when the heir eventually sells the property, capital gains taxes are computed based on the value of the property at the date of your death--not when you originally purchased the property. Since land usually increases in value over time, the "step up" basis reduces capital gains taxes. However, if you make a gift of that same property during your lifetime, there is no "step up" basis; rather the basis will be the same as yours and can trigger increased taxes.

     6.    Medicaid Eligibility. Transfers of property may also affect Medicaid eligibility. This topic is much too complex to cover here, but suffice it to say that unless you make the transfer more than five years before filing your Medicaid application, you may be disqualified for Medicaid assistance.

If you are thinking “should I add someone to the deed to my house” please stop and consider the above and speak with an attorney and tax professional before making any changes to the title. An important question is, "What issues do I need to address before deciding whether to add someone to my deed?" It may not be possible to fully resolve all the potential problems associated with co-ownership of property, but a skillful legal professional can at least help avoid unpleasant surprises in the process.


Friday, December 28, 2012

Unique Estate Law: 2012 Wrap Up for a Nontraditional Law Firm

An Estate Planning Attorney Provides a Personal Review of 2012

The state of the firm

For Unique Estate Law 2012 was a fantastic year. The firm beat projections and I was able to assist more clients than ever before. I had referrals from a wide range of sources and a constant stream of clients coming through my website. I’ve done well enough to start advertising on a local radio station and in a local magazine. I have met many wonderful people and have given them guidance and peace of mind when facing an uncertain future.

Two major losses

But, for Chris Tymchuck, it was the worst year of my life.

Why was it such a bad year personally? In November both my Dad and Mom died within a week of each other. They were 66 and 64 respectively so it hadn’t occurred to the family that they might be gone so soon. While my father had battled cancer for 11 years he was in no worse shape in the end than in prior battles. And my Mom had never been sick a day in her life.

Why am I writing about this?

Why do I share such personal information on a law firm website? Because, it is a cautionary tale of what happens in a blended family when little or no preparation is done.

I was recently sharing my story with two clients and they said, “I can’t believe this is happening to you who spend your time making sure that people like us are ok and covered. You have to share your story with people so they understand that this can, and does, happen.” And they’re right.

I write this blog to assist clients and colleagues with things to consider when drafting estate plans for all types of families – both traditional and non-traditional – and the blog has paid off for me. I feel that, in keeping with the spirit in which I write I must use the lessons of 2012 to further education clients and colleagues through this medium. In short, to give back as the blog has given me so much.

Is it relevant to Unique Estate Law?

Why is my story relevant to this site? Because part of the reason that I specialize in non-traditional families is because I grew up in one – or several – and know the complications that come with being raised with in a complex web of interrelated (and sometimes not) people.

My parents divorced and each remarried and had kids with a subsequent spouse. In addition, my Mom remarried a third time and became a stepparent herself. So, that means I have a stepdad, stepmom, 3 half-brothers, a half-sister, a step brother and a step sister. That, of course, doesn’t include the “traditional” family members such as aunts, uncles and still-living grandparents. There are a lot of people to factor into planning, mourning and administering for someone.

I’ve spent the last couple of months grieving and assisting my family with working through the health care decisions, then memorials, estates and other issues associated with facing the illness and then death of parent. I plan to spend the next few posts discussing some of the lessons I’ve learned by being on the other side – education to practice so to speak – as my hope is to assist others to avoid some of the pitfalls we now face.

I can’t say that anything good has really come out of the losses I suffered this year but I will say that it confirmed my choice of profession. First, because I found relief in returning to work and assisting my clients and second because I feel that I use my law degree in the best possible way – to assist others to prepare for, and perhaps face, the worst times in their lives. For that I am grateful.


Thursday, December 6, 2012

How To Prepare for a Meeting with an Estate Planning Attorney

Preparing to Meet With an Estate Planning Attorney

A thorough and complete estate plan must take into account a significant amount of information about your assets, your family, your property, and your wishes during and after your life.  When you make your first appointment with an estate planning attorney, ask the attorney or the paralegal if they can provide a written list of important information and documents that you should bring to the meeting.  

Generally speaking, you should gather the following information before your first appointment with your estate planning lawyer.

Family Information
List the names, birth dates, death dates, and ages of all immediate family members, specifically current and former spouses, all children and stepchildren, and all grandchildren.

If you have any young or adult children with special needs, gather all information you have about their lifetime financial needs.

Property Information
For all real property you own or can reasonably expect to acquire, gather the property description, your ownership interest information, the address, market value, any outstanding mortgage balance, and the most recent tax assessment.

For any personal property of value (such as vehicles, jewelry, coins, antiques, stamps, and art), compile a list that includes a description, the physical location of each item, your ownership interest information, the market value, and any liens against the property.

Business Information
If you have an ownership interest in a business, make sure you have documents showing your ownership interest in the business, the business location, the names and contact information of other owners, and 2-3 years of past profit and loss statements.

Financial Information
Compile a list of all your financial accounts, including: checking accounts, savings accounts, investment accounts, stocks and bonds, and U.S. Treasury notes.  If any of these accounts currently have designated beneficiaries, bring that information as well.

Gather all retirement savings information, including 401(k) plans, 403(b) plans, IRAs, life insurance policies, Social Security statements, and pension information.  Make sure you have the account names, account numbers, current balances, outstanding loan balances, and currently named beneficiaries.

If any family members owe you debts, compile that information.

Questions to Think About
The following are some of the first questions your estate planning attorney will ask.  You are not required to have answers ready for all these questions, but because some of them are complex, it is a good idea to think through these issues before your appointment.

  • Who will be beneficiaries of your property?
  • Do you want to bequeath any specific items of property to specific individuals?
  • Is there anyone you do not want to be a beneficiary of any of your property?
  • Do you plan to make any bequests to any nonprofit organizations – university, church, charity, or other organization?
  • Do you know who you want to act as executor of your will?
  • Do you know who you want to act as trustee of any trusts you establish?
  • If you have minor children, who do you want to appoint as guardian?
  • Do you want to make arrangements for your health and financial well-being in the event you become unable to make decisions for yourself?
  • Do you have specific wishes for your funeral?
  • Are you a registered organ donor?

During your initial consultation, your estate planning attorney will review your family and financial situation, discuss your wishes, answer your questions and suggest strategies to protect your family, wealth and legacy.  It is my practice at this point to also provide you with a flat-fee quote for the best plan to fit the needs of your family.  This fee includes all of the listed documents and any communications/meetings with me.  It is important to me that you know the exact fee for your custom-drafted plan up front so there are no surprises later!
 

Call now to set up  your initial consultation.


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