Stop Heir Loss with Estate Planning Propecia – Part 2

Summary: Markets down, house value down…counting on
that inheritance to make the gap? Then the heir loss prevention tips for last
month and below will help you avoid getting scalped. Don’t count on throwing
Momma from the train in 2010, it’s pretty unlikely the estate tax will
disappear. So if you want to maintain that trust fund baby lifestyle, consider
the following.

Mom’s
Investment Horizon

So
mom has CDs at 50 different banks (and lots of toasters). For her, investment
risk means a lower CD rate. “While staying conservative might make sense for
mom’s core portfolio that supports her daily living expenses, its really not
necessary or appropriate for assets she won’t spend down,” suggests Ted
Sarenski, CPA, PFS, DB&AB Financial Services, LLC. If mom’s planner can
determine the principal to assure mom’s living expenses to say 95% of life
expectancy, the remaining principal can be invested with a more appropriate
asset allocation without jeopardizing her safety, peace of mind, or your
Tuesday night meatloaf dinner. “You can get a pretty good handle on what her
life expectancy really is by getting a life expectancy analysis (LE) from a
number of independent companies,” recommends Susan J. Bruno, CPA, PFS of Beacon
Wealth Consulting, LLC.

Ownership
(Title) to Assets

How
do your parents own their assets? This may control the ultimate distribution of
assets regardless of what their will says. ◙ Adding “joint tenants” on
the name of a bank statement or stock certificate can dramatically change who
will receive an account following a parent’s death. ◙ If
personal assets (e.g. jewelry) are held in a safe-deposit box, the legal
presumption is that the owner of the box owns the assets. ◙  Distinguish “joint tenancy” from “tenants in
common”, where each person owns an undivided interest in the property. On the
death of a joint tenant, the survivor obtains ownership of the entire property.
On the death of a tenant in common, the deceased person’s will governs where
ownership of his interest in the property will be distributed.

◙  Community property can be an
issue.  Generally all property that a
husband and wife acquire during their marriage while they are domiciled in one
of the community property states belongs to each of them. If one of your
parents remarries and lives with the new spouse in a community property state,
these rules could have a huge effect on what you may ultimately inherit. The
rule in community property states is “share and share alike.” They share not
only in the physical property acquired but also in the income from the property
and their salaries, wages, and other compensation for services. At the same
time, each may have separate property. Spouses may also hold property between
them in joint tenancy and generally may adjust their community and separate
property between themselves (i.e., use a transmutation agreement).

Unique
Problems Raised by Personal Property

Jewelry,
art, and other personal property can raise a host of issues. Often these assets
have tremendous sentimental value so that improper distribution can lead to
fueds. If your parents will let you address the topic with them, there are a
host of issues you should help them focus on ways you can help them on to
assure that their wishes are carried out. What is Aunt Nellie’s wedding band
worth? Valuing personal assets is often a very difficult task. When the value
is largely sentimental, the task becomes impossible. This should be carefully
considered by your Your parents should consider this carefully in determining
how to handle personal property. Often, the best solution is for your parents them
to specifically identify which asset should be given to which heir. A personal
letter or note may be helpful in this regard. If your parents or other
benefactor lists each item of personal property in their wills, the
distribution of those items, as they have specified, will be assured. Well
maybe. 

Sample
Clause: I give devise and bequeath my wedding band to my favorite nephew,
Joseph Fordham. And exactly which Aunt Nellie’s wedding band exactly which one
was she Aunt Nellie referring to? The one from her first or her sixth marriage?
Which one was actually bequeathed? The case of the disappearing broach.
Personal property is often tough to track.

Case
Study: The case of the disappearing broach. Aunt Gertrude bequeathed her
diamond broach to a particular niece Joanne. Her other assets were generally
divided up by specific bequests as well. —$50,000 to one nephew, $75,000 to
another, and so on. However, went when Aunt Gertrude died, no one, not even the
executor, could find a diamond broach among her belongings. There were no
letters indicating that she gave it away before she died. It wasn’t was not
listed in any insurance policy. There were No claims had been filed for its
loss or theft. Joanne really wanted the broach. The more she wanted it, the
more the value of the broach seemed to soar. Aunt Gertrude’s executor couldn’t
could not prove it was missing. How do you prove a negative? The ensuing legal
battle, which ultimately was settled for $10,000 paid from the estate to
Joanne, probably cost the family $25,000 in combined legal fees, and fractured
the family relationships beyond repair.

Will
Challenges

What happens when cousin Sue sues? ◙ Planning for a will challenge
should begin with your parents’ first estate estate-planning meeting, not after
a lawsuit has been filed following their deaths. ◙ Expect your parent’s will
be to be challenged if they leave a disproportionate amount to one beneficiary.
◙ Dissuade angry relatives from challenging your parent’s will in court by
having your parent’s sign another will a few months later. Each new will revokes
the prior will. But if a later will is invalidated (e.g, proven to be signed
under duress), the prior will is reinstated and governs. So if relatives feel
they were treated unfairly challenge the last will and they succeed in
overturning it, then the prior will, which is identical as to the major
distributions is reinstated. They’d have to successfully overturn that prior
will as well!  Each successive will
should add some change, e.g. $1,000 to a new charity, to demonstrate that they
reviewed and reconsidered the will, but did not change the primary distribution
provisions. ◙ Several similar wills over a long time period will show a court that
they did not write up a new will or change your their intentions on a whim.

Insure
Against Mom’s New Spouse

So
when mom marries the pool boy, insure that your inheritance will be protected.
When mom’s new spouse is younger than you, suggest (very politely!) that Mom
purchase a life insurance policy to fund your inheritance if she wants to leave
most of her assets to her new hubby. While advisers often recommend a QTIP
trust for the new spouse, if the new spouse is younger than you, you’ll be
using the inheritance when the QTIP ends for dentures and Centrum Silver.  “Consider a guaranteed universal life
insurance policy on mom to insure that you’ll get an inheritance on mom’s
death, not when the young pool boy eventually dies. This also gives mom the
ability to plan with no constraints. A simpler solution for all,” suggests
Susan J. Bruno, CPA, PFS of Beacon Wealth Consulting, LLC.

Mom’s
Nuptial Agreement

If
mom is going to remarry, encourage her to sign a prenuptial as the first line
of defense in protecting her assets from later marital claims. Points mom
should consider: ◙ Mom and her prospective spouse should each be represented by independent
attorneys. ◙ The agreement should be signed in advance of the marriage (not on Mom’s
way down the aisle, —the longer before the marriage the better). ◙ The
agreement should be signed, witnessed, and notarized with the same formality
used for a deed for real estate. ◙ Mom must make full and
clear disclosures of what she owns. Attach detailed balance sheets, several
prior years’ income tax returns (the more the merrier), and other pertinent
info to the agreement as exhibits. ◙ The agreement should be
fair and reasonable. These terms are impossible to define, so Mom should take
any steps feasible to demonstrate this. If her new spouse will have adequate to
support himself if divorce occurs will be helpful. ◙ Steps
should be taken to corroborate that Mom’s future spouse was not signing under
duress, because of fraud, and that Mom was not over-reaching. ◙  The prenup should address all legal, tax, and
financial issues that might be relevant: Which state law will govern? What alimony
or support rights will Mom’s spouse have in the event of divorce? Will Mom be obligated
to leave anything to her new spouse in her will? Is her new spouse waiving any
rights of a spouse to elect against her estate (spousal right of election)? ◙ What if
Mom was too starry eyed to sign a pre-nup but wakes up and smell’s the coffee
after the honeymoon? While unlikely to provide the same measure of protection
as a prenup, a post-nup might be the only choice, assuming new-hubby agrees.

Your
Pre/Post-Nup

So you’re
getting married and an gangbuster inheritance might come your way. Sign a
prenup that expressly addresses gift and inherited assets to shore up the
protection. If you’ve been married for years before realizing the likelihood of
gifts or an inheritance, then even if everything seems peachy, consider having
a lawyer draw up a post-nup between you and your spouse confirming that any gifts
or inheritance will remain yours alone and will not become a marital asset.

Inherit
the Best Way Possible

Maximizing your inheritance
is not only about getting the most dollars. It’s about getting them the best
way. ◙ The best way is in a lifetime or perpetual trust structured so as much
of the inheritance as possible will never be subject to a gift, estate, or
generation skipping transfer (GST) tax again. ◙ If the trust is set up in a
state with favorable tax laws you might be able to avoid your state’s income
tax on trust earnings. ◙ The trust can provide considerable protection from your claimants,
divorce, and other things that go bump in the night. ◙ Instead of your
parents bequeathing assets directly to you  they should bequeath assets to a trust for
your benefit that is structured to achieve the above goals. ◙ Your parents can set
up this type of trust while they are alive or under their will. You could even
arrange for the set up of the trust and your parents will can bequeath assets
to that trust. ◙ Consider using an independent institutional trustee in a state with laws
that are particularly favorable to the goals you’re trying to achieve (e.g.,
Delaware, Alaska and others) and giving that trustee discretion over
distributions instead of mandating distributions (e.g., a unitrust or HEMS
standard).