Natural Catastrophes and your Estate Plan

From the tornados that ripped through Alabama and Missouri just last month and the two catastrophic fires currently raging in south-eastern Arizona, Mother Nature has not been too kind lately.  And as hurricane season has officially begun, coastal cities hope they're not added to the casualty list.  Natural disasters like this serve as an apt metaphor and constant reminder of the importance of proper estate planning.

It is very hard to predict the exact time and severity of a natural disaster, so it is always important to be prepared.  Similarly, you just won't know when life's "tornado" will affect you and your loved ones, so taking the steps to create and execute an estate plan is also an important part in preparing for your future.

Many people have been lucky to survive these recent catastrophes, but still countless others have been injured and left disabled.  Disability planning is another crucial component in an effective estate plan.  Special needs trusts, health care directives, and powers of attorney are just a few of planning tools that most people overlook, to their peril, even if they do have an estate plan.

Also, because natural disasters--and any tragedies in life--are so unpredictable, it is imperative that you keep your plan up to date.  We recommend that you enroll in a formal maintenance program with your estate planning professional.  As an alternative, you should review your plan with an estate planning attorney once every two years, and after a significant life change has occurred such as divorce or a new child.

Be prepared for the unexpected by ensuring that you have a thorough, effective estate plan in place before you get caught out in the rain.

Why Counseling? Why the Three Steps?*

Many people think of estate planning as a way to save estate taxes and perhaps a way to avoid probate.  There are many more important reasons for estate planning.

For example, have you considered the following questions?:

• How do you want to be cared for when you can't take care of yourself?  
• If your wife remarries after you die, do you want to make sure that her new husband can't spend your money? 
•  If your husband hits a van full of lawyers after you die, do you want to make it harder for them to collect your money when they sue him?  
• If your wife divorces her new husband after her remarriage, do you want to make sure that he doesn't get half of your money?  
• Do you want to make sure that your guardians know how to share your values while they finish raising your children?

I suggest that most of people would answer "yes" to all these questions.  So how can you make sure your plan is accomplishing these things?

Problem #1 with Traditional Estate Planning:  Most estate plans are upside down!  They focus on tax planning instead of personal concern, protections, and goals.

Problem #2 with Traditional Estate Planning:  Most estate plans just don't work!  A plan works when every expectation of the client is met.  These expectations aren't met because clients and professional advisors see estate planning as a transaction ending in documents, instead of the process ending in results.  Things change.  Estate plans should, too.

We believe that client families will achieve the best estate planning results with a Three Step Strategy that uses clear, comprehensive, customized instructions for their own care and that of their loved ones.  The instructions might include a will, a trust, a power of attorney, a living will, and other documents.

Step #1: Work with a Counseling-Oriented Attorney as opposed to a word-processing attorney.  Most estate planning in the U.S. is little more than word-processing.  You don't need a professional for that! The professional's value come from the counsel and advice based on knowledge, wisdom, and experience.

Step #2:  Establish and Maintain a Formal Updating Program.  There is a constant change in personal situations, both family and financial.  Tax laws and other laws change every year in ways that will impact many estate plans.  Finally, because attorneys don't know everything, the attorney's experience and expertise change.  Without updating, plans won't work the way the family intended them to.  Without a Formal Updating Program, the updating rarely happens.

Step #3: Assure that My Wisdom is Transferred Along with My Wealth.  In many families, the parents have an abundance of wisdom that has often been earned the hard way.  Through Wealth Reception, an approach that prepares children and grandchildren (or nephews and nieces, or godchildren, or friends) to receive wealth, parents' wisdom can help make their money a benefit instead of the burden that is often becomes.

Most financial windfalls, including inheritances, disappear within 18 months.  Our clients can avoid that unfortunate conclusion to an otherwise worthy inheritance with proper Wealth Reception planning.

*Adapted from the Planning Partners Press.

Quality and Net Worth Are Not Synonymous*

Jack Kent Cooke started his business as a high school drop-out selling encyclopedias door-to-door, and grew until he owned a collection of media companies, sports teams, and real estate valued at $1.3 billion.  Most know him as former owner of the Washington Redskins football franchise.  Although a successful and sophisticated businessman, his estate planning failed miserably.

What Does This Have to Do With You? Though most of us don't have estates worth $1.3 billion, this is a great case study on how planning that is not well-designed and customized according to a client's wishes can result in devastating financial and emotional costs after their death.  This is not an issue of net worth.  It is a planning quality issue.

Jack Kent Cooke's Plan: Mr. Cooke has a will that was amended eight times.  It left seven executors, most of them former employees.  When presented with the will, most of them had never seen it before.

The Widow's Claim: Ms. Ramallo Cooke was Mr. Cooke's wife, whom he divorced once and then remarried.  Despite having signed a prenuptial agreement on her remarriage, a fight ensued, ending in a $10 million settlement to Ms. Cooke to end the expensive litigation ($6.8 million in legal bills.)

Sell Which Assets? An executor, Stuart Haney worked with Mr. Cooke to create the Jack Kent Cooke Foundation to help underprivileged students.  Due to a large estate tax bill, the only way the foundation could be funded was to sell assets of the estate.  Cooke's son (also an executor), has worked in management of the Redskins for most of his life, shared his father's passion for football, and dreamed of someday owning the Redskins.  Cooke, Jr. was adamant that the Redskins franchise not pass from family control.  However, because the sale of the team promised the best return, the executors, against the protests of Cooke, Jr., chose to auction the Redskins.  Cooke, Jr. was outbid an the team passed out of family control.

Paying the Executors: The will didn't specify how much the executors should be paid.  In Virginia, up to 5% of the estate is allowed.  Again, lawyers were hired, and litigation began.  Cooke, Jr. claimed that executors' fees exceeding $5 million were unreasonable.  The remaining executors felt that they earned and deserved the 5% fee ($37.6 million).  The case was decided in favor of the 5% fee.  Subsequently the count commissioner of accounts cut his fee to $415,000 to avoid further litigation.

In the End: Cooke, Jr. never received the Redskins, which he dreamed about and worked towards his entire life.  The executors were divided and bitter, and still have to work together as board members for the Foundation.  The estate settlement lasted 7 years and cost $64 million in professional fees.

Learning from Mistakes: Most clients believe that their situation is straightforward and simple and that they don't have a lot of money.  They may not have the wealth of Jack Kent Cooke, but proper planning is every bit as important for them as it was for him.  If they fail to plan well, or if their plan fails them, the result can be financial and emotional devastation for their families and loved ones after death.

*Adapted from the Planning Partners Press.

An Irrevocable Life Insurance Trust With All the Ingredients for Success*

As we've recently been discussing, Irrevocable Life Insurance Trusts (ILITs) are very powerful estate planning tools.  Unfortunately, they often fail  because people do not follow the particular rules necessary for them to succeed.  In addition, there are gift and estate tax consequences to be considered.  In this issue, we want to review with you a Private Letter Ruling (200404013) from the Internal Revenue Service about an ILIT that passed all tests with flying colors.

The Trust
The Basics: A husband created an Irrevocable Life Insurance Trust.  The husband funded the trust with shares of an S corporation, along with other assets.  The Trustees of the trust were his wife, along with a Corporate Co-Trustee.  The beneficiaries of the trust were the couple's children.  The distribution provided that upon the death of the husband, the trust would divide into separate trust shares for each child.

The Insurance: The trust then purchased a survivorship life insurance policy on the lives of the husband and wife.  The policy was purchased with the assets already inside the trust.  Ten annual premium payments were to be made, all with assets in the trust.  There would be no additional contributions to the trust by the husband or wife.

The Distribution: The sub-trusts created for each child, upon the death of the husband, would pay quarterly to each child the net income of their respective trust share.  The remainder assets will be kept in trust and distributed at the discretion of the trustee for care, health, education, maintenance, or support.

The Key Ingredients
The legal, financial, and tax advisors who participated in the creation of this trust really took the time to think through the variety of rules that impact this type of planning.  Some of the key strategies they implemented that allowed this trust to succeed are as follows:

1. The wife, as Co-Trustee of the ILIT, executed a written document denouncing her right as trustee to:
     a. Change the beneficiary of the policy
     b. Revoke any change of beneficiary
     c. Assign the policy
     d. Revoke any assignment of policy
This result was the avoidance of incurring incidents of ownership, which would have caused the amount of the life insurance to be included in the husband's estate.

2. The husband renounced any right to make contributions to the trust and to appoint a successor advisor.
This resulted in avoiding a gift tax problem.

3. The husband funded the trust, but had his wife consent to treat the gift as a split gift.
This resulted in doubling the amount allowed to be gifted without incurring gift tax liability.

4. Sufficient Generation-Skipping Tax exemption was allocated to the trust to result in zero inclusion ration for GST tax purposes.

The Payoff
This strategic approach allowed this ILIT to avoid any gift tax liabilities.  The proceeds of the policy were not included in either the husband's estate or the wife's estate.  The trust also has a zero inclusion ratio for GST tax purposes.  Most important, this trust accomplished the goals of the clients:

1. To leave money to their children in a way that is protected from creditors and potential divorces;
2. To leave money to their children in a leveraged manner; and
3. To utilize strategies to reduce their estate tax liability.

This is a great example of how the strategic planning of advisors can help clients accomplish their goals!

*Adapted from the Planning Partners Press.

Will a Trust Really Fail for Lack of Funding?*

In some jurisdictions, lack of any trust corpus (even just a couple of dollars, or some personal property) will cause the trust to be treated as if it were never created to begin with, and attempts to place assets into such a trust in the future cannot salvage or resurrect the defunct trust.  Most trusts that are created have some modicum of a trust corpus to prevent such a disaster.  Therefore, having anything in the trust will prevent it from failing, right???  That depends on your definition of "fail."  In order to answer the question, we must first talk about how funding works in relationship to a trust.

How does a trust work?  Think of a trust as a bucket, or a treasure chest.  One writes instructions on the outside of the bucket about what one wants done with the things that are in the bucket.  The trustmaker then takes the "bucket" and puts it into the hands of someone the trustmaker can rely on--that's the trustee.  The trustee's job is to follow the trustmaker's instructions with regard to the things that are in the bucket.

What will happen if the bucket is empty when the trustee attempts to follow the trustmaker's instructions after the trustmaker has died?  The trustee only has authority over what is in the trust, so if there is nothing in the trust, then there is nothing for the trustee to do.  (And as mentioned previously, if there is really nothing in the trust, then it may be void, depending on the controlling state law.)

Anything left outside the trust is outside of the trustee's control.  That means that the trustmaker's directions will not be followed with regard to those assets that are out of the trust.  Some assets may find their way back into the trust through a pour-over will, but typically this requires the expense, delay and publicity of probate to do so.

The process we call "funding" is the process of titling assets so that they are in the trust "bucket"--controlled by the trustee.  These assets will be controlled by the trustmaker's directions without the need for probate.

So, back to our question:  having anything in the trust will prevent it from failing, right?  If the measure of success is mere legal sufficiency, then that is correct.  However, the true measure of a trust's success is not whether it is "legally sufficient," but whether the trust meets the client's goals.

One common motivation many have for seeking out an attorney to create a trust is so that their family will be able to avoid the cost, delay, and publicity of probate on their death.  Failure to fully and properly fund a trust means that the client's directions will not be followed with regard to those assets not in the trust, or at least that probate will not be avoided.

If a trust fails to do what the client wanted (transfer assets by specific instructions contained in the trust, or avoid probate, for example), then it has failed whether the trust is legally sufficient or not.

Hopefully, when you buys a gallon of milk at the grocery store, it comes in a container.  But what if you pay for a gallon of milk and only get an empty or half-full container?  You would be upset, and rightly so.  However, people buy empty (or, at least, not full) trust buckets frequently, and do not realize the reduced value they are receiving.

Make sure you are getting full value for your estate plan by working with an attorney who will ensure that the trust bucket is full when created, and has a formal process in place to make sure that it stays that way.

*Adapted from the Planning Partners Press.

Forgotten Estate Planning: Disability*

An often-overlooked part of estate planning is planning for mental disability.  Many of us have been in the uncomfortable position of having to take care of a relative or friend who can't handle his or her financial affairs anymore.  It could happen to you one day.

Our clients tell us that, "I want to control my property while I'm alive and well, and plan for me and my loved ones if I become disabled."

There are four basic disability planning choices:  1) No planning; 2) a Power of Attorney; 3) a Standard trust; 4) a Counseling-oriented trust.

The most common planning issues are: a) Who decides when I lose control?  b) Who takes control?  c) Who gives instructions to the person who takes control?

In most states, if you haven't planned for when you are disabled, your loved ones will have to hire an attorney and go to court.  The judge will decide whether you are disabled, who will be your guardian, and what that guardian can do.  Every state's system is a bit different, but they all have one thing in common:  the Judge is in control.

People often use a General Durable Power of Attorney to prevent guardianship proceedings.  A GDPOA appoints someone as your Attorney in Fact, or agent.  GDPOA's are usually effective immediately, have no reporting requirements, no personal instructions, and have extremely broad powers.  If you look up "lack of control" in the dictionary, GDPOA should be the first definition.  The advantage of this approach is that you get to name the person who is in control.

Standard Living Trusts are often little more than word-processing.  There is no attempt to prepare a personalized plan, so they often use a standard definition of disability, usually based on the option of any doctor with no guidance on which doctor to use.  Doctors are often unwilling to declare someone disabled unless that diagnosis is absolutely certain.  As a result, many families with these trusts may have to resort to the Probate Court to determine whether the planner is disabled.  Additionally, these trusts typically have few personal instructions, but they may provide for a private transfer of control to personally selected trustees.

Most Counseling-orients Trusts provide a personalized definition of disability through a disability panel.  When your loved ones start to think that it's time for you to turn control over to somebody else, they can call the disability panel together to decide whether you are disabled.  Who's on it?  How does it operate? You decide.

Then who takes care of you?  The Successor Trustee you chose when you were well.

How do they care for you?  They follow the instructions you've left behind.  I often ask my clients, "When you need someone to take care of you, would you rather be cared for in your own home, in someone else's home, or in a nursing home?  Everyone has an opinion, but most estate plans doesn't address it!  When you family knows your wishes, they are more likely to be followed.

Many Americans will go through a period of disability.  Planning for your own care has become critically important, as families have become more mobile and fragmented.  With proper planning, you can be well cared for in the way that you want, by the people you have chosen, for the rest of your life.

*Adapted from Planning Partners Press.

What Do Hurricanes and Estate Planning Have in Common?

Hurricane season officially begins in June.  And despite the best efforts and intentions of meteorologists, the precise path, time of arrival and strength of these potentially devastating storms cannot always be predicted with complete accuracy.  Local governments do their best to convince people residing in or visiting vulnerable areas to prepare for the worst.  Many heed the warnings.  Sadly, others do not, and often suffer tragic consequences.

We think the onset of hurricane season serves as an apt metaphor about the importance of estate planning.  Like meteorologists, whose host of sophisticated scientific tools and resources do not necessarily enable them to predict a hurricane's path and strength, neither we nor you can predict exactly what the future holds.  

Fortunately, like emergency response planners, we can plan for the future's possibilities by helping our clients prepare an estate plan customized to their unique families and goals.  Your plan can protect your financial well-being today and tomorrow, provide for your loved ones after you are gone, and enable you to leave a lasting legacy for family and society alike.  

Your plan can also help prepare you and your spouse or other loved ones for changes to your physical well-being, through incapacity planning, healthcare directives, durable powers of attorney and more.  Access to the DocuBank Healthcare Directives Registry, which we provide to our clients free of charge, can prove invaluable in this regard.  It ensures that your healthcare directives are immediately available to hospitals and family members in the event of an emergency.  It also provides vital information to doctors, such as medical conditions, allergies and emergency contacts, to name a few.  

One aspect of effective estate planning that some families overlook, at their peril, is the importance of keeping their plan up-to-date.  The fact is, an outdated plan can actually be worse than having no plan at all.  We recommend that families review their estate plan at least once every two years, and whenever a significant change has taken place in their situation or that of a family member.  We can also help our clients update their DocuBank account to reflect any changes to their health or wishes concerning whom they would like to make decisions for them, or the care they would like to receive if they cannot speak for themselves.  

By keeping your estate plan up-to-date, you can truly prepare for the unexpected.  And, help ensure that everyone you love, and everything you own, will be protected--today, tomorrow and beyond.  

Things to Do When a Loved One Dies*

Do you have a revocable living trust?  If so, your Successor Trustees might appreciate the practical suggestions contained in this article.  These are some things to consider in the first few weeks of the administration of a Living Trust after death.

If a residence will be vacant for an extended time, your Successor Trustees should:

• Consider changing locks
• Remove valuables from the residence and store them safely
• Install an inexpensive security system with a motion detector which will dial out if there is motion
• Arrange for mail to be forwarded
• Discontinue phone, cable, and internet service, etc.
• Advise the property and casualty insurance agent that the residence will be vacant and make appropriate arrangements for insurance
• If title to the property is in trust, name the trust as the insured on the property and casualty insurance policy.

Successor Trustees should determine the immediate cash needs for any beneficiary and identify accounts where cash is available.  They should also determine if any immediate expense must be paid, but should be advised to not make payments without first discussing it with the attorney.  

Successor Trustees should cancel charge accounts, credit cards, and magazine subscriptions and ask for refunds, if applicable.

They should make certain that property and casualty insurance coverage continues on personal effects, automobiles, real estate and any goods in storage.  If any of these items are titled in the name of the Trust, the Trust should be the named insured.  

Trustees or beneficiaries of a safe deposit box should not remove the contents, but rather the box should be inventoried in the presence of a bank officer and only then should contents be removed. 

Personal and financial records, including: checkbooks, statements, tax returns, and insurance policies should be collected.  Individuals who owe money to the deceased should be contacted and arrangements made for continued collection.

The Social Security and Veterans Administration (if applicable) should be contacted and advised of the death.

Social Security or Pension checks received after the date of death should be held.  If direct deposit to an account is used, the deposit should be noted and the attorney informed.

The successors or trustees will want to decide about the employment of domestic help, security guards, or any other type of assistance that might be required for a dependent beneficiary.

Your successor must be prepared to demonstrate to third parties that they are in fact authorized to act on behalf of the Trust or Estate.  The attorney will be able to provide documentation.

As I mentioned before, these are just a few of the things that need to be done after a loved one dies.  It is important for your successors to hire and work with an experienced estates attorney to efficiently and properly administer your estate in order to make sure all your wishes are followed.

I hope you find these little details helpful and that you share them with your successors and loved ones.

*Adapted from The Planning Partners Press

The Pitfalls of Joint Ownership (Part 1 of 3)*

Joint property, also known as joint tenancy with right of survivorship ("JTWROS"), is nothing but a planning pitfall.  Although JTWROS has been assailed for years by many estate planning experts, it remains--unfortunately--a very popular form of property ownership.  JTWROS is a pitfall because you cannot control where such property passes after your death.

In joint tenancy, each person owns the entire asset, not a part of the asset.  This legal fiction of two or more people owning 100% of the same asset is derived from the full name given to joint tenancy: "joint tenancy with right of survivorship."  "Right of survivorship" means that whoever dies last owns the property.  The previous joint tenants merely had the use of the property while they were alive.

JTWROS property is "uncontrollable."  Even if a joint tenant intends to have his or her share pass to loved ones, the property is not controlled by the instructions in the joint tenant's will or trust.  JTWROS property automatically passes to its surviving owners by operation of law.

Property that is owned in JTWROS can be a trap--the term itself has nice connotations.  It implies "the two of us," a partnership, a marriage of title as well as love.  On the surface, at least, it appears to be the right way for people who care for each other to own property.  It's psychologically pleasing, which for many people is the real advantage of owning their property jointly.

As with many other latent problems, JTWROS is easy and convenient.  Odds are that when you were married (if you are), one of the first financial actions you and your spouse took was to open a checking or savings account.  The clerk who helped set up your account put it in your joint names when you answered yes to, "Both names on the account?"  The same is true of your first house or your first care. It seems that all of those involved (primarily clerks and salespeople), whether or not they knew what they were doing, took control of your planning and titled your property in joint tenancy.

For most people, the disadvantages of JTWROS far exceed any advantages.  Some of the more devastating pitfalls of JTWROS are:

(1) There is no control, and property may pass to unintended heirs;
(2) There are no planning opportunities;
(3) For married couples, probate is at best delayed, not totally avoided; and
(4) For non-spousal owners, unintentional gift taxes and death taxes can be generated.

In part 2 of this article, we'll explore each of those problems in more detail.  Our goal is to help you gain a clear understanding of why you should avoid titling assets in joint tenancy, and to suggest other ways you might own property that will enable you to maintain the control you desire.

*Article adapted from Planning Partners Press.

TITLE = RESULT: The Importance of Proper Ownership (Part 2 of 2)*

In part 1, we talked about the importance of how property is owned.  The fact is that plan results are tied directly to how assets are titled.  That's why we say, "Title = Result."

In separate property states, such as Arkansas and Missouri, the three primary forms of property ownership include fee simple, tenancy in common, and joint tenancy with right of survivorship ("JTWROS").

We have already covered fee simple, and began a discussion on tenancy in common.  We used the example of you and a friend who own a horse as tenants in common.  We discussed how each of you would own 50% of the horse, and that there is probably no problem with that--unless the two of you have a falling out.

If you can't reach an agreement on who owns the horse, and what one co-tenant is going to pay the other for their half, you are likely to end up in court with a judge ordering a sale.  Other challenges can arise even if you and your co-owner get along fine.  Issues arise if one of you wants to sell your half to a third party, or if one of you becomes mentally disabled.

You can sell your 50% interest in the horse anytime you want, or you can give it away.  Your other tenant cannot prevent either action.  Even if you sell the horse to your friend's worst enemy, your friend cannot do anything about it!  The real problem is getting someone to buy your part of the horse.  This new tenant will have to deal with your friend, and they, too, will have to agree on what to do with the horse.

Disability can be a problem for both you and your co-tenant.  If you are disabled to such an extent that you cannot manage your own affairs, and you have not done proper revocable trust planning, a probate court will likely control your part of the property.  The court may demand that the property should be sold--and your other tenant will have little or no control over the whole process.

At your death, you can leave your share of the property to whomever you want.  Without proper planning, it will go through probate, leaving your other tenant once again under the control of the court.  You may leave your share to several heirs, making life that much more difficult for the other tenant.

JOINT TENANCY WITH RIGHT OF SURVIVORSHIP ("JTWROS") is very common and very misunderstood.  It is routinely used by spouses, but people who are not married use it, too.  Although similar to tenancy in common, JTWROS has totally different results.  If you own property in JTWROS:

(1) You own all of it with someone else;
(2) You can (a) give your interest away or (b) sell your interest; and
(3) You cannot leave your interest on death.

There are so many possible pitfalls with JTWROS that the next article will be devoted to that topic.

*Adapted from Planning Partners Press.

TITLE = RESULT: The Importance of Proper Ownership (Part 1 of 2)*

How you own your property helps determine its distribution when you die, or its use if you become disabled.  It is important to double-check that you own the property the way you think you do.  Planning with property you don't actually own is like no planning at all.

The three primary forms of property ownership include fee simple, tenancy in common, and joint tenancy with right of survivorship ("JTWROS").  In Arizona, we also have community property and community property with right of survivorship ("CPWROS").  Each form of ownership has its own inherent features.  I will save the discussion of the community property concepts for another time.  Today, I will begin our discussion of fee simple and tenancy in common ownership.  

FEE SIMPLE is simple.  You and only you own the property.  Property in fee simple means you own all of it.  You can (1) give it away, (2) sell it or (3) leave it on death.

Is there any pitfall with fee simple property?  Yes.  Property owned in your own name is subject to both a living probate in the case of a disability and a death probate upon death.  In short, what may appear to be maximum control, may actually result in a total loss of control upon disability or death.  

TENANCY IN COMMON means that you and others own part of an asset.  Each "tenant" has less control of the whole property than would one person who owned it in fee simple.  With tenancy in common property, you can (1) give your part of it away, (2) sell your part or (3) leave it at your death.

Tenancy in common requires that you own the property with one or more other people.  Each tenant owns a percentage of the whole asset.  For example, if there are two tenants, each owns 50% of the whole asset.  If there are three, each owns 33 1/3%.  The number of possible tenants in tenancy in common has no limit.

For example, if you and a friend own a horse as tenants in common, you each own 50% of that horse.  But who owns which half?  It really doesn't matter while both of you are alive, healthy, and getting along.  You accommodate each other: each paying half of the expenses and receiving half of any income from trail rides.  You have an agreement about when each of you gets to use the horse.  If you should quarrel, however, problems can arise.  You can't demand your half of the horse.  Very likely, you and your ex-friend will have to sell the horse--if you can both agree on the price and manner of sale.  

In case you and your friend cannot reach any agreement, you can go to court and have the judge sell the horse.  This method is expensive, and odds are you won't get the best price for the horse.  But when tenants in common can't agree, courts are virtually the only recourse available.

Next time we'll continue our discussion on tenancy in common ownership, and introduce the planning pitfalls of joint tenancy with right of survivorship.

*Article adapted from Planning Partners Press.

In The News: Sun Lakes Splash: Is Your Estate Plan Working for You?

Here's my most recent article in the Sun Lakes Splash, entitled "Is Your Estate Plan Working for You?" If you'd like to check it out, you can find it here, and by going to page 38.

15 Questions You Must Ask Your Estate Planning Professional

If you've ever hired anyone to prepare a will or a trust, or if you've been thinking about doing so, there are a few questions you simply must ask. Why? Because planning an estate is important--it's important to you and your family. You should know if the professional you work with is experienced and knowledgeable. You should know if the professional you work with cares about the future success of your plan. And, you should know upfront what the entire cost of the plan will be over your lifetime and beyond, not just the fee that is charged to draft the documents.

Here are fifteen questions you must ask when selecting and working with an estate planning professional:

1. Please tell me about your interest, background and experience in the planning field. What percentage of your practice is in estate planning?
2. How do you define estate planning?
3. What is your counseling philosophy?
4. What is your process for working with me to assure that my plan works?
5. How will you counsel me to design my plan?
6. How do we assure that my assets are controlled by my instructions contained in my planning documents? Who is responsible for this coordination, you or me?
7. How do we assure that my plan stays current with changes in the law?
8. What is the level of involvement of my family in the planning process?
9. How do you charge for your services? Specifically, how much will my estate be charged after I'm gone? What if I'm disabled?
10. (If living trust attorney) What is your record with regard to probate? (What percentage of your trust-based plans wind up having assets probated? Do you charge differently for these assets?
11. Do you handle the filing of death tax returns if they're necessary? If you do, how do you charge for that service?
12. What happens if something happens to you?
13. How do I prepare for our consultation?
14. What type of service should I expect from you?
15. Do you expect any commitments from me?

While none of these questions alone should make or break your decision on whether to hire a particular estate planning professional, the answers provided will give you a greater understanding of who the professional is and the process the professional employs while working with client.

Have You Done Proper Estate Planning? Part 4 of 4

The Importance of the Team Approach

Creating an estate plan is not difficult, but it does require the involvement of all your professional advisors:  your attorney, your accountant, and your financial and insurance advisors.  If all the professionals are included in the planning, you are much more likely to have a plan that works.  If not, you may receive conflicting advice that leads to confusion and inaction.  

We suggest that you allow your estate planning professionals to involve your other advisors in your planning, and keep them apprised of steps you are taking.  That way everyone is fully informed and has a chance to offer their particular expertise to the process.  

A Proper Estate Plan Meets Your Goals

and Keeps You in Control 

of the Process and the Results!

A Word of Caution

Proper estate planning revolves around your relationship with a qualified estate planning attorney.  Unfortunately, there are many businesses and salespeople masquerading as estate planning professionals.  They are inundating the public with sales schemes that involve selling wills, living trusts, and other estate planning documents without the involvement of attorneys in the design and drafting of the documents.  They are the opposite of what I and my colleagues in the National Network of Estate Planning Attorneys stand for. 

Proper estate planning requires professional thoroughness by attorneys and other advisors and respect for the overall well-being of the client and the client's family.  We aspire to the highest ethical professional behavior that will lend dignity to the client, the planning professionals and the planning process.  

Have You Done Proper Estate Planning? Part 3 of 4

THE ESTATE PLANNING SOLUTION:

The Three Step StrategyTM

It's Not About Documents - It's About Results!

The Key to proper estate planning is clear, comprehensive, customized instructions for your own care and that of your loved ones.  These instructions can be included in a will, a trust, and in several other related documents.  We find that most of our clients are best served with a combination of these tools, backed up by the Three Step StrategyTM.

Step 1: DEVELOP Your Plan with Counseling-Oriented Planning Partners (as opposed to a word processing, document-oriented attorney)

We fear that much of what passes for estate planning is little more than word processing!  We don't believe you should pay a licensed professional to do word processing.  Their value is in their counsel and advice, based on knowledge, wisdom and experience.  If word processing is all you want, you may as well do it yourself!  But if you want an estate plan that works, seek good counseling from an attorney who is willing to work closely with other professionals such as your financial advisor and accountant.

Step 2: COMMIT Yourself and Your Family to a Formal Continuing Maintenance and Education Program

An estate plan faces a myriad of changes.  First, there is constant change in your personal, family, and financial situation.  Secondly, there is constant change in both tax law and non-tax law that impacts your estate plan.  Third, there is constant change in your attorney's experience and expertise.  Your professional advisors are continually improving through ongoing education and collected experience.

Since everything constantly changes, you cannot expect a plan to accomplish what it was intended to accomplish if it is never updated.  The costs of failing to update are typically far greater than the costs of keeping your plan current.  

Step 3: SECURE Appropriate Assistance for You and Your Family to Transfer Your Wisdom Along with Your Wealth.

It's one thing to pass your wealth to the next generation.  It's a different thing to pass it along in an orderly and protected manner.  And it's yet another thing to pass along your wisdom.  A good estate plan will accomplish all three things.  

By working with a team of professionals, your heirs will be able to receive their inheritance in a form that is protected from creditors and predators.  In addition, you can structure your estate plan to provide in-depth instructions or commentary on those things that you believe are important for those heirs to know and do.  

Have You Done Proper Estate Planning? Part 2 of 4

The Importance of Title

Everything in estate planning comes down to title.  Personal protections depend on title.  Tax savings depend on title.  In other words, you and your family only receive the benefits of your planning if your planning controls your wealth.  Control comes from title.

There are basically three types of title:  Individual Name, Joint Name and Contract.  Joint name property includes tenancy in common, joint tenancy with rights of survivorship, and in some states, tenancy by the entirety.  There are also a few states, including Arizona, that have a different type of "joint" title - community property.  Contracts include beneficiary designations (such as on insurance and retirement plans) and trusts.

Assets owned in individual name are the only assets that are controlled by a will.  Jointly owned accounts and beneficiary designations are controlled by operation of law.  Only assets owned by a trust are controlled by the instructions of that trust.

The Pitfalls of Jointly-Owned Property

• Your joint tenancy property can pass to unintended heirs.
• Joint tenancy does not avoid probate, it only delays it.
• There may be unintended gift and estate taxes if joint tenancy is used between non-spouses or with children.
• The joint tenancy property may be subject to your joint tenant's creditors.
• Joint tenancy makes no provisions for estate tax planning.
• Joint tenancy doesn't allow you to give your property to whom you want, when you want, and the way you want.

The Pitfalls of Planning with a Beneficiary Designation

• Designating your beneficiaries on a standard business form "beneficiary designation" often means losing control of a major part of your estate.  It does not enable you to leave instructions or provide guidance to your loved ones.
• Oftentimes the wrong beneficiary is name in the beneficiary designation.
• A beneficiary designation won't protect your spouse and children from creditors or unscrupulous people.
• Equal distributions from a beneficiary designation can  cause unequal results that won't meet your family's special needs.
• Beneficiary designations make no provision for federal tax planning.

The Pitfalls of a Will

• Wills guarantee probate - which can generate executor and attorney fees and cause much time delay before your loved ones can receive their inheritance.
• Wills are fully public.  They are open to inspection by anyone who wants to know about your will and affairs.  
• Wills offer no planning or direction for you or your family in the event of your disability.
• Wills are easily challenged by unhappy relatives.
• Wills most often don't control their makers' life insurance proceeds, retirement benefits, or jointly-owned property.  
• Wills are often bare-bones form documents written in hard-to-understand language.  They don't capture the hopes, fears, dreams, values and ambitions of their makers.

The Pitfalls of a Trust

• Although most living trusts appear to be better than wills, they are about the same as wills if not fully funded, because they do not avoid probate.
• Most living trusts are sterile legal forms that do not contain instructions for loved ones.  They only accomplish limited objectives.

Have You Done Proper Estate Planning? Part 1 of 4

What is "Proper" Estate Planning?

Proper estate planning allows you to plan for yourself and your loved ones without giving up control of your affairs.  Your estate plan should allow for the possibility of your own disability.  It should give "what you have to whom you want, when you want, and the way you want, all while assuring your wisdom is transferred along with your wealth."  Your estate plan should include fully disclosed and controlled costs for you, and for those you love.  

Two Problems with Traditional Estate Planning

The First Problem is that Most Estate Plans are Upside Down!

We see the planning process as a pyramid.  The pyramid's foundation is the thorough understanding of your needs, goals, dreams and aspirations.  Most people want to be sure that they (and their spouse if married) are taken care of now, and throughout their retirement years.

Next, we need to have a thorough understanding of family members and family dynamics - those people that you care about and who will someday receive the benefits of your success.  For some people, family includes children and grandchildren.  For others, it may be nieces and nephews, friends, or community.  And, let's not forget about our pets, or "furbabies" as some would call them.

You are the expert on family matters.  We depend on you to teach us about your family.  We'll teach you about the law.

After the foundation of the pyramid is laid, it is appropriate to discuss wealth.  We find that most of our clients first want to protect and preserve the wealth that they have accumulated over the years, and then are also interested in enhancing that wealth.

The final building block of the pyramid is made up of strategies and tools to save taxes.  Like the last piece of a jigsaw puzzle, this is the easiest piece to fit in -- if all of the proper groundwork has been laid.

When we say that most estate plans are upside down, we mean that most are built on tax planning instead of family planning.  Personal family concerns and goals are relegated to a lower priority instead of being the very foundation of the plan.  

We believe that by planning according to the pyramid, we can better focus on client goals and create solutions that will ultimately make the planning easier and more effective.  

The Second Problem is that Most "Traditional" Estate Plans Just Don't Work!

We know an estate plan works when every expectation that the client had in mind when they began planning is completely met.  Of course, it's really the family members who will see the results.

Why don't most plans work?  We believe it's because many clients and professional advisors see estate planning as being transactional.  They say, "I did my estate plan."  In reality, estate planning is a process, not a transaction.  Because everything constantly changes, your plan must be changing, too.