Estate Planning

Estate Tax: One Less Thing to Worry About

When I started practicing in 1997, the estate tax exemption was $600,000 and the top estate tax rate was a whopping 55%. This meant that there was a considerable estate tax to pay if you died with an estate larger than $600,000. That sounds like a lot, but remember that the value of your estate includes real estate and life insurance proceeds. So it was relatively common for estates to trigger the tax back then, which prompted some fancy footwork with my clients’ estate planning prior to death in order to mitigate the tax bite.

Well, times have changed.

The federal estate tax exemption is now a jaw-dropping $11.4 million and the top tax rate is down to 40%! And even if you are in the tiny percentage of the U.S. population that actually exceeds that figure, they only tax the dollars above that $11.4 million threshold.

Additionally, if you are a married couple you can take advantage of an estate tax concept called “portability”, which allows your surviving spouse to use any unused portion of your exemption. For example, if a husband dies with a $3 million estate, then he did not use $8.4 million of his exemption. That unused exemption can be shifted over to his spouse, and now she can pass away with an estate as large as $19.8 million with no estate tax liability. Put another way, a married couple essentially enjoys a $22.8 million estate tax exemption!

Now, of course, Connecticut has its own state estate tax. The Connecticut exemption isn’t quite as generous as the federal exemption, but it still ain’t bad. The exemption is $3.6 million this year, $5.1 million in 2020, $7.1 million in 2021, $9.1 million in 2022, and then it catches up with the federal exemption in 2023.

All of this means that virtually none of my clients are doing estate tax planning anymore. Instead, they’re focused mostly on minimizing probate exposure and generally making sure things go smoothly for their loved ones if they pass away.

There are plenty of things to fret over these days, but having your estate decimated by a huge estate tax is, thankfully, no longer one of them.

DISCLAIMER: This blog does not offer legal advice, nor does it create an attorney-client relationship.  If you need legal advice, consult with a lawyer instead of a blog.

Estate Planning: A Tale of Two Celebrities

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Prince, the iconic American musical artist, died in 2016 and inexplicably left no last will & testament. This is despite having an enormous estate which is reportedly in the neighborhood of $300 million. Suffice it to say an epic legal/probate mess quickly ensued and Prince’s estate will most likely not be wrapped up anytime soon. Click here for an online article from Money for all of the gory probate details.

Another celebrity from my boyhood days in the 1980’s, Luke Perry, died unexpectedly from a stroke on March 4th. Despite his relatively young age of 52, it looks like he actually had a solid estate plan in place. Not only will this make it more likely that his estate (estimated at around $10 million) will be distributed and wound up in an orderly manner, but his advance medical directives presumably made the difficult situation at the hospital go much smoother than it may have otherwise. Click here for an online article from Forbes for the details.

Well, reading about such famous people from my childhood passing away makes me feel old. On the upside, this comparison of how two well-known celebrities planned ahead (or didn’t) provides us with a good illustration of why estate planning is so important, whether you’re famous or not.

3 Reasons to Get a Will if You Have Minor Children

If you have young kids, it’s possible that you don’t have a huge estate yet, so there may be no sense of urgency to sign a last will & testament. Why do any estate planning if there’s no estate to plan for, right?

Well, there are at least three big reasons to get a last will & testament in place.

The first reason, which most parents are at least vaguely aware of, is to appoint guardians. It’s not fun to think about, but if you suddenly disappear and you have a minor child then you will need someone to take over to make personal, medical and educational decisions for your child. Your appointment of guardian is made in your will. If there is no will, then it’s up the court to appoint someone as guardian. In some families, the choice is relatively obvious. But in many families, it’s not. And in some families it’s clear that World War III is going to break out over who will become guardian if there are no legal instructions in place. Don’t leave this potential landmine behind for your child and family. They will be going through enough turmoil as it is.

Secondly, you will probably want someone to manage your child’s inheritance for her if she is over the age of majority but still relatively young when you pass away. For most clients, the age range for this is 18 to 25. In other words, a child over the age of 18 (in Connecticut) is legally competent to manage her own inheritance, but she may not be actually competent to do so if she is under 25. Most folks under 25 don’t have a lot of investment experience and could potentially be easy prey to scam artists. If you’re shrugging this off because you don’t think your estate is very big then think again, particularly if you have life insurance. It seems like nearly all of my clients end up underestimating the size of their estate by a good amount.

Third, and perhaps most importantly, you’ll simply feel like a responsible and diligent parent. I’m certainly not trying to lay a guilt-trip on anyone who hasn’t attended to this yet. As a father of three young boys myself, I know first-hand how crazy the schedule can be with young kids. But yearning for some peace-of-mind seems to be what drives most of my clients with minor kids to come in and get their wills done.

DISCLAIMER: This blog does not offer legal advice, nor does it create an attorney-client relationship.  If you need legal advice, consult with a lawyer instead of a blog.

"Dignity of Life" Seminar on April 3rd

Attorney Keenan will participate in a panel discussion at St. Paul’s Church in Glastonbury, CT on planning for the end of life. Attorney Keenan will discuss essential estate planning steps. The discussion is presented by the Catholic Cemeteries Association of the Archdiocese of Hartford, Inc. Call 203-507-6952 for details and to register.

There will be two presentations at 2pm and 6pm. It should last about one hour. Light refreshments will be served.

Estate Planning for Problematic Children

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It's unfortunate, but clients who meet with me to do their estate planning will sometimes mention that one or more of their children is "problematic" for one reason or another.  

And although the clients want to leave something to that child, there's a concern that their hard-earned money will be "wasted" once the child receives his inheritance.

The best approach in such a situation is usually to have that child's inheritance go into what is commonly called a "spendthrift" trust.  I prefer the term "protection" trust just because it sounds kinder.  

In any case, using such a trust as a component of your estate planning is generally a wise approach when a child (or any beneficiary who is not a child) is in one or more of the following cicumstances:

  • The child is irresponsible with money management, does not have a history of saving and investing, and there is a concern that your hard-earned estate will be wasted;
  • The child has a history of creditor problems, actually has current creditor problems, or you are reasonably certain that creditor issues will arise in the future based on the child's behavior;
  • The child is in an unstable marriage where a divorce is more than likely, in which case the trust can prevent the estate from becoming part of a divorce settlement process;
  • The child is addicted to drugs, alcohol or gambling;
  • The child has a history of being influenced by an overbearing spouse in regards to money management;
  • The child joins an unorthodox religious group (a.k.a. "cult") or some similar organization and you do not want some/all of your estate to ultimately be donated to such a group;
  • The child would be prone to "financial predators" and scam artists.

Please note that this is not always the best approach, but those of you with unstable children should discuss this issue with your estate planning attorney.  Otherwise, your child's inheritance may tragically disappear...and perhaps make your child's problem worse.

DISCLAIMER: This blog does not offer legal advice, nor does it create an attorney-client relationship.  If you need legal advice, consult with a lawyer instead of a blog.

Save Your Health Care Document on Your Smart Phone

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This is one of the better "document maintenance" tips I've come across: Keep a copy of your health care instructions (a.k.a. advanced medical directives, health care proxy) on your smart phone and have your health care agent do the same.

The health care document (a standard item in the estate planning "package") is what I would call an "emergency document" meaning that there may be a sudden and immediate need to use the document at any given time. However, it's hard to have your original health care instructions on-hand at all times. That's why having a PDF of the document on your smart phone can come in handy!

I can't quote a particular study, but I can state with confidence that a steadily growing number of my clients (of ALL ages, by the way) carry smartphones with them just about everywhere they go. This means that they have the ability to carry a copy of their advanced medical directives with them everywhere they go.

Please note that it's always better to have an original health care document on-hand.  That's because many doctors and hospitals get nervous when relying on something other than an original document. But it's certainly better to have a PDF of the document on your phone than nothing at all. 

Of course, explaining how to get your health care instructions document onto your smart phone is beyond the scope of this post.  Click here for iPhones, and here for Android.    

DISCLAIMER: This blog does not offer legal advice, nor does it create an attorney-client relationship.  If you need legal advice, consult with a lawyer instead of a blog.

Gifting with a Power of Attorney

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Not surprisingly, I am not a big fan of fill-in-the-blank estate planning documents that you can get online or from an office store.  There are many reasons for that, but one big reason is that online forms for a durable power of attorney (POA) often do not offer a "gifting" provision.  Or they do offer such a provision but there is no advisor involved to explain the benefits (or occassional pitfalls) of including such a provision in your POA.

The take-home lesson for today is this:  An agent under a POA cannot gift assets on your behalf without express authorization to do so in the POA document. 

At first glance, this may not seem like a big deal.  But it certainly becomes a big deal if/when transferring assets out of your name for Medicaid or tax purposes becomes highly advisable.  

In the context of a Medicaid application, the State of Connecticut will most likely pretend that such a gift (made by a POA agent without authorization) didn't happen and treat the gifted asset as an "available asset" for the Medicaid applicant. 

For real estate title purposes, if a POA agent transfers property without express authorization in the POA document then title to the property has not been effectively transferred.

These are just two examples of big problems that can occer when your POA document does not have adequate gifting language.

It is also worth mentioning that if you want your agent to have authority to make gifts to himself/herself, which is often the case when a spouse or trusted child is the agent, then that should be specifically spelled out in the document. 

Of course, having said all of that, there can be good reasons to not include gifting powers in a POA, depending on the circumstances.  The point is that this particular POA issue should be discussed thoroughly with your attorney.

DISCLAIMER: This blog does not offer legal advice, nor does it create an attorney-client relationship.  If you need legal advice, consult with a lawyer instead of a blog.

The Ever-Evolving Last Will & Testament

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Many of my clients tend to procrastinate when it comes to finalizing their estate planning documents. They struggle over who to appoint as guardians for the kids, or who should be the "back up" executor if the surviving spouse can't act, or who's going to end up with the tool collection.  Sometimes these questions can be tough ones and people "freeze up" and stress out over whether or not they're making the right decision.

As the estate planner I'm always concerned that the infamous bus is going to run my clients over while the drafts of the wills sit on my desk, unsigned.  So I try to gently nudge my clients along towards finalizing everything. 

One factor that I try to impress upon my clients is the fact that their wills are not set in stone; that they should conceptualize their wills as "evolving documents". In other words, as developments occur in the family (if people pass away, someone becomes disabled, someone gets divorced, there's a "falling out", etc.) it is very easy to tweak the documents in order to address the new family situation.

I also emphasize that, thanks to computers, tweaking the documents is very easy and very inexpensive, assuming that the changes are not overly-complicated.  I always keep the documents on my computer, so re-printing the documents with small changes and a new date and re-signing everything is awfully easy. And there is nothing exotic about my law practice; this is the case with just about any law practice out there. 

So, don't stress out about it too much when you set up your will and other documents.  Make the best decision you can given the current circumstances and facts.  Then schedule a signing date with your attorney knowing that you can easily change things later if you need to. 

And remember that once your documents are signed you will experience a wonderful, liberating "peace-of-mind", and that's what estate planning is all about.

DISCLAIMER: This blog does not offer legal advice, nor does it create an attorney-client relationship.  If you need legal advice, consult with a lawyer instead of a blog.

Tips on Where to Keep Your Will

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This is one of those standard questions that nearly every client asks me after their will or living trust is finally executed, and it is a vitally important question.  I have more than enough stories about the angst and chaos that has ensued when families cannot locate the original will after a loved one passes.

First thing's first: I'm not a fan of keeping your will in a safe deposit box at a bank even though most clients assume that is the best place.  Unless you have someone else's name on the list as a signatory, it is very difficult (albeit not impossible) for someone else to gain access to the box.  Also, even if the family knows that you have a safe deposit box, it is sometimes difficult for the family to determine which bank and at which branch the box is located.  Those tiny, little keys don't really tell you anything, other than the fact that it opens a safe deposit box somewhere.

What I usually tell clients is that they should keep their wills wherever they keep their other important documents. That location is different for every client, but if the family knows that all of the important stuff is in your file cabinet, or a strong box, or your bottom dresser drawer, or the freezer (I did have one client who argued that that was the most fireproof place in his house) then it shouldn't be a problem for your loved ones to find your will upon your passing. 

Ideally, having your will in a strong box at home (with your other important documents) is the best arrangement since such boxes are usually fireproof.  But don't panic if you don't have one since the chances of a fire that completely destroys your house and everything in it are quite slim. You should also keep the box unlocked for ease of access. Trust me...a third party will have no interest in stealing your will since it has no value on the open market.

However, if you have one of those families in which good chemistry is somewhat lacking, and there are some family members who may be motivated to destroy your will, then you may have to be a little more secretive.  In fact, the safe deposit box at the bank with a trusted person as a co-owner would probably be the best way to go in that type of situation.

DISCLAIMER: This blog does not offer legal advice, nor does it create an attorney-client relationship.  If you need legal advice, consult with a lawyer instead of a blog.