Monthly Archives: June 2013

Supreme Court decision potentially changes estate planning field

Following Wednesday’s announcement by the Supreme Court of the United States that the federal Defense of Marriage Act is unconstitutional, there was considerable talk about what this opinion would change. Since Texas does not perform same-sex marriage or recognize couples who have been legally married outside of Texas, there has been some questions about whether the end of the Defense of Marriage Act will bring federal benefits to couples living in Texas that were married in a state that has legal same-sex marriage. As the federal government works through these questions, it is important to work with an estate planning attorney who can help explain the legal changes.

The case that actually brought down the Defense of Marriage Act was about estate taxes. The plaintiff had been legally married to her wife and lived in a state that recognized same-sex marriage. Yet when her wife died, the plaintiff was forced to pay $363,000 in estate taxes because the federal government did not see the women as famliy members.

If federal benefits are extended to married same-sex couples in Texas, this would mean that future inheritances to spouses will not be taxed under the federal estate tax. Same-sex couples will no longer have to pay the government for an inheritance that opposite-sex couples never had to. There are, of course, other federal marriage benefits that same-sex couples will be able to access, as well.

Estate planning is a complex and difficult thing to do, but it is vitally important. Planning for the future ensures that your money, property and possessions go to the individuals you want them to go to, which is also why it is so important for estate planning to be done correctly. If a will is not made properly, all of that hard work could be disregarded completely.

Source:ABC News, “4 Ways Life Will Be Different Without DOMA,” Emily Deruy, June 26, 2013

Contradicting wills could lead to lengthy court battle

In a previous post we discussed charitable giving as one way to avoid conflict among friends and family over an estate plan. This is just one idea among many options to make gifts in an estate plan a gift and not a source of strife. The key to any successful estate plan is being complete and making sure there are no contradictions.

A lesson on this issue comes to us from a copper mining heiress whose two conflicting wills have set off a court battle over her substantial estate.

The problem is that the heiress, Huguette Clark, properly executed two different wills within six months, both completed at the age of 98. One leaves here entire estate to distant relatives, the same people who would each recieve a portion of the fortune if there was no will or if both wills are declared invalid. Ms. Clark apparently had never met many of them and did not list all of the potenital heirs by name.

The second will is more specific and leaves her fortune to a long time caretaker as well as establishing a charity. There is also an art collection and a valuable doll collection involved.

The problem is that the second will did not properly revoke the first will, so technically it should be invalid. However, if Ms. Clark was not in an appropriately coherent mental state at the time she executed the first will, that one may not be valid. As you may imagine, these issues are very difficult to determine after someone has already passed away.

Now, each of the parties who stands to gain from either version of the will is battling it out in court, which means that signficant portions of the estate will go to lawyers fees and court costs.

The lesson from this is very simple – be clear about your itentions and complete in your paperwork.

Source:The New York Times, “How to Avoid an Estate Battle After You Die,” Paul Sullivan, June 14, 2013

Trusting your children with an inheritance

Many parents who know that they will have money or property to hand down to their children struggle with the question of when to do so. Often the concern lies in whether an inheritance or the promise of one will lead to a lack of motivation by children to seek financial independence and success in their own right. For older generations who built businesses attained high levels of professional success, the thought of handing over cash to a young person who has not put in the time or effort can be quite unappealing.

However, while the stereotypes suggest that millenials will take the money and run off to a lavish vacation or quit their job, new data suggests the opposite.

Coming of age in the shadow of the recession, millennials as a group are more concerned about retirement than their parents or grandparents were. They are also more risk averse and show better saving habits than older generations. A loss of trust in the financial markets and big banks has also resulted in a more conservative investment strategy.

Many also consider whether they will be financially stable enough to help support their parents during retirement, according to a financial adviser.

So what does all of this mean for Texas families? Well, it means that now could be a good time to discuss these issues and consider when to tell children about a potential inheritance and whether to make that gift during life or leave it to be handled through a will or a trust.

Source: CNBC, “Millennials Make Most of Massive Inheritance: Study,” Paul O’Donnell, May 31, 2013.

Upcoming ruling will impact estate plans for same-sex couples

A ruling from the United States Supreme Court that is anticipated this month will have a major impact on estate planning and tax planning for same-sex couples. The case involves a woman who was legally married to her spouse in the state where they lived when her spouse passed away, leaving behind a substantial estate. For opposite-sex couples, marriage means that a surviving spouse can inherit without tax liability. In this case, the woman paid a substantial estate tax because of a federal law that does not provide that tax benefit to legally married same-sex couples.

The woman challenged the Defense of Marriage Act, saying that the federal government deprived her of her property without due process of the law. If she is successful and the court rules in her favor, same-sex couples who are legally married in one of the 12 states that permits it will have access to tax benefits, which will likely have a big impact on their estate plans.

As the ruling approaches many couples are hoping that a favorable ruling will help untangle some of the mass of legal documents and property arrangements that they have needed to share property and other assets.

As it stands, even legally married couples must execute air tight wills and trust documents to insure that their spouse inherits instead of children, siblings, or other family members. Since the tax liability still exists, it is often advisable to take advantage of gift tax exemptions and structure the estate in a way that maximizes those opportunities. All of this can be done with the help of an experienced estate planning attorney.

Source:Wall Street Journal, “Advisers Bolster Same-Sex Estate, Tax Planning,” Arden Dale, May 30, 2013.

Can charitable giving help avoid conflict for your heirs?

As we’ve discussed in the past, one of the important parts of estate planning is helping family to avoid conflict after you pass away. It is a difficult time for any family, and a good estate plan can offer guidance and make the process of settling unresolved affairs much easier.

If avoiding conflict and finding a meaningful way to create a legacy is the goal, then Texas residents may want to consider a plan that involves giving assets to charity. This is one way to establish realistic expectations about the future and set a good example for future generations.

Focusing on philanthropy is the approach of many notable individuals from Bill Gates to Warren Buffet. The two businessmen have repeatedly publicised their plans to give away a majority of their wealth to charity while encouraging their family to work hard and make their own contributions. In fact, many help give younger generations a sense of purpose and importance by establishing a family foundation where everyone works together to help the community.

There is certainly no one-size fits all approach to estate planning, but making a proactive plan to avoid conflict is advisable in many situations. Setting up trusts during life and allocating funds to different causes using a will is one way to make sure that everyone in the family understands what they are getting without concern about dividing it up themselves. The important thing, as always, is to have a detailed plan and properly executed documents to avoid confusion or a prolonged probate process.

Source:CNBC, “Smartest Decision Ever Made by Bill Gates, Warren Buffett,” Constance Gustke, June 3, 2013

Including important details in your estate plan

At the most basic level, estate planning is about having the power to decide what happens to assets after you pass away. There are many people for whom this is not a major concern, perhaps because they have a small family with good relationships or perhaps because they don’t believe that they have enough wealth to justify creating an estate plan. However, when you take a closer look it is easy to see that even people in these types of situations have reasons to create an estate plan, one of which is to make life easier for friends and family. 

Beyond worrying about whether children will be happy with what they are given by a will or a trust, when these documents are properly executed they create certainty. Estate planning documents also provide helpful information that friends and family may not know about finances, such as what sorts of debts you hold and whether or not there is still a mortgage on your home. 

Leaving behind information about debts and obligations is equally as important as leaving behind firm plans for how to deal with assets. For example, family members who are not aware of a second mortgage or a car loan may not be able to find the correct information in time to stop a repossession or foreclosure, therefore unnecessarily forfeiting an asset or at least losing time and money to the legal process to retain it. Creating a detailed plan so that necessary information is available is relevant for people in many different financial situations.

Source:New York Times, “The Talk You Didn’t Have With Your Parents Could Cost You,” Tara Seigel Bernard, May 24, 2013.