Washington Estate Planning & Dispute Resolution Advisor

2012 Estate Planning

By Timothy C. Burkart on Posted in Beneficiary Designations, Power of Attorney, Trusts, Wills

The Mayans contend our world will expire this year, but you may want to hedge your bets and plan for the possibility that our world will still be here this time next year.  So what should you be aware of this year?

Powers of Attorney.  Powers of attorney are constantly evolving due to the changing nature of what we own or how we manage our lives or because some institution comes up with its own interpretation of the law.  The medical privacy regulations under HIPAA should be referenced in all health care powers of attorney.  Digital commerce and social media (online financial accounts, LinkedIn, Facebook, etc.) are relatively new areas and your agent should have specific authority to manage your online accounts and life.  Assets like life insurance policies, retirement accounts, etc. can also present problems for an agent acting under a power of attorney who does not have specific authority to manage those assets.  For example, it may be appropriate to change the investments in a retirement of an incapacitated person or change the designated beneficiaries.  You should name guardians for your minor children in your power of attorney and someone to make health care decisions for them if you are not available.

New Washington Trust Act.  New legislation effective 1/1/ 2012 requires trustees to notify all beneficiaries of the existence of a trust that became irrevocable after 1/1/2012.  More important, the trustees of all irrevocable trusts, regardless of when they became irrevocable, must account annually to the current and remainder beneficiaries of the trust and provide them with sufficient information to enforce their rights in the trust.  This is an increased burden on trustees as the prior law allowed the grantor of a trust to wave the annual duty to account in many cases.  Failure to comply with the act, may subject the trustee to liability to the beneficiaries in the future for errors committed years before.

Estate and Gift Tax.  This is the last year of the interim estate, gift and generation-skipping transfer tax laws agreed to by Congress and President Obama.  Each taxpayer has a credit or exemption against those taxes equal to a maximum of $5.12 million in 2012.  A married couple who has not made any taxable gifts could jointly transfer over $10 million free of gift tax in 2012.  Moreover, since Washington State does not have a gift tax, gifts made during life do not reduce a person’s $2 million credit against our state estate tax.  The transfer tax laws after 2012 are uncertain and nothing will likely be done before the election – if you are considering making large gifts, this would be a good year to do it.

Self Prepared Estate Plans

By Timothy C. Burkart on Posted in Trusts, Wills

All of us, at one time or another have tried to save a few dollars by doing it ourselves.  However, there are many things in life we just should not do ourselves (brain surgery?).  Often, the small amount of money spent on an expert up front can save many times that amount later.  I once read of the man who rented a Bobcat (a mini bull dozer) to do his own landscaping.  He had gotten an estimate of $5,000 to do the work, but he thought he could do it himself for less money.  After renting the Bobcat, paying landscaper to repair the damage he had done and to do the landscaping, the total cost was $8,500.

I have had similar experiences with clients who try to do their own estate plan.  Agnes has four daughters.  She gave her house to her oldest daughter, Jane, with the understanding that she would share it with her sisters when Agnes died.  Agnes continued to reside in the home.  Unfortunately, Jane’s husband subsequently declared bankruptcy and for a while there was a real risk that his creditors might be able to go after Agnes’ house.  Fortunately, that didn’t happen, but we had Jane transfer the home back to Agnes and then had Agnes execute a Will providing for the disposition of her property that she desired.  In addition to the creditor problem, the transfer to Jane prevented Agnes from deducting the real estate taxes on the home, she lost the property tax exemption available to senior citizens, and she could not have borrowed from the equity in her home if she needed it.

Fred was another do it yourselfer.  He prepared Wills for himself and his wife, Mary.  The Wills said that all of the assets of each of them would pass to a revocable trust at their deaths.  Not a bad plan, except Fred never created a trust so when he died his assets passed as if he did not have a Will.  In this case, all of the property was community property and it all passed to Mary at Fred’s death, but had Fred had significant separate property, half of it would have passed to his children and would not be available for Mary’s support during her lifetime.  Moreover, Fred’s plan wasted his estate tax credit and so his children may have to pay significantly more estate tax when Mary passes away.

In the interest of full disclosure, many attorneys need help with their estate planning and may, in fact, be the worst offending do it yourselfers.  George was a lawyer/businessman and he proves the idiom that a lawyer who represents himself has a fool for a client.  George drafted his own revocable trust and in one section he said that a certain share of his estate will pass to his wife and in another section he said that same portion will pass to his children.  Moreover, there are numerous other inconsistencies in his documents that have greatly increased the cost of administering his estate and, should his heirs disagree, may cause very expensive litigation.

All of us should be informed consumers of legal services and we should all get good value for our money.  Creating a valid estate planning document is easy; the hard part is to create a document that is appropriate for your estate plan.  Don’t save pennies now that will cost your heirs many dollars later.

Joint Accounts, Beneficiary Designations, Powers of Attorney

By Timothy C. Burkart on Posted in Beneficiary Designations, Power of Attorney

Paul Simon tells us there are at least 50 ways to leave your lover, but heed the sage advice of Neil Sedaka – “breaking up is hard to do.”  Relationships do not always work out.  Washington law presumes that you do not want your ex-spouse to benefit from your estate, serve as your executor, trustee or agent.  The problem is that presumptions can be rebutted and the mere passage of time without changing your Will or other documents might be argued as intent to not have the presumption apply.  Washington law does not affect certain employee benefits governed by federal law, so you cannot be sure if the beneficiary designations are changed.

Except for registered domestic partners, Washington law also has no affect on any provisions you may have made for someone to whom you were not married.  Perhaps you designated your partner or significant other as the beneficiary of your employer-provided life insurance or your retirement account.  Finally, do not assume your divorce decree covers everything; we have had more than one case where an ex-spouse received a client’s retirement account to the detriment of the rightful heirs because the client never changed the beneficiary designation.

As soon as Lee drops off the key or Gus hops on the bus, remove your ex’s name from all bank and brokerage accounts, credit cards and other forms of joint credit that you may have.  Check your Will or Trust, and Durable Power of Attorney to make sure those documents coincide with your current wishes.  Often, people do not want their ex to be a beneficiary or fiduciary under their estate planning documents, if that is the case, you need to revise your documents.  More important, if you do want your ex to be a beneficiary or serve as a fiduciary for you, you need to revise your documents to rebut the contrary presumption under Washington law.  Check all your beneficiary designations – life insurance, including employer provided life insurance, retirement accounts, pensions, etc.  Finally, check the deeds to your home and other real estate to make sure they are consistent with your new life.

While it is fine to tell Stan you’ve made new plans, follow the above recommendations and don’t make breaking up any harder than necessary.

Premarital Agreements, Second Marriages

By Timothy C. Burkart on Posted in Divorce, Premarital Agreements

Frank Sinatra says that love is wonderful the second time around, but the couples’ estate planning can be complicated.  Often, each person has an established career and/or significant assets.  While each of them may be ready for the emotional ties of marriage, the economic ties give some pause for thought.  The good thing is that people entering into second marriages often have “both feet on the ground” and are able to talk openly and objectively about how they want to manage their finances during their marriage, and the provisions they want to make for each other and their heirs at death.

Premarital agreements are common in remarriages – a couple can clarify what each has, how they want to handle living expenses, how they may acquire assets together, and what happens to each of their assets at death or divorce.  Frankly, whether a couple signs a premarital agreement or not, it is critically important for them to discuss the financial side of their marriage.  The community property laws can complicate things for remarriages.  Often it makes sense for couples to agree to keep not only their assets separate, but also their income.  For example, without a premarital agreement, a person’s salary is community property.  Thus, post-marriage employee benefits and contributions to retirement accounts and the growth of those contributions would be community property, while the account balance on the date of marriage plus growth would be separate.  This can create an accounting problem in the event of death or divorce.  Another problem is making sure the survivor of a married couple has sufficient assets to live comfortably, while also taking care of your children and grandchildren or other heirs.

When kids have to wait for their step-parent to die to get their inheritance, it can be awkward for the step-parent and the kids.  Our experience is less that the kids’ begrudge the step-parent the use of the assets, but rather they fear those assets will end up with the step-parent’s family.  Yet, often your spouse needs access to your assets to live comfortably, and this is when good planning can minimize suspicion and/or hard feelings between your spouse and your heirs.  An example of a bad plan would be for dad’s Will to give everything outright to step-mom, as dad’s children will have little assurance of receiving their inheritance and they may be tempted to challenge dad’s Will.  A better plan is to use a properly drafted trust for the step-parent administered by an independent trustee.  Such a trust can allay a lot of suspicion and fulfill the dual goals of providing for your spouse and your children.

These are many important issues to consider the second (or third . . ) time you fall, but consulting with competent counsel will help assure that you’ll be glad you met “the second time around.”

Transferring Assets to Children

By Timothy C. Burkart on Posted in Beneficiary Designations, Wills

Parents usually pass their property equally to their children at their deaths, but sometimes “equal” is not “fair” and may cause serious rifts in the family.  Consider that Hank and Marilyn’s business owes much of its success to the efforts of their daughter, Mary; or that Fred and Evelyn’s family vacation home would not exist were it not for the efforts of their son, Bill; or Dick and Agnes who face the difficult task of providing for their autistic son after they pass away.

Co-owning real estate or a family business can be difficult, even in the best of families.  Using a limited liability company or, to a lesser extent, a tenancy in common agreement may help, but problems can persist.  There is often tension between shareholders who work in the family business and those that do not.  Moreover, a child may have earned a share of an asset through “sweat equity.”  Parents need to balance the needs of their special needs child against the needs of their other children.

We work with clients to develop a plan to deal with these situations.  We strongly advise them to discuss the plan with all their children so the children can understand why they are making an unusual disposition of their assets.  Otherwise, the children who receive less may feel their parents were unduly influenced or that their parents loved them less than their sibling.

Besides rewarding “sweat equity,” the parents’ Wills could also give a child the right to buy out his or her siblings’ shares of an asset.  Thought must be given to the method for determining the buyout price and the ability of the child receiving the asset to fund a buyout.  An otherwise great plan can founder if the parties cannot agree on price or the child who is buying cannot afford to do so.

The bottom line is that a well thought out plan that is fully disclosed can allow parents to manage their children’s expectations and avoid disputes down the line.