FAILING TO FACE FAMILY REALITIES (Mistake #4)

[Excerpt From Dwight's E-Book:  "The Seven Most Common Mistakes Made in Estate Planning"]

Only you know your family.  Be realistic and honest with your estate planning attorney when you meet with him or her.

Most families have problems, and it is important to understand that communicating the facts to your lawyer is essential.

The 2 big decisions made by clients in forming a will or a trust is the selection of a personal representative, and who will be the beneficiaries and what will they get.

In living trusts, the personal representative is called the "Successor Trustee".  It is not by mistake that trusts are called trusts.

In a trust, the person named to the Successor Trustee will manage the trust and settle the trust without court supervision in private.

The trustee you name has to be trustworthy.  It is a mistake to name the oldest son as the trustee just because he is the oldest son, especially if he has been in jail for theft-related crimes or has a bankruptcy on his record, or is known to have money problems.

Clients are often afraid to offend someone or violate traditions, or worse, they turn a blind eye to the drinking and drug problems of one of their adult children.

Many families face the same difficulties.  However, you want your estate to be handled honestly and efficiently.

Truthfully evaluate your family and pick the best trustee.  If there are no suitable family members as trustee, talk to your attorney about it, as there are alternatives.

Trustees not only have to be honest but capable.  All of us have family members who are extremely honest, but are not good managers.  You want to select a trustee who is honest and can handle your affairs when you pass away.

An experienced estate planning attorney will be of great help to you in evaluating your estate plan options.

To download the complete E-Book, visit my website at:  TOMPKINS-LAW.COM

Dwight Edward Tompkins, Attorney at Law

This blog is intended for information purposes only, and is not intended as a substitute for legal advice from a qualified estate planning attorney in your jurisdiction.

THE LAW IS AN ASS. DID DWIGHT JUST SAY THAT?

"THE LAW IS AN ASS" is the famous statement by the Charles Dickens character, Mr. Bumble.

A ridiculous set of tax rules are now in play that apply to people DYING IN 2010 ONLY.

That's right, these new tax rules only apply to people who die this year.

Among them is the one-year repeal of the "step up in basis" rule concerning a decedent's estate.

In simple terms, the "step up in basis" rule prior to 2010 allowed the "basis" in an asset of a deceased person to "step up" from the fair market value at the time it was acquired to the fair market value at the time of death.

For example, if grandfather had acquired stock in the company he worked for back in the 70's for $2 per share, his "basis" would be $2 per share. If the stock was worth $100 per share today, and he sold it, his capital gain would be $98 per share. If he was in the top tax bracket, that would be result in a capital gains tax of $14.70 for each share sold.

If grandpa died in 2009 (under the old rules), and left the stock to you, your tax basis would have been the value of the shares at the date of death. If the stock was worth $100 per share at the date of death, and you turned around and sold it for $100, there would be no capital gains tax.

If grandpa dies in 2010, you inherit grandpa's cost basis along with the stock, and you would be subject to the capital gains tax of $14.70 per share.

But, if grandpa hangs in there and doesn't die until 2011, the "step up in basis" rule goes back into effect and the stock would then have a $100 tax basis per share.

Of course, this assumes the government will not come up with some other silly rule before 2011.

To be fair, there is a partial replacement for the repealed basis step-up: Executors will be able to increase the the basis of estate property up to a maximum of $1.3 million for a single decedent or $3 million in the case of property passing to surviving spouse.

This sounds great, but consider this example.

A widow in 1970 uses life insurance proceeds to purchase income rental apartments for $100,000. She manages these apartments as her sole income while she raises her four children.

She dies in 2010, and the apartments are now worth FMV $2 million. Her four adult children don't want to manage the apartments and they sell the property for $2 million. They will have to pay capital gains tax on the $700,000 over the $1.3 million maximum allowable step up.

If she had died in 2009, they would have paid no tax.

The above examples and discussion have been simplified for purposes of discussion. There are other factors which affect cost basis, and could lessen the impact of the capital gains tax in some cases.

What is frustrating to estate planning attorneys and clients is how arbitrary the application of the law is, especially in this case, when the rules only apply to decedent's dying in 2010.

Maybe Mr. Bumble was right.

http://www.tompkins-law.com/

DWIGHT EDWARD TOMPKINS

Attorney at Law

This blog is intended for informational purposes only and is not intended as a substitute for legal advice from a qualified estate planning attorney in your jurisdiction.

WHAT IS THE DIFFERENCE BETWEEN A LIVING TRUST & A TESTAMENTARY TRUST?

Simply put, a Living Trust is a trust created by you while you are still living.

A Testamentary Trust is created by the court after you have died.

Living Trusts are sometimes referred to in Latin as an Inter Vivos Trust. Living Trusts avoid Probate because they are created and funded when the client is still alive. When the client dies, he or she theoretically do not own their assets because they are owned by their Living Trust.

Testamentary Trusts do not avoid Probate because they are created by the court during the Probate proceedings by enforcing the client's instructions in the client's Will.

The Living Trust is more commonly used by my clients because of the Probate avoidance feature.

Testamentary Trusts are usually employed when the client anticipates a Will Contest or other family problems, and desires that the court enforce the creation of the trust and the appointment of the trustees.

The decision to use a Living Trust vs. a Testamentary Trust should involve legal advice from a qualified Estate Planning Attorney.

If you have any questions, regarding this or other Estate Planning subjects, please visit my website at: http://www.tompkins-law.com

DWIGHT EDWARD TOMPKINS

Attorney at Law

This blog is intended for informational purposes only and should not be considered a substitute for legal advice from a qualified estate planning attorney in your jurisdiction.