Death Tax Repeal Act – Like a Broken Record

Just like President Obama’s repeated budget proposals that would decrease the federal estate tax exemption and increase the estate tax rate, the House-sponsored Death Tax Repeal Act (H.R. 2429) is like a broken record.  Rumor has it that now that the House has garnered enough backers for H.R. 2429 to pass it (the bill currently has 221 co-sponsors, including three Democrats, which brings the total three above the number required for a House majority), supporters are pushing for a vote on the bill as early as September.

The name of the bill clearly states its purpose – to completely eliminate the federal estate tax (although getting rid of the “death tax” simply sounds more ominous, doesn’t it?).  The generation-skipping transfer tax would disappear too, but the gift tax would remain with a $5 million lifetime exemption indexed for inflation and a 35% tax rate.

So why is this bill like a broken record?  Because there have been dozens of bills introduced to repeal the federal estate tax since President George W. Bush was successful in doing it in 2001, although his repeal didn’t even go into effect until 2010 and the tax ended up being retroactively reinstated anyway.  There is even a companion bill in the Senate, S. 1183, also called the Death Tax Repeal Act, which has 38 co-sponsors (all Republicans).  The thought is if the House passes their death tax bill in September and the Republicans take the Senate in November, then the Senate will finally have enough votes to get a death tax repeal bill passed.  Of course, even this happens – it won’t, but for the sake of argument, let’s assume it does – President Obama will veto the bill.  End of story, back to square one, and the ballad of death tax repeal will continue to play on, just like a broken record.

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Beware: Joint and POD Accounts Can Ruin Your Estate Plan

While accounts or real estate titled jointly with your children or other beneficiaries or made payable on death (POD) to your children or other beneficiaries will avoid probate after you die, they may end up creating problems that cannot be easily undone.

For example, if you have three children but only one of them is listed as a joint owner on your bank account or real estate, then the child listed on the account or deed will inherit the entire account or property after you die to the exclusion of your other two children.  This means that the child who inherits the account or real estate will have absolutely no obligation to share the property with his or her siblings and, worse yet, even if the child agrees to share, then the child will be making taxable gifts to your other children.  Keep in mind that this will happen even if your will or trust states that  all of your property is to go equally to all three of your children.

Here’s another problem with joint accounts – what will happen if the child listed on your bank account or deed is married and gets divorced or gets sued?  Then it’s possible that some or even all of the property could become subject to a divorce settlement or judgment lien, thereby wiping out the bank account or tying up the real estate when you decide to sell it.

And here’s a problem with POD accounts – what if you name a grandchild as the POD beneficiary of your bank account or real estate and the grandchild is still a minor when you die?  Then a costly, court-supervised guardianship or conservatorship will need to be set up for the grandchild which will remain in place until he or she reaches 18, at which time the grandchild will receive the property outright and without any strings attached.

And finally, one last POD problem – what if you name all three of your children as POD beneficiaries of your bank account or real estate and one of your children predeceases you and you never update the POD designation or deed?  Then your two surviving children will inherit the property to the exclusion of the children of your predeceased child (your grandchildren).

These are only a few examples of how joint accounts and POD designations can ruin your ultimate estate planning goals.  The only way to insure that all of your property will pass to all of your intended beneficiaries in the way you expect it to pass is make sure the ownership of your accounts is coordinated with your will or trust.

Do You Still Have a Last Minute Vacation Estate Plan?

It’s that time of the year again – time for estate planning attorneys to slap together a few quickie, last minute estate plans that are signed in a hurry right before mom, dad and the kids head out for summer vacation. While I’m sure that statistically speaking the odds of dying while you’re on vacation aren’t any different from the odds of dying when you’re not, for many the family vacation is the tipping point for deciding to get their final affairs in order.

Don’t get me wrong – I really do believe that anything that motivates someone to put together an estate plan is a good thing. But what I find to be the biggest problem with a last minute vacation estate plan is that in many cases the plan is viewed as a “stop gap plan” to cover the bare minimum and will be updated to a more comprehensive plan when the family returns from vacation. And then low and behold, the quickie plan is thrown in a drawer where it sits for years and is never updated, and when the time comes to use the plan it fails miserably.

I have one favor to ask – when you return from summer vacation, please pull your estate planning documents out of the drawer, dust them off, and see if they still make sense for you and your family.  If the documents were signed in a hurry right before you went on vacation, then chances are they will be out of touch with your current personal and financial situations.  Of course, the same goes for any estate planning documents that are more than a few years old, since significant changes have been made to federal estate tax laws since 2010 and the plan that made perfect sense in 2010 may create a mess in 2014.  The same goes for state estate taxes – there have been lots of changes recently to those laws too.  Thus, there’s no time like the present to get your estate plan up to date.

Photo: Old Savannah Cotton Exchange, Savannah, GA (can you guess where I went on vacation?)

3 Tips for Making Your Estate Plan Your Decision

Many people struggle with all of the decisions that they have to make when putting together their estate plan: Who should get what? When should they get it? Who shouldn’t get anything? Who should be the executor? Who should be the trustee?

All of these decisions can be overwhelming, even for someone who has what is considered a “normal” family, but they don’t have to be.  In the wise words of Jerry Cantrell of Alice in Chains, it’s your decision.

If you’re stressed out about how to plan your estate, then don’t despair.  Here are three tips for making your estate plan your way:

Tip #1 – Don’t be afraid to disinherit someone. It’s your money, so you can choose to leave it, or not leave it, to whomever you want. But beware – being bullied into making your estate plan a certain way by a certain individual and not the way you really want it (for instance, leaving everything to one child to the exclusion of others at the insistence of that one child) will result in family discord.  If you really want to disinherit someone, then that’s your prerogative, but if someone bullies you into disinheriting someone else, then in extreme cases this could amount to “undue influence” and lead to an ugly will or trust contest. If you truly want to disinherit someone, then work closely with your estate planning attorney to insure that not only will your final wishes be carried out, but your plan will be bullet proof from challenges.

Tip #2 – Choose your executor and trustee wisely. Here are the traits you should look for in your executor and trustee:  loyal, fair, practical, trustworthy, organized and tough.  If you choose a person who has most of these traits, then your final wishes will be fulfilled, but if you choose a person who has only one or two of these traits, then your final wishes will take a back seat to their own agenda.  Better yet, choose a corporate trustee, such as a bank or trust company, to put these important jobs in the hands of professionals.  Otherwise it may be way too easy for Uncle Bob to skim some off of the top or for your loved ones to convince Uncle Bob to disregard your wishes.

Tip #3 – Listen to your estate planning attorney.   While a good estate planning attorney will listen intently so that he or she can learn about your greatest concerns and challenges when it comes to planning your estate, you should also listen to your estate planning attorney because he or she can offer some good advice and solutions to ease those concerns and overcome the challenges. And while sometimes what your estate planning attorney says may not be what you want to hear, your attorney’s advice, which comes from years of experience in similar situations, may very well head off a family feud or a will or trust contest.