Dear readers,

I have moved my Estate Planning Blog over to my law firm website.  Head on over to the new location of my blog for future posts here.

Thanks for reading.

Sincerely,

Jim Anderson

Joel Schoemeyer is at it again with his easy to understand estate planning podcasts.  Joel is an estate planner in Illinois and he posts very helpful information at his blog Death and Taxes.  This particular podcast focuses on wills, it includes some great information about what a will is and what it can do for you.  To listen to the podcast click here.

This podcast is a great reminder that wills are powerful instruments, they tell the world to whom you want your assets to pass, nominate guardians for your children and nominate someone to be your personal representative.  A personal representative, or PR, is someone who will be in charge of carrying out your wishes laid out in your will and making sure all taxes and final debts of your estate are paid.  To find out what happens if you don’t have a will click here to see my previous post on just that subject. 

If you or someone you know is interested in learning about wills or any other aspect of estate planning I strongly recommend contacting an attorney you trust to learn more.   Feel free to contact me at james@jtandersonlaw.com if you have any questions, I am happy to make housecalls and as always the initial one hour consultation is free of charge.

I am in the process of creating a presentation to inform people about the basics of Wills and Trusts.  The presentation is meant to be an informal and fun way that people can learn about estate planning.  I will be covering topics similar to what has been posted on this blog but would also like your feedback as to what you want to know.

Please email me with any suggestions or questions you have.  You can reach me at james@jtandersonlaw.com.  I think it’s important that I cater to my audience, which is you!  What have you heard about the laws regarding wills and trusts?  Are there rumors you have heard that you want either confirmed or busted?  So please let your voice be heard so I can directly cover your questions. 

Further information about these presentations is upcoming as I turn my ideas and enthusiasm into an easy to understand program.

A few weeks ago I wrote about ways to avoid probate, in that post I mentioned that property that is jointly owned passes outside of the probate process.  It sounds like a great way to pass your real estate to your children and save money in the process. 

Mina N. Sirkin wrote a great post over at her Law Firm Marketing & Management Systems blog covering this topic.  If you would like to read her post click here.  Basically it boils down to this; when you hold real estate in joint tenancy with someone their problems can become your problems. 

If your child has a judgment entered against them your real estate could have a lien placed on it to satisfy the judgment.  Satisfaction of that judgement could result in having to sell the home to cover the lien.  The other large problem is if you decide you want to sell your home you will need your child to consent to the home.  That issue can be compounded if the child is married, then you will need your child and your child’s spouse to agree to the sale. 

On top of the possible family strife involved the tax basis can also be an issue.  If mom and child hold real estate in a joint tenancy and mom passes away then the child will only receive a half step up in basis.  Here’s an example:  Say mom buys the property for $100,000 adds the child to the title as a joint tenant and when she passes away the fair market value of the property is $500,000.  Mom’s half of the real estate is transferred to the child and that half gets the step up in basis ($250,000) and now the child holds the real estate all by herself.  The child’s half still has the basis it started with, $50,000, and added to that is the half that got the step up in basis, $250,000, for a total basis of $300,000.  So now if the child sells the property for fair market value of $500,000 she would have a taxable gain of $200,000.  (Sale price $500,000 minus basis $300,000 = $200,000 taxable gain)

Contrast that with what would have happened had mom held the property all by herself and then the child inherited the property from mom after she passed.  The child would receive the property with a stepped up basis equal to fair market value, $500,000.  Now when she goes to sell the property she would not have any taxable gain.  (Sale price $500,000 minus basis of $500,000 = $0 taxable gain)

The moral of the story is that you should carefully consider the pros and cons of holding real estate in joint tenancy.  The legal and tax ramifications can be severe.  Proceed with caution!

The American Bar Association (ABA) has created a list of 10 myths about Health Care Directives and Living Wills.  The names of the documents the ABA refers to is a little different than the names we have in Minnesota.  When the ABA refers to an Advanced Directive it is the same thing as a Health Care Directive in Minnesota.  Take a look at the list as it offers some very helpful information.  Click here for the list.

My firm, the Law Office of James T. Anderson can draft a Health Care Directive for you, either as a part of a comprehensive estate plan or as a stand alone document.  Health Care Directives do not require a lot of time to draft and are therefore an inexpensive way to ensure your health care withes are followed.

If you would like to talk to someone about drafting a Health Care Directive please contact an attorney familiar with these documents.  As always I am happy to talk to anyone, free of charge, about Health Care Directives or estate planning in Minnesota.  Click on the link to my Law Firm’s website at the right for contact information.

Joel Shoenmeyer provides a great overview of estate planning in his first podcast from his “Death and Taxes” blog.  Click on the podcast link to head over to his blog and listen to the podcast.  Joel is an Illinois estate planner and he will have podcasts covering a more in depth look at estate planning in the future.

Avoiding probate sounds like a great idea, so why doesn’t everyone structure their affairs to avoid probate?  Well before we jump in to that topic we need to define probate.  Probate is the legal proceeding through which assets will be transferred in accordance with a will or intestacy laws.  Sound familiar, well it should because I defined probate in my previous post on documents in a simple estate plan.  Key to all of this is the definition of the assets in a probate proceeding, known as probate assets.  Probate assets are those assets that are titled in your name only and do not pass automatically.  Assets that have beneficiary designations will pass by their own terms automatically and are therefore not probate assets.  Trusts can operate in the same way as re-titling assets with beneficiary designations, this will be discussed later in the post.

How to avoid Probate

Ok, so we know what proabte and probate assets are, so how can you avoid probate?  One way to completely avoid probate is to title all of your assets so they have a beneficiary designation and will therefor pass automatically to the beneficiary upon your death.  For example if your assets consisted of a parcel of real estate, a life insurace policy, a 401k plan and various personal items (valued less than $20,000 at date of death) it would be possible to avoid probate by:  Titling the real estate in a Joint Tenancy with Rights of Surviorship, designating a beneficiary (other than your estate) on the life insurance and 401k plan.  At your death all of these assets would pass automatically outside the probate process and your descendants could collect the personal items through an affidavit filed with a certified copy of the death certificate.

Sounds great doesn’t it?  Not so fast, the problems with a plan to avoid probate simply through titling assets are numerous.  For starters this plan assumes that all descendants will agree as to whom will collect the property and how it will get split up.  Maybe Johnny and Tommy both want dad’s old pick-up truck and Suzie and Mary want the family bible.  Family arguments over the distribution of property are more common than many people believe.  If the family members cannot come to an agreement over the distribution of the assets they could end up in probate court with an expensive fight on their hands.

Beyond the family problems, titling assets in joint ownership will not take advantage of a “step up in basis” for the assets.  Basis is the original or acquisitonal value of an asset.  When an asset is sold gain, for tax purposes, is calculated by subtracting the basis from the sale price.  For example, imagine that mom owned a piece of real estate that she purchased for $10,000.  If she were to sell it for $40,000 she would have a gain of $30,000 ($40,000 – $10,000).  If mom titled that asset as a joint tenancy with son and mom dies, the son gets the property with a basis of $10,000.  This is known as a carryover basis.  Under the current tax law when property is inhereted the person receiving the property gets the property with a basis equal to the fair market value of the property, known as a stepped up basis.  So if the son inhereted the property he would have a basis of $40,000.  For our example we are assuming that the property is worth $40,000.  If son were to sell the property for $40,000 he would have a gain of $0 ($40,000 in basis – $40,000 sales price = $0).  Since there is no tax gain the son would not have to pay taxes on the sale!

A better way to avoid Probate

So we’ve seen one way to avoid probate, a process that is fraught with pitfalls, but other options exist and they are not complicated.  The other way to avoid probae in Minnesota is through the use of trusts.  Trusts transfer property outside the probate process because the assets in the trust are titled in the name of the trust.  When a trust is created the assets used to fund the trust are re-titled and the trust becomes the owner of those assets.  Of course cash can be used to fund a trust, usually done by opening a bank account in the name of the trust and transfering money into the account. 

Using our previous example mom would set up a trust or trusts with the help of an estate planning attorney to take care of her assets.  This brings us to a choice for mom, she can either create a revocable trust or a testamentary trust.  This topic is beyond the scope of this post and will be handled in future posts.  Regardless of the choice of trusts mom will be able to spell out her wishes as to how the assets will be handled.  The kids won’t have to fight over who gets what as mom would direct to whom each asset will pass.  But the downside is that the kids may not receive a step up in basis when they receive the property from the trust.

The ups and downs of avoiding probate

Avoiding probate has its pros and cons and we have only scratched the surface of the techniques and plans used to stay outside the probate process.  The stakes can be high when attempting to avoid probate, you could be missing the opportunity for a huge step up in basis and therefore subject yourself to large tax obligations.  Before you attempt to avoid probate or even try to decide if it is beneficial to you to avoid probate I encourage you to contact an estate planning attorney and have a meaningful discussion.  If you would like to discuss your options with me I can be reached at james@jtandersonlaw.com, or head on over to the website of the Law Offices of James T. Anderson.  I am always willing to sit down with people for a free one our consultation.  And please remember this is only general information, it is not legal advice.  Please seek legal advice from an attorney before attempting this on your own.

I was recently introduced to the idea of Will Parties by my financial planning guru, Mario Lucarelli.  So what in the world is a Will Party?  Do people get together to compare their wills, waving the paper over their head extolling the virtues of their estate plan? 

A will party generally consists of two things; a group of friends (usually couples) and an estate planning attorney.  The attorney discusses the benefits of having an estate plan and what could happen if they die without such a plan.  From there the will party can go a couple of different ways.  It could be simply an informational meeting or the couples could hire the attorney to draft their estate plan.

 The informational will party is exactly what it sounds like.  The group asks the attorney general questions about wills, trusts, health care directives and powers of attorney.  No specific fact patterns are addressed and no attorney-client relationship is created.  The attendees of the party are free to choose to hire that attorney at a later date, choose another attorney or not hire an attorney at all. 

The second type of will party consists of two separate meetings.  During the first meeting the attendees of the will party have the option to start an attorney-client relationship with the estate planner that very night.  The attorney meets with the individual or couple separately from the group to discuss their general planning goals.  These individual meetings are held in private so as to not endanger the privileged and confidential nature of such discussions.  The attorney then sends the clients home with some information and a survey to be completed later. 

After the first meeting the new clients fill out the survey, complete a retainer agreement and send the information back to the attorney.  Over the following weeks the attorney drafts the required documents all the while staying in contact with the clients to ensure they understand them and are getting what they need to meet their goals. 

After the documents have been explained to and approved by the client the second and final meeting is scheduled.  The second meeting functions as a will signing party.  The clients sign their documents and the other attendees of the meeting serve as witnesses to the documents.  After the documents are properly signed and notarized much rejoicing ensues and a good time is had by all.

A few ground rules must be observed for these will parties.  The first is that no alcoholic beverages are allowed to be consumed by either the attorney or the attendees when the attendees have decided to hire the attorney and they are discussing their individual goals or estate planning objectives or are signing their wills or witnessing the will.  This is enforced to avoid any claims of reduced capacity, as capacity to understand what you are entering in to is essential.  Additionally it must be understood by the attendees that just because they are speaking with an attorney about the estate planning process no attorney-client relationship is created until the attendee has signed a retainer agreement with the attorney. 

I believe will parties can be a fun and educational way to spend a few nights with close friends with the added benefit of taking control of your future.  The less formal setting can help reduce the stress and intimidation factor of estate planning.  Additionally many estate planners offer reduced rates for these will parties, with the hosting couple receiving an even steeper discount.  The estate planning process, which can include a will party, should be a comforting and enjoyable experience.  There are no such thing as dumb questions, everyone has different concerns and questions and they should be answered with the upmost respect for the person and their desires.  If you find the right attorney to assist you with this process it can be painfree and positive.

If you believe that a will party would be beneficial feel free to contact The Law Office of James T. Anderson at 952-356-6470 or email me at james@jtandersonlaw.com.  As always you have the choice as to which attorney or firm you choose to hire.  I am not the only estate planner in Minnesota that would be willing to assist with a will party or any type of estate planning.  After all, it’s your future and your personal business, contact an attorney with whom you are comfortable.

A simple estate plan generally includes the following documents; a will, health care directive and power of attorney.  But before we get to the good stuff it is important to know that this post, and the entire blog for that matter, is only general information and is not legal advice.  If you have questions or are interested in estate planning please contact an attorney.

Now that we have this out of the way lets get to the heart of the matter!

What is Estate Planning? Estate planning is the planning for care of one’s family and the orderly transfer of one’s property at death.  You get to decide how your assets are handled at death.    Estate planning can include tax planning for larger estates.   

 Wills: 

A will is a document that controls your probate assets at death.  Probate assets are those assets that do not pass automatically.  Assets that have beneficiary designations will pass by their own terms and are therefore not probate assets.   Probate is the legal proceeding through which assets will be transferred in accordance with a will or intestacy laws.  It is important to understand that simply having a will does not avoid probate; rather it usually makes probate easier and less expensive.   

Benefits of having a will:

• Control where your assets go after death and how they are handled
  • Items with sentimental value can be passed on to those that most appreciate them
  • You can include people in your will that would receive nothing under the intestacy statutes
  • You can exclude people from your will that would have received an equal share under the intestacy statutes
• Choose your personal representative(s)
  • The person(s) that will assemble the decedent’s assets, bills and distribute assets in accordance with the will
• Select guardian(s) for minor children
• Ability to differentiate between beneficiaries that may require more money or care
  • A child with special needs can be given more assets to assist with their needs
• You can create trusts in your will called “testamentary trusts” to set aside assets to care for loved ones
• Streamlines the passing of assets and reduces costs and expenses of probate proceedings

  What happens if I do not have a will when I die?

• The court will decide where your assets will go based on intestacy laws
• Your heirs will split up your assets equally without regard to what you believe is a fair distribution
• The probate process will likely be more expensive and time consuming than one that involves a will
• If your estate exceeds the taxable estate limits under Minnesota Law it may be subject to a much higher tax burden than one with proper tax planning through wills and trusts
• If you have children the court will appoint a guardian, one that may be different than whom you would choose

Health Care Directive: 

What is a health care directive?

• A health care directive is a document that explains the desires and wishes of a person regarding their health care
  • Often the document uses examples to spell out specific health care preferences for common situations
• Appoints a health care agent to make decisions for you in accordance with the document should you become incapacitated

Power of Attorney: 

What is a power of attorney?

• A power of attorney is a document that authorizes a financial agent (known as the attorney-in-fact) to act for the principal
• There are different types of POA’s, including, but not limited to, durable and statutory short form power of attorney
  • A durable power of attorney continues to be in effect in the event of incapacity
  • A statutory short form power of attorney is a standardized POA that allows the person to check the box and fill in the blank to decide what powers they want their attorney-in-fact to have
    • This POA is more likely to be recognized by banks and other institutions as they are usually familiar and comfortable with the statutory short form

 A simple estate plan is a great option for those who do not have a large estate, but each persons situation is different and an attorney should be consulted to determine what is appropriate for you.

Attorneys, financial planners, doctors, dentists, CPA’s and other professionals can be intimidating to their client base.  From the prospective of a professional this doesn’t make much sense.  After all we are people that are similar in many ways to anyone else in the working world.  The only real difference is perhaps a little more schooling and our chosen profession.  But as I think back to before I became an attorney I guess I can relate to this perspective.  But now that I have entered the world of the professional I see that humanizing myself to my clients is an important part of the job. 

A major roadblock to clients entering the front office door or picking up the phone and calling me can be that they are intimidated by my title as an attorney.  I have added to my professional growth plan the task of how to best get my clients to relate to me on a more human level.  Through some medium I must help the client understand that while I have had rigorous training and constantly strive to understand an implement the law for their benefit I am a person who is here to help them. 

As an example when I meet with clients I want to show them that we are in this together, that it is a collaborative process.  We can work together to navigate through the complex estate planning laws towards the ultimate goal of a solid plan that carries out their desires and wishes.  This can be helped by showing them that I am not some impersonal machine that takes in data and spits out a legal document that they sign.

Towards that end I may end up creating a pamphlet or something of the like that explains more about who I am.  It could tell clients where I am from, where I went to school, my hobbies, interests and why I care about their individual needs.  A handout like this could be distributed by me or other contacts of mine that clients could take home, read over and decide for themselves if I am someone they want to include in their planning.  That reminds me, I should update my website to include a little more about my personal life but I have yet to decide how much I should include.  I could add my interest in golf and basketball as these are common interests that would not likely turn off any clients.  But should I include my love for hunting and fishing?  Such hobbies may turn off some, but are those the type of people I want as clients?  I will continue to mull this over and may end up not including anything in my website.  Only time will tell.

The other marketing tactic I have taken is forming an estate planning and probate administration study group with a colleague of mine, Joel Mullen.  A few days ago I sent out an email to the solo/small and estate planning list servs asking if other practitioners would be interested in such a group.  The respone to date has been very exciting.  About 15 people have responded in a few days that they are indeed interested in forming an estate planning study group.  If half of the people follow through and show up willing to make a long term commitment we could really have something.  Hopefully it will grow into a group that is serious about improving their practice and helping others improve as well.