Save Your Estate

Why should the government or anyone else direct what happens with your estate assets? Why should a court, a stranger, or someone other than your choice make the medical and financial decisions for you if you become sick and incapacitated? Why should anyone other than your spouse, life partner, or the one you choose make the decisions about your illness, hospital visits, your funeral and what happens to your estate?

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Ronald J. Cappuccio, J.D., LL.M.(Tax) is a tax and business attorney practicing since 1976. Ron is a Graduate of Georgetown University, the University of Kansas and the Georgetown University Law Center. He also studied at Exeter University, UK.

Ron protects business and individual taxpayers from IRS Audits, Tax Collections (including bank levies, wage executions) and IRS Appeals. Employee vs. Independent Contractor Issues, Manufacturer, Pharmaceutical and Restaurant and Pizza audits are a special area of emphasis.

Saturday, June 30, 2012

Living Trusts, Durable Power of Attorney Avoid tough Guardianship Court

A Last Resort
Here's a scenario that some family members sadly face: They contact their estate planning attorney to explain that an elderly relative is no longer able to care for himself or herself. Perhaps the family members just went to visit the loved one and found filthy living conditions, bills piled up, and little food in the home.
"We want to be able to help," they tell the attorney. "What can we do?"

The attorney asks: "Do you have a power of attorney so you can handle financial matters or a power of attorney or health care proxy so you can make medical decisions?"

Documents to Plan Ahead
A durable power of attorney is legal document that enables one individual todesignate another person to act on his or her behalf in the event the individual becomes disabled or incapacitated.
  • A financial power of attorney allows an individual to make decisions such as paying bills, handling investments and filing tax returns.
  • A power of attorney for health care, or a health care proxy, designates someone to make medical decisions for you if you are unable to do so.
A living will specifies which life-prolonging measures an individual does, and does not, want to be taken if he or she becomes terminally ill or incapacitated. These written instructions are made while an individual is still competent.
The requirements for these documents vary from state to state. If you move to another state or own homes in more than one state, check with your attorney to ensure your documents are valid

Unfortunately, the elderly relative never got around to executing those documents.
Because no one has a power of attorney or health care proxy, the family can turn to a court to have someone appointed as a guardian. (In some states, guardians are called "guardians of the person" and handle personal issues or "conservators" to handle financial issues.) If desired, there can be more than one person appointed -- one to handle financial matters and another to handle health care issues.
But the guardianship process can be time consuming, contentious, and expensive. It should be seen as a last resort after less drastic measures are examined.
Here are the basics of what happens when an individual wants to be appointed a guardian.
Before petitioning the court for guardianship, family members (or in some cases, concerned third parties) need to compile some documentation that shows the individual "lacks capacity" to care for him or herself. The process generally involves an evaluation from one or more physicians and other medical professionals, as well as sworn statements from witnesses and other written documentation. This evidence will be used in an attempt to prove to the court that the person is incapacitated.
Next, a petition is filed with the court. The individual (sometimes called a potential "ward") and other interested parties will be served with a summons or given notice of the proceeding. An incapacity hearing will be held to present the evidence. The potential ward has the right to an attorney and he or she (as well as other interested parties) can dispute the evidence.
Ultimately, the court will decide:
  • If the individual is incapacitated;
  • Who will serve as guardian; and 
  • What the responsibilities of the guardian will be.
The process can take weeks or months. (The family may be able to get an emergency guardian appointed on a temporary basis.) The court costs and legal fees can be expensive.
The court will examine the guardian's ability to be trusted to make either financial or health care decisions -- or both.
In some states, there are requirements to become a guardian. For example, a criminal background check may be required and a guardian may have to take a class after appointment to learn about the responsibilities. The guardian may need to be a state resident or a lineal descendant.
What if more than one person wants to serve as a guardian? In these cases, the court decides who is best suited for the position.
After an appointment is made, the guardian is monitored by the court and generally must file periodic reports. The guardian or guardians must make decisions about where the ward will live, what kind of medical care should be administered, and how finances should be handled.
This is a basic overview of the process. There are different types of guardianship and the exact procedures depend on state law.
Petitioning for guardianship is usually a difficult and painful decision. The elderly loved one may be angry about the decision and the loss of independence. In those cases, the proceedings can become adversarial.
How Can You Avoid this in Your Family?
In order to avoid court intervention, you should have certain legal documents drafted as soon as possible (see right-hand box). Choose the person(s) you want to make financial and health care decisions on your behalf. Having these documents in place is an inexpensive alternative to going to court for guardianship. Once a person is incapacitated and unable to make responsible day-to-day decisions, it is too late to get these routine documents drafted.
A guardian or conservator appointment can cost 10 times as much (or more) as getting the alternative documents executed. This is truly an example of why it is better to plan in advance, rather than waiting until a situation is out of control.

Friday, June 15, 2012

Wills- Giving Family Possessions and Treasures

Planning for Possessions
Accumulated over a Lifetime
In the days after a person dies, some family members may decide to take matters into their own hands. These individuals may have a key to the home and decide they are going to take items they want. Before the will is even read, furniture, jewelry, artwork and other items may disappear. Cash around the home may be grabbed. In some cases, trash bags of stuff are hauled away.
"Textbook Example of Headaches, Heartaches and Expense"
   Without specific estate instructions concerning asset distribution, family members can be left guessing what a deceased person would want -- or decide what to do themselves.
In one case, a Michigan probate court had to step in and resolve bitter disputes by distributing numerous items. The court called it "a textbook example of the headaches, heartaches, and expense that can result from inadequate estate planning."
Facts of the case:According to court documents, Barbara Waters was divorced and living with Kevin Goethe when she died. She had three children from a previous marriage and he had one son.
Goethe built and furnished the house. When the couple moved in together, they combined household furnishings. Then, they purchased items together and individually.
Goethe proposed and purchased an engagement ring but the couple never married. "Ms. Waters was diagnosed with cancer and told Mr. Goethe it would be unfair of her to marry him because of her illness," according to court documents.
Waters made out a handwritten (holographic) will and signed it "Mom." Upon review, the court stated the document did not meet the state's legal requirements and was therefore invalid.
Weeks after Waters' death, her children moved out of Goethe's home. He packed some belongings and left them on the front porch for the children to pick up. He was not home when they arrived. The children gained entry to the house through another relative. They removed "almost everything they thought was their mother's."
   Goethe testified the house was "ransacked." Family photographs were removed. One photo was ripped in two, with Goethe's image returned to the frame and Waters' image taken.
   The Probate Court called the children's actions "offensive." It then made decisions to divide the items, including:
  • A jewelry chest and small kitchenware had to be returned to the estate by Goethe. However, some items of jewelry were determined to be gifts from Waters so Goethe got to keep them.
  • Photos were ordered returned or duplicated at estate expense.
  • Goethe had to pay the estate $125 for a sewing machine he sold.
  • A family pet was claimed by both sides. Goethe was awarded the Maltese Terrier "in lieu of compensation for items which either disappeared from his house or items to which he might have had a reasonable claim."
    The judge stated the court could not adopt either "extreme position" -- that everything in the house belonged to Goethe or that the children were entitled to anything connected with their mother.
   He added: "there is a difference between saying or writing down what you hope will happen and taking the proper legal steps to assure that a court will enforce your intentions." (Waters, Probate Court for the County of Marquette, No. 10-31879-DE)
Family feuds may erupt when other beneficiaries find out items are missing.
In some families, nothing brings out greed and long-time resentments like divvying up sentimental items that remind adult children of their childhoods. The situation can become even worse if it involves divorce, a blended family, or an unmarried couple.
Splitting up material possessions among family members can be more acrimonious than dividing up financial assets. If there are four heirs and a bank account worth $10,000, it's easy to divide it with each person receiving $2,500. But how do you divide a diamond ring or antique teapot four ways?
Unfortunately, some families wind up incurring large legal expenses over non-titled items that have more sentimental importance than monetary value.

To help avoid this in your family, here are some Q&As about how the executor collects and distributes the assets in an estate.
Q. Exactly how are assets distributed?

A. Here is a brief rundown of the process. After the will is read, the executor must inventory and gather the assets of the estate. Appraisals may be needed for items of value, such as jewelry.
An estate bank account is opened up by the executor, who also obtains a tax ID number. The various accounts of the deceased person are then transferred to the account.

The executor must pay creditors, file tax returns and pay any taxes due. Then, he must collect any money or benefits owed to the decedent. Finally, he or she distributes the remainder in accordance with the will. The executor generally exercises discretion in distributing personal and household items. (Unwanted items must be disposed of or donated to charity.)

Q. How long does it take before assets in a will are given to beneficiaries?

A. Generally, beneficiaries have to wait a certain amount of time, say at least six months. That time is used to allow creditors to come forward and to pay them off with the estate assets. (In some cases, an executor may make partial distributions to the heirs after he or she estimates the debts. However, if the estimates are wrong, the distributions can be called back.)

Q. What happens in the time between when a person dies and the assets are finally distributed?

A. The executor must handle the everyday tasks of the estate to preserve the assets. For example, if there is a home that needs to be sold, the executor must be sure to make mortgage payments, as well as pay insurance premiums and utility bills. (Foreclosure can be started if a few mortgage payments are missed.)

Q. What if a relative has a key to the home and goes in to take items he or she wants?
A. The executor should inventory the assets as soon as possible -- before family members get a chance to remove items. If a valuable or important item is taken, and the person responsible refuses to return it, a court can step in to order the item back into the estate.
If the executor knows there are outstanding keys to the decedent's house, or is concerned about someone coming in without authorization, the locks should be changed.
Q. What happens if the beneficiaries are not satisfied with the way the executor distributes personal items? Or what if the heirs suspect the executor has taken or hidden certain valuable items for himself or herself?
A. The beneficiaries can request an informal accounting of the assets from the executor. If the executor refuses, or the beneficiaries are still not satisfied, they can petition the court for a mandatory accounting. Consult with your attorney about how to proceed.
Q. What can I do to prevent these types of disputes from occurring after I die?
A. There are a number of steps you can take:
  • Give away gifts while you are still alive.If there are specific items you want to loved ones, present them now. In other words, get them out of your estate. It can be rewarding to see your prized possessions go to individuals who appreciate them. Depending on the size of your house, you may have thousands of items. Throw away or donate things you no longer need. (A donation to a qualified charity may result in a tax deduction.)

  • Make specific bequests in your will or in a letter of intent. If you want your car to go to your daughter or your golf clubs to go to your grandson, put it in writing. Without detailed instructions and guidance, the executor may have to devise an equitable system for distributing your possessions. That can place a large burden on the executor and lead to disputes among your heirs.

  • Choose your executor carefully. The executor generally exercises discretion in distributing personal and household items. So it's important to name a trustworthy person with a fair, impartial, reasonable personality -- especially if there are sibling rivalry issues. You want someone who will fulfill your intentions. The right executor can reduce the chance of litigation.
No matter who you name as an executor, the individual will appreciate clear, written instructions.

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Thursday, June 14, 2012

Same Sex Couples - Federal Estate Tax Marital Deduction

Gay/Lesbian Married Couples may get same Estate Tax Treatment as Heterosexual Couples

Edith Schlain Windsor v. U.S. (DC NY 6/6/2012) 

A Federal District Court in New York ruled in favor of a surviving same-sex spouse's constitutional challenge to section 3 of the Defense of Marriage Act, which denies recognition of same-sex marriages for purposes of administering Federal law. The court found that this provision violates the equal protection clause of the Constitution. As a result, it allowed a marital deduction to the estate of the deceased same-sex spouse for the amount she left to the spouse who brought this suit.

This case, which was not defended by the Obama Administration, held a NY lesbian couple that got married in Canada were entitled to the spousal estate tax deduction. Ultimately, until it is decided by the US Supreme Court, planning for same-sex married couples is still difficult. Stay tuned...