Estate Planning and other legal discussions

Many of my clients seek advice on making charitable giving a part of their overall estate plan. This is definitely a good idea, not only for the chosen charitable organization, but also from a tax savings perspective. There are significant gift, income, and estate tax benefits associated with charitable giving. In order to make such a “gift”, however, you should be aware of a few requirements which must be met before your good intentions will result in a benefit to both the charity and the estate.

Usually, small gifts to charities don’t give rise to substantial legal issues. However, with larger donations issues arise such as how much to give in any given year; what’s the best time to make such a gift; should the gift be given outright or by way of a Trust; and which organization are the best ones to benefit.

You should first consider the type of charitable organization you want to make your gift to. Usually the organization is one that has given the donor (or someone close to the Donor) some sort of benefit for a long time. I often see churches and other religious organizations as one type. Here in Greenwich, public service organizations such as the Transportation Association of Greenwich (TAG), which provides transportation services for the elderly is another type. The key, however, is that the organization MUST be recognized as a charitable organization by the IRS and has been created and organized under the laws of the United States or a State. IRS Section 501 (c)(3) provides the details of these requirements. Therefore, be aware that although giving a donation to a needy family may be a wonderful act based upon a moral desire, it won’t get you any tax benefits.

So what is the tax benefit? Well, generally speaking, gifts of cash and property are deductible for income tax purposes. However, these deductions are subject to numerous limitations which you must discuss with your estate planner before proceeding. However, if the rules are met, the deduction can amount to an enormous tax savings.

From an estate tax perspective, gifts and bequests to charitable organizations are fully deductable for gift and estate tax purposes. Therefore, if your estate is lingering above the estate tax exemption limit, you may want to consider that donation to TAG or your religious organization to bring your estate value below the exemption limit. If your already planning on making a charitable donation anyway, why not consider the savings to the estate when determining how much to give?

Finally, you can make arrangements for charitable giving by using a Charitable Remainder Trust. In its most basic form, this type of Trust allows for the use of the property by the donor or his family members during his/their lifetime, then the property passes through the Trust instrument, to the Charity. In this scenario, usually the Trust is funded with income producing property in which the Donor’s family may enjoy the interest for a certain term and then the charity acquires the principal at a certain time. This type of trust can be complicated, but in an estate plan, you can kill three birds with one stone. A), it gets the estate a charitable deduction, b) it provided for family members for a specific period of time and, c) it gifts a substantial donation to a qualified charity of your choosing.

If you are planning your estate, I would highly recommend charitable giving as part of your overall structure. Many of these organizations depend on charitable giving in order to sustain them, while at the same time providing you or your loved ones invaluable services.

Anthony J. Medico, Esq., has practiced law for over 18 years. To ask a question for this column, or to receive Medico’s free Estate Planning Survival Guide, visit his website at www.ajmedico.com, send an e-mail to Anthony@ajmedico.com or call (203) 661-8151. You can read most of his previous columns on his estate planning blog on the internet. Just go to http://www.greenwichtime.com/blogs and scroll down until you find him under the business section. Enjoy.

The Law Offices of Anthony J. Medico
7 Benedict Place  Greenwich, Connecticut 06830
Telephone (203) 661-8151  Facsimile (203) 625-9612
Anthony@ajmedico.com  www.ajmedico.com

As part of my consultations with new clients (as well as those who are updating their estate plans) I always ask them if they own any real or personal property in another state, either currently or if they intend to in the future. None of them have ever known the reason why I ask that question and are shocked to learn why it’s such an important question to ask.

Most people have a hard enough time comprehending the basic probate process, let alone what happens when they own property in a multi-state situation. So when they answer “Yes” to my question, I have to advise them that they’re going to have a much more complicated probate process than they ever imagined. Actually, they’re going to have to endure not just one probate process, but two! And, if they own property in more than just one additional state, they will have to go through probate in EACH State they own property in.

It’s called the “ancillary probate” or “ancillary administration” which refers to the probate of a deceased person’s real property (and sometimes personal property) that is located in a state other than the deceased person’s domicile. For example, Jessica dies while residing in Connecticut. At the time of her death, Jessica owned a house in Vermont. Jessica’s estate is probated in Connecticut because that was her domicile at the time of her death. However, Connecticut doesn’t have jurisdiction over the Vermont real property. In order to transfer ownership of the Vermont property from Jessica’s estate to her designated beneficiary, the Executor of Jessica’s Connecticut estate will have to open an ancillary probate administration in Vermont. This is because each state has exclusive jurisdiction over the disposition of real property within its borders.
This process is required for each and every piece of property owned in every state. So if Jessica owned a house in Vermont, a condo in Florida and a vintage automobile registered in Maine, her estate would have to open ancillary probate proceedings in Vermont, Florida and Maine, all in addition to the main probate proceedings here in Connecticut.
Ancillary probate is an added burden to the estate’s Executor and to its finances. There’s an over abundance of paperwork, as well as the additional financial burden of court costs, attorney’s fees and accounting costs which can be substantial. (remember that you will need lawyers and accountants in each of the states). I’m not over stating this. Just imagine the time considerations in probating an estate in multiple jurisdictions, then multiply that by even a modest hourly rate for attorneys and accountants. Not to mention the court costs of each state.
So, how can you avoid this? It’s actually quite simple. If you’re a regular reader of this column then you no doubt have a good understanding of the powers of a Living Trust. The most basic understanding of a Living Trust is that you transfer ownership of your assets into the Trust, but maintain complete control over it. The benefit of this instrument is that anything owned by the Trust, rather than the decedent doesn’t flow through probate. So, if Jessica quit claims her Vermont property from Jessica to the “Jessica Family Revocable Trust”, the property will no longer be in her name at the time of her death and it will eliminate the need and costs of opening up an estate proceeding in multiple states. Yet during her lifetime, Jessica will have complete control over the property just as she did before she transferred it into the Trust. It’s simple and greatly effective. The Trust owns the property and your estate saves the death costs, not to mention the time and aggravation that goes along with it. And the best part is, you only need one Trust instrument for all of your properties, regardless of where they are located. Yes, it’s another great reason for preparing an Inter Vivos, Revocable Trust.
Anthony J. Medico, Esq., has practiced law for over 18 years. To ask a question for this column, or to receive Medico’s free Estate Planning Survival Guide, visit his website at www.ajmedico.com, send an e-mail to Anthony@ajmedico.com or call (203) 661-8151. You can read most of his previous columns on his estate planning blog on the internet. Just go to http://www.greenwichtime.com/blogs and scroll down until you find him under the business section. Enjoy.

The Law Offices of Anthony J. Medico
7 Benedict Place  Greenwich, Connecticut 06830
Telephone (203) 661-8151  Facsimile (203) 625-9612
Anthony@ajmedico.com  www.ajmedico.com

There are two schools of thought when it comes to gifting your real estate. Some believe that they should have full use and enjoyment of their house while they are alive and then transfer it at death in accordance with their wishes. Others believe that it makes better sense to transfer property before their death, while they can still affect the outcome.

This can be accomplished through an estate planning tool called “gifting”. Gifts are an important estate planning tool for those with taxable estates. Lifetime gifts, whether to a spouse, children or others, should be examined very carefully. Giving away property may sound simple at first, but you must consider the federal gift tax. Remember that a federal gift tax is imposed upon transfers of real and/or personal property made during the transferor’s lifetime without adequate and full consideration. In plain English, this means that any transfer of value is subject to the federal gift tax if the person making the gift doesn’t receive something of similar value in return.

So, who pays the gift tax? You guessed it; it’s the individual making the gift. In addition, if the person making the gift doesn’t pay the gift tax, the receiver becomes personally liable for the tax that is due. The federal government does however, provide an annual gift tax exclusion.
Types of property that can be transferred as a gift include: real estate, stocks, bonds, certificates of deposit, or cash. Federal law permits an annual exclusion of up to $13,000 on transfers to family members or other persons without payment of the federal gift tax. Thus, a person may give up to $13,000 per person, per year to as many people as he or she desires. On top of that, if you are married, each spouse can give up to $13,000 per person per year, for a total of $26,000 by a married couple.

If you are not inclined to gift your real property away during your lifetime, you would then distribute it from your estate. In that regard, you wouldn’t have to worry about the gift tax because when you distribute assets from your estate, it’s not a gift for tax purposes. Instead, it’s an asset that is considered when determining the estate tax. (they get you either way!!) However, just like the gift tax exclusions, the estate tax has its own exclusions. Depending on the year of death, your estate will enjoy an estate tax exclusion based upon a certain value. This means that if the value of your estate is under that value, no estate tax is imposed.

Currently, for 2010, there is no estate tax; it was repealed for this year only. However, 2011 will be an entirely different story, but we expect it to hover around the One Million dollar mark. For real property, the most important factor is called the “step up basis” which means that when the real property is distributed from the estate it assumes the ‘date of death” value as the ground mark rather than the purchase price paid 50 years ago. As such, the capital gains are nearly eliminated. This is in stark contrast from gifting your house, for which you will most certainly suffer a tax consequence in some shape or form.

This is a brief description of the differences between gifting during your lifetime vs. at death. There are many more factors to consider. Therefore, before you make a decision in this regard, I highly recommend that you meet with an attorney who can determine the value of your estate and guide you in the right direction to achieve the most tax savings.

Anthony J. Medico, Esq., has practiced law for over 18 years. To ask a question for this column, or to receive Medico’s free Estate Planning Survival Guide, visit his website at www.ajmedico.com, send an e-mail to Anthony@ajmedico.com or call (203) 661-8151. You can read most of his previous columns on his estate planning blog on the internet. Just go to http://www.greenwichtime.com/blogs and scroll down until you find him under the business section. Enjoy.

The Law Offices of Anthony J. Medico
7 Benedict Place  Greenwich, Connecticut 06830
Telephone (203) 661-8151  Facsimile (203) 625-9612
Anthony@ajmedico.com  www.ajmedico.com

When preparing an estate plan; specifically, when determining how property is to be distributed in an estate plan, it’s important for you to understand the differences between probate and non-probate property.

In its simplest terms, any property that is considered non-probate provides for its own beneficiary (ies) and therefore doesn’t pass on to anyone under the directives of a Will. As a matter of fact, if a Will provides for the designation of a beneficiary to receive non probate assets, it is considered void.

So which property is considered probate and non-probate? Well, the following list is non-exclusive and contains the most common types of property.

Probate property:

1. Real property owned outright or as tenancy in common. In one of my previous columns I discussed the differences and consequences between of the different types of real property ownership. For the purposes of this column you should know that any real property owned by the decedent only or that is held as tenants in common is considered a probate asset because there is no designation by law that would allow the property to immediately flow to another person or entity upon death.

2. Bank accounts that are owned outright without a beneficiary (payable-on-death) designation or that are not held in joint tenancy.

3. Interests in partnerships, corporations, or limited liability companies.

4. Tangible personal property such as jewelry and automobiles.

Non-probate property:

1. Real property held as joint tenants or tenants by the entirety. With a joint tenancy, the ownership rights of the decedent terminated upon his/her death leaving the outright ownership interest to the survivor. Tenancy by the entirety is a less often used tenancy reserved solely for married couples owning real property.

2. Life insurance is not included in the estate as a probate asset because it is basically a contract with the insurance company to pay a death benefit to someone else upon your death. The beneficiary of the policy gets paid outright the entire face value of the policy. Hence, the life insurance proceeds are not included in the estate, unless, the decedent or the decedent’s estate is named as the beneficiary.

3. Qualified retirement accounts are not included in the decedent’s estate primarily because they usually provide for an alternate beneficiary. These accounts include IRA’s, pension plans, Keogh Plans, profit sharing plans, SEP’s, 403(b) and 401(k).

4. Totten Trusts, which are not really Trusts but savings accounts in the decedents name as Trustee for someone else. Upon death, the balance in the account is immediately owned by the person the funds were being held “In Trust” for.

5. Payable on death accounts (POD) such as brokerage accounts, securities and mutual funds, again because they typically have a named beneficiary on the accounts.

6. A beneficial interest in a Trust. This only applies if the decedent’s interest in the trust is a lifetime interest which expires upon his/her death. If the interest in a Trust provides for benefits beyond the decedent’s death then it will be included in his/her estate.

When planning your estate, it’s important to have a solid knowledge of the assets you own and the type of ownership interest you have in those assets. Why? Because it bears greatly on the type of estate plan you need to prepare and to determine just how much or how many of your assets will be included in your estate at the time of death. More importantly, which assets will NOT be included in your estate at the time of death. Remember that one of the key elements of estate planning is to minimize the amount and value of the assets in your estate.

Anthony J. Medico, Esq., has practiced law for over 18 years. To ask a question for this column, or to receive Medico’s free Estate Planning Survival Guide, visit his website at www.ajmedico.com, send an e-mail to Anthony@ajmedico.com or call (203) 661-8151. You can read most of his previous columns on his estate planning blog on the internet. Just go to http://www.greenwichtime.com/blogs and scroll down until you find him under the business section. Enjoy.

The Law Offices of Anthony J. Medico
7 Benedict Place  Greenwich, Connecticut 06830
Telephone (203) 661-8151  Facsimile (203) 625-9612
Anthony@ajmedico.com  www.ajmedico.com

DYNASTY. The word itself just oozes wealth, doesn’t it? I remember growing up watching shows on TV such as DYNASTY and it was all about the soap opera lives of the wealthy and elite.

In the case of estate planning, the historic reputation of the Dynasty Trust is just that. It is an instrument that has been used by the wealthy to preserve the wealth and legacy of family assets for generations upon generations. If you’ve ever been to Newport Road Island and toured the great mansions, I’m confident that each and every family from the Rockefellers and on, enjoyed the benefits of the Dynasty Trust. And it is a well spoken topic that the Kennedy’s are still enjoying the benefits of the Dynasty Trusts established generations ago.

So what is it, how does it work and who really benefits by it?

A Dynasty Trust is essentially an Irrevocable Trust used to pass significant wealth and assets to descendants of the person establishing the Trust. It is the epitome of long term financial planning. This is because it doesn’t leave assets to a spouse or the immediate children, but to grand-children and great-grand-children and so on, and so on, and so on. In theory, a Grantor could leave a substantial estate to children multiple generations down the road.

This process went on for many years and an extreme amount of wealth was passed on tax free. Well, the government didn’t appreciate that very much and decided to enact a tax law called the Generation Skipping Tax. Now, if you transfer wealth to your descendants by skipping a few generations, you still pay a tax. In essence, the government limited the transfer so that they will eventually get their tax dollars.

However, and this may be a good thing or a bad thing depending on how you look at it, the government has also provided for the gift tax exclusion. The amount varies year by year or should I say, President by President. It seems as though the exclusion amount changes when the Presidency administration changes. Currently there is a One Million dollar ($1,000,000.00) gift tax exclusion which means that you can gift away in your lifetime up to a million dollars tax free. After that, you pay a significant percentage in taxes on gifted transfers of wealth.

One other item that affects the Dynasty Trust is a little known law called the Rule Against Perpetuities. This law limits the number of generations that can be skipped before the Trust must commence distributions. In essence, the law puts a time limit on the Trust so that the money can’t be held in trust forever. Connecticut’s rule is included in the Connecticut General Statutes §45A-491. Generally, the Rule provides that the distribution must take place within 21 years after the last remaining beneficiary, alive at the time of the making of the Trust, dies.

So how does this affect the Dynasty Trust? Well, you can still leave assets to descendants generation down the line, but it has to be within the exclusion amount, and within a certain time limit. Quite frankly, with the exclusions and taxes in place now, the Dynasty Trust is no longer a tool that is used only by the upper elite. A million dollars during your lifetime is not a lot of money when you really think about it. So it is now an estate planning tool that is in the arsenal of most estate planners today.

I have only skimmed the basics of this comprehensive Trust in this column. There is a lot of information to know before determining if this Trust is right for you. However, when used, this Trust is very powerful, not only for preserving wealth but for its powerful asset protection functionality. If you have not used up your lifetime gift exclusion allowance and you are interested in preserving some family wealth for future generations, I encourage you to learn more about the Dynasty Trust.

Anthony J. Medico, Esq., has practiced law for over 18 years. To ask a question for this column, or to receive Medico’s free Estate Planning Survival Guide, visit his website at www.ajmedico.com, send an e-mail to Anthony@ajmedico.com or call (203) 661-8151. You can read most of his previous columns on his estate planning blog on the internet. Just go to http://www.greenwichtime.com/blogs and scroll down until you find him under the business section. Enjoy.

The Law Offices of Anthony J. Medico
7 Benedict Place  Greenwich, Connecticut 06830
Telephone (203) 661-8151  Facsimile (203) 625-9612
Anthony@ajmedico.com  www.ajmedico.com

Situation #1: Avoid Many Problems of Probate. The married couple (or single parent) wants their estate to avoid the substantial issues associated with probate. They have heard the horrors about how long probate takes and the fights that erupt over assets. Often, they have family or friends who have been involved in the probate process. You and your family can avoid the major issues associated with probate with a custom asset protection and estate plan.

Situation #2: Disabled Spouse. Most people think a power of attorney allows them to act on behalf of a disabled spouse. But in Connecticut, this isn’t always the case. Connecticut requires a court-ordered conservator or a power of attorney before anyone can act for a disabled adult. An attorney can, in most circumstances, set up living trusts which may alleviate many of the issues consistent with a conservatorship.

Situation #3: Avoid Disputes. Parents often want a custom estate plan because they want things to go smoothly among their children. If they think one child might cause a dispute, setting up a carefully designed estate plan usually avoids that problem — and keeps the children from ending up in court before a judge.

Situation #4: Estranged Child. Unfortunately, some parents have an estranged child, a child on drugs, or a child they have not kept in touch with. They want either to give money to the child slowly over a period of years — or to not give any money to the child. A carefully prepared estate plan will allow these parents to spell out exactly how and when their heirs receive their assets.

Situation #5: Spendthrift Child. Parents are often worried about a child spending his inheritance all at once. They want to delay the distribution of his inheritance over a period of 5 or 10 years, or more. A custom estate plan can provide unlimited flexibility for parents to allocate assets in a manner consistent with their concerns.

Situation #6: Disabled Child. This is for parents who have a disabled child on Medicaid. Medicaid usually won’t allow the child to own many types of assets, so the parents want a Special Needs Trust that permits the child to get money only in certain situations. This is usually one of many reasons the parents want an estate plan.

Situation #7: High Estate Value. If the value of the estate is greater than the amount of the federal estate tax exemption, the estate will have to pay federal estate tax. The creation of an tax reduction based estate plan can avoid or at least minimize tax liabilities.

Situation #8: Lawsuit Protection. For married couples who want to protect their assets from all types of lawsuits. Owning assets in an entity, such as a limited liability company or family limited partnership, is often the answer. This is another good reason to set up a custom asset protection and estate plan.

Situation #9: New Residents. People move to Connecticut or New York from another state and want an estate plan that is designed for their new state of residence (State tax issues vary). A new asset protection and estate plan based upon specific state issues is often necessary when you change residences.

Situation #10: New Legal Documents. Often times, clients bring me documents which in their opinion are valid. However, many times these documents are either no longer viable under new or changed laws or they were “limited” documents which are no longer valid for the purpose originally intended. In this regard, legal documents will need to be reviewed, & revised.

Situation #11: Kept Alive by Artificial Means. Many people are worried about being kept alive by machines. A custom estate plan includes living wills which spell out a person’s wishes regarding medical care and artificial respiration in the case of a life-threatening injury or illness.

Situation #12: New Business. People who want to form a new business and protect their assets from any liability stemming from that business can be at an advantage by setting up a proper business entity, such as a corporation or a limited liability company.

Anthony J. Medico, Esq., has practiced law for over 18 years. To ask a question for this column, or to receive Medico’s free Estate Planning Survival Guide, visit his website at www.ajmedico.com, send an e-mail to Anthony@ajmedico.com or call (203) 661-8151. You can read most of his previous columns on his estate planning blog on the internet. Just go to http://www.greenwichtime.com/blogs and scroll down until you find him under the business section. Enjoy.

The Law Offices of Anthony J. Medico
7 Benedict Place  Greenwich, Connecticut 06830
Telephone (203) 661-8151  Facsimile (203) 625-9612
Anthony@ajmedico.com  www.ajmedico.com

In Part 1, (printed on April 7th) you may recall that I outlined the fictitious estate of Henry & Nancy Adrift. They had a poor estate plan which was never updated and as a result, their estate suffered tremendously. Below is a better way to structure your estate for maximum return and protection for your family.

Joe and Rose Smarthinker: A Custom Estate Plan That Works…

Joe Smarthinker was a good businessman. Many would call him an outstanding businessman. Part of his knowledge and experience included knowing the best ways to protect, preserve, and transfer his wealth to his family. Here’s how he did it.

Joe and Rose were concerned about four major attacks on the Smarthinker wealth: lawsuits, divorce, non-descendants, and estate taxes. In addition, they wanted to keep their personal affairs private and protect the family’s wealth from errors in judgment.

As a result, Joe and Rose never gave or left anything outright to their children or free from a trust. And to make their children judgment proof, they gave and left their wealth in separate share trusts. As each child reached a designated age, he or she could serve as co-trustee over his or her own respective share. When the child reached an older age, each child could choose his or her own co-trustees to serve with him or her.

Here are examples of how this asset protection plan safeguarded the Smarthinker’s wealth.

Joe and Rose set up their Asset Protection Trusts so assets held in trust could not end up in the hands of ex-sons-in-law or ex-daughters-in-law. When their son and daughter–in-law divorced, the daughter-in-law did not get any of the Smarthinker wealth that was held in trust for Their son.

Joe and Rose set up their Asset Protection Trusts so assets held in trust could not go to anyone who is not a direct Smarthinker descendant. Under ordinary circumstances, if a Smarthinker child was the first person to die in his or her marriage, the surviving spouse would receive part of the Smarthinker wealth. Then that spouse could remarry and leave the Smarthinker wealth to a new spouse. By keeping the wealth in specialized Trusts, they guaranteed that their money stayed in the hands of direct blood descendants.

Joe and Rose set up their Trusts so they would remain private by avoiding probate. Without Living Trusts, their estates and their children’s estates would go through probate, which would expose their personal finances to public scrutiny. While their deaths were public matters, their estates were completely private.

Joe Smarthinker knew that all people make mistakes, especially young people, due to their lack of experience. So he set up Living Trusts for his children and chose experienced money managers and trustees. This reduced the possibility for financial losses due to bad judgment.

Most of us don’t have the assets or money that the Smarthinkers have. But you and the Smarthinkers do have something in common: You can protect your assets — preserve your estate — transfer property to your heirs — and maintain a high level of financial privacy using the same sophisticated methods they use. Best of all, these estate planning and tools are available to you for a small fraction of what the cost would be to your estate if you fail to think ahead and consider utilizing these basic estate planning tools.

Anthony J. Medico, Esq., has practiced law for over 18 years. To ask a question for this column, or to receive Medico’s free Estate Planning Survival Guide, visit his website at www.ajmedico.com, send an e-mail to Anthony@ajmedico.com or call (203) 661-8151. You can read most of his previous columns on his estate planning blog on the internet. Just go to http://www.greenwichtime.com/blogs and scroll down until you find him under the business section. Enjoy.

The Law Offices of Anthony J. Medico
7 Benedict Place  Greenwich, Connecticut 06830
Telephone (203) 661-8151  Facsimile (203) 625-9612
Anthony@ajmedico.com  www.ajmedico.com

Henry and Nancy Adrift: A Typical (non) Estate Plan:

Henry and Nancy Adrift have been married for 41 years. They have two adult children, Scott Well-Grounded and Sally Flighty-and-Shiftless. Thirty years ago, when their children were young, Henry and Nancy hired Larry Lawyer to prepare simple Wills and standard Powers of Attorney.

Every so often they received a letter from Larry Lawyer suggesting that they have their estate planning documents reviewed and updated. Of course, they knew this was good advice, but they were busy and never got around to it. Over time they moved, changed investments, and bought new cars. And, not surprisingly, they forgot the instructions Larry Lawyer had given them about how to title their assets so their Will would be effective.

When Henry became ill, he could no longer manage his affairs. Immediately his family felt the burden. They wanted to follow Henry’s wishes, but family members discovered that Henry left many questions unanswered. His needs increased, particularly his medical needs. But his family did not know how he wanted to be cared for, so discussions about his medical care resulted in one argument after another. They argued about whether to put Henry into a nursing home. They even argued about whether to shut off his life support. Henry could have prevented this stress and tension among family members if he had simply made his wishes clear in his estate plan.

Henry then passed away. Nancy and her son, Scott, met with Larry Lawyer to find out what to do next. Luckily, Larry Lawyer was still in town and still practicing law, although he was certainly older and grayer than he was 30 years earlier. This was the first time Scott met him.

Because 30 years had passed, Nancy and Henry’s estate plan developed a few complications. First, when Henry and Nancy signed their Wills, they had a small estate, so Larry Lawyer did not do anything to reduce estate taxes. Now, at Henry’s death, their combined estate is worth more than $2,000,000 and Henry’s lopsided portion exceeds $1,000,000. Henry owned stock and a modest home in Indiana, which he inherited from his parents. He owned them alone, as separate property, which meant they must go through probate. The rest of Henry’s assets were owned jointly with his wife, except for his life insurance and 401(k), which named Nancy as primary beneficiary. So even if Larry Lawyer had done tax planning in their Wills, that planning would not have worked.

Then followed the probate and estate administration. Nancy and her children waited 22 months for the Court to finalize the probate. One factor that delayed the probate was the need to file an “ancillary administration”, a second probate, in Indiana where Henry’s real estate is located. When the estate administration finally ended, Nancy and her family had paid him $21,150 in legal fees. Plus, Nancy paid another $6,000 to the attorney in Indiana for the second probate.

Another factor that delayed things was the squabble that developed between their children, Sally Flighty-and-Shiftless and Scott Well-Grounded. When Sally turned 21, Henry said that when he died, Sally could have the grandfather clock in their living room. But Henry never added this instruction to his Will. Scott thought he was entitled to the grandfather clock because Sally was supposed to inherit the expensive china service when Nancy died. The argument between Scott and Sally grew so heated that, at one point, they each threatened to hire their own lawyers. Fortunately, Nancy was able to calm them down and negotiate an agreement. But Sally and Scott were so bitter they never spoke to each other again.

Nancy’s and Henry’s boiler-plate Wills contained no tax planning, so all the probate and non-probate assets went directly to Nancy. At Henry’s death, she was not liable for any estate taxes. But when Nancy died, just three months later, Larry Lawyer wrote a check for $400,000 to the IRS to pay estate taxes.

After the remaining bills were paid, Larry Lawyer gave Sally and Scott their inheritances. But most of Sally’s share went straight to the IRS to pay old tax bills. Sally was always too embarrassed to tell her parents about her financial problems. And, naturally, Henry and Nancy assumed she was financially successful because of her lifestyle. But things were not as they appeared.

Sadly, one of Henry and Nancy’s life-long dreams was for their children to use their inheritances to make sure each of their grandchildren would go to college. That won’t happen now.

Henry and Nancy never realized the many ways they could safeguard their assets while they were alive. Nor did they realize they could design a plan to pass their assets responsibly to their children, until they reached the age when they could handle their inheritance wisely. Now it’s too late.

Stay tuned for part two; a very different outcome.

Anthony J. Medico, Esq., has practiced law for over 18 years. To ask a question for this column, or to receive Medico’s free Estate Planning Survival Guide, visit his website at www.ajmedico.com, send an e-mail to Anthony@ajmedico.com or call (203) 661-8151. You can read most of his previous columns on his estate planning blog on the internet. Just go to http://www.greenwichtime.com/blogs and scroll down until you find him under the business section. Enjoy.

The Law Offices of Anthony J. Medico
7 Benedict Place  Greenwich, Connecticut 06830
Telephone (203) 661-8151  Facsimile (203) 625-9612
Anthony@ajmedico.com  www.ajmedico.com