Personal Finance

Where There's a Will

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A recessionary economy and changes in tax law can create unexpected estate tax results.

Just as lawyers advise clients to review estate plans that may have spent years in a desk drawer, they should be doing the same to their own financial plans to determine whether adjustments need to be made.

“My advice to other lawyers is to expect and demand as thorough a process from your own estate planning that you would if you were counseling one of your own clients,” recommends Steve Brainerd, a partner at Davis, Graham & Stubbs in Denver. “This includes revisiting your will when changes in economic or family circumstances occur, including retirement.”

For example, the 2009 federal estate-tax exemption has increased to $3.5 million per decedent (up from $2 million in 2008). Absent congressional tinkering, the estate tax is repealed for 2010 deaths, but is reinstated for 2011 deaths, with a $1 million exemption and a top federal estate-tax rate of 55 percent. In 2009 (and 2008), 45 percent is the top rate. Crunch the numbers and keep these tax changes in mind because the size of your estate may have changed with the drops in the market and real estate.

It may also be time to implement certain trusts to turn the reduced value of your assets or lower interest rates into a positive.

Consider a grantor-retained annuity trust, which allows you to use lower interest rates to effectively freeze current values of assets held in the trust for estate tax purposes. Similarly, a qualified personal residence trust is compatible with reduced property values. Such a trust can also reduce transfer taxes that would normally be associated when a parent transfers a residence to a child.

In another recent change, retirees and inherited ira benefi­ciaries need not take a required minimum distribution for 2009. The 2008 Worker, Retiree and Employer Recovery Act included a suspension of the RMD rules for 2009. (Normally, the failure to make an RMD resulted in an onerous penalty.)

Those who do not rely on such funds for living expenses will benefit, since by not taking the withdrawal, they can avoid selling stock or mutual fund shares with depressed values. Potentially, they can also mitigate the effect of income-based tax break phaseouts because they will have less taxable income for 2009.


Other important areas for review are specific bequests that you may have made. It is common to fund bequests with stocks or mutual fund shares or real estate. Unfortunately, the value of these types of assets is likely less than the amount of the bequest when last drafted.

This becomes es­pecially important with charitable bequests. Many people provide for their favorite charities after they have determined sufficient assets for their loved ones. Today, your family may no longer have the same type of financial security.

Insurance is another category to consider. Life insurance is often in­corporated into estate plans to pay estate taxes. If you’ve suffered a significant decrease in assets, coupled with the exemption changes, review whether your life insurance policy and premium may be reduced, since you may not need as much coverage in this economy.

And for those with bustling practices who don’t yet have a will, getting your personal intentions into a proper writing is important.

“As lawyers, we’re all so busy taking care of other people, it’s the ‘I don’t have time to die; I’m too busy’ mentality,” offers Elizabeth Fry, a partner in Pillsbury Winthrop Shaw Pittman’s New York City office.

“Because they would have their assets go to the same people defined by a state’s intestacy laws, some attorneys assume they don’t need to make a will,” Fry says. “However, keep in mind that some states require a personal representative to post a bond unless there is a will that waives it.

So having a proper writing in place ahead of time can save money.”

Fry suggests a minimum of three key documents to put in place: a will, advance directives and a power of attorney.

Additional considerations include ensuring that your intentions are honored for health care issues should you become incapacitated (think Terri Schiavo), as well as unburdening grieving loved ones by providing for your funeral and related expenses.

Still procrastinating? Consider whether a court will do a better job than you can in selecting a guardian for your children or Fido.

“Whether you’re young and vibrant or old and tired, most people, especially lawyers, never think death will happen to them,” says estate planning attorney Katherine Bailes of 5th Generation Legal Advisors in Overland Park, Kan. “But you’ve got to look at it as a business deal. You have mortgage insurance, car insurance—both in place if the worst happens, so why wouldn’t you get a plan in place for death?”

Taking control of your finances by reviewing your estate planning needs will give you and your loved ones peace of mind. “For some, once everything is put in order, it’s really a relief,” Fry says.

Susan A. Berson is a partner with the Banking & Tax Law Group of Leawood, Kan. She is the author of The Modern Rules of Personal Finance for Professionals. She can be reached at .(JavaScript must be enabled to view this email address).

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