Archive for the ‘Estate Settlement’ category

Planning Question and Answer Sessions. Please Take This Survey!

May 15, 2012

When Do You Want an Estate Planning Q&A Session?  Please take this survey.

 May 15, 2012.

We recently published a Basic Estate Planning video on YouTube and DVD.  We hope that you will have a chance to see it if you have not already done so.

You can see the YouTube version here:  Basic Estate Planning Screencast on YouTube

We are scheduling group meetings so that interested parties can ask questions related to the subjects in the video.  There will be no charge or obligation. 

Location: Chipman Mazzucco, Attorneys, Matrix Corporate Center, 39 Old Ridgebury Road, Suite D-2, Danbury, Ct. o6810.

We ask you to click on the link below to complete this survey so that we know what will be convenient for you.  It will take only one minute.

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Thank you for participating in the survey.  It will be a great help to us in our efforts to help you.
 
 
Posted on 5/15/2012 by Richard S. Land, Member, Chipman, Mazzucco, Land & Pennarola, LLC.

Notice: To comply with U.S. Treasury Department rules and regulations, we inform you that any U.S. federal tax advice contained in this communication is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction, tax strategy or other activity.

We frequently post articles relating to estate planning, estate settlement and elder law issues to this blog. We also post notices about our client seminars here. When we do, we send out notices to clients and friends of the firm. If you would like to get our notices, please join our mailing list by clicking below.

     
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What a Trustee’s Account Looks Like

October 12, 2011

We recently posted an article on standards of conduct that apply to Trustees here: Avoiding the Trustee’s Worst Nightmare.

We also posted a related article on trust administration here: Dreams Come True (Fiduciary Accounting Made Easy?).

Those posts mentioned the Trustee’s duty to account. You can find a sample of a Trustee’s account here: Sample Trustee’s Account.

If you have any questions about fiduciary accounting, give us a call or email us at the email addresses shown below and we will be pleased to help.

Posted on 10/12/2011 by Richard S. Land, Member,  Chipman, Mazzucco, Land & Pennarola, LLC.

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Notice: To comply with U.S. Treasury Department rules and regulations, we inform you that any U.S. federal tax advice contained in this communication is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction, tax strategy or other activity.

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Dreams Come True (Fiduciary Accounting Made Easy?)

September 6, 2011

The words of Joan Lucia, Legal Assistant, CMLP: “I used to prepare estate and trust accounts by hand with an old fashioned calculator, a yellow pad of paper (actually lots of yellow pads of paper) and pencils—lots of pencils and erasers. It took hours upon endless hours to separate income accounts from principal accounts and to make everything balance. We would spend countless hours looking for pennies. When you are trying to prepare an account and it won’t balance, it really consumes you. It’s hard to tear yourself away from the project no matter how uncomfortable and frustrated you become. When DRIPs (dividend reinvestment plans) became common, that just compounded the problem. After the handwritten draft finally balanced, the reams of paper were typed up – not word processed – and another round of time consuming proofing began. What a relief and a sense of accomplishment when we finally got an account to balance and in final form! Really… something to celebrate.”

Much has changed since Joan Lucia took yellow pad and pencils in hand to prepare her first fiduciary account. Now we have computers and software. “What a godsend!” says Joan.

“It still takes a lot of time and effort to prepare a fiduciary account—especially if the account hasn’t been done for a long time. Clients still misplace statements, forget about the old bank accounts, fail to make clear entries in their checkbook ledgers; and clients forget about specific deposits and withdrawals as time passes. The longer it is between accounts the more difficult the project becomes because of lost records and foggy memories. But once I have gathered all the information in an organized way, if I enter the data properly into the software, the software does a great job of creating the separate income and principal accounts we need, and all the other schedules required to provide Trustees, beneficiaries and the Probate Court with a complete picture.”

Even with a great software package, fiduciary accounting requires knowledge of fiduciary accounting rules and experience. For example, even making heads or tails out of statements provided by brokers, banks and investment advisors can be a challenge, especially if that type of thing is new to you.

According to Joan, “Some statements are easier to read than others. Some statements make me feel like I’m reading a foreign language. Almost no statement provides specifics on transactions like sales of fractional shares on mergers, distributions on bankruptcy, etc., so even if all the statements are in order, there is almost always something out of the ordinary to track down. After a while, though, you figure it out. But it seems like every statement, no matter from what company, is very hard on the eyes.”

A lay person who has been appointed Trustee of a trust is tempted to put accounting off. In the long run that will probably result in unnecessary additional time and effort (and expense). And the Trustee can be exposed to a very real risk of personal liability. A Trustee who is not paying proper attention to the income and principal accounts could very easily overpay one class of beneficiaries while shortchanging others. The shortchanged beneficiaries likely will be upset and look for someone (most likely the Trustee) to blame.

We encourage our trust clients to stay on top of the accounting. As each quarterly statement is received, we want to enter the data as soon as possible. That way problems are identified early and questions get answered while memories are fresh.

“Software has made a big difference when it comes to fiduciary accounting,” says Richard Land (Member, CMLP ). “A good software package can be quite expensive but, if you represent enough estates and trusts, and if you have the knowledge and experience required to properly use the software, the investment is well worth it.

“I’ve been involved with fiduciary accounting for almost 30 years now,” says Joan. “I love our current software. I would never want to return to the good old days of yellow pads and pencils…and lots of erasers.”

It’s Not Too Late (Fixing Your Estate Plan After Your Death)

April 4, 2011

Recent state and federal estate tax changes have created difficult tax traps which can be avoided if your survivors take appropriate steps (commonly referred to as “post mortem planning”) after your death.

Post mortem planning not only includes projections of cash needs and identifying problems relating to the disposition of certain assets, it also includes consideration of a variety of estate and income tax elections, generation skipping tax exemption allocations, disclaimers and the division of certain trusts into subtrusts.

To assure that your survivors have the proper tools and authority to adopt an effective post mortem plan, your estate planning documents (your Will and frequently a revocable trust) should include enabling provisions.

For your survivors to benefit from post mortem planning, they (with the help of your advisors) need to review the assets and the relevant documents shortly after your death before they receive any substantial property as your beneficiary. Failure to satisfy technical requirements before applicable deadlines may be costly.

Consider this example. The federal estate tax exemption is now significantly larger than many state estate tax exemptions. This can create an estate tax trap for married individuals. Your surviving spouse can avoid the trap, if your Will includes provisions that allow your spouse to make certain post-death decisions (tax elections and disclaimers) necessary to avoid the state estate tax. Such decisions often must be made within nine months after your death.

Imagine that your spouse died in 2011 and you are the Executor and a beneficiary of your spouse’s Will. The Will (like so many Wills signed by married individuals for the last several decades) provides that an amount equal to your spouse’s federal estate tax exemption (currently $5,000,000) will pass to a trust (call it the “Exemption Trust”) for your benefit. (Note: For an explanation of trusts, go to our recent post entitled “The Benefits of Trusts.” For a discussion of how the Exemption Trust can be part of a plan to reduce estate taxes, go to one of our older posts entitled “All Estate Plans with Marital Deduction Formula Documents Should be Reviewed.”)

This type of Will made a lot of sense many years ago when it was prepared (when the federal estate tax exemption was lower and the state estate tax exemption was the same as or larger than the federal exemption) but tax rules have changed. When the Will was drafted, perhaps the federal exemption was as low as $675,000. Also, the estate tax exemptions of the states were usually the same as the federal exemption. Now, Connecticut’s exemption is $3,500,000 and will probably be changed to $2,000,000 effective retroactively to January 1, 2011. New York’s exemption is $1,000,000. These state estate tax exemptions are substantially less than the current federal exemption ($5,000,000). Under these circumstances, your spouse’s Will may result in an unnecessary tax.

Assume that immediately before your spouse’s death your assets have a value of $500,000 and that your spouse’s estate has a value of $5,000,000. Without post mortem planning, if your spouse dies in 2011 with you surviving, the result would be as follows:

(1) The Exemption Trust would be $5,000,000, the total estate.

(2) You (the surviving spouse) would receive no portion of the estate because all the estate would go to the Exemption Trust. (Note: If you were to receive an inheritance from your spouse, it would be free of estate tax. Transfers from one spouse to a U.S. citizen spouse are not subject to any estate tax.)

(3) There would be no federal estate tax because the value of the property passing to non-spouse beneficiaries (the Exemption Trust) would not exceed the $5,000,000 federal exemption.

(4) There would be a Connecticut estate tax because the value of the property passing to non-spouse beneficiaries (the Exemption Trust) would exceed the Connecticut estate tax exemption. If the Connecticut exemption is $3,500,000, the Connecticut estate tax would be approximately $122,000. The Connecticut exemption will probably be changed, however, to $2,000,000 retroactive to January 1, 2011. In that case, the Connecticut estate tax would be approximately $238,000.

(5) Because your entire spouse’s estate would pass to the Exemption Trust, your estate would remain at $500,000 (the assets you owned immediately before your spouse’s death). At your subsequent death, your estate would be far less than any of the exemptions that might apply ($2,000,000 or $3,500,000 for Connecticut and $5,000,000 for the federal estate tax (scheduled to return to $1,000,000 in 2013). Accordingly, there would be no federal or state estate taxes at the time of your death in the future.

In hindsight, assuming that the federal exemption will not return to $1,000,000, it would have been better to limit the amount passing to the Exemption Trust to the value of the Connecticut exemption ($3,500,000). This would have eliminated the Connecticut estate tax. It would also mean that you (as surviving spouse) would receive $1,500,000 more from your spouse’s estate. As a result, your estate would be $2,000,000. If that is the value of your estate at your death, it would be less than the estate tax exemptions. Accordingly, there would be no estate tax (federal or Connecticut) at your death. All $5,500,000 which you and your spouse owned together would pass to your children without estate tax. The Connecticut estate tax would have been eliminated without any hardship or risk.

Your spouse’s Will cannot be changed after her death but, if her Will includes provisions which will allow your spouse’s survivors (you, the Executor and the Trustee) to make certain elections, allocations and other decisions, you may still achieve the desired tax goal.

For example, the Exemption Trust might be drafted to allow your spouse’s Executor to make an election (referred to as a “QTIP election”) to treat a portion of the Exemption Trust as a Marital Trust (which would be treated for tax purposes as if it passes to you as surviving spouse instead of to the Exemption Trust). As a result, the Exemption Trust portion would be reduced to $3,500,000 and the Connecticut estate tax would be avoided. The terms of the Will could then allow the Executor and the Trustee to split the Exemption Trust into two separate trusts (the Marital Trust and the Exemption Trust) which would be managed separately.

A different approach would involve disclaimers. A disclaimer is a rejection of (or refusal to accept) an inheritance. Your spouse’s Will might be drafted so that, if you disclaim your interests in a portion of the Exemption Trust, the disclaimed portion will pass to a Marital Trust thereby reducing the Exemption Trust. As a result, the Connecticut estate tax could be eliminated.

Post mortem planning can be challenging. In an environment where the tax rules frequently change, the course to take is not always clear. In the example above, we assumed that the federal exemption will not return to $1,000,000. If it were to return to $1,000,000, however, your decision might be different. You might decide that, to reduce your future federal estate tax (at rates starting at more than 40%), the QTIP election, or the disclaimer, should be made only to the extent doing so would not cause your estate, in the future at your death, to be larger than the federal estate tax exemption. Although taking such an approach now (at the time of your spouse’s death) would create a Connecticut estate tax, you might consider it a reasonable price to pay to avoid a future high federal estate tax. Using the facts from the example above, payment of a Connecticut estate tax ($122,000 to $238,000) from your spouse’s estate this year could achieve significant savings at the time of your death (from approximately $435,000 to $1,220,000 depending on the situation).

Theoretically, the savings to be achieved from maximizing the portion of your spouse’s estate that passes to the Exemption Trust without generating a federal estate tax (but at the cost of generating a Connecticut estate tax of from $122,000 to $238,000) can be from approximately $825,000 to approximately $1,650,000.

Your final decision regarding the post mortem planning options described above could also depend on other factors such as your age and health, plans to move to a different state, prospects that your estate will grow after your spouse’s death, prospects that the value of your estate will decrease after your spouse’s death, and the types of assets involved. For example, retirement accounts such as IRAs, 401(k) plans, and 403B plans which have not yet been subjected to income tax present additional challenges.

The number of tax elections and planning opportunities that might arise is equal to the number of diverse fact patterns our clients leave behind for their survivors to manage. The example above is one sample. The following is a list (not intended to be complete) of post mortem planning opportunities that come to mind as I write this post. In my experience, post mortem planning has most frequently related to:

(1) IRAs and other types of retirement accounts;

(2) Income taxation of estates and trusts, including elections relating to deductions for certain debts and expenses and use of a fiscal year instead of a calendar year;

(3) Elections to treat a revocable living trust as an estate for income tax purposes;

(4) Alternate valuation and valuation of special use assets;

(5) Deferral of estate tax payments;

(6) Charitable deductions for estate and income tax purposes;

(7) Elections to qualify certain trusts for the estate tax marital deduction;

(9) Allocation of the generation skipping tax exemption, and the division of trusts into subtrusts, to accomplish generation skipping tax goals;

(10) Tax effects of post death distributions from a business entity to a business owner’s estate, including corporate redemptions;

(11) Effects of a shareholder’s death on S corporation status and elections available to allow continued qualification;

(12) Disclaimers; and

(13) Court reformations of documents that do not satisfy technical requirements relating to marital and charitable deductions.

The above is a fairly long list but I have no doubt that the list of omissions would be quite a bit longer. The fact patterns we face will often suggest new opportunities for creative planning.

Posted on 4/4/2011 by Richard S. Land, Member,  Chipman, Mazzucco, Land & Pennarola, LLC.

 

We frequently post articles relating to estate planning, estate settlement and elder law issues to this blog. We also post notices about our client seminars here. When we do, we send out notices to clients and friends of the firm. If you would like to get our notices, please join our mailing list by clicking below.

 
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Notice: To comply with U.S. Treasury Department rules and regulations, we inform you that any U.S. federal tax advice contained in this communication is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction, tax strategy or other activity.

My Spouse Has Passed Away. What Do I Need To Do?

January 28, 2011

When a spouse dies, the survivor will likely feel overwhelmed and may have a difficult time knowing what to do next.   The following is a list of basic steps that the survivor will need to take after the loss of a spouse:

Contact a funeral home immediately and arrange for the burial and memorial services.

Prepare an obituary and consider newspapers for publication.

Notify the employer of the deceased spouse.

Contact previous employers regarding possible pension or other retirement plans and to determine any survivor’s benefits.

Notify the Social Security Administration and any other benefit programs that may be making payments to the deceased spouse or that may be paying a death benefit.

Notify family members, friends and acquaintances.

Contact your financial advisor.

Contact your accountant.

Contact your casualty and liability insurance carrier (homeowner and car).

Obtain access to the deceased spouse’s safety deposit box (if any).

Contact credit card companies.

Consider payment of debts. Debts of the deceased spouse should be paid by the deceased spouse’s estate. A mortgage on a jointly owned home generally should be paid by the joint owner.

Contact your attorney. This does not have to be done immediately after the death but you should speak to an attorney within two months after the date of death to be sure that you take advantage of important post-mortem planning opportunities. It is best not to make any claims for death benefits under a life insurance policy, annuity, IRA, 401(k) or other type of retirement account before reviewing planning options with a knowledgeable attorney.

Gather the following documents:

• The original Will;

• Revocable and Irrevocable Trust Agreements (if applicable);

• Death certificate;

• Marriage certificate;

• Birth certificate;

• Military discharge documents (if applicable);

• Birth certificates of children;

• Deeds for real property;

• Statements relating to bank and investment accounts;

• Life insurance policies

• Title to any vehicles; and

• Any other information regarding assets owned by your spouse.

Your attorney will be able to guide you through the necessary steps to settle your spouse’s estate.

Posted on 1/28/2011 by Kasey S. Galner, Associate, Chipman, Mazzucco, Land & Pennarola, LLC.

We frequently post articles relating to estate planning, estate settlement and elder law issues to this blog. We also post notices about our client seminars here. When we do, we send out notices to clients and friends of the firm. If you would like to get our notices, please join our mailing list by clicking below.

 
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