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Minneapolis and St. Paul MN Estate Planning Blog

Wednesday, September 25, 2013

Serving as a Personal Representative (a/k/a Executor)?

What’s Involved in Serving as a Personal Representative (a/k/a "Executor")?

An personal representative, sometimes referred to as executor, is the person designated in a Will as the individual who is responsible for performing a number of tasks necessary to wind down the decedent’s affairs. Generally, the personal representative’s responsibilities involve taking charge of the deceased person’s assets, notifying beneficiaries and creditors, paying the estate’s debts and distributing the property to the beneficiaries. The personal representative may also be a beneficiary of the Will, though he or she must treat all beneficiaries fairly and in accordance with the provisions of the Will.

First and foremost, a personal representative must obtain the original, signed Will as well as other important documents such as certified copies of the Death Certificate.  The personal representative must notify all persons who have an interest in the estate or who are named as beneficiaries in the Will. A list of all assets must be compiled, including value at the date of death. The personal representative must take steps to secure all assets, whether by taking possession of them, or by obtaining adequate insurance. Assets of the estate include all real and personal property owned by the decedent; overlooked assets sometimes include stocks, bonds, pension funds, bank accounts, safety deposit boxes, annuity payments, holiday pay, and work-related life insurance or survivor benefits.

The personal representative is responsible for compiling a list of the decedent’s debts, as well. Debts can include credit card accounts, loan payments, mortgages, home utilities, tax arrears, alimony and outstanding leases. All of the decedent’s creditors must also be notified and given an opportunity to make a claim against the estate.

Whether the Will must be probated depends on a variety of factors, including size of the estate and how the decedent’s assets were titled. An experienced probate or estate planning attorney can help determine whether probate is required, and assist with carrying out the executor’s duties. If the estate must go through probate, the personal representative must file with the court to probate the Will and be appointed as the estate’s legal representative.  Once the personal representative has this legal authority, he or she must pay all of the decedent’s outstanding debts, provided there are sufficient assets in the estate. After debts have been paid, the personal representative must distribute the remaining real and personal property to the beneficiaries, in accordance with the wishes set forth in the Will. Because the personal representative is accountable to the beneficiaries of the estate, it is extremely important to keep complete, accurate records of all expenditures, correspondence, asset distribution, and filings with the court and government agencies.

The personal representative is also responsible for filing all tax returns for the deceased person including federal and state income tax returns and estate tax filings, if applicable. Additional tasks may include notifying carriers for homeowner’s and auto insurance policies and initiating claims on life insurance policies.

The personal representative is entitled to compensation for his or her services.  This fee varies according to the estate’s size and may be subject to review depending on the complexity as well as the time and effort expended by the personal representative.

   


Sunday, September 15, 2013

Estate Planning Don’ts

Estate Planning Don’ts

Preparing for the future is an uncertain business, but there are steps you can take during your lifetime to simplify matters for your loved ones after you pass, and to ensure your final wishes are carried out. Planning for what happens to your property, or who cares for your family members, upon your death can be a complicated process. To simplify things, we’ve created the following list to help you avoid some of the pitfalls you may encounter before, or even long after, you create your estate plan.

Don’t assume you can plan your estate by yourself. Get help from an estate planning attorney whose training and experience can ensure that you minimize tax implications and simplify the process of settling your estate.

Don’t put off your estate planning needs because of finances. To be sure, there are upfront costs for establishing the estate plan; however establishing your estate plan is an investment in the future well-being of your family, and one which will result in a far greater cash savings over the long term.

Don’t make changes to your estate plan without consulting your attorney. Changes in one area of your estate plan could impact other provisions you have made, triggering legal or tax implications you never intended.

Don’t assume your children will intuitively know your wishes, and handle the situation appropriately upon your death. Money and sentimental items can cause a rift between even the most agreeable siblings, and they will be especially vulnerable as they deal with the emotional impact of your passing.

Don’t assume that once you’ve prepared your estate plan it’s set in stone. Estate planning documents regularly need to be revised, often due to a change in marital status, birth or death of a family member, or a significant change in the value of your estate. Beneficiary designations should be periodically reviewed to ensure they are up to date.

Don’t forget to notify your family members, friends or other beneficiaries of your estate plan. Make sure your executor and successor trustee have access to your end-of-life documents.

Don’t assume your spouse will handle everything if something happens to you. It’s possible your spouse may be incapacitated at the same time, for example if you both are injured in the same accident. A proper estate plan appoints alternate representatives to handle your affairs if both you and your spouse are unable to do so.

Don’t use the same person as your agent under both the financial and healthcare powers of attorney. Using the same individual gives that person an incredible amount of influence over your future and it may be a good idea to split up the decision-making authority.

Don’t forget to name alternate agents, executors or successor trustees. You may name a family member to fill one of these roles, and forget to revise the document if that person dies or becomes incapacitated. By adding alternates, you ensure there is no question regarding who has the authority to act on your or the estate’s behalf.


Thursday, September 5, 2013

Senior Citizens & Bankruptcy

Senior Citizens Comprise Growing Demographic of Bankruptcy Filers

It’s called your “golden years” but for many seniors and baby boomers, there is no gold and retirement savings are too often insufficient to maintain even basic living standards of retirees. In fact, a recent study by the University of Michigan found that baby boomers are the fastest growing age group filing for bankruptcy. And even for those who have not yet filed for bankruptcy, a lack of retirement savings greatly troubles many who face their final years with fear and uncertainty.

Another study, conducted by Financial Engines revealed that nearly half of all baby boomers fear they will be in the poor house after retirement. Adding insult to injury, this anxiety also discourages many from taking the necessary steps to establish and implement a clear, workable financial plan. So instead, they find themselves with mounting credit card debt, and a shortfall when it comes time to pay the bills.

In fact, one in every four baby boomers have depleted their savings during the recession and nearly half face the prospect of running out of money after they retire. With the depletion of their savings, many seniors are resorting to the use of credit cards to maintain their standard of living.  This is further exacerbated by skyrocketing medical costs, and the desire to lend a helping hand to adult children, many of whom are also under financial distress.  These circumstances have led to a dramatic increase in the number of senior citizens finding themselves in financial trouble and turning to the bankruptcy courts for relief.

In 2010, seven percent of all bankruptcy filers were over the age of 65. That’s up from just two percent a decade ago. For the 55-and-up age bracket, that number balloons to 22 percent of all bankruptcy filings nationwide.

Whether filing for bankruptcy relief under a Chapter 7 liquidation, or a Chapter 13 reorganization, senior citizens face their own hurdles. Unlike many younger filers, senior citizens tend to have more equity in their homes, and less opportunity to increase their incomes. The lack of well-paying job prospects severely limits older Americans’ ability to re-establish themselves financially following a bankruptcy, especially since their income sources are typically fixed while their expenses continue to increase.
 


Monday, August 26, 2013

Overlooked Issues in Estate Planning

Top 5 Overlooked Issues in Estate Planning

In planning your estate, you most likely have concerned yourself with “big picture” issues. Who inherits what? Do I need a living trust? However, there are numerous details that are often overlooked, and which can drastically impact the distribution of your estate to your intended beneficiaries. Listed below are some of the most common overlooked estate planning issues.

Liquid Cash: Is there enough available cash to cover the estate’s operating expenses until it is settled? The estate may have to pay attorneys’ fees, court costs, probate expenses, debts of the decedent, or living expenses for a surviving spouse or other dependents. Your estate plan should estimate the cash needs and ensure there are adequate cash resources to cover these expenses.

Tax Planning: Even if your estate is exempt from federal estate tax, there are other possible taxes that should be anticipated by your estate plan. There may be estate or death taxes at the state level. The estate may have to pay income taxes on investment income earned before the estate is settled. Income taxes can be paid out of the liquid assets held in the estate. Death taxes may be paid by the estate from the amount inherited by each beneficiary. 

Executor’s Access to Documents: The executor or estate administrator must be able to access the decedent’s important papers in order to locate assets and close up the decedent’s affairs. Also, creditors must be identified and paid before an estate can be settled. It is important to leave a notebook or other instructions listing significant assets, where they are located, identifying information such as serial numbers, account numbers or passwords. If the executor is not left with this information, it may require unnecessary expenditures of time and money to locate all of the assets. This notebook should also include a comprehensive list of creditors, to help the executor verify or refute any creditor claims.

Beneficiary Designations: Many assets can be transferred outside of a will or trust, by simply designating a beneficiary to receive the asset upon your death. Life insurance policies, annuities, retirement accounts, and motor vehicles are some of the assets that can be transferred directly to a beneficiary. To make these arrangements, submit a beneficiary designation form to the financial institution, retirement plan or motor vehicle department. Be sure to keep the beneficiary designations current, and provide instructions to the executor listing which assets are to be transferred in this manner.

Fund the Living Trust: Unfortunately, many people establish living trusts, but fail to fully implement them, thereby reducing or eliminating the trust’s potential benefits. To be subject to the trust, as opposed to the probate court, an asset’s ownership must be legally transferred into the trust. If legal title to homes, vehicles or financial accounts is not transferred into the trust, the trust is of no effect and the assets must be probated.


Thursday, August 15, 2013

Filial Responsibility Laws

Filial Responsibility Laws

Filial responsibility laws impose a legal obligation on adult children to take care of their parents’ basic needs and medical care. Although most people are not aware of them, 30 states in the U.S. have some type of filial responsibility laws in place. The states that have such laws on the books are Alaska, Arkansas, California, Connecticut, Delaware, Georgia, Idaho, Indiana, Iowa, Kentucky, Louisiana, Maryland, Massachusetts, Mississippi, Montana, Nevada, New Hampshire, New Jersey, North Carolina, North Dakota, Ohio, Oregon, Pennsylvania, Rhode Island, South Dakota, Tennessee, Utah, Vermont, Virginia and West Virginia.

Filial responsibility laws and their enforcement vary greatly from state to state. Eleven states have never enforced their laws, and most other states rarely enforce the laws. Currently, Pennsylvania is the only state to aggressively enforce its filial responsibility laws.

One of the main reasons why filial responsibility laws are not widely enforced is due to the fact that in the context of needs-based government programs such as Medicaid, federal law has prohibited states from considering the financial responsibility of any person other than a spouse in determining whether an applicant is eligible. However, as many local programs aimed at helping the elderly continue to struggle with insolvency, many states may consider more aggressive enforcement of their filial responsibility laws.

Twenty-one states allow lawsuits to recover financial support. Parties who are allowed to bring such a lawsuit vary state by state. In some states, only the parents themselves can file a claim. In other states, the county, state public agencies or the parent’s creditors can file the lawsuit. In 12 states, criminal penalties may be imposed upon the adult children who fail to support their parents. Three states allow both civil and criminal penalties.

In some states, children are excused from their filial responsibility if they don’t have enough income to help out, or if they were abandoned as children by the parent. However, the abandonment defense can be difficult to prove, especially if the parent had a good reason to abandon the child, like serious financial difficulties. Sometimes, children’s filial responsibility can be reduced if prior bad behavior on the part of the parent can be proven.


Monday, August 5, 2013

You’ve Finally Done Your Healthcare Directives – Now What?

You’ve Finally Done Your Healthcare Directives – Now What?

Healthcare directives can be vitally important, as recent cases, like that of Terry Schiavo, clearly brought to light. These important documents can mean the difference between your health care wishes being carried out or family members fighting over whether a loved one should be placed in a nursing home or removed from life support. Healthcare directives usually include both a healthcare power of attorney and a living will, or a form which is a combination of the two. In a healthcare power of attorney, an individual authorizes another individual to make healthcare decisions for him or her if the individual becomes unable to do so. A living will expresses an individual’s preferences about life support.

Once you have executed your healthcare directives, you may be uncertain as to what to do with them. First, you should make copies of the documents and inform others of their existence. In addition to your health care agent, persons you should consider notifying of the directives include family members and your health care providers.  Ideally, the originals should be kept in a place that is both safe and easily accessible.

You may wish to consider using a secure registry service to store your healthcare directives. Such services allow you to access healthcare directives any time and in any location with access to the Internet.  Some also allow the documents to be accessed via an automated fax-back service. In addition to providing the healthcare directives, many registries also allow caregivers to access information like emergency contacts, allergies, and other pertinent medical information.

You should review your healthcare directives regularly.  As individuals get older, their preferences about health care and life support change, and it’s important that your directives reflect your current health care wishes.   Of course, life changing events such as marriage, divorce, or the death of a loved one typically require changes in those documents to ensure that the people named in them are still those you wish to make decisions on your behalf.  

Moving to another state? Many states provide that healthcare directives prepared in another state are valid, but you should consult an attorney to make sure your wishes will be carried out in the manner you desire.

Establishing your healthcare directives can spare your family a great deal of anguish if they need to make decisions at a time that is already very emotionally-charged. By keeping the documents in a secure place, providing copies to loved ones, and reviewing them regularly, you can be more certain that your healthcare wishes will be carried out.
 


Thursday, July 25, 2013

Gifting to Grandchildren

Issues to Consider When Gifting to Grandchildren

Many grandparents who are financially stable love the idea of making gifts to their grandchildren. However, they are usually not aware of the myriad of issues that surround what they may consider to be a simple gift. If you are considering making a significant gift to a grandchild, you should consult with a qualified attorney to guide you through the myriad of legal and tax issues that are involved in making such gifts.

Making a Lifetime Gift or a Bequest:  Before making a gift, you should consider whether you want to make the gift during your lifetime or leave the gift in your will. If you make the gift as a bequest in your will, you will not experience the joy of seeing your grandchild’s appreciation and use of the gift. However, there’s always the possibility that you will need the money to live on during your lifetime, and in reality, once a gift is made it cannot be taken back. Also, if you anticipate needing Medicaid or other government programs to pay for a nursing home or other benefits at some point in your life, any gifts you make in the prior five years can be considered as part of your assets when determining your eligibility.

What Form Gift Should Take:  You may consider making a gift outright to a grandchild. However, once such a gift is made, you give up control over how the funds can be used. If your grandchild decides to purchase a brand-new sports car or take an extravagant vacation, you will have no legal right to stop the grandchild. The grandchild’s parents could also in some cases access the money without your approval.

You could consider making a gift under the Uniform Gift to Minors Act (UGMA) or the Uniform Transfer to Minors Act (UTMA), depending on which state you live in. The accounts are easy to open, but once the grandchild reaches the age of majority, he or she will have unfettered access to the funds. You could also consider depositing money into a 529 plan, which is specifically designed for education purposes. Finally, you could consider establishing a trust with an estate planning attorney, which can be more expensive to set up, but can be customized to fit your needs. Such a trust can provide for spendthrift, divorce and creditor protection while allowing for more flexibility for expenditures such as education or purchase of a first home.

Tax Consequences: If you have a large estate, giving gifts to grandchildren may be a great way to get money out of your estate in order to reduce your future estate tax liability. In 2011 and 2012, a single person can pass $5 million at death free of estate tax, and a couple can pass a combined $10 million without paying estate taxes. In addition, a person can give $14,000 in 2013 to any number of individuals without incurring any gift taxes. A grandparent with 10 grandchildren could give $140,000 per year to all grandchildren (and a married couple could give $280,000), thereby removing that property from his or her estate. You should also keep mind that gifts over the yearly federal exemption of $14,000 would trigger the requirement to file a gift tax return both federally  and in Minnesota. 


Monday, July 22, 2013

UPDATE - MINNESOTA GIFT TAX ELIMINATED - March 24, 2014

Minnesota Tax Law Changes Eliminate Gift Tax - More Details to Follow.  (3/24/2014) 

 

 

 

On May 20, 2013, the Minnesota Legislature passed the Omnibus Tax Bill, which made significant changes to Minnesota estate and gift tax law. 

One major change under the Bill is the imposition of a Minnesota-specific Gift Tax that went into effect on July 1, 2013.  This new Gift Tax may have wide-ranging impact on Minnesota taxpayers.  Minnesota is only the second state in the country to have its own standalone gift tax.  The Bill establishes a 10% Gift Tax on all gifts above the federal yearly gift tax exemption currently set at $14,000.  The bill provides for a lifetime gift tax exemption of $1,000,000 per person.  This exemption essentially means that a Minnesotan would be able to make $1 million in gifts during his/her lifetime without being subject to paying a gift tax.  However, there would be a requirement to file a gift tax return (Form 709) for any gift(s) above the yearly exemption. 

Another major change under the Bill is that all “taxable” gifts during the three years prior to a decedent’s passing are includable in their Minnesota estate for the purposes of determining if an estate tax is owed to Minnesota.  These changes will also impact end-of-life gifting, which was formerly an effective way of reducing a Minnesota taxable estate.  

You should consult with a qualified estate planning attorney to determine if and how the recent gift and estate tax law changes impact your own estate planning needs and goals. 


Monday, July 15, 2013

Paying Off Loved One’s Debts

Do Heirs Have to Pay Off Their Loved One’s Debts?

The recent economic recession, and staggering increases in health care costs have left millions of Americans facing incredible losses and mounting debt in their final years. Are you concerned that, rather than inheriting wealth from your parents, you will instead inherit bills? The good news is, you probably won’t have to pay them.

As you are dealing with the emotional loss, while also wrapping up your loved one’s affairs and closing the estate, the last thing you need to worry about is whether you will be on the hook for the debts your parents leave behind. Generally, heirs are not responsible for their parents’ outstanding bills. Creditors can go after the assets within the estate in an effort to satisfy the debt, but they cannot come after you personally. Nevertheless, assets within the estate may have to be sold to cover the decedent’s debts, or to provide for the living expenses of a surviving spouse or other dependents.

Heirs are not responsible for a decedent’s unsecured debts, such as credit cards, medical bills or personal loans, and many of these go unpaid or are settled for pennies on the dollar. However, there are some circumstances in which you may share liability for an unsecured debt, and therefore are fully responsible for future payments. For example, if you were a co-signer on a loan with the decedent, or if you were a joint account holder, you will bear ultimate financial responsibility for the debt.

Unsecured debts which were solely held by the deceased parent do not require you to reach into your own pocket to satisfy the outstanding obligation. Regardless, many aggressive collection agencies continue to pursue collection even after death, often implying that you are ultimately responsible to repay your loved one’s debts, or that you are morally obligated to do so. Both of these assertions are entirely untrue.

Secured debts, on the other hand, must be repaid or the lender can repossess the underlying asset. Common secured debts include home mortgages and vehicle loans. If your parents had any equity in their house or car, you should consider doing whatever is necessary to keep the payments current, so the equity is preserved until the property can be sold or transferred. But this must be weighed within the context of the overall estate.

If an estate is subject to probate, personal representatives (also referred to as Executors) and estate administrators have a duty to locate and inventory all of the decedent’s assets and debts, and must notify creditors and financial institutions of the death. Avoid making the mistake of automatically paying off all of your loved one’s bills right away. If you rush to pay off debts, without a clear picture of your parents’ overall financial situation, you run the risk of coming up short on cash, within the estate, to cover higher priority bills, such as medical expenses, funeral costs or legal fees required to settle the estate.


Saturday, July 13, 2013

Lessons can be Learned from James Gandolfini's Estate Planning

Discussions of the substantial estate taxes likely owed by James Gandolfini's estate provide a glimpse into how even successful celebrities may not take full advantage of the estate tax planning strategies available to them.  Mr. Gandolfini's Will apparently divided his estate amongst several family members, including his wife, children and other loved ones. By dividing his estate this way a significant estate tax, likely north of 40% of his total estate, will be due 9 months after his date of death.  The estate tax owed could have been completely avoided with certain estate planning strategies that many married couples take advantage of. With estate planning, a married couple can transfer an unlimited amount to their spouse upon their passing free from Federal and Minnesota estate taxes.  Both federal and Minnesota estate tax laws allow for an unlimited marital deduction, meaning no estate tax would be owed on the amounts transferred directly to a spouse upon the death of the first spouse.  Minnesota's standalone estate tax, which provides a one million dollar exemption to each spouse, often requires additional estate tax planning and administration to fully utilize the available exemptions.  Each person's estate planning goals are unique and it is recommended that you consult with a qualified estate planning attorney to discuss your personal estate planning needs. 


Friday, July 5, 2013

Overview of Life Estates

Overview of Life Estates

Establishing a Life Estate is a relatively simple process in which you transfer your property to your children, while retaining your right to use and live in the property. Life Estates are used to avoid probate, maximize tax benefits and protect the real property from potential long-term care expenses you may incur in your later years. Transferring property into a Life Estate avoids some of the disadvantages of making an outright gift of property to your heirs. However, it is not right for everyone and comes with its own set of advantages and disadvantages.

Life Estates establish two different categories of property owners: the Life Tenant Owner and the Remainder Owner. The Life Tenant Owner maintains the absolute and exclusive right to use the property during his or her lifetime. This can be a sole owner or joint Life Tenants. Life Tenant(s) maintain responsibility for property taxes, insurance and maintenance. Life Tenant(s) are also entitled to rent out the property and to receive all income generated by the property.

Remainder Owner(s) take legal ownership of the property immediately upon the death of the last Life Tenant. Remainder Owners have no right to use the property or collect income generated by the property, and are not responsible for taxes, insurance or maintenance, as long as the Life Tenant is still alive.

Advantages

  • Life Estates are simple and inexpensive to establish; merely requiring that a new Deed be recorded.
  • Life Estates avoid probate; the property automatically transfers to your heirs upon the death of the last surviving Life Tenant.
  • Transferring title following your death is a simple, quick process.
  • Life Tenant’s right to use and occupy property is protected; a Remainder Owner’s problems (financial or otherwise) do not affect the Life Tenant’s absolute right to the property during your lifetime.
  • Favorable tax treatment upon the death of a Life Tenant; when property is titled this way, your heirs enjoy a stepped-up tax basis, as of the date of death, for capital gains purposes.

Disadvantages

  • Potential income tax consequences if the property is sold while the Life Tenant is still alive; Life Tenants do not receive the full income tax exemption normally available when a personal residence is sold. Remainder Owners receive no such exemption, so any capital gains tax would likely be due from the Remainder Owner’s proportionate share of proceeds from the sale.
  • In order to sell the property, all owners must agree and sign the Deed, including Life Tenants and Remainder Owners; Life Tenant’s lose the right of sole control over the property.
  • Transfer into a Life Estate is irrevocable; however if all Life Tenants and Remainder Owners agree, a change can be made but may be subject to negative tax consequences.

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Mullen & Guttman PLLC has offices in Edina, MN, St. Michael, MN, & Lake Elmo, MN and provides estate planning services to individuals and families throughout Minneapolis, St. Paul, and the surrounding communities. We provide legal services in the following counties: Hennepin, Ramsey, Dakota, Anoka, Wright, Washington, Carver, Scott, Sherburne, Le Sueur, Sibley, Pierce, Isanti and Chisago.



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