How to Choose a Good Executor


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My clients sometimes have trouble choosing the right executor for their estate. Often, they feel torn between several people, each of whom they would like to honor with such an appointment. But being an executor is not just an honor. Your executor will have a lot of responsibilities, not least of which is a legal duty to properly administer your estate.  It’s important to choose an executor who is stable, responsible, and trustworthy enough to handle those responsibilities.

For instance, your executor is responsible for initiating the legal probate proceedings, assembling and inventorying your assets, and filing your final tax returns.  In addition, your executor may be responsible for managing your assets.  Thus, a good executor should be detail-oriented and comfortable working with the professionals, such as accountants, lawyers, and investment advisors, whose assistance is necessary to do these things correctly.

Your executor is also responsible for using money from your estate to pay any of your outstanding bills, such as medical bills, funeral expenses, mortgage payments, utility bills, credit card payments, and bank fees.  So choose an executor who has demonstrated the ability to keep track of their own bills and pay those bills on time.  The process of settling accounts also often involves bureaucracy and paperwork, as the executor must work with banks, insurers, and credit card companies. So it is a good idea to choose an executor who has the confidence and perseverance to deal with such institutions.

Once your bills and taxes have been paid, your executor is responsible for distributing the remaining money in your estate.  This requires that your executor deal constructively with each and every one of your heirs.  If you choose an executor who does not get along with one of your heirs, this could quickly escalate into a legal conflict between them, which is not the legacy you want to leave for your loved ones.  And don’t forget that your executor has a legal duty to act impartially with regard to your heirs.  So it’s not a good idea to nominate someone who would be prevented from acting even-handedly by sibling rivalry or parental favoritism.

The bottom line is that there are many ways to honor and remember special people in your life, besides appointing them as executor.  Consider leaving such individuals a special bequest or a sentimental gift.  Or you can bequeath money in their name to a meaningful charity.  For assistance in making such bequests or in choosing a good executor for your estate, contact Christl@DeneckePlanning.com or see DeneckePlanning.com.

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Estate Planning for Second Marriages


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With people divorcing more often and living much longer than they did in the past, the frequency of remarriage is increasing.  This results in a greater number of blended families.  It is not uncommon now for couples to have “his, hers, and their children,” which creates a unique set of estate planning pitfalls.  But these issues can be resolved with a little forethought and some assistance from a savvy estate planner.

The biggest issue many couples in second marriages face is deciding what children from their first marriages should receive when the first spouse dies.  Neither spouse wants to disinherit their own children.  But neither spouse would have enough to live comfortably if their partner should die and leave all of his or her assets to children from a former marriage.  One solution is to leave children from first marriages a small outright bequest or name children from first marriages as the beneficiaries of a life insurance policy.  This initial gift is meant to make the children feel remembered and loved, instead of set-aside in favor of the second spouse.  The first spouse to die can also leave his or her assets to a trust, for the use of the surviving spouse during his or her lifetime.  Upon the death of the surviving spouse, the trust can pass the remaining assets of the first spouse to die to his or her children from a first marriage, ensuring that they are not disinherited.

Another important thing spouses in second marriages often forget about are their jointly-titled assets and beneficiary designations on things like retirement accounts, insurance policies, and bank accounts.  For instance, when you were divorced you might have added your kids to your savings account, which now holds all of the money your spouse would need to live on if you were no longer around.  Or a large portion of your savings may be in the 401(k) account you opened years ago, when you named your former spouse as the beneficiary.  It is extremely important for couples in second marriages to check the titles to their assets and the beneficiary designations on their accounts and policies, to make sure that these don’t conflict with the overall goals of their estate plan.

Do not leave these things until the last-minute or leave it for your kids to sort out later.  That can create a worst-case scenario, in which your family starts fighting with one another.  Those arguments can be expensive in both in monetary cost and in the damage they do to family relationships.  For assistance in creating an estate plan for your second marriage, contact Christl Denecke at DeneckePlanning or Christl@DeneckePlanning.com.

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DOMA and Estate Planning for Gay Couples


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Last week, President Obama ordered the Department of Justice to stop defending the Defense of Marriage Act, the Federal law banning recognition of same-sex marriages.  However, for the time being, same-sex married couples should not change their estate plans or file their Federal taxes any differently than they did last year.

The President has issued a directive to stop defending DOMA in court, not a directive to stop enforcing DOMA.  As a result, the IRS will still not grant married same-sex couples the unlimited Federal marital estate tax exemption.  When a same-sex spouse dies, the entire amount he or she leaves to his or her surviving spouse is subject to Federal estate tax, which would not be the case if the couple were of opposite genders.  In addition, married same-sex couples cannot use QTIP, QDOT, AB, or Marital Exemption trusts to effectively defer the payment of Federal estate tax.   However, this situation may change, in the foreseeable future, due to a law suit currently pending in the Southern District of New York.

Edith Windsor married Thea Spyer in Toronto in 2007, after the couple had been together for more than forty years.  Their marriage was recognized by the State of New York, where the couple lived.  But under DOMA, Edith and Thea’s marriage was not recognized by the Federal government.  Thus, when Thea died, leaving her entire estate to her wife, the estate had to pay more than $350,000 in Federal estate taxes.  Now Edith is suing the Federal government for repayment those taxes.  Her case, which is still pending, was cited by President Obama as one justification for his decision to stop defending DOMA.

For more information about estate and tax planning for same-sex couples or blended families, contact Christl Denecke at DeneckePlanning.com or email me at Christl@DeneckePlanning.com.

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The Not-So-Personal Estate Tax Exemption


Since Congress once again changed the personal estate tax exemption in December of 2010, many of my clients have been confused about what portion of their estates would be subject to Federal estate tax.  Here are the basics:

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$5 Million Unified Estate and Gift Tax Exemptions.
For 2011 and 2012, the personal estate and gift tax exemptions are unified at $5 million.  There is an unlimited marital exemption, so the $5 million personal exemption really means that you can give up to $5 million to someone other than your spouse without paying any Federal estate or gift taxes.*  But remember, this exemption only applies for persons dying in 2011 and 2012.  On January 1, 2013, the personal estate tax exemption is scheduled to go down to $1 million.

Spousal Portability of the Personal Estate Tax Exemption.
In 2011 and 2012, the personal estate tax exemption is transferable between spouses.  For example, if I left my spouse a $5 million house and also my $5 million estate tax exemption, after my spouse dies he could pass the house on to our children free from estate tax.  However, portability is scheduled to be discontinued on January 1, 2013.  Therefore, it is unclear whether the only couples to benefit from this mechanism will be the ones where both spouses die in 2011 and 2012.

Changes on the Horizon Complicate Planning.
On January 1, 2013, the personal estate and gift tax exemptions are scheduled to decrease to $1 million and portability is scheduled to end.  It is unclear whether Congress will act to mitigate or delay these changes.  And, if historical patterns hold, Congressional action may be last-minute.  Be sure to make your estate plan can be flexible enough to take advantage of whatever changes Congress decides to make.

For help creating an estate plan that is adaptable to current and future tax regimes, see DeneckePlanning.com or contact me at Christl@DeneckePlanning.com.

Helping you plan for your family’s tomorrow at every stage of your life.

*Note that if you give money to grandchildren, there may still be a Federal Generation Skipping Transfer (“GST”) Tax.

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Why Use a Living Trust?


A client recently asked me whether he could avoid paying estate taxes by putting all of his assets into his living trust.  The short answer to that question is, not really.  From the IRS’s perspective, the assets in your revocable living trust count as part of the value of your estate. Therefore, putting your assets into a living trust does not shelter those assets from the estate tax.

But a living trust can still help you leave more money to your loved ones.  For example, when assets are transferred through a revocable living trust they don’t incur the cost of probate.  Instead of going to the State or County, the money that your living trust saves in probate fees can be passed directly to your heirs.

For help putting your assets into a living trust, see DeneckePlanning.com or contact me at Christl@DeneckePlanning.com.

Helping you plan for your family’s tomorrow at every stage of your life.

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