Economy Affecting Estate Planning - Only 35% of Americans Have a Will

A new survey by the Harris Poll for Lawyers.com recently reported that even fewer Americans have estate plans in place. According to the poll, only 35% of Americans have a will in place. This is down from 45% only 2 years earlier.

Apparently, individuals are focusing on their short-term needs as the economy continues to lag and job security continues to be an issue. While keeping food on the table is critical, putting your estate plan matters in place is also important. With young children, second marriages, children from prior marriages and beneficiaries with creditor problems, the lack of an estate plan can create significant emotional and financial hardship on a family.

When looking for an attorney to handle your estate planning when cost is an issue, look at attorneys that offer flexible payments or those that allow you to pay by credit card (not that increasing your credit card balance is good, but it does offer some ability to pay over time.) Hint: contact me.

Looking to Disinherit Your Spouse? Now an Iowa Court Tells You How

I have a post about an interesting ruling by an Iowa district court on disinheriting your spouse on the Iowa Law Blog.

Iowa Legislature Working on Posthumously Conceived Children

As a result of the struggle a family endured in seeking Social Security benefits for a child conceived through in vitro fertilization two years after her biological father died of leukemia, the current Iowa legislature is looking at a bill to provide some legal rights for children conceived after a parent dies. The current bill is taking into consideration some of the issues raised by the Iowa State Bar Association, such as obtaining necessary consent from the contributing parent as well as a limited time period. Jason Clayworth of the Des Moines Register had a recent article as he continues to follow the story.

"Trust Mill" Fines of $6.4 million in Ohio

The Ohio Supreme Court fined two California-based companies multi-million dollar fines for the unauthorized practice of law. The operation apparently involved telemarketers and salespeople persuading elderly residents of purchasing a living trust in order to avoid exaggerated fees and costs at their death. Apparently, over 3,000 Ohio residents were convinced to purchase the products, which were from non-attorneys, although "approved" by an Ohio attorney, despite not speaking with the client. The Ohio Supreme Court was not thrilled with the performance of legal services by non-attorneys and handed down the hefty fines.

Living Trusts (or revocable trusts or inter vivos trusts - all the same) can be an effective estate planning tool. The determination of whether it is an appropriate plan for you should be carefully considered after consultation with an attorney (not a salesman or telemarketer) who is familiar with estate planning. After the trust is established, it is also important that it be funded, otherwise many of the key benefits are lost.

Gift Tax Exemption Amount for 2010

As David Goldman of the Florida Estate Planning Lawyer Blog recently noted, the IRS has announced that the annual gift tax exemption amount for 2010 will stay at $13,000.00. This represents the amount that each individual can give to another person without having to either pay any gift tax or file a gift tax return. If you decide to make a gift in excess of the exemption amount, then it is necessary to prepare and file a gift tax return with the IRS. Whether you will have to pay any gift tax on a gift depends on how much you gifted already during your life.

For more information on using the valuable estate planning tool of gifts, contact an estate planning attorney.

Social Security Benefits for Posthumously Conceived Child Upheld

In a follow-up to a recent post I had on the Iowa Law Blog, Jason Clayworth of the Des Moines Register recently updated the situation concerning a young girl's application for social security benefits as a result of her father's death. A federal judge has overturned the rejection of benefits and thus permits her to receive benefits. The article continues to point out that legislators are examining long overdue updates to the Iowa statute to address these types of situations. The Social Security Administration has until January 11, 2010 to appeal.

The complexities that are involved in cases like this are challenging. A recent Probate Section meeting of the Iowa State Bar began to examine some of the issues and an approach to take with this issue. The discussion revealed that there is a split in the probate section as a result of numerous questions and possible approaches. Beyond the basic philosophical question of is this "right", there other other related matters beyond social security benefits. Can the father's wishes restrict future usage of his genetic material? Does he need to sign a written consent to authorize the use after his death? Should that consent be notarized? How far in the future will this material be permitted to be utilized? How will this impact settlement of estates and determination of heirs? How does this issue impact review of real property titles in abstract examinations?

I look forward to how the Iowa legislature approaches this issue in the spring and hopefully they consider all of the interrelated issues.

Heemstra Trial Update - No Asset Protection Here

A little bit slow on my part in updating my prior post on the Heemstra case, but the Judge in a harshly worded ruling of September 18, 2009 ordered Heemstra to pay $750,000 in punitive damages, another $204,000 in other damages and ordered the sale of land owned by Heemstra and his wife. The judge found that the Heemstras engaged in a "complex shell game" to try and hide and move their assets to prevent Lyon's widow from recovering on her $5.68 million judgment. William Petroski of the Des Moines Register also covered the ruling in an article on the Des Moines Register.

The judge found that the family fraudulently transferred their assets (even I called this one) to various family members and entities to produce the perception of a "penniless" defendant in order to avoid payment of the wrongful death judgment. The judgment goes beyond just Rodney Heemstra, and also included certain damages against Heemstra's son, an irrevocable trust, his sister, a limited liability partnership and his mother.

Fraudulent transfer statutes can, obviously, produce some harsh sanctions and may even include those involved in the transaction, even if they don't personally benefit. Asset protection is not the same thing as fraudulent transfer. Properly completed, asset protection may protect one's assets from judgment.

Disposition of Partnership Property that Isn't in the Name of the Partnership

A recent case from the Iowa Court of Appeals helps illustrate the importance of putting business matters in writing. In the Matter of the Estate of John Liike, John and his brother had inherited some land from their parent and had operated the land as part of a partnership for several years. The land was never actually placed in the name of the partnership, but kept in their individual names as tenants-in-common. Eventually, they entered into a written partnership agreement which provided that when one of them died, the other partner would have the option of purchasing the partnership property. No changes were made to the title of the land.

After John died, John's widow and John's brother did not see eye-to-eye, with each wanting John's one-half interest in the farmland. The trial court found, and the Iowa Court of Appeals affirmed, that even though the land was not titled in the name of the partnership, the facts and circumstances clearly found that the land was meant to be partnership property and permitted John to purchase the land from the estate.

What does this mean? As a result, John's brother will be able to keep the farm that he inherited and he is not forced to split the farm with his sister-in-law or forced into some business relationship with her. Message to others? Formalize your business arrangements by putting your affairs in writing and establishing what happens in the event of your death. The Liike brothers did some written planning, but a little more thorough planning may have avoided this costly lawsuit.

Aren't families grand?

Heemstra Trial and Asset Protection In Iowa

The local Rodney Heemstra trial has brought asset protection into the local news lately. Mr. Heemstra shot and killed his neighbor during a dispute. After the incident, Mr. Heemstra made several restructuring changes to his finances and assets which involved the use of irrevocable trusts and other entities.

Revocable trusts are a common estate planning tool, but they do not provide any asset protection for the person who creates the trust. With revocable trusts, the person has the power to revoke, or cancel the trust. That power to yank the assets back removes the option to protect those assets from your creditors as your creditors can access them as well.

The question of when is it "too late" is a key issue in the asset protection plan is important. If transfers are made after an event that gives a basis for someone to bring a claim to collect, the state's fraudulent transfer statute under Iowa Code chapter 684 can apply to revoke those transfers as if they didn't happen. In the Heemstra trial, I would think that Iowa's fraudulent transfer would be applicable.

Proper asset protection planning takes place prior to any potential threat of a lawsuit or a claim. Once there is a basis for a claim, it is usually too late.

When is an Heir an Heir?

An Iowan is struggling with the definition of heir under the Iowa Probate Code. In order to qualify as an "heir" under Iowa law, you must have been conceived prior to the death of the biological parent. This has been the definition of an "heir" for 150 years. However, with advances in medical science, it is now possible that a child can be conceived after death through fertilization from frozen sperm. Still a child right? Wrong, under Iowa intestate law and for social security benefits.

Despite the same result, social security administration has ruled that being conceived after death is not the same as being conceived before death of the biological parent. As a result, the child, who has her father's DNA and is in fact the biological daughter of her father, will not be able to reap the benefits of her father's social security benefits, as other children would, that he contributed to during his life.

Due to a split in the circuit courts, expect to see either this case or a similar case before the US Supreme Court in the future. Until then, the legislature should examine the definitions in light of changes in medical science.

Planning Your Estate in Iowa for Future Changes

A power of appointment is special planning tool that not many people are aware of. What if you didn't know exactly how you wanted your assets distributed in the future at your death, but you did trust someone else, such as your spouse or child, to make those decisions for you? A power of appointment is a special authority that you can pass to someone to make distribution decisions for your assets in the future. For example, Husband's Will keeps his assets in trust for the life of Wife, and then it gives Wife the authority, at her death, to distribute the assets out as she chooses. Thus, if Son is in a bad financial situation or marital situation and it is not wise to give the money to Son now, the surviving spouse (Wife) could say that Son's share will stay in trust and not be given out to him. Or conversely, rather than keeping it in trust, it could be paid immediately to Son if his affairs are in order. If flexibility for future decisions is sought, this can be an answer.

This decision deferral, called a "Power of Appointment", is an effective estate planning tool. You can also limit how much discretion the appointee (person with the power) has so that they can't distribute it to someone that you have no intention of providing funds.

Matt Gardner - Published Author

I've always wanted to say that. Now I can. I recently had a chapter published by Aspatore Books in the book titled "Estate Planning Client Strategies: Leading Lawyers on Understanding the Client's Goals Using Trusts Effectively, and Planning in a Changing Economic Climate (Inside the Minds)." (Say that in one breath.) If you are interested in purchasing, go here (none of the proceeds go to me).

Death of a Beneficiary - Iowa's Antilapse Statute

Quiz time - You leave a bequest in your will for a gift to an individual, but that individual dies before you do, leaving their own children.  Do those kids inherit their parent's share or do the other beneficiaries named in your will receive an increased amount?  If you guessed that the children of the beneficiary inherit, you are correct (but with an asterisk).

Iowa's antilapse statute (Iowa Code sec. 633.273) provides that if a devisee dies before the testator, leaving issue who survive the testator, the devisee's issue inherit the property devised unless the terms of the will indicate to the contrary.  Huh?

What this means, if you want person A to receive property, but only if they survive you, then you need to specifically require that they must survive you in order to receive their inheritance.  Otherwise, if you don't, their children will inherit what you intended to go to their parent.

A recent case of In re: Delmege Estate, the Iowa Court of Appeals addressed the application of the Iowa antilapse statute.  In that case, five siblings were named as devisees under a will, but one of the siblings predeceased the testator leaving two daughters.  The Court found that if the decedent didn't want his nieces to inherit, he could have easily crafted his will for that purpose by including a survivorship clause.  There is a presumption that the testator knew about the antilapse statute.  (I wonder if the DIY wills fully address this issue.)

Power of Attorney Dangers - License to Steal

A local couple (a pastor and his wife nonetheless) were recently charged with theft and dependent adult abuse.  There were charged with taking money from both of their elderly parents, under authority of a power of attorney to pay for vacations, airfare, motels and eating out frequently.  

Local authorities and national organizations are reporting an increase in elder abuse in the past year, likely attributable to challenging economic times.  The typical power of attorney grants the attorney-in-fact broad power to act in their stead.  This power is typically granted without any oversight, which can be too tempting for some people.

If you suspect that someone is misusing the power granted to them, report the information immediately to the local police who will be able to properly investigate the case.

 

Iowa Courts Fail to Honor Postnuptial Agreement Terms

A recent ruling from the Iowa Court of Appeals continued to reinforce the surviving spouse's right in the case of In the Matter of the Estate of Herbert C. Shaffer, issued March 11, 2009.  Husband and wife had executed a postnuptial agreement (presumably in another state as postnuptial agreements - agreements entered into after a marriage - are not recognized in Iowa but are recognized in other states).  The postnuptial agreement basically provided that each would be responsible for their own expenses and would not look to the other party for reimbursement.  Subsequently, husband executed a will in which he left all of his property to his children from his earlier marriage.

After husband died, wife had a change of heart and decided to exercise certain rights of a surviving spouse.  Specifically, she sought to elect to (1) take against the will and (2) request spousal support.  

First, a little background on these rights.  Basically, you can't disinherit your spouse unless he or she agrees to it.  If a spouse is excluded, they have the right to declare the disinheriting provision of the will as invalid and receive a share of the estate, despite the will.  This is the right to elect against the will.  A second right of a surviving spouse is the right to request a spousal allowance.  After taking into consideration certain factors, a court can award an allowance from an estate for twelve months of support to a surviving spouse, whether they need an allowance or not.

Despite the provisions of the postnuptial agreement, the Iowa Court of Appeals determined that a postnuptial agreement could NOT waive the right to elect against the will.  Thus, while while a premarital agreement could permit a spouse to waive the right to elect against the will, a postnuptial agreement, even though presumably valid where executed, will not be enforced in Iowa to force a waiver of that right.  Interesting result leads to some interest scenarios.  

Additionally, the Court of Appeals further authorized the spousal allowance the surviving spouse sought.  Under Iowa Code 633.374 and prior cases, the spousal allowance provisions cannot be waived by agreement.  

The Court of Appeals has basically called out the Iowa legislature to amend the Iowa Code to approve postnuptial agreements by statute, as the court will not accept the limiting provisions otherwise.  Thus, if you have a postnuptial agreement, be wary of moving to Iowa or other states that have not adopted postnuptial agreements.

Will Contests in Iowa

Not happy with the distribution provisions of a will?  Like any good American you have the right to go to court.  On the Iowa Law Blog I have a post about what is required to be shown in a will contest.

Example #517 of Poor Estate Planning

At the Ohio Estate Planning, Trust & Probate Law blog, there is another great example of why will preparation should not be handled by yourself, especially if you have any unique situations in your family.  Imagine after trying to kill your parents, you inherit $500,000 from them after they, understandably, attempted to disinherit you.  Just another example of seemingly easy estate planning gone wrong.

Preserving Your Assets and Possessions

I recently had the opportunity to sit down and visit with Gabriel Glynn of Iowa's Asset Protection Specialists, LLC (APS) about his business.  After learning about the services they offer, I believe that his company offers an excellent supplement and expansion to the "standard" estate planning.  Basically, APS will come to your house and inventory all of your belongings by video and photographic means.  They will also scan any important receipts, which can document prices paid for certain items and they will also scan other important documents.  After their inventorying job is complete, APS will provide you with a complete copy of the inventory as well as maintain two separate back-ups.

Imagine trying to replace all of the items in your house following a flood, fire or burglary.  Not easy, eh?  With the APS system, imagine how much easier it would be to complete an insurance claim when you have a verifiable record of those assets lost.  Or, what about trying to determine the assets that your parents have and how they should be divided? There are multiple uses for the asset inventory.

Most people will continue to accumulate assets over their life - some of which may be valuable.  Even for those non-valuable assets, they are not easily replaced.  Family heirlooms, antiques and collectibles can hold special value and history that could be lost if not preserved properly.

I would encourage you to contact Gabriel Glynn at APS and learn more about what they can do for you.

Estate Planning Basics Course for Urbandale

For anyone interested in attending a no-pressure-educational class on estate planning basics for Iowa residents, feel free to check and sign up for the Estate Planning Basics class I'll be teaching through the Urbandale Parks and Recreation Community Education Program.

Legal Issues for Family Members with Alzheimer's

Alzheimer's is a horrendous disease with someone developing Alzheimer's every 71 seconds. Watching a loved one's condition continue to deteriorate to the point of not recognizing family members or their life is truly depressing. However, there are certain legal steps to consider when a family member is involved.

• Guardianship and conservatorship If decisions need to be made for an incapacitated individual, whether medical care or financial matters, it may be necessary to have a guardian/conservator appointed by a court.
• Trust - If a self-settled trust has already been established by the incapacitated individual, it may be necessary to examine having the successor trustee step in to handle trust management matters.
• Power of Attorney - If the individual has already signed a power of attorney (health and financial), steps should be taken to determine whether the disability provisions are applicable and granting authority.
• Beneficiary Designation review - Information should be reviewed to determine if the proper beneficiaries are named on applicable accounts and whether any changes need to be made.

Working with an elder law attorney or an experienced estate planning attorney will help guide a family through a difficult time.

Iowa Inheritance Taxes

The "Death tax" is alive and well in Iowa. Iowa currently has an inheritance tax system in place. What this means is that the person who inherits the property will determine if tax is owed or not. Compared to an estate tax system, where the size of the estate determines where tax is owed or not. (Although if the total estate is less than $25,000, there is no Iowa Inheritance tax imposed.)

Iowa has an unlimited exemption from inheritance taxes for surviving spouses, charities and lineal descendants/ascendants. If the recipient fits into any of those categories, there is no Iowa inheritance tax.

If the recipient is outside those categories, the tax will vary based upon the amount of the inheritance and the relationship to the decedent. The Iowa Department of Revenue's table illustrates how the tax is computed and the different tax rates applicable.

If any tax is owed, it is due on the 30th day of the ninth month following the date of decedent's death.

Medicare and Medicaid in Iowa. What's the difference?

It is not unusual to hear people use the wrong term when referring to obtaining government assistance for health care expenses. Medicare and Medicaid are two separate and distinct programs administered and financed by the government for covering health care expenses. Eligibility for "Medicare" is based simply on age or disability. "Medicaid", on the other hand, has eligibility based upon financial requirements. In other words, a millionaire could qualify for a Medicare, but not Medicaid. Hyman Darling has another good post explaining the difference between the programs.

Equitable Adoption Doctrine in Iowa Probate

People, for a variety of reasons, procrastinate on a variety of legal matters. A recent survey indicated that 55% of adult Americans do not have a will. Another legal issue that some individuals procrastinate on is adoption. If you place these two puzzle pieces together, you have the potential for an unfair picture.

For example, assume this scenario: H & W have a child together, C. Shortly thereafter, W dies and H remarries W2 while C is still a young child. Together, H & W2 raise C and treat C as their own child, even though W2 never formally adopts C as her own child. Later in life, H dies and all of his assets pass to W2 as joint assets. C continues to care for and treat W2 as their mother. W2 then passes away without having executed a will. Who inherits W2's estate? Or, more importantly, who should inherit?

Under the intestacy laws, C would not inherit from W2 as there is no legal status of a parent-child relationship as required to inherit under the intestacy laws. However, over the past 80-some years, the Iowa courts, as well as 26 other states, have considered and adopted a theory called "equitable adoption", sometimes called "adoption by estoppel" or "virtual adoption" or "constructive adoption". Basically, a good summary of the theory stated by the Missouri Court of Appeals in Gardner v. Hancock:

An adoption by estoppel is an equitable remedy to protect the interests of a person who was supposed to have been adopted as a child but whose adoptive parents failed to undertake the legal steps necessary to formally accomplish the adoption; the doctrine is applied in an intestate estate to give effect to the intent of the decedent to adopt and provide for the child.

In other words, the law won't punish a child for the mistake of the "parent" in failing to formally adopt the child through the legal system.

As the number of second marriages increase, in addition to "informal adoptions" and extended families as a result of cultural differences, as noted by Professor Higdon, and economic limitations, the argument of equitable adoption can be expected to increase in the court system.

Compensation for Executor in Iowa Probate

In Iowa, the fee for the executor is set by the court and is based upon a state statute. Their fee is also based upon the size of the estate, as reported on the inventory filed with the probate court. Iowa Code section 633.197 provides that the personal representative (executor or administrator) fee shall not exceed $220.00 for the first $5,000 of probate assets, and then 2% on all assets over $5,000.00. All assets of the estate are included in the fee determination, with the exception of life insurance payable to others.

Any compensation received by a personal representative is taxable income to that individual. Thus, if a personal representative is a beneficiary, they may want to consider whether to waive their fee and thus increase their inheritance, which may be free of tax, or to take their compensation and pay income tax on that amount.

5 Legal Tips for Peace of Mind

Over at the North Carolina Estate Planning Blog, Greg Herman-Giddens has a good post on "5 Legal Tips for Peace of Mind". This post covers some basic legal issues to be aware of to "get your house in order". While there are many other things that I could add to the list, this is a good basic foundation.

Terminating or Modifying a Trust in Iowa

A common question that I get asked is about "breaking a trust". By breaking a trust, someone typically means doing away with a trust for some reason or changing its terms. Is it hard to do? Can it be done? Yes, it certainly can be done. The difficulty of doing so depends on the circumstances.

Terminating or Modifying a Trust in Iowa

The general background is that a trust will run its course until its objectives are reached. However, there are situations which may be applicable that affect the trust. Under the Iowa Trust Code, which is still relatively new and untested in Iowa, there are several statutory options that are available for consideration.

Terminating a Small Trust in Iowa

If the amount of the trust is relatively low and incurring costs in its administration, it is possible to terminate the trust and distribute the assets to the beneficiaries, even if the trust terms provide for the trust to continue into the future. A court would need to approve such a termination after either the trustee or a beneficiary request the court to terminate the trust. Iowa Code sec. 633A.2205 (2007). Whatever "low" value means depends on the costs involved, the argument presented to the court and the court's opinion as to what is "low enough".

Modifying a Trust in Iowa

it is possible to change an irrevocable trust. If the settlor (the person who created the trust) is still alive, so long as they consent and all the beneficiaries consent, a trust could be modified or even terminated. Court involvement is not necessary. Iowa Code 633A.2202. If the settlor is dead, there is a different procedure involved. If ALL the beneficiaries are in agreement and it isn't necessary for the trust to carry on with the same terms, a court can permit the trust to be modified or even terminated. The difficult component is getting the consent of each beneficiary. The Iowa Trust Code does provide some relief when dealing with minor beneficiaries. Iowa Code 633A.2203.

Replacing the Trustee of an Iowa Trust

This provision has some unresolved questions that may need to be clarified in the future through some legislative changes. Historically, it was difficult to remove a trustee from a trust. However, the relatively new (& untested) Iowa Trust code does provide some "gray area" that may be used to change the trustee. There is also the possibility that a trust could be amended by insertion of a provision in a trust permitting a procedure to remove a trustee. At least one court in Iowa has permitted this change.

Ancilliary Probate in Iowa - Out of State Resident

If a non-Iowa resident dies while owning property in the state of Iowa (or other states for that matter) will need to go through a process called "ancillary estate administration". It is necessary to have the probate proceedings started in the state where the decedent resided (called domicillary probate). Once a personal representative is appointed, certified copies of those pleadings are filed in Iowa, along with a Petition, Court Officer's Oath, confidential information form and Designation of Attorney. Notice is published and the probate process follows the typical probate administration as when an Iowa resident's estate is probated.

While it is not necessary to have an attorney, a qualified attorney can be helpful in providing direction and necessary forms for the administration.

Guardianship and Conservatorship Proceedings in Iowa

If someone is unable to take care of their own well-being and their finances, it may be necessary to establish a guardianship and conservatorship for them.

A guardian is appointed by the court, after someone requests to be appointed, to oversee the health and well-being of an individual. On an annual basis, they will report to the court as to the status of the ward. Before a guardian can take certain steps, it is necessary for certain decisions to be approved by the court. The guardian does not handle any finances or assets for the ward.

A conservator is also appointed by the court upon request. A conservator is responsible for managing the finances of the ward, paying bills, investing and paying taxes. The conservator also has to provide on an annual basis an accounting of all income, expenses and changes in the investments of the ward.

The conservator and guardian may, but need not be, the same person. In some situations, more than one person may seek to be appointed, which may create tension and conflict in a family situation.

Establishing a conservatorship or guardianship can be time-consuming and expensive. To avoid these procedures, it is ideal to execute a power-of-attorney prior to losing your competency, which in most situations negates the need to have a guardian or conservator appointed.

Samantha Kain Joins Sullivan & Ward, P.C.

Samantha Kain has joined Sullivan & Ward, P.C. law firm as an associate. Samantha is a December 2003 graduate of Drake Law School and practices in the areas of family law, real estate and estate planning.

Iowa Enacts Final Disposition Directives Act

Following a controversial decision by the Iowa Supreme Court and after some wrangling in the Iowa legislature, Governor Chet Culver signed SF 473 into law on April 11, 2008. Effective July 1, 2008, this new chapter to the Iowa Code (chapter 144C) authorizes an individual to designate an individual to make decisions over the disposition of their bodily remains following their death. The designation does not indicate how a person wants their body remains to be handled, only who has the authority to make those decisions that are "reasonable under the circumstances".

Now, what is "reasonable under the circumstances"? Under the definitions section, consideration should be given to the deceased's financial situation, religious beliefs and cutural or family customs.

Also, if the designee doesn't promptly step forward and assume their responsibility, they forfeit their rights. In fact, the designee has either 24 hours after notification or 40 hours after death to exercise their authority. Iowa Code section 144C.8 After, that, the power is gone and moves to the next person on the priority list.

This new law also covers situations beyond immediate funeral arrangements. For example, disinterment or decisions about an autopsy.

I imagine most attorneys will begin placing appropriate designations on their medical power of attorney forms. Here is the suggested language to use for the declaration:

I hereby designate ................ as my designee.  My designee shall have the sole
responsibility for making decisions concerning the final disposition of my remains
and the ceremonies to be performed after my death. 

This declaration hereby revokes all prior declarations.  This designation becomes
effective upon my death.  My designee shall act in a manner that is reasonable under
the circumstances.

I may revoke or amend this declaration at any time.  I agree that a third party
(such as a funeral or cremation establishment, funeral director, or cemetery) who
receives a copy of this declaration may act in reliance on it.  Revocation of this
declaration is not effective as to a third party until the third party receives
notice of the revocation.  My estate shall indemnify my designee and any third party
for costs incurred by them or claims arising against them as a result of their good
faith reliance on this declaration.
     
I execute this declaration as my free and voluntary act.

This new chapter is a needed step by the Iowa legislature. Unfortunately, for the Stark family, it is too late. However, like many aspects of an estate plan, the usefulness of this chapter is only beneficial if the plans are communicated to those key individuals. Knowing where the document is, who the designee is and what one's wishes are can be critical to putting your final affairs in order.

Testamentary Trusts in Iowa

Joel Schoenmeyer has a good post on testamentary trusts on his Death & Taxes blog. Many clients think of estate planning in terms of either having a trust or a will. In fact, a testamentary trust plan involves both concepts. For those individuals that are not comfortable with the revocable trust plan which involves transferring all of one's assets to their trust and the cost of setting up such a plan, a testamentary trust is an alternative which gives you control from the grave over how your assets are handled.

For example, if you have young children and you aren't interested in a revocable trust, a testamentary trust would control when and how your children would access those funds in the future if something should happen to you. Without such a testamentary trust and with just a simple will, your children would receive 100% of the assets at the "mature" age of 18. Not ideal, eh?

While you maintain control, such a plan does require your estate to go through the probate process before the assets are transferred to the trustee. In other words, you maintain control over distribution provisions, but you do lose the probate avoidance by planning with a testamentary trust. Certainly a middle ground approach for many individuals that accomplishes many goals.

What to Do When Someone Dies in Iowa

Besides taxes, the other sure thing in life is that it comes to an end eventually. A common question becomes "what's next?" (I'll skip the whole afterlife heaven and hell discourse and stick to the worldly issues.) And of course you have the whole "what to do with the body issue".

Depending on the planning that was done beforehand will dictate a lot that will be done afterwards. For example, if the decedent properly used a revocable trust, it may not be necessary to go through the probate process. Good planning and organization prior to our "time" is important in helping to alleviate the work that our family and friends are forced to go through.

Transfer of Assets

If all of the assets were held jointly, it may not be necessary to go through the probate process, although there may be some other advantages with going through probate. Also, if the asset has a named beneficiary (e.g. life insurance, IRA, etc.), that asset will pass automatically and not subject to any will, trust or other dispositive document. Otherwise, other than joint assets or named beneficiaries, the estate plan of a will, trust, or the state's plan will determine where those assets go. (And it might not matter that you're the child from the first marriage or dad liked you the best.)

Payment of Bills/Claims

Depending on financial situation of the decedent, there may be certain bills and expenses that need to be paid. Through certain publication processes in the probate process, all potential claims can be "pulled out of the woodwork" in order to determine how much should be paid and whether it is a valid debt or not. Also, if the decedent was receiving certain public assistance benefits (e.g. Medicaid) during life, of if the decedent's predeceased spouse received such benefits, there may be a lien against any remaining assets that follows those assets.

Taxes

In Iowa, if the only beneficiaries are a surviving spouse, children, grandchildren, parents or other lineal descendant or ascendant, there is no Iowa Inheritance tax and no need to file an Iowa inheritance tax return. There are some issues if there have been certain gifts within the past three years which should also be examined.

Federal estate taxes are normally not applicable for estates less than $2,000,000 (for 2008). If the estate is below that figure, typically it is not necessary to file a federal estate tax return. Again, gifts during life of the decedent are important to review also.

Summary

This list is not meant to be exhaustive, but mainly as a guide of some items to consider when it becomes necessary, and hopefully help you choose to do some proper planning ahead of time. You should consult with an experienced attorney when it becomes necessary to sort through all of these items.

National Health Care Directives Day

I missed it last week, but April 16th was National Healthcare Decisions Day 2008. Most people have an opinion on what type of medical treatment they would receive if they had the opportunity to visit with their healthcare provider. It certainly makes sense that one would want to establish ahead of time what type of medical treatment if they weren't capable of visiting. Unfortunately, a 2003 article reported that less than 50% of severely or terminally ill had an advanced directive in their medical record.

If you don't have an advanced directive already, take steps to have one signed. Then, after getting it signed, the next step is to have it included as part of your medical record.

Making a Revocable Trust Work Right

John Dedon of Dedon On Estate Planning has a good summary on some key issues to keep in mind after you establish your revocable trust. One of the key advantages of a revocable trust plan is the capability of your estate to stay out of probate. While there are advantages and disadvantages to each plan, one of the biggest downfalls, as noted by Dedon, is the failure of individuals to properly fund the trust (read - transfer assets to the trust).

While it is possible to transfer certain types of assets that are left in an individual's name to a trust post-death, there are no guarantees that it can be accomplished. It typically involves time and expense, some of the key issues a trust seeks to avoid.

Listing of Assets in Iowa Probate

Over at the Iowa Law blog, I have a post about the listing of assets in the Iowa probate process. This public listing requirement (called a "report and inventory") exposes financial information. The use of the revocable trust can avoid this financial exposure.

Heath Ledger Should Have Listened to Me

I've said it before and I'll say it again: If you have significant changes in your life, such as marriage, birth of a child, or a death, you need to review your estate plan. Unfortunately, as I've noted on the Iowa-Lawblog, Heath didn't heed my advice and failed to provide for his young daughter, which has now evolved to a family legal fight.

Hmmm...Where Shall I Bury my Body?

Over at the Iowa Law Blog, I have a posting about some legislative changes that are currently in discussion at the Iowa Legislature this session.

While the question over how your bodily remains may not matter to you as you're dead, it may create conflict amongst your family. (Remember Ted Williams?) Hopefully you do want to avoid that.

Check out my post to see the different options that are currently being discussed and stay tuned.

New Iowa Law Blog!!

If you are reviewing my blog and think I'm getting a little lazy, you are only 1/2 right. Sullivan & Ward, P.C. recently started our firm blog and I've been contributing primarily on that blog right now. Rush Nigut Liz Overton, and Jennifer Jaskolka-Brown are also key contributors to the Iowa-Lawblog.com and offer expertise in other areas. Check out the Iowa Law Blog for various legal information on divorce, child custody, business, employment, utility regulation, landlord-tenant, and, of course, estate/wealth planning.

Iowa Attorney Fees in Probate

Attorney fees in probating an estate of a deceased individual in the state of Iowa are set by the court. Pursuant to a state statute, the ceiling for fees is approximately 2%. Iowa Code section 633.198. While the statute states that it is the maximum, many Iowa attorneys treat it as the standard flat fee and will request - and often receive - fees based upon the 2% figure whether the amount of work equates to the 2% fee or not. Life insurance death benefits are not included when applying the 2% fee, but IRA's, 401k, jointly owned property, real estate, etc. are all included.

If there is "extraordinary" services rendered, attorneys can also request extraordinary fees. Iowa Code sec. 633.199. The statute sets out some examples of extraordinary services, such as sale of real estate, litigation and tax issues. Such fees are in addition to the ordinary 2% fees.

An option to avoid paying attorney fees based on this flat rate system and approved by the court, whether the 2% ordinary fee or extraordinary fees, is to establish and properly fund a revocable trust during your life. A revocable trust permits the administration of a deceased's estate without having to go through probate and court administration. This gives the trustee the abiliity to negotiate with attorneys on an agreeable fee.

There's Gold in That There Dirt

A recent article highlighted the "pot of gold" that many Iowa landowners are sitting on. While the residential real estate market has taken a downturn across the nation, farmland values continue to experience double digit growth in Iowa and surrounding states. The increasing focus and benefits of renewable energy continue to push land values higher and higher.

As a by-product of this increased growth, landowners' taxable estates are increasing, thereby creating potential estate tax exposure for their heirs. There are several methods for landowners to reduce-if not eliminate-any federal estate tax created by the increases in farm values. Many individuals may not consider these issues as farmland values have risen so sharply in the past few years that unless an owner is looking to sell, he or she may not even realize the total value of their taxable estate.

The Gifting Season Approaches

Gifting can be an easy way to transfer your wealth to the next generation. Currently, each person is entitled to gift up to $12,000 per individual, per year, without incurring any gift tax or having to file a gift tax return. Gifts that are less than $12,000 per donee per year are typically called "annual exclusion gifts".

Also, during your life, you can gift up to $1,000,000, on top of your annual exclusion gifts, to others without having to pay gift tax. However, any gifts in excess of the annual exclusion will require a gift tax return. Furthermore, dipping into the $1,000,000 "bucket" reduces the amount that you can pass at your death free from estate tax.

If you would like to reduce the size of your taxable estate and see the appreciation from transferring your wealth to kids, grandkids, or others, gifts can be a great solution.

Stepped-Up Basis - One Benefit of Dying (But not for you)

Dying is such a bad thing that the IRS has a couple of ways to help your loved-ones deal with the loss. One of the tax benefits is a concept called "stepped up basis" which applies in the area of capital gains tax. What this means is that assets you own at your death, with a few exceptions, will have a new tax basis equal to the value on your date of death. In order to understand the benefit of this tax benefit, consider this illustration:

You bought shares of a stock for $10,000. That is your cost basis. Your investment does great (unlike my selections) and it has increased in value to $15,000. You decide to take cash out and take your money. You will be capital gains tax on the increase of $5,000. (Market value less your cost basis.)

However, let's say right before you were able to sell the stock, you step on a rake in your yard, stumble backwards and get hit by a Hummer and killed instantly. Your estate would be able sell the stock and the new cost basis would be equal to the market value at the time of your death ($15,000 in this case.) Thus, if the stock was sold the same day, there would be no capital gains tax at all. Not a bad deal...just not for you.

And who said there was nothing good about dying?

Non-Testamentary Transfers

Your Last Will and Testament or Trust will determine who inherit your assets. However, the innocent situation arises in many cases where those other assets-like life insurance, POD accounts, retirement accounts, or jointly owned assets-pass outside and irrespective of your testamentary documents. This can potentially seriously disrupt your estate plan and create several issues such as questions on the payment of estate/inheritance taxes on those transfers, insufficient assets in the estate to pay administration/funeral costs.

Estate planning is more than just drafting and signing a will and trust. It is a comprehensive review of the financial situation and the assets and how those assets are owned. Your planner should guide and assist you with this review. Remember: how those assets are owned will dictate who owns them in the end.

Fund the Trust or the Trust Fails

If you have a revocable trust (sometimes called an inter vivos trust or living trust)one of the key steps is the proper funding of that trust. This entails the transfer and assignment of your assets to your trust. For example, you will need to change the ownership and title on your bank accounts and brokerage accounts to the name of the trust. Any real estate that you own should also be transferred to your trust.

So what if you don't get something transferred or forget about something? Depending on the laws of your state and the particular type of asset, it may be necessary to have your entire estate go through the probate administration process. Obviously, this negates one of the primary benefits of using a trust in the first place.

In summary, after you execute your trust document, it is just as important to make the necessary changes in the ownership status of your assets. Consult with your attorney to make sure the proper changes are made.

Organize Your Information for Smooth Transition

A recent story on MSNBC.com provides good advice about the need to organize your financial information for your loved ones. Dealing with the stress of the loss of a loved family member is difficult enough, but leaving a financial mess for them further compounds their stress level.

Communication is important in making your estate plans and letting your key contacts know where the information is located and keeping it easy to pull everything together, along with a list and contact information for your advisors, such as your attorney, accountant, insurance agent and financial advisor.

The article also noted that a recent survey indicated that 70% of the population does not have a will, and that many parents with young kids -- who critically need an estate plan -- continue to put off getting a will completed. Planning for that scenario is important.

Choosing a Trustee/Executor

When you are drafting your estate plan, one of the items that you'll have to decide is who will be the executor or trustee. The person or entity you choose has several certain important decisions and obligations. For example, they will decide whether certain tax elections are made in your estate, whether an allowance is paid to the surviving spouse, where the funds are invested and when distributions are made.

Naming more than one individual as a personal representative may be a solution that avoids any potential deadlock, but it also creates some complexity in the administration of the estate. Naming only one child as the personal representative also creates a potential source of disgruntlement from the other kids. Meanwhile, naming a corporate trustee avoids many of the issues...at a cost.

If you have any potential concerns about how your kids will handle the administration issues, leave the power to a third party alone to decide these questions, or provide for a mechanism for the kids to handle the dispute (mediation, random, etc.

And my Treasured Toaster Goes to...

When it comes to money and stocks, it can be fairly easy to divide up your wealth. Giving a percentage of your cash or portfolio to your beneficiaries is straight forward as it doesn't matter which fraction they receive as those types of assets are fungible. However, when you only have one family photo album or one grandfather clock, these assets are typically not able to be easily divided and quite often can lead to bitter disputes over what mom and dad would've wanted. A recent case involving a bitter dispute between siblings is reminding me that these fights happen all too frequently despite easily being able to be avoided.

To avoid those types of fights, planning ahead enables you to potentially resolve the fight with limited "bloodshed". Iowa Code section 633.276 (2007) provides that an individual can leave a signed and dated list to dispose of certain types of personal property. Thus you can determine who gets grandma's wedding ring, mom's fine china, dad's shotgun, etc. This type of list does not need to be notarized or witnessed, but just signed and dated. As this is such a basic procedure not even involving the services of an attorney, there is no excuse for not making a list of your property items. Isn't it worth doing everything possible to preserve family relationships?

Attorney-in-Fact But Not an Attorney

A common document executed in the estate planning process is a Power of Attorney document. That document confers authority to another person, or persons, to act on your behalf either because you are unable or just want that person to handle certain matters for you. For example, you are in a car accident and can't handle payment of your bills, cash checks, etc., someone can handle those affairs for you. That person's title is the "attorney-in-fact" even though they are not typically an actual attorney in the ordinary sense. You can limit the authority of what the attorney in fact may do, or you can give them broad general powers to do generally anything necessary.

There is a also a Medical Power of Attorney in which you appoint someone to handle your medical and personal decisions, such as what medical treatment you receive or what facility you are placed at. This power only comes into play if you are unable to communicate your wishes.

These aren't required documents to have, but they are strongly recommended. If you don't have such documents in place, there are alternate ways to address these issues, but none are simpler and potentially could become divisive in certain family situations.

Joint Ownership Bypasses Estate Plan

If you have assets that you own jointly, whether it is with a spouse, a child, grandchild or someone else, that asset will typically pass automatically to the surviving joint owner. It doesn't matter if you have a super-duper-deluxe will/trust, the joint ownership designation bypasses your estate plan and potentially short circuits any plan you may have.

For some situations, holding assets jointly might be sufficient for transferring your assets upon your death. For example, a husband and wife with no kids from a prior relationship and with modest assets. However, consider the following scenarios and the unexpected result:

Scenario 1 - John Washington has two kids. He loves them both and wants to make sure they are treated equally with their inheritance. One of his kids, Chris, lives nearby and helps John out with payment of his bills and expenses. To give Chris some flexibility, John adds Chris as a joint owner on his bank accounts so that Chris can help out without John's signature. When John passes away, those bank accounts will go automatically to Chris and his sibling will be cut out. While Chris may choose to share the joint accounts with his sibling, there is no guarantee that he will share and it may end up that Chris receives more than his "fair share". Or, what if Chris has a judgment or tax lien against him? Chris' judgment creditor could garnish the bank accounts and take John's money away for payment on Chris' debt.

Scenario 2 - Wife and Husband are both in a second marriage with kids from a prior marriage. H and W both want to preserve some assets for the children of their first marriage. But if H and W maintain joint bank accounts, those assets will pass to the survivor, and then the survivor will be able to select who ultimately receives those assets, which may be their own kids to the exclusion of their deceased spouse's kids.

Reviewing ownership information is one of the key components to your estate plan. Be sure your estate planner has all the information on how your assets are owned.

The Wonderful World of Trusts - Pt. 1

Trusts can be an important part of your estate plan. A trust is not just for the "uber-rich", but rather it is a basic procedure to control who, how and when your beneficiaries inherit your assets. For example, if you have young kids that would inherit your estate upon you and your spouse's passing, you can delay their receipt of those funds until a later point in time when they are hopefully more mature. Otherwise, without a trust, they could get a large lump sum at the ripe old age of 18 in Iowa. While it may seem hard to believe, 18 year olds are not known for being particularly frugal with their funds; whether it is $10.00 or $100,000. With a properly structured trust, you could delay receipt of those funds until later in their life, or upon achieving a milestone or some other identifable point in their life that you choose. Plus you can control how much they have access to of the trust funds until that point.

If you have young children or young grandchildren, trusts are an important-and critical-tool to act in their best interest and for their own protection. While you may not be able to be there to provide financial direction and guidance, a trust will enable them to hopefully make the right decisions at appropriate times.

Best Not to Wait Until its Too Late

I was recently reminded by a client's situation of a good reason to not delay your plans concerning your wealth transfer. After putting together a detailed outline of changes and ideas concerning his estate plan on his computer, he failed to contact me to implement his ideas with the necessary legal formalities, believing that he was in good health and had plenty of time to get to these changes taken care of formally.

Oops. Unfortunately, he experienced some health complications and passed away without having had made those changes. Now I am left with the unenviable task of attempting to explain to a widow why we won't be able to implement his intended changes with his estate plan despite his "informal" planning.

If you have changes to your planning, don't delay. Contact your advisor to avoid this same mistake.

Anna Nicole Smith's Will = How Not to Plan Your Estate

Anna Nicole Smith was not a stranger to the court system during her short life and it appears that her legal disputes will continue on beyond her early death. Her will, which was filed in a California court, is generating some controversy in the news and legal community under its provisions as drafted. While it isn't even clear what state's (or country's) laws will apply, the will as currently filed specifically inherits any future children or spouses and leaves everything to her now deceased son. This 2001 will apparently was not updated since the tragic death of her son and birth of her daughter. As a result, the circular question now remains: if the sole beneficiary predeceased her, and her infant child (& husband Howard Stern) are specifically disinherited, who is entitled to receive her estate? The first step is going to be to try and find what court the fight should take place. Was she a California resident? Or was she a Bahamian as she had her house and appeared to be living there in the Bahamas.

Some states, such as Iowa, prohibit you from even disinheriting your surviving spouse unless they consent to it. In that situation, her current husband may elect out of the will, if the applicable law applies. Most states do not have a prohibition of disinheriting your children, although disinheriting future unborn children is a little unique and . . . odd. Although a dependent child could be treated differently.

Of course, whatever her estate consists of is also up in the air as the decade long fight with her prior deceased husband's son is continuing in the 9th Federal Circuit Court following the ruling from the US Supreme Court in 2006 which gave her the right to continue with her claims for a share of the fortune in federal court. With a possible half billion at stake, there is certainly an incentive for the fight to continue.

While I can only imagine what was going through the drafting attorney's head when he prepared this will, there are a few lessons to learn from this that we can apply in our situations:

• Periodically you should review your estate plan, especially if there are significant changes in your life. Birth of a child and/or death of child and/or marriage qualify as "biggies".
• Use an attorney who understands estate planning and listen to any recommendations they may have for you.
• Don't get "cute" with your plans. You'll only create confusion and generate work for attorneys.

ILIT to Save Estate Taxes. Don't you?

Normally if you own a life insurance policy, the death benefit proceeds are included in your taxable estate. Depending on your financial situation this may or may not create a taxable estate for you. With estate tax rates topping out at 45%, it is certainly worth considering some options to avoid having your family pay taxes on those insurance proceeds.

One option is to have the insurance policy owned by an irrevocable trust (sometimes called an irrevocable life insurance trust or "ILIT"). Properly structured, you can provide a mechanism to pass those insurance proceeds to your intended beneficiaries and not included in your taxable estate. There are different rules if it is an existing policy versus whether you are purchasing a policy.

However, the downside with an ILIT is that it is irrevocable...you can't change the trust. Generally speaking with estate taxes, the more control and "strings" you control over an asset the more likely it will be included in your taxable estate. Thus, by cutting your control, you potentially remove it from your estate. By being irrevocable, you can't change the beneficiaries or pull the funds out of the trust. Like everything else in life, there are "give and takes".

There are methods in enabling the policy to be transferred to a new trust, but there are costs and hoops to jump through and should not be counted on as a sure thing.

In summary, use of an ILIT gives a person an easy step to save in estate taxes and provide for the same beneficiaries, so long as the strings are cut.

Somebody Take Care of My Kids...Please!

A common inquiry I receive is "who should be the guardian for my children?" and "who should be the trustee for my children's funds?" There is not a right or wrong answer to these questions. Typically, for a guardian, you'll want to name a family member or close friend who would be willing and able to assume the responsibilities. Make sure that you discuss this issue with them and that they are comfortable with the possibility.

While that certain person you select as a guardian might be a great "substitute parent" (maybe even better than you) they may not be able to hold onto a nickel without blowing it. If so, then they might not be the best person to handle the money for your kids. It is not uncommon to have one person as the guardian and another as the trustee. While this may add an additional level of complexity to the situation, it also provides for a "check and balance" system. The trustee can make sure that the funds are properly being utilized for the kids and the guardian will make sure that the kids' needs are taken care of. A trustee, if not a bank or trust company, should be someone who is comfortable with making financial decisions or associating with advisors for making decisions, handle investments and address tax returns. They should also be organized and capable of making tough decisions for the best interests of the kids.

Discussions with your spouse and family are important. Together, with the advice of legal counsel, you can select a structure that will be the best solution for your children in an unfortunate situation. . . your death.

One Piece of the Puzzle

Cross one more item off the New Year's Resolution list--from 1999--THE WILL IS DONE. Now everything is done, right? Maybe not.

Getting your will or trust is only piece of the puzzle. Equally as important is reviewing you assets that have named beneficiaries: life insurance, 401(k), 403(b), IRA, Keogh and annuities. It may have been some time since you last updated these beneficiaries and your financial advisor or IRA custodian may not have followed up with that assistance. It is not uncommon to see ex-spouses and parents as "surprise" beneficiaries. With large retirement plans and insurance policies, these assets may comprise up a majority of your assets so it is important that you incorporate these beneficiary designations into your global estate plan.

There are certain income tax benefits to having your spouse as a named beneficiary of a qualified (retirement) plan, which permits tax deferral. But as to your contingent beneficiaries and other named beneficiaries assets, it is important that your estate planner assist you with incorporating these items in your estate plan so that you have a complete picture with all of the pieces.

Timing Receipt of Social Security Benefits

I recently attended a seminar sponsored by A.G. Edwards concerning the timing of receiving social security benefits and the impact on retirement planning. Individuals are entitled to begin receiving social security benefits as early as age 62, although at a reduced rate. If the individual waits until the full benefit age (currently 65) the recipient will be entitled to receive their full benefits for the remainder of their life. Thus the question is "do I want some money now, but a in smaller amounts? Or do I wait a few more years and get the maximum monthly payment?" To keep things interesting, there are earnings limitations if a person elects to get their social security benefits prior to their full benefit age.

Every situation is different and there isn't a right or wrong answer as to when you should choose to start receiving social security benefits. Your financial planner can guide you on the ideal timing issues for your particular situation and the impact for your situation. Generally speaking, receiving benefits at an earlier age is the better option although there may be some reasons to wait.

Pass the Turkey and Your Inheritance

During this time of season, families are gathering together and talking about sports, kids, families, work and other topics. While estate planning, wills, and death aren't exactly raucous discussion topics, it is a good opportunity to go over some topics with your families, whether it be your parents or your adult children. Communication over the plans that have been made or will be made is important in keeping a harmonious family. Take this occasion to be thankful for the family that you have and tell them that you care enough to make plans to make transitions as easy as possible. Whether it is a discussion over who and why you picked a particular person as a guardian for your children or why you are leaving a particular property to someone, you can potentially help avoid disputes at a later point.

Verbalizing your intentions and plans will reinforce the written documentation that you, hopefully, have in place. Without this communication, you just have words on paper that someone else can potentially interpret in different ways. "Why did dad do that to me? Was he still upset over that broken window from the third grade?" "I bet my sister made him write his will that way. Honey, what's the name of that lawyer?"

Hopefully you have a close and understanding family that never fights. Even so, isn't it better that you tell your loved-ones how much you care and what you've done? And if you don't have a "Cleaver-esque" family like the other 99% of families, setting the plan out makes even more sense. So when you get that lull in the conversation this season, take that first step. Chances are you'll be glad you did...and so will your family.

To Revoke or Not Revoke...That is the Question

While a revocable trust can be changed after it is created, an irrevocable trust is a trust that cannot be changed or amended after it is created. In other words, the terms are "written in stone". A careful drafter of an irrevocable trust will be able to implement some provisions which provide for some flexibility in the future, but there are limits as to how much can change and you will lose control over the trust assets, generally speaking.

So why would you create an irrevocable trust if you can't change anything? People and plans change, right? A properly drafted and operated irrevocable trust will be excluded from your taxable estate. Thus, for example, you could purchase a large life insurance policy to be owned by the trust, have the death benefits paid to the trust and then to your selected beneficiaries. While normally life insurance proceeds are included in a taxable estate, by having the irrevocable trust own the policy, those proceeds are fully excluded from your taxable estate and pass to your beneficiaries free of estate tax.

Other assets besides life insurance can be transferred into an irrevocable trust, although you'll have to consider the impact of gift taxes on such a transfer with your advisor.

Multi-Uses of Life Insurance in the Estate Plan

Life insurance can be an important part of your estate plan and can be utilized in many different ways. For example, if your estate is subject to estate tax, life insurance provides liquidity for the payment of taxes without necessarily having to sell your assets if you don't have the cash available.

Life insurance can also be helpful if you have a small business with another partner and you want to create cash for either the business or your partner to purchase your share of the business, such as through a buy-sell agreement, which then provides cash for your family. Life insurance with a buy-sell agreement enables the business to hopefully continue.

And, of course, life insurance provides income replacement and cash for your spouse and kids in the event of your death for payment of bills and maintenance of a lifestyle.

A good estate plan is more than just a will or a trust, but also may include life insurance for various purposes.

Power of Attorney

"Okay, I'm lying in a hospital bed, comotose, hooked up to a machine. Who's going to pay my bills, get my mail, file tax returns, cancel my subscription to Cats'R'Us magazine, . . ."

Good question. Have you made adequate plans? Estate planning is more than just planning what happens to your assets at your death, but also what happens to your assets during your disability. That planning should include executing a power of attorney document.

A General Power of Attorney form authorizes an individual (called the attorney-in-fact, but they don't have to be an attorney, thankfully) to act on your behalf. There are different situations when you may want this. For example, you are going to be out of town but you want someone to sign documents on your behalf in your absence. A power of attorney (POA) form can handle that simple assignment.

Or, you can have a Power of Attorney authority that "springs" into existence only when you are disabled, as determined by your physician. With a "springing power of attorney", your attorney-in-fact only has authority when you are unable to act due to a disability. Until that point, they don't have any authority.

Upon your death (which we hope doesn't happen soon), all authority under the POA is extinguished and your attorney-in-fact no longer has any ability to act. What happens in that scenario is a topic for another day.

Getting a will or trust executed is an important part of the estate planning process, but don't forget to cover all the bases and have a POA executed.

"Death Taxes" in Iowa

As the only things in life that unavoidable are death and taxes, what better way to produce tax revenue than to tax someone at their death? While there are no such thing as "death taxes" (that term is a political term conjured up by politicians), there are some potential taxes that may be paid shortly after a person's death. In short, there are two "death" taxing systems for Iowa residents: the state imposed Iowa Inheritance tax and federal imposed estate tax.

The Iowa inheritance tax is actually a tax assessed against the person receiving an inheritance (and not the estate of the deceased person) and is based on their relationship to the decedent and the amount they receive. Spouses and lineal descendants and ascendants (children, grandchildren, parents, etc.) receive their inheritances 100% inheritance tax free. Inheritances by siblings, friends, cousins, nephews, etc. would have to pay inheritance taxes. Proper planning by a knowledgeable estate planner will provide who actually pays those taxes and whose shares are reduced by those inheritance taxes.

The federal estate tax is a tax that is imposed on the estate of a deceased person. Any portion that passes to a surviving spouse or a charity are fully deductible. All other assets that pass to others are taxable if the total taxable estate exceeds $2 million. Life insurance, retirement plan proceeds, and all other assets owned by a decedent are included in determining whether the $2 million figure applies. Through various planning methods, you can structure a plan to optimize the transfer of assets with a limited tax bill.

This is only a basic synopsis of "death taxes". You should, of course, contact a knowledgeable estate planning attorney to review your personal situation. If you don't know one, you do now.

estate planning

Will/Trust vs. Jointly owned assets

Think if you have a will or trust established that you have your estate plan completed? Guess again. If you own an asset jointly with someone else, it is possible that by operation of law that particular asset will pass automatically at your death to that person. Doesn't matter what your will provides or what a trust provides. The fact that you jointly own that asset is the "estate plan" for that particular asset.

While property passing to a joint owner may fine for most situations, many "planned" estate plans have been ruined by this "quick and dirty" estate plan. What if you have children from an earlier relationship that you have provided for in your will/trust? Jointly owned asset cut those beneficiaries out of the picture entirely.

Executing a will or trust is a good first step in the estate planning process. A careful and complete review of your assets and the way those assets are owned is also necessary for a complete estate plan.

Contact an estate planning attorney for further information.

Avoiding Probate

An alternative to having your estate go through the probate process through the court system is through the use of a revocable trust. Sometimes also called a "living trust" or "inter vivos trust", this form of an estate plan, if properly set up, can remove the necessity of going through the probate process.

A revocable trust acts as a will substitute by providing for the terms of distribution of your assets upon your death. In addition, a trustee can administer your assets during you life if you are unable to do so, operating much as a power of attorney.

A trust may or not be suited for your situation. For more information. Check out this article for more information on living trusts.

Do I need a will?

Its estimated that only 1/2 of the population actually has a will. So how important is it to have a will? It depends. (How's that for an answer? Kind of what you'd expect from an attorney.)

One key element is that if you have minor children, a will can provide significant direction on who takes responsibility for your kids and how your assets are handled for them. If you don't provide that direction, the courts and family members are left trying to sort out the options, and quite possibly resulting in disputes. (And we know who wins if there are disputes - lawyers.)

Another key element as to whether you need a will depends on how your assets are owned. You can own assets jointly with another person, in which case they may pass automatically to that joint owner. Or you can have a named beneficiary (like an insurance policy) in which that asset passes automatically to a named person. Under either of those scenarios, it doesn't matter if you have a will or not, as those assets, which may be all of your assets, will pass to those individuals. However, while you may be able to get by without a will and save a few hundred dollars in attorney fees, but is that really the right answer for your legacy? What if your kids are minors? What if your surviving spouse gets re-married? Do you want to have control over what happens to your wealth?

These are just a couple of the issues to think about when determining the basic question of whether you need a will. The quick answer is that most people need a will of some variety. Contact an experienced estate planning attorney for additional information as to your personal situation.

What is "Probate"?

Probate is a term that is often mentioned but many people don't understand what it really is. Probate is the legal process where, through a court-supervised process, a deceased individual's assets are transferred to their heirs/beneficiaries; taxes are paid; and debts/claims are handled. The probate process also includes the validation of a will.

It is not necessary to have the attorney who drafted the will handle the process. The "administrator" or "executor" can select whatever attorney they choose.

In Iowa, the probate process primarily consists of 5 stages.

1. The filing of the inital set of documents to open the estate.
2. Publication of notice in a newspaper for filing of claims.
3. Waiting the time period for the filing of any claims or contests to the will.
   
4. Filing of the report and inventory and payment of taxes.
5. Distribution to beneficiaries/heirs and discharge of the executor/administrator.

Every state is different in how the probate process is administered and you should contact a knowledgeable attorney to handle the probate process. Feel free to contact me if you have any questions about the probate process in Iowa.