Recently in Estate Planning Category

Estate Planning Tips Before and After a Loved One's Death, Pt. 2

March 27, 2015,

The first part of this article dealt with tips to keep in mind when helping an aging loved one with estate planning matters. This included watching for waning mental capacity, exercising any necessary swap powers, reviewing trust principal distribution standards, adjusting the timing of any charitable gifts, amending family limited partnerships, and providing for any shifts in the trust situs. This section of the article discusses tips to keep in mind after your loved one has passed in order to derive the most value possible for the heirs.

Tips for After the Passing

In addition to looking out for an estate before a loved one passes, you should also keep in mind what is important after they pass away. There are many different opportunities available to ensure that the heirs of the estate also get as much value as possible that their loved one wished to pass on. Issues that can arise after the passing of a loved one can include:

Executor Commissions
Traditionally, it has been commonplace for a family member to take executor commissions. The commission provided a valuable estate tax deduction for estates taxed at higher rates. However, with the exemption level eliminating estate taxes for most people, paying executor commissions may generate a significant income tax for the executor without reducing any estate tax. Once reviewed, if it does not make sense to take a commission, the executor can formally waive receiving any money for the responsibility.

Unfunded Trusts
Although it is constantly warned against, many people do not revise their will for years. Some older estate plans include funding a credit shelter trust on the first spouse's death, but many families do not want to do it if the estate tax benefit no longer exists. Some even go so far as to attempt to distribute the assets outright to the named beneficiaries and skip the trust. However, you need to legally address the termination or nonuse of the trust before making distributions in order to avoid legal ramifications.

Funding Bequests or Appreciated Assets
If your loved one attached a dollar figure in a bequeathing that is met using appreciated assets, a taxable gain can be triggered at distribution. As a result, you should be careful when deciding what assets should be sold in order to fund specific bequests.

Asset Distributions
While many wills and estate plans provide for the equal distribution of assets to heirs, sometimes the beneficiaries would much prefer to receive non-pro rata distributions of various assets in the estate, as long as they are of equivalent value. For example, one heir may want to inherit the family home, while other heirs receive their portion in stocks and financial assets. However, you should be aware that unless the will or state law permits non-pro-rata distributions, the IRS may view this as the equivalent of a sale and an exchange of the various assets, so be sure to review the documents and law before executing an estate in this manner.

Estate Planning Tips Before and After a Loved One's Death, Pt. 1

March 25, 2015,

Estate planning lawyers agree that there has been a fundamental shift in their clients' estate planning concerns over the last couple of decades. There has been less worry about estate tax minimization and more concern for income tax minimizations and other valuable planning ideas. Thankfully, there are things that can be done with an estate before and after your loved one passes away that can add value to an estate for them as they age as well as for their heirs.

Tips for Aging Loved Ones

If you are going over your elderly' loved one's estate plan, there are some important items that you should review or look out for in their estate. These issues can include:

Watching for Lack of Capacity
Your loved ones can lose mental capacity as they age, and it is important for the purposes of estate planning that you monitor their ability to make rational decisions on their own. It is important to update estate planning documents while they can still articulate them and not be challenged later for a lack of capacity.

Exercising Swap Powers
Many irrevocable trusts include a right for the person who sets up the trust to exchange assets outside the trust for assets in the trust. If highly appreciated assets are transferred back into the trust before death, the tax basis is stepped up at the date of death.

Review Principal Trust Distributions
While most trusts pay out income to beneficiaries, some trusts also allow for the payment of the principal. There are pros and cons to this type of trust structure, and you should review it with your loved one and an attorney to decide if this is the best setup for you loved one's assets.

Shift Timing of Charitable Gifts
Only estates that are taxable can benefit from an estate tax charitable contribution gift. If you review the estate of your loved one and know that they are below the estate tax exemption level, you should prepay charitable bequests while they are alive so that they can qualify for income tax deductions. However, you should also get it in writing from the charity that the donation is a prepayment of the bequest under the will so that it is not paid double at death.

Amend any Limited Partnerships
This applies if the limited partnership is also a family limited partnership. In the past, family limited partnerships were formed to provide tax valuation discounts. However, at current exemption levels, this type of partnership may not help so much as hurt. Because the discount could reduce the basis step-up on death and cause higher capital gains taxes when a sale is made in the future, it is important to review them now.

Trust Situs
The situs of the trust is the state where it is based and subsequently dictates the governing law. However, now more than twenty states permit "decanting" of trusts where one trust can be merged into another. As a result, it is becoming increasingly important to draft trusts with provisions permitting a change in situs and governing law.

Repeal of Federal Estate Tax Gaining Traction

March 23, 2015,

On March 3, a bipartisan bill was introduced in the House of Representatives in Washington D.C. that would take away the federal estate tax. The Death Tax Repeal Act, otherwise known as HR 1105, is the first bill of its kind in over ten years that has actually reached the point of a vote on the floor. The House Ways and Means Committee plans to vote next week on a bill to repeal the U.S. estate tax.

Key Points of Legislation

The main points in the Death Tax Repeal Act can be boiled down to three key areas: estate tax repeal, generation-skipping transfer tax repeal, and the modification of gift taxes. First, the bill eliminates the federal estate tax for "decedents dying on or after the date of the enactment of the Death Tax Repeal Act of 2015." In addition, "with respect to the surviving spouse of a decedent dying before the date of the enactment of the Death Tax Repeal Act of 2015--[federal estate taxes] shall not apply to distributions made after the 10-year period beginning on such date, and . . . shall not apply on or after such date.''

In regards to generation-skipping transfer taxes, the bill would eliminate federal taxes on "the estates of decedents dying, and generation-skipping transfers, after the date of the enactment of this Act." Finally, the bill also modifies gift taxes and the overall exemption limit on gifts. Under the bill, the gift tax would be calculated according to a new rate schedule, and the lifetime gift exemption for a single person would be $5,000,000 plus any inflation.

Subcommittee Hearing

On March 18, the Ways and Means Subcommittee on Select Revenue Measures held a hearing to examine the burden the estate tax places on family businesses and farms. One of the representatives that introduced the bill stated that "The Death Tax is still the number one reason family-owned farms and businesses in America aren't passed down to the next generation . . . After a family loses a loved one, why should Uncle Sam swoop in and take much of the nest egg they spent a lifetime building? Especially when it forces the survivors to sell their land or business just to try to keep what they worked so hard to earn."

The subcommittee hearing recognized that the federal estate tax hurts many businesses and farms. However, Democrats and Republicans differed slightly in their opinions about the measure. While Republicans want a complete revocation of the federal estate tax, Democratic leaders are leaning more towards carving out specific exemptions to the federal estate tax, such as for farms and family businesses. Since this meeting, the full Ways and Means Committee, run by Representative Paul Ryan, has stated that it intends to hold a vote on the bill in committee. If successful, HR 1105 could be sent up to an April House of Representatives floor vote for approval, making it the first House vote on stand-alone repeal legislation since 2005.

Issues to Consider with IRAs

March 20, 2015,

An IRA, either in its traditional form or as a Roth, gives you the opportunity to reduce your taxes and grow your wealth for the future. The deadline for 2014 IRA contributions this year is April 15, and the maximum contribution amount is $5,500. If you are fifty years old or older, you can contribute another $1,000 annually as a catch-up contribution. However, many people do not understand the differences between IRAs or what other opportunities exist that can help you with your retirement wealth.

Traditional v. Roth IRAs

There are two main types of IRA accounts. The first is a traditional IRA, where earnings can grow tax deferred until you reach age 70½ years old. However, if you make withdrawals before age 59½, you may incur both ordinary income taxes and a ten percent penalty. As soon as you reach 70½ years old, you are required to start taking the minimum required distributions (MRDs) and start paying taxes on that amount.

A Roth IRA contribution is not tax deductible the year that you make it, but the money in the account can grow tax-free. In addition, the withdrawals are tax-free in retirement as long as certain conditions are met. Contributions to a Roth IRA are subject to income limits and early withdrawal penalties. However, Roth IRAs do not have MRDs like traditional IRAs.

One final option is a spousal IRA. This type of account allows a spouse that does not earn wages to contribute to their own traditional or Roth IRA. However, the other spouse must be working, and the couple must file a joint tax return. Eligible married couples can each contribute up to $5,500 for the 2014 tax year to their respective IRA, and spousal IRAs are also eligible for a $1,000 catch-up contribution.

Opening an IRA for Family

If your children or grandchildren are working and earn a taxable income, you can gift them their annual contribution to an IRA. Up to $5,500 can be deducted from your annual gift amount of $14,000 without repercussions with gift taxes. However, a contribution cannot exceed the amount that your child or grandchild earns in the year if it is lower than the contribution maximum amount.

Investing Your IRA Contribution

Many people forget about making an IRA contribution until right before the deadline of April 15, and they simply put it into a money market account. However, they do not ever think to go back and place that money in an investment. This situation is not ideal because the best way to grow an IRA is to invest in a mixture of stocks, bonds, and mutual funds. If you do not feel skilled enough as an investor, there are other options available.

You can consider a target fund date, where a manager selects, monitors, and adjusts the mix to match a target retirement date. Another good option to consider is a managed account, where the managed account provider determines an asset mix based on your financial circumstances, time horizon, risk tolerance, and investment goals. A skilled financial advisor can set up either option for your IRA account.

How to Reduce Taxes and Pass On Values

March 18, 2015,

Many people who are planning their estate are told by advisors to give annual gifts to children and grandchildren up to the $14,000 yearly limit. It can help you avoid the estate tax of up to forty percent if your estate exceeds the federal exemption level. This year, the exemption is $5.43 million for a single person, $10.86 million for a couple. However, there is a lot more that you can do with this money than simply give it away. You can pass along wealth and wisdom through these annual gifts in a variety of ways.

Why Give Differently

The problem with giving an outright gift to a child or grandchild of up to $14,000 per year is that it may not have the intended effect that you had hoped. If the gifts are significant over time, your loved ones may take advantage or feel like they do not need to accomplish as much. However, you can use these gifts to create a different set of incentives for your loved ones that will help them for years down the road if you invest your annual gift in an alternative way.

Fund a Roth IRA

Children can open a Roth IRA as soon as they start to earn income, and you can help make contributions to the account up to the yearly amount of $14,000. The compound interest in a Roth IRA can return massive rewards in the form of tax- free wealth at retirement. In addition, helping your loved ones find ways to earn income to add to the Roth IRA is a great way to instill income while simultaneously reducing your overall estate. Investing the gift in an account that should not be touched until retirement also keeps your loved ones from accessing the money irresponsibly too early.

Pay Loved Ones' Taxes

It can be easy for children and grandchildren to question why they work so hard when taxes take so much of each paycheck. State taxes, federal taxes, FICA, and more all take away parts of a person's paycheck. By using part of your annual gift to pay the taxes on their paychecks it can keep your loved ones interested in working. In addition, it continues to lower your overall estate for your own tax purposes when it comes to the federal exemption level.

Cover Health Insurance

Many people do not like to purchase health insurance because it is expensive and most believe that they will never need it. Others feel stuck in jobs that they do not like because it is the only way that they can keep good health insurance without overpaying. By covering your children or grandchildren's health insurance coverage, it can free them to pursue a career that they love without regard to a health plan.

Court Rules on Inter Vivos Gift

March 16, 2015,

The Eighth Circuit U.S. Court of Appeals recently ruled on a case where an estate claimed that the decedent made a gift during his lifetime that actually belonged to the estate after his death. The court ruled that the gift was actually a conditional gift that had its reversionary interest end when the decedent died without asking for the gift back from the recipient.

Facts of the Case

In the case of Estate of Pepper v. Whitehead, Sterling Pepper Jr. owned a large collection of Elvis Presley memorabilia. When he moved into a nursing home in 1978, he told Nancy Whitehead to "keep it." Mr. Pepper died two years later in the home, and Ms. Whitehead kept the Elvis collection. In 2009, after maintaining the collection for over thirty years, the Pease Family Partnership put it up for auction, and it sold for more than $250,000.

The estate for Mr. Pepper filed a lawsuit against Ms. Whitehead, alleging that Mr. Pepper retained ownership of the Elvis memorabilia as well as that the ownership interest passed to his heirs at his death. At trial, the jury found that Mr. Pepper made a conditional gift to Ms. Whitehead. As a result, when Mr. Pepper died the reversionary interest was no longer valid, and Ms. Whitehead was entitled to the collection. The Pepper estate appealed the trial court's decision.

Ruling of the Court

The appellate court first looked at what is considered a conditional gift. Under the law, to create a conditional gift the donor must "deliver the personal property to the donee . . . with the manifested intention that the donee acquire an ownership that terminates after the passage of some period of time or on the occurrence or nonoccurrence of some event or condition." In doing so, the donor of the conditional gift retains a reversionary interest in the gift. However, the law also states that the reversionary interest in a conditional gift terminates automatically at the death of the donor.

According to the testimony at the trial court level, Ms. Whitehead testified that Mr. Pepper never gave her specific instructions for the collection, only to "keep it." She said that if he had ever asked her to return it she would have done so. There was no evidence proffered at the trial level to indicate that Mr. Pepper ever meant for Ms. Whitehead to keep the collection merely for safekeeping or as a bailment.

Finally, the court of appeals agreed that the evidence at the trial level supported the finding that the Elvis collection was meant as a conditional gift. Mr. Pepper and Ms. Whitehead both shared a love of Elvis, and Ms. Whitehead was considered a nurse and close friend. She also testified to how close of a relationship they had, how she brought him items to the nursing home, and how his family members were not even aware of its existence. Furthermore, Mr. Pepper did not want his relatives to be entrusted with the collection. Therefore, the Court of Appeals agreed with the trial court and found that the collection belonged to Ms. Whitehead.

Steps for a Financially Secure Retirement

March 13, 2015,

One of the biggest concerns for people entering retirement is whether they will be financially secure, and many think that it is impossible to save enough given a limited income and never ending expenses. However, there are several steps that you can take to ensure that you will have a more financially secure retirement. The most important aspect of planning is to focus on what you can control, and not the unknown.

Steps for Financial Security

By starting early, saving the right amount, and investing wisely you can be financially secure in your retirement. The following steps can allow you to focus on the most important parts of your retirement savings plan.

Save the Right Amount
All in all, you should save between ten and thirteen percent of your gross income for retirement and that amount includes any employer matching. So for example, if your employer matches two percent of your income, you should be saving eight to twelve percent.

Cut Down on Spending
Try to cut down on unnecessary expenses in your daily life, and save that money for retirement. Cut things that do not mean much to you or that have cheaper alternatives. One way to accomplish this is by creating a line-item expenditure list and cut back item by item.

Invest Wisely
Assess your tolerance for risk in the market, and invest your funds appropriately. Most people believe that as you age your investment choices should become more conservative, but you can invest in whatever way fits your lifestyle best. A financial planner or estate planning attorney can help you assess your risk tolerance.

Take Advantage of Tax-Deferred Accounts
Roth IRAs, 401(k)s, 403(b)s, and other accounts are all tax-deferred and not subject to income tax like a normal IRA account. By maximizing your contributions now, you can defer more income taxes and save that money for retirement.

Evaluate Healthcare Coverage and Medical Services
Healthcare coverage and medical services are of utmost importance after retirement. It is important that you do your research and evaluate all of your options for care. This includes the cost of Medicare, qualifying for Medicaid, and any long-term care insurance policies. Even once you do qualify for Medicare, you will probably need a supplemental policy to cover what it does not.

Research Housing Options
Deciding where to live in retirement is one of the biggest decisions that you will make. Most people like to retire in their home because of family and community ties. However, you may save money if you move to a state where it is less expensive. Cost of living, property costs, taxes, and other expenses differ from state to state so it can be worth it to do some research if you are willing to move.

Even if you do not want to move out of state, you may want to consider downsizing your home to something smaller. You can cut down on property costs and utilities while still staying in the same community. Retirement communities also provide a third option for housing once you are retired.

Think about Social Security
Finally, consider when you want to start taking Social Security in retirement. The age that you start to take Social Security can drastically affect the amount that you receive as well as how you are taxed. You can start taking Social Security anytime between the ages of 62 and 70 years old, but full retirement age is considered 66 years. If you can hold off taking Social Security, you can receive much more in the long run.

Mentally Ill Man Kills Mother and Still Wants Inheritance

March 10, 2015,

In 2010, John Armstrong killed his eighty year old mother, Joan Armstrong, by bashing her head in with a brick and then stabbing her body repeatedly to drain the body of blood. However, despite this gruesome crime his attorney is arguing that he should still get his part of his mother's inheritance. He is one of five children of Ms. Armstrong, who enjoyed success as an artist before her death and included all of her children in her will. His attorney is challenging the state's slayer rule based on mental illness and incompetence.

No one disputes that Mr. Armstrong killed his mother in 2010. On August 7, the Ocean Springs Police Department responded to a call from Ms. Armstrong friend who said that when he knocked on her door, Ms. Armstrong showed up at the door covered in blood. Ms. Armstrong was found on her back in the apartment with a large open wound to her forehead. John Armstrong told police that he killed his mother because he didn't want her to leave and go to the pool in the complex. In his mind, he thought she was abandoning him by going to the pool.

A mental exam in 2012 found John "seriously and persistently mentally ill," and the recommendation of the psychiatrist was that "it is not clear that, even with treatment with antipsychotic medications, Mr. Armstrong can be restored to competence to proceed legally."

The Slayer Rule

Mississippi, like most of the other states in the nation, has what is known as a "slayer rule." It states that a person cannot profit from an inheritance if they caused the death of the person that they are inheriting from. In essence, a killer is prohibited from inheriting any property from a person that the killer murdered. The courts treat the killer as though he predeceased the victim of the crime, thereby forfeiting any rights in property interests. However, this rule only applies if the killing was "knowing and intentional," so a crime like involuntary manslaughter would not qualify under the doctrine.

Issues in this Case

The Mississippi Supreme Court will decide whether Mr. Armstrong should be allowed to inherit from his mother's estate. The attorney for the estate says that he should not be given his portion of the inheritance. "The results of this case is that John is not prosecuted or punished for his unlawful act, but neither does John gain from causing the death of his mother . . . Though it hadn't been mentioned, the decedent's other beneficiaries, her children, have been deprived not only of the assets of her estate but also her love and companionship. It would be a perversion of law and justice to allow John to inherit from his mother's estate to the detriment of his siblings."

This case is different because the court has never had an issue where the killer has been deemed incompetent to stand trial. There have been other cases where the defendant has been found not guilty by reason of insanity, but this differs. Most likely, the decision will be rendered on the interpretation of the state's language. In Mississippi, the state law uses the word "kill" and not "murder," which could bar inheritance under the slayer rule.

Court Rules on Proper Interpretation of Will

March 5, 2015,

The Georgia Supreme Court recently ruled on what was the proper interpretation of a will that appeared to leave an interest in real property to his wife, in fee simple, but also let the same property to his son and his son's children. The issue was between the executors of the estate and the grandchildren as to whether they inherited an interest in the land or if the wife's estate held the title to the land in fee simple.

Facts of the Case

Hodge King and his wife, Hattie, jointly owned four separate tracts of land together as tenants in common during his lifetime. When Mr. King died in 1999, he stated in his will that "I give, devise, and bequeath to my wife, Hattie F. King, all of my property, both real and personal, wherever located and whenever acquired, either before or after the making of this my Will, hers in Fee Simple."

However, the next item of his will stated that upon his wife's death, the four tracts of land should be devised to his son and any lawful children of his son born in wedlock. Hattie King died in 2012, leaving her own will and appointing her nieces as heirs to the estate. In her will, she gave one tract of land to Mr. King's son in fee simple, and the other three tracts she gave to her nieces.

Mrs. King's nieces were unaware of the issue with the title from Mr. King's will until they tried to sell the property that they thought that they owned to a third party. When they realized the issue, they contacted Mr. King's son and his two daughters. The nieces offered to settle through a quit claim deed in the two tracts given to Mr. King's son in Mrs. King's will if they would quit claim their interest in one tract. The grandchildren refused the agreement, and they sued to clear the title on all four tracts of land.

Ruling of the Court

A Superior Court in Georgia ruled in favor of Mrs. King's nieces and stated that all four tracts of land should be given to Mrs. King's estate in fee simple. The grandchildren were denied a new trial and appealed directly to the Georgia Supreme Court. This court reversed the ruling of the lower court and found in favor of the grandchildren.

The state Supreme Court stated that when a will purports to give land in fee simple, a lesser estate should not be held unless it is clear from a subsequent provision of the will that it was the intent of the testator. Mr. King used the phrase "upon the death of my said wife" and gave no other uncertain events to trigger the passing of the land from one person to another. Based on the plain language in Mr. King's will, the Supreme Court found that it was his intention to give a life estate to Mrs. King, with the remainder given to his son and grandchildren.

Robin Williams' Wife and Children Fighting Over Estate

March 4, 2015,

Almost six months after the untimely suicide of comedian Robin Williams, his wife and children are embroiled in a contentious legal battle over his estate. Court documents filed in California during December and January pit his last widow, Susan Schneider Williams, against his children from his two previous marriages: Zak, Zelda, and Cody Williams in a battle over money and property in his estate. The family is not only arguing over the apportionment of wealth that Robin Williams acquired over four decades of acting, but they are also fighting over personal effects and belongings of the late actor.

Sides of the Case

In the documents filed with the courts, both sides want to hold on to the majority of Robin Williams' memorabilia that he accumulated over his lifetime. This includes his bicycles, toys, fossils, and other personal reminders of him as a husband and father. The papers show a schism between his last wife, who he married in 2011, and his children that were a highly visible part of his life.

The attorneys for Mrs. Williams claim that days after his death, property was unilaterally moved from their home by his children. In addition, when she sought legal representation for her issues, certain home-related services like newspaper delivery were canceled. Her attorney claims that since she lost "her husband through a shocking and emotionally charged event," she has not been "given time to grieve her loss free from the frenetic efforts to interfere with her domestic tranquility."

On the other side, Robin Williams' children responded to Mrs. Williams in their own motion, stating that they are heartbroken that the woman that he was married to for less than three years has "acted against his wishes by challenging the plans he so carefully made for his estate." The children claim that her attempts add insult to injury and that it is a premature attempt to block what their father wanted them to receive.

Robin Williams' Estate Plan

The actor's will was filed after his death, and it left his estate in its entirety to a trust, with its beneficiaries including his three children. The trust was updated after he married his third wife, but Mrs. Williams also signed a prenuptial agreement before their wedding. Under the terms of the updated trust, Mrs. Williams was to receive her own separate trust called the "Susan Trust" which included their home in Tiburon as well as most of the personal property within it. She was also supposed to be given enough cash and property to cover the costs of the residence for her lifetime.

Robin Williams' children are claiming that Mrs. Williams is arguing for more money before the trust is even funded, and they cited it as "an illustration of greed that appears to be driving the petitioner's actions." The trust specified that all of Robin Williams' "clothing, jewelry, personal photos taken prior to his marriage to Susan," his "memorabilia and awards in the entertainment industry," as well as additional property he kept at a second home in Napa were to be given to his children.

However, Mrs. Williams is claiming that she should be entitled to his "personal collections of knickknacks and other items that are not associated with his famous persona." These knickknacks include his extensive collection of graphic novels, action figures, theater masks, movie posters and other collections that were precious to him. His children have argued that they are entitled to these pieces of their father, as well.

Money Moves to Help You Leave a Legacy

March 2, 2015,

Most people do not believe that they can leave a legacy for their heirs because the word is usually tied to large, multi-million dollar estates. However, there are ways to leave a legacy that does not involve complicated estate planning tools or extreme amounts of wealth. Two simple moves can be made with the money that you have now that can help you leave a legacy for your family, friends, or charitable organizations.

Moving Money to a Roth IRA

If you have assets in a traditional IRA that you do not think that you will deplete in your lifetime, consider converting those funds to a Roth IRA. High income earners are often prevented from contributing to a Roth IRA, but anyone can convert a traditional IRA to a Roth. After the conversion of the traditional to the Roth, when the Roth IRA is held for five and a half years and you have reached the age of 59 ½ years old all of the distributions are tax-free.

In addition, the Roth IRA comes with the additional benefit of no required minimum distributions when you reach 70 ½ years old, unlike the requirement for traditional IRAs. As a result, you can let the money in the Roth IRA accumulate over the course of your lifetime, as opposed to having the required minimum distributions decrease the overall amount in the fund.

Re-characterization rules for traditional and Roth IRAs also help make the shift from one type of account to another. The Internal Revenue Service (IRS) gives you until October 15 of the year following the conversion of a traditional IRA to a Roth to re-characterize it back to the traditional IRA if you lose significant value from the shift. The account can be re-characterized again into a Roth IRA in the next tax year after the initial conversion or thirty days after the re-characterization, whichever is later.

Moving Money to a College Fund

If you would like to help fund your grandchildren's education, you can consider moving money into a 529 college savings plan. Earnings in a 529 plan compound tax-deferred and the distributions are tax-free, as long as they are used for qualified educational expenses. However, a 529 plan also gives an added benefit to the grandparents that hope to leave a legacy for their loved ones.

A special accelerated gifting provision for 529 plans allows for grandparents to fund their grandchildren's college while also reducing the size of their own estates. Typically, the annual gift limit is $14,000 per beneficiary or $28,000 if you are married. However, the 529 plan exemption allows for up to five years of $70,000 per year or $140,000 for a couple per grandchild.

A 529 college savings plan is a great alternative to an irrevocable trust for tax purposes. In addition, this type of plan has relatively low administrative fees compared to a typical trust. Finally, a 529 plan gives the donor a surprising amount of control over the funds in the plan. You can control how the money is invested and who will receive the distributions. In addition, you can change beneficiaries or cash out the 529 plan if you decide to change your mind about the fund.

Who Will Inherit Whitney Houston's Estate?

February 27, 2015,

Bobbi Kristina Brown is the only heir to the estate of her mother, renowned singer and actress Whitney Houston, but since being placed in a medically induced coma questions have arisen about who is next in line to inherit her fortune. Whitney Houston's estate was estimated to be around $20 million at the time of her death three years ago. Bobbi Kristina was found on January 31 unresponsive in her bathtub and has remained unresponsive in a coma.

Whitney Houston's Estate

Since being discovered on January 31, Bobbi Kristina has yet to regain consciousness, and there are rumors that her organs have started to fail. With reports that Bobbi Kristina's family is considering taking her off of life support, people are now looking to the terms of Whitney Houston's will and estate planning documents. According to the terms in her will, if Bobbi Kristina dies, Whitney Houston's mother, Cissy, and her two sons are next in line to inherit Ms. Houston's estate. The estate includes full royalties from the singer's music, likeness, and image that will continue to distribute revenue over time.

Bobbi Kristina was the beneficiary of a trust for Whitney Houston's estate. She received ten percent of the estate, around $2 million, when she turned 21 years old. She is scheduled to get another fifteen percent when she turned 25 years old and the remainder of the estate when she turned thirty years old. The will stated that Cissy Houston and her two sons would inherit Whitney Houston's estate if Bobbi Kristina dies before coming into the majority of the estate.

Other Potential Claimants

Bobbi Kristina's father and Whitney Houston's former spouse, Bobby Brown, does not stand to inherit anything from Ms. Houston's estate, even if his daughter passes away. Bobby Brown was married to Whitney Houston for fourteen years and the couple divorced in 2007. According to experts, Bobby Brown's opportunity to contest anything in the estate would have been when Whitney passed away. He has no claim purely by virtue of once being married to her.

It also seems unlikely that Bobbi Kristina's partner, Nick Gordon, would inherit anything, as well. Mr. Gordon was taken in by Whitney Houston when he was twelve but never formally adopted, and he and Bobbi Kristina announced their engagement and marriage publicly. However, a representative of the family has stated that a formal ceremony of marriage never took place. Therefore, Mr. Gordon does not have a valid claim to the estate.

It was Mr. Gordon and a family friend that found Bobbi Kristina in the bathtub in their home in Roswell, Georgia where the couple lived. Authorities are also looking at possible foul play in the incident involving Bobbi Kristina because of injuries found on her face and mouth. Mr. Gordon is currently a target of the investigation, and the couple has a history of domestic abuse. In addition, one of the co-executors of Ms. Houston's estate, Pat Houston, obtained a restraining order against Mr. Gordon for, among other things, making threatening comments towards her.

Court Applies Disentitlement Doctrine in Estate Lawsuit

February 26, 2015,

This case centered on a dispute over the administration of a family trust as well as the interpretation of trust documents. Despite appealing the ruling, the defendant in the case violated court orders and, and the plaintiff moved to dismiss the appeal based on the rules within the disentitlement doctrine.

Facts of the Case

In the case of Adam J. Blumberg v. Gloria M. Minthorne, Gloria and Ralph Minthorne created the Minthorne Family Living Trust in 2008, with Gloria named as the sole trustee. Both parties had children and assets from previous marriages. In regards to the division and distribution of the trust property, one clause stated that the trustee was allowed to transfer the entire estate to a survivor's trust after the death of one spouse. Another clause left "all the rest, residue, and remainder of the trust estate, including the remainder one-half interest" in an apartment building to Ralph's children and grandchildren.

Ralph Minthorne died in November 2008, and Gloria's attorney informed Ralph's grandchildren, including Adam Blumberg, that the apartment building was to be sold and distributed to the family members. The building went in escrow at $925,000 but Gloria's attorney refused to give the grandchildren an accounting of the estate. Finally, in May 2009 Mr. Blumberg was informed that the price dropped to $800,000 and that the net proceeds were $313.000. Adam filed a petition in October 2010 to remove Gloria as trustee, recover trust property, compel an accounting, and appoint a successor trustee.

Ruling of the Court

The trial court found Gloria liable to Ralph's children and grandchildren. She was replaced as trustee by Adam Blumberg and was ordered to hand over property to the trust. She was also ordered to file an accounting with the court. Gloria appealed the ruling in December, 2012. The day before a status hearing on the appeal, Gloria quitclaimed the property in question to her daughter, and after months of promising to do so she never filed an accounting with the court.

Her and her attorney failed to appear for multiple court hearings, and she never disclosed the quitclaim deed to Mr. Blumberg. When he finally learned of the quitclaim, Adam filed a motion to dismiss Gloria's appeal. The appellate court agreed and based its decision on the disentitlement doctrine. This doctrine gives the court the right to dismiss an appeal if a party refuses to comply with a lower court's order.

Under this doctrine, a party cannot "ask the aid and assistance of a court in hearing his demands while he stands in an attitude of contempt." It is not seen as a punishment, but as a means to induce compliance with a valid order. In this case, Gloria disobeyed two court orders. First, she failed to submit an accounting of the trust and estate to the court. Second, she failed to quitclaim her property to Mr. Blumberg and in blatant disrespect of the court quitclaim the deed to her daughter. As a result, the disentitlement doctrine was properly applied, and Gloria's appeal was dismissed.

Tax Issues to Consider When Closing an Estate

February 20, 2015,

When a person dies, someone else must step up and close the estate. If that responsibility falls to you, as an executor you must identify all of the estate's assets, pay off creditors, and distribute what is left to the heirs. However, an added responsibility as the executor is that you must also file all of the tax paperwork for the estate, as well. There are four major tax considerations that you must complete as the executor of an estate.

Filing the Final 1040

The first thing that you must do as an executor is file the deceased's personal tax return for the year that the person died. The standard 1040 form covers from January 1 of that year until the date of death. If there is a surviving spouse, you can fill out the 1040 as a joint return and is filed as though the deceased lived until the year's end. A final joint 1040 includes the decedent's income and deductions up until the time of death in addition to the surviving spouse's income and deductions for the entire year.

Filing the Estate's Income Tax Return

In addition to filing the individual income tax return, as the executor you must also file an income tax return for the estate. Once the person has died, any income generated by any holdings is income of the estate. The estate's first year of income tax starts immediately after death and the end date can be the end of any month, so long as the time period for the return is twelve or less months. You must file a 1041 form with the federal government by the fifteenth day of the fourth month after the year-end date.

However, if the estate is less than $600, you do not have to file a 1041 on behalf of the estate. In addition, you do not need to file this form if all the decedent's income-producing assets bypass probate and go straight to the surviving spouse or other heirs by contract or operation of law. Examples of this include joint tenancy in property, retirement accounts, IRAs, and other beneficiary designated income.

Filing the Estate's Estate Tax Return

You must also file the estate's estate tax return, otherwise known as Form 706. This form is only applicable if the deceased's estate is worth over the federal exemption level, which is $5.43 million for 2015. However, the form is required if that person gave a sizable gift over the annual gift amount of $14,000 sometime within 2013-2015. If a sizable gift was made, it is added back to the estate for tax purposes to see if the estate would be over the federal exemption limit. If it is, there is a 40% tax on the excess amount.

The deadline for Form 706 is nine months after death, but a six month extension is allowed. It is also important to note that while life insurance proceeds are given income tax free, they are usually included in the decedent's estate for estate tax purposes. An exception to this is if the beneficiary is the surviving spouse.

Miscellaneous Tax Details

There are smaller other details that are necessary for filling out an estate's tax responsibilities. If you need to fill out a 1041 or Form 706, you must get the estate a federal employer identification number (EIN). This requires filling out another document, Form SS-4. You should also file a Form 56 that notifies the IRS that you will be handling the tax issues for the estate. Finally, these forms apply to the federal government, but do not forget to check and see if the state requires tax returns, as well.

Ernie Banks' Caregiver Claims to be Sole Heir

February 18, 2015,

Known and beloved as "Mr. Cub," Ernie Banks began his career in baseball earning only seven dollars per day in the Negro Leagues, before coming to the Chicago Cubs and becoming one of the team's all-time favorite players. After baseball, Ernie Banks continued a career in business and philanthropy, Mr. Banks earned the Congressional Medal of Honor in 2013. He passed away on January 23, 2015 from a heart condition, but the death certificate also listed dementia as a "significant condition contributing" to his death. This statement has become incredibly important because his caretaker is now claiming to be his sole heir.

Ernie Banks' Estate Plan

Three months before he passed away, Mr. Banks signed a new will and estate planning documents that included a power of attorney, healthcare directive, will, and trust. The new estate plan gave control of his entire estate to his caretaker and talent agent, Regina Rice. The will and trust also excluded his family members and named her as the sole beneficiary. In fact, the new documents expressly stated that nothing should go to his estranged wife or three children from a prior marriage. The new plan gives Ms. Rice all assets from Mr. Banks' estate, and it also allows her to profit off of his name, image, and likeness.

Banks' Family Contesting Estate

The Banks children have already stated that they plan to contest the new estate plan. They claim that Ms. Rice used Mr. Banks' dementia as a way to manipulate him into signing the new will. They also claim that in the months leading up to his death, Ms. Rice refused to let them speak to their father over the phone. Ms. Rice has refuted the allegations and has stated that "the record and those closest to Ernie will dispel any iota of concern regarding my relationship with Ernie and his trust in me to [carry] out his wishes."

Illinois Undue Influence Law

A new law was passed on January 1, 2015 in Illinois that makes it easier for families to challenge wills that favor a caregiver. However, it does not apply in this case because Mr. Banks signed his new documents a couple of months before the new law went into effect. That being said, the burden of proof to prove that there was no undue influence with Mr. Banks will lie with Ms. Rice.

The concept of undue influence means that a person was of sound mind and free from pressure or manipulation of another person when the estate planning documents were signed. The fact that Mr. Banks had dementia and completed the changes to his estate only three months before he died is questionable. And because Ms. Rice was in a position of trust over Mr. Banks at the time of the changes, as caregiver and talent agent, the law will automatically assume that she did use some level of undue influence when the documents were signed.