Wednesday, December 16, 2009

How Congress Turned Estate Taxes Into An Asteroid That Hits Taxpayers on January 1, 2010

The estate tax asteroid. If you have read my articles you know I have written many times on this topic. Recently I was asked, "Why do you call it an asteroid and why is it bad?" Those are great questions and this article provides the answers.

Let's begin by seeing where we stand as of 2009. The current estate tax rate is 45% and the estate tax exemption for 2009 is $3.5 million. This all comes to an end unless Congress acts on December 31, 2009, hence the asteroid. More on the impact results from the asteroid below.

Let's continue with what happens in 2010 and 2011 under current (on the books) law. In 2010 the estate tax is repealed for one year only. It is replaced in 2010 only with capital gains taxes on inherited assets because the "step-up in basis" is also repealed for 2010. Perhaps not too bad because the capital gains rate is less than the 2009 estate tax rate of 45%. Since very people can prove basis, you can calculate the impact by assuming inherited assets will have a 0 basis. There will be some basis step-up that can sprinkled on inherited assets.

The first problem with 2010 is that all the estate plans out there that are based on a formula relying on an estate tax exemption are in trouble. Second, there will be some unbalanced people with assets who jump off of bridges since they can die without an estate tax. See, the comment below from anonymous if you questions that.

Now that is the just the first impact results from this asteroid. It gets much, much worse.

In 2011 the estate tax returns in all it's fury with a 55% marginal bracket and only a $1 million exemption (the same structure in 2003). Again, this is current law if Congress fails to act. The asteroid's impact results become catastrophic come 2011.

I have excoriated Congress over this since 2002. Each year, the House has passed a fix and each year that fix has failed in the Senate. The same has occurred this year notwithstanding that there are bills pending in both houses that will prevent the asteroid from landing.

Let me know if you think that explains why the estate tax asteroid is so bad. Thank you for your interest and ongoing support.

Saturday, December 5, 2009

So Whose Money is it Anyway? Does This Question Even Need to be Asked?

Whose Money is it Anyway?

Apparently we do need to ask this question. It seems like a simple question, but it is actually surprising that there is any difference of opinion on this one.

To start this discussion, let's begin with a mind experiment. Do you agree with this statement:

"From each according to his ability and to each according to his need".

A recent poll showed that almost 80% of people agreed with this statement. That was surprising and quite shocking actually since this statement has resulted in genocide around the world and enslavement of millions more.

How's your mental exercise going? Remember that statement yet? Here's another clue:

That statement resulted in a philosophy that has failed wherever it has been tried and failed by killing off millions of people by the people who have practiced what that statement stood for.

Have you got the answer to our mental exercise yet?

OK, here's the answer:

Karl Marx said that in his book Das Kapital, the beginnings of communism and the state version of communism, socialism.

Surprised? Each person who took that poll I mentioned a moment ago was shocked, they didn't believe it because that statement is seemingly innocent. However, the truth is the opposite. That statement is the reason for our initial question, whose money is it anyway.

First, let's bury marxian philosophy once and for all. Wherever it has been tried or attempted, it has failed. Because it is a denial of the most basic part of our humanness, our desire for liberty and freedom, the only places where it has survived for any time is because of state sponsored tyranny to enforce its existence.

So why is Marx part of this discussion? The question,whose money is it anyway, can only exist when people are confused and start to believe that our money belongs not to us, but to any government.

Right now, our Congress is involved in another debate about taxes. One party believes that the money you earn and save is yours, that the government only taxes a portion of that money to finance the government.

The other party believes that the money you earn and save belongs to the government, and the government's job is to decide how much of that money the government will allow you to keep.

In my tax practice, we work with our clients to assist them in protecting their assets and estates believing that their money is theirs.

Which side do you come down on? Whose money is it anyway?

Here's the answer if you haven't figured it out yet.

It's your money. You earned it, you saved it. It's your money, not the government's. How much of your money do you want to give to the government? That's up to you and why we have debates and elections.

But never forget that it is your money. Never. Otherwise, you may fall prey to believing that Marx was right and we already know he was wrong. Dead wrong.

Friday, December 4, 2009

Getting Yourself In Order Step 7: Choosing the Right Advisors

In our series on how to get yourself in order (painlessly) we are now at Step 7 Choosing the Right Advisors. With all the yellow pages and paid referral listings out there you might think this step would be easy. It is easy if you know the right steps to follow and if you don't get caught up in the hype of TV ads.

First, a quick review of the first six steps of getting yourself in order:

1. Protect your house.
2. Protect your car (and yourself).
3. Provide for decision makers in the event of your disability.
4. Create your dispositive document, like a Will.
5. Synchronize your beneficiary designations with your plan.
6. Beware of Uncle Sam in your estate planning.

Step 7: How to Choose the Right Advisors.

Choosing the right advisors is not like trying to find a needle in a haystack. Also, it is not a matter of watching TV ads and then hopping the web or your phone. It is a specific process with steps that you can follow to ensure that you end up a team of advisors designed to be on your side and who will help you accomplish your plan and goals.

Here are the steps:

1. Deal with real experts and real specialists. You don't have your plumber do your lasik surgery do you? Of course not, and you want to use that same philosophy in choosing legal and financial advisors. Avoid referral services that charge people to be listed on them. There are two quite famous services right here in Colorado that charge the people they list many thousands of dollars, but that offers you no comfort that you are dealing with an appropriate expert.

2. Insist on real experience, not a listing in a paid referral list. More details on that below.

3. Choose experts based on the need you have. For example, don't ask your dentist how to do your Will.

4. When picking an estate planning attorney, insist upon at least the following:

A. Full-time estate planning practitioner with at least 7 consecutive years of full time estate planning experience.

B. Membership in the Colorado Bar Association Trust and Estate Section.

C. An AV rating from Martindale-Hubbel, the attorney listing and rating service. You can't buy the rating because it is a peer review process.

5. When picking an an accountant insist on the following:

A. A CPA, that means a certified public accountant.
B. Specializes in tax planning.
C. Member of the AICPA.

6. When picking an insurance advisor insist upon:

A. Full-time insurance advisor with solid experience. I wrote a previous article on how to select a property and casualty insurance advisor, that is a good reference source.

B. For life insurance, the CLU or ChFC designation.

7. Insist that your arrangement with each advisor be reduced to writing with all details spelled out, including the work to be done and details about fees and charges.

If you can follow these simple steps you will be successful in assembling your team of advisors. Let me know how these steps work for you.

Thursday, December 3, 2009

Tuesday, November 3, 2009

Step 6 to Getting Yourself In Order: Watch Out For That Long Lost Uncle--Uncle Sam

We are up to Step 6 in our series about how to get yourself in order. You can read below for the steps preceding this Step 6.

In Step 6 we are concerned about Uncle Sam. Yes, that Uncle Sam, the federal tax system. In every estate plan we always analyze whether there are estate or death tax issues present. Primarily this involves examining the size of your estate and projecting its probable growth over time.

This is an important issue because you are permitted to leave an inheritance of a limited size before a significant tax is due. The federal estate tax is one of the highest taxes in the U.S. For the balance of 2009, the estate tax is 45% of each dollar over the estate tax exemption left to anyone not your spouse and that includes your kids!

Unless changed, the estate tax rate increases to 55% of each dollar over $1 million in 2011. Shocking? Yes, it is indeed.

We will cover death taxes in greater detail in a future article. The important point here is that estate taxes be considered in getting yourself in order. To accomplish this, when you meet with your estate planner, focus on these questions:

1. What is the size of your estate currently?

2. Have you calculated the estate size correctly?

3. Make sure all elements are included, especially your life insurance.

4. Is your estate expected to grow over time?

5. How does your estate size compare with the available federal estate tax exemption?

6. How is your estate affected by death taxes in states where you own property?

7. Have you maximized your available exemptions in your estate plan?

8. Have you properly coordinated the marital deduction with available estate tax exemptions.

7. Are you subject to generation skipping taxes?

8. Are you subject to gift taxes?

9. Do you understand the interplay between gift taxes and death taxes?

10. Do you understand how the different tax exemptions operate and are different?

11. Do you understand the changes coming at you in the current estate tax laws?

By asking and focusing on these questions, you will be well on your way to accomplishing Step 6 to getting yourself in order. Good luck.

Thursday, October 29, 2009

Step 5 to Getting Yourself in Order: Synchronize your beneficiary designations with your estate plan or dispositive document.

We are up Step 5 of Getting Yourself In Order. Step 5 is to synchronize your beneficiary designations with your estate planning.

For the earlier four steps, just read our prior articles which appear below.

Why do you want to check your beneficiary designations and synchronize them with your plan? Because if you don't, then some big surprises could await your family.

Beneficiary designations exist in many places. Life insurance; disability insurance; IRA's; 401(k)accounts; pension benefits and others. Many of those forms were completed years ago and what you put down then may not match what you want now!

Another issue is that life insurance beneficiary designations will not necessarily be what you use for qualified plan accounts like IRA's and 401(k) accounts. Those type of accounts have special rules dealing with income taxation and frequently you will want to maintain the income tax deferral on those accounts. Those rules require that special consideration be given to those accounts.

Here's another example: Let's say you took out a life insurance policy when you graduated from college. Back then you thought it a good idea to list your mother as the beneficiary. Now you are married or in a committed relationship. Your Will provides for your estate to pass to your spouse or partner. However, that life insurance is going to your Mom if you don't synchronize the beneficiary designation with your plan.

So Step 5 of getting yourself in order is to check and then synchronize your beneficiary designations with your estate planning. If you don't know how to do this, let us know and we can point you in the right direction.

Protect yourself against greedy adult children-

Protect yourself against greedy adult children-

Monday, October 26, 2009

Getting Yourself in Order--Step 4: Creating Your Dispositive Document; A Will or Trust

In our series about getting yourself in order, we are at Step 4, creating a dispositive document. Read our prior columns for the previous steps in this important series.

What is a dispositive document? Well, it sounds fancy, but it's not. A dispositive document can be either a Will or Living Trust. In other words, a dispositive document is where you cover (among many important things) where you want your property to go and how to get it there in the event of death. For simplicity sake, we will use a Will to illustrate how important having a dispositive document is.

First, what if you don't have a Will? Well, we have covered this in prior articles below and encourage you to read those. If you don't have a Will and die, then your estate (whatever that may be) is handled according to the laws of intestacy (generally not what you want) and according to the beneficiary designations that you have created. Is this good? Usually NO! Read on and you will agree.

Another set of problems is created by computer forms, zoom forms and fill-in-the-blank forms. Basically, they don't work, or create unanticipated problems for your family. They are unreliable at best and a disaster at worst. Specific problems with these documents are covered in a prior article which appears below.

Here are the reasons you want a Will and why you don't want to rely on the laws of intestacy:

1. You get who you want to be your Personal Representative (PR) also known as your Executor. If you die without a valid Will, you get no choice and who is appointed may not be who you want!

2. You get to establish your plan for your property. If you don't have Will, you get the state's plan for your property and that could be the last thing you want.

3. You get your choices for guardians of minor children. Without a valid Will, the kids will live with the persons designated by the Court, not necessarily your choice.

4. You get to establish the plan you want for protecting your kids, or spouse, or other family members from unwise spending habits or predators who may target them for being suddenly with money.

With a Will you also get to address special circumstances that could be important to you such as:

1. 2nd or later marriages. Let's face it, fewer people are married to their first spouse and that requires some planning. Without a valid Will, it could lead to trouble.

2. Special needs kids. Special needs kids are fragile enough without our exposing them to financial disaster or predators. They require special consideration and planning which can only occur if you do a Will.

3. Blended families. Along with 2nd and later marriages comes blended families. We even get to watch them on TV with Eight is Enough and Jon & Kate + 8 and many other examples. Blended families require outside the box thinking to address the issues and the solutions can only occur in your dispositive document--Will.

4. Aging parents and others you are responsible for. It takes a village according to some, which means you may be responsible for family members other than your children. These circumstances require planning and special drafting in your Will because without that, those people will go lacking in your estate.

5. Operating or special assets and property. Whether you have a small business, farm, ranch or oil and gas assets, you may have property that needs special handling. How about if you are a fix and flip expert? That's a business that requires special drafting in your Will. Without that special attention, your business or assets could have problems.

6. Estate tax issues. If your estate is large enough (over $3.5 million for 2009, or just $1 million in 2011)then estate tax planning is advisable. Why? The minimum estate tax is 45% for 2009 and up to 55% in 2011. A future article will cover the impending estate tax asteroid scheduled to hit the earth January 1, 2010, so more on that later. Without a Will, your family gets no estate tax planning and you have another family member--Uncle Sam, who will take a huge piece of the pie away from your family.

You know what's amazing? I have covered only a few of the basic reasons for having a Will! There are many others too numerous to list here. But just these few should convince you about having your own dispositive document.

So that's Step 4 in getting yourself in order: get yourself a dispositive document, otherwise, it could be hazardous to your financial health.

Wednesday, October 21, 2009

Getting Yourself In Order--Step 3: Arranging for Proper Decision Makers in the Event of Disability

In this series about getting yourself in order, we are up to step number three. Step 3 is establishing decision makers for yourself in the event of disability. Establishing proper decision makers for yourself is crucial to protecting yourself and family should disability or incapacity occur. How you do this is discussed in greater detail below.

First, let's review where we are in getting yourself in order. The first two steps:

1. Protect your House. Make sure your house is protected with proper insurance coverage and pay special attention to liability coverage and to adding a personal liability umbrella to your homeowner's insurance.

2. Protect your Car. Make sure your auto insurance is adequate and pay special attention to the liability limits. You won't survive financially if you lose everything in a lawsuit involving a car accident.

And now: 3. Provide for who makes decisions for you if you are incapacitated and cannot make decisions on your own.

Just like a car accident, we don't plan to become incapacitated through illness or injury. However, stuff happens and either through age, illness, and injury, incapacity can occur. Perhaps you know someone or know of someone who cannot speak for themselves and the occurrence is a shocking surprise.

Our State has statutes which provide for who will make your decisions if you haven't provided for this yourself. However, it would be coincidental if the State selects who you would want making those decisions. Proper planning is not a game of chance, it is about creating certainty. Here's another way to look at this issue. One element of being responsible to protect ourselves from unplanned events, especially the unpleasant ones.

By creating your own plan, with proper legal documents, you can control the outcome of an uncertain future. To make sure that you have the decision makers in place that you choose, you should adopt two different types of Durable Powers of Attorney. Details on these documents have been discussed in several of our prior articles and we encourage you to review those.

The two types of Durable Powers of Attorney that you want are:

1. A Durable Financial Power of Attorney; and

2. A Durable Health Care Power of Attorney.

In each type, you want to make sure the appropriate HIPAA language is included. We discussed having HIPAA in your DPOA in a prior article.

If you adopt these two documents, you will make your life is better and more secure and go far in protecting your family. So that is Step 3 in getting yourself in order.

Wednesday, October 7, 2009

Do you Want HIPAA In Your DPOA's: Making Sense of the Alphabet Soup of Powers of Attorney

Recently we ran a poll about whether people should have HIPAA in their DPOA's. It wasn't a joke, but a little trick question. Here we will attempt to make sense of this alphabet soup and explore why you really do want HIPAA in your DPOA.

First, to take the acronyms away, the question would read, "Do you want HIPAA provisions in your Durable Powers of Attorney. To answer, let's start with some definitions.

DPOA: Durable Power of Attorney. A Power of Attorney which is "durable" is one which is valid after the maker becomes incapacitated. If the Power is not "durable" it is revoked as a matter of law by the maker's incapacity. A Durable Power of Attorney sets forth your choice of decision makers when you cannot speak for yourself.

There are two general types of Durable Powers of Attorney. One is for financial matters (paying bills, financial decisions, signing tax returns, etc.) The second is for health care matters such as what medical treatment should be provided to you when you cannot speak for yourself.

HIPAA: The Health Insurance Portability and Accountability Act. The part of this federal law we are concerned makes your health information private. What this law did was to require that all medical providers lock up your health information so it could only be provided to those persons you want to have it. Unfortunately, there are numerous unintended consequences to this laudable goal.

Did you know that your doctor is not permitted to speak to your spouse or other family member about your medical status or treatment unless you so specify in a HIPAA release? This is why you might have encountered HIPAA releases and privacy statements at your doctor's office. If you are thinking, "what a pain" or something similar you are right!

Here's a real life situation. A client had an 18 year old daughter playing lacrosse on her high school team. The girl was injured and taken to a local hospital. The people at the hospital refused to provide her mother with information about her condition because the girl had not signed a HIPAA release! Now, most right-thinking medical personnel ignore these rules and will speak with family members absent a HIPAA release. However, that did not occur for this mother.

After her daughter was released from the hospital, her mother brought her to our office for Durable Powers of Attorney with HIPAA provisions. That's because the federal regulations for HIPAA allow us to name a HIPAA Personal Representative in our Durable Powers of Attorney. By doing so, you solve the problems of who any medical facility and personnel can speak to about your care and medical bills.

So here is what you should know about these issues:

1. Any person over the age of 18 should sign a Durable Financial and Durable Health Care Power of Attorney.

2. Your Durable Powers of Attorney should have HIPAA provisions for the reasons discussed above.

In the words of the initial question: Yes, you do want HIPAA in your DPOA's.

Any questions? Let us know and we will be happy to respond.

Thursday, September 24, 2009

Reductions in Medicare in Healthcare Reform?

It has become difficult to wade through the political garbage to figure out what is happening with healthcare reform. Today this headline was on Lexis-Nexis:

WASHINGTON – (AP) Congress' chief budget officer on Tuesday contradicted President Barack Obama's oft-stated claim that seniors wouldn't see their Medicare benefits cut under a health care overhaul. The head of the nonpartisan Congressional Budget Office, Douglas Elmendorf, told senators that seniors in Medicare's managed care plans could see reduced benefits.

Isn't it time the people in Washington figure out what they are doing and stop making things up about what they are doing?

What do you think?

Wednesday, September 23, 2009

EP Motivations

Recently we conducted a poll on several social networking sites about motivations users identified for either doing or not doing estate planning (a Will; Powers of Attorney and Living Will).

We did this to see if the motivations of users of social networking are similar or different from those who obtain information through other means. Information experts suggest that social networking users gather, use and assess information differently from people who only read newspapers or watch television.

The poll consisted of two questions:

1. If you have done a Will what motivated you to do so?

2. If you have not done a Will, what prevented you from doing it so far?

Here are the several answers listed in the order of frequency we received to these questions:

For those who have done their estate planning or Will:

1. Suffered the loss of a loved one who didn't have a Will.
2. Saw the results of a close relative who dealt with a well-planned estate.
3. Made good on a promise to my spouse to get a Will.
4. Once I had kids, I knew I had to do my Will.
5. Made good on a promise to my Mother to get a Will.
6. The Army made me get a Will.
7. I knew it was the right thing to do and wanted it off my list.

For those who have not done their Will yet:

1. Procrastination.
2. I'm only in my 30's, nothing is going to happen to me.
3. I'll do it when I'm older.
4. I don't care about my estate.

These answers are interesting because they track closely with answers given by people to the same questions who do not use social networking. The answers suggest that the motivations to do estate planning and the motivations to not do estate planning are not unique to certain age or income groups. Even though users of social networking get their information differently, the information they do get via social networking is assessed and acted upon similarly to older generations.

There are no right or wrong answers to either of the two questions. The best approach for anyone is to make a decision to have a Will and estate plan, or to not have one with an understanding and appreciation of the results of your decision. Once you understand the results of your decision, then you can determine if it is a decision that is right for you and works for you.

For example, think about your responsibilities. If you are married, in a committed relationship or have kids, then having some form of estate plan is mission critical. On the other hand, if you are not in these situations, it may be less so.

Second, understand the results of not having a Will; Durable Powers of Attorney; a Living Will; proper beneficiary designations and then decide if the results are really what you want. Also understand the results of attempting to resolve these situations with web based and fill-in-the blank forms. If you are happy with the results, then you can be comfortable with your decisions.

The easiest way for you to make these decisions to obtain an estate planning assessment. Such assessments are free or very low cost in most cases. So think about your own situation, get informed, understand the results that your decisions will create.

Please let us know your comments and thoughts and we welcome any of your questions.

Tuesday, August 25, 2009

Tips to Help Prevent Elder Financial Abuse

As our population ages, stories about financial abuse of the elderly appear daily in our media. Preventing any abuse of persons at risk like the elderly should be a goal of each of us. Perhaps you are getting older yourself and are concerned about this problem. Perhaps your parents or grandparents are reaching ages where protection for them is important. However you are interested in protecting the elderly, keeping our older loved ones safe from financial abuse is crucial to their overall well being.

Here are several tips and ideas for preventing financial abuse of people at risk due to age or any infirmity.

1. Start by working with an experienced estate planning attorney or an attorney specializing in Elder Law. They will have experience in helping older clients and be aware of the many issues to be addressed. Initially, the first issue is if the client has appropriate capacity to make decisions and to create documents such as trusts; Wills; and Powers of Attorney necessary for their protection.

2. Reduce or eliminate excess cash on hand in the person's home. Generally, there is no reason for anyone to have large amounts of cash on hand and this can be an unnecessary risk for an older person.

3. Consider having the person in question use only a debit card and not have other or multiple credit cards on hand. Consider a reasonable daily limit for the card that would trigger notification to a trusted person if the limit is exceeded.

4. Use auto-bill pay arrangements for the various needs and services for the person at risk. Also consider having duplicate statements for all services and accounts sent to the older person's accountant or attorney so account activity can be monitored.

5. Avoid sole-authority Powers of Attorney with the sole authority in the hands of an individual. Have co-agents and consider having the agent or co-agent be a bank or trust company.

6. Avoid gifting provisions in the Power of Attorney, especially there is only one agent.

7. Consider a funded revocable trust for the older person's assets and accounts. Most assets other than retirement accounts and annuities can be placed in this type of trust. Have an institution such as a bank or trust company be either the co-trustee or the sole trustee of the trust.

8. Consolidate multiple accounts and eliminate stock certificates by holding ALL investments in a brokerage account or in the trust account. Having original certificates at home creates unnecessary risk to the person at risk.

Note that this is not an exhaustive or complete list and many of these tips may not apply to all persons. The best beginning tip is to work with a lawyer experienced with estate planning for older persons. Each person is different and special and deserves assistance that is tailored just to their needs.

The author wishes to express thanks to attorney Martin Shenkman for several of the ideas in this article.

Tuesday, August 4, 2009

Do I Need a Will?

One of the more frequent questions I am privileged to hear from people is whether I think they need a Will. The answer is almost always yes, but why? Here are five questions you can ask yourself that can help you to answer this question for yourself.

Here's a clue: if you answer any of the questions below, "Yes", then you need a Will and also Durable Powers of Attorney. This quiz first appeared on our facebook page at: and we hope you find it useful.

Here are the five questions:

1. Do you have kids? Here we mean kids under an age that you deem appropriate for handling large amounts of money or if the kids are minors.

2. This question is a two-parter: Are you over the age of 18 and do you care who makes decisions for you if you are incapacitated and cannot speak for yourself.

3. Would you want your property to pass at your death to people you choose or people chosen for you by the state where you live?

4. Are you part of a blended family? This means are you part of a family where the members are actually from different or prior marriages?

5. Are you a partner in a domestic partnership, or living with someone in a committed relationship, but not legally married to?

Those are the five questions. If you answer any of the five by saying, "Yes", then you do need a Will and Durable Powers of Attorney. For more information visit our website at: or contact our office at 303-730-7100. Thanks for taking our estate planning quiz.

Monday, July 27, 2009

Unraveling Powers of Attorney

Recently I challenged readers if they knew about HIPAA PR's in their POA's. Most people didn't know what I was referring to, so here's a Power of Attorney dictionary. I hope this helps you in your decisions about your Power of Attorney.

Here is a list of the abbreviations I used in my Power of Attorney (POA) challenge:

1. POA = Power of Attorney

2. DPOA = Durable Power of Attorney (these are the one's used in estate planning).

3. HIPAA = Health Information Privacy Administration Act

4. HIPAA PR = a HIPAA Personal Representative appointed in your POA.

Having a DPOA is integral to an effective estate plan. Your DPOA helps to avoid issues known as "living probate" where disputes could arise over who your decision makers are and what can be done for you during any period of your incapacity.

So having a HIPAA PR named in your DPOA is one of the more important parts of your estate planning and will help protect you, your family and your money. Make sure your DPOA appoints a HIPAA PR.

Wednesday, July 8, 2009

The Four Components of Every Estate Plan

In a recent poll, I asked readers if they knew the four components to every estate plan. There were many creative answers, but sadly, no one had the right four components. In fact, none of those answering the poll listed even two of the four components.

In this article, we will detail the four components of EVERY estate plan. If your is missing any of the four, then you know the plan is faulty and exposes you and your family to serious risk.

Component 1: A Testamentary Instrument

Every estate plan should contain a testamentary instrument. This can be a Will or Living Trust acting as a Will substitute. This component has the following purposes:

1. Nomination of executors or personal representatives and trustees and their successors.

2. Provide for care and guardianship of any minor children.

3. Provide for your desired asset and property disposition.

4. Cover any tax planning issues if your estate is large enough.

Component 2: Durable Financial Power of Attorney

Every estate plan must consist of a Durable Financial Power of Attorney. This allows your choice of decision makers for yourself in the event of mental incapacity. In other words, who do you want to make financial decisions for you if you are incapacitated and cannot make those decisions for yourself.

Note that if you do not have this component, then financial decision making for you can be problematic if you are incapacitated.

Component 3: Durable Health Care Power of Attorney

Every estate plan must consist of a Durable Health Care Power of Attorney. This allows your choice of medical decision makers for yourself in the event of mental incapacity. In other words, who do you want to make health care decisions for you if you are incapacitated and cannot make those decisions for yourself.

Note that if you do not have this component, then health care decision making for you can be problematic if you are incapacitated. Also, both types of Powers of Attorney should name a HIPAA Personal Representative for access to protected health care information, including financial health care information. This is why anyone over the age of 18 should consider these two decision making documents.

Component 4: Living Will

Life support issues should be considered and decided upon before you are in that situation, when it is normally too late. This is done through a Living Will.

Each State has its own laws about Powers of Attorney and Living Wills as well as Wills and trusts. However, it is possible for each of these four components to be created at little or no cost to you. We recommend that you consult with your own estate planning attorney to learn about these four components and to learn how each applies to you.

Wednesday, July 1, 2009

The New Colorado Designated Beneficiary Form

On July 1, 2009 the State of Colorado Designated Beneficiary law went into effect. This new law authorizes any Colorado resident to sign a Designated Beneficiary Form providing an array of legal and property rights to the other person who is party to the form.

Without understanding the law in Colorado and how this form will effect estate, legal and property rights, we recommend that no one consider signing a Designated Beneficiary Form without legal advice in advance.

The Colorado Designated Beneficiary law is Colorado's attempt to recognize domestic partnerships. However, the form authorized by this new law does something quite different. The form attempts to undo established Colorado law and property rights without clarifying how these changes work.

For example, the form permits the designated beneficiary to inherit through Colorado's law of intestacy. However, the new law does not designate in which position the designated beneficiary would be placed. Would they be in front of a spouse? In front of a child? This is not defined.

Additionally, the new law was completely unnecessary. Each of the rights that can be granted to a designated beneficiary were previously available to be provided to a domestic partner through appropriate estate planning documents such as a Will or Durable Power of Attorney. The new form even says that the form itself is superseded by ANY estate planning document created by its user.

There are other reasons to numerous to mention here about how fatally flawed the Colorado Designated Beneficiary law is. Suffice it to say, that anyone using this new form without legal advice will be subject to serious legal risk.

Tuesday, June 2, 2009

What Business Lawyers Need to Know About Estate Planning

This was originally presented to the Colorado Bar Association Young Lawyer's Division on May 29, 2009, Copyright 2009 by Bernard H. Greenberg, All Rights Reserved.

May 29, 2009

Presented to:
CBA Business Law Section Young Division Luncheon
May 29, 2009

Presented by:

Bernard H. Greenberg
26 W. Dry Creek Circle, Suite 520
Phone: 303-730-7100
Fax: 303-730-7195
©2009 All Rights Reserved

May 29, 2009

Why estate planning issues are an integral part of a client’s business planning.
A. Business lawyers focus on entity formation and transactions and sometimes ignore estate planning issues. These issues are important and can have a profound effect on the success of your client’s business enterprise as well as the client’s finances. Ignoring these issues can be hazardous not only for the client, but for the business lawyer.
1. Joe Robbie. Here is an example of where the business failed due to the lack of an estate plan. This family had to sell the Miami Dolphins and Joe Robbie Stadium after the death of Joe Robbie. With effective estate planning it is likely that the family could have retained the interest in the team and stadium.
2. Malcom Forbes. This example shows that effective estate planning can retain the family’s interest in a business enterprise at the owner’s death. Due to the estate plan created by Malcom Forbes, his publishing empire was retained by his family after his death.
3. Moral of the Story. Ignoring estate planning issues as a business lawyer can be hazardous to your client’s business and wealth!
B. Why Estate Planning Issues Matter to Business Lawyers.
1. Ethical Issues. I do not address ethical issues in this outline. However, you must address these issues with every client and should include a discussion of:
a) Who is client? Are you representing the entity, or a principal? If there are more than one principal, which principal do you represent?
b) Conflicts in representing principals and/or entity exist and must be addressed.
2. Entity choice. The choice of the entity for the business enterprise has significant business and estate plan consequences. The business issues are beyond the scope of this outline, but should be considered as part of the entity choice matrix.
a) Estate planning issues affected by the choice of entity for the enterprise.
i. What are the client’s goals for the ownership interest in the event of disability.
ii. What are the client’s goals for the ownership interest in the event of an untimely death of the client.
iii. How are these issues affected by multiple principals?
iv. Are these issues affected by the client’s existing estate plan? Does the client have an existing estate plan?
v. Does the tax treatment of certain entities match the client’s tax and estate planning objectives.
b) Entity Choice Matrix. While this is not meant to be an exhaustive list of issues to be considered, it is a starting point in any discussion you have with clients about the choice of entity for the business enterprise.
i. Business purpose. The purpose of the enterprise can affect the choice of entity.
ii. Tax treatment. There are numerous entities available to Colorado business enterprises. The desired tax results require analysis and coordination with the client’s tax counsel or CPA.
iii. SBA and other incentive issues.
iv. Licensing.
v. Liability questions. For many clients, liability questions and protection dominate any discussion of entity choice. These matters must be thoroughly analyzed in the choice of the entity for the business enterprise.
vi. Effect on owner’s or client’s estate plan. Is the entity being considered consistent with the client’s estate planning? What titling issues for the ownership interest are required to maintain such consistency?
vii. Ownership structure. Multiple principals have significant affect on which entity is advisable for the particular business enterprise.

c) What to do if the client comes to you after the entity has been formed.
i. It is always good practice to inquire about the status of the entity when a client is seeking advice with an existing entity. This allows you an opportunity to identify problems or issues with the existing entity. You can use the entity choice matrix on existing entities.
ii. Examples:
1) Cary Client comes to your office with a corporation. Upon being asked, Cary tells you the corporation is an S corporation. You ask about the Form 2553 (S Election) and the Cary stares at you blankly. This is a problem because it means no S Election may have been filed with the IRS. You also learn the corporation has never issued any stock and has no Corporate Minute Book. How do you resolve?
2) Mary Master brings you her LLC she created by filing the online Articles of Organization. You ask to review the Operating Agreement and receive a similar blank stare. How do you resolve?
3. Ownership Structure: How Business Owners Can Mess Up Their Estate Plan. With the many different entity types comes many different ownership structures. This portion of the outline focuses on the issues caused by how many owners (principals) exist in the business enterprise.
a) Single owner. This is the easy one. What is necessary is proper titling to coordinate with the client’s estate plan. Example 1. If the client has created a Single Member LLC, then the titling for the membership interest should be coordinated with the estate plan. Example 2. A client’s stock certificate can be titled to coordinate with the client’s estate plan.
b) Multiple owners:
i. Ethical issues. See, above.
ii. Business continuation issues. What are the arrangements to continue the business upon the withdrawal, disability or death of a principal? Has this been considered and analyzed by the client and counsel?
c) Agreements among owners: (These agreements are beyond the scope of this outline.
i. Buy-Sell Agreements
ii. Business Continuation Agreements and Arrangements
iii. Are any such agreements coordinated with the client’s estate plan?
iv. Funding of the agreement. If there is an agreement, how will the requirements to purchase a principal’s ownership be funded? If insurance is utilized, is the policy and beneficiary designations structured correctly? Have the tax issues associated with such a plan been discussed?
v. Any agreements among owners should include coverage for: death, disability, dispute, and retirement of any of the owners.
4. Estate Planning Issues to be Considered
a) Titling of the business interest:
i. Individual name
ii. Co-ownership with spouse What about surviving children where there is no surviving spouse? What about multiple children where not all children will receive or work in the business enterprise after the death or disability of the owner?
iii. Multiple owners issues: the other owner(s) may not want surviving spouse or friend of the deceased owner as new owner and surviving beneficiary may or may not want to be a new owner in the enterprise. Yet another intersection of business and estate planning issues.
iv. How is surviving spouse protected? Can the surviving spouse upset the business apple cart by pursuing rights as the surviving spouse?
b) Ethics. Who is your client? – Are separate counsel(s) necessary?
c) Is business interest subject to agreement among owners?
i. Funded vs. unfunded agreements
ii. Coordination with estate plan
d) Is client advised of how business interest is affected by:
i. Client’s disability. What are the business implications; what are the insurance, and decision making implications?
ii. Client’s death. The same issues should be considered. Remember the Joe Robbie example.
iii. Can you trace the business interest through these and other scenarios? Have these scenarios been considered with the client?
e) Client has no estate plan, what are the issues:
i. Intestacy. Where does the client’s ownership go?
ii. Titling. Are there existing beneficiary designations?
iii. Beneficiary designations or marital status, which rules?
iv. Conservatorships and Special Masters. Do you know how these work and when they are necessary?
f) Client has an estate plan:
i. Is the plan current? Does the plan contemplate the recent changes to estate tax laws?
ii. Is the plan coordinated with any business agreements?
iii. Are proper decision makers designated and how will this affect the business going forward?
5. Assembling Client’s Planning Team
a) Conflicts – Ethics issues again!
b) Need for objectivity and transparency among the planning team.
c) Members of the team should include:
i. Business attorney
ii. Estate planning attorney
iii. CPA – conflicts
iv. Financial advisor
v. Business consultant
vi. Business insurance advisor
vii. Client’s insurance advisor

Monday, May 11, 2009

The Three Secrets to an Effective Estate Plan

There are many elements that can make up your estate plan. However, there are really only three secrets to know to make your estate plan effective. Here I discuss those three secrets and how you can use them to make your estate planning better, more current and effective to protect yourself, your family and your property.

Secret No. 1: Think Family First.

Thinking family first is the first and most important of the three secrets. Sometimes we lose sight of the forest for the trees in all endeavors, sometimes especially in estate planning. You want to take planning out of the ivory tower and bring it home to make sure it applies to your family and situation. Here's what I mean.

The reason to do an estate plan always starts with family. That is the reason we plan, to protect our families and ourselves. Does anyone really think that the reason to plan your estate is to pay MORE money to your attorney or accountant? Of course not!

By planning your estate effectively, you are seeking to create for your family the following benefits:

1. Certainty. We want to make certain that our families and ourselves know what will happen if something happens to us. What will be the living arrangements? What are the education and care arrangements? How will it be paid for? There are hundreds of similiar questions that apply to families.

2. Replacing resources and income. An element of your estate plan should be financial. How can your resources be protected? How can future resources and income be provided to the family if something happens to you? What will the family's financial needs be going forward and how can you make sure those needs will be met?

3. Making future dreams happen. We have goals and dreams for the future. So do our families. By working on your estate plan, you can do much to make sure that these future goals and plans have the best chance of coming true. I have written before that estate planning allows us to create a bridge between the known present and the unknown and uncertain future. Make sure you have built your bridge to the future with your own estate plan.

This is how we make sure that the tax tail never wags the family dog! While taxes can be an important element to be considered in every estate plan, they never predominate over our wishes and concern for family. By putting family first, you will have discovered the first secret to an effective estate plan.

Secret No. 2: Work with qualified estate planning counsel.

There are lots of attorneys out there doing lots of different kinds of law. I recommend that you view attorneys the same way you view doctors. For example, if you have a problem with your tooth, you don't go a foot doctor. This same principal works for dealing with lawyers. When it comes to estate planning, work only with a qualified estate planning attorney.

How do you know if you have one? Well, here are some minimum standards you should insist upon.

1. Make sure the attorney has at least seven years of full time estate planning practice as experience. Estate planning is something you don't want to leave to rookies.

2. Make sure that the attorney has an AV rating from Martindale-Hubble. This is a peer ratings achievement and a measure of what other attorneys think about the particular attorney you are considering.

3. Make sure the attorney is a member of their local estate planning council and a member of the Trust & Estates Section of the state bar association.

By insisting on at least these three minimum qualifications, you can go far to make sure you are represented by qualified estate planning counsel.

Secret 3: Keep your estate plan current.

Nothing messes up an estate planning faster than being out of date. Here are just two important examples:

1. John and Sue had named guardians for their kids in their estate plan. However, the initial guardians were no longer friends of the family. John and Sue didn't update their plan and were very upset when they finally read their plan after a serious illness.

2. Mary had an older Power of Attorney that did not contain HIPAA provisions. When she experienced a disability, her agent was not named as Mary's HIPAA Personal Representative for obtaining medical information. This made her agent's job difficult during Mary's diability and was completely avoidable had Mary only updated her estate plan.

How can you make sure your estate plan stays current? Follow these simple suggestions:

1. Review your estate plan with your estate planning attorney at least every two years.

2. Review your estate plan with your estate planning attorney if any significant events happen in your family. These would be things like any deaths or disabilities of your future and successor decision makers; issues with your spouse or kids effecting long-term health and viability; changes in your goals and objectives; and any questions that come to mind when you take your documents out periodically and read them over.

By following this review schedule you will make sure you are always current with your estate plan.

So, here are three secrets to having an effective estate plan. Have you followed each of the three?

Monday, April 20, 2009

Why meet your Insurance Agent for Annual Reviews?

The article below is reprinted here with the generous permission of its author, J.P. Gudka.

Why meet your Insurance Agent for Annual Reviews?
By J.P. GUDKA, Colorado Allstate Agent

You put a lot of time making your house a home filled with memories. Naturally, you want to protect your home. Whether you’re moving into a new house or protecting the one you have, Allstate homeowners insurance can help you keep your home safe.

Many people come to me with insurance already in place. Often they ask me to simply quote them the exact same coverage as they currently have so that they can make a price comparison. Although I understand why they want that, I usually never do and prefer instead to start a quote from scratch. The reason I do this is because I would never take for granted that the coverage someone already has is adequate for their needs!

As you know, life marches on. There are many things in one’s personal circumstances that can change. Needs change, insurable interests change. People buy things, they have children, they do additions, they inherit money, they get raises, they travel, they start new businesses, they get new jobs, they get laid off, their kids start driving etc. Hey, life happens and sometimes the furthest thing from their mind is to call their insurance agent and tell them about the changes!

The other side of that equation is that your insurance company’s programs change too! For example, Allstate rolled out a new product in the last 14 months that allows a homeowner to make claims and not get penalized for it, and for every year you do not make a claim, get some of your premium back. We do the same with the auto insurance. Allstate has a product that allows for accident forgiveness, cash back each year, and a gradually declining deductible for collision coverage.

I have found in many cases that our underwriting models have become more forgiving under certain circumstances and in some cases, not only can we give someone better coverage but do so at a much reduced rate!

I recently did an annual review for a client of mine. As it turns out, they had finished their basement and never told us about it. If the home was involved in a catastrophic loss, it is possible that there might not be enough coverage there to rebuild the home to its former condition. Also, due the rising costs and scarcity of certain natural resources, the cost to rebuild a home may be higher than it was when the policy was written.

Another family I met with was completely unaware that if their roof was damaged in a hail storm, their deductible would have been 2% of the building coverage. In their case, the home was insured for around $200,000. That meant that they would have had to pay $4,000 deductible for hail damage to repair their roof. In other words, with a cost to replace the roof at only $3500, there would have never been a need to make a claim for their roof. They might as well have been self insured….

People tell me that they are very concerned about the cost of their insurance with the economy being the way it is right now. Everyone needs to cut expenses and save money where they can. Your auto insurance may be one place you can save quite a bit.

Do you know that in Colorado, every time you get behind the wheel of your car, you are taking your entire financial future and putting it at risk? The real reason to have auto insurance isn’t because you love your car and want to make sure it gets repaired or replaced in an accident. Let’s face it, a car is metal, plastic and glass. Unless its an antique or collector’s item, all it’s parts can be found or replaced.

No, the real reason you want auto insurance is for the Liability coverage. You see, Colorado is a tort state. That means that it is lawyer vs. lawyer. If you are in an accident and are found to be at fault, it is within the right of the injured party to collect damages. That means that they can take you to court to collect their losses. These losses are not just limited to buying them a new car. They can include medical costs, lost wages, and pain and suffering. The great thing about auto insurance liability coverage is that your insurance company will represent you in court and will do so up to the limits of your policy.

Please do yourself a favor and make sure you are properly protecting your family from catastrophic losses. Going with a higher deductible for the auto protection can often more than compensate for the extra cost of giving yourself better protection for your 401K, IRA’s, equity in your home, college savings plans, and perhaps even your business if you are self employed.

Here are some good questions to ask your current carrier:

How do I determine how much coverage I need?

Start with the basics. The standard Allstate Homeowner policy covers them. But maybe you have some special insurance needs – your wedding ring or a couple of mountain bikes. Your policy covers these items too, but you may need more than basic coverage for them.

What is “optional coverage”?
You can buy extra coverage to help protect your jewelry, tools, sports equipment, rental income and more.

Do I get a homeowners discount if I have auto coverage from the same carrier?
Most of our homeowner rate plans offer a multi-policy discount.

I know with auto insurance, good driver discounts are available. Are there similar rewards for homeowner policies?
Customers should contact their agencies to determine if they qualify for any discounts or can increase their deductibles.

Will raising my deductible lower my rate?
Typically, raising the deductible on your policy will lower your rate. It’s important to keep in mind that you should carefully evaluate any changes to your deductible since it can affect loss settlement and you as the customer will have to absorb more of the loss.

For more information, please contact Allstate Agent J.P. “Good Hands” Gudka at 303-752-2999.

Wednesday, March 4, 2009

Estate Planning for Network Marketing Pros

Are you involved in network marketing? Did you know that your network business is a business that should be planned for if you became disabled or died? Do you know the steps to protect your business interests and downlines?

Well the answer to these questions for you should be yes! If you are involved at all in network marketing, it is essential to learn how to protect your business interests. Here are some simple steps to follow to make sure you and your family are protected.

1. Read your business documents and materials. There may be provisions that specify what happens by default to your business if you are disabled or die. Make sure you know how these contract provisions work and how they affect your planning for your family.

2. Make sure you have current durable financial and health care Powers of Attorney in place. Make sure that these documents have the very important HIPAA provisions. And make sure that your designated agent(s) can deal with your network business if you are incapacitated.

3. Make sure you have an up to date Will or Trust that has provisions for your network business and that these provisions will be respected by your uplines and business promoter. Nothing will cause your family more dismay then if you valuable business disappears because you didn't follow the requirements in the network contracts.

4. If you already have these arrangements in place, then review them with your estate planning attorney if you haven't done so within the last six months or longer. Periodic reviews are crucial to ensure synchronization between your business and your estate planning.

These simple steps will go far in protecting your business and making you feel more comfortable that all your hard work will benefit your loved ones.

H.R. 436: Our New Estate Tax System

We are getting a glimpse of what our new federal estate tax system may look like. House Resolution 436 appears to be the Obama administration's approach to federal estate taxes.

I will report in more detail on this in the coming days, but here is a short summary of where we may be headed:

1. A permanent (somewhat) exemption of $3.5 million.
2. No portability between spouses.
3. A top estate tax bracket of 45%.
4. The elimination of discounts on non-operating assets.

Stay tuned, there will be more on this in the days ahead.

Wednesday, February 18, 2009

Building Your Estate Planning Foundation with Core Values

In every estate plan, there are certain elements that make up the foundation for that plan. I have always believed that building this foundation is the most crucial component of each client's estate plan.

You can illustrate this in this way. Consider building your dream home and using a ruler as the foundation. Not a good idea, is it?

Well the same thing is true in estate planning. To steal from the brilliant Steven Covey, in estate planning, we always start at the beginning and begin with the end in mind. In this way, we can be sure that everything else we do with the client's plan rests on a rock solid foundation.

So what are these elements? How do we fashion and build the foundation using core values? We start by considering the following:

1. What are the goals of the client?
2. What protections are already in place?
3. Have the client's existing estate plan documents been reviewed and brought current.
4. Are any existing documents synchronized with the client's goals.
5. What is the family structure?
6. Who is on the client's current advisory team, if anyone?
7. What are the client's assets and insurance coverages?
8. How are beneficiary designations currently drafted?
9. Has the client's insurance coverages been recently reviewed.
10. Has the client's property and casualty insurance coverages been recently reviewed.

After this data is gathered, then the following elements are designed, drafted and executed by the client and counsel:

1. Some form of Will (also known as Last Will and Testament).
2. Drafting necessary to protect the surviving spouse if the client is married and drafting to protect children in accordance with the client's goals.
3. Consideration of the need for estate tax planning.
4. Durable Financial Powers of Attorney and Durable Health Care Powers of Attorney, including the very important HIPAA provisions.
5. Personal Property Memoranda
6. A marital agreement if necessary for the efficacy of the plan.
7. Living Wills.
8. DNR's if necessary, or at least a discussion of DNR's.
9. Proper drafting for beneficiary designations for insurance policies; IRA's and 401(k)'s.
10. Necessary coordination with the other members of the client's advisory team.
11. Retitling of ownership of assets between spouses.

While these two lists are not meant to be complete for every client, they demonstrate the thinking that should be part of every estate planning foundation for every client. Each client's plan design will be different, but the process for each client is similar. In this way, we can use the client's core values to design and construct for the client a rock solid estate planning foundation.

Is your foundation sound and rock solid? If you are not sure, then take steps to review your plan, or your situation as soon as possible. You'll be glad you did.

Monday, February 16, 2009

Returning To Core Values: Estate Planning for Parents with Younger Children

Recently I wrote about returning to core values through estate planning. That article discussed how we could start to deal with these difficult times by focusing on protecting our families.

In this follow-up, I discuss how estate planning is crucial to the protection of our children. Most would agree that protecting our kids is a laudable goal. I believe that if you go to the movie, Taken, you will even feel stronger about this than ever before.

So how is estate planning a crucial component to protecting kids? Let's explore several case studies to illustrate just how important this can be.

First, consider Todd & Julie, a couple with two toddlers, one age 5 and the other, 3. Todd and Julie have assets, savings and insurance that is well below the estate tax exemption of $3.5 million, so estate tax planning is not an issue for them. However, when they are asked where their kids would live if something happened to Todd and Julie, they became very motivated to resolve that issue.

Remember, returning to core values is about protecting against the unplanned and unexpected. In the case of Todd and Julie, the biggest downside risk they identified is they both died unexpectedly, like on their recent trip to Mexico. Who would raise their kids and where would the kids live? This became the motivation for Todd and Julie to complete their estate planning.

The second case involves Jaclyn, a single mom in her 30's. Jaclyn has a daughter that is very important in her life named, Christina. Christina's Dad, Jason, is no longer in her life. Jaclyn is a successful realtor who has done quite well for her family. Jaclyn's estate is also below the estate tax threshold, so she was not interested in estate tax planning. However, in addition to who would raise Christina, Jaclyn was not excited at all about Christina receiving the $975,000 estate she has when Christina turns 21, should Jaclyn pass away before then. This fear of Christina receiving all the money at once on her 21st birthday became Jaclyn's primary motivation in her estate planning.

The third case involves Robert & Linda. They have three kids, one of who is a special needs child named Lance. Lance requires significant care and receives a variety of governmental benefits. Robert and Linda have an estate of $1.8 million once their life insurance coverages are counted. (Most people forget to include their life insurance when calculating their estate size, but it must be counted).

For Robert and Linda, their primary motivation was not only to protect the kids in general, but to make sure that Lance's share was not wasted. They asked, could Lance's share be set up in such a way to protect his governmental benefits?

So, we have three different cases and three different motivations. 1) making sure the right people will raise the kids; 2) making sure the inheritance left for a child is not wasted when the child turns 21; and 3) providing for the financial security of a special needs child. By identifying these goals, each family can use estate planning to accomplish their motivation and properly protect their children. The three cases could be solved as follows:

1) Using proper provisions in the Wills for Todd and Julie to provide for where the kids would live in the event of an untimely demise for them.

2) Creating a Contingent Trust Will for Jaclyn to create distribution guidelines and ages so that Christina's inheritance is protected and used in the manner that Jaclyn deems best for Christina.

3) Creating appropriate Special Needs Trust provisions in the plan for Robert and Linda.

In each case, proper estate planning is fundamental to the over-riding goal of protecting children that each of the three cases present. Do you have kids? Have you protected your children? Make sure your estate planning is synchronized with your family situation and your goals for your family.

In our next article, we will explore the individual elements of a sound estate planning foundation.

Thursday, January 22, 2009

Risks to Young Professionals Who Ignore Estate Planning

Encouraging anyone to complete their estate planning can be difficult. Statistics suggest that less than 25% of all adults have created a Will or Powers of Attorney. The numbers are even more alarming for young professionals.

Young professionals who do not complete their estate planning assume some serious risks and I'll discuss those in this article. Here are four (among others not discussed here) risks that you should beware of:

1. Assuming that your wishes will be followed since you have discussed them with family or friends.

2. Failing to name decision makers in appropriate documents dealing with disability or death.

3. Failing to name proper beneficiaries for 401(k) plans, IRA's, savings plans and insurance policies.

4. Failing to take any steps to protect a domestic partner.

Let's explore each of these in the context of the following cases.

The first case involves Jack W. a young designer living in Denver. Jack had conversations with his parents about his assets and told them where his records were before leaving on a ski trip to Utah. He was seriously injured in Utah and later passed away. His parents discovered that Jack had not created a Will or left any instructions for them.

Jack created the following problems for his parents:

1. Which one of his parents should be named as Jack's Personal Representative?
2. What if his parents disagree on the disposition of Jack's dogs and other personal belongings?
3. Since Jack was unmarried and had no children, his entire estate passes to his parents, even though he had discussed leaving money to the Dumb Friends League.
4. Prior to his death, his parents struggled to speak with his doctors due to Jack's failure to name them as HIPAA Personal Representatives for the purpose of receiving his protected health information.
5. His parents were uncertain about Jack's wishes for his funeral and burial.

All these problems could have been solved if Jack had created a Will and Durable Powers of Attorney.

Our next case involves Marie and Stephie, one an interior designer and the other a nurse at a local hospital. Marie and Stephie were domestic partners. They had no Wills, Powers of Attorney, or any other written documents concerning their wishes. Stephie died tragically in a car accident. Marie faced the following problems:

1. First, Marie learned that she would not inherit from Stephie since Stephie died without a Will. As a domestic partner, Marie is not recognized as Stephie's heir.

2. Marie learned that Stephie had not completed the beneficiary designations for her 401(k); IRA and insurance policies. This meant that those benefits were paid to Stephie's estate in which Marie could not share.

Marie was devastated by these consequences and they were all avoidable with proper estate planning. Stephie could have named Marie as the beneficiary for her plans. Stephie could have created a Will which named Marie as the beneficiary of Stephie's estate and also named Marie as the Personal Representative of Stephie's estate. In addition, Stephie could have named Marie as her agent in Durable Financial and Health Care Powers of Attorney eliminating any disputes about who would make decisions for Marie prior to her death.

These cases illustrate how serious the risk of not planning in advance can be. Please take the cases of Jack and Stephie to heart as you consider the risks that you create for you loved ones and family by not completing your estate planning.

Feel free to contact with questions or comments. We can discuss with you how to minimize risks in your situation. We urge everyone to consider making a Will; Durable Powers of Attorney and Living Will so your wishes can be carried out. In some cases, additional planning considerations are analyzed. Make sure that you don't leave your loved ones and family with these problems.

Friday, January 16, 2009

Returning to Core Values Through Estate Planning

I had originally titled this post as: "Chasing Returns", but decided on this title instead because it is more in keeping with the theme of this topic.

We have witnessed an almost unprecedented financial meltdown over the past year. Only those who lived through the great depression have seen something similar. The causes of this phenomenon and the reasons we as a society value an 18 year old's basketball skills over a teacher's is beyond this article.

Suffice it to say that current events suggest that we should be concentrating on some core issues. I submit one of those should be a return to core values. In fact, I suggest that had we all been focused on core values over the past few years, a significant cushion to recent financial times would have existed.

The current financial mess obviously has many root causes. Even the best and brightest of our financial minds were swept away in chasing returns, creating millions out of nothing of value and signing up with the Madoff group. So the mess was not the result of a lack of brains. In fact, you could say the mess was more the result of too much smarts and not enough sense.

For core values, I suggest taking care of our families as our first priority, not the last. Protecting one's family should always start by protecting against the downside risks. If you think of any financial plan or play, the thrust is the time line for making that plan work. Let's take a very simple example of a college savings fund.

The college savings fund works only if the parent lives long enough, or works long enough to contribute the desired amounts over time. This is what I mean by the time line for the plan. However, the plan cannot work if the parent or parents do not survive or work for the length of the time line. This is so obvious that I am surprised how few people recognize that the time line assumptions are only assumptions and only bear resemblance to reality by coincidence.

This is why financial planning is usually upside down and backwards. Any good plan must include fail safes to allow the plan to work, if the time line assumptions do not happen. In our example of the college savings plan, what is missing? The plan will only work, if the parents also include elements to take care of the time line not happening.

This time line not happening is what I refer to as the down side risk. If you don't live long enough, or don't work long enough due to illness or disability, what happens. The "what" is what estate planning is all about. Another way to say this is to say that every financial plan has to begin with the estate plan, not end with estate planning. Since the down side risk is always to the time line not happening, then we always start with that down side in designing the estate plan.

While this is frustrating to financial planners who are emotionally tied to their forecast time lines working, it is fundamental to properly protecting your family. And we have seen that even the best financial plan will collapse under certain market conditions.

So where should you begin? Begin at the beginning and build a sound financial foundation for yourself and your family. A sound foundation always begins with your estate planning. Estate planning always begins with the questions about how you want things to be if your time lines are cut short due to an unplanned death, illness or disability.

I will explore this more as we discuss the elements necessary to build your foundation. Please let me know your thoughts and if you have any questions. You can reach me at: with your thoughts or you can leave comments here.