Bar News - March 16, 2012
Elder, Estate Planning and Probate Law: 10 Basic Estate Planning Tips
By: Nadine M. Catalfimo
Estate planning is an integral part of many law practices today. It may seem easy to prepare powers of attorney and wills for a client, however there are some aspects of estate and trust law to be aware of and some noteworthy procedures to implement into your law practice when preparing estate plans.
Below are 10 basic tips and suggestions for practitioners, and reminders for those who are not familiar with some of the "traps for the unwary" regarding estate planning in New Hampshire:
1. Client Questionnaire
Use a client questionnaire that has all the pertinent questions, including the beneficiaries’ names, addresses, dates of birth, type of assets owned, i.e. sub-chapter S stock, any special needs? etc. It should include a synopsis of all assets and how assets are titled. Without this information you may miss something really important ….even for very simple estate plans.
2. Engagement Letter
The fee or engagement letter should set forth exactly what documents you will be preparing and the terms of your engagement including fees and costs. If it is an estate plan for a married couple, it should also have the conflict of interest language in it and the waiver of conflict language regarding Medicaid planning – in case it is needed for the at-home spouse later in time. It may be wise to also indicate that your attorney-client relationship terminates once the plan is completed and that you are not going to monitor the plan – even if you keep your clients advised of changes in the law.
3. General Powers Of Attorney
They seem simple right? However, be careful to limit the gifting power and power of appointment power, to be exercised by a non-spouse individual, to language that limits the exercise of the powers so they are not deemed to be a general power of appointment under the Internal Revenue Code of 1986, as amended. If you fail to do this, the assets of which the general power of attorney applies ultimately may be includible in the attorney-in-fact’s estate. This is especially important with estates that are taxable for federal estate tax purposes and appointed attorney-in-fact’s that have federal taxable estates or potential federal taxable estates.
4. Testamentary Trusts & Realty Trusts
Revocable trusts should be used, not testamentary trusts, unless there are special circumstances. Anyone still establishing these trusts, which are subject to probate administration, when you can recommend and fund a grantor type revocable trust instead, are doing a disservice to their clients – in my opinion. Although sometimes a testamentary trust may be appropriate, they are no longer common practice nationwide.
Realty and Nominee trusts are a "Massachusetts" legal concept – not New Hampshire. Establishing a Realty Trust or Nominee Trust for real property owned in the State of New Hampshire is unnecessary. Instead, title should be conveyed directly into the Revocable Trust. If you are a MA and NH estate planner, please make note of this distinction.
5. Revocable Trusts
With the delays and the costs associated with probating an estate, a trust can be used for many great reasons. Assets in trust avoid probate, streamline distributions to beneficiaries, avoid guardianship proceedings for minors and a Grantor. A client does not need to be wealthy or need federal estate or state estate tax planning to benefit from setting up and funding a Revocable Trust during life. It is wise to advocate the use of a Revocable Trust, and recommend funding it during the Grantor’s lifetime.
6. Know The Federal Estate Tax Laws
The federal laws have changed a lot over the last couple of years and now there are complex aspects of the current federal estate, GST and gift tax regime and laws. Deciding whether a decedent needs federal estate tax planning may not be as straight forward as it was before. If you don’t know what the federal annual exclusion amount is for a decedent dying in 2011, 2012 and 2013 (or prior years), or the gift and GST tax laws, and other related tax laws, i.e. temporary portability, the generation skipping tax and gift tax exclusion amounts, you may not be able to plan properly and you may miss something very, very important. Review the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 (Pub. L. No. 111-312, 124 Stat. 3296) (due to sunset for decedent’s dying after December 31, 2012), the Economic Growth and Tax Relief Act of 2001, as amended, and any federal legislation passed after 2011.
7. Review Assets Of Married Couples
The current laws regarding the federal annual exclusion amount is due to "sunset" December 31, 2012, unless Congress passes legislation before then. A married couple can save hundreds of thousands of dollars in what would otherwise be paid in federal estate tax to Uncle Sam by transferring assets to the other spouse in some circumstances. This is particularly true when one spouse owns all the assets, or a majority of the assets, and when there is federal estate tax liability. Don’t miss this aspect of estate planning as it could require your client to pay a lot of unnecessary federal estate tax.
8. Retirement Assets
401(k) plans, individual retirement accounts, Roth IRAs, pension plans, etc. should designate the surviving spouse as the primary beneficiary first and then the individual’s revocable trust as the alternate beneficiary so that an analysis can be made upon the death of the first spouse as to whether it is beneficial for the surviving spouse to disclaim his interest. There are income tax consequences that make it preferable to name the spouse as the primary beneficiary, although some situations and planning will warrant putting the proceeds from these types of assets into trust instead. It depends. Seek the advice of a CPA upon the death of the first spouse if you do not understand the income tax consequences relating to retirement assets passing to a surviving spouse versus a credit shelter trust or a charitable remainder trust.
9. Transfer Real Estate In Trust
Transfer or coordinate the transfer of all real estate, including out-of-state real estate, into trust. Out-of-state real estate transferred into trust will avoid out-of-state ancillary administration. This is a simple step in the estate plan and will save your client thousands of dollars, time and paperwork associated with an ancillary administration in another state.
Caution - if there is an outstanding mortgage on the property and the property is not your client’s home property, you must obtain the mortgage holder’s consent to the transfer prior to the transfer into trust.
10. Get A Mentor
Estate planning can be tricky. If you don’t do it often, it is a good to have an experienced trust and estate attorney to call when you have a question. I have found that members of the NH Bar are especially great at helping each other. So don’t be shy – reach out if you have a question or need help. The NH Bar Association also has a mentor program that can match you up with someone. The elder law section list serve is also a great resource for connecting with others and getting feedback.
Hanke v. Hanke, 123 N.H. 175 (1983) (the rights of a surviving spouse under RSA 560:10 are defeated by an inter vivos transfer of property in trust by a deceased spouse even if the deceased spouse retained and exercised absolute control over the transferred property during lifetime unless the transfer was made with the purpose of depriving the surviving spouse of his rights);
Rev. Rule 85-13, 1985-1 C.B. 184 (when a trust is a grantor type trust, the taxpayer owns the trust assets and transactions between the trust and taxpayer are not recognized as a sale for income tax purposes);
Crummey v. Commissioner, 397 F.2d 82 (9th Cir. 1968) (a beneficiary’s right to withdraw gifts to a trust for a limited time creates a present interest and qualifies the gift for the gift tax annual exclusion);
Jennings v. Smith, 161 F.2d 74 (2d Cir. 1947) (grantor can be the trustee of a trust and not violate IRC §2036 and §2038 if the trustee has no beneficial interest in the trust assets and no powers (except fiduciary), when limited to a fixed or ascertainable standard); and
Estate of Sanford v. Commissioner, 308 US 39 (1939) (if donor transfers property to a trust and reserves the right to revoke the transfer or alter the donee’s beneficial enjoyment, it is not a completed gift).
|Nadine M. Catalfimo
Nadine M. Catalfimo practices trust and estate law in New Hampshire and Massachusetts. She is a member of the ABA Real Property and Trust and Estate Law Section, the Elder Law, Estate Planning and Probate Law Section of the NH Bar and the New Lawyers Committee of the NH Bar. She can be contacted at www.MA-NHEstateLaw.com.