In my law practice I counsel many people when a loved one has died.  Often there is confusion as to the responsibility of who to notify and when.  I would like to take a moment to touch on some recommended steps that should be taken when a death occurs.

• If you are alone, telephone a friend who can spend the next few hours with you.  Shock and trauma can bring on unexpected emotions. 

• Notify a funeral director and clergy, and make an appointment to discuss funeral arrangements. 

• Contact immediate family, close friends, business colleagues and employer.

• Consider arrangements for the care of members of the immediate family including child care and care for elderly family members.

• Locate important papers, such as wills, trusts, birth certificates, social security card, military records, marriage certificates, driver’s license, and passports.

• Notify the attorney who will handle the decedent’s affairs.  Make an appointment immediately.  This meeting is important to review the estate planning documents regarding distribution of the estate and to discuss estate and inheritance taxes that may be due. 

• Notify the decedent’s financial advisor.  Decisions may need to be made regarding repositioning financial assets and tax planning. 

• Telephone the decedent’s employee benefits office.  If the death was due to an accident or an illness certain benefits may be available.

• If the decedent was eligible for Medicare and Social Security, notify the local office of the death. 

• Notify life and accident insurers. 

• If you need emergency cash before the insurance claims are paid, a cash advance may be available from life insurance benefits.  The decedent’s employer may have a benevolent fund available for this purpose. 

• If the decedent was a Veteran, notify the VA, you may be entitled to a death benefit. 

• Keep a record of all money you or your family spends.  These figures may be needed for the attorney and accountant in the administration of the estate. 

Remember you are in a highly emotional state.  Have a trusted family member by your side in case you have to make important business decisions.   

The loss of a loved one is a difficult time.  I hope these suggestions will help ease the difficulty you will face.

SinclairProsser Law, LLC is a member of the American Academy of Estate Planning Attorneys.

   Krispy Kreme and Wal-Mart have a lot in common.  Die-hard fans line up in front of their locked doors the night before grand openings, licking their lips for a puffed up glazed doughnut or a bargain that can set the neighbors talking over the fences.  But what do these two incredibly successful businesses and the families that started them have that sets them apart?

Sam Walton, founder of Wal-Mart, is an excellent example of a man who planned not only for the future of his business, but also for the future of his family.  Effective estate planning allowed Sam Walton to protect his wealth and pass it on to his heirs when he died.

But not all entrepreneurs take an active interest in planning for the future of their business, as well as for their family.  Vernon Rudolph, founder of Krispy Kreme, is a case in point.  While he was a successful doughnut maker and entrepreneur, his failure to create a succession plan for his family business left his family without a business.  Upon his death in 1973, Krispy Kreme had to be sold because Rudolph had no business succession plan.

The failure to plan is central to the downfall of many family businesses.  Only 30% are successfully passed to the next generation, 12% to the second generation, and 3% to the third generation.  Sam Walton’s sound succession planning benefited his family and allowed them to maintain an active role in Wal-Mart.  Vernon Rudolph’s tale exemplifies the risk in failing to plan.

Business succession planning provides business stability, tax savings, and most importantly peace of mind.  The central questions are who should take over the business when you phase out your involvement and how will that transition be funded.  Choosing a successor is not an easy task.  But, if you plan ahead, a successor can be groomed slowly and will be ready to step in should unforeseen circumstances arise. Once the identity of the successor is chosen, a strategy can be formulated to accomplish the goal.  The strategy can allow you to retain control for as long as you want while putting a mechanism in place that will allow you to have an exit strategy.  The strategy may include a buy-sell agreement.  Such an agreement allows your successor to purchase shares of stock from you at a time chosen by you, such as your death or disability.  Life insurance or other funding mechanisms can be put in place to make sure your successor has the capital necessary to buy out your interests without crippling the business with debt.

These strategies can include income and estate tax savings in addition to providing you peace of mind and business stability.

SinclairProsser Law, LLC is a member of the American Academy of Estate Planning Attorneys.

    “Business Succession Planning” by Attorney Colleen Sinclair Prosser

SinclairProsser Law, LLC is a member of the American Academy of Estate Planning Attorneys.

  “International Estate Planning” by Attorney Paula M. Mattson-Sarli

SinclairProsser Law, LLC is a member of the American Academy of Estate Planning Attorneys.

  Many assets in an estate will avoid probate because a beneficiary has been designated on the account.  Such assets are life insurance, annuities, IRAs, 401(k)s, Thrift Savings Plans.  Two recent Supreme Court cases highlight the importance of updating the beneficiaries of these assets as life changes occur.

A Federal law, commonly referred to as ERISA, governs employer benefit plans even if state law differs.  However, Federal law states that assets covered under ERISA must be administered according to the Federal law even if Federal law conflicts with state law.  In Engelhoff versus Engelhoff, a court case decided in 2001, the ex-wife and the children of decedent David Engelhoff argued over who was entitled to the benefits of Mr. Engelhoff’s life insurance and retirement plan administered by his employer. Mr. Engelhoff resided in Washington State. The law in the state of Washington says that divorce automatically disinherits a spouse.  Upon Mr. Engelhoff’s death, his ex-wife was listed as the beneficiary of the life insurance and retirement benefits administered by his employer.  Since Mr. Englehoff did not change his beneficiary designation after his divorce, the former Mrs. Englehoff inherited those assets.

A more recent case, decided by the Supreme Court in 2008, made very clear the importance of checking and updating your beneficiary designations on employer benefit accounts.  In the case, The Kennedy Estate versus Plan Administrator for the DuPont Saving and Investment Plan, Mr. Kennedy’s ex-wife was named the beneficiary of a substantial company savings and investment account.  Upon Mr. Kennedy’s death his daughter sued to claim the account.  However, since the ex-wife was listed as the beneficiary, the court ruled that the ex-wife would inherit the account even though there was a divorce settlement agreement in which the ex-wife waived her right to the benefit.  Once again Federal law trumped state law.

Meeting with an estate planning attorney to create a comprehensive estate plan, including the designation of beneficiaries of your life insurance and retirement accounts, will assure your final wishes are met.

SinclairProsser Law, LLC is a member of the American Academy of Estate Planning Attorneys.

   “Pay Attention to Your Beneficiary Designations” by Attorney Colleen Sinclair Prosser

SinclairProsser Law, LLC is a member of the American Academy of Estate Planning Attorneys.

If you own life insurance, congratulations!  Sadly, most of us put off this critical element in our family’s financial planning, which may have devastating consequences on the loved one left behind.

You probably know why life insurance is so important.  Young families need it to replace part of the breadwinner’s income.  Mature Americans find it provides their heirs with a source of funds to pay estate taxes.  Investors have discovered that innovative insurance products help them build cash value, tax deferred, for long-term goals like retirement.

But remember, buying life insurance may be only part of the solution.  Without proper planning, it can actually add to your estate tax bill.

Countless well-meaning parents, spouses and others make a simple but costly mistake when buying life insurance policies.  They don’t think about who should own the policy.

Unfortunately, that simple act could cost your heirs plenty.  Here’s why.

Every American is entitled to an estate tax exclusion on the first part of his or her estate.   With proper planning a married couple can double that exclusion shelter.   The Federal exclusion is $5 million in 2012.  The Maryland exclusion is $1 million.  You need to take every precaution possible to reduce the value of your estate for estate tax purposes, and that includes life insurance planning.

While your beneficiaries will receive the death benefit income tax-free, the proceeds are not income tax-free.  Say, for example, that your home, retirement benefits, and other assets total $1 million.  But add in a life insurance policy with a death benefit of $1,000,000.  Your estate is now worth $2,000,000, and subject to estate taxes.  The net result: your heirs will see part of your legacy lost needlessly to the government.

There’s a simple solution that not only avoids the estate tax problem but also provides a host of other benefits.  It’s called an Irrevocable Life Insurance Trust – or ILIT for short – and it allows you to protect your loved ones without adding to your estate taxes.  Because your ILIT actually owns your policy, its death benefit won’t be taxable in your estate.  Here’s how it works.

You set up your ILIT, and name a Trustee other than yourself.  Trustees are most often the beneficiaries of the trust or a financial advisor.  The fact that you are not actively involved as a Trustee should give your no cause for concern.  Your Trustee – or Trustees – will have to precisely follow the instructions you provide in your trust documents.

After you create your Trust, your Trustee purchases a life insurance contract on your life with funds you provide.  If you have an existing policy, you can assign ownership of it to the ILIT, but there are conditions imposed on these transactions that should be carefully considered before you do so.  For instance, if you die within three years of the transfer, the life insurance contract will be included in your estate.

When you provide your Trustee with the funds to pay your annual premium, your Trustee must notify your beneficiaries in writing that a gift has been made in their names.  Your beneficiaries will have the option of withdrawing these funds from your ILIT during a specified period, usually a minimum of 30 days.  When they don’t exercise their option, your Trustee will use the money to pay your insurance premium.  This written notification of your gift to your beneficiaries is call the Crummey Letter, bearing the name of the taxpayer who won a court case against the IRS resulting in approval of this process. An annual Crummey Letter to your beneficiaries is an essential element of a successful ILIT.

Reducing your estate tax liability is a powerful incentive for considering the ILIT.  But that’s just the beginning of the long list of benefits it provides.

The ILIT provides you control over how proceeds from your life insurance policy are spent.  It is a mistake if you fail to control how the beneficiaries receive the policy’s proceeds.  Even an adult with experience may find the large sum of money overwhelming.  But when the beneficiaries are young adults who lack the maturity to handle such a windfall, the results can be devastating.

With the ILIT, you control who receives the proceeds, and how they receive it.  Whatever distribution strategy makes most sense for you and your loved ones, the ILIT gives you the opportunity to put it into effect.

SinclairProsser Law, LLC is a member of the American Academy of Estate Planning Attorneys.

   “What is an ILIT (Irrevocable Life Insurance Trust)” by Attorney Nicole Livingston

SinclairProsser Law, LLC is a member of the American Academy of Estate Planning Attorneys.

Don’t forget to tune in today to WNAV Radio on 1430 AM or 99.9 FM @ 3:50 pm to listen to “Your Estate Matters” with Attorney Nicole Livingston   The topic is “What is an ILIT (Irrevocable Life Insurance Trust) and why would you want one?”

SinclairProsser Law, LLC is a member of the American Academy of Estate Planning Attorneys.

On September 12, 2004, I received a call from my oldest brother who lived in California at the time.  My father had been found in his apartment and the police discovered my brother’s number near the phone.  My father was only 59.  Although he was a lifelong smoker with emphysema and COPD, it never occurred to me that he could die.  I was unprepared.

I was in the last year of Law School at the time.  I had no idea what my father had done to prepare his estate, if anything.  It turns out he did not have a Will.  My other brother and I would soon learn what that meant and how much easier things would have been if he did.

The first thing we did the next morning was to go to the local funeral home where my father had been taken.  We didn’t know if my father had life insurance or a prepaid funeral plan.  He did not.  Fortunately he had enough cash in the house that we were able to pay for some of the funeral expenses.

I realized that we knew very little about my father’s finances.  I knew he banked at Tower Federal Credit Union and Navy Federal Credit Union, we started there.  They wouldn’t talk to us.  My father had not put our names down as payable on death beneficiaries and we had no right to access the money unless we opened an estate.

Our father’s estate consisted of two vehicles, two bank accounts and a loan.  Due to the fact that the value of his estate was over $30,000, it was considered a Regular Estate, which meant that we had a lot more to do.  If we just had the vehicles to contend with, this would have allowed us to open a small estate and pretty much open and close it in one day.

Here are the highlights and lowlights of my father’s probate:

1)      My brother and I filed a Petition for Regular Estate and requested that we serve as Co-Personal Representatives.  We were required to post a bond to protect the estate for creditors and other heirs.  We went to an insurance company near the courthouse and secured a bond and paid a premium of about $180.00.

2)      We had to open an estate account at a bank, which required obtaining a tax ID number for the estate.

3)      My father had inadvertently left my mother, his ex-wife, as beneficiary on one account so she received that money, which I am sure he would have been happy about.

4)      My mom had to pay inheritance tax of 10% on the house since they owned it as Joint Tenants with Rights of Survivorship, which was approximately $7000.00

5)      My father had several years-worth of unfiled tax returns.  He had tax taken out of his paychecks; however, he just never filed the returns.  If he had, some years he actually would’ve been entitled to a refund.  Instead with penalties and interest he owed over $30,000.  Over the next two years, I negotiated with the IRS, providing copies of medical records and was able to negotiate it down to $1,800.00.

My father’s death taught me a lot about the need for a proper estate plan and the hassle of probate.  It also taught me that some, if not all of it, could have been avoided if we had just had a conversation.

SinclairProsser Law, LLC is a member of the American Academy of Estate Planning Attorneys.