Heir-or #2:  Everything Goes To Your Spouse

Unfortunately, that is not always the case.  State laws do very, but if you die without a will (intestate), the inheritance from your estate will be divided among your spouse and children.

In Arkansas, if you have a spouse but no children, all of your assets pass to your spouse if you have been married for more than three years.  If you have a spouse but no children, only one-half of your assets pass to your spouse if you have been married less than three years.  If you have a spouse and children, your spouse will receive one-third of your assets and the remaining two-thirds will pass to your children.  If you do not have a spouse or children, then your assets will pass to your parents, then brothers and sisters then other relatives such as nieces, nephews, aunts and uncles.

Regarding land, if you have a spouse and children, your spouse will only receive a life estate in one-third of your land.  A life estate means that your husband or wife owns their share of the land only for their lifetime.  They do not have the right to say who gets the property at their death.

This is not what most people want to happen with their assets.  However, in reality, is it exactly what will happen with no planning or poor planning.

This is the first in a new series of estate planning “heir-ors” that I am going to bring to you.  As of this writing, almost 2/3 of Americans do not have a basic will.  One of the big reasons that most families do not yet have this kind of plan in place is because of some incorrect thinking about whether it is right for them or if it is even necessary.

I wanted to speak to some of the more common “heir-ors” out there.  I’ll start with one of the big ones and address more in 2012.

Heir-or #1:  Only Rich People Prepare Estate Plans

Do you own anything?  If so, you need a will.  You see, a will allows you to designate who will receive your property should anything happen to you.  Continuing without one ensures that all of your assets will be distributed under the terms of your state’s “intestate succession” laws.  That means your money and property could end up with family members you haven’t spoken to in years instead of who you’d really like to see control your assets.  Failing to have a will in place is simply a decision to trust your assets to government bureaucrats who do not know you from Adam.

Do you have children?  If so, you need a will.  You will be able to name a guardian to take care of your children should you not be able to.  Without having this guardian clause in a will you will not be able to take part in the decision making process and a judge will decide where your children will live and who with.

Even if you think your situation if pretty straightforward, you may feel more comfortable hiring an estate planning attorney to help guide you the process.

Allen J. Margulis collaborated with Forbes.com to present an article about the proper way to transfer title of guns after one’s death.  Leaving guns can present a number of problems.  Is a minor responsible enough to handle and take care of a certain firearm?  How do you transfer title for firearms that are restricted by the National Firearms Act?  Do you have to get approval from your Chief Law Enforcement Officer?

A Gun Trust is a special purpose revocable living trust. A Gun Trust is written
to hold only firearms.

http://www.forbes.com/sites/peterjreilly/2011/09/22/gun-collections-pose-special-estate-problems/

Many clients elect to have their Revocable Trusts continue following their deaths for the benefit of their adult children.  Most everyone realizes that a trust is necessary to hold and distribute assets for minor children and grandchildren, but what about for adult children and grandchildren?

Inheritances that are held in trust can be protected from claims by a spouse if your child or grandchild were to divorce.  The assets held in trust would most likely be viewed as not being joint marital property.  Additionally, if your child or grandchild has creditor problems the assets held in trust could possibly protect those assets from being levied upon or subject to a lien or claim.

Leaving those assets in a your revocable trust for children or grandchildren with health problems or who may be too immature to handle a large sum of money are also excellent reasons to have the trust distribute the assets.

To recap, here are the advantages of having inheritances remain in the trust and be distributed pursuant to the terms of your revocable trust:

• Protect inheritance against claims by child’s creditors or spouse
• You can choose to spread receipt of an inheritance over as many years as you direct
• You can choose to provide your child with an income for his or her lifetime, with the remainder passing on to your grandchildren

As always, this is not legal advice and should not be construed as such.  I am always available to discuss estate planning, and trusts specifically, with you and your family to see what would be a good fit.

I am going to provide a free Estate Planning review and a free Will to Police Officers and Firefighters in the central Arkansas area.  The days I will be scheduling appointments for the free review and Will are December 6, 7 and 8.  There are only a limited number of spots.  I will schedule appointments until the spots fill up.  To schedule an appointment go to my website and select the “Schedule a Free Consultation” tab.

I am big sports fan.  Check that.  I am a HUGE sports fan.  I root for three teams.  1.  The Arkansas Razorbacks.  I am from Arkansas and The University of Arkansas is my Alma Mater.  2.  The St. Louis Cardinals.  I grew up in Northeast Arkansas where everyone has a story of their grandfather sitting on the front porch listening to the Cardinals on KMOX if the night sky was just perfect.  3.  The Oakland Raiders.  I have no ties to the Bay Area or the Raiders other than the first professional football game I can remember watching was the 1984 Super Bowl.  Never mind the fact that my father was a Raiders’ fan and my step-father is also a Raiders’ fan.

I made my first trip to the West Coast in 2001.  It was a family vacation.  I am so much of a Raider fan that I located the office building headquarters of the Oakland Raiders and drove the entire family out there just so I could take a picture of the front of the building.  To make a long (and great) story short, we ended up seeing Al Davis getting into his car in the back parking lot.  I told him we were from Arkansas and he got out and talked with us for about twenty minutes.  It was fascinating.  He and ex-Arkansas Athletic Director Frank Broyles were pretty good friends and had even played golf together a few times.  Mr. Davis ended the conversation by thanking us for coming out and being Raider fans.  He slowly got into his car and the last thing he said to us was, “Don’t ever get old.” 

I am an estate planning attorney.  This blog is my only avenue to discuss my interests.  Since Al Davis passed away with a lot of wealth and a football franchise with an estimated worth of $761 million I decided I would combine the two.  Al Davis assumed the controlling interest of the Oakland Raiders in the early 1970′s.  He is more known for his controversial decisions in the 2000′s managing the Raiders than for changing professional football and creating the giant we all know today.  Al was the first coach to institute a true vertical attack passing game while he was in the AFL.  As commissioner of the AFL, he played the integral role in the AFL-NFL merger.  It was his idea for the best “old” AFL (now called the AFC) team to play the best NFL (NFC) team at the end of each year in a “Super Bowl”.  Mr. Davis sued the NFL for violating anti-trust laws when he wanted to move the Raiders from Oakland to Los Angeles and won.  Al Davis hired the first black coach, Art Shell, in the NFL.  He is widely known in the National Football League for going above and beyond the take care of former Raiders in dire straights coining the phrase, “Once a Raider, always a Raider.”  His other catchphrases are pretty much used on an everyday basis in the sports reporting world, “Just win, baby!”, “Commitment to Excellence” and ”The other team’s quarterback must go down and he must go down hard.”

The NFL bans outside corporations from owning franchises, requiring instead that the teams have a single principal owner.  Al Davis owned 47% of the Raiders when he passed.  Al battled the NFL, other NFL owners and other teams on a weekly basis.  His estate’s toughest battle will be dealing with estate taxes all the while keeping the Oakland Raiders intact and within the family.  The current estate tax exemption is $5 million.  That means anything over and above $5 million gets taxed at 35%.  It also appears that, on the outside looking in, Al Davis’s estate would owe $123 million to Uncle Sam for his ownership.  Carol Davis, wife of Al Davis, and their son, Mark Davis, will now own Al’s interest in the Oakland Raiders.  The real question then lies:  For how long?

It appears that Mr. Davis left some thorough and detailed estate and succession planning which ensure that the team will be owned by Carol Mark.  They can’t be forced to sell by their partners, by the league, or by operation of law.  As it relates to the other partners, the team operates as a limited partnership, with the Davis family being the sole and complete owner of the sole general partner.  Under the law of limited partnerships, that gives the Davis family full control over the business.  Mrs. Davis was married to Al for well over 50 years, and Mark is in his 50s.  They are a close family, and it’s believed that they have no desire to sell the team.  Mark grew up in and around the organization, and he has a passion for the franchise.

The other question of the estate tax still remains, however.  The large tax owed has caused many to speculate that the Davis heirs will
have no choice but to sell the team, like other NFL heirs have done.  But, in reality, Davis could have easily escaped estate taxes, at least for now.  The federal estate tax law includes an unlimited marital exemption.  This means that Davis could have passed as much as he wanted  onto his wife — both before he passed away through gifting, and after through his estate plan — and none of it would be subject to the 35% estate tax.  The fact that Al Davis has only one child removes one of the other potential catalysts for a sale.  If multiple children inherit a team and one or more want to cash out, the others may have no alternative to selling the team in order to raise the money to buy out a sibling or two.  The estate of Carol Davis may have to deal with this tax issue when she passes, but there are other ways that Al Davis may have planned for this as well.  He could have purchased life insurance to handle some of that brunt, he could have gifted some of the ownership away to his son or used other planning methods such as charitable giving.

Raider fans, myself included, can rest assured that the team will probably remain in the Davis family for quite some time due to Al’s planning.  The team is young and playing well.  It is still great to be a Raider fan.  Just keep winning, baby.

I want to thank and credit Andy and Danielle Mayoras and Kay Bell for supplying a lot of the information that I used.

There are a few changes that have recently gone into affect or will be going into affect that can affect an estate plan.  These are all good changes and will make the job of estate planner, whether it is the individual or their attorney, easier.

An owner of any vehicle or boat can now transfer it upon his or her death to a designated beneficiary through the Department of Motor Vehicles (DMV).  What does this mean?  This means the vehicle or boat will avoid probate if you apply for a certificate of title/number and fill out the beneficiary designation form.  It is contractual, so it cannot be revoked by a will.  It can be only be revoked, or changed, by completing a revocation form with the DMV.

Also new to the DMV is the ability for an individual to declare on their driver’s license that he or she has a controlling living will.  This is a great way for medical providers to know that a living will is in place for that individual they are providing care for.  A living will is document that controls end of life decisions of whether or not one would like life-sustaining treatment that only prolongs the process of dying and is not necessary for comfort or to alleviate pain.

There are widespread changes to the durable power of attorney Acts.  A new Act was created and many amendments were made to the existing statutory language.  The Uniform Power of Attorney Act applies to durable powers of attorney (better known as durable financial powers of attorney or durable powers of attorney for business or financial needs) which allows powers of attorney created in Arkansas to be more specific and to fall under uniform application.  I am currently conforming all my existing clients’ durable powers of attorneys to the Uniform Act at no charge.

These changes will allow much more ease and flexibility in estate plans.  Please do not hesitate to contact me if you need help implementing any of these changes or if you would like to speak with me about creating an estate plan for you and your family.

I am by no means an expert of the Estate and Gift Tax.  My only hope is to provide a basic overview of the estate and gift exemptions allowable to individuals so they can make better decisions regarding their estates.

The gift tax is the Federal Tax levied on all gifts given during one’s lifetime.  Every person, however, has a lifetime gift tax exemption amount.  The lifetime exemption amount is the dollar amount of gifts that a person can give away without incurring any federal gift tax, but any lifetime gift tax exemption used will reduce the estate tax exemption of the person making the gift.

In 2010 the lifetime exemption from gift taxes was only $1,000,000 with a top tax rate of 35%, but under current law the lifetime exemption from gift taxes has increased to $5,000,000 and the top tax rate remains at 35%.  These numbers, however, will only be in effect for the 2011 and 2012 tax years.  In 2013, the lifetime gift tax exemption is scheduled to decrease back down to $1,000,000 and the top gift tax rate will jump to 55%.

Similarly, the estate tax is the tax that a person’s estate is assessed upon thier death.  Each person currently has an exemption from the estate tax of $5,000,000 with a top tax rate of 35%.  That means that the first $5,000,000 of a person’s estate at their death will not be taxed, however, any amounts over that exemption will be taxed at 35%.  These numbers also will only be in effect for the 2011 and 2012 tax years.  In 2013, the estate tax exemption is scheduled to decrease back down to $1,000,000 and the top tax rate will jump to 55%.

In 2010 and 2011 you can gift up to $13,000 per person, per year without incurring any federal gift tax.  These gifts are referred to as “Annual Exclusion Gifts” and are not subject to the federal gift tax at all and therefore do not use any of the giftor’s lifetime exemption from gift taxes.  Married couples can combine their annual exclusion gifts and gift up to $26,000 per person, per year, but split gifts must be reported to the IRS on Form 709, United States Gift (and Generation-Skipping Transfer) Tax Return.

Gifts made to a spouse who is a U.S. citizen are entirely exempt from gift taxes due to the unlimited marital deduction, while gifts to a noncitizen spouse are exempt up to the first $134,000 in 2010 and the first $136,000 in 2011.

This is the ninth entry in a series I will be featuring about celebrity estate planning mistakes and what they could have done to prevent the problems that arose.

Name: James Brown

Age: 73

Died: December 25, 2006, Atlanta, GA

Cause: Congestive heart failure due to pneumonia

Family: Six children named in will; many others contending paternity

Estate Mistake: Although he was known for keeping a very tight beat, he left a very loose will and sloppy estate planning, which led to multiple lawsuits and severe tax implications.  His will was contested by several parties, partly because he had not updated the document since 2000.

He also left his mansion and music rights to an irrevocable trust to benefit underprivileged students.  However, the trustees and family are still battling over it.  His assets were not well sheltered so an auction of his personal affects was ordered to help settle the tax bill.