South Florida Estate Planning Law

"Video Wills" are invalid and inadmissible in Florida

David Shulman — Wed, 03 Mar 2010 09:12:04 -0500

Yesterday at my networking group meeting we were visited by a woman who runs a video production company catering towards attorneys. As she was introducing herself to the group, she stated that among the services she provides was filming depositions and allowing people to film video wills.

At which my ears perked up.

Video wills?

I obviously didn't want to interrupt or embarrass her in front of the group, but I was curious exactly what she meant and I went up and spoke with her after the meeting. Sadly, it was exactly what I feared.

One of her services is filming people speaking in front of the camera and saying, "I so and so want to give my bank account to my daughter and. . . " Not writing, but speaking.

Oy vey.

In Florida, video wills are invalid. Inadmissible. Worthless.

Section 732.502 of the Florida Statutes provides, in part that "every will must be in writing." No exceptions.

I'm not talking about recording the signing ceremony, which I'll write about another time. But if your only will is a video will, it's no different than not having any will at all.

Some thoughts on an Estate Planning Attorney Generating Business in Today's Economy

David Shulman — Tue, 02 Mar 2010 21:08:51 -0500

I'm going to take a little detour from writing about estate planning to write about being an estate planning attorney, and different ways that I find clients and generate business. This post is a modified response that I wrote to the Solosez Listserv. Solosez is an email discussion list hosted by the American Bar Association for attorneys who are either solo practitioners or are members of small firms. Not just estate planners, and not just Florida attorneys, but attorneys all over the country and the world, practicing in all fields. It's a great resource for the solo practitioner, and a warm and supportive community.

Earlier today a colleague posted the following message:

"Does advertising in bulletins, Yellow Book and Mailing etc. work? I am
advertising in three different church bulletins for 6 months now and I
have not received a single client. I have also mailed 100s of
postcards but nothing from that either. I am giving up on advertising.
Is their a best way to advertise estate planning practice?

I am so confused and lost.

Help!"

While I am not going to print his name, for the purpose of this story it is important to know that he has a very Indian (from India) sounding name. I responded to him and I ended up liking what I wrote, so I thought I'd copy it here. The only change I'm making is to redact his name, and some slight spelling or grammatical fixes.

"I'm answering your questions in the order you presented them, but the most important thing will be number 3 below. So you might want to skip to that.

1) The yellow book works for PI attorneys, not for estate planning. I'm not looking for the type of client who looks for an estate planning attorney in the dead tree yellow pages. They aren't going to be willing to pay me what I want to be paid. Plus, anyone who looks for an estate planning attorney in the dead tree yellow pages instead of either going online, or getting a referral from a friend or colleague is going to be extremely unsophisticated. Again, not the type of client I'm looking for.

Plus, the dead tree yellow pages themselves are on the endangered species list. I don't know anyone who uses them for anything. (Yes, I know there are people here who do). Place your money elsewhere.

2) You mailed postcards to who? Random strangers? Are you allowed to do that under [State] law? You need to build your personal address book and database. Make notes about every single person and send them personal communications every now and then. All of these people should be people you have some sort of contact with.

3) Network, network, network. Did I mention that you need to Network? I just looked at my calendar and I have EIGHT different networking events, or personal one on one lunches or meetings this week. Join networking groups, referral groups, chambers of commerce, social, charitable, cultural, etc., groups. Go to everything. Talk to everyone. Never be without your business cards. Follow up with people. Send people random emails asking how they are doing. Stop looking for clients and start looking for referral sources. You want people to be comfortable referring you business, and they only will be once they get to know you.

4) If you're going to advertise, might I suggest targeted advertising? I may be going out on a limb here, but with a name like [Indian Name] I am going to assume that you are not a White Anglo-Saxon Protestant from Boise. Fair or unfair, there is still racism or at least culturalism in our society and until people know you, you aren't going to get any bites by putting an advertisement in the back of a church bulletin. How big is the local Hindi community? Why don't you, for starters at least, market solely to the Hindi and other Indian community. Go to all the events, place advertisements in their cultural and religious bulletins. People like working with people like them. I'm not asking you to pigeonhole yourself, but it's a start.

5) You got to be online more. Blog. Tweet. Interact on this and other listserv -- I've gotten some nice business from Solosez.

6) Did I mention that you have to Network?"

I have to admit that sometimes following my own advice can be difficult. There are only so many hours in the day and I have to do actual work for my clients too. But I think that the above is a good roadmap to establishing a successful estate planning practice.

Hmmm.... Maybe I should give up being an estate planning attorney, and instead teach other attorneys to do the above.

Nah.

Utah Woman Loses Home over $68 Dental Bill Might Get Another Chance -- This could never have happened in Florida

David Shulman — Mon, 01 Mar 2010 18:11:08 -0500

This is an old story, but it's new to me. I stumbled upon it because there was a recent update on The Consumerist. The best summary of the case that I've seen is here, on Good Morning America's Website, in a story from May, 2008.

Apparently, in 1995, Sonya Ramos took her daughter to the dentist, which resulted in a $68 (that's sixty eight dollar) bill that was left unpaid. At some point, a collections agency sued her for the bill, which due to legal fees and other costs had increased to $950. Either she didn't know about the lawsuit or she ignored it, but from my perspective, it doesn't really matter. The collections agency that owned the debt won a default judgement. The judge then ordered the sheriff to sell some of her property to pay the judgement. According to the story, under Utah law (with which I am unfamiliar), because her home was "indivisible," it was sold to a buyer for $1,550.

The rest of the story and the follow ups are about her continuing efforts to reclaim possession of her home. If you are interested, read the Good Morning America story linked to above, or the most recent update to the story in today's Consumerist, which states that Utah Court of Appeals remanded the case to determine whether or not she had received proper notice of the sale and whether the sales price is grossly inadequate.

Wow.

I'm glad that I, and my clients live in Florida. Whether she had adequate notice of not, or whether the sales price is grossly inadequate or not, Utah law allowed her home to be sold because of an outside debt.

Unbelievable.

Let's take a look at the Florida Constitution:

Article X, Section 4 provides:

(a) There shall be exempt from forced sale under process of any court, and no judgment, decree or execution shall be a lien thereon, except for the payment of taxes and assessments thereon, obligations contracted for the purchase, improvement or repair thereof, or obligations contracted for house, field or other labor performed on the realty, the following property owned by a natural person:
(1) a homestead, if located outside a municipality, to the extent of one hundred sixty acres of contiguous land and improvements thereon, which shall not be reduced without the owner's consent by reason of subsequent inclusion in a municipality; or if located within a municipality, to the extent of one-half acre of contiguous land, upon which the exemption shall be limited to the residence of the owner or the owner's family.

In Florida, you homestead is protected from judicial sale and from creditors. Period. There are exceptions for debts related to the property such as your mortgage, taxes, and repairs to the house, but that's it. The state can't force the sale of your house to pay your other creditors (there are some minor exceptions regarding new homesteads and bankruptcy up to a certain limit, but that's for another post).

So if you're in Utah and facing the loss of your home because of some outside debt. Come to Florida! The weather's nicer, and your Homestead is protected. However, you can only have one wife.

Be Fruitful and Multiply: Woman dies with 2,000 Living Descendants

David Shulman — Mon, 22 Feb 2010 09:43:46 -0500

I am both fascinated and touched by this New York Times Story about Yitta Schwartz, who when she died last month at the age of 93, possibly had 2,000 living descendants. According to the article, Mrs. Schwartz, a member of the Satmar Hasidic sect, had 15 children, more than 200 grandchildren, and too many great and great great grandchildren to count. I don't want to plagiarize the article, but I highly recommend that you read it yourself, to see this remarkable story of a Holocaust survivor and her family.

As far as the estate planning angle? Just imagine if she in her will made a class gift to her grandchildren, or to her great grandchildren. For example, if her will said, "I give $100 to each of my grandchildren." Or, even if she gave property to her children or grandchildren on a per stiprital basis, in which younger generations stand in the shoes of their deceased parents. It would be quite a task for whoever is administering the estate to categorize and find all of those relatives. Then again, from the article it appears as if almost all of them are living in the same area.

A "Holographic" Will is ALWAYS invalid in Florida, unless it is properly executed

David Shulman — Thu, 18 Feb 2010 17:05:50 -0500

One thing that makes our country both great and frustrating is that for certain types of law, there are often different, incompatible, conflicting laws that vary by state. On occasion, various committees are formed to draft "Uniform" Codes, but it is still up to the individual state legislatures as to whether or not they should be adopted, and what changes are to be made before they are.

One such area of law in which there are a wide variety of rules is the probate law.

I was reading an article on the Wealth Law Blog, the blog of Samuels, Yoelin, Kantor, Seymour & Spinrd LLP in Portland, Oregon. In an article titled, "Don't Write Off Holographic Wills," the author, Victoria Blachy writes that under certain circumstances, a handwritten will may still be valid, because of certain backdoor rules. She write "many states (let's label it "State A") recognize that a will executed in a foreign state ("State B"), pursuant to the laws of State B when executed, can also be valid in State A. For example, see ORS 112.255(1)(c) and RCW 11.12.020. This can come into play when you are dealing with states that recognize holographic (handwritten) wills, like California, and states that do not recognize such wills, such as Oregon and Washington."

I am not licensed to practice law in either California or Oregon, so I'll be talking about Florida law. But first, I think we need to define what exactly a "holographic" will is, as it sounds like something that Mr. Spock would enter into the Enterprise's log before being killed fixing the warp core. A holographic will is a will that is entirely in the Testator's handwriting and signed by the Testator. No typing, no writing.

In Florida, in order for a will to be valid, section 732.502 of the Florida statutes provides that in order for a will to be valid it has to be signed (or acknowledged) at the end by the testator in the presence of two witnesses who must be in the presence of the testator and the presence of each other when signing. If there are two witnesses, but each sign separately, and do not see both each other and the testator sign, then the will is invalid.

In her post, Ms. Blachy points out that often states have a rule that if a will executed by a resident of another state would have been valid in that state at the time it was executed, then it will be valid in the new state too. Florida has a similar rule. For example, let's Michael executes his will while he lives in a state that only requires one witness and not two. If Michael later moves to Florida, then that will will be valid in Florida also. Under the Florida Statute 732.502, "Any will, other than a holographic or nuncupative will, executed by a nonresident of Florida, either before or after this law takes effect, is valid as a will in this state if valid under the laws of the state or country where the will was executed."

In other words, in Florida, even if a Holographic will would have been valid in another state, it still will not be accepted in Florida. Of course, if the will is properly witnessed, then it is valid either way.

PS. A "nuncupative" will is an oral will. They're not valid in Florida either, even if videotaped or put on YouTube.

States Struggle to Deal with Congress's Shameful Estate Tax Mess

David Shulman — Sat, 06 Feb 2010 09:29:47 -0500

The Year Without an Estate Tax continues.

As I have previously written, due to Congress's extreme irresponsibility and inability to get anything done at all, the Estate and Generation Skipping taxes are repealed in 2010, but for one year and one year only. Last December, in a post entitled, The Real Danger of the Expiring Estate Tax: Existing Documents, I discussed that the biggest concern among estate planners is that none of the documents that we've been drafting for clients make any sense. They don't "work."

The problem is that the dispositions of property in the documents are often worded in such a way that they take the estate tax into account. Take a look at the following examples that might be found in an existing Will or Trust:

"I give to my children an amount equal to my remaining estate tax exemption, and give the balance of my estate to my spouse."
"I direct that my Personal Representative set aside an amount equal to my remaining generation skipping tax exemption, and said amount shall be held in trust for my grandchildren."
"I give to the United Way the minimum amount necessary to reduce my estate tax liability to zero, with the remainder of my estate to be equally divided among my children."

If there is no estate tax, then if each of the above formula dispositions are literally followed, then they will result in a disposition of the estate that the testator did not intend. Although the estate tax is federal law, the interpretation of wills and trusts and other documents is state law. So, like usual, the states are left to deal with Congress's irresponsibility.

I saw, via, Miami Attorney Juan Antunez's Florida Probate & Trust Litigation Blog, the Forbes Magazine article, States Race to Clean up Congress's Estate Tax Mess. The article explains that the lapse in the estate tax could, "lead to the unintended disinheritance of spouses, which could in turn lead to expensive legal fights among family members and, ultimately, the impoverishment of some widows or widowers." Apparently, various state legislatures are introducing legislation to try to insert some sanity -- or at least a roadmap -- for fixing these problems.

For the full text of Florida's proposed fix, along with a copy of Florida Attorney Bruce Stone's presentation from the Heckerling Institute, see Juan's blog. Below is some selected language from Florida's proposed fix:

1) Upon the application of a trustee or any qualified beneficiary of a trust, a court at any time may construe the terms of a trust that is not then revocable to define the respective shares or determine beneficiaries, in accordance with the intention of the settlor, if a transfer occurs during [a time when the tax is repealed] and the trust contains a provision that:

(a) includes a formula devise referring to the "unified credit", "estate tax exemption," "applicable exemption amount," "applicable credit amount," "applicable exclusion amount," "generation-skipping transfer tax exemption," "GST exemption," "marital deduction," "maximum marital deduction," or "unlimited marital deduction;"

. . .

(3) In construing the trust, the court shall consider the terms and purposes of the trust, the facts and circumstances surrounding the creation of the trust, and the settlor's probable intent. In determining the settlor's probable intent, the court may consider evidence relevant to the settlor's intent even though the evidence contradicts an apparent plain meaning of the trust instrument.

In other words, the proposed legislation tells the parties involved that they can go to court to have a court determine what the testator or grantor intended and how the assets should be divided and distributed. I don't see how this is a solution. People would have gone to court anyway to contest and fight over these formula clauses. I guess the proposed legislation at least tells courts that they can hear the cases and make their own judgements. Yet, I'm not sure that adding more work for our overburdened courts is the answer either. So what is the answer? I don't know. Other states are proposing that the dispositions be made as if the decedent died on December 31, 2009, when the estate tax was still in existence. Yet, that brings forth its own set of problems.

The answer is that there is no good answer. Until Congress gets its act together, we will remain in a state of uncertainty. And the longer Congress waits, the more likely it is that retroactive repeal will not happen, or will be declared unconstitutional.

Another Taxpayer Victory in a Family Limited Partnership Case

David Shulman — Thu, 04 Feb 2010 10:48:48 -0500

On February 3, 2010, the Tax Court released it's decision in Estate of Shurtz v. Commissioner,

This case is interesting for a number of reasons. First, even though it involves a family limited partnership, the case is not about the estate taking substantial discounts. In fact, the word "discount" is not even mentioned in the decision. Here, the IRS tried to argue that under section 2036, the full value of all the underlying assets contributed by the Decedent to the partnership should be included in the Decedent's gross estate, and not the value of her proportionate, possibly non-discounted partnership interest. Additionally, this case involves the value of the partnership interest after the death of the first spouse, in which the entirety of the estate was transferred to either a credit shelter trust or a marital deduction trust, thus resulting in no tax due.

I'm a bit surprised that the IRS took this, a pure 2036 non-discount case to trial, as the evidence of a non-tax business purpose is so clear.

Background

The Decedent, Charlene B. Shurtz, was an heir to a very wealthy and religious family, the Barges, (not related to El or Chico De Barge). The Barge's assets primarily consisted of timberland in Mississippi. In 1993, at least 14 members of the Barge family owned separate undivided interests as tenants in common in thousands of acres of timberland, either outright or in trust. Even if the estate tax didn't exist, any competent business or probate attorney would advise the family that this type of ownership is a serious mistake, fraught with risks. The property could be subject to the creditors of individual owners. Plus, the joint management of property owned by so many people is burdensome and unwieldy. Thus, based on an attorney's (correct) advice, they established Barge Timberlands, L.P., a limited partnership, to operate the family timber business. The Decedent owned a 16 percent interest in the Timberlands LP and also 1/3 of the shares of the Corporation that served as the general partner.

The Timberland partnership agreement provided that the partnership would distribute 40 percent of its income each year to the partners, so that the partners would have funds to pay the taxes on their distributive share of flow through partnership income.

The Decedent, along with her siblings and fellow partners were still concerned that individual family members could, due to Mississippi "Jackpot Justice," lose their interest in the Timberland Partnership, and control of the family business. The various family siblings were advised the if each of them contributed their Timberland Partnership interests to a separate partnership, then that would provide better creditor protection because the distributions could be locked into the new partnership, and a creditor would not be entitled to receive anything but a charging order. In addition, the Decedent wanted to make gifts of the family timberland business to her children.

The Doulos Family Limited Partnership

Thus, she and her husband formed a new limited partnership, Doulos LP, in November 1996. The purpose of Doulos LP was to reduce the estate, provide asset protection, provide for heirs, and in this deeply religious and charitable family, "provide for the Lord's work." The Doulos LP agreement had language that restricted an outsider from owning an interest, language that was presumably absent from the Timberland LP Agreement. In addition, the Decedent still owned 748.2 acres of Timberland outright and in her own name only that was not contributed to the Timberland LP, which held previously jointly owned Timberland only.

Before the Doulos Partnership could be established though, there was a problem. The Decedent owned 100% of everything that was going to be transferred to the Partnership. Thus, she first transferred a 6.6 interest in her 748.2 acres to her husband, and then the two of them contributed their interests in the timberland, plus her interest in Timberland LP to the Doulos Partnership.

Over the next four years, she made a total of 26 gifts of .4 percent limited partnership interests to her children and to trusts for her grandchildren. Each gift was valued at $19,700 or less. The Doulos partnership maintained accurate capital accounts for each of its members and filed a Form 1065, a partnership tax return every year. The entire family actively participated in managing the Timberland LP and the Doulos LP, having annual meetings and consulting family members before any major decisions were made.

The Decedent's Estate

Upon Mrs. Shurt's death, her gross estate was valued at $8,768.05.03, with $7,674,143.03 going to trusts qualifying for the marital deduction, and according to the decision, $345,800 going to a credit shelter trust. Her Form 706 was filed eight months late, but as there was no tax due because of the use of credit shelter/marital deduction trusts, her lawyers were not that concerned.

The IRS argued that the full value of all of the assets contributed by the Decedent to the Doulos Partnership are included in her estate under section 2036, and not the value of the Partnership interest itself, despite the gifts of partnership interests to her children and grandchildren because the IRS contented that she retained control, use, and benefit of the assets within the meaning of section 2036 and 2035 (some of the transfers were within 3 years of her death).

The Court's Decision

The decision does not state what evidence the IRS used to argue that assets should be included in the Decedent's estate under 2036, probably because there was not much there. The Court pointed out that section 2036 causes property to be included in a decedent's gross estate if three conditions are met:

The decedent made an inter vivos transfer of property;
The decedent's transfer was not a bona fide sale for full and adequate consideration; and
the decedent retained the possession or enjoyment of, or the right to the income from the property, or the right, either alone or in conjunction with any person, to designate the persons who shall possess or enjoy the property or income therefrom.

The Court, citing Estate of Bongard and Estate of Bigelow, pointed out that, "the bona fide sale for adequate and full consideration exception is met where the record establishes the existence of a legitimate and significant nontax reason for creating the family limited partnership, and the transferors received partnership interests proportionate to the value of the property transferred. The objective evidence must indicate that the nontax reason was a significant factor that motivated the partnership’s creation."

As the facts provided, there were several non-tax reasons for establishing the Doulos partnership, including protection of assets and providing centralization of management. Additionally, these were not deathbed transfers, and the Decedent maintained sufficient assets outside of the partnership to live her life. Additionally, in order to satisfy the "full and adequate consideration" prong, she had to receive a proportionate partnership interest in exchange for her contribution. This she did. Both she and her husband each received partnership interests that were valued in proportion to what they separately contributed to the partnership.

Because the transfer of the assets to the partnership were a bona fide sale for fair and adequate consideration, they were not includable in her gross estate under section 2036.

Take-away

The IRS is still actively pursuing family limited partnerships, discounts or not. Family limited partnerships that are shams will not stand up in court. However, as long as taxpayers have legitimate non-tax business purposes for establishing the partnership, and they make sure that they keep adequate records in both the formation and operation of the entity, then section 2036 should not apply to the transfers.

Obama's Budget Proposal Reinstates Estate Tax at 2009 levels

David Shulman — Wed, 03 Feb 2010 09:37:41 -0500

President Obama released his 2011 proposed budget yesterday. In it, the estate tax will be returned to the 2009 levels of a $3.5 million exemption and a 45% rate. Of course, a budget proposal is just that.

Stay tuned

I will be attending the Heckerling Institute on Estate Planning

David Shulman — Fri, 22 Jan 2010 14:40:56 -0500

Next week I will be attending the 44th annual Heckerling Institute on Estate Planning which is sponsored by the University of Miami Law School. Heckerling is a week-long conference on estate planning, administration, tax, and other related issues. This year should be especially interesting because of the current repeal of the estate tax.

I hope to post blog updates from the conference, especially if I gain any insights as to what is happening with the estate tax.

Casey Johnson: Sex, Drugs, and the Estate Tax

David Shulman — Wed, 06 Jan 2010 13:29:35 -0500

If you read the tabloids, or even the mainstream press, you may have come across the sad tale of Casey Johnson. Johnson was one of the great-great granddaughters of Robert Wood Johnson I, and an heiress to the Johnson & Johnson fortune. Her father, Woody Johnson, owns the New York Jets.

Johnson's life, to put it mildly, was a mess. A contemporary of Paris Hilton, she had a long history of alcohol and drug problems, public battles with family members, and a recent"engagement" to reality tv star Tila Tequila (if you don't know who that is, do your own internet search. But the images might not be safe for work). The thirty year old woman was found dead in her home on January 4, 2010, leaving behind an adopted four year old daughter. Police are saying that she could have been dead for several days.

I'm sure there are going to be criminal investigations, recriminations, lawsuits, and possibly a messy probate, which I may or may not write about as it happens. For now, I am only interested in one aspect of this: the estate tax.

I don't know what Johnson's financial situation was at her death, I hear that she was "cut off" and broke, but it's also quite possible that she had substantial assets in trust that would be includable in her estate for estate tax purposes, but was beyond her reach for her own protection. This amount could be several million or even tens of millions of dollars.

As I have been discussing, 2010 is currently the year without an estate tax. That means that if Johnson died in 2010, no matter how large her estate was, it will not be subject to the federal estate tax. If she died in 2009, then her estate is taxed at 45% of its value over $3.5 million . If she had a taxable estate of $10,000,000, then her estate will owe $2,925,000 in taxes to the federal government. . I believe (although I do not know for sure) that her death certificate shows the date of death as the date she was found, January 4, 2010. However, if the evidence shows that she died in 2009, then her estate is liable for the tax.

Let's take this one step further. Assume that she did die in 2010. Most people think that Congress is going to retroactively reinstate the estate tax back to January 1, 2010 at some level -- probably the 2009 exemption of $3.5 million. Most legal scholars also believe that it is constitutional for Congress to do so. If someone dies during that time and owes a minimal amount of tax, then it's likely their estate will just pay it, instead of challenging the constitutionality in court, which of course requires hiring attorneys. But if there is enough money at stake, then I wouldn't be surprised if Johnson's estate does challenge it. It would be worth the risk to see how the Roberts, Scalia, Thomas, Alito Court would rule.

Of course, none of this would be an issue if Congress weren't so deadlocked, so incompetent, so unable to get anything at all done. But that's for another day.

Welcome to the Year Without an Estate Tax (for now)

David Shulman — Mon, 04 Jan 2010 08:37:30 -0500

I honestly never believed that it would happen.

I never thought that Congress would actually be this irresponsible. After all, they've known that it was happening since 2001. But here we are. It is 2010 and there is no estate tax. For now.

What does this mean?

First, remember that in 2009, the estate tax only applied to a person who died owning assets in excess of $3.5 million. So for most people, it means absolutely nothing.

However, along with the temporary repeal of the estate tax, there is also a temporary repeal of what's known as step up in basis. Let me explain. Generally, when you inherit assets from someone, your basis in the asset is the value at the time of death. So that when you go to sell the 100 shares of IBM that you inherited from Grandma, you don't have to figure out how much she paid for it. You only have to figure out what it was worth at the time of her death.

With the repeal of the estate tax, there is also a repeal of the step up in basis rules. Instead there is "carry-over basis" and a decedent's estate will have $1.3 million of basis to spread around their various assets. How will this be done? I don't know. But the effect is actually a tax increase on estates valued between $1.3 million and $3.5 million.

Then, one year from now, the estate tax comes back to life with a $1 million exemption, and a 55% rate.

Of course Congress could change all of this. Most people agree that they can retroactively change the law to reinstate the estate tax. I'm sure there will be lawsuits if they do though.

What is going to happen? I have no idea and anyone who says they do is lying. I was so sure that they weren't going to let repeal happen, and I was wrong. So we'll just have to wait and see.

But don't throw momma from the train just yet.

The Real Danger of the Expiring Estate Tax: Existing Documents

David Shulman — Sun, 20 Dec 2009 21:55:44 -0500

If the Senate doesn't get its act together, it it looks like it won't, the estate tax is going to expire on December 31, 2009. As I've written many times before, this is just a one year vacation from the estate tax. It is scheduled to come back with a vengeance on January 1, 2011. Not only that, Congress can retroactively change it even after January 1 of next year.

What worries me the most however, is not the notion of people throwing momma from the train in order to have their relatives die in a year without an estate tax. What really keeps me up at night is all of those documents that are already out there that use formula clauses to dispose of the estate.

Remember the following (1) the lifetime exemption is currently $3.5 million; (2) there is an unlimited marital deduction -- meaning you can leave an infinite amount to your spouse tax-free.

Let's look at the following example:

H has $9 million in assets. He is married to W, his second wife, and has three children, C1, C2, and C3 from a prior marriage. H wants to provide for both his wife and his children upon his death, and to pay no estate tax. H's will says:

"A. I give, devise, and bequeath to my wife the minimum pecuniary amount necessary to reduce to zero the federal estate tax owed as a result of my death.

B. After the distribution set forth in Paragraph A above, I give, devise, and bequeath the rest, residue and remainder of my estate to my children, in equal shares, share and share alike if living, and if not, then to his or her respective issue per stirpes."

If the exemption is $3.5 million, as it is now, then the children receive $3.5 million to split 3 ways, and the wife gets $5.5 million, which because of the marital deduction is not subject to tax. The minimum pecuniary amount necessary to reduce the estate tax to zero means that the kids get the maximum amount of the lifetime exemption.

Now we're in 2010. H dies. There is no estate tax. The kids hate their stepmother who is younger than all of them. The kids argue that because there is no estate tax, the minimum amount necessary to reduce the estate tax to zero is. . zero! Stepmom gets nothing. Stepmom argues that the polestar of will construction is the intent of the testator, and the clear and unambiguous intent of H was to provide for W and not to give her nothing. (Ignore elective share statutes for this post).

I don't know who wins the above lawsuit but I know one thing. The loser is going to sue the estate planning attorney for malpractice.

And that's just one example of a formula. There are many different variations and permutations. Every single estate planning attorney uses some sort of formula in their document -- whether pecuniary or fractional; whether based on the lifetime exemption, or the marital deduction. These documents are all out there, and none of them "work" in a world of no estate tax.

I could advise my clients that they need to change their documents.

But to what? Congress is going to change the law. Maybe. I think that the documents are going to have at least three sets of alternatives depending on what Congress does.

And clients already complain that the documents are too long.

Could the Estate Tax Really Expire?

David Shulman — Wed, 16 Dec 2009 11:50:50 -0500

Could the estate tax really expire? I've been pretty adamant in my belief that Congress won't let that happen. I still tend to believe that they will rush through a one year extension around the 27th or so.

But it's becoming more and more possible.

Stay tuned.

The Heritage Foundation Deliberately Misleads (or in the Alternative is Embarrassingly Wrong) on Estate Tax Repeal

David Shulman — Mon, 30 Nov 2009 17:09:49 -0500

I don't think I've taken a posistion on this blog pro or con as to whether the estate tax should be repealed. I have clients who have taxable estates and I have clients without taxable estates. As planning for the estate tax is only a part of what I do, I'll be able to continue to help my clients protect and provide for their loved ones after their deaths, whether the estate tax exists or not. As to the politics of it, well, because of what I do, I can certainly see both sides of the issue.

As I write this, today is November 30, and we still don't know what is happening with the estate tax next year. If you are unfamiliar with the status of the Estate Tax, check out my August 26 post. However, here are the CliffsNotes:

The Lifetime Exemption, that is the amount that you can own when you die without being subject to the estate tax is currently $3.5 million. Any amount over that is taxed at a rate of 45%. Pursuant to a law passed in 2001, on January 1, 2010 the estate tax goes away for one year only.

Pursuant to that same law (passed by a majority Republican Congress and Republican President Bush), on January 1, 2011, the lifetime exemption, that is the amount you can own before you are subject to the estate tax goes to $1 million, and the rate goes to 55%. All of this -- the one year only repeal, and the reinstating of the estate tax at a much lower threshold with a much higher rate happens automatically.

If Congress does nothing it will happen.

Naturally, a situation in which there is no estate tax for one year only, and the following year in which there is a significantly higher estate tax is untenable. Congress is --finally-- working on a solution. The solution that might be voted on this week was submitted by Congressman Earl Pomeroy (D- North Dakota) which would permanantly set the exemption at $3.5 million and the rate at 45%.

Which brings me to the Heritage Foundation.
On their blog, known as The Foundry, author Curtis Dubay writes the following story:

"House Votes to Raise Estate Tax This Week."

In his post he writes, "The bill it will consider, sponsored by Rep. Earl Pomeroy (D-North Dakota), would extend permanently the death tax at its current 45 percent rate and $3.5 million exemption. This extension would be a drastic tax increase since the death tax expires on January 1, 2010." (emphasis added).

That's just wrong. I would like to give Mr. Dubay the benefit of the doubt, but if you go to his post, and click in the link in his post to the Dow Jones Newswires Story on the subject, the very article he links to says "The Pomeroy legislation, backed by President Obama, would cost $233 billion over the next 10 years since it represents a tax cut when compared to current law" (emphasis added by me).

Read that again. Despite the "one year repeal," the House will be voting to lower the estate tax and not raise it.

Of course, I wonder how many of the Foundry readers will actually investigate these facts themselves. I'm all for a healthy debate, but let's keep it honest please.

Some Gift Ideas and Reminders for this Festivus Season

David Shulman — Mon, 30 Nov 2009 10:00:00 -0500

As the Festivus shopping season begins this Cyber Monday, I'd like to remind my readers of a few facts about gifting.

First, the "annual exclusion" for 2009 is $13,000. That means any person can give any other person a minimum of $13,000 without having to worry about the gift tax. A married couple can give a combined total of $26,000 to any one person free of the gift tax. The couple does not have to play any silly games in which the husband gives the wife money and then the wife makes the gift. Generally, either the husband or the wife can give the full $26,000 to any person.

In larger families, this allows a tremendous amount of wealth transfer, tax free from the older generation to the younger generation. A married couple can give $26,000 to each of their adult children, their adult children's spouses, their grandchildren, etc., without having to file a gift tax return.

Second, there are certain types of "gifts" that don't even count towards that $13,000 annual limit. For example, a person can pay the tuition and medical expenses of any other person, and that amount is not deducted from the $13,000. The tuition or medical expenses have to be paid directly. A grandparent can pay the private school tuition, whether grade school or college of their grandchild. Plus, they can still give each of that grandchild and her parents $13,000 (or $26,000 if married) in that same year.

Finally, a gift does not have to be in cash. Gifts of stock or other property can be a wonderful way to transfer not just the stock out of your estate, but the appreciation on the stock too. A gift of $10,000 worth of stock in Apple Computer on January 1, 2000 would be worth $71,807 today.

Not bad.

If you can do that for your children and grandchildren, then they'll have nothing to say during the "Airing of Grievances."

Social Media: You're Doing it Wrong

David Shulman — Sat, 28 Nov 2009 12:01:00 -0500

I am a bit of an internet nerd, as far as attorneys go. You may or may not realize this, but attorneys are incredibly slow to adapt to new technology. They tend to like things the way that they are, and don't want to take the time and effort to learn a new way of doing things, if the old way of doing things already works.

While of course that is a generalization, I think it's a fairly accurate one.

When I left a larger firm to start my own estate planning practice, one thing that I was committed to was using computers and the internet to be more efficient -- both in the way that I serve my clients, and in the way that I market my practice to others. I was convinced that through "social media" and "social media" alone, I would be able to quickly develop a thriving practice.

I was only part right. Social media, whether Facebook, LinkedIn, Twitter, Blogs, Digg, and even old-school Listservs is about building relationships with other people. "If you build it they will come" is not true. But networking online is not that much different in networking "in the real world." By communicating with other people, whether in person, through the phone, through email, twitter, of Facebook comments, you get to know them, and develop a mutual trust.

Sometimes the question is, "how do you find the people that you would like to meet." This is an important question for both meeting people online, and offline. In this post I'll focus on online only. One thing that I do is that I have a constant search running on Twitter for certain topics, including "Estate Planning" and "Estate Tax." I hope that I will be able to meet and communicate with people interested in Estate Planning not just here in Fort Lauderdale, but around the country. In fact, I have already been referred a client from an estate planning attorney in Los Angeles and I have referred a client to an estate planning attorney in Michigan.

None of this would have been possible without properly using social media. Before I sent or received the referral, I had already built relationships with the other attorneys. Which brings me to the subject of today's post. One of my automatic ongoing searches came up with the following Tweet, "Florida Estate Planning Attorneys: Florida Estate Planning Attorneys, lawyers, lawfirms, real estate, http://bit.ly/7XooVi." Curious, I clicked the link in the tweet which brought me to this page on Digg. That page was also entitled "Florida Estate Planning Attorneys." However, it didn't contain any information. From there, there was yet another link to this page, which is nothing but a poorly formatted list of attorneys, along with some Google Ads for other attorneys that you can clickthrough.

What did I learn from this internet wild goose chase? Nothing. Someone thought it was a good idea to take the time to set up a webpage that is nothing but a list, then set up a Digg page that links to it, and then Tweet a link to the Digg page. What's the point of that? While I suspect that some "internet marketer" may be making a few dollars off of the Google internet ad links; or maybe some attorneys had to pay to be listed (I don't know if they did or not). Either way this is not an effective way to use social media for attorney marketing. It's just a series of links to a list. There's no one to talk to; no one to communicate with. In the end, it's just a billboard or yellow page listing.

I wouldn't be surprised if some attorneys hired a marketer to do this, and when it doesn't work (it won't), they'll give up and go back to their old ways of doing things.

I'll keep doing things my way though, and I'm always looking forward to meeting new people, whether online or off.

Be Thankful for Your Family, and Don't be a Procrastinator

David Shulman — Thu, 26 Nov 2009 09:19:30 -0500

I admit it.

I'm a procrastinator. I put off things like going to the Dentist, getting my oil changed, or even hanging pictures on my walls. I know these are things I should get done, but I keep putting them off.

I find that many people are the same way with their estate planning. Most people have no documents at all in place. They don't want to think about their mortality, or they don't want to pay an attorney. Or, like me, they are just procrastinators.

They think they have time to get it done later.

While this is true for some people, it's not true for all of us. As you sit around the table at Thanksgiving with your loved ones, think about how important it will be to them that you were able to protect and provide for them in the case of your death. It could give them something truly to be thankful for for years to come.

One more thing, on a totally separate note. As a Miami Dolphins fan, I'd like to wish a very Happy Thanksgiving to leon Lett, wherever he may be.

Forbes: Will your State Take a Bite out of Your Estate? -- Not if you live in Florida

David Shulman — Wed, 25 Nov 2009 08:22:58 -0500

A recent Forbes Magazine article discusses that even though the Federal Estate Tax exemption is $3,500,000, and is scheduled to disappear next year, there are still 17 states and the District of Columbia that still have either an estate tax or an inheritance tax.

As I've written about before, one of the benefits of living in Florida is that there is no state estate tax. There is also no income tax.

It's not just the weather that brings the retirees down here.

Note to Other Attorneys (and everyone else). Fax Spam Isn't a Good Idea

David Shulman — Tue, 24 Nov 2009 22:02:58 -0500

As you, loyal reader, may know, in February of 2009 I left the law firm that I was working at to start my own solo practice. Although my solo practice is new, I graduated George Washington University Law School in 1998 and worked for a number of years at the IRS in Washington, DC and for a firm in Fort Lauderdale.

Like anyone else who starts a law firm or any other business from scratch, marketing is an integral part of business development. Practicing law is easy. Finding people who are willing to pay me to do it is the tough part. But my practice is growing. I am getting new business through referrals from other clients and from other professionals in the area with whom I have established relationships.

Also I have been active online. I have this blog; I post on a number of different listservs; and I try to maintain relationships on Facebook and LinkedIn (as opposed to just randomly adding everyone).

Have I made a few missteps? Of course. I'm human. The point is, I think I have a fairly decent idea of what works and what doesn't work. And what doesn't work is this: fax spam otherwise known as "junk faxes" or unsolicited faxes. In short, it's sending a fax to someone you don't know and don't have an existing business or other relationship with, in which you offer to sell something.

Today, I received fax spam from another attorney. Note. I have never met this person, never heard of this person, have no working relationship with this person. This was spam pure and simple.

This faxer informed me that he is writing because he is "pleased to inform you that I am available to provide coverage for your Foreclosure Motion Calendar hearings in Miami-Dade counties for 99 per hearing. . "

Let's ignore the fact that unsolicited faxes are generally illegal. This is 2009. I don't even own a fax machine. My faxes are converted into email and sent to my inbox. To send a fax I scan it and send it via email too. And this wasn't a fax just to me, but it was obvious that he was mass faxing or "fax blasting" as the case may be.

If you want to build a relationship with someone, pick up the phone, send them a personalized email or a letter.

As attorneys, we are all trying to sell our services, which means that we are trying to sell ourselves. Our potential clients need to be able to trust us before they hire us. Potential referral sources need to be comfortable referring us business.

So the question is, why would I ever send clients to someone who thinks it's proper to blast out fax spam?

And of course, if he would have taken a second to do the slightest bit of research he would have known that I don't have Foreclosure Motion Calendar hearings. But if anyone asks, I now know someone not to send them to.

A Blog Rebirth -- Or My Jerry Maguire Moment

David Shulman — Tue, 24 Nov 2009 20:38:00 -0500

I've been thinking about my blog for the past couple of weeks, and I think that I've come to a crossroads. My intention in starting this blog was for the most part to write about estate planning news and updates for both the practitioner and for the consumer. And I will still do that.

But I think we've gotten to a point where there really isn't that much news developing. Sure, there is the impending expiration of the estate tax in 2010 and its coming back in 2011. And when there's real developments I'll be writing about them in detail. But for now, there is just talk. So there's not much to write about on the Congressional front.

Nor have there been very many interesting cases lately. There have been a couple, but nothing really worth waxing philosophical about.

So I figure that I can go in one of two ways on my blog.

In the first way, I'll write post after post about whether or not you should have a Will (hint: you should) and whether or not I think online or Do It Yourself wills are a good thing (hint: I don't). I'll send emails to every legal blogger (or is that blawgger) that I can find, along to every listserv, telling people that I'll link to them if they link to me, because that's the way things are done, and if we link to each other we can trick "the Google" into ranking us higher. It won't matter that I don't read the other blogs, or when I did read them I thought they we subpar. I'll follow every single person I can find on twitter in the hopes that they follow me back. I'll friend the world on Facebook and then spam my friends incessantly for them to join my firm's fan page. I'll put aside my integrity and personally vouch for blogs that have nothing to do with my geographic or substantive area and be "fans" of people I don't even know. Then I'll write some treacly posts about puppies and flowers and babies and how much they'll thank you for doing your estate planning.

Maybe I'll even sign all of my posts, "Love, David."

Blech.

I can't do that.

I actually started writing another post about why you need a will and I titled it "So it has come to this -- My Why You Need a Will post." Look. You, yes you need to have your estate planning done. It can provide for and protect your family after you are gone, save lots of taxes, help charities, and stop global warming. And subject to the Florida Bar's rules on advertising, I think I can do a pretty darn good job at doing it for you. But I'm not going to convince anyone of that with yet another "why intestacy is bad" post.

Why do I blog? Is it to market my practice? Sure. But I blog because I like to write and I like to write about things that interest me. One thing that interests me is estate planning, and I will certainly write about that here. In fact, I hope that it will be the primary focus of my blog. However, I'll be expanding the focus too. I'll be writing about. . . well, whatever I feel like writing about --life as a lawyer, technology, South Florida, and of course estate planning, probate, tax, and the like. I'll do my best to keep it semi-relevant and occasionally entertaining, but no promises.

I will promise however, to write. I will not let the blog go weeks without a post.

Unless I run out of ideas, of course.