In 2008, the federal government collected in excess of $25 billion on individual estates via the estate tax, sometimes called the “death tax.” It’s been six months since the tax lapsed as part of legislation enacted under President George W. Bush in 2001.

Now, the death of one American billionaire, oil magnate Dan L. Duncan, is casting a spotlight on how much the federal government is not collecting.

Duncan’s fortune was estimated to be worth $9 billion, ranking him as the 47^th wealthiest person in the world. Had he died in December 2009, any part of his estate not left to his surviving spouse would have been taxed at a rate of at least 45 percent – at most, $4 billion for the federal government.

The House and Senate failed to come to any consensus last year on legislation that would have prevented the repeal. But, the Senate Finance Committee wants to reinstate the estate tax – the only question being whether the final legislation on the matter will include provisions to collect on the estates of those who have already died this year.

Advocates of the tax point out that the U.S. is home to more than 50 of the world’s billionaires over the age of 80, and claim that the repeal amounts to an unconscionable tax break for the ultra-wealthy in very lean times and historical income disparity. Opponents argue that the tax is unfair because it taxes the same income twice – once when it is earned and again when it is passed on to heirs.

Lawyers agree that any attempt to apply the tax retroactively to the Duncan estate will be met with well-funded legal opposition and arguments that a retroactive tax is unconstitutional.

Congress has another six months to figure out what to do with about Tax-Free 2010. The tax returns at a rate of 55 percent in January 2011.

James D. Perry

It is estimated that by the year 2020, 12 million elderly Americans will be in need of long-term care.  Many of them will have to rely on their adult children as caregivers.

This imposes a heavy emotional and financial burden, even on happy and willing caregivers, and financial assistance for long-term care is sparse.

Medicare generally does not pay for long-term care, which assists people with daily living activities such as cleaning, meal preparation, dressing, bathing, using the bathroom.  Medicaid may pay for some long-term care services, but its eligibility is limited to people with low incomes and limited assets.  Private long-term care insurance can be pricey, especially if you wait until you are over the age of 50 to begin paying premiums.

The new Community Living Assistance Services and Supports (CLASS) Act is an attempt to close the gap between people too rich for government assistance, but not rich enough to afford they care they need.  It goes into effect January 1, 2011 and enrollment is expected to begin in 2013.

The government program acts like long-term care insurance – you pay premiums for five years (working at least three of those years) and it will provide cash to pay for care when you need it for as long as you need care.  No tax dollars are to be used to support the program.

The CLASS Act is not meant to cover the full cost of 24-hour in-home care or a nursing home, but to supplement your personal contribution.  The Congressional Budget Office has assumed a cash benefit of $75 a day, but the Department of Health and Human Services has until October 2012 to hammer out the rules.  But, to put this in perspective, the national average cost last year of an assisted living facility was $37, 572; $75 a day would pay almost three-quarters of that expense.

The best thing to do is to plan now as if long-term care, for yourself or for your aging parents, is a financial inevitability.

James D. Perry

My Dad was a guy who loved is family and took care of little things behind the scenes to make his kids lives a bit easier. One of those things was to prepay a cremation of his body and interment of his ashes at plots that he and my mother purchased years ago at Rose Hills.

When he died, his preplanning saved me many hours of decision-making and legwork. The only downside, if there was one, is that I get periodic calls from my Rose Hills representative urging me to prepay my own plan.

Paying in advance combines pre-planning with pre-funding, which makes it an attractive estate planning mechanism. Often, prepaid burial plans are a tool used to “spend down” excess funds to qualify a client for MediCal Long Term Care benefits.

There are primarily three ways to pre-pay for a funeral: insurance, trusts, and individual funding.

An individual may buy a whole-life insurance policy to cover the costs when needed, or money may be put into a trust run by a financial institution or statewide funeral directors association.

Individual funding may be done through so-called guaranteed and non-guaranteed plans. Under a guaranteed plan, a funeral home promises that if you pay today, it will provide services to you when needed no matter how much prices rise. Many of them exempt other costs, such as flowers and music, though, and changes to the plan potentially void the price guarantee. A non-guaranteed plan offers no such price protections.

Whatever route you might choose to take in pre-paying your funeral, though, be aware of the risks.

Revoking a prepaid plan is not easy. California imposes up to a 10% fee on prepayments in trust. And, canceling an insurance policy entitles you to receive only the cash value of the policy – not necessarily the value of premiums paid – minus commissions and costs.

Also, there are widespread allegations of fraud and mismanagement within the industry. State and federal legislators are working to curb abuses through regulation and disclosure requirements, but consumer protections for those caught in a scam are still not strong.

Some consider it sound financial planning – a hedge against inflation locking in today’s prices in an industry where prices continue increasing. Others simply wish to spare their loved ones the trouble of picking out caskets, buying burial plots, and making other arrangements during their grieving.

As with any investment, diligent scrutiny and seeking legal and financial advice where needed are key to ensuring your money and your loved ones are protected.

James D. Perry

I blogged a few months ago about the change in California law that permits probate courts to rule in on the validity of a statement in your will that threatens to disinherit any person who files a lawsuit contesting the validity of your will.

Under current law, the courts will allow good faith challenges that allege some sort of wrong-doing in the creation of the will, including an allegation that the testator was under some undue influence in writing out the terms of his estate distribution.

So what is undue influence? One example was in the infamous Marshall v. Marshall battle where Anna Nicole Smith alleged that her late husband’s son engaged in malicious and willful behavior to prevent his father from leaving Anna Nicole a substantial gift in his will.

Many times the elderly are easy targets for manipulation and unscrupulous individuals, often family members, who try to manipulate them into signing a last will and testament to their advantage.

The court will look at all the circumstances to determine whether an individual asserted undue influence and it may void a gift under a will.

The court may look at the relationship between the donee and the testator (drafter of the will). Why is this person getting the money? Is the donee a family member or a normally expected heir?

The court may also look to the level of involvement in the donor’s affairs or the involvement in the gift itself. The greater involvement, the less questionable it might be that the person would inherit. For example if the donee drove the testator to the attorney’s office, sat in on the meeting with the attorney, and paid the attorney fee, the court would presume that the testator was subjected to undue influence.

It’s also worth noting the circumstances under which the property was promised in the will, such as if and when the will was changed from a longstanding estate plan, and whether the change was made in secret or if the testator’s intentions were shared with others. Also, what was the physical and mental state of the testator at the time the will was written or changed?

These aren’t exclusive factors in determining whether there was undue influence or not, but they are questions worth asking in the interests of protecting yourself and your loved ones.

On a final note, there is no law against asking someone to leave you something in a will. You and your sister might both ask your 96-year-old grandma to leave you her 5-karat Harry Winston diamond ring. But if your grandma is in a fragile mental or physical state, and you lie to her and tell her that your sister is a drug addict who will surely pawn any jewelry for cash – that’s undue influence. You usually know it when you see it…it doesn’t pass the smell test.

James D. Perry

Recently, a client of mine died and his family could not find a signed copy of the trust he had created. People lose things; it’s a fact of life. But, what do you do if you lose the documents detailing your estate plan?

If you lose your original will, and there is no copy on file with your estate-planning attorney, the state considers the will revoked. There are exceptions to this, and the presumption can be overcome in probate court by a preponderance of evidence showing that the will was not destroyed or intentionally revoked. Probate court is an expensive hassle, though, and if you do not have the evidence to over come that presumption, you will die intestate leaving the probate court to distribute your assets according to state law rather than according to your express wishes.

Unlike a will, though, a trust is not necessarily deemed “revoked” if you lose the papers. If you have transferred assets – like your house – into the trust, the transfer will be reflected in the deed or title.

People, including the elderly, sometimes throw out or shred files and papers that they think are of no more use. Or, they might go overboard with their ideas about “security” making it very difficult to find the papers they need when they need them. Estate planning documents have been found in freezers, lampshades, mattresses, or behind pictures. Conditions and diseases like dementia and Alzheimer’s can exasperate these problems.

It’s important to safeguard your estate plan documents. Leave copies with your estate planning attorney, your trustee, or another person so there is evidence of your wishes readily available.

James D. Perry

You may be willing to trust your teenage grandchildren to house sit for you while you’re away for the weekend, but would you trust them to properly manage your entire bank account after you die?

Paris and Nicky Hilton, heiresses to the Hilton Hotel fortune, are notorious for their party-girl ways. DUI charges and driving violations landed Paris in jail at the age of 25, and Nicky has a reputation for drifting in and out of relationships with potentially opportunistic suitors. Neither has yet shown the maturity necessary to manage the Hilton’s billions should they take over any substantial part of estate today – much less so had they inherited at the age of 18.

Generally, if you decide to leave an inheritance in trust, the account can provide for the minor’s health, education and maintenance through a custodian (living parent or appointed conservator) until he or she becomes an adult. However, once he or she reaches majority, the remainder of the account is discharged to them outright.

You also have the option to hold a minor beneficiary’s inheritance in a trust to be paid out in stages or based on milestones. For example, you could pay a beneficiary 50 percent of his inheritance when he reaches the age of 25 and the remainder at 30; or, 50 percent when he gets his bachelor’s degree and 50 percent when he gets his master’s degree. Again, though, once the beneficiary receives a lump sum free of trust, that property is vulnerable to bad decisions, lawsuits, and divorcing spouses (only if transformed into community property in California).

There is also the option of leaving the minor’s inheritance in a lifetime trust. The assets are managed indefinitely by a trustee or until a designated time when the beneficiary may take full control. The inheritance is protected from divorcing spouses, lawsuits, and if a third-party trustee is used, from the beneficiary’s own bad decisions. If there is anything left in the trust when the beneficiary dies, you can control who will receive the remainder.

There are added costs that come with the administration of a lifetime trust, including accounting and legal fees. And the trustee may be entitled to receive a fee for services rendered while administering the trust. These costs must be weighed against the amount of inheritance and your own long-term estate planning goals when drawing up your will.

Keep in mind, though that some people will never be able to handle money properly, due to disability or character flaw. Some clients struggle with how much control they can or should have from beyond the grave, but only you can determine how much weight, if any, to give such considerations.

You may not be a Hilton, but careful planning in advance can make for a smooth transfer of property.

James D. Perry

Over their lives, people tend to accumulate a lot of “stuff”: furniture, clothing, knick-knacks, books, personal collections, etc. And when they die, that stuff gets passed on to their loved ones, taking up space in their garages, looking oddly out of place in their dining rooms, or sitting in storage simply because the heirs can’t bear to part with it.

It’s not uncommon as an estate planning and probate lawyer to see how people who inherit furniture and other material wealth tend to unnecessarily cling to those physical items. Even I have been dealing with this in the wake of my father’s death: I just do not want to let some things go.

A recent New York Times article highlights the power we give these material objects over our lives, and points to the problem of hoarding, which has become fodder for reality television shows. Hoarding is a serious compulsion, and most people don’t accumulate stuff to that extreme.

But seeing that extreme can force us to look at how we may be hanging on to unnecessary material things when all we really want is the memory that thing evokes.

The trinkets we’ve been given or that we’ve picked up somewhere special become the physical manifestation of the memory of the giver or the context in which it was gained. But “your mother or grandmother didn’t plan for you to become overwhelmed by them,” says Jamie Novak, a professional organizer and author of “Stop Throwing Money Away.”

Organizing experts suggest that you pass on the memories instead of the goods. And, if you already have Aunt Sally’s armoire taking up space in your living room, take a picture of it before donating it to charity.

You don’t have to hold on to the stuff letting it clutter up you life, when you can more easily hold on to the memories.

James D. Perry

See Jim’s review of Jamie Novak’s book “Stop Throwing Money Away” (John Wiley & Sons) in the Summer edition of the Perry Estate Planning Newsletter.

In yet another development in the sensational saga spanning 15 years, a court of appeals recently ruled that none of J. Howard Marshall’s billions will go to the estate of his late-in-life bride, Anna Nicole Smith.

The former Playboy model challenged her late husband’s will in a Houston probate court alleging that his son, E. Pierce Marshall, had illegally coerced his father to exclude her. She claimed that Howard had promised to leave her more than $300 million.

The court found, though, that Howard was mentally fit and under no undue pressure when he wrote the will that left nothing to Anna Nicole.

The two met in a strip club and were married in 1994, Howard at the age of 89 and Anna Nicole, 26. Howard died a mere 14 months later and in his will left nearly all of his $1.6 billion estate to Pierce.

Since the legal battle began, both Pierce and Anna Nicole have died leaving their respective estates to duke it out in court. Pierce is succeeded in the litigation by his heirs, a wife and two sons, and Smith left a daughter, now 3, fathered by an ex-boyfriend.

The case has already bounced around both state and federal courts in bankruptcy and probate, and has been through numerous appeals, even getting a day in the U.S. Supreme Court on a question of jurisdiction.

Unsatisfied, though, Anna Nicole’s probate lawyer is already planning to appeal the latest ruling.

James D. Perry

A living will – called an advance directive for health care here in California – is an important part of your estate-planning arsenal. In the event of an accident or life-threatening incapacitation, an advance directive dictates your medical care and treatment preferences. This is especially helpful to family members and care providers because where there is uncertainty and disagreement, the court may have to step in.

An advance directive for heath care can fail its essential purpose, though, if it is ambiguous about treatment options and does not provide enough detailed guidance.

A recent MSNBC article highlighted this problem in the story of Bunny Olenick, an 87-year-old from Boston who became incapacitated by a severe stroke. She had a living will and a medical power of attorney, but her sons were left with questions about assisted breathing devices and feeding tubes and the quality of life she would sustain because of them.

She had stated that she didn’t want to be intubated or hooked up to a respirator, but did that preclude temporary nasogastric tubes for nutrition or a short-term oxygen mask?

Bunny’s sons were able to take advantage of palliative care counseling, which helped them navigate her legal documents and the preferences she had shared with them prior to her stroke.

However, had the sons gotten into a disagreement about Bunny’s wishes, they might have ended up petitioning a judge to appoint a medical proxy. The legal process is costly and ultimately may prolong an incapacitated individual’s life or suffering where he or she would not want it.

No one really likes to ponder their own death, but appropriate advanced planning can save you and your family pain and confusion in a time better spent saying goodbye.

James D. Perry

A recent article by Forbes highlighted what I believe to be a serious problem: half of Americans don’t have even the most basic estate planning documents.

According to a phone survey conducted among 1,022 adults in December 2009, only 35% have a will and only 29% have a living will, which states an individual’s views on end of life medical procedures.

The numbers are only a little more promising for the elderly. Fifty-one percent of adults over the age of 65 have a health care power of attorney in place, and 58% say they have a living will.

The poor economy seems to have taken its toll – 44% report they are more focused on immediate needs, such as groceries and paying bills rather than future protection. And, there seems to be a misconception amongst the survey respondents that they don’t need an estate plan if they are not independently wealthy.

In fact, it can be more costly in the long run for those who fail to prepare estate-planning documents.

If you die intestate (without a will) a lot of your assets may get chewed up in probate court rather than going to your loved ones. And, your family may have to pay heavy court costs out-of-pocket if they have to go through legal proceedings to get a judge to appoint someone to make medical decisions for you should you suffer an incapacitating accident or illness.

If you haven’t put together an estate plan, I encourage you to do so to protect your assets, your personal wishes, and your family in the event they have to make difficult decisions.

James D. Perry