2010 is not only the year to die; it’s also the year to give.

As it stands now, an individual can give away up to $13,000 tax free this year as part of his or her $1 million lifetime maximum.  But anything over that $13,000 will only be taxed at a rate of 35% — an historic low.

There is still some trepidation among estate planning attorneys as to how to advise their clients to prepare for the 2011 estate tax.  Congress hasn’t made any moves to reinstate the estate tax for this year or to write new laws governing the tax rates for the coming years, and with the 111th session coming to a close, it’s looking less and less likely that they will.

Until new laws are passed, or until Jan. 1 when the old laws return, millions of Americans are set to enjoy the benefit of a 0% estate tax rate for 2010.

But, on Jan. 1, the estate tax rate and the gift tax rate will jump to 55%.  Traditionally, the estate tax and the gift tax rates have matched because Congress didn’t want people ducking the IRS by giving away their entire estates prior to their death.

Christmas is only 63 days away.  This year, at least, giving away some of your fortune may also end up being a gift to yourself.

James D. Perry

One of the most frequent questions I get from my clients is “Why should I spend the money to create a trust?”

The easiest answer to that question is that for the price you pay now, you save far more money down the road. But that answer doesn’t satisfy everyone. So here is one serious money-sucking situation that might make you think twice before dismissing your need for a trust.

In the event of your incapacity, the court may impose a conservatorship because the individual can no longer handle his or her own finances. Anytime you have to initiate court proceedings, you’re looking at a significant investment of time and money – more of both if the proceedings are contentious.

Also, nearly anyone can petition the court to become your conservator if they can show that you no longer have the capacity to manage your affairs. We have seen this most recently where an advocacy group for child actors, A Minor Consideration, petitioned the court to take control of the finances for the 14 children of OctoMom, Nadya Suleman. An Orange County judge has given the green light to the group to proceed with their case.

However, you might become incapacitated for any number of reasons in your life having nothing to do with the Hollywood scene, including dementia, illness, disease, or accident.

By creating a revocable living trust, you designate ahead of time a successor trustee who you want to be in charge of your affairs should you become incapacitated. Moreover, you can designate exactly what property that person can control and choose different individuals to manage multiple assets. Most people transfer the title to their house into a living trust so that the successor trustee would be able to manage the affairs of the home.

Your life is probably not as crazy as the OctoMom’s, and you may never have Lindsay Lohan or Britney Spears’ problems (both have battled conservator petitions in court), but you may one day be struck by Alzheimer’s disease, or an accident or illness resulting in a coma, any one of a number of mundane real life disasters that strike regular people.

You and your estate planning attorney have tools available to prevent confusion in your family and keep them from fighting for control should you become incapacitated.

James D. Perry

The law is full of old rituals that today we would consider ridiculous.

For example, in early Bavaria, to convey real property by sale, by gift, or by will, one had to box the ears of young boys to seal the deal. The idea was that by creating a memory of pain in the child, he would be a good witness later in life if a dispute over the transfer ever arose. Without this formality, the conveyance was ineffective, even where the intended recipient took possession of the land and even if no dispute ever arose.

Thankfully today, the law has done away with such silly rituals. There are, however, three formalities you must follow too ensure that your property transfers upon your death in the manner and to the person your intend.

1) You must create a will. Write down all the property you own and to whom it should go upon your death. Without this basic document, all your property will be sent through the probate court and distributed to your heirs through the rigid state laws of intestacy.

2) You must sign your will. In California, this requirement can be filled one of three ways: you may sign the will yourself; your name may be affixed to the will by some other person at your direction and in your presence; or your name may be affixed by a conservator acting under court order.

3) Your will must be witnessed by at least two people. During your lifetime, at least two people who do not stand to inherit must sign your will as disinterested. Furthermore, they must be present and physically watching as you sign the will and they must be competent of the fact that they are signing your will.

If any one of these requirements is not met, the probate court can determine that you died without a valid will and the land that you wanted to go to your grandchildren may instead go to your son with a nasty gambling habit. Of course, there are some exceptions to these rules, but they too throw your intentions to the scrutiny of the court, which costs your estate time and money.

If you have any questions about the validity of your will, I urge you to talk to your estate planning lawyer.

James D. Perry

I read a news story from Wisconsin about a man who was accused of killing his parents in May. The man apparently had petitioned to be a co-representative with his sister of his parents’ estate.

The court found that he was incapable of being an executor because he was jailed on $1 million bond, but the article also noted that, if convicted of their murder, he also wouldn’t inherit.

Many states have these so-called “slayer rules” prohibiting murderers from profiting off the estates of their victims. These rules seem like common sense, fitting into our sense of justice, but they also serve to combat elder abuse and spousal murder.

Under California’s probate code, anyone who intentionally and feloniously kills a person is barred from inheriting any property or property interest from his victim regardless of whether the murderer is named in the will or whether the victim dies intestate.

Essentially, the murderer is treated as if he or she died prior to his victim, cutting off the possibility of inheritance. The murderer’s allotted share is redistributed to other heirs as directed by the will or by intestate law.

Sometimes, probate and estate law can be painfully complex, but sometimes the law just makes sense.

James D. Perry

Late-in-life second marriages are becoming commonplace in American society, and with it, anxiety has been rising among stepchildren. Estate planning lawyers have had to pay greater attention to the particular concerns and needs of blended families because also becoming more common is the courtroom brawls between stepparents and stepchildren and stepsiblings.

The first concern I hear from clients is often related to the financial security of the parents. If Mom moved into Stepdad’s home, what’s to keep Stepdad’s kids from kicking her out of the house if Stepdad were to die first?

The second concern is for the adult children’s prospective inheritance from their natural parent. Many state elective share laws dictate that when a person dies, the spouse naturally inherits a certain share of the estate, which will certainly cut into how much, if any, is left to the decedent’s natural children after the spouse dies.

In California, community property laws can be both a blessing and a nightmare for the adult children of a blended family. On one hand, generally, a surviving spouse doesn’t have a claim over to any property or account kept separately and in the deceased’s name.

However, any property that was held jointly (i.e., homes, common bank accounts) is presumed to be community property and, unless that presumption is rebutted in court, it passes entirely to the surviving spouse. And, even separate property may pass in whole or in part to the surviving spouse if the deceased partner leaves no will.

Older adults bring a greater amount of personal wealth into new relationships and, experts say, they are more practical about the financial realities their late-in-life marriage presents.

A prenuptial or postnuptial agreement can keep Mom in the house owned by Stepdad until her death at which point it passes solely to his children. Keeping property separate in trust accounts can prevent it from being transmuted into community property. And a clause inserted into Dad’s will can ensure that the separate property in his name passes to his children, not his spouse upon his death.

After you die, you could either be rolling in your grave because of the nasty legal battle you left your blended family or resting in peace.

James D. Perry

Having a pet in the house has a number of benefits to our overall physical and emotional health. But I’ve heard many friends and clients question whether it would be better to remove a pet from their aging parents’ homes to prevent injuries or to eliminate the added responsibility of caring for an animal.

Carolyn Rosenblatt of AgingParents.com wrote recently for Forbes about the problems pets can present in the home of an elderly person.  If your parent has a large dog or a cat that is old and can’t see or hear a human coming to get out of the way, there is the risk that your parent could trip and fall sustaining serious injuries. And if your parent suffers from dementia, there is concern for the pet that it won’t get fed or taken outside for walks.

But whatever the risks, it is likely they can and should be mitigated to preserve the parent-pet bond.

According to research in the Journal of the American Geriatrics Society, caring for a pet serves as a buffer against isolation and loneliness. And further studies suggest that petting a dog for a few minutes a day can relieve stress, lower a person’s blood pressure, and alleviate depression. Pets also aid elders in their socialization with others, serving as a conversation starter.

If the pet is unruly, offer to pay for training, Rosenblatt suggests, or shop together for a collar or harness that provides more control. If your parent is frail, find someone to walk to dog to prevent falls or suggest that your parent’s home care worker go along on walks to monitor your parent’s safety.

Whatever the risks, it is probably more beneficial to your parent’s health to protect that owner-pet bond. Safety is a family issue, but don’t forget that Fido or Fluffy is family, too.

James D. Perry

My wife and I are off to Vermont, New Hampshire and Maine for vacation before the summer days slip away.    I’ve left instructions with my capable staff on when and how to contact me if needed, with any luck they will be able to get by just fine without me for a couple of weeks.  It would be horribly irresponsible of me to not just show up on Monday morning without telling them or my clients that I will be away.

But what if I don’t come back?   What if I choke on a lobster tail or have the big one whilst trolling for trout on Lake Winamasake?   Well, all of you that were counting on me to help you with your estate plan are just going to have find help or a referral from my staff.   And let’s be clear:  you, like me and everyone else, are going to die.

You really have to come to grips with this concept before you make out your estate plan because death is not the last thing you will ever do.   Distribution of assets is the true final act, and since you’re not going to be around to do it, you need your own capable staff to carry out your business.

That staff is your estate plan.  Your will covers the “what” and “to whom” of asset allocation, and any trusts you create handle the “when” and “how.”

Once death occurs, planning pays off for your heirs if done right.  Other than state law, your estate plan is the only roadmap a probate judge, or your trust attorney can use to settle your estate.  And state laws don’t discriminate based on your spendthrift kids, your no-good brother, or your favorite niece.

Hopefully, I will eventually return safe and sound to my office in September and be available to settle any unresolved issues that came up during my vacation.

If I don’t come back, at least I know my own estate plan is complete.  If yours isn’t, get to it before that banana peel trips you up!

James D. Perry

One of my clients is an avid stamp collector. He has decided that upon his death, his modest collection will go to his granddaughter who grew up learning about and loving his hobby during their summers together.

Individuals pass more to their heirs than just real estate and money – a significant portion of wealth that is inherited comes in the form of art, jewelry, heirlooms and collections.

The difficulty in determining the value of these items and the fluctuations in tax law between this year and next are proving to be tricky for estate planning and estate settlement.

If an inherited asset that is appreciated in value is sold, the profits likely are subject to the capital gains tax. In previous years, capital gains taxes were measured based on the value of the item at the time of the of the original owner’s death under a step up in cost basis.

But, because the step up in cost basis has been suspended this year along with the estate tax, the capital gains tax against 2010 heirs will be measured based on the original owner’s purchase price – not the item’s current value – unless the estate’s executor includes that item as part of the $1.3 million step up that all estates get.

This could be a valuation and tax nightmare for my client’s granddaughter should my client die in 2010. The capital gains tax for collectibles is 28 percent. And many rare objects will require evidence of provenance and proof that taxes were paid on previous sales.

If you have rare collectibles or heirlooms that you intend to pass on, have the items appraised (every five years is recommended) and keep any papers of provenance and purchase in an accessible file. With the return of the estate tax in 2011, you might also consider donating rare collectibles to a museum or other charity, which would allow you to deduct a portion of their value from your estate leaving more to your heirs.

My client’s collection likely holds more sentimental value for his granddaughter than economic, but her grandfather’s pride in his stamps and meticulous record-keeping will protect her from terrible tax confusion when his collection finally becomes hers.

James D. Perry

There are a number of mistakes one can make in financial gifting and distributing assets among heirs. Being aware of the most common problems and addressing them in creating your estate plan can make for a smoother transition of assets.

Timing your gift to you heirs can be very important. If you leave money to a young person, as I’ve written before, you don’t want to give too soon. Financial maturity does not necessarily coincide with age.

But, if you give too late, or neglect telling your heirs of their forthcoming inheritance, you put them at a financial disadvantage. Inheriting sooner through lifetime gifting, or having knowledge of a planned inheritance might change their financial decisions or present to them opportunities that otherwise might pass by.

When you do give, you also need to consider the amount you’re giving. Giving too much may do your heirs more harm than good. There are tax benefits as well as life lessons you may pass on by sharing the wealth among other beneficiaries or by giving to charity.

If you’re planning to leave unequal amounts to your children, proceed with caution. Unequal inheritances – even where one child is more prosperous than another – can create animosity between siblings that may last through their lifetimes and future generations.

However, in an attempt to prevent these problems, you also don’t want to put in place so many controls that you stifle your heirs and the control they have over their inheritance. A trust can be structured with controls and incentives, though, that can help eliminate many of the previously mentioned problems.

Make sure you’re getting good estate planning advice from an estate planning attorney or financial planner, and avoid these common pitfalls.

James D. Perry

With wills and trusts, people tend to “set it and forget it.” But it’s important to revisit your will and trust documents at least every five years, or whenever there is a major life event – new children, new son or daughter in law, new grandchildren, divorce, remarriage, new property, etc.

Guardianship appointments should be current if you have minor children so that you can designate who will care for them if you die.

Your beneficiary designation forms determines who will get your insurance and retirement accounts. This too, should be updated periodically. If you named a sibling or your parents as your beneficiary when you were younger on these forms, you might now want to make sure they go to your spouse or children instead. Many people aren’t aware that these forms override stated wishes in your will so you should consider these documents in tandem to prevent confusion.

Keep all these documents in a safe place – a fire-proof safe, a clearly marked file in your file cabinet, a shared folder on your home computer, or ask your lawyer to hold on to them – and make sure your loved ones know where they can find them if and when they need them.

In a medical emergency, or in moments of mourning, you will not want your family and friends to be in a frenzy when all they want is to honor your wishes and your memory.

If you haven’t started any of these documents, you should immediately create a balance sheet that lists the basic information about your assets and schedule an appointment with your estate-planning attorney as soon as possible.

James D. Perry