June 2011 Archives
The Qualified Personal Residence Trust (QPRT) is an important and valuable estate tax planning technique for efficiently transfering the value of your primary residence or vacation home to your children on a tax advantaged basis.
The QPRT is an Irrevocable Trust which takes advantage of certain provisions in the tax code to allow you to leverage your gift of your home using a discounted value. Because it take advantage of provisions in the Treasury Regulations, it is a safe and secure way to accomplish your goal without any legal or tax risks.
To create a QPRT, the homeowner transfers his or her residence to a trust for a set period of time (4, 7, 11 or 15 years). You pick any number of years for the term. You continue to reside or use the home as you see fit during this time.
At the end of the term, the property is transfered to the beneficiaries you have named in the trust (usually your children).
It's All My Kids Fault :) A recent article in the San Jose Mercury News suggested that young children may make parents less fit. As many of you know, my wife and I adopted two young girls from Russia a few years ago. They are 5 & 4 now. And I am out of shape. :)
However, I am starting to remedy that situation by eating healthier and getting some exercise. This made me think about planning for parents of young children. If someone is the parent of a young child, what should they look for to make sure their affairs are in order.
Here are 8 suggestions to make sure your planning is good to go if you don't.
1. Is your Trust (or will) up to date? if you haven't reviewed your estate plan recently, you should do so. The law has been changing a lot recently. in 2010, we had another major change. The last thing you want is the Probate Court to decide your children's future.
2. Have you selected an appropriate guardian? I have bloged before about suggestions for choosing a guardian here. Make sure that the people you have named as guardians are still willing and able to serve. Do you have temporary guardians in case your permanent guardian needs to travel to San Jose to get your kids? Have you planned for contingencies? Will the guardian need your financial resources to support their family along with your children?
3. Do you have adequate Life Insurance? I can't tell you the number of clients we see in our office who come in with very little life insurance. All of the documents in the world only direct what happens to the money and assets you own. If you don't have much, there is not much there for your suriving spouse or children. The documents do not create wealth. Life Insurance creates weath. Give our office a call if you need a referal to a quality Life Insurance Agent who can work with you to make sure you are adequately insured.
4. What if you become incapacitated? Who will manage your finances if you can't manage them yourself. Are they trustworthy?
5. Do you have an Advance Health Care Directive? This is the one document that protect you. Are you sure that the person you have asked to be your agent to make medical decisions for you will follow your instructions? Will they ask questions of the doctor? Get a second opinion? Consult with other family members?
6. Do you have a HIPAA Release? Without one, the doctor will not tell anyone about your private medical condition. This can make it difficult for your successor trustee and your health care agents to actually take over if necessary. If the doctor can't talk to them about your condition, he or she will also not be able to sign the necessary paperwork to allow them to effectively take care of you. Since there were no HIPAA releases just a few years ago, make sure you have an updated one in place.
7. Is your Trust funded? Have you titled all of your property into the trust. Unfortunately, there are many attorneys who never talk to clients about trust funding, so they don't know that it needs to be done. Make sure all of your bank accounts, brokerage accounts, real estate and other properties are actually titled in the name of the trust. If they are not, your Trustee will be heading to court after you die to either Probate the assets or get another court order to establish proper title to the property. Either way, this is easily avoided if you actually title the assets in the Trust.
8. Do you have an Estate Tax Reduction Strategy? Most people no longer have an estate tax problem. The Estate Tax Exemption is now five million dollars ($5,000,000) per person. If, however, you are one of the lucky ones with assets greater than five million, make sure you see a qualified estate tax attorney like Sheffield Law Office to better help you reduce the tax burden on your children.
My best friend from law school (Santa Clara University School of Law) was Hilary Newcomb. She is now a Trust & Estates Litigation attorney in Portland, OR. We work with her occasionally on our client's litigation matters in San Jose. Because her billing rate is lower, it saves our clients money.
Yesterday, she won her first jury trial.
This is a quick shout out to her. Congratulations Hilary.
Choosing a qualified Guardian for your children is one of the most difficult things my clients ever have to do. For many, they can't do the rest of their estate planning until they resolve this issue. And then the planning doesn't get done.
Here are a few suggestions and tips to naming a Guardian for your children:
1. Family is NOT required. You do not have to name family members. You can pick anyone you wish.
2. No matter who the guardian is, make sure that both of your families have access to the children. This should include age appropriate taveling to meet with relatives who may not be local. It is important that the guardian understand, from the nomination document, that you expect this. It is not uncommon for the guardian to not like the other sides family. He or she may think they are a bunch of uncouth hillbillys and a bad influence on the children. But these are your children. You should decide who should have influence.
By the way, we generally suggest that the guardian create a web site for the child and keep it updated with school photos, information regarding activities and such.
3. Have Backups. Life happens. Sometimes the person that we are counting on to be the guardian has some drama in their life at the time they are needed. Perhaps they were in the car with you when you had the accident? Make sure that you have enough people on your list, so someone you trust will be appointed the guardian.
4. You Don't Have To Ask Everyone You Put On The List. I would recommend that you ask the first or second choice whether they are interested and get a commitment from them, if possible. However, we often will have clients give us a list of 15 names. I don't expect the client to ask all 15. But if, God forbid, anything happens to your primary choices, it is better to have someone on the list who is willing, then to have your children go into the Foster Care System because nobody steped forward. Sometimes, people will only step forward if they are asked. Otherwise, they may not even know there is a need.
5. Only Nominate Individuals. I do not recommend nominating couples. What if the relationship falls apart. Do you want your children part of their custody battle?
6. Make Good Use of Contingincies. Instead of nominating a husband and wife, if you want a couple to raise your children, use a contingency. For example, "Mary, if she is married to Bob." You can use a contingency for location, such as: "Alice, as long as she lives in Los Gatos." Or perhaps you want to broaden that to Northern California. If Alice moves to Arizona, she is no longer an acceptable guardian.