Death and Taxes

Two things you can’t avoid, or so they say.  We’ll all deal with death someday, and most of us will deal with some kind of tax – if only sales tax. But what’s worse than having them both come together?  First, you lose someone you love; then you have to write a big check to the government because your parent, spouse or other relative actually cared enough to leave you something to help you get by, or to make your life a little easier.

Fortunately, most of us haven’t had to worry about estate or inheritance taxes – for years now, they have only affected those who are pretty well-off.  In 2009, only those with taxable estates over $3.5 million had to pay a tax, and for several years before that, the limit was $2 million. In Hawaii, there has been no estate tax at all since 2005, and even then it didn’t “hurt,” because there was a Federal credit that offset the entire tax paid.  But all that is going to change in 2011. (In fact, some of it has changed already.)

If Congress doesn’t act before the end of the year, beginning on January 1, 2011, a Federal estate tax will be owed by anyone leaving a taxable estate of just (more…)

Published in: on August 29, 2010 at 12:32 am  Leave a Comment  

Planning with Retirement Accounts

In recent years, classic pensions (with benefits based on years of service and salary levels only) have become less popular, often being replaced by tax-deferred “defined contribution” plans, such as 401(k) plans, deferred-compensation plans and Individual Retirement Accounts (IRAs).  With regular contributions and smart investment, these accounts can help to ensure a comfortable retirement.  And, unlike a traditional pension, the benefits do not end with the worker’s death; anything left in the account can be passed on, fairly easily, to one or more beneficiaries.

Naming Beneficiaries

Beneficiaries are typically named on a form that you fill out when you first get the account, and you can usually change them later on by filling out a similar form. If you are married, your spouse may have to sign also if you want to name someone else as beneficiary. You may be able to name more than one beneficiary, and indicate the portion of the account that will go to each (so you could split an account between several children, equally or unequally, or give a portion to charity).

If you have completed the forms necessary to name a beneficiary for the account, it’s easy for the beneficiary to claim the account after you die, simply by providing the plan administrator with proof of your death and proof of his or her identity. (For this reason, you should keep copies of your beneficiary designations, and the name and phone number of the plan administrator, in a place where your beneficiaries will be able to locate it quickly after you are gone. If you don’t have this information, you may be able to get it from your employer’s human resources department.)  If you have not named a beneficiary at all (or if the named individuals have died before you), the account will pass to your heirs, but it will take longer and could require a costly probate proceeding.

Even after you have named beneficiaries, it is important to review that information periodically. If your family situation changes (someone dies, marries, divorces, etc.), it is very important to check the beneficiaries of all your accounts (not only retirement accounts, but also “pay on death” bank and investment accounts, and life insurance), and make any necessary changes.  For example, if you divorce but don’t remove your former wife or husband as a beneficiary, he or she may still get the account when you die.

Maximizing the Financial Benefit of Tax Deferral

One of the biggest financial benefits of these retirement accounts is that no tax is paid on the money before it is put in, or on the interest it earns, until a withdrawal is made.  Consider an IRA with a balance of $100,000, earning 5% per year; if no withdrawals are made, after 30 years the balance will have grown to over $430,000.  (By way of comparison, (more…)

Published in: on August 23, 2010 at 10:07 pm  Leave a Comment  

Worm food… or ‘crispy critter’?

OK, I admit, these terms are our mom’s perennial attempt at humor whenever we bring up the subject of what we want to happen to our mortal remains once we have shaken them off. In other words, burial or cremation?  And more interesting, from the lawyerly perspective, WHO gets to decide, and what if there’s a dispute?

I recently set out to find Hawaii’s answer to that question, since it differs from state to state. In NY, for example, as in many states, there is a specific statute that determines who has the right to determine the disposition of a dead body. I had a chance to become very familiar with that statute when working on a case (Maurer v Thibeault) where the decedent’s husband – who was under suspicion of having murdered her – wanted her body cremated and scattered on “their” farm, while her mother insisted that she would have wanted to be buried in the family plot, with her father, and as far away from the ‘estranged’ husband as possible.  The court found that this situation provided an exception to the general rule (in NY) that one’s spouse gets the final say, and allowed the mother to carry out her plans. (The husband was later convicted of having murdered his wife, and sentenced to 25 years to life; an appeal was taken and the conviction was affirmed.)

Back to Hawaii – where, my research revealed, there is no statute governing this issue. Nor does there seem to be much (if any) Hawaii case law on the subject. So where does that leave us?

Well, it leaves us with the general common law, which Hawaii courts tend to follow in the absence of other precedent. In this case, before states began to enact statutes governing the issue, there does seem to have been a general consensus that (more…)

Published in: on July 19, 2010 at 2:22 am  Leave a Comment  

Add up your stuff

It’s the end of another beautiful weekend day here on Kauai, and I’m looking for a reason to kick back with a glass of wine and watch the sun go down behind the palm trees. So just for fun, let’s add up our stuff and see what we’ve got. Then we can pop a cork to celebrate, if it looks good, or go drown our sorrows if it looks bad.

(Of course, it is undoubtedly true that “real wealth” and “riches” encompass much more than just physical or financial ‘stuff’, and most of us here in Hawaii have a surfeit of things that many people would consider “true riches” – beautiful surroundings and weather, delicious food, flowers, music and culture, our kupuna and keiki (and all of our ohana), a laid-back lifestyle, and so much more. But this post is about the boring ‘stuff’ we all have: money, property, and debts. We can get back to that other stuff later, particularly if we’re needing something to help us forget the financial realities.)

So add up your stuff.

First, there’s any real property (houses and land) that you own. Your house (if you own it, not if you rent), any ‘vacation’ homes, and any investment (more…)

Published in: on June 20, 2010 at 3:55 am  Leave a Comment  

Do I need a will?

People often ask me things like this. “Do I need a will?” “Should I set up a trust?” “Do I need to do anything so my husband/wife/kids will get my stuff after I’m gone?”

Beats me.   I dunno.   Maybe, maybe not.

The fact is, these questions simply can’t be answered without knowing a lot of details about the questioner’s circumstances, desires, and plans. And when all is said and done, the only person who can really answer them is YOU.

But to do that, you have to really understand your current estate plan, and all of the other options that are available. And an experienced estate planner can help you get that information.

“My estate plan? But I don’t have an estate plan!”

Everyone has an estate plan. If you haven’t made a will or set up a trust, State law will determine who gets your things, how a guardian is selected for your children, and how much is paid in taxes. If you don’t have a power of attorney, advance health care directive, or living trust, State law will determine (more…)

Published in: on June 20, 2010 at 2:46 am  Leave a Comment  
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