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Friday, September 12, 2014

What is Portability? And What Does It Mean to You?

When Congress passed the American Taxpayer Relief Act (ATMA 2013), there were two permanent changes made in the estate tax law that have significantly impacted the way that many families plan their estates.

 The first permanent change was the increase to $5 million of the Federal Tax exemption (with annual increases for inflation). The 2014 exemption amount is $5.34 million for the estates of people who die this year. Since less than one percent of all estates are valued at more than $5 million, most families do not have and do not expect to ever accumulate a taxable estate.

 The second permanent change to the estate tax law was a provision that allows the unused portion of a deceased spouse’s exemption amount (called DSUEA) to be transferred or “ported” to the surviving spouse, effectively doubling the amount of exemption available to the surviving spouse, in most cases. In order for the surviving spouse to claim the DSUEA, the surviving spouse must file a federal estate tax return Form 706 for the deceases spouse and elect to receive the unused exemption amount.

 The following three examples demonstrate how portability works. Along with the examples are four potential pitfalls that may arise when trying to take advantage of the portability of a DSUEA.

 Example One: John and Jane Jenson have an estate worth $8 million. John does in 2014 and leaves $1 million to his children from a prior marriage and the remainder of his estate to Jane. The bequest to John’s children will not be subject to estate taxes because John has a $5.34 million exemption to cover the bequest. Jane can also file a federal estate tax return Form 706 and elect to receive the unused portion of John’s exemption, which would be $4.34 million. When Jane passes away, she will have her own exemption (currently worth $5.34 million), plus John’s unused exemption, giving her a total available exemption of $9.78 million.

 Pitfall (1): DSUEA must be elected by filing a federal estate tax return. The surviving spouse MUST file a complete federal estate tax return for the estate of the deceased spouse and make the DSUEA election, even if a federal estate tax return is not otherwise required. The means that a surviving spouse and the spouse’s advisors must be pro-active in the months following the death of the first spouse to determine whether to make the election and then to prepare a return.

 Example Two: Tyler and Tina Thompson have an estate valued at $2 million. Upon Tyler’s death, Tin does not file a federal estate tax return to elect Tyler’s DSUEA because the estate is well below the $5.34 million exemption amount. Five years later, Tina receives an unexpected inheritance of $8 million from her rich uncle. Tina now has a $10 million estate and just one exemption amount valued at $5.34 million, indexed to inflation. If she had elected Tyler’s DSUEA, she could have sheltered the entire amount from estate taxes on her death.

 Pitfall (2): The estate of the surviving spouse may grow faster than expected. The surviving spouse may not think that it is necessary to utilize the DSUEA upon the death of the first spouse, only to learn many years later that the estate has grown into a taxable estate faster than anticipated.

 Example Three: Hubby One and Wife One have an estate valued at $10.5 million. Hubby One dies in 2014 and leaves everything to Wife One. Wife One files an estate tax return and elects Hubby One’s DSUEA, giving her a total exemption of $10.78 million. Wife One marries Hubby Two. Hubby Two has an estate valued at $5.34 million, and he leaves that entire amount to his children when he dies. Wife One can only elect to receive the DSUEA of the last deceased spouse and Hubby Two had no DSUEA to give her because he used it all in the bequests to his children. Wife One effectively loses the DSUEA of Hubby One, and she now has $5.34 million of assets subject to a 40% taxation rate that were previously protected by the Hubby One DSUEA.

 There is a taxpayer-friendly rule that may allow Wife One a way out of her dilemma. IRS regulations provide that Wife One can use Hubby One’s DSUEA to make gifts prior to the death of Hubby Two, thereby possibly avoiding the forfeiture of Hubby One’s DSUEA if Hubby Two dies.

 Pitfall (3): Only the last deceased spouse’s DSUEA amount is portable. This means that a surviving spouse who remarries may lose the DSUEA of the first spouse, if the surviving spouse survives a second spouse.

 Pitfall (4): DSUEA does not apply to the GST exemptions of a deceased spouse. The ATRA 2013 increased the Generations-Skipping Transfer (GST) Tax exemption to $5.34 million and indexed it to inflation. That means that the state tax exemption and the GST tax exemption are the same. But the GST tax exemption is not portable and may not be elected by the surviving spouse. If the first spouse to die does not take advantage of the GST tax exemption (by leaving assets in a GST tax exempt trust, for instance) the GST tax exemption is wasted or lost.

 So what does portability mean to you? Most of our married clients who have estates of $2 million or more provide that upon the death of the first spouse, the share belonging to the deceased spouse will be directed to a Family Trust to ensure that it is not subject to estate taxes at the second death. The Family Trust also provided bloodline protection for the children, asset protection for the surviving spouse, and divorce protection if the surviving spouse remarries. But some clients who do not expect their estates to ever exceed $10 million are now opting to leave everything to the surviving spouse, rather than creating the Family Trust, and allowing the surviving spouse to elect portability to protect the estate from federal taxes. If you think it is time to review your estate plan because of changes in the tax law or other changes in your life, give us a call.

Wednesday, June 4, 2014

Extending a Uniform Transfer to Minor Act Account

Uniform Transfer to Minor Act accounts (UTMAs) have become a popular way for parents, grandparents, guardians, or friends to hold money for minor children.

In Alaska, UTMAs are particularly popular for families who want to accumulate and invest Alaska Permanent Fund Dividend (PFD) checks for children to be used for their education.  These accounts are statutory trusts created and governed by state law.  At the time the account is opened, a custodian selects an age - no older than 25 - when the custodianship will end and the account is transferred to the child.  But what happens if a child is still not mature enough to manage the account when he or she reaches the age originally selected for the termination of the UTMA?  

Many parents have discovered that their child is not prepared to manage the account as they reach 18, 21, or even 25 years of age.  These parents and grandparents become frantic as the date approaches to transfer potentially thousands of dollars to children who are unprepared to handle the money.  Fortunately, in 2013 the Alaska Legislature modified the Alaska laws related to UTMAs and established a process that provides the custodian of an Alaska UTMA with the option to extend the time for disbursement past the original termination age, and even past the original statutory maximum of age 25.

Here is how the process works:  A custodian may extend the custodial term by giving the minor written notice of the custodian's intent to extend the term.  The notice must specify the duration of the extension and inform the minor of the minor's right to compel immediate distribution of the account. The notice must be given either during the six-month period immediately prior to the last day of the custodial term, or during the six-month period that begins on the minor's 18th birthday.  If the minor does not give the custodian notice within 90 days that he or she intends to compel immediate distribution of the account, then the term is extended to the date specified by the custodian.  

This procedure sounds workable until it is applied to a real-life situation.  Let's examine how this process could potentially work out:

Example Scenario:

In 1997, Mary Livingston established a UTMA for her daughter, Amanda, with the custodial term scheduled to end on Amanda's 25th birthday.  Amanda will turn 18 on July 15, 2014.  Mary has been depositing Amanda's PFD checks in the UTMA account.  In addition, Amanda's grandparents have made periodic gifts to Amanda to assist with her future educational needs, and these gifts have also been deposited into the UTMA account. The UTMA account is now $80,000.  Amanda has not done well in school and has become rebellious and difficult to deal with; she is using drugs and spending time with peers who are not a good influence on her.  Mary is concerned that Amanda is unlikely to go to college and may never get her life in order. The investments in the account might continue to grow to $100,000 or more in the next seven years, and Mary is worried about what Amanda will do with the money.  Mary wants to extend the term of the UTMA until age 35.

Under the statute, Mary can give Amanda written notice that the UTMA will be extended to age 35.  But Amanda also has to be given notice that she has the right to compel immediate distribution of the account.  So when should Mary give Amanda notice?  

Mary could give Amanda notice the day after she turns 18 and hope that Amanda isn't savvy enough to write back that she wants to terminate the account and take the money immediately.  The other option is to wait six years to see if Amanda's behavior improves, and to give notice in the six-month period before Amanda reaches age 25.  This is a troubling choice, because Amanda is bound to be a little wiser as she gets older, increasing the likelihood that Amanda will compel the distribution.

Our personal experience is that parents are able to exercise substantial control over children who are 17 or 18. At that age, it is very likely that the term can be extended with a properly drafted notice that is also delivered with an appropriate explanation to the child.  On the other hand, if a custodian waits until near the end of the term of the trust, when a child is nearing age 25 and more independent, it may not be easy to convince the child to agree to extend the term.  Still, many children remain dependent on parents well into their mid-to-late 20s, which can give a parent substantial control of the situation.  If a child is reasonable and practical, they will probably go along with the extension of the UTMA account term.

In either case, we recommend that clients consult with an attorney so that the notice can be properly drafted and so that the brokerage firm or bank is given proper notification that the statutory process has been completed, allowing the UTMA to be extended to a later date.


Wednesday, December 11, 2013

The Family Meeting - An Essential Part of Your Estate Plan

Perhaps the biggest risk to a well-organized estate plan is the ignorance that arises from poor communication and the lack of basic understanding of how estates are administered.

Most people never disclose the estate planning decisions they have made during their lifetime to loved ones, successor trustees, executors, and agents.  Those left behind can only imagine what the deceased family member really wanted. In addition, surviving family members are often unaware of whether estate planning documents have even been prepared, much less where they are located.  There are countless stories of families unable to find the will that mom or dad mentioned to some, but not all, of the children.  This leaves everyone in the dark; the unfortunate result is often misunderstanding and conflict. 

A good estate plan, whether organized around a will or a trust, requires a certain amount of knowledge about the process of administering the estate and how the various legal documents work.  Most family members lack even a basic understanding of the estate administration process and rely on what they have learned from Hollywood movies and false assumptions.  It is surprising how many families try to decipher the final wishes of parents based on long past conversations, cryptic notes, family traditions, and personal perceptions of fairness.  This is a recipe for disaster.

The attorneys at Foley, Foley & Pearson have long advocated holding family meetings to ensure that children, trustees, key advisors, agents, and managers understand our clients' wishes and know where the important estate planning documents are located. That is why we suggest our Generations clients hold family meetings with an attorney who can answer questions about the legal documents and explain the responsibilities of successor trustees, personal representatives, health care decision makers, and agents.  We also host free workshop and seminars, to better explain how wills and trusts work and how they are administered.  Here are some of the basic issues a family meeting with an attorney can address:

  • Identify each of the legal documents (Trust, Will, Power of Attorney, Health Care Directive, Community Property Agreement) and explain the purpose of each document.  Discuss where their legal documents will be located and how the family can locate the documents quickly at the time of death or disability.
  • Educate the successor trustees, personal representatives, and agents about their responsibilities when administering an estate and explain the steps to be taken to complete the administration.
  • Assure family members they have the right to know what is going on at each stage of the administration and explain to family members who will serve as agents, their responsibility to keep everyone informed of the administration process.
  • Explain the purpose and function of the professional advisors who will be needed to help the fiduciaries perform their duties and discuss the fees and costs associated with using professional advisors to assist in the estate administration.
  • If desired, the attorney can help the senior generation explain the decisions they have made. For instance, why did they select agents in the order named? Why was one family member named as an agent while another wasn't? Why were the agents named in a certain order or required to work as a team?
  • Identify all assets and the estate value and describe how the assets will be distributed and protected for future generations.
  • Identify difficult assets that might need to be handled in a special way, like the home, family business, or "one-of-a-kind" family heirlooms.
  • Explain why an inheritance was left in one or more trusts rather than outright and demonstrate why that decision was a wise one and not simply arbitrary.
  • Build and strengthen family ties and relationships through communication, education, and explanation. Build relationships between key advisors and the next generation.
  • Communicate important family values from the older generations to the younger generations.
  • Answer questions from children and fiduciaries so that everyone feels comfortable about the plan and how the decisions were made.

We like to talk to our clients prior to the family meeting to ensure that we cover all of the issues they desire and that details they prefer not to share with everyone are not discussed. Sometimes our clients worry about raising these issues for fear it will create conflicts and hurt feelings. In fact, this is exactly what may happen if the senior generation leaves behind a plan the children know nothing about. Communication can help children understand that their parents' decisions were purposeful and carefully considered, based on good counsel.  If there is no communication during lifetime, children may try to undermine some aspects of the plan, feeling that the parents made the wrong decisions because they didn't fully understand their implications.  A family meeting may prevent this unfortunate result.

 **If you are a Generations client and you want to hold a family meeting, contact our office to schedule a time for your family meeting. If everyone isn't available locally, some of your family members and fiduciaries may participate in a conference call.

Wednesday, November 13, 2013

Contributing in a Way That's Good for Others and Good for You

If you are at least 70½ years old and want to support a favorite charity, using your IRA as a source of liquidity can be attractive.  With the American Taxpayer Relief Act of 2012, the tax law provision that makes donations directly from an IRA possible was extended to apply in 2013.  Here's how it works.

Instead of requesting your entire required minimum distribution from your IRA, you ask that some or all of the distribution be sent directly to the qualified charity of your choice.  No more than $100,000 can be distributed to charity this way in 2013.  You can divide the distribution among several charities.  To do this, you will need to get the correct legal name and mailing address of each charity, as well as its Federal EIN, as the custodian of your IRA will likely want this information. 

Remember that you do NOT want to have a check made payable to you.  Instead, the check should be payable to the charitable organization and mailed directly to the charity from the institution where your IRA is housed.  If you want to have your contribution used for a specific purpose, be sure to contact the charity in advance to let them know that the "check is in the mail," and how you want to see it used.  When the charity issues a receipt, ask them to indicate that the money was received from your IRA, if possible.

When you make a contribution this way, that amount will not be counted as gross income for income tax purposes.  If you are still employed and receiving enough income that every dollar earned reduces your Social Security benefits, this can be a financial bonus.  Remember that any amounts distributed directly to you from your IRA will be included in your gross income for tax purposes.  If, instead of making the distribution directly to charity, you receive your required minimum distribution and then contribute the same amount to charity, the charity will receive the same amount and you will end up with the same amount from your IRA in your pocket.  However, your entire required minimum distribution will be included in gross income for income tax purposes.  If you are charitably inclined and that distribution from your IRA bumps your income up so Social Security benefits are reduced, you'll be kicking yourself.

In 2013, making your contribution directly from your IRA means that amount is not included in your gross income.  You may or may not have this opportunity in future years.  Therefore, this year at least, charitable contributions from IRAs are good for others and good for you.

Friday, May 31, 2013

Older Americans Are Worried About Health Care Issues

As Americans continue to live and work longer, health care issues have become the biggest worry for retirees.  That is one of the major conclusions in a study commissioned by Bank of America Merrill Lynch in partnership with Age Wave, a leading consulting firm on the aging work force.  The survey gathered responses from more than 6,000 individuals, age 45 and older, from all walks of life (including pre-retirees as well as retirees) who weighed in with their hopes and fears regarding retirement.

When asked about their greatest concern in regard to living longer, 72% said they were worried about serious health problems.  60% said they were worried about not being a burden to their family and 47% said they were worried about running out of money.  Only 13% of the respondents said they were worried about not having enough money to leave an inheritance to children and grandchildren.

The survey also asked about the top financial worries.  Again, the greatest response related to health care where 52% of respondents, with at least $250,000 in investable assets, indicated they were worried about the cost of health care.  Interestingly, only 6% of people with at least $250,000 in investable assets said they were worried about a lack of social security.  

A complete copy of the study may be found at:

According to the study, unanticipated medical expenses can derail years of retirement preparation and 60% of bankruptcies in the U. S. today are related to medical bills.  Health issues are also the number one reason why people retire early.

Monday, May 13, 2013

How Does the New Estate and Gift Tax Law Affect Your Planning?

Many of our clients have wondered how the new estate tax law affects their current estate plan.   The short answer is that the change in the tax law doesn't hurt anyone with a smaller estate and is certainly helpful for people with larger estates.

We often refer to the estate tax exemption as your "coupon."  Every American is allowed to pass the "coupon amount" to their heirs without paying any federal estate or gift taxes. The coupon has now been set at $5 million, indexed for inflation.  The law has no expiration date.  So how does this change affect existing plans?

Many of the living trust-based plans that we have implemented for our married clients in the past 10 years include planning that maximizes the amount of wealth that can pass to others upon the second death.  These plans provide that upon the death of the first spouse, the decedent's portion of the estate (up to the coupon amount in effect in the year of death) passes to an irrevocable trust we call the Family Trust. With a $5.25 million coupon this year, the first spouse could transfer up to $5.25 million to the Family Trust. But if a couple doesn't have $5 million, the Family Trust will simply be funded with less money. 

The Family Trust planning we have done takes into consideration that the coupon amount was increasing, but might also decrease. Therefore, if you have a Family Trust in your plan, flexible language provides for maximum funding of the Family Trust based upon the current coupon amount.

Some clients might ask whether they need a Family Trust any more as part of their estate plan after the death of the first spouse, if together they have less than a $5 million estate.  The answer to this question is, "It depends."  The Family Trust provides tax planning, but it also provides asset protection for the surviving spouse and protection that the wealth will not be given to the wrong people by the surviving spouse later on.  We call this bloodline protection.  We anticipate that most of our clients will probably keep the Family Trust as part of their estate plan, even if they no longer have a taxable estate.

Periodic plan review is included in our Generations Trust Maintenance Program.  If your circumstances have changed, or if you are not sure what your plan says and want to know exactly how the new law affects you, feel free to schedule an estate plan review with our office.

Wednesday, April 17, 2013

Congress Makes Estate Tax Exemption Permanent at $5 Million

For the first time since 2001, Congress has provided some degree of certainty about the federal estate and gift tax.  The new estate and gift tax law was part of the more sweeping American Taxpayer Relief Act of 2012 (ATRA 2012) that was negotiated to avoid the "fiscal cliff" created by the expiring 2001 law and automatic spending cuts.  The new law was signed by President Obama on January 2, 2013.

When the 2001 law was originally passed, the estate tax exemption was immediately raised to $1 million and periodically increased over the last decade to $3.5 million in 2009.  But the law was scheduled to expire in 2011.  The exemption was raised to $5 million in 2010, and the law was extended by two years until December 31, 2012.  The expiration provision threatened to roll back the exemption to $1 million this year, if Congress was unable to pass a new law.

Under ATRA 2012, the estate and gift tax exemption was made permanent at $5 million, subject to inflation indexing.  With indexing, Americans can actually pass up to $5.25 million in 2013 to their heirs without incurring any gift or estate taxes.  The tax rate for gift or estate transfers above $5.25 million was raised from 35% to 40%. This means that an individual who is passing $6.25 million to children this year would incur a tax of $400,000.

Married couples can each pass $5.25 million of wealth, so that, with proper planning, a family can actually transfer $10.5 million to their heirs.

Call us or attend one of our regular estate planning workshops if you have questions about how the new law affects your personal estate planning.

Wednesday, February 20, 2013

Umbrella Insurance: What It Is and Why You Need It

Lawsuits are everywhere. What happens when you are found to be at fault in an accident, and a significant judgment is entered against you? A child dives head-first into the shallow end of your swimming pool, becomes paralyzed, and needs in-home medical care for the rest of his or her lifetime. Or, you accidentally rear-end a high-income executive, whose injuries prevent him or her from returning to work. Either of these situations could easily result in judgments or settlements that far exceed the limits of your primary home or auto insurance policies. Without additional coverage, your life savings could be wiped out with the stroke of a judge’s pen.

Typical liability insurance coverage is included as part of your home or auto policy to cover an injured person’s medical expenses, rehabilitation or lost wages due to negligence on your part. The liability coverage contained in your policy also cover expenses associated with your legal defense, should you find yourself on the receiving end of a lawsuit. Once all of these expenses are added together, the total may exceed the liability limits on the home or auto insurance policy. Once insurance coverage is exhausted, your personal assets could be seized to satisfy the judgment.

However, there is an affordable option that provides you with added liability protection. Umbrella insurance is a type of liability insurance policy that provides coverage above and beyond the standard limits of your primary home, auto or other liability insurance policies. The term “umbrella” refers to the manner in which these insurance policies shield your assets more broadly than the primary insurance coverage, by covering liability claims from all policies “underneath” it, such as your primary home or auto coverage.

With an umbrella insurance policy, you can add an addition $1 million to $5 million – or more – in liability coverage to defend you in negligence actions. The umbrella coverage kicks in when the liability limits on your primary policies has been exhausted. This additional liability insurance is often relatively inexpensive in comparison to the cost of the primary insurance policies and potential for loss if the unthinkable happens.

Generally, umbrella insurance is pure liability coverage over and above your regular policies. It is typically sold in million-dollar increments. These types of policies are also broader than traditional auto or home policies, affording coverage for claims typically excluded by primary insurance policies, such as claims for defamation, false arrest or invasion of privacy.

Wednesday, February 6, 2013

The ‘Sandwich Generation’ – Taking Care of Your Kids While Taking Care of Your Parents

“The sandwich generation” is the term given to adults who are raising children and simultaneously caring for elderly or infirm parents.  Your children are one piece of “bread,” your parents are the other piece of “bread,” and you are “sandwiched” into the middle.

Caring for parents at the same time as you care for your children, your spouse and your job is exhausting and will stretch every resource you have.  And what about caring for yourself? Not surprisingly, most sandwich generation caregivers let self-care fall to the bottom of the priorities list which may impair your ability to care for others.

Following are several tips for sandwich generation caregivers.

  • Hold an all-family meeting regarding your parents. Involve your parents, your parents’ siblings, and your own siblings in a detailed conversation about the present and future.  If you can, make joint decisions about issues like who can physically care for your parents, who can contribute financially and how much, and who should have legal authority over your parents’ finances and health care decisions if they become unable to make decisions for themselves.  Your parents need to share all their financial and health care information with you in order for the family to make informed decisions.  Once you have that information, you can make a long-term financial plan.
  • Hold another all-family meeting with your children and your parents.  If you are physically or financially taking care of your parents, talk about this honestly with your children.  Involve your parents in the conversation as well.  Talk – in an age-appropriate way – about the changes that your children will experience, both positive and challenging.
  • Prioritize privacy.  With multiple family members living under one roof, privacy – for children, parents, and grandparents – is a must.  If it is not be feasible for every family member to have his or her own room, then find other ways to give everyone some guaranteed privacy.  “The living room is just for Grandma and Grandpa after dinner.”  “Our teenage daughter gets the downstairs bathroom for as long as she needs in the mornings.”
  • Make family plans.  There are joys associated with having three generations under one roof.  Make the effort to get everyone together for outings and meals.  Perhaps each generation can choose an outing once a month.
  • Make a financial plan, and don’t forget yourself.  Are your children headed to college?  Are you hoping to move your parents into an assisted living facility?  How does your retirement fund look?  If you are caring for your parents, your financial plan will almost certainly have to be revised.  Don’t leave yourself and your spouse out of the equation.  Make sure to set aside some funds for your own retirement while saving for college and elder health care.
  • Revise your estate plan documents as necessary.  If you had named your parents guardians of your children in case of your death, you may need to find other guardians.  You may need to set up trusts for your parents as well as for your children.  If your parent was your power of attorney, you may have to designate a different person to act on your behalf.
  • Seek out and accept help.  Help for the elderly is well organized in the United States.  Here are a few governmental and nonprofit resources:
    • – Hosted by the National Council on Aging, this website is a one-stop shop for determining which federal, state and local benefits your parents may qualify for
    • – Sponsored by the U.S. Administration on Aging
    •  -- National Association of Professional Geriatric Care Managers
    • – National Adult Day Services Association

Wednesday, January 23, 2013

Preserving and Protecting Documents Is Part of Healthy Estate Planning

In the unsettled time after a loved one’s death, imagine the added stress on the family if the loved one died without a will or any instructions on distributing his or her assets.  Now, imagine the even greater stress to grieving survivors if they know a will exists but they cannot find it!  It is not enough to prepare a will and other estate planning documents like trusts, health care directives and powers of attorney.  To ensure that your family clearly understands your wishes after death, you must also take good care to preserve and protect all of your estate planning documents.

Did you know that the original, signed version of your will is, in many jurisdictions, presumed to be the only valid version?  If your original signed will cannot be found, the probate court may assume that you intended to revoke your will.  If the probate court makes that decision, then your assets will be distributed as if you never had a will in the first place defeating your estate plan.

You should keep your original will, power of attorney, and related documents in a safe place so that they may be located by your personal representative and agents if something happens to you.

Many clients plan on keeping their estate planning documents at home in a safe or at a safety deposit box at their local bank.  Storing your documents in a safe or safety deposit box, however, may prove difficult, and even impossible, for your heirs and personal representative to locate in the event of an emergency or your death.  And if you leave clear detailed instructions to several people on how to find or access your documents in the safe, you may be creating a risk of privacy invasion.   Also, if you keep your will in a safety deposit box, only the signers on the deposit box are authorized to access the documents you have locked away.  In other words, your personal representative or family will not have access to your estate plan and other important documents unless you have listed them as a signer and key holder on the box.

You can also have your lawyer deposit your will with the court for safekeeping.  A quick search of the court docket online can reveal if you have a will on record. 

You may also be able to store your will and other documents online.  Many large financial institutions have begun offering long-term digital storage of important documents.  However, any electronic version of your original will is – by definition – a copy, not the original.  So, you still must find a safe place to store the original, signed and witnessed will.  Online storage “safes” may be an excellent back-up, but you must still find a secure place to store the paper originals.  Copies of your health care related documents may also be deposited on a site like for safekeeping and access in case of an emergency.

Wednesday, January 9, 2013

Ten Things That Can Complicate an Estate Plan

We strive to keep things simple for our clients.  Some complications can be avoided and some cannot.  Just knowning that these conditions exist can help your estate planning go more smoothly.  Ten things that tend to make estate planning more complicated are:

1.  Greater Wealth.  Larger estates tend to be more complicated because of estate and gift tax issues and the desire of clients to establish a plan that avoids or reduces taxes.

2.  Greater Number and Types of Assets.  Every asset adds complexity to planning and estate administration.  A client who has one bank account that holds $5 million has a simpler situation than a client who has $5 million spread throughout multiple accounts, real estate, business interests, airplanes, stocks, bonds, IRAs, and gold coins. 

3.  Real Estate in Multiple States or Countries.  Planning for a second home in another state or country, or a piece of the family farm in Iowa, increases estate plan complexity.

4.  Blended Families.  When the family includes “my” children, “your” children, and “our” children, the nature of the plan can become more complicated to assure that everyone receives the "right inheritance."

5.  Unmarried Couples. State and federal laws provide certain benefits and protections to married couples when it comes to estate planning.  These laws can be planned around when unmarried couples do their planning together, but such plans tend to be a little more complicated.

6.  Non-US Citizen.  Federal tax law may complicate planning when a client is married to a non-US citizen.

7.  IRAs and 401(k)s.  Large IRAs and 401(k)s are special assets because they are taxed deferred and subject to special regulations that can restrict client flexibility. 

8.  Other Types of Regulated Property.  Certain types of property are highly regulated by state or federal law which can add complexity to an estate plan.  Highly regulated property includes restricted stock in native corporations, native land allotments, fishing permits and individual fishing quotas, liquor licenses, timeshares, and US Savings Bonds.

9.  Operating Businesses. Operating businesses should (but rarely do) have an effective succession plan in place in the event the owner or key manager passes away.  This problem is magnified  when the business is a professional practice requiring a special license.

10. Significant Philanthropic Planning.  Many clients want to leave a large part of their estate to charity which seems simple.  But structuring a charitable gift in the right way to the right charities can increase complexity and require special effort and focus on the part of the client.

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