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Personalized estate plans and documents to accomplish client’s specific goals which may include (i) providing for spouse or partner, (ii) providing for minor and adult children or others, (iii) making charitable gifts, (iv) simplifying transfer of assets after death and (v) minimizing taxes.

Who Needs Estate Planning?

Each person has an estate plan. If you don’t create your own plan, state laws determine what happens to your assets after your death. You have an opportunity to decide who will receive your property, who will make critical decisions in the event of your death or incapacity, and who will care for your minor children. This is accomplished by taking time to establish goals for you and your family, and then working with a qualified estate planning attorney to create a plan and documents to carry out your goals. While everyone does not need a complex estate plan, very frequently results of state law will not match your goals and your family will be burdened by unnecessary difficulties. I have over thirty years of experience in helping clients establish plans to care for their loved ones.

Each client has unique circumstances: Are you single? Married with minor children? Blended family? Committed relationship but not married? Disabled family member? Charitable wishes? Modest or substantial assets subject to estate taxes? Wish to avoid probate? Own real estate in another state? Family cabin or other special property?

What is Involved in Estate Planning?

A typical process starts with completing an Information Form which will provide me with basic information about your family and assets, and identify your goals and any special circumstances. The initial conference is primarily educational—I learn about you and your goals, and we discuss various options to achieve these goals. Together we select the plan that is appropriate for you. Once you have made the decisions involved in your plan, a series of documents will be drafted and sent to you for review. At our next conference we will review each document together, answer questions and make revisions. Berg Law Offices will assist you in the proper execution of the documents. This process can often be completed in two conferences, but additional conferences may be necessary when complex plans or difficult decisions require additional planning and discussion. If you have a financial advisor or other trusted professional relationships, I encourage sharing information and seeking their input to reach the best results.

Simple Wills

A Simple Will directs the disposition of real and personal property and nominates a Personal Representative to handle your affairs after your death. Minnesota law requires a Will to be signed and witnessed by two individuals. A notarized Self Proved Affidavit is strongly recommended. Having a Will does not avoid probate, but it ensures that your wishes are followed and may simplify the steps required to probate your estate.

Contingent Trust Wills

In additional to the contents of a Simple Will, a Contingent Trust Will includes trust provisions to direct when and how assets will be used after your death by or for the benefit of minor children, disabled persons or persons who lack the capacity or judgment to handle financial assets. Trustees are appointed to manage and administer the assets for the trust beneficiaries. A trust for a minor child may direct the use of funds for the care and support of minors, education and medical expenses, and certain ages when the child will directly receive and control the funds. An important reason for parents of minor children to create a Will is to select Guardians to physically care for the minors in the event of the parents’ death.

Marital and Family Trusts

If the estate may be subject to estate taxes (federal or state), proper estate planning can minimize the amount of taxes (See separate description of Estate Taxes below). The use of Marital and Family (Credit Shelter) Trusts can ensure the applicable exemptions are used at the death of each spouse to allow the maximum assets to pass before incurring estate taxes. Since the exemptions are usually not used when the first spouse dies unless Marital and Family Trusts are created, unnecessary estate taxes may be owed on estates in excess of $1,000,000. The Family Trust is available for the surviving spouse (income plus principal for health, education, maintenance and support if needed), but exempt from estate taxes at the second spouse’s death. An alternate planning tool is a Disclaimer Trust that gives the surviving spouse the option of funding a credit shelter trust after the death of the first spouse if circumstances such as the size of the estate and tax laws support the need, or waiving the Disclaimer Trust if it is not needed.

Revocable Living Trusts

All of the planning provisions in Simple Wills, Contingent Trust Wills and Family Trusts can be included in a Revocable Living Trust. The major benefit of a Revocable Living Trust over a Will is to avoid probate, but it also provides confidentiality and useful arrangements to manage assets of an incapacitated person. While a Will does not become effective until death, a Revocable Living Trust is established when it is signed. Normally the client appoints him or her self Trustee so total control is retained. If the client dies or becomes incapacitated, a successor Trustee is named to manage and administer the assets without the expense and time required by court involvement. A critical second step is to “fund the trust”—transfer the title or ownership of assets from the client’s personal name to the Trustee of the Trust. Only assets titled in the Trust are covered by its provisions, and failure to properly fund the trust can result in having to probate other assets.

Power of Attorney

A Power of Attorney appoints an “attorney-in-fact” or agent to handle financial, legal and business affairs in the event of incapacity or other situations when the principal needs or wants assistance. A Minnesota Statutory Short Form Power of Attorney is commonly used because it is well recognized by financial institutions and others. Several questions on the form address the scope of the agent’s authority. While a Power of Attorney may be extremely helpful and avoid the requirement of a Court appointed Conservator, care must be used in selecting responsible and trustworthy agents to manage your assets without Court supervision.

Health Care Directive

If a person is incapacitated or otherwise unable to make and communicate their own health care decisions, a Health Care Directive is an essential document. The Directive names the agent(s) appointed to make decisions including whether to perform surgery or other procedures, the selection of health care providers and the location of care. It permits health care providers to share confidential medical information with the agents. The Directive also may contain instructions or guidelines for the agents to follow in making decisions. While the focus is often on end of life decisions, the Directive is also critical in other situations such as a coma or Alzheimer disease.

List of Personal Property

It is very important for some persons to designate who receives specific items of tangible personal property after their death. Minnesota law permits a Will to incorporate a separate written list by reference. The List only needs to be dated and signed, and kept with the Will. It does not require the execution formalities of a Will so it can be revised periodically without incurring legal expense. Selected items such as jewelry, antiques, art and collections (other than coin collection) are commonly listed with a description and name. The remainder of tangible personal property passes under the provisions of the Will.

Special Needs Trust

A Special Needs Trust can be established to provide funds to someone who is disabled under the standard of the Social Security Administration and receiving public benefits. The Trust assets cannot be used for basic living expenses, but can be used for “extras” such as education, travel, entertainment and transportation without jeopardizing eligibility for the public benefits.

Guardianship and Conservatorship

A Court proceeding may be necessary to appoint a Guardian and Conservator. This situation may arise when a person becomes incapacitated without proper planning through Powers of Attorney or Revocable Living Trusts. The Court must make a legal determination of incapacity and the extent of powers granted to the Guardian (who is responsible for the physical care of the person) and the Conservator (who is responsible for the person’s assets).

Recent Developments in Estate Tax Law

Estates valued over certain limits are subject to federal estate tax, sometimes called “inheritance taxes” or “death taxes.” Many states, including Minnesota, also collect estate taxes. These laws change frequently and are the source of much confusion.

The 2001 Federal Tax Relief Act gradually increased the federal exemption (the amount allowed to pass without tax liability) from $675,000 to $3.5 Million. However the provisions of that law expired on December 31, 2009, so no federal estate tax existed during most of 2010. Congressional action was expected to continue estate tax but planners and clients lived with uncertainty until the final days of December 2010 when the “2010 Tax Act” was passed. This law contains a number of critical changes, but is only effective for deaths occurring from January 1, 2010, until December 31, 2012, so uncertainty remains a planning challenge. The following are general federal guidelines which do not include all important details.

• Each estate has a $ 5 Million federal estate exemption, with a 35% top tax rate.
• An unlimited exemption applies to gifts to surviving spouses.
• If the first spouse fails to use his or her full estate tax exemption, the surviving spouse can use the unused portion if the first spouse dies after December 31, 2009 and the second spouse dies on or before December 31, 2012 (referred to as “portability rule”).
• The federal gift tax exemption is increased from $1 Million to $5 Million in addition to the annual gift tax exclusion (currently $13,000 per donee).
• The Generation Skipping Tax exemption is also increased to $5 Million.

However, a different set of rules apply for Minnesota estate taxes. The following are general guidelines regarding Minnesota estate tax which do not include all important details.

• Each estate has a $1 Million estate tax exemption, with a 16% top tax rate.
• An unlimited exemption applies to gifts to surviving spouses.
• Minnesota does not have a portability rule.
• Minnesota does not have any gift tax.
• Minnesota estate tax generally applies to all assets of a Minnesota resident, except real estate located outside Minnesota.

In general, estate tax planning is a critical aspect of estate planning for all individuals or married couples with current or expected assets of $1 Million or more. The different federal and Minnesota estate tax rules must be considered in each case. A basic planning approach is the use of Marital and Family Trusts to use the allowed exemptions when the first spouse dies, and again when the second spouse dies. This can result in $10 Million passing before federal estate taxes, but only $2 Million passing before Minnesota estate taxes. Other than estates over $10 Million, plans usually use the maximum Minnesota exemptions but forego the maximum federal exemption rather than paying Minnesota estate taxes after the death of the first spouse. An alternative planning tool available for estates under $3-5 Million is a Disclaimer Trust that gives the surviving spouse the option of funding a credit shelter trust after the death of the first spouse if circumstances such as the size of the estate and tax laws support the need, or waiving the Disclaimer Trust if it is not needed. Other planning tools are available to minimize estate taxes such as gifting, Irrevocable Life Insurance Trusts, Qualified Personal Residence Trusts and various charitable gifting tools.

IMPORTANT ALERT:

• Any estate plan created before January 1, 2011, containing estate tax plan provisions should be reviewed to consider the impact of the recent changes.
• Any plan using formulas to allocate assets between Marital and Family (Credit Shelter) Trusts created prior to January 1, 2006, should be reviewed to avoid “overfunding” the Family Trust and unintended restriction of the surviving spouse’s access to funds.
• Estate Plans need to be reviewed regularly for changes in tax laws (for example the current federal expires in 2012) and changes in personal assets and circumstances.