Estate Planning

OK I don’t believe there was ever an actual estate planning episode on The Andy Griffith Show, but the show is one of my all time favorites.  With the recent loss of Andy Griffith I could not pass up the chance to offer a little tribute.  Though I would love to simply recount my favorite episodes or scenes from the show, I guess I need to offer some useful info as well.  So I will use some great episodes from the show to illustrate the importance of keeping your estate planning documents up to date.

Even if you have a great set of estate planning documents in place, circumstances in your life will change and tax laws will change.  Your estate plan only works if it is relevant to your circumstances and the applicable laws at the time of your death.  This means that keeping your estate plan current is an important part of your overall financial plan and life plan.   Be sure to review your estate plan every three or four years to ensure that it continues to address your goals and is current with changes in the law.  When in doubt call your attorney and ask if any update is needed.

What are some Mayberry examples of changes that may warrant an update of estate planning documents?

Marriage – See Episode 94 “Mountain Wedding”…Barney in the wedding dress and the first sighting of Ernest T. Bass.

Birth of First Child – See Episode 29 “Quiet Sam”…Andy plays midwife for a farmer.

Divorce – See Episode 120 “Divorce Mountain Style”….The Darlings are back and Bob Denver pops up on this one.

Death of a Spouse – See Episode 8 “Opie’s Charity”…a subplot here involves a husband who returns from the grave after his wife made up a story that he died.

Changes in Wealth – See Episode 36 “Mayberry Goes Bankrupt” … local citizen becomes rich overnight after finding a very old savings bond which was never cashed.

Relocating to Another State – See Episode 12 “Stranger in Town”….new out-of-state resident has adopted Mayberry as his hometown…this is a classic early episode.

Spendthrift Child or Grandchild —  See Episode 47 “Bailey’s Bad Boy”…spoiled rich kid gets arrested and learns a lesson…also Bill Bixby appearance.

Changes in Tax Laws  — See Episode 129 “Barney’s Physical”… the physical requirements for deputy are increased by state law putting Barney’s career in jeopardy…until Andy and Aunt Bea come to the rescue.

So what would Andy have to say about estate planning really?  I guess if Aunt Bea was doing one of those do–it–yourself Wills he would surely say “Aunt Bea…just call the man!”


At least that is what my kids tell me when they ask for money.  I guess I have been a little slack in teaching them the importance of giving to charitable causes.  In looking back on my various topics for Counselor’s Corner, I found also that I have not mentioned charity enough.  In these times of economic uncertainty charities are in more need than ever.  How can you help?  Give now! If you can’t do that at least include a provision for charity as part of your estate plan and here’s how:

1.  The easiest way to provide for charity in your estate plan is to include a bequest in your Will or Living Trust.  You can name one or more charities to receive a specific dollar amount or percentage of your estate.  It is as simple as that.  You can also provide that a specific asset will be distributed to charity at your death, but you should check with the charity first to make sure they can accept that particular asset, especially if it involves real estate.

2.  An even better option is to name charity as a beneficiary on a portion of your retirement assets.  You can list a charity as a beneficiary to receive a certain amount or certain percentage of your IRA or 401k.  Since the charity is a tax exempt entity it will not incur income tax when it receives its share of the retirement asset.  This is a great way to leverage the value in your retirement assets, even if it is at the expense of Uncle Sam.

3.  For clients who desire to provide a substantial gift for charity, they may benefit from the use of a charitable remainder trust (CRT).   A CRT allows you to give an asset to charity while retaining an income stream for life.  The special tax treatment of a CRT allows the donor to make a gift of low cost basis assets, which can be sold without incurrence of an immediate capital gain tax; the tax liability is recognized only as the funds are distributed to the life beneficiaries (similar to qualified retirement assets).  This provides the donor a tax efficient option to diversify a large asset  holding.  The donor also benefits from an income tax deduction for a portion of the value of the assets transferred to the CRT.  There are many variations for the CRT which are beyond this short description, but it is something to consider if you intend to include charity as a major beneficiary of your estate.

Important:  If you are naming a charity make sure that the charity qualifies as a §501(c)(3) organization.  That designation will ensure that your charitable gift will not be subject to estate tax or income tax.  Many nonprofits such as service organizations (Kiwanis, Lions Club etc.) are not qualified as a §501(c)(3) but they may have a related foundation that is which can receive your gift.


Goodness is the only investment that never fails

     — Thoreau



 Our government is spreading the love this season in the form of a long awaited new tax law which extends the current favorable income tax provisions.  The tax law also provides new economic stimulus in the form of payroll tax reductions for 2011 and an extension of unemployment benefits.  And just when you thought it couldn’t get any better?  How about a $5,000,000 estate tax exemption!

 Many of you know that the previous law was set to re-introduce the estate tax in 2011 with a $1,000,000 exemption.  Most tax professionals assumed that the law would  be amended either this year or early next year to continue the $3,500,000 exemption which was available in 2009.  But this $5,000,000 exemption caught us all off guard.  In fact there are numerous other provisions in the tax law that we have not yet had a chance to digest, but I wanted to pass along a few quick details that have not made it into the mainstream press coverage.

 The tax law does have provisions which would apply retroactively for 2010 for decedents who have already died, but these provisions are optional.  Estates for 2010 can elect to keep the old rules or take the new rules if they work out better.  Don’t worry, the law provides for extensions on estate tax related deadlines to allow everyone time to figure out the right course of action.

 The $5,000,000 exemption is now “portable” between husband and wife.   They each have an exemption and if they don’t use all of the exemption at death then the unused portion can be transferred to the surviving spouse.  This will simplify tax planning considerably and allow for shorter and less complicated documents going forward.

 The $5,000,000 exemption is not only for transfers at death but also for gift transfers.  This is an important change that will open up new planning opportunities for some high net worth clients.  The previous law only afforded a $1,000,000 exemption for gifts.  However before making decisions concerning large gifts, clients must also consider the impact of tax basis.  In some cases a large gift can be a bad tax decision; see my blog entry from April 20, 2010.

 This new tax law is in place for only 2 years, with the expectation that it will be extended or further modified in the interim.  It is not clear yet how the estate tax provisions in the law will fare, but it appears that we could be faced with this same estate tax showdown   (a return to a $1,000,000 exemption) in 2 years….right in the middle of another election.

 That is the early report.  I’m off to spend time with family and I hope you are as well.  This year we’ll gather around the fire and reminisce and teach the children about the good old days……when deficits were small and we even had a balanced budget in some years…and of course we never had such things as 0% credit cards…..back then we had to save money if we wanted to buy something….and I remember when……

 Merry Christmas and Happy New Year to you all! 


Admittedly if you have minor kids, you are going to make plenty of mistakes.  One of my personal bests was letting by daughter eat a whole bag of chocolate chips to teach her a lesson – not a good idea.  But I am not alone; many families out there make even bigger mistakes by not having some basic estate planning issues covered once they have children.  Here are some of the most common problems we see for these families:

 1.             Naming a minor as a direct beneficiary on retirement assets, life insurance or a POD account.  I covered this problem in my May 2009 newsletter but it bears repeating – do not name a minor as a direct beneficiary…ever!  Minor beneficiaries create unneeded administrative problems and usually require the creation of a court ordered guardianship.  The added expense often takes a substantial toll on the financial resources intended for the beneficiary.

 2.             Not having a Will and assuming that a surviving spouse will inherit the entire estate.  It is true that if a husband and wife own property jointly or have life insurance and retirement that passes by beneficiary designation, then those assets will almost always pass to the spouse even if there is no Will.  However, some assets can only be transferred under a Will or by default under the North Carolina intestacy laws.  If one spouse has a substantial amount of liquid assets or real estate in his or her individual name and there is no Will, the intestacy laws dictate that some of those assets must be divided between the children and the spouse. 

3.             Not having a Will and failing to name a personal guardian for the children.  When a couple has their first child the choice of guardian is typically the most important decision in their estate planning.  If something happens to both of them who will become the child’s surrogate parent and where will they live?  This is a personal and often a very difficult decision, but it is something that deserves attention.  Ultimately the courts will decide the choice of guardian, but they rely heavily on the nomination of the parents provided in the Will.

 4.             Not having enough life insurance to provide for surviving spouse and children’s education.  Even though most families now have two wage earners, this doesn’t obviate the need for a decent amount of life insurance to cover the risk that one spouse may die unexpectedly.  In that case a surviving spouse is left with the substantial task of raising kids and being the primary source of financial support for the family.  Most families also want to ensure that there are enough funds for college education for the children.  When all the costs of child care and college education are added up many families simply don’t have enough life insurance in place to foot the bill.

 5.             Assuming that there are no estate tax concerns if you are just starting to build your net worth.  Most young families start out with a zero net worth and they don’t think of themselves as wealthy enough to be concerned about estate tax.  However, many of these families have avoided the mistake in number 4 above and have substantial life insurance in place.  Remember life insurance is usually counted as part of your estate for estate tax purposes.  When the life insurance proceeds are added to other assets many young families are bumped into a net worth that does have estate tax exposure and they need basic tax planning in their documents.

The best advice I can give is simply to begin the process.  Talk to your advisors about these issues once you have children. Oh and if any of you have suggestions on how to get melted chocolate out of carpet….


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