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! 


That’s a quote from one of my clients after sitting through a recent loan closing —  stacks of papers with no end in sight.  Why so much paper?  That is your government at work trying to protect you.  This excess paperwork  problem is particularly true with a home mortgage or an SBA business loan, where government regulation reigns supreme.  Admittedly most of you are not going to read all the pages you are asked to sign; however there are four important documents that each of you  should carefully consider whenever you are part of a loan closing:

 1.             Promissory Note.  This document is the heart and soul of any loan transaction.  It sets out the amount of loan principal, the interest rate, the payments terms, and the due dates for the loan.  Review all of these items carefully before you sign the note because this one document will usually control all others if there is any dispute later.  The Promissory Note has been specially developed under the law to allow the lender to obtain a quick judgment in the event of a loan default.  This is why confirming the accuracy of the terms of the Promissory Note is so important.

 2.             Deed of Trust or Security Agreement.  Almost every loan will require some form of security such as real estate or business assets; this provides the lender a resource for collection in the event of a loan default.  In North Carolina a Deed of Trust   is filed with the Register of Deeds to provide the lender with a security interest in your real estate.  For equipment or business assets, you will sign a Security Agreement and the lender will file a UCC notice form with the Secretary of State in the name of the borrower.  Make sure you look carefully at the description of the property or assets being pledged in either of these documents to confirm that it does not include any property not intended as security. 

 3.             Guarantee.  I reviewed the ins and outs of Personal Guarantees in my  April 2010 newsletter.  This is often a standard document included in business loans.  The business owners are required to sign Personal Guarantees to ensure that the lender can collect on the Promissory Note if the business doesn’t have sufficient assets to pay.  Signing a Personal Guarantee is effectively the same as signing the Promissory Note.  Remember that a Personal Guarantee will usually obligate you to repay the lender regardless of any attempts to collect on the Promissory Note or against the security interest. 

 4.             Loan Agreement. Many business loans also include a Loan Agreement, which includes various covenants concerning the operation and continued financial performance of the business.  Please pay attention to these covenants.  Do not assume that if you make your loan payments on time, you are in good standing with the bank.  If the bank believes that your loan may be at risk in the future, it can and will enforce the various loan covenants and call the loan for immediate repayment.

If you are flipping through a large stack of loan documents, as you come to the items discussed above please slow down and look at everything carefully.  These  documents will have plenty of boilerplate terms, but pay attention to the main points noted above to make sure what you are signing is accurate.      By all means, if you find a mistake, have it corrected before you sign anything.  It is much easer to correct everything before the transaction is closed, even if that imposes a little delay.

My parting request — the next time you refinance your home mortgage, be sure to plant a tree as well.


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….


Is it valid from one state to the next?  Let’s say you have had enough of those Michigan winters and one day you happen to see the headline – North Carolina is ranked #1 among places to retire.  A year later you’ve just arrived in your new NC home and you’ve ordered a pizza while you contemplate the tedious chore of unpacking.  Wait a minute….what about your Will and other estate planning documents?  Do they still work? Or better yet….I wonder what happened to those documents?  Of course that is the last thing on your mind, but somewhere on your “To Do” list you should include a review of your documents and how they work in your new state.

 First things first: Yes, an out-of-state Will should be valid in North Carolina as long as it was prepared and executed in accordance with the laws of the other state.  This is also true for other documents such as financial Power of Attorney and Health Care Power of Attorney.  The problem is that these out-of-state documents may be much more difficult to use here in North Carolina and this may create headaches for your family.  Our courts, financial institutions and health care providers, will likely not be familiar with most out-of-state forms and this disconnect leads to delay and added administrative requirements.

 North Carolina has very specific requirements for language which must be included in a Will for the document to be probated in the normal course.  Without this magic language, it can be a real pain to probate a Will; you may have to locate witnesses from years ago in another state, or you may have to pay for a substantial security bond for an out-of-state Executor.  For this reason I regularly advise clients that, at a minimum, they should have their documents reviewed by a North Carolina attorney.  We often recommend that a client execute a new North Carolina Will to replace their existing document simply to ensure that the necessary language is included to avoid problems with probate.  We also regularly replace existing financial Powers of Attorney and Health Care Powers of Attorney with our North Carolina versions because they will be easier to use with our local institutions; since they are fairly standard forms they don’t require much time and expense to prepare.

 Some clients have a Living Trust as part of their estate plan which is designed to work in conjunction with the Will.  In many cases that Living Trust is designed to continue to function under the old state’s law regardless of where the client may live.  One benefit of a Living Trust is that it will not be subject to probate or review by the court at the client’s death.  In this case, we are not concerned with any special North Carolina language for these documents and we often don’t recommend any changes to a Living Trust simply because of the relocation to our state. 

 When people relocate to North Carolina, particularly for retirement, they regularly have other revisions to include in their documents which can be addressed at the same time their new North Carolina documents are prepared.  For example, if a client is moving to be near one of their children it is common to have that child serve as the primary fiduciary for the client (e.g. Executor or Health Care Agent) and this will often require an update in the documents.  There is also the ever-changing landscape of estate tax laws and this too will dictate changes in documents if they have not been revised recently. 

 If you or someone you know recently migrated to our fair state, be sure this chore is added to the list right along with changing your driver’s license and voter registration and finding a great Chinese food place. 


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