I had the pleasure of talking to a couple last week about their estate planning documents, and they thought they were pretty well covered. What made them think that? Their attorney had drawn up a set of Simple Wills for them and told them that was all they needed.
Here is what you get with a Simple Will:
* Your assets go through the probate court process, generally costing between 4 and 10% in administrative costs and attorney fees.
* Your partner has to wait approximately 6 months to a year and a half to get everything through the system.
* The court process exposes all of the partner's financial information to the public, and it leaves the written plans more open to being contested.
While that bad advice is bad enough, and it is pervasive in the legal community (usually because the attorneys get most of the 4-10%), this couple had most of their property as joint tenancy with a right of survivorship. Several millions of dollars. Usually that is a problem when partners get together and start combining their assets, but in this case they built their assets together over a few decades, so there were no gift tax problems.
No, the problem here was much bigger. The estate tax rules give each person in this year $3.5 million in exemptions. Assume they had jointly about $7 million. But the estate tax rules revert to $1 million starting in 2011, and their attorney told them they had nothing to worry about for estate taxes. Even if you put aside that the IRS generally starts with the presumption that the first deceased owner owns the whole of the joint assets, $3.5 million would equal $1,140,000 in estate taxes when the first partner passes on, and with the survivor getting the remainder and then passing on, there would be $2,249,200 in estate taxes when the second partner dies. That means a total of $3,389,200 in estate taxes, or nearly half of what they owned. No estate taxes? Talk about gross incompetence in advising domestic partners. Unfortunately, advice this deficient is common, and it shouldn't be.
In the next edition, I'll talk about the solution in making sure that attorneys and advisors have the right information for their clients.
Comments