Vague intentions plague estate plans, local expert says

Leave nothing unclear when making your wishes known

By Gordon Oliver, Columbian business editor

Published:

 

Year-end tips

The Internal Revenue Service reminds Washington taxpayers that there is still time to take action to lower their 2011 federal taxes if they take action by Dec. 31.

Here are the federal agency’s suggestions:

• Charitable contributions: Donations must be made to qualified charities no later than Dec. 31. Donations charged to a credit card by Dec. 31 are deductible for 2011 even if the bill isn’t paid until 2012.

• Energy-efficient home improvements: Installing energy efficient improvements such as insulation, new windows and water heaters can reduce taxes by up to $500. The Residential Energy Efficient Property Credit, designed to spur investment in alternative energy equipment, also offers tax benefits. More information: Special Edition Tax Tip 2011-08 at http://1.usa.gov/rRPmXs.

• Retirement account contributions: Elective deferrals to employer-sponsored 401(k) plans or similar workplace retirement programs must be made by Dec. 31. However, taxpayers have until April 17, 2012, to set up a new IRA or add money to an existing IRA for a 2011 tax savings.

• Adjusting investments: Check investments for gains and losses and make sales by Dec. 31. Taxpayers may normally deduct capital losses up to the amount of capital gains, plus $3,000 from other income. Net capital losses of more than $3,000 can be deducted in future years.

• Charitable distribution from an IRA: Individuals age 70½ or older may exclude up to $100,000 from gross income that is paid directly from their individual retirement accounts to a qualified charity.

• Small Business Health Care Tax Credit: Employers with fewer than 25 full-time employees who pay at least half of employee health insurance premiums may qualify for a tax credit of up to 35 percent of the premiums paid. For more information see IRS’s Small Business Health Care Tax Credit webpage at http://1.usa.gov/ckBJI8.

Michael Lair began work this fall as vice-president and trust relationship manager at Umpqua Private Bank, a subsidiary of Portland-based Umpqua Bank. Lair, 60, is a 30-year veteran of the financial industry, and he’s witnessed the pain of some families due to inadequate or ill-conceived estate planning.

The holiday season, he believes, is a good time for families to take stock and make decisions about how to manage their assets for a smooth transition between generations. Whether it is a will or a trust, a written plan for allocating assets at the time of death reduced risk of conflict among family and friends, as well as unnecessary taxes and fees, he says.

Lair, based in Portland and serving the Portland-Vancouver region, sat down with The Columbian for a year-end discussion of the basics of estate planning. His comments have been edited for brevity and clarity.

What should the average person be thinking about when a establishing a trust?

Everybody has an estate plan whether you’ve signed a document or not, because if you do not have a will or you do not have a trust and you pass away, the state will determine who your assets will go to.

Every individual at a minimum should have a will. Then everything goes where you want it to go. The only thing with a will is that there are heavy up-front costs. The probate will cost anywhere from 3 to 5 percent of the assets.

You can get a simple trust done for $1,500 to $3,000 or at a reasonable cost, and you will save thousands of dollars on probate fees and not have it tied up in course.

So every individual — it doesn’t matter if you have a lot of money or not a lot of money — needs to have a will or a very simple trust.

What is the most common type of trust?

It’s what we call a marital trust, or an AB Trust. They have many names but A and B is easy: the A is above ground and the B is below ground. It sounds silly, but what happens with the B Trust is when the person passes away that trust become irrevocable. The other half of the assets are placed in the A Trust to the person who is still living.

So you might have this kind of family scenario: A husband leaves money to his three kids in a B Trust, and that’s set in stone. Two years later the surviving spouse has a fight with one of the children and wants to write him out of his stake. They can write him out of the A Trust, but they can’t write him out of the B Trust.

What advice do you give on choosing a trustee?

Selecting a trustee is a difficult issue, and one I believe people make a lot of mistakes in. Typically people go to a family member as a trustee or their personal representative in a will. Where that tends to be a mistake is that even with families that get along, once money is involved it gets messy.

If it’s not family then the trustee either needs to be a friend or a corporate trustee, such as a bank. Even if you select a family or friend, somewhere in the list of successor trustees you end up with a corporate trustee, whether they are first or last.

I’m looking at one situation right now where after six months the sister didn’t want to (be trustee). The brother has stepped in and he wants to do it for now but he’s 70 years old and its kind of a messy trust. What happens when he doesn’t want to do it and there’s nobody else named?

What other common mistakes have you seen?

One is not making your intentions clear. You should say if there are specific things you know people want. Not doing that is a big mistake that can put a trustee in a bad position. Because if somebody wants dad’s gold watch and its worth $15,000, as the trustee you have to sell it to that individual even if dad really wanted him to get it.

Also, you need to really try to understand your family dynamics and try to anticipate “What is going to happen when I’m gone?” That’s a very big mistake that people just underestimate. We really encourage people to talk this time of year. When you come home for the holidays you see grandma and grandpa getting sicker, or mom and dad are getting frailer, it really is a time to talk. Whether you want to talk or not, it is a time where it tends to happen.

You’ve said you could tell lots of stories from your work. Do you have a favorite story?

We had this woman we worked with for years. She would not sign a will or trust, because in her mind the thought she would be signing her death wish. She had $6 million. When she died, over half went to the government and the other half went to 12 nieces and nephews. She had seen only one of them in the last 40 years.

She was a benefactor in the town of Bakersfield and had supported the arts — there were buildings named after her. That money could have gone to the arts and to the people who had taken care of her. We can only do so much.