Iowa Lawyer & Attorney : Sullivan & Ward Law Firm : Iowa Law Blog

A couple of recent posts here and here serve as good reminders of the importance on open discussions with your parents or grandparents as to their assets and plans.  While it may difficult to bring the topic up, a brief moment of discomfort may help to avoid future headaches and family disputes.  Once you broach the topic, it get becomes easy to cover some of the key points.  Some possible openings to consider:

• "Mom/dad, we just completed our own estate planning and wanted to let you know that we used ******** to help us with our planning in case something happens to me.  Who have you used to handle your affairs?"

• "Isn't that awful about the situation that ********** is in with his parents.  I understand that it has been a  nightmare to get those issues sorted out.   I hope you have taken steps  so that we don't have a similar experience."

• "Mom/dad, you're no longer a spring chicken.  Let's talk about how much money I'm getting when you croak and discuss your spending habits."

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Besides taxes, the other sure thing in life is that it comes to an end eventually.  A common question becomes "what's next?"  (I'll skip the whole afterlife heaven and hell discourse and stick to the worldly issues.)  And of course you have the whole "what to do with the body issue".

Depending on the planning that was done beforehand will dictate a lot that will be done afterwards.  For example, if the decedent properly used a revocable trust, it may not be necessary to go through the probate process.  Good planning and organization prior to our "time" is important in helping to alleviate the work that our family and friends are forced to go through.

Transfer of Assets

If all of the assets were held jointly, it may not be necessary to go through the probate process, although there may be some other advantages with going through probate.  Also, if the asset has a named beneficiary (e.g. life insurance, IRA, etc.), that asset will pass automatically and not subject to any will, trust or other dispositive document.  Otherwise, other than joint assets or named beneficiaries, the estate plan of a will, trust, or the state's plan will determine where those assets go. (And it might not matter that you're the child from the first marriage or dad liked you the best.)

Payment of Bills/Claims

Depending on financial situation of the decedent, there may be certain bills and expenses that need to be paid.  Through certain publication processes in the probate process, all potential claims can be "pulled out of the woodwork" in order to determine how much should be paid and whether it is a valid debt or not.   Also, if the decedent was receiving certain public assistance benefits (e.g. Medicaid) during life, of if the decedent's predeceased spouse received such benefits, there may be a lien against any remaining assets that follows those assets.

Taxes

In Iowa, if the only beneficiaries are a surviving spouse, children, grandchildren, parents or other lineal descendant or ascendant, there is no Iowa Inheritance tax and no need to file an  Iowa inheritance tax return.  There are some issues if there have been certain gifts within the past three years which should also be examined.

Federal estate taxes are normally not applicable for estates less than $2,000,000 (for 2008).  If the estate is below that figure, typically it is not necessary to file a federal estate tax return.  Again, gifts during life of the decedent are important to review also.

Summary

This list is not meant to be exhaustive, but mainly as a guide of some items to consider when it becomes necessary, and hopefully help you choose to do some proper planning ahead of time.  You should consult with an experienced attorney when it becomes necessary to sort through all of these items.

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All of the glamor and attention of Hollywood celebrities provide an effective example of how important proper estate planning can be and how even the rich and famous can fail to properly plan, despite their vast resources.  I've previously mentioned mistakes and oversights by Heath Ledger and Anna Nichole Smith.  As Steve Follet with the Arizona Estate Planning & Probate blog points out in his post, Britney Spears failed to properly fund and maintain her trust that she established.  Now, with the "issues" in her life, court involvement and publicity will continue to provide fodder for entertainment shows...and estate planning attorneys.  You gotta love Hollywood.

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While Paris Hilton may not be in the soup line anytime soon, a significant portion of her inheritance has been pledged for better use than her spending sprees:  charity.  Grandpa Hilton recently revised his estate plan to provide 97% of his wealth would go to charity.  Barron Hilton recently placed 97% of his wealth into a charitable trust to eventually pass to the Conrad Hilton Foundation.  The amount is estimated to be around $2.3 billion.

As a result of this estate planning, Barron Hilton dramatically reduced his tax bill.  While the exact structure of his charitable trust is not known, charitable trusts typically provide an immediate income tax deduction, provide a stream of income for the remainder of ones life AND reduce your federal estate taxes at your death, while at the same time benefiting charitable interests.   Doesn't that make it a win-win-win-win solution?  Not a bad idea.

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Joe Kristan notes here that the US Department of Justice has blocked a Las Vegas scammer from selling and promoting "pure trust" schemes which are basically attempts to conceal income.  The scheme was promoted in various states, including Iowa.  The US Department of Justice has requested Mr. James DiLullo, the Las Vegas promoter, to disclose names, addresses and social security numbers of all clients for whom he prepared income tax returns for the past ten years.  Some Iowa customers may be getting a disconcerting letter from the IRS in the near future. 

As Joe so aptly notes:

The Moral: You can't make your taxes go away using "pure" trusts, "constitutional common law trusts," or anything of the sort -- no matter what the salesman says.

Or "if it sounds too good to be true, it probably is".

Trusts can provide a sound estate plan for you, but saving income taxes isn't one of the purposes of trusts.

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