Many people have pets that become a part of the family. To some, a pet might be the only family they have. What can be done to provide for pets upon the owner's death?
Contrary to what TV might show, most states don't allow a person to leave money or property directly to a pet. However, there is nothing wrong with making provision for a pet in a trust and leaving money to the trust.
If a pet is to be provided for in a will, there are a couple of documents that, at a minimum, are necessary. First, obvioulsy there has to be a will that makes provision for the pet. Remember that you can't leave anything directly to the pet, so if there is a fund established for the pet, it will have to be given to a trust. And the will should provide for someone to take the pet. Make sure that person is willing to accept and care for the pet. Money given directly to an individual with instructions to use it for the pet is probably not enforceable. So you might want to consider establishing a trust. Finally, there should be a durable power of attorney that specifies that the attorney in fact named has the ability to decide what to do with the pet. Everyone should have a durable power of attorney in case they become incapacitated, anyway.
Wednesday, June 23, 2010
Thursday, June 17, 2010
Is Bankruptcy Moral?
A lot of people struggle with this question. Most people are fundamentally honest and the idea of not paying their just debts doesn't sit right with their upbringing. There is a lot of guilt associated with filing bankruptcy.
Bankruptcy goes back at least to the 14th century. The term "bankruptcy" probably comes from the Italian banco rotta, which means "broken bench." It was the custom to break the bench of a merchant who could not pay his creditors. "Bankruptcy" is also figuratively description of a ruptured bank, with a resulting loss of money. England has had a formal bankruptcy law since 1542.
Even earlier, the law of Moses in the Old Testament called for the sabbath year, a year occurring every seven years when debts were forgiven.
In America, bankruptcy is one of the few laws specifically mentioned in the United States Constitution, which provides that Congress shall have power to make and enforce a uniform law regarding bankruptcy.
The purpose of this historical review is to show that throughout history, humankind has found that a process by which debtors could be released from their debts and given a fresh start has a salutary effect. Bankruptcy is legal and while filing bankruptcy may not be the most desirable outcome, there is nothing immoral about it.
Bankruptcy goes back at least to the 14th century. The term "bankruptcy" probably comes from the Italian banco rotta, which means "broken bench." It was the custom to break the bench of a merchant who could not pay his creditors. "Bankruptcy" is also figuratively description of a ruptured bank, with a resulting loss of money. England has had a formal bankruptcy law since 1542.
Even earlier, the law of Moses in the Old Testament called for the sabbath year, a year occurring every seven years when debts were forgiven.
In America, bankruptcy is one of the few laws specifically mentioned in the United States Constitution, which provides that Congress shall have power to make and enforce a uniform law regarding bankruptcy.
The purpose of this historical review is to show that throughout history, humankind has found that a process by which debtors could be released from their debts and given a fresh start has a salutary effect. Bankruptcy is legal and while filing bankruptcy may not be the most desirable outcome, there is nothing immoral about it.
Tuesday, June 15, 2010
Estate Tax Update
2010 is nearly half over and Congress still hasn't done anything about the estate tax. It expired on December 31, 2009, leaving the United States without an estate tax for the first time since 1916. It's scheduled to be resurrected in 2011 at levels unseen since the Clinton administration.
For now, someone like Dan Duncan, who died earlier this year leaving an estate worth an estimated $9 billion, can pass his estate free of any tax to his heirs. Had Mr. Duncan died in 2009, the estate would have been taxed at 45%, meaning just over $4 billion would have gone to the IRS. Had he survived until next year, when the estate tax is scheduled to come back at 55%, his heirs would have lost nearly $5 billion.
But the real losers in the estate tax mess are the merely rich, those with estates between $1 million and $3.5 million. In 2009, the estate tax exemption was $3.5 million, meaning estates under that amount didn't pay any tax. In 2011 the exemption will drop to $1 million and the 55% rate will kick in. Many of those people have set up their estate plans under 2009 rules on the assumption they would owe no tax. If they don't act quickly, they could end up losing a bundle.
For now, someone like Dan Duncan, who died earlier this year leaving an estate worth an estimated $9 billion, can pass his estate free of any tax to his heirs. Had Mr. Duncan died in 2009, the estate would have been taxed at 45%, meaning just over $4 billion would have gone to the IRS. Had he survived until next year, when the estate tax is scheduled to come back at 55%, his heirs would have lost nearly $5 billion.
But the real losers in the estate tax mess are the merely rich, those with estates between $1 million and $3.5 million. In 2009, the estate tax exemption was $3.5 million, meaning estates under that amount didn't pay any tax. In 2011 the exemption will drop to $1 million and the 55% rate will kick in. Many of those people have set up their estate plans under 2009 rules on the assumption they would owe no tax. If they don't act quickly, they could end up losing a bundle.
Thursday, June 10, 2010
Help! I don't qualify for Chapter 7 OR Chapter 13
More people are being caught between the rock of the means test under Chapter 7 and the hard place of the debt limitations under Chapter 13, finding that they can't qualify for either.
The means test under Chapter 7 says, basically, if you make above a certain income (the state median income for a family of your size), you can't file Chapter 7. There are exceptions and other tests, but the bulk of Chapter 7s are filed by people who "pass the means test" by having income under the state median, or whose debts are not primarily consumer debts, in which case the means test doesn't apply. The means test was designed to force more people into Chapter 13 so they repaid at least some of their debt.
Less known are the debt limitations of Chapter 13. Under section 109 of the Bankruptcy Code, if a debtor (and spouse, if filing jointly) owes more than $360,475 in unsecured debt, or more than $1,081,400 in secured debt, they do not qualify for Chapter 13. What this means is that for a high debt, high income debtor, she cannot file for either Chapter 7 or Chapter 13.
Consider a debtor earning $100,000/year, single, who bought a house in 2007, at the height of the real estate market. In today's market that house is worth $400,000 and she owes $750,000. Since the house is only worth $400,000, $350,000 of that debt is unsecured. If she has in excess of $10,475 in other unsecured debt, such as credit cards, doctor bills, student loans, etc. this person doesn't qualify for Chapter 13. But due to her income, she can't file Chapter 7, either (and she might not want to for various reasons). Her only option is to file a consumer Chapter 11, a very expensive and time consuming proposition.
The means test under Chapter 7 says, basically, if you make above a certain income (the state median income for a family of your size), you can't file Chapter 7. There are exceptions and other tests, but the bulk of Chapter 7s are filed by people who "pass the means test" by having income under the state median, or whose debts are not primarily consumer debts, in which case the means test doesn't apply. The means test was designed to force more people into Chapter 13 so they repaid at least some of their debt.
Less known are the debt limitations of Chapter 13. Under section 109 of the Bankruptcy Code, if a debtor (and spouse, if filing jointly) owes more than $360,475 in unsecured debt, or more than $1,081,400 in secured debt, they do not qualify for Chapter 13. What this means is that for a high debt, high income debtor, she cannot file for either Chapter 7 or Chapter 13.
Consider a debtor earning $100,000/year, single, who bought a house in 2007, at the height of the real estate market. In today's market that house is worth $400,000 and she owes $750,000. Since the house is only worth $400,000, $350,000 of that debt is unsecured. If she has in excess of $10,475 in other unsecured debt, such as credit cards, doctor bills, student loans, etc. this person doesn't qualify for Chapter 13. But due to her income, she can't file Chapter 7, either (and she might not want to for various reasons). Her only option is to file a consumer Chapter 11, a very expensive and time consuming proposition.
Tuesday, June 8, 2010
Family Meetings in Estate Planning
One often overlooked tool of estate planning is to hold a family meeting. There are several good reasons for doing this, and a few reasons why many people don't hold a family meeting.
A family meeting first and foremost should be an opportunity to make wishes and desires known and acknowledged and documented so they are carried out. This last item, documentation, may require the services of a qualified attorney. Simply writing down that mom and dad want the house to go to a certain person might not be enough. Everyone might agree that is what mom and dad wanted, but unless there is a will or other legally effective device, it might not happen.
Another reason for a family meeting is to ease anxieties about what will happen. It's a time to discuss last wishes such as funeral arrangements, burial/cremation, etc. While this is hard to do, afterward everyone feels a sense of relief.
At a family meeting, tax advantageous strategies for passing wealth can be discussed, such as family trusts, limited liability companies, life insurance policies to provide cash flow to continue a business and the like.
A very important function, and one often overlooked, is to preserve family harmony. At a family meeting, everyone's viewpoints can be aired. While it is the prerogative of those whose estates are in issue to decide where and to whom they leave things, by getting everyone together to discuss things, when the will is finally read there should be no big surprises.
Don't overlook a family meeting as part of your estate plan.
A family meeting first and foremost should be an opportunity to make wishes and desires known and acknowledged and documented so they are carried out. This last item, documentation, may require the services of a qualified attorney. Simply writing down that mom and dad want the house to go to a certain person might not be enough. Everyone might agree that is what mom and dad wanted, but unless there is a will or other legally effective device, it might not happen.
Another reason for a family meeting is to ease anxieties about what will happen. It's a time to discuss last wishes such as funeral arrangements, burial/cremation, etc. While this is hard to do, afterward everyone feels a sense of relief.
At a family meeting, tax advantageous strategies for passing wealth can be discussed, such as family trusts, limited liability companies, life insurance policies to provide cash flow to continue a business and the like.
A very important function, and one often overlooked, is to preserve family harmony. At a family meeting, everyone's viewpoints can be aired. While it is the prerogative of those whose estates are in issue to decide where and to whom they leave things, by getting everyone together to discuss things, when the will is finally read there should be no big surprises.
Don't overlook a family meeting as part of your estate plan.
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