Post Election Uncertainty

The great election of 2012 is now history and President Obama will serve another four years.  In response to  his re-election the NYSE dropped to its lowest point in a year.  That's probably the best indication that business doesn't favor what the future might hold under a second Obama administration.

One issue that has been waiting for resolution until after the election is the estate and gift tax.  The Bush era tax cuts are set to expire at the end of the year, reverting the estate and gift tax exemption to $1,000,000 from its current $5+ million.  If that should happen (and that's a big IF), a lot of families could get caught with an unexpected estate tax.  Five million is a lot of money in an estate, but one million, even with today's depressed real estate values, is not that uncommon.

There's no clear-cut answer.  President Obama has said he's in favor of allowing the tax cuts to expire. Does that mean he would veto an extension if passed by Congress?  Give that the House is under Republican control while the Senate is under the Democrats, will Congress even work together to pass a bill in time to present to the president?  Most advisers are saying to use your exemption while it exists if you would have an estate tax issue under a reduced, $1,000,000, exemption.  If you fall in that category, or even think you might, talk to a qualified estate planning attorney.

Does Your Pet Need a Trust?

An article in today's online Wall Street Journal addresses the question whether you should set up a trust for your pet.  At first glance that may seem like a preposterous idea.  But think about it.  Many pets are practically family members.  A pet is property, and will be treated as such in the eyes of the law, meaning if there is no one to care for it, it could be treated as abandoned property.  That could result in the pet being sent to the pound or even euthanized.

Since a pet isn't a human, it can't receive an outright bequest of money.  If you want to leave money to your pet you will need to establish a trust and appoint a trustee.  The trust should give direction to the trustee how to care for the pet and specify how much money is being left to the trust for the benefit of the pet.  You might also want to make a "no contest" clause in your will.  That clause deletes an heir's share if that heir challenges the will.  Such a clause could discourage one of the human heirs from challenging grandma's bequest of her estate to her cat.

"Conscious Presence" in Witnessing a Will

In law school we learned that when someone witnesses another person execute a will, the witness has to be in the "conscious presence" of the signer.  We read cases about whether being in another room counts if the witness can see the signer as he or she signs the will.  Of course way back then no one could possibly imagine video conferencing.

Now that millions of people have Skype sessions routinely the question is bound to come up: if the witnesses are in a room thousands of miles from the signer of the will, but they are connected by video conference technology and can see and hear each other in real time, does that qualify as being in the conscious presence of each other so as to make the will signing legitimate?  The Court of Appeals in Ohio recently had this question before it in Whitacre v. Crowe  ( http://www.sconet.state.oh.us/rod/docs/pdf/9/2012/2012-ohio-2981.pdf).  The court concluded that under the Ohio definition of "conscious presence" video conferencing while signing a will was not permitted and invalidated the will.

The result was that the will, which had excluded three of the decedent's five children and named one of the remaining two as executor and the other as sole beneficiary, was revoked from probate, meaning the decedent died without a will.  In that case, the general laws of intestacy would go into effect.  Presumably the result would be that the five children will share equally in the estate, which is probably the reason for the lawsuit in the first place.

401(k) Contributions in Chapter 13

One question many people ask is, "can I continue to contribute to a 401(k) plan in Chapter 13."  The answer depends on where you live.  Depending on which federal judicial circuit you live in, contributions to a 401(k) might be allowed or they might not.  Utah is in the Tenth Judicial Circuit.  In the Tenth Circuit ongoing contributions to retirement accounts are not considered necessary living expenses and are therefore not allowed in Chapter 13.  In other words, the amount ordinarily contributed to a 401(k) plan must be diverted to the trustee for the benefit of creditors while one is in Chapter 13.

Separate from ongoing contributions is the question of whether loans from a 401(k) can continue to be repaid in Chapter 13.  In this case, courts are fairly unanimous in holding that repayment of existing loans as opposed to contributions is permissible in Chapter 13.

Disinheriting Someone

Occasionally it happens that a parent wishes to cut off a child from any inheritance.  Rarely one spouse wants to exclude the other.  The question arises, can that be done?

The answer is "yes" if the heir is a child or anyone besides a spouse.  In Utah a spouse is entitled to what he or she would receive if the decedent died intestate (without a will) even if the will says the spouse is to receive nothing.  This is called the spouse's elective share.  When it comes to anyone besides a surviving spouse a person is entitled to include or exclude whomever she sees fit.

Before deciding to exclude someone from a will, it's important to think through the reasons for wanting to do this.  Usually the person disappointed the decedent in some way, such as by dropping out of school, marrying the "wrong" person, becoming involved in drugs, crime or some other illegal or immoral activity.  Then think about the legacy you as the maker of the will that excludes this person will leave.  How will you be remembered by this person and any others who learn of the decision to exclude that person?  Is that a legacy you want to leave?

Distributing one's estate shouldn't be about rewarding or punishing anyone.  It's about giving away what you can't take with you.  You have no use for anything after you're dead; why should you care particularly who receives it or what they do with it?

Walk Away

One of the hardest things for many bankruptcy clients to do is just walk away from their house or car.  People form emotional attachments to both houses and cars, especially the former.  It's the place where the kids grew up, where there were good times and bad, the place that was always refuge from the storm.  But in bankruptcy the house might not be refuge; it might well be the cause of the storm.

The current economy has put a lot of homeowners under water with their mortgages, to where some owe twice as much as the house is worth.  Look at it objectively:  If you were buying a house, would you pay twice as much as it is worth?  But that's exactly what some people do when they reaffirm on the mortgage debt.

If you're filing bankruptcy and looking for a fresh start, look first at your mortgage.  The sensible thing might be just to walk away.

So You Want to Stay in Business With Your Ex-Spouse

It should seem obvious that if two people can't get along as husband and wife they can't get along as business partners.  Yet a recent case from New Jersey addressed the situation of former spouses who tried (and failed) to maintain their business relationship post-divorce.  In Mariello v. Mariello (http://www.judiciary.state.nj.us/opinions/a4044-10.pdf) the New Jersey Appellate Court held that a property settlement agreement (PSA) between the parties as part of the divorce was binding and the ex-wife, who became unhappy over how the rental properties were being managed, was not entitled to the usual remedy available to joint owners, that of partition.  Partition means the court equitably divides the property.  Here the appellate court found that the PSA had addressed the issue of partition and the parties had agreed not to partition in the event of a dispute.  The moral of the story is, be very careful about staying in business with an ex-spouse.