What, you may be wondering does that have to do with estate planning? (Although I warn you that I plan to blog periodically on matters that have very little to do with my legal specialty.)

A recent article in The New York Times points out some of the issues and gets many of the estate planning principles correct. (I would expect the NY Times to get that much right and they even used the words “family trust”.) The article spends a lot of time talking about issues related to passing co-op board interviews, and how to make sure that the other children are taken into account if the property is just for one of them.

The writer didn’t go into, however, any of the issues of whether a step-up in basis was preferable to a carry-over basis in the property if you title it in joint name between the parents and kids….but, then again, that doesn’t make for compelling reading, evidenced by the fact that your eyes likely rolled back into your head the moment I mentioned “basis.”

In fact, if you understand any part of what I just said, please call my office, I might have a job for you.

One thing the Times article got exactly right was its clear support for involving legal counsel before you engage in the real estate transaction. I can’t tell you how many times I’ve told clients, prospective clients, and planning partners that when they bring me an issue early, I have many more options than if they bring me an issue after decisions have been made. I try to encourage that kind of proactive attorney involvement by not charging clients in my Client Family Program for phone calls or strategic planning meetings. I figure that if I can take the cost element out of the occasion, then it’s easier for clients or their advisors to pick up the phone.

I did think they could have spared a few words about whether or not to leave the apartment to their kids as an outright distribution. There are some situations in which an outright distribution is a good choice, but many other times there are tremendous advantages to leaving the property protected from future ex-spouses, creditors, or as a means to protect vulnerable children from themselves. Whether or not that’s the right decision can be determined in a legal counseling session with a well-trained estate planning attorney, but I think it should have been mentioned in the article.

In any event, mark the day! Estate planning has gone mainstream and landed squarely on the front page of the Real Estate section of the New York Times – Sunday Edition!

Next: Estate Planning! The Musical.

Posted by Victor J. Medina, managing attorney
The New Jersey Estate Planning Center
Medina Law Group

This article by the New York Times focuses most of its analysis on the impact of the estate tax repeal and the timing of this death.  In my educational seminars, I spend a few minutes telling folks tongue-in-cheek that Choosing The Wrong Year To Die is a “common estate planning mistake.”  My point, besides making a joke, is that the law is ever-changing.  The estate plan that is right on target today may be obsolete or rendered ineffective by changes in the law in the future.  That’s why it is so essential to engage a lawyer who has a consistent and deliberate formal updating process as an integral part of their practice.  Some estate planning attorney call these “client maintenance” or “client care” programs – whatever the name, make sure your attorney has one.  

However, timing is just one element of an effective estate plan.  The other part is finding a professional who understands the law and the rules who can work them to your benefit.  There’s a saying that there are two tax systems in this country.  No, not one for the rich and one for the poor – rather, it’s one for the informed, and another for the uninformed.  Without the proper planning, couples with an estate of $2MM could pay $550,000 in federal estate tax if they both passed away next year (2011).  With proper planning, the total federal estate tax due by that same couple drops to zero ($0).

As with income taxes, there are some people who (legally) pay much less than folks who make the same amount per year.  The difference is that the couple who paid less income tax engaged the services of a profession who understood the rules and how the system works, identifying opportunities and benefits that are not self-evident – and which would never occur to the lay person.

The value of a professional is not in the documents he creates. It’s in the knowledge and experience that enable him to tell you what you should do.

No matter what you year you may die.

Posted by Victor Medina, Medina Law Group, LLC

Too often the grantors, their family or their counsel don’t take the necessary steps to protect the planning tool against a collateral attack by the IRS pursuant to Section 2036 of the Code. Some of the things you should consider are:

1) No comingling of partnership assets. In fact, keep the personal use assets out of the FLP or FLLC (vacation home, residence, etc.).
2) Establish a pro rata distribution (if any)
3) Avoid implied agreements, where the senior family member transfers almost all of the assets to the FLP or FLLC, and retains insufficient assets on which to support the lifestyle.

There are a number of actions you should take before, or upon, the formation of the FLP or FLLC, but that’s for another post and may be too late for some people.