The Montana Estate Lawyer

Monday, January 16, 2012

Digital Estate Planning Services

I was asked recently to give a presentation to the trust officers at a local corporate trust office and one of the possible topics for me to address was estate planning for digital property. The request to devote part of my presentation to this topic both alarmed me, because I have not yet made this an express focus of my estate planning practice, and intrigued me, because it is high time I started.

What is digital property?  There are two main classes: (1) any online account that requires a username and password; and, (2) any file or information stored and used by a smartphone or computer. What happens if the client is the only person who has access to his online accounts when he dies?  What about files on his computer?  What steps can be taken to protect this information?

Attorney Scott Zucker, a fellow WealthCounsel member, suggests that the client and attorney work together.  The client should make a list of all digital assets and his wishes for each asset (i.e., closing account, doing nothing, archiving content, etc.), choose the person who will receive each asset, and provide access and control to the recipient.

The attorney can help the client implements his digital estate planning goals in the same way other estate planning goals are achieved.  The range of options could include non-binding instructions to the Personal Representative, specific bequests, possible transfer of assets into the client’s revocable living trust, or to partner up with an online digital asset firm that could provide services such as maintaining digital assets and providing for means of access by the clients “digital executor” or other personal representative.

As estate planners, we all need to continue our efforts to modernize our practices to keep up with technology and meet the ever-changing needs of our clients.  Digital estate planning services is just one of the services that we should implement.


Saturday, December 3, 2011

It's the Holiday Season - time to think about gifts.

At this time of year we are frequently discussing gifts with our clients.  It's a confusing topic.  We need to consider gift tax, estate tax and income tax.  We can just touch on a few basics here, but I thought it might be useful to cover some of the questions that we go over with our clients.

First, let's be clear:  the tax effect of a gift is important, but we need to start by deciding whether it even makes sense to consider a gift.  Can you afford to make the gift?  Does the intended recipient want or need the gift?  If you gift it to him or her, will it just be wasted?  Will it end up doing more harm than good for the recipient?  Should you give the gift with some management "strings" such as those in a trust?  Only after these issues have been considered do we get to tax.

Most are aware of the annual gift tax exclusion (now $13,000 per recipient) and want to know how much they "can" give.  You can give away as much as you want.  You are not limited to $13,000.  The question from a tax standpoint is how much, if any, tax your gift will generate, and when.   In many cases the answer is that there will never be any tax payable by anyone - even if the gifts exceed $13,000 per recipient.

A gift is not income to the recipient, so the recipient won't owe any income tax, no matter how big the gift.  The only one who ever has to pay gift tax is the donor.  Currently a donor won't have to pay any gift tax until he or she has given away $5 million.  Not many of us are going to do that!

When you give away more than $13,000 per recipient in a year, you must report the gift, and the excess of the gift over $13,000 could trigger extra estate tax when you die - if your estate exceeds the exclusion amount (currently $5 million).  So, generally, those with estates that will be subject to estate tax are the only ones who have to worry about paying gift or estate tax.  Even for those people, gifting is often a great strategy to reduce taxes.

We've been talking about gift and estate taxes.  An important point to mention is that there can be an income tax effect down the road when you gift appreciated property.  That's because, when the recipient of the gift sells it later, he or she will likely pay more income tax on that sale than if he or she had inherited the property.  This is the distinction between "carry-over basis" and "stepped-up basis" that you have likely heard about.  The important point here is that gifting is a great strategy, but if you're going to gift appreciated property, we'll want to analyze the income tax effect and see what makes most sense.

So, have I made things clearer or murkier?  I hope this discussion will be helpful.  And I hope that you'll seriously consider making some gifts this Holiday Season!


Monday, October 24, 2011

Montana’s New Uniform Power of Attorney Act

Effective October 1, 2011, Montana has adopted the Uniform Power of Attorney Act.  The new law applies to powers of attorney created before, on or after October 1, 2011, but an act done before this date is not affected by the Act.

Highlights of the new law include:


  • A power of attorney is durable unless it expressly provides that it is terminated by the principal’s incapacity;


  • A photocopy or electronically transmitted copy of the original power of attorney documents has the same effect as the original;


  • If a principal designates 2 or more persons to act as co-agents, each co-agent may exercise authority independently unless the power of attorney provides otherwise;


  • To preserve and protect the principal’s estate plan, and to protect against potential financial abuse, the power of attorney must contain express language to grant authority for certain acts or powers, such as gifting, changing beneficiaries, or creating trusts, that could dissipate the principal’s assets or alter his or her estate plan;


  • Protection for a third-party’s good faith acceptance or refusal of an acknowledged power of attorney in that the new law sets forth circumstances or “safe harbors” for when the power of attorney may be accepted or refused without liability, and providing for liability when a power of attorney is  unreasonably refused;


  • The new law does not apply to powers created on a form issued by a government or governmental agency for a governmental purpose.

In light of the new Act, it is important that you review your durable financial power of attorney and make any changes that you deem appropriate.


Saturday, October 15, 2011

Whither the estate tax?

We've been hearing a lot lately about what to expect concerning the federal estate tax, so I thought I'd share a few thoughts.  Of course, everything I say is strictly a guess!

The federal estate tax law with its $5 million exclusion (or "exemption amount") expires at the end of 2012, and we're back to the 2001 law with a $1 million exclusion - unless Congress acts.  What is likely to happen?

It's hard not to be cynical.  Congress seems unable to deal with issues in a mature, thoughtful manner.  Look at how the Administration and Congress threw together the current law last December.  So, this time again Congress is probably going to wait till the last minute and cobble something together.  

I think that it's possible but unlikely that Congress will let the current law expire without taking some action.  However, when I'm helping clients with their estate planning today, I'm advising that we carefully consider how their plan will work if Congress does not act.

If Congress does act, what do the insiders or "experts" predict?  The best case scenario seems to be that the exclusions will stay where they are.  However, many are saying that the the exclusions will be reduced.  Back to $3.5 million for estate tax and even $1 million for the gift tax.  Between the estate tax and the gift tax it's more likely that we'll see a substantial reduction in the gift tax exclusion.  

When will these changes occur?  Probably at the last minute: December 2012.  (Note, however, the Democrats on the "super committee" are floating the idea of reducing the exclusions at the beginning of 2012.)

If the gift tax exclusion does get reduced, what about people who made large gifts while the exemption was $5 million?  Will they find themselves faced with a taxable gift after the fact?  In the words of the tax geeks, will there be a "claw back"?  That is a possibility, although - if I can be a little optimistic - it seems likely Congress would not impose such a Draconian penalty on people who planned within the current law. Still, the safe option for people making substantial gifts is to maintain (or perhaps create through life insurance) liquidity to pay any increased tax resulting from a claw back.

We probably have 14 months to hone our predictions, so I'll leave it at that for now.  I'd like to hear your thoughts.  Am I being too pessimistic?


Tuesday, September 20, 2011

Dedication and Heart

Today I get to brag about my colleague and mentor, Jon S. McCarty.  His dedication and heart should serve as an example to everyone.  Although Jon is the managing partner at the firm and has a very busy practice, he has trained over the past two years to become an exceptional cyclist.  This year his accomplishments as a cyclist and humanitarian are worth noting.

Jon completed one of his goals, to bike the entire Going-to-the-Sun Road in Glacier National Park.  This is 48.7 miles through a mountain pass which at its highest point is 6,646 feet above sea level.  This is a remarkable feat of physical conditioning and courage.  This alone would be enough for most of us, but Jon went further. 

Not satisfied with biking almost 50 miles, just a few short weeks after his Glacier National Park ride, Jon completed a 100 mile bike ride for Special Olympics of Montana, and he raised more than $2,000.00 in donations.  Jon finished second, with a time of 8.5 hours.  He certainly went the distance for those athletes.

We are all so proud of you, Jon.  Good work and keep pedaling.



Wednesday, July 6, 2011

The Military’s Survivor Benefit Plan and the Disabled Child – Elect with Care

Great Falls is blessed to have Malmstrom Air Force Base as part of its community. Not only does the base support active personnel, but many military retirees have opted to live in the Great Falls area.  That being the case, I want to address an issue that is unique to military families. 

When retirement looms, a military family with a disabled child must carefully decide whether to name the child under the retiree’s Survivor Benefit Plan (SBP).  The SBP will pay up to 55% of the military member’s retirement pay to a spouse and/or dependent child. The military member can elect between coverage for a spouse only, a spouse and children, or children only.

While the SBP can be a significant benefit for the spouse, it can be problematic if there is a disabled child involved.  In most cases, a disabled child over age 18 can be designated an Incapacitated Dependent (DD Form 137-5) and, thus, be permanently eligible for Commissary and Exchange privileges as well as Tricare health care.  In addition, assuming the disabled child over age 18 has assets of less than $2,000 and minimal income, the disabled child will usually be eligible for Supplemental Security Income (SSI) and Medicaid.  

SSI benefits ($674 per month in 2011) are offset by unearned income to the disabled child.  Any unearned income over $20 per month offsets the SSI benefit dollar-for-dollar. Once the SSI benefit reaches $0, SSI, and in most cases, Medicaid, is lost.  If the member dies having chosen the SBP for the child only, the disabled child will receive 55% of the member’s income.  If that amount exceeds $674 per month, the disabled child will lose SSI and Medicaid.  If the member and spouse both die after having chosen the SBP for a spouse and child, the same thing happens.

What about having the SBP payments go to a Special Needs Trust for the benefit of the disabled child?  Would this “prevent” the child from having received the SBP payment and avoid the SSI offset?  Unfortunately, Social Security considers it to have been received by the child whether it goes directly to the child or to a special needs trust for the child, since by express federal statute the beneficiary is the child for SBP purposes.  What about just canceling the SBP payments?  Again, unfortunately, once they start, there is no way to stop them.

It is critical that the military member be aware of the impact of the SBP on a disabled child’s SSI and Medicaid benefits. To prevent the loss of SSI and Medicaid benefits, there are actions the member may take.  The first is to select the spouse only when making the SBP election when there is a disabled child.  The second option, if the member has a disabled child and has already made an SBP election that includes the child, is to apply to the Board for Correction of Military Records to modify the SBP election.  This option must be completed while the member is still alive since the SBP beneficiary payments to the disabled child start upon death.  The member must complete DD Form 149 justifying why the SBP selection option must not include children.  For example, the member might tell them he or she did not understand when originally making the selection that including children would have a severe negative impact on the disabled child’s other benefits.  

Thus, if you are eligible for the SBP and have a child with a disability, please take care in making your election, or take appropriate action if the election has already been made, to insure your child remains eligible for current/future SSI/Medicaid benefits.

Friday, June 24, 2011

Some simple planning ideas that are hard to carry out.

I spoke to a group of CPA's yesterday.  I had several suggestions for them that I think are relevant to everyone - client and professional - involved in estate planning.

First, the professional's job is to really, really listen to the client.  Without interruptons, without offering advice before all the facts and concerns are on the table, and without talking just to show how smart or knowledgeable the professional is.

The client's job is to share what his or her concerns really are.  Not so easy but crucial for good planning to occur.

The discussion should take as long as it takes.  No rushing, no deadlines, no impatience.  Good planning - that is really valuable to the client - is based on taking the time to think about and discuss the issues that are keeping the client awake at night as well as the issues the client may not have thought about.

This might take 45 minutes or it might take eight hours.  But then and only then is it time to talk about solutions.  Then it's the professional's job to propose solutions to the client's problems - and to explain the solutions so that everyone understands.  The explanation will be through spoken words, of course.  And they'd better be words that everyone is familiar with, no professional jargon.  But what about also drawing pictures and diagrams to explain?  They can really help.  Again, the idea is not to make the professional look smart.  It's to communicate clearly so that the client feels like he's been heard and that he truly understands the solutions being suggested.

Sounds pretty simple, doesn't it?  Well, it isn't.  But if we can work like this, we can do some great planning!

Monday, May 2, 2011

Loved Ones Becoming Adults

That special season is upon us again, graduation season.  Each year I really enjoy watching the seniors beam with pride as they leave high school behind and take off to enjoy the rich years of college.  Whether your son or daughter is a Grizzly, a Bobcat, a Duck or any other mascot, they should be aware of the new responsibilities that go along with their new found freedom.

 The State Bar of Montana has developed a good guide to turning 18, which is available on the State Bar website at  This gives an overview of legal issues that young adults may be facing.  Parents of young adults should also be aware of the changes that affect their rights.  Once your child turns 18, legally, they are their own person.  You may want to consider having your child execute a HIPAA Authorization and a Power of Attorney.  This will ensure that you can obtain medical information for your child and can still help manage their affairs, if needed. 

 Typically, this is the first time a young person has to deal with legal issues like contracts for loans and leases for apartments.  At a minimum, they need to read what they are signing and be aware of what they are putting themselves on the hook for.  As the parent, you may be asked to co-sign on loan documents or leases.  I am not advocating whether or not this is a good idea, but you should be aware of the benefits and risks of that.  By co-signing, your child may receive better terms or rates, which may allow them to build a credit history.  However, if you co-sign, you are making yourself responsible if your child cannot pay.  Also, for a lease, you would be on the hook for any rent or damages.

 You could say now that your child is leaving high school, the true life lessons will be taught.  Good luck on molding your children into responsible adults!


Friday, April 8, 2011

Planning with Special Needs Trusts

Parents sometimes think they must disinherit their disabled child in order to preserve his or her SSI/Medicaid benefits.  However, these benefits rarely provide more than subsistence.  Plus, this “solution” does nothing to help their child after they are incapacitated or die.  Consider using a “Special Needs Trust.”  This trust will provide funds to pay for certain expenses that enhance the child’s quality of life while preserving benefits. 

There are two types of Special Needs Trusts--one created with the beneficiary's money (self-settled or first-party trust), and one created with someone else's money (third-party trust).

Under the Medicaid rules, when a Medicaid beneficiary transfers his or her assets to another person, he or she is penalized.  A self-settled Special Needs Trust is an exception to the transfer rules.  It is also referred to as a “pay back trust” because it must include a provision requiring that Medicaid be paid back upon the beneficiary's death for Medicaid services provided to the beneficiary during his or her lifetime, to the extent that funds remain in the trust. There are other specific requirements for a self-settled Special Needs Trust, the most critical being that it is established and funded for a disabled person under the age of 65, it is established by a parent, grandparent, guardian or court, and that it is irrevocable.

A third-party special needs trust is one in which another person, such as a parent, creates a trust for a disabled person and uses his or her own assets, not the disabled person’s assets, to fund the trust.  Because of this, no Medicaid pay back provision is required to be in the trust.  Third-party trusts provide wonderful planning opportunities, such as, for example, funding the trust upon the parent’s death with the proceeds of life insurance.

In order to determine whether a Special Needs Trust is appropriate, it is necessary to know whether the person is receiving SSI, Medicaid or SSDI benefits.  Supplemental Security Income (SSI) is a means-tested program.  “Means tested" means that an individual's eligibility is based financial status, as measured by income and resources.  SSI benefits are paid to eligible persons, providing them with a minimum guaranteed income.  An SSI recipient is allowed to have $2,000 in resources.  Some resources are excluded from consideration for SSI eligibility consideration.  

Medicaid also is a means-tested program and pays for health care for those who qualify.  Its eligibility criteria are the same as for SSI and if one qualifies for SSI he or she automatically qualifies for Medicaid.

Social Security Disability Insurance (SSDI) pays benefits to people who are unable to work for a year or more because of a disability. The amount of one's benefit is based on one's work history.  SSDI is not a means-tested program.  Thus, a Special Needs Trust may be needed to protect SSI and Medicaid benefits, but it would not be needed for an SSDI recipient.

A Special Needs Trust will preserve assets for the benefit of the disabled person so that he or she can obtain government benefits, and have the trust assets available for additional comforts, enjoyment, education, entertainment and medical care not otherwise provided by the government programs.  All distributions of income and principal must be in the discretion of the trustee.  

Such trusts, then, can play an important role in a well-managed support system for the disabled person which maximizes the use of government provided services while still supporting the family’s care and enhancing the comfort of and enjoyment of life for the disabled person.


Monday, March 28, 2011

We now provide long-term care planning

-Advertising Material - We are launching a new area of practice: long-term care planning.  Because I want to tell you about it, I need to identify this note as "advertising material" according to the Ethical Rules of the State Bar. 

Here's what I want to talk about:

When families are confronted with situations where Dad needs nursing home care, they want Dad to be taken care of.  And they're more than willing to pay their fair share.  But they don't want to lose virtually everything that Mom and Dad worked so hard to accumulate.  They want Mom to be able to live comfortably, and they'd like something - at least - to be left for the kids. 

Long-term care planning can help families faced with these problems.
Up till now, when our estate planning clients have mentioned a fear of losing everything if they end up in a nursing home, we have been able to explain the rules involving long-term care and programs such as Medicaid.  But we have been frustrated at not being able to offer more solutions. 
Last summer we decided to remedy this situation by taking our learning about this area of the law to a higher level and making it an integral part of our practice.
To help us provide the best service possible, we have joined an organized dedicated to helping families faced with daunting medical and nursing bills.  It's called ElderCounsel.  Its members include approximately 300 law firms around the country who focus on long term care planning.  ElderCounsel hosts training for its members that is first-class.  Jon and I have attended two of their intensive workshops, and Laura will attend her first training in June.  ElderCounsel also allows us to pick the brains of specialists in the area.  And the organization has tremendous legal research and document resources.  So, in a relatively short period of time we've been able to launch this new area of our practice.
We are excited to be able to offer our clients this service.  We look forward to telling you more about it in the coming months.
Advertising Material

Friday, January 28, 2011

Naming a Guardian for your Minor Children

This is one of the most personal and difficult decisions my husband and I ever had to make.  The thought of somebody else raising our children was hard, and there were so many factors we had to go over.  We worried about everything, including who would have the time, the energy and the ability to take on our children.  We worried about the impact on the children of moving to an unfamiliar community and the importance of maintaining current relationships to help necessitate a sense of stability in their lives.  All of the considerations stacked up and were overwhelming.  What finally made us take the plunge and pick someone was that I knew what would happen if we did not make our wishes known.

I think it is important that everyone know the implications of naming and not naming a guardian for your minor children.  You name a guardian for your minor children in a Will.  By doing so, that person (or persons) is not bound to accept the appointment, but legally has an easier time establishing the guardianship and has priority under the law.  This can mean a smoother transition for your children, and may avoid family fights over who should get the children.  If a guardian is not named, a Judge will decide who will be the guardian, and use their discretion to determine whose appointment would be in the best interest of the minor.  Call me selfish, but I think I can make a better decision on who should care for my children than someone who has never met them.


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