DEATH TAX 
This is a made-up term that people usually use interchangeably  to refer to Estate Taxes and Inheritance Taxes.    It’s a generic term probably brought into existence to show opposition to the tax laws being churned in Congress once upon a time.

ESTATE TAX
Estate taxes can be imposed at the federal level and the state level.   These are the taxes that are imposed on the transfer of an estate over and above an exemption amount.    The next question you should ask is there a state estate tax for the my current state.       It looks like Texas does not have an estate tax or an inheritance tax, but that can all change in the future as you know.   But for 2012, you can pretty much rest assured that there is no estate tax at the state level here in Texas.    If you are out of state, check on it to be sure.

On the federal level, it’s a different story.   Currently, there is a $5 million individual exemption for 2012.   That means the first $5 million is estate tax free, then the value over and above that $5 million is taxed at 35%.    Know Congress will be “discussing” the future of this tax rigorously before the end of the year to determine what will happen next year.

The estate consists of an accounting of everything you own or have certain interests in at the date of death – note this also includes life insurance.   Yowza!   I found a handy  Estate Tax Calculator on the Smart Money website that nicely illustrates the assets that are included in an estate.     State Tax Exposure Meter 

INHERITANCE TAX
Inheritance taxes are imposed by state and are based on how much an individual inherits, not the total value of the estate.    There are only a handful of states that actually collect inheritance and Texas isn’t one of them.

To my clients who fall into the high worth category (and you know who you are), be aware of the tax changes that will be surfacing at the end of the year.   Start looking at it now.    You can quickly evaluate your assets in the financial section of your Survivorship Plan and keep an eye out for when that tax exemption changes.    Right now, it’s $5 million, but next year, it could go back to a $1 million exemption.     Double yowza!    

“I don’t have a lot of money or time to spend on planning.   What would be the one thing you would recommend I do for my elderly parents who are in their 70s?”

If I was in your boots, I would get all of the legal paperwork in place ASAP.    Having UP-TO-DATE legal paperwork in place is the cornerstone of making a transition as smooth as possible for your family and gives them the tools to carry out your parents’ wishes.    This goes for your own needs also!  If a person dies intestate (without a will) the state will determine how the estate will be divided.     Most people object to that course of settlement.     Without the proper Legal Power of Attorney, Medical Power of Attorney,  or Living Will,  family’s are hindered in their ability to act on your behalf in the event you become incapacitated.       The chance that an emergency can arise without these in place is a chilling thought to say the least.      This would be my first course of action.   For a list of the basic legal documents that you need, go to the Help Yourself page and you can download the list there.

Here are a couple of things to keep in mind:

Not Having a Beneficiary Designation on Your IRA
The question that comes up on a regular basis is, “What happens if I die without a beneficiary designation in place?”   “Your estate would be the default beneficiary,” is my usual response.   That would mean your heirs would eventually get the money…..along with a significant tax bill that could have been avoided.

Different Scenarios of Inheritance Require Different Actions
IRAs can be inherited from a spouse or a non-spouse.    These two scenarios are treated differently in the eyes of the IRS and have different options dictating what you can do with each of these.       Inheriting an IRA from a spouse is a little more straight forward while inheriting an IRA from a non-spouse has a few twists and turns.       Regardless of which one applies to you, talk to your tax adviser or CPA to make sure you take the best route and not give Uncle Sam more than he deserves.

Moving an IRA
I was surprised to learn that some custodians/companies holding IRAs forbid the transfer of an IRA to another custodian via a trustee-to-trustee transfer.   So… if you have an IRA with COMPANY A and your beneficiaries would want to transfer it to COMPANY B, you will need to check with the custodian of your current IRA account to ensure that it can be moved by your heirs without triggering an unnecessary tax bill.     This is a hidden surprise that is usually discovered after a death.

Required Minimum Distributions
If your 75 year old mother leaves you her IRA, note that she is under the IRA rule that requires her to take out a minimum distribution every year after she reached 70 1/2 years old.    If she passes away, make sure that the required minimum distribution (RMD) has been taken out BEFORE you transfer or take out any money.    There is a 50% penalty by the IRS if this is not done.      50% of the RMD could be significant.        So note the age of the person leaving you the IRA and take action accordingly.

If you are setting up your Survivorship Plan and it includes IRAs, 401Ks and/or annuities, make sure you let your heirs know that these have tax consequences associated with them and to see their CPA BEFORE they do anything with the money.     If you are on the receiving end as a beneficiary, you will also want to consult with your tax adviser or CPA.   It’s just one of those little “gotchas” that people don’t see coming.

Kevin Underhill’s heart was donated as a gift of life to a man named Ron Murray – a man who had only months to live, was very active and rides a bike!    Can you imagine your life if you were waking up daily knowing you had only a few months to live?   Better yet, can you imagine what his donor would have felt like to know he was able to give the gift of life?     It’s provocative to think through the situations from both sides.       Fortunately, to the credit of the Austin American Statesman and Ron Murray, they put together a short video to give you a look inside someone who is home to a new heart.      Take a quick look at this video now and come on back to this page and read further.   Go ahead, you have a couple of minutes.  
View the video.
Now doesn’t that just make you think, “what should I do if I fall into unfortunate circumstances and have the option to help someone live on and express their gifts?”         Personally speaking, I have always wanted to be an organ/tissue donor.    I signed the card years ago, but started questioning if I am “good to go?”    So a couple of days ago, I confirmed my desire to be a donor.     Here’s how I did it.

1.   I went to  www.organdonor.gov to get updated information.

2.  From there, I went through all the information they had on organ donation.

3.  I clicked over to our local/state Organ Procurement Organization (OPO) and registered with one of the 58 sites they have in TX.   I personally went over to TOSA .

4.  Entered my information in the form.

5.  Last step.   I am waiting on my donor card to get here in the mail.

It’s as easy as that.       Organ donation may not be for everyone, but I believe the majority of the people would be donors if they did a little research and learned more about it.      It’s one of those issues of Survivorship Planning that need to be ironed out way before your family is in the position to make that decision.

I bet if you ask Ron Murray, he might sing you a song if you register to be a donor.     What a sweet song that would be.  Think about it.

1.  how your accounts are set up.

2. how your family perceives they will have access to that money when you are gone.

As parents age, it is common to add a child or children to the account giving them the ability to write checks on the account to help in managing the money.     It does not mean that they are joint “owners” of the account.     In the financial and legal world, this is known as adding convenience signers to the account.     As part of a comprehensive Survivorship Plan, one looks at how the costs for the funeral are going to be covered as well as funds available to settle unfinished personal business such as pay bills or miscellaneous expenses.        You will be surprised to find out how controversial this can get among siblings trying to decide how a $10,000 funeral is going to be covered or how bills are going to be paid until an estate is settled.     They naturally assume that access to that account will be there to cover these expenses.     Not so says the Texas Probate Code, Section 438A.

d)  On the death of the party, the cosigner shall have no right of survivorship in the account and ownership of the account remains in the party.

This means that the account is part of the estate and will be treated as such by the bank.    Take note to visit with your bank and/or attorney to make sure this assumptions doesn’t trip your plans for your survivors.

I checked into specifics on the options a family has when a loved one dies with an “e-presence” out in cyberspace.               Here is a short list of the most common websites and how they handle accounts of people who have died.

Facebook
Facebook gives you a couple of options.     You can close the account or turn the account into a memorial where friends and family can leave notes or comments about the person.   Privacy is set to friends and family only and the profile become unsearchable, all personal sensitive information is stripped out of the profile and it prevents anyone from ever logging into it again.    To  create a memorial, you have to fill out their online form and submit a proof of death such as an obituary or news article about the person proving that they are, in fact, dead.    The link to the Facebook form to do this.    http://www.facebook.com/help/contact.php?show_form=deceased       or contact them directly to close the account (also submitting the appropriate proof of death.

If you come across a person on Linked-in who is deceased or if you have a family member who is deceased, you will need to notify Customer Service that the Profile still exists and may need to be removed. They request that you provide any important information about the deceased member that will help their Privacy Department in in investigating and acting on the account accordingly. Items to provide in your email would be one or two of the following:

1. An Obituary Link
2. A Death Notice
3. Consular Report of Death
4. Death Certificate

Per Google’s Website, you have to submit via fax or email a list of required documents to get access to the account.     I found information on what to do on their website -
http://mail.google.com/support/bin/answer.py?hl=en&answer=14300 .

I have read where Flickr (a photo sharing website) keeps the sites open but prevents any kind of access to photos marked Private.      They are owned by Yahoo now, and I was unable to find the issue addressed anywhere on their website.    The information was difficult to find, so you would have to contact them directly.

My Space gives you a couple of options also.   You can submit a request along with the required information to remove the profile or you can create a group profile (memorial) and link it to the deceased persons profile.      I found information at this location.     http://faq.myspace.com/app/answers/detail/a_id/369/kw/deceased%20person/r_id/100061

These are just a few of the most common websites where you may hold a membership.   If you have a business or a personal website, you also want to be sure and record who your host is and how to contact them in case of your death.       Online presence can last for years and maybe indefinitely, so this is just one more thing to include in your survivorship plan.   Let your family know where your footprints are in cyberspace to manage your presence responsibly.

Here are a few things you can do to keep your family off of the estate battleground:

1.   Note specific bequests in your estate plan.    If you leave all of your personal things to be split between your children equally, disagreements can flare up quickly if more than one of them has their eye on certain items.  (it seems improbable, but it happens frequently)

2.  If you have personal loans between family members, specify the terms in case of death explicitly!  This is a HOT issue in families today.

3.  Communicate your plans to your family directly.   It’s better hearing it from you than a reading of your will.

4.  If your estate plan is confidential, make a brief video explaining your reasoning behind your will.

5.  Do not depend on conversations only to communicate to your family.    Time has a way of fading the true color of your wishes.    Write it down!

Plan it, document it and communicate it!    It’s a simple concept with a HUGE impact.

Many people think that they have it all wrapped up with their legal documents in place; when in fact, the administration of an estate can be extremely taxing on their executor and/or families if details have not been  communicated.   Face it, our lives are like a complex piece of machinery.   There are lots of moving parts, some parts more critical than others, but without any instructions on what you are supposed to do with the machine when it is no longer in operation requires an instruction manual for disassembly.   Otherwise, it’s just a frustrating pile of pieces and parts.

You may want to add these to your “instruction manual”:

1. Online Accounts that don’t always have a paper trail such as online banks, investment accounts and even gambling accounts with current balances can easily be overlooked.
2. Valuable items without proper documentation can easily be mistaken for garage sale wares.
3. Let someone know you have a hidden stash.   Hidden valuables can accidentally be thrown out or donated.
4. Specific instructions on the disposition of personal items to specific individuals are often subject to individual interpretation. (can you say family fight over Mom’s antique clock?)
5. Tell your family about your safe deposit box at the bank and also where the keys are to the box.   Safe deposit boxes at banks are often forgotten along with the location of the keys.
6. Don’t wait for your family to discover automatic payments coming out of your bank account.   Automatic bank authorizations for various memberships, churches, on-going services, etc. will need to be addressed quickly.

Could your family figure out your machine?    Now, are you ready? Or not?