Here's a question I get a fair amount: "Should we list all of our property on a schedule attached to our living trusts?" I see trusts (usually older ones) with schedules attached, but my answer is typically "no." Property changes -- we buy a new house, switch our investment accounts from one custodian to another, and change our life insurance policies. To my mind, the schedule can raise confusion -- why does it list Schwab account #12345678 when no records for this account can be found?
A better solution is to make a list of your property, including how it's titled (or who the beneficiaries are), and put that list with your original estate planning documents. And make sure to update it every year or so.
"The Ethicist" column in today's New York Times magazine addresses the issue of whether to tell your friends that you are removing them as guardians of your children under your Will. The column is here.
I'm not an ethicist (insert attorney joke here), but I agree with Randy Cohen that there is no need to tell the friends about the switch. Especially when you are switching to family members (most people understand that blood is thicker than water). Maybe I feel this way because my wife and I did something similar. We named our friends as guardians of our daughter, but then switched to my sister and her husband once they got settled and had kids, and we saw that their parenting style matches ours.
A similar ethical issue (not discussed in "The Ethicist") involves telling people that they are named as guardians. I'm always surprised that people DON'T tell their friends/relatives that they have named them (or plan to name them) as guardians. I know this always makes for a heart-warming film ("lovable moppet(s) show up at the door of self-absorbed yuppie, who then discovers the value of family"), but it's significantly less heart-warming in real life. My advice: talk to those you plan to name, BEFORE you do so. (They may say no. That's what happened to the people my in-laws asked, when my wife was a kid.) And talk to those you have named, AFTER you do so, to fill them in on how things will work.
Up through 2009 (and starting again in 2011, assuming the law isn't changed), there was a federal estate tax. That was and will be the bad part, at least for people who owed or will owe tax.
The good part was that, in exchange for potentially being subject to the estate tax, you got a "step-up" in basis. Essentially, when an individual died, his or her assets took as their basis for capital gains purposes their fair market value as of the date of death. So, to consider an example,...
Mom buys a bunch of stock in Company X, starting in 1950 and continuing to her death. The actual cost basis for her purchases was $15,000.
Mom dies, and her Company X stock is work $500,000.
Mom's three kids are left the Company X stock under Mom's Will.
What is the basis in the Company X stock? During a year in which there's an estate tax, that's easy: it's $500,000. So, if the kids sell the stock after Mom's death, they pay capital gains on the difference between the sale price and $500,000.
But how is this handled in 2010? There are three main rules:
1. Instead of a step-up in basis, we have a carryover basis regime. So the basis in Company X would be $15,000. But...
2. There is still a step-up in basis for $1.3 million of assets passing to beneficiaries who aren't the decedent's spouse. And...
3. There is a step-up in basis for $3 million of assets passing to the decedent's spouse.
The major problem with a carryover basis regime is that, in many cases, it is difficult or impossible to calculate the decedent's basis in his or her property. (From what I have read, this was the problem when carryover basis was briefly made the law, back in 1976.) And I worry that the biggest result of this change in the law will be full employment for America's forensic accountants.
