Maine Taxes, Wills & Estate Planning Blog

The Uncertain Future of the Estate and Gift Tax in 2012

January 14, 2012 in Estate Planning, Taxes

Federal Gift and Estate Tax Exclusions Increase by $120,000 in 2012

As we head into a new year, the good news is that inflation adjustments kick in and the federal gift and estate tax exclusions are increased from $5,000,000 to $5,120,000.

But the Exclusions May be Repealed or Amended for 2013

The future of the gift and estate tax is uncertain and will likely be a campaign issue in the 2012 elections. What happens in 2013 will likely be decided at the last minute by a lame duck Congress.

The proposals in Congress run the gamut from a total repeal and abolition of the gift, estate and generation skipping transfer taxes (proposed by Republican House members) to allowing the gift and estate tax credit shelter exclusions to fall back to $1,000,000 on January 1, 2013 with a 45% maximum rate. In between, the Obama 2012 proposed budget calls for a $3,500,000 credit shelter and a 45% maximum rate.

The Senate has proposed compromises in the middle ground, retaining the $5,000,000 credit shelter but adopting the higher 45% maximum rate. The “Super Committee” considered scaling back the estate tax credit shelter to $3,500,000 as it was in 2009, scaling back the gift tax credit shelter to $1,000,000, and imposing a 45% rate.

None of these proposals attracted a consensus in 2011.

If You Have an Estate over $1 Million, Consider Taking Advantage of the $5 Million Gift Tax Exclusion Now

If you have an estate over $1,000,000 in 2012, the question is whether you should take advantage of the $5,000,000 gift tax exclusion which is currently available and which may not be available in 2013 and on into the future. Certainly there are some circumstances where large gifts will make sense from a transfer tax and family succession planning standpoint. If you own a family farm or family business, now may be the time for you to transfer substantial portions of family wealth to the younger generation without incurring a transfer tax. Likewise, this may be a particularly good time to consider transferring your family vacation property or residence to the younger generation, particularly if there are no future plans to sell.

Be Aware, however, of Potential Future Capital Gains Taxes

A principal drawback to a plan to transfer a substantial portion of your family wealth to the younger generation from a tax planning perspective would be the potential future capital gains tax issues that might arise from the carryover basis which results from a lifetime gift. By making a lifetime transfer, the potential gain on the property will be locked in and the possibility of obtaining a basis step up at death will be lost. If Congress decides to retain the current $5,000,000 estate tax credit shelter exclusion, using the gift tax exclusion now might lead to unnecessary future estate taxes.

Substantial gifts may take some time to implement. If you are interested in taking advantage of the currently available gift tax exclusion, it would be wise for you to begin planning now.

The “CLASS” Act and Planning for Home and Community Assisted-living Care

November 6, 2011 in Elder Law

The CLASS Act was enacted to provide federal assistance for long-term home or community assisted-living care

One of the most difficult problems facing families with an aging loved one is planning for the possibility of long term care in a nursing home or assisted living facility or planning for home care to enable the individual to be cared for in the home.

The 2010 Obama Health Care legislation includes a voluntary long term care insurance program known as the CLASS Act to enable individuals to buy coverage for community living services and support if they become disabled.

It is intended to help qualified working adults with physical or cognitive limitations to plan for their future long-term care needs with a basic cash benefit. It is also designed to help individuals with physical or cognitive limitations remain in the community by purchasing non-medical services and support such as home health care and adult day care. While the CLASS ACT benefit is not designed to cover the entire cost associated with long-term care needs, it is intended to help offset the costs incurred by millions of adults with chronic and disabling conditions. The CLASS Act has a goal of reducing the costs incurred by Medicaid in providing long term care services by providing these long term care services through insurance rather than under the Medicaid program.

As originally enacted, benefits would not commence until 5 years after the commencement of premium payments. Benefits were not intended to cover all costs of long term care but to provide families with assistance in meeting these costs.

Implementation of the CLASS Act is delayed indefinitely

The CLASS ACT was scheduled to become effective on January 1, 2011 but the Secretary of Health and Human Services was given until October 2012 to develop specific details including benefits and premium structures.

However, it now appears that implementation will need to be delayed indefinitely. The Department of Health and Human Services has indicated that the plan will not be implemented unless an actuarially sound design of premiums and benefit structures can be established. The challenge for DHHS is to design a premium and benefit structure that will be self sustaining and not require subsidies from taxpayers. So far, the actuaries in the Department of Human Services have not been able to come up with a satisfactory premium schedule.

Alternatives for long term home and community assisted living care

Even if federal assistance becomes available to help with the cost of long term home and community assisted living care, you will want to plan ahead for these long term care options for you or your loved one. Alternatives include private long term care insurance, long term disability insurance, planning for home care, and planning for Medicaid eligibility.

We recommend that you plan now. There are steps you can take today that will help with long term care– and its costs — tomorrow. Call me at 207-774-2635, or e-mail me at phunt@perkinsthompson.com, if you would like more information, or legal assistance with your planning.

Basic Estate Planning: A Check List For You and Your Attorney

August 13, 2011 in Estate Planning, Trusts

Here is a checklist of things to cover when working with your attorney on your estate plan:

Confirm your “domicile” state to avoid multi-state tax and administrative problems.
Execute or update medical authorizations and living wills.
Designate an agent on a durable power of attorney.
Decide whether to name in writing someone to be your guardian or conservator if the need arises.
Review existing assets to determine how title is held. Review retirement plans, IRAs, and insurance policies, and change beneficiaries if necessary or appropriate. Also review bank and investment accounts to determine ownership and succession.
Review and update your wills and trusts.
Decide whether to create a living trust or to fund an existing but unfunded trust to manage assets. Potential advantages are privacy; avoidance of probate administration; professional management during disability; and continuity of administration.
If you have any power of appointment over assets held in trusts created by others, decide whether such powers should be exercised.
Estimate potential estate tax liabilities and determine sources of funds to pay such taxes. (The federal estate tax was reinstated in 2011, affecting persons with estates over $5,000,000. Maine estate taxes affect estates of $1,000,000 but the Maine exemption will increase to $2,000,000 in 2013.)
Consider annual gifts. (The elimination of the “gift in contemplation of death” rules for assets other than insurance may suggest making lifetime gifts to children and grandchildren under the annual exclusion to shelter gifts of up to $13,000 per donee. There are additional exclusions for direct payment of medical and educational expenses.)
Consider marital gifts. (During times when the federal and state estate taxes are in effect, marital gifts may provide a means to assure that you can fully use your available estate tax credit. Marital gifts to your surviving spouse may aid your surviving spouse’s comfort during the period of estate administration.)
Determine if you have received any property from a decedent and whether there may be a credit available under Code Section 2013.
Consider generation skipping transfers to use the exemption from GST tax.
Consider ancillary procedures. (If you have real estate or other property in other jurisdictions that would require ancillary administration, consider gifts or the use of trusts or family liability companies to minimize ancillary administration costs.)
Determine the likely needs of your estate for cash to pay debts and expenses of administration and plan for meeting such needs. (Possible considerations include flower bonds, life insurance, sales of business interests or other illiquid assets.)
Assure that appropriate arrangements have been made with respect to family business interests including successor management, voting of stock, access to bank accounts and business records, and possible buy sell or other agreements with respect to stock.
Decide if you should take any steps to plan for long term care, either through home based care or nursing home care, including the alternatives of long term care insurance and possible qualification for state assistance under the Mainecare program. (If Mainecare eligibility is likely to be an issue, and your spouse will remain at home, consider transfers of assets to your spouse to fund a community spouse resource allowance and to fully fund the community spouse income allowance. Also consider maximizing the use of excluded resources and allowable transfers of assets under existing regulations.)
Consider burial or other funeral arrangements, organ donations, and obituary.
Consider charitable gifts, such as: lifetime gifts; gifts at death; gift annuities; pooled income funds; charitable remainder trusts; gifts of remainder interests; gifts of life insurance; and gifts of retirement plan benefits.

Maine Estate Tax Reform

July 1, 2011 in Estate Planning, Taxes

The Legislature has passed and the Governor has signed a significant estate tax reform package.

The big news is that the Maine credit shelter exemption will increase from $1,000,000 to $2,000,000 per taxpayer as of January 1, 2013. A married couple will be able to shelter $4,000,000 from Maine estate taxes.

In addition, the estate tax rate structure has been changed as of January 1, 2013, to eliminate the current “cliff tax” on estates which exceed the credit shelter amount. The rate will be 8% on amounts in excess of $2,000,000 and less than $5,000,000, 10% on amounts in excess of $5,000,000 and less than $8,000,000 and 12% on amounts in excess of $8,000,000.

Technical corrections have also been made to the Maine QTIP marital deduction for persons dying after December 31, 2010 so that Maine estate taxes can be deferred until the death of a surviving spouse.

In addition, the time for audit and assessment of estate taxes has been reduced, enabling estates to be closed and distributed sooner.

These are positive developments which should improve the tax climate for Maine residents. I recommend that you check with your attorney to be sure that your Will and Trust are structured to enable you to benefit from these new provisions. If I can help, you can reach me at phunt@perkinsthompson.com.

The New Estate Tax Legislation

December 19, 2010 in Estate Planning, Taxes, Trusts

The new estate tax legislation, passed by Congress on December 17, 2010, will greatly change the estate tax as we have known it.

The key feature of the legislation is to provide a $5,000,000 estate tax credit shelter for each person ($10,000,000 for a husband and wife) instead of the $1,000,000 credit shelter that would have become effective on January 1, 2011. The $5,000,000 estate tax credit shelter is made effective retroactively to January 1, 2010. The $5,000,000 credit shelter will be indexed for inflation beginning in 2012.
There will be “portability” of the estate tax credit shelter exemption between spouses if the first spouse to die does not use all of his or her exemption. In other words, you will be able to leave your entire estate to your spouse together with your unused credit shelter so that the surviving spouse will have $10,000,000 of credit shelter exemption available.
The maximum estate tax rate will be capped at 35% (instead of the 55% rate which would have gone back into effect on January 1, 2011).
The gift exemption will remain at $1.0 million for 2010 but will be unified with the estate credit shelter exemption (i.e., $5.0 million) beginning in 2011. The rate on taxable gifts in excess of the credit shelter exemption is the same maximum 35% rate.
The generation skipping transfer tax rules will apply to 2010 “GST transfers” but the GST tax rate is zero. The GST exemption will be equal to the estate tax exemption, so there will be $5.0 million of GST exemption for 2010 that can be allocated to 2010 transfers.
Direct skip gifts in trust or “taxable distributions” in further trust for grandchildren or more remote descendants in 2010 will incur no current generation skipping transfer tax and will not create the potential problem of having the GST tax apply to later distributions from the trust to the grandchild.

There is a special transitional rule for the estates of persons who died during 2010. Such estates may choose to proceed under the new law with a $5,000,000 credit shelter and a full “step up” in basis or the may elect to proceed under the 2010 estate tax repeal which will require a “carryover” basis for estate assets in excess of $1,300,000 (with an additional step up for gifts to a spouse).

The increase of the estate tax credit shelter exemption to $5,000,000 ($10,000,000 for a husband and wife) will eliminate federal estate tax concerns for many readers who may, in the past, have structured their estates to create “credit shelter” trusts rather than make marital gifts to a spouse. The increase of the “credit shelter” amount may have the effect of eliminating desired gifts to the spouse and readers may wish to change their documents to assure that spousal gifts will be made.

The availability of the opportunity to carry over a deceased spouse’s unused estate tax credit shelter may also eliminate or reduce the need for credit shelter planning for the first spouse to die. Gifts to the surviving spouse may be more attractive as a planning opportunity.

The increase of the estate tax credit shelter exemption may also alter your perceptions about the desirability of making lifetime gifts. The increase of the credit shelter exemption and the availability of a step up in the basis of assets passing at death may be an incentive to hold assets rather than transfer them by lifetime gift.

The increase in the generation skipping transfer tax exclusion may make the idea of multi-generational “dynasty trusts” more attractive.

The State of Maine has not at this point increased the Maine estate tax credit shelter to match the new federal exemption equivalent. Maine will still impose its estate tax on estates in excess of $1,000,000. Accordingly, you will want to make some provision to use the available Maine exemption.

We recommend that you contact your tax and estate planning attorney as soon as possible to review your current Wills and Trusts and consider whether any changes need to be made. If you do not have an attorney, I would be happy to assist. You can learn more about my work and expertise on my Phil Hunt webpage.

Before 2011, Get Ready for Changes in Estate Tax Law

December 7, 2010 in Uncategorized

PLAN FOR ESTATE TAX CHANGES BEFORE THE NEW YEAR

As things currently stand, with less than a month to go in the 2010 tax year, the federal estate tax and generation skipping transfer tax are temporarily repealed by Congress. However, on January 1, 2011, the federal estate tax and generation skipping transfer tax will be reinstated as they existed in 2001 with a $1,000,000 credit shelter exemption and a marginal effective rate of 41% increasing incrementally to 55% for estates in excess of $3,000,000. If Congress allows this to happen, many people who thought that they were free from estate tax concerns will need to rethink their arrangements to minimize the estate tax impact. I recommend you set up an appointment with your attorney now to review your current arrangements.

GIVE ANY TAX FREE CASH GIFTS BEFORE THE NEW YEAR

You can reduce your estate by making annual (and sizable) cash gifts to any children, grandchildren or great-grandchildren. Even if major changes happen with estate taxes in 2011, annual gifting remains a cornerstone of good estate planning for 2010. Currently, you can give up to $13,000 to an unlimited number of people, with no tax consequences whatsoever. If you’re married, you and your spouse can each give $13,000 as gifts to your heirs or others, so that’s $26,000 per recipient. All the money you give will be removed from your estate.

MAKE YOUR TAX FREE COLLEGE TUITION AND MEDICAL EXPENSE GIFTS

In addition to the annual giving exclusion, you can make gifts to pay college tuition so long as payments are made directly to the educational institution. You can also make gifts for payment of medical expenses for your children and grandchildren without gift tax impact.

MAKE YOUR TAX FREE”LIFETIME” GIFTS UP TO $1 MILLION

You can also consider making larger gifts using the $1,000,000 per person gift tax exclusion. Although lifetime gifts may reduce the estate tax credit shelter exemption available when you die, there may be an advantage to transferring assets which are likely to increase in value in the future. This strategy may be particularly helpful given the relatively depressed financial and real estate markets. But remember that for lifetime gifts your beneficiary takes over your “cost basis” in the asset and may be subject to capital gains tax if the asset is sold.

Gifts in excess of $1,000,000 will generate a gift tax at a marginal rate of 35% but event taxable gifts may be advantageous given the higher rates that will apply if the property is held until death and becomes subject to estate tax. Gift tax rates are scheduled to increase in 2011 to 55%. And gifts in excess of $1,000,000 may generate an unnecessary current tax if Congress does decide to increase the estate tax credit shelter exemption so caution would need to be exercised in making large gifts.

Because there is no “generation skipping transfer” (GST) tax in effect this year, making substantial gifts to grandchildren and other remote descendants is a particularly attractive strategy this year end. The GST tax is scheduled to be reinstated next year with a $1,340,000 exclusion (Originally $1,000,000 adjusted for inflation).

ACT NOW–BEFORE THE NEW YEAR!

Time is running out for 2010 transactions so you will want to contact your advisors as soon as possible to complete transactions by year end.

Taking a Third of Your Spouse’s Estate

December 5, 2010 in Estate Planning, Trusts, Wills

A SPOUSE CAN DECLINE TO INHERIT UNDER HER SPOUSE’S WILL AND, INSTEAD, CAN TAKE A THIRD OF HER SPOUSE’S ESTATE

If your spouse passes away while domiciled in Maine, you can choose between inheriting under your spouse’s Will or taking a third of his or her “augmented estate”.

If your spouse dies while domiciled in Maine, you have the right to choose between inheriting under your spouse’s Will and receiving an amount equal to one third of the value of his or her “augmented estate”. You are provided this choice by Maine statute. Its purpose is to guarantee you, as the surviving spouse, at least a third of your spouse’s estate, regardless of what your spouse provides for in his or her Will. This provision is part of the Uniform Probate Code that the Maine Legislature enacted in 1981.

Your statutory choice to elect a one-third share of your spouse’s augmented estate is the culmination of a long evolution in Maine law on women’s rights to property. See the history of marital rights to the spouse’s estate.

What is an “augmented estate”?

The term “augmented estate” in Maine means your spouse’s probate estate (these are assets held by your spouse in his or her name alone), minus funeral and administrative expenses, allowances (the $10,000 homestead allowance and presumptive $12,000 family allowance) and exempt property ($7,000), plus enforceable claims and the value of property in which your spouse had rights (such as jointly owned assets, financial gifts to others as to which your spouse retained the right to receive income during his or her life, and property transfers which he or she could revoke, unless you specifically consented to such gifts and transfers).

An augmented estate does not include life insurance, accident insurance, joint annuities, or pensions payable to someone other than you as the surviving spouse.

An augmented estate does include the value of property transferred to you as the surviving spouse and other categories of property that you may have transferred for less than full value during marriage.

Maine law protects the estate plan your spouse made to have designated properties go to you, as she or he intended .

Maine statute provides for assets to go to you as planned by your spouse, such as property he or she set up to go to you at death, by survivorship or by beneficiary designation. These assets are “charged against” the value of your elective share.

You can waive your right to the one-third elective share.

You can waive your right to elect a one-third share while your spouse is alive, by a written document. A waiver of “all rights” in property in divorce or separation agreement or pre- or post- nuptial agreement includes a waiver to the one-third elective share.

As a second spouse, you still have the right to the one-third elective share.

Even as the second (or third, or more) spouse, you still have the right to claim the one-third elective share. Many Maine residents, particularly in second marriage situations, assume that they are not required to make provisions for their new spouse, and are not aware that the second spouse has a statutory right to a third of his or her spouse’s estate.

When making your estate plan, consider the one-third elective share option.

Planning for marital rights is an important part of any estate plan. To learn more about your and your spouse’s statutory rights to your estate and to make sure that appropriate provisions are made, you can contact me, Phil Hunt, or other Maine estate planning lawyers.

The History of Marital Rights to the Spouse’s Estate

December 5, 2010 in Estate Planning, Trusts, Wills

The issue of the rights of a married person to claim a share of the estate of a deceased spouse contrary to the terms of the deceased spouse’s Will and other estate planning documents is a fascinating historical study of evolving law which is little understood by members of the public.

The earliest forms of marital rights in Maine were the concepts of “dower” and “curtesy” which had emerged from the English common law and became part of the law of Maine when the State was formed from Massachusetts in 1820.

At common law, a husband and wife were considered to be one person, and, although the marital unit was described as being “two bodies with one mind,” the mind was that of the husband who solely controlled the marital estate. At common law, a married woman essentially had no legal capacity to own or acquire property in her own right.

Until the enactment of the Married Women’s Property Acts in Maine in 1844 and 1847, married women were not entitled to own property separate from their husbands. The husband, essentially, had full control of the marital estate.

If a woman married, her husband became entitled to the exclusive possession and control of all of the woman’s property until the marriage was dissolved by death or divorce. If a child were to be born of the marriage, the husband acquired an additional right to a life estate in the property brought by the wife to the marriage which was referred to as the right of curtesy.

The right of dower was available to a surviving widow and essentially assured that the widow would be, at a minimum, entitled to a life estate in 1/3 of the lands of her husband acquired at any time during the marriage. During the husband’s life time the right of dower was considered to be “inchoate” and, at death, the dower right became “consummate” and the widow became a “dowager” who was entitled to a dower right.

The husband could not defeat the widow’s dower right by transferring property away during his lifetime unless the wife formally released her dower right in the deed of conveyance.

The widow’s share was not solely for the protection of the widow. Much of the early case law addresses the need for the widow’s share as a protection for the State and local towns as being a means that the “poor widow” would not become a “public charge” to be maintained by local governments under the Poor Relief laws.

The law of dower and curtesy persisted in Maine until 1896 when a new concept of a spousal share was enacted by statute. Dower and curtesy were abolished and replaced by a “statutory share” which was available to both a widow and a widower.

The new concept of a statutory share essentially provided that, instead of a life estate, a husband and wife would each be entitled to a 1/3 share in fee of all properties owned by each during the marriage unless the other spouse “joined and released” his or her marital rights in the deed of conveyance.

Under this statutory scheme, the “spousal share” attached to specific properties or parcels of land. As a young pup lawyer in Maine in the 1970s, I recall the need to carefully review deeds of conveyance to ascertain the marital status of the record title holder and to verify whether or not the spouse had “joined and released” all spousal rights in property.

Although the “spousal share” legislation did provide broader protections for a surviving spouse, the legislation and case law still included a theme of protecting state and local governments from having to bear the support of the widow (or widower) as a public charge. Part of the motivation of enacting such laws would be to assure that the widow (or widower) would be able to be supported by the properties of the deceased spouse.

The “spousal share” legislation, however, turned out to be an imperfect way of protecting the spouse and the State. Estate planning concepts involving the use of non-probate assets such as joint ownership, life insurance, and trusts emerged which made it possible for a spouse to circumvent the marital rights laws. As a law student in the 1970s, I well recall my professors touting the revocable trust as a mechanism for avoiding and evading the grasping hands of the greedy spouse.

In 1979, Maine adopted the Uniform Probate Code which became effective on July 1, 1981 which completely restructured the traditional approach to spousal rights in the estate of a decedent.

Under the approach of the Uniform Probate Code, a surviving spouse (and, in some jurisdictions, a qualified domestic partner) has the right to reject the provisions of the decedent’s Will and claim a statutory one-third share of the decedent’s estate.
The Maine statute governing the elective one-third share is appears in 18-A M.R.S.A. Section 2-201 to 2-207.

Intestacy: What Happens in Maine if You Don’t Have a Will

October 10, 2010 in Elder Law, Estate Planning, Uncategorized, Wills

IN MAINE, IF YOU DIE WITHOUT A WILL, MAINE LAW WILL DECIDE WHO INHERITS YOUR PROPERTY

If you reside in Maine, and die without a will, your property is said to pass by “intestacy”, and Maine law will decide how your property, called your “probate estate”, will be distributed.

How much of your estate your spouse will receive depends on who else in your family survives you.

Unlike the laws of some states, under Maine’s intestacy law, your entire probate estate does not pass automatically to your surviving spouse. The share of your probate estate that your surviving spouse will receive depends on whether you leave surviving parents or “issue”. Your “issue” are your lineal descendants—your children, grandchildren, great-grandchildren, or even more remote descendants.

[NOTE: Some kinds of property typically are not part of your " probate estate", and Maine's intestate laws don't apply to such property. These include life insurance policies payable to a named beneficiary, IRAs and retirement plans that name a beneficiary; property held "in trust"; land held in joint tenancies with right of survivorship; joint and survivor bank and investment accounts, payable-on-death bank and investment accounts or negotiable securities, and annuity contracts naming a beneficiary.]

If you leave no surviving parent or “issue”, your surviving spouse receives all of your probate estate after your debts, expenses of administration, and statutory allowances (explained below) are paid.

If you leave a surviving parent but no surviving issue, your spouse receives only the first $50,000 plus one half of your probate estate after your debts, expenses of administration, and statutory allowances are paid.

If you leave no surviving parent but leave issue, all of whom are descendants of you and your spouse, your spouse receives the first $50,000 plus one half of your probate estate after your debts, expenses of administration, and statutory allowances are paid.

If you leave no surviving parent but leave surviving issue, any of whom is not your spouse’s issue, your spouse receives only half of your probate estate after payment of debts, expenses of administration and statutory allowances.

If you have no spouse, but have a “registered domestic partner”, your registered domestic partner has the same right to inherit all or part of your probate estate as a surviving spouse. A “registered domestic partner” is a person who has been identified as a registered domestic partner with the Maine Domestic Partner Registry which is maintained by the Maine Bureau of Vital Records. This provision became effective law in Maine in 2004, in the context of the continuing debate over gay marriage.

In Maine, the balance of your probate estate, after distribution to your surviving spouse or registered domestic partner as described above, is divided as follows:

If you leave issue, your probate estate is divided among your issue “per capita at each generation”;
If you leave no surviving issue, then the balance of your probate estate passes to your parents in equal shares;If you leave no surviving issue or parent, then the balance of your probate estate passes to the issue of your parents, “per capita at each generation”;
If you leave no surviving issue or parent or issue of a parent, then the balance of your probate estate passes to your grandparents or their issue, half to the maternal side and half to the paternal side (unless there are no surviving issue on one side, in which case the rest of your probate property passes to the surviving issue).
If you leave no surviving issue or parent or issue of a parent or grandparent, or issue of a grandparent but you are survived by great-grandparents or issue of great-grandparents, then the balance of your probate estate passes to the great-grandparents or their issue, half to the maternal side and half to the paternal side (unless there are no surviving issue on one side, in which case the rest of your estate passes to the surviving issue).
If there are no surviving issue of great-grandparents, then the intestate estate passes to the State of Maine.

An example of how Maine’s intestate law distributes estates “per capita at each generation”:

Suppose Mary has three children: Aaron, Ben and Charlie. Aaron has one child, Aaron, Jr. Ben has two children, Ben, Jr. and Betty. Charlie has three children, Charlie, Jr., Corey and Cheryl. Mary dies without a will and all three children survive her. Aaron, Ben and Charlie each receive a one-third share of Mary’s estate.

Suppose all three children die before Mary does. There are 6 grandchildren. Each grandchild receives a one-sixth share of Mary’s estate.

Suppose Ben and Charlie die before Mary does, and Aaron survives her. Aaron receives a one-third share, and the remaining two-thirds are divided among the 5 grandchildren, being Ben and Charlie’s children.

Maine has special inheritance rules for stepchildren, adopted children and children born out of wedlock.

Maine’s Probate Code has special rules defining who is a “child” or “issue” for purposes of inheriting your estate when you die without a will. The term “child” does not include your step child or foster child. However, your relatives of half-blood take the same share as your full-blood relatives. There are also special technical rules for addressing the inheritance rights of your adopted children and children born out of wedlock.

Maine’s rules governing adopted persons or persons born out of wedlock can be quite complex and as a result you would be wise to make a will rather than rely on Maine’s intestacy law to decide these issues.

To be considered your survivor under Maine law, your spouse and relatives must have survived you by at least 5 days.

In Maine there is a 120-hour (5 day) survival period in determining your intestate heirs. A person who fails to survive you by 120 hours is deemed to have died before you.

When do a surviving spouse and children receive funds before creditors?

Maine law provides three statutory allowances for your surviving spouse and children, which allow them to receive funds before payment of unsecured creditors’ claims. These include:

the “homestead allowance” of $10,000 for your surviving spouse, or, if none, for your dependent children,
an “exempt property” allowance of $7,000 for your surviving spouse or, if none, your children, and
a “family allowance” of up to $1,000 per month for a year or $12,000 lump sum for the support of your surviving spouse and dependent minor children.

Maine’s Probate Court may grant a greater or lesser “family allowance” if warranted.

A spouse who is omitted from the decedent’s Will may have a right to claim a share of your estate.

In Maine, a spouse omitted from a Will may have a right to claim a share of the estate. If you die with a Will, but fail to provide for your spouse in the Will, and he or she was married to you after the Will was executed, your spouse may claim an intestate share of your probate estate just as if you had died without a Will.

[NOTE: This protection for an omitted spouse is different from the right of a surviving spouse to reject the terms of your Will executed after the marriage and claim instead an “elective share” of your “augmented estate”, a topic to be addressed in a future blog entry).

If you have or adopt children after you make your Will, Maine law will still allow those children to claim a share of your estate.

Maine law protects your children who were born or adopted after you made your Will, and who are not otherwise provided for in your Will. The child may claim an intestate share unless (1) your Will states that the omission was intentional, or (2) when you made the Will, you had other children and nonetheless gave all or most of your property to the other parent of the omitted child, or (3) you provided for the child outside of the will and demonstrated your intent that the provision was instead of a gift in the will, such intent being shown either by your statements or other evidence.

A Will helps you to provide for your family and loved ones the way you intend.

Things can become complex for your spouse and children if you die without a Will in Maine, and your estate may be distributed in ways you did not intend. Making a Will does not have to be involved or expensive. If we can help, you can contact me, Phil Hunt, at 774-2635 or at phunt@perkinsthompson.com.

Making a Will in Maine

September 6, 2010 in Estate Planning, Taxes, Wills

FIVE GOOD REASONS TO MAKE A WILL

Having a Will Ensures that Your Wishes will be Honored. In Maine, if you do not have a Will, State law will determine how your property will be distributed and who will manage your estate upon your demise. With a Will, you are the one who decides to whom and how your assets will be distributed and who will take care of your financial affairs.
A Will May Be Your Main Estate Planning Document. In simple estate planning situations, a Will may be the main document in your estate plan. In more complex estate planning situations, you may want to use a “Revocable Trust” as the main document in your estate plan. In this situation, your Will “pours over” any assets which you did not transfer to the Revocable Trust during your lifetime to the Trustee for the Trust to administer.
A Will Can Be Drafted to Reduce Your Estate Taxes: Your Will can take advantage of estate tax planning options to lessen the estate tax impact such as charitable gifts, marital deduction gifts, and credit shelter gifts. Your Will can include instructions on how to administer specific properties, including estate and income tax elections.
A Will Can Provide for the Care of Your Children and for Those You Care for Who are Disabled: If you have minor children or are responsible for the care of disabled persons, you can appoint in your Will a guardian to have custody and care for them, and a conservator or guardian of the property to be responsible for administering property for them. You may also provide for any share of your estate passing to a minor or disabled person to be held in a trust.
With a Will, You Decide Who is Your Personal Representative: Your Will also designates a Personal Representative (or Executor) to handle your affairs after your demise. The Personal Representative collects your assets, administers your estate, settles claims and tax obligations, and arranges for distribution of your estate to those you have selected to be your beneficiaries.

HOW TO MAKE A WILL IN MAINE:

In Maine, any person 18 or more years of age who is of “sound mind” may make a Will. The “sound mind” standard means you can identify the natural objects of your bounty and be able to identify, in general terms, your assets and liabilities.

In Maine, you must be the person signing the Will, or someone can sign in your presence and at your direction. Your Will must also be signed by at least 2 persons who witnessed your signing or your acknowledgment of your signature. Standards may vary in other states and countries.

WHAT SHOULD GO INTO YOUR WILL:

Will drafting is not recommended as a “do it yourself” exercise. You should always obtain knowledgeable counsel and advice to be sure that your Will is properly prepared and executed. Here are some points that your counsel will address.

Declaration and Publication. A Will should contain:
1. A statement that you are making your Last Will, revoking all prior Wills and Codicils. A “codicil” is an amendment or modification of an existing Will.
2. A declaration of your domicile or legal residence, which is helpful in defining where the Will should be offered to a Court for “probate”. (“Probate” is a term derived from the Latin word meaning “to prove” and a Will which has been accepted for probate has been “proved” to be the last Will.). The declaration also defines what State laws, including State estate tax laws, apply to your estate.
3. A statement of family relationships: Identifying spouses and other family members by name helps to define your legal heirs and demonstrate your knowledge of the likely objects of your bounty.
Direction to Pay Debts and Taxes. Although your Personal Representative is responsible to pay to your debts and tax obligations, you may identify in your Will how these expenses will be paid and identify the source of funds for payment of debts and taxes.
Disposition of Tangible Personal Property. You may give specific directions about who will receive tangible items such as automobiles, household possessions and family heirlooms. In Maine, you can either make gifts of personal property in your Will or you can make reference to a separate written memorandum.
Specific Gifts. You can provide for gifts of cash or specific items of property to beneficiaries of your choice. Be sure to provide alternate dispositions in case the original beneficiary does not survive you or declines to accept the gift. Also bear in mind the possibility that the specific item in question may be sold or disposed of or given away by you during your lifetime or that an investment may change in form as a result of mergers or acquisitions, so you can provide for this possibility.
Charitable Gifts. You can provide for specific gifts of money or property to charitable organizations. Be sure to verify the correct name of the charitable organization and confirm that the organization has, in fact, been recognized as a charitable organization by the Internal Revenue Service. Alternate provisions should be included in case the organization changes its name or ceases to exist or no longer qualifies as a charitable organization.
Tax Qualified Gifts. If you plan to use the Will as the principal document in your estate plan, you may include marital deduction qualified gifts and credit shelter qualified gifts in your Will. Estate taxes can be quite complicated and you will want to be sure to work with your counsel to meet statutory requirements so as to minimize estate taxes.
Residuary Gift. All well-drafted Wills contain a “residuary gift” to specify how any of your remaining or “residual” assets are to be distributed. In drafting a Will, you will want to plan carefully about what will happen to the share of a residuary beneficiary if he or she predeceases you. In cases where you use a Revocable Trust as your principal estate planning document, the residuary clause will “pour over” into the Trust. A “Revocable Trust” is a written agreement between you and a “trustee” in which your trustee agrees to manage the property in accordance with your directions and instructions. A “Revocable Trust” can be “revoked” at any time during your lifetime so that you are always in control of your assets. The “Revocable Trust” can be a helpful way of passing assets without the involvement of the probate court, protecting family privacy, and providing for management of assets if you become ill or disabled.
Trust Provisions. In addition to “Revocable Trusts” you can also create trusts in your Will. These arrangements are called “Testamentary Trusts.” If you provide for the creation of trusts for beneficiaries (such as a marital deduction trust, credit shelter trust, or trust for minors), you will want to include provisions to govern the Trustee’s duties and responsibilities in administering the trust fund. This might include a reference to the trustees’ powers under State law or a detailed recitation of the Trustee’s powers.
Personal Representative Powers. A “Personal Representative” (sometimes called the Executor or the Administrator) is the person whom you designate to settle your affairs, collect your assets, pay your bills and expenses, and distribute your assets to your chosen beneficiaries. You may want to specify in detail the powers of your Personal Representative, either by referring to the powers of the Personal Representative under state law or by listing these powers in the Will. Your Will can include directions to the Personal Representative about exercising various tax elections.
Nominating Guardians and Conservators. If you have minor or disabled children, you should nominate persons to serve as guardians and conservators. Guardians are responsible for personal care needs of the individual. Conservators are responsible for managing and controlling property of a minor or disabled person.
Nominating Personal Representatives. You should nominate the person who you wish to be responsible for administering your estate.
Execution and Acknowledgement. Traditionally, a Will concludes with an “attestation” clause in which you declare the document to be your last Will and sign it in the presence of the number of witnesses required by state statute who will sign the Will in your presence. Wills may be typically “self proved” through a procedure by which you and the witnesses sign in the presence of a notary public and complete a “self proving” affidavit.

Special Forms of Wills

Nuncupative Wills. A nuncupative Will is an oral Will. Under certain circumstances, typically involving a soldier or sailor in a war zone or emergency, it may be possible to establish an oral Will. These are not recommended due to the difficulty of proof.
Holographic Wills. A holographic Will is one which fails to meet the execution requirements imposed by law (typically due to the lack of appropriate witnesses’ signatures). Such a Will is valid regardless of whether or not witnessed if the signature and material provisions are in the handwriting of the testator. These are not recommended due to problems of proving the validity of the handwriting and the lack of witnesses who can testify about the circumstances of signing the Will.
Statutory Form Wills. Maine has an official statutory form of Will which can be obtained from the Registers of Probate. The form is somewhat difficult to complete and should not be used without appropriate instruction.

Planning Ahead Will Help You and Others.

If you need legal assistance in preparing any of the documents discussed here, including a Will or Trust, you can refer to my Phil Hunt webpage at www.perkinsthompson.com for more information about me. I would be happy to assist you with this, or with any other estate planning or elder law matter. I can be reached at (207) 774-2635 or phunt@perkinsthompson.com for more information.

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