Procrastination Can't Delay Karma

Whenever he saw me, John (not his real name) would tell me he was going to come to my office to start work on his estate plan. His second wife had died two years before, and he had inherited her substantial estate, including a $500,000 IRA. His intention was to leave everything to his second wife's side of the family, because he had no relatives except for a daughter who he had not seen since she was two years old. His second wife had always discouraged John from having any contact with his first wife or with his daughter, who, as a result, had grown up without a father.

John died suddenly one weekend, and he had gotten no further with his estate plan than a promise to make an appointment. That meant that his estate would have to be probated and intestate succession would determine who inherited his estate. John had only one child, the daughter he had ignored for 30 years. She became the sole beneficiary of the estate, a result that would have startled John's late wife.

But not having a will wasn't the only mistake that John made. When he filled out the beneficiary form for the IRA that he inherited from his second wife, instead of making members of his second wife's family the beneficiaries of the IRA, he simply put in the words "my estate" as the beneficiary. It was a $500,000 mistake, because that meant that the IRA had to be probated, and then distributed to the sole heir of the estate, John's daughter. If John had gotten the beneficiary correct, the IRA would not have been probated and would have gone to his second wife's family.

The daughter was delighted, to say the least. She wound up with the IRA, a house, investments, bank accounts, and everything else her absentee father had owned. It was hard to think of a person more worthy of such an inheritance: she had bills to pay, a job with no future and a dismal economic outlook. Maybe it was Karma, or maybe it was an example of procrastination crashing into reality.

He Never Gave Up Hope

When clients ask me about Do Not Resuscitate (DNR) orders or ending life by stopping life support with an Advance Health Care Directive, I like to respond with a story about a client who had a stroke a few years ago. She was taken to a local hospital, where she went into a coma.

Usually this is the end of the story. The patient dies while in the coma, and we administer his or her trust or start a probate. But this woman's husband was stubborn. He didn't give up hope, and he didn't use her Advance Health Care Directive to stop life support. Instead, the husband went to the hospital every day, and sat at his wife's bedside most of the day, talking to her, or sometimes just sitting there. Could she hear him? I don't know. When visiting hours ended, the nurses would shoo the husband out, but when they weren't looking, he would come back, and sit at his wife's side a while longer.

This went on for nearly three months, and the husband was there every day. He never stopped hoping and he also never used the Advance Health Care Directive that his wife had signed a couple of years earlier.

Then one afternoon the wife started waking up. The husband summoned the nurses, who called the doctors, and within a few hours the wife was fully conscious. The coma was over and she left the hospital a week later. She lived a normal life for another three years before dying of an illness not related to the stroke or the coma.

The point of this story is that although an Advance Health Care Directive is one of the most important documents in your estate plan, it can be misused by using it too quickly to stop medical treatment. Furthermore, a DNR is an often misunderstood document that can prevent useful medical care in an emergency. If you life in a place where the residents are encouraged to have DNRs, talk to your physician about the problems that DNRs can cause.

Repeal the Estate Tax?

Last week that the House of Representatives passed H.R. 4154, which authorizes a permanent extension of the current $3.5 million exclusion amount for the federal estate tax. Congress has had all year to work with tax issues, but it took until Dec. 3 for the House to take action.

Now it's up to the Senate to take action on this bill. Action? Aren't the Senators busy with the health care bill that might not be resolved until next year? Can the Senate work on two different bills at the same time? So far the answer is probably not.

But what is the problem with not taking action on the federal estate tax before Dec. 31?

The problem is that current law is part of a 10-year bill that expires at the end of 2010. The last year of that bill repeals the estate tax, but only for a year. In other words, if the Senate does not take action during the next 23 days, the estate tax will disappear until Congress can pass a new bill.

Think of it as the Year of the Government Assisted Suicide. What if a patient with a net work of $1 billion is in the hospital, being barely kept alive by a respirator and feeding tube? If the patient dies during 2009, the approximate tax on the estate is about $450 million, but if the patient dies during repeal, even if repeal is only for a month, there is no tax. In other words, the government is providing a financial incentive for you to keep your wealthy relative alive during 2009 so that the plug can be pulled during 2010.

Will life support be cut off for our fictional billionaire patient? Stay tuned for further details in about 23 days.