Author Archive
Estate Tax and the Fiscal Cliff?
While we were getting dangerously close to flying over the fiscal cliff, those in the estate planning sector were watching closely.
The estate and gift tax, which taxes what you own and pass on to others either during your lifetime as a gift, or at death as a bequest, was in flux. At the end of 2012, the tax which gave every individual a $5 Million exempt amount prior to the imposition of tax, was in danger of reverting to $1 Million per person. Additionally, the tax rate would have gone up to 55%.
Many may think that $1 Million is a sufficiently generous amount. However, it would have had adverse affects upon many family owned businesses and farms. These individuals don’t live like the wealthy, however, the value of their businesses or farms, which include all of their equipment, would have placed their estates over $1 Million. In such an instance, the family would then, upon the death of the owner, have to sell the business or farm because they did not have enough money to pay the estate taxes due.
In the end, lawmakers preserved the $5 Million exempt amount per person but did change the tax rate from a maximum of 35% to 40% on the amounts over the exempt amount.
So, who’s estate is now taxable? For taxpayers dying in 2013, the estate tax exclusion amount as adjusted for inflation is now $5.25 Million per person. For all amounts over that, the estate tax will be levied at a maximum rate of 40%.
What happens to my children if I don’t have a Will?
If something untimely and unanticipated happens to the parents of minor children, what happens next?
The Probate Court must appoint a Guardian and a Conservator for the children that will serve until the children are 18 years old. This will be done without any guidance from the deceased parents.
A Petition for Appointment of a Guardian will be filed in the Probate Court by an individual wanting to serve in that capacity. If multiple parties think it should be them, then there will be a hearing in front of the Probate Judge who will then make a decision.
This is necessary as children must have care givers and people who will serve in a parental capacity to raise them. It is also unfortunate as the Probate Judge will have little information upon which to make a decision.
The relatives who show up will presumably do so in nice clothes and using nice manners. They will all “look good”. The judge will have no idea as to the feelings of the now deceased parents.
What if she didn’t like the way she was raised? If her parents were too detached? Too strict?
What if he doesn’t like the way his brother lives? Too lazy? Too driven?
In the end, the judge will make the best decision that he or she can make with the information that is presented.
Don’t leave your children’s fate in the hands of a judge who doesn’t know you. Plan. Get a Will done and nominate those individuals that you would want to raise your children.
Second Marriages – Who will pay for Long Term Care?
It comes as a surprise to many couples who are looking at re-marriage later in life. They discuss their finances, make decisions as to estate planning, make decisions concerning the payment of current expenses. They decide to execute a Pre-nuptial Agreement to set forth all of their agreements.
They want to agree that if one becomes ill and requires nursing home or long term skilled nursing care, the other will not be required to pay for it. They want this provision in their Pre-nuptial Agreement.
What affect will such a provision have? Will it be binding? NO
While the individuals can agree in writing that they will not have any responsibility for the other’s long term care costs, Medicaid rules do not see it that way.
When applying for Medicaid for long term care, a snap-shot of the couple’s assets are looked at – his and hers. All assets are counted toward paying for the nursing home resident’s care. Medicaid does not honor Pre-Nuptial Agreements and it is not bound by the provisions in such an agreement.
This is a significant issue for couples. While they can specify who pays for what while they are married and can agree upon an inheritance for one another and for their children, they are unable to control the cost of long term care for themselves or one another.
For couples concerned with this issue, I recommend seeing a long term care insurance specialist to determine if the parties are eligible for insurance (given their age and medical condition) and whether the insurance coverage is affordable.
In some cases, when unable to obtain insurance, some couples have decided against getting married in order to shelter their own assets from the possibility of paying for the other’s health care needs.
You’re Going to Have a Baby!
If you are about to be a parent, it is time to get serious about planning for your child. Lots of plans will get made about baby clothes, strollers, and the color of the nursery. Often left out is planning for the future – is something unexpected should happen.
First, you need to sign a Will. This is where you name a Guardian to raise your child if you are unable to be there to do so. If you don’t, a Court will decide the child’s fate.
While Probate Court Judges take this very seriously and want to make the “right” decision, they will never have enough information available. They don’t know your family and friends the way you do. Imagine the dilemma for a judge when a bunch of seemingly nice relatives all come rushing into court to be the Guardian of your child. Who to choose? His sister? Her mother?
This is often a difficult decision for the parents themselves to make and is frequently the reason that this does not get done. Mom thinks her family should raise the child and Dad thinks his should. As difficult as it is, you need to decide and put it in your Will. In the event that both parents will to die in an automobile accident, someone needs to raise the child or children.
Next, unless your prospective guardian is wealthy, you will need life insurance to cover the cost of raising your child. When you are young, this is relatively inexpensive. You should purchase enough coverage to make sure that your child or children can be raised appropriately and have a little extra for college.
What if only one of you dies? You still need that life insurance. If the primary earner dies, the money will be required to continue the family in the home and at the same level of living. If the parent who is primarily handling the child rearing tasks dies, it will cost a bundle to replace all of the services that he or she provided.
Two important steps to take before the new baby arrives – every bit as important as deciding on furniture for the nursery.
Young and Poor – Who needs an estate plan?
Young and Poor
The simple answer: Your kids do. If they are over 18, you will be unable to help them make health care decisions or manage their money once they turn 18. This is true even if they are still in high school.
They are on your health insurance plan but you cannot challenge the insurance company or even question the disallowance of a cost for them. They are adults. They may not have any idea of what question to ask or how to go toe to toe with the claims representatives – but that is the law.
You may be paying for their tuition at college but the college won’t talk to you about their bill because the student is an adult.
If your 18 year old child is in an accident, you will not be able to assist in determining their health care needs. You will have to go to Probate Court to be appointed as the child’s guardian if he or she is not able to speak for him or herself.
Can this really happen? Yes. It happens every day. Accidents are the leading cause of death for young adults.
So on the 18 year old’s birthday, in addition to a cake and candles, you should give them a Durable Power of Attorney and a Patient Advocate Designation to sign.
Parenting rights for same sex couples in Michigan – going to Supreme Court
I frequently get calls from same sex couples who either have or are contemplating having children. They want to know whether one partner can adopt. Sadly, the answer in Michigan is NO.
A creative judge apparently tried to assist, but the adoption was struck down. Now it is going to the Supreme Court.
Read more at: http://cnnradio.cnn.com/2013/03/12/michigan-moms-gay-adoption-heartbreak/?hpt=hp_t3
Not Accounting for Assets Properly
A common misconception when doing estate planning concerns what your Will or Trust covers. This can dramatically alter the distribution of your estate.
A Will controls those assets that are in your name alone at the time of your death. Therefore, assets that you own jointly with another are not subject to the terms of your Will. This is important to know because if you place assets such as savings or checking accounts into joint ownership with one family member, those assets will not be subject to the distribution scheme set forth in the Will. The joint owner will gain the asset at the time of your death.
Additionally, life insurance , IRA’s, Roths, 401K’s and similar accounts, have beneficiary designations. These assets are not a part of your probate estate and are not controlled by your Will. The individuals you have named as beneficiaries on each of these assets will receive them upon your death.
This is important if you are counting these assets as part of your estate when you set up a distribution scheme. You may believe that the Will can ultimately control all of your assets when in fact it will only control the assets in your name alone at the time of your death. Without this knowledge your distribution scheme can go awry.
Similar problems arise with a Trust. It only controls the assets that are titled in the name of the trust. It also will not control your IRA’s, 401K’s, Roths, and similar accounts. It will also not control assets that are not titled in the name of the trust. Accordingly, your plan as to division of all of your assets may once again be altered by the fact that some of the assets are not subject to the direction of the trust.
Understanding your assets and how each of them can be handed down to future generations will assist in assuring that your estate planning goals will be followed.
You are the Agent under a Power of Attorney and the individual dies. What are you Permitted to do then?
Simple answer: NOTHING.
A Power of Attorney is only good during an individual’s lifetime. When the person dies, their Power of Attorney dies as well – that instant.
This means that you are not to run to the bank and withdraw cash using the Power of Attorney. You are not supposed to keep paying bills off of his or her account after the individual dies. You are not to use his or her charge card.
Who has authority over the decedent’s money? If they have a trust, their successor trustee will have this power. If they don’t have a trust and they have a Will or if they don’t have a Will, no one has any authority over their funds and property until a Personal Representative is appointed by the Probate Court.
If you are named as the Personal Representative in a Will, it does not mean that you have authority the minute they die. It is a nomination. It is not effective until the Probate Court says that it is effective.
How Often Should I Review my Estate Planning Documents?
Clients often ask this question. Certainly, you should take a look at the documents at least every five years. As you read through your trust or will, durable power of attorney and patient advocate designation, you should ask yourself the following questions. Has anything changed? Do I still want to appoint the same people? Are these the people that I want to give my estate to?
Also you should review all of your estate planning documents when any of the following happens:
• Marriage, divorce or death of a spouse
• Birth of a child
• Your children become financially independent
• Birth of a grandchild
• You have a new business venture
• A substantial growth in your business
• Job promotion or change in jobs
• Retirement
• Purchase of Life Insurance
• Move to a different state
• Substantial increase or decrease in your wealth
• Decision to make large charitable gifts
• Increase in risk of being subject to a lawsuit
• Substantial amounts of property in joint names
• Purchase of real estate in another state
• You inherit a large estate
The Problem of the Unfunded Trust
Carol and Jim had been married for 25 years – their children were grown. Jim took the steps to have an estate plan made – he had trusts made for himself and his wife with pour-over wills. Carol went in to sign the documents though she really didn’t pay any attention to what they were for – she trusted her husband to do the right thing.
Jim was only 52 when he unexpectedly died from a massive coronary. Carol came to me to see if she needed to do anything – after all, Jim had set up these trusts that should take care of everything.
What he had failed to do was to fund the trusts. Their real property had not been transferred into the trust. None of their bank accounts, brokerage accounts, or other assets had been transferred.
Since a number of assets were in Jim’s name alone, it was necessary to commence a Probate proceeding in order to get the assets into his trust. This cost Carol not only the filing and attorney fees but the inventory fees as well.
Additionally, real property had to be transferred requiring that deeds be prepared and recorded.
How could this have been avoided? At the time the trusts were prepared, all real property should have been transferred into the trusts. Additionally, all bank accounts, brokerage accounts and other assets should have been transferred as well. This follow up is critical to having a revocable trust work smoothly upon the death or disability of the grantor.
