Is It Time to Update My Estate Plan?

Is It Time to Update My Estate Plan? I am often asked what are the events that should make one update an estate plan. Here are my general guidelines: Marriage or Divorce of you, your children, grandchildren or business or life partners; Contemplation of Marriage, especially second marriages, Registered Domestic Partnerships or Divorce; Birth of children or grandchildren; Death of a spouse, children, grandchildren or business or life partners; Serious or life threatening illness of you, your children, grandchildren or business or life partners; Disability of you, your spouse, a parent, sibling, child, grandchild, or a dependant or handicapped dependant that may require special considerations or a special needs trust; Substantial change in your personal estate size, whether increased or decreased; Before any significant business or personal litigation; On any significant change of assets or interests; Especially on any major change in the estate tax laws! Like we just had in 2012. These things do not all require updating your estate plan but any of them should cue you to seek legal...

In Case of Death List

In Case of Death List The following agencies need to be notified of your loved one’s passing. Not all may apply to your situation: Social Security Administration Veteran’s Administration (if the decedent formerly served in the military) Defense Finance and Accounting Service (military service retiree receiving benefits) Office of Personnel Management (if the decedent is a former federal civil service employee) U.S. Citizen and Immigration Service (If the decedent was not a U.S. citizen) State Department of Motor Vehicles (If the decedent had a driver’s license) Credit card and merchant card companies Banks, savings and loan associations and credit unions Mortgage companies and lenders Financial planners and stock brokers Your estate planning attorney Pension providers Life insurers and annuity companies Health, medical and dental insurers Disability insurers Automotive insurer Mutual benefit companies All three credit reporting agencies: Experian, Equifax, and TransUnion Any memberships held by the decedent (ex: health clubs, professional associations, clubs, library etc.) You can list the decedent on the Deceased Do Not Contact List, maintained by the Direct Marketing Association, which is a service that removes the decedent from all direct mailing...

Revoking the Irrevocable Trust

Revoking the Irrevocable Trust It is more than wishful thinking! When is an irrevocable trust revocable? It seems like something you could never do based on the word ‘irrevocable’ but there are ways to get around this. Borrowing from wine terminology, it is called “decanting a trust” and here is the who, what, where, why and when of it all: Who can decant? Decanting is done only by the Trustee of the Trust. What is decanting? Decanting is the process of transferring property from one trust to another. Specifically, the term applies when a trustee transfers property from one irrevocable trust to a new trust that has terms different than the original. Typically, the beneficiaries are the same though some may have changed. Where to decant? The Probate code allows for decanting with or without court intervention in California. If all beneficiaries agree, no court intervention is needed. If there is dissension, you will need to file a Petition in Probate Court. Why decant a Trust? The terms of an irrevocable trust are typically not subject to change. With decanting, a trustee has the ability to effectively change the terms even though he or she is doing so by transferring the property to a new trust that has new terms. In states that allow for decanting, this is one method a trustee can use to more effectively manage the trust without having to go before court to seek judicial permission to take certain actions. In states that don’t have decanting provisions, like California, you may not even need to go to Court to do this. When is decanting used?...

Elder Abuse

Elder Abuse What is Elder Abuse? It is the neglect, exploitation or “painful or harmful” mistreatment of anyone who is 65 or older (or any disabled dependent adult age 18 to 64). It can involve physical intimidation, violence, psychological abuse, isolation, abandonment, abduction, false imprisonment or a care giver’s neglect. It could also involve unlawful taking of a senior’s money or property. In short, it can involve various crimes, such as theft, assault or identity theft. But when the victim is 65 years old or older (or a disabled dependent adult), the criminal faces stiffer penalties under various protective statutes. If a relative is refusing to visit unless you give money or do something for them, or if you are being compelled to “lend money” or change your estate plan to favor a care giver or family member, or if you are being threatened with harm if you don’t do what you are asked, it is all a form of something called “elder abuse”. Elder abuse can be physical abuse or financial abuse or neglect. You need to reach out for help right away. It is not OK for anyone to treat you this way. While the elderly are already extremely vulnerable to abuse, issues of mental impairment and dementia are additional significant factors that make seniors even more susceptible to elder abuse and/or neglect. Elder abuse happens everywhere - in poor, middle class, and upper-income households and in far too many long-term care facilities. It is a problem that has no demographic or ethnic boundaries. Because family members, close friends, and even professional care givers are often the...

For Animal Care

For Animal Care Providing For Your Pets In The Event of Your Death or Hospitalization For many people, a pet is an important and comforting part of life, often filling the void of an empty nest or loss of a family member. The love and companionship given by pets is immeasurable and many people feel they would do anything for their pets, but then, they never get to it. The care and well-being of the pet is a primary concern. This is particularly so in the event of a pet owner’s death or hospitalization. Below is a summary of how to plan for the care of a pet in the event of a pet owner’s death or hospitalization. I will start with hospitalization or “non-death” reasons for being unable to care for your pet. Upon the incapacity or hospitalization of the pet owner, advance arrange-ments should be made to ensure care of the pet while the pet owner is hospitalized or incapacitated. Some people have other people they live with who will care for the pet but many do not. Too often, a pet is ignored when something happens to those who live alone. Arranging For Friends/Relatives To Provide Short-Term Care. It is easy if you know you are going to need care but often this is out of your control. A pet owner should try to find a friend or relative who is willing to take care of his/her pet during these periods. The owner should leave word, preferably in writing, at home and with a neighbor, or with the building management and/or superintendent, for the friend or...

Estate Planning for Same Sex Couples

Estate Planning for Same Sex Couples The first question asked by many same sex couples in the wake of Windsor is “Should We Get Married?” Putting aside the emotional reasons for marriage, what are the estate planning benefits? While you can acheive a lot of the same things through estate planning, there are benefits to marriage of estate planning. Being married has two key federal and one state tax advantage, all of which you’d realize with or without a living trust. Married couples get a step up in basis when one spouse dies on all community property assets. That means that the surviving spouse won’t have to pay capital gains on any appreciated assets that she sells after the first death, other than any gain that happened after the death of the first spouse. For example, if one partner’s house has appreciated a lot since s/he bought it, and you marry and make that house community property, when one of you dies, that house would be valued at its date of death value, not the original purchase price. This means that there would be no capital gain tax if the house were to be sold then. And, on the death of the second spouse, there is a second step up in basis! This is all a benefit of marriage. Married couples get an unlimited marital deduction from federal estate and gift tax. That means that you and your spouse can give an unlimited amount of assets to each other, at death or during life, and no federal estate or gift tax will be due for those gifts. The failure...

D.O.M.A. IS DEAD

D.O.M.A. IS DEAD By a 5-4 vote, the Supreme Court ruled yesterday that Section 3 of the federal Defense of Marriage Act (DOMA) is unconstitutional insofar as it purports to limit the terms “marriage” and “spouse” to opposite-sex couples for all purposes of federal law. This means that couples who are married in states that recognize same-sex marriage will generally be considered married for purposes of federal law. United States v. Windsor, No. 12-307 (June 26, 2013). For example, such individuals will be treated as married for purposes of federal tax laws and for employment laws such as the Family and Medical Leave Act. The decision does not mean that state laws limiting marriage to opposite sex couples are unlawful, however. A full understanding of the implications of the Windsor decision will require further analysis. It would appear that the issue is now dead in the water, however there are factions vowing to appeal so we will see. Legal Background In 1996, a ruling by the Hawaii Supreme Court suggested that there might be a constitutional right to same-sex marriage, prompting Congress to pass the federal Defense of Marriage Act (DOMA) to define “marriage” and “spouse” as limited to a union between one man and one woman and excluding same-sex partners. This was during Bill Clinton’s presidency. Many plaintiffs have challenged DOMA as violating the rights of same-sex couples. The Obama administration initially defended the law against challenges in federal court. But in February 2011, Attorney General Eric Holder announced that the president regarded the law as unconstitutional and had instructed the Department of Justice not to defend the...

Prepaid Funeral Plans

Prepaid Funeral Plans Funerals are expensive. According to the National Funeral Directors Association, average funeral costs in 2012 were nearly $8,000, excluding cemetery costs. To relieve their families of the bur-den of planning a funeral, many people plan their own and pay for them in advance. Unfortunately, prepaid funeral plans are or may be fraught with potential traps. Some plans end up costing more than the benefits they pay out. And there may be a risk that you’ll lose your investment if the funeral provider goes out of business or you want to change your plans. Some states offer protection—such as requiring a funeral home or cemetery to place funds in a trust or to purchase a life insurance policy to fund funeral costs—but many do not. If you’re considering a prepaid plan, find out exactly what you’re paying for: Does the plan cover merchandise only (casket, vault, etc.) or are services included? Is the price locked in or is there a possibility that your family will have to pay additional amounts? What happens to the money you’ve prepaid? What happens to the interest income on prepayments placed in a trust account? Are you protected if the funeral provider goes out of business? Can you cancel the contract and get a full refund if you change your mind? What happens if you move or die while away from home? Can the plan be transferred? Is there an additional cost? One alternative that avoids the pitfalls of prepaid plans is to let your family know your desired arrangements and set aside funds in a payable-on-death (POD) bank account. Simply name...

Estate Tax Exemption “Portability”: Is it right for you?

Estate Tax Exemption “Portability”: Is it right for you? One of the significant changes under the American Taxpayer Relief Act of 2012 (ATRA) enacted in January, was to make estate tax exemption “portability” permanent. What is “portability”? When one spouse dies, portability allows the surviving spouse to use the deceased spouse’s unused exemption amount. This means that if you didn’t get around to doing estate planning, there may be a safety net with portability. This may mean that married couples can now maximize the benefits of their combined exemptions without the need for sophisticated estate planning involving multiple trusts. Portability does simplify estate planning, but should you rely on it? Doing so may be appropriate under certain circumstances. But for many people, particularly the affluent, more-sophisticated strategies continue to offer significant benefits. Life and Planning Before Portability Before portability, the traditional approach for maximizing a couple’s exemption amounts was to employ an “A-B trust”. Generally, the “A” trust is a marital trust and the “B” trust is a credit shelter, or “bypass,” trust. For this strategy to be most effective, spouses should “equalize” their estates by, to the extent necessary, transferring assets from one to the other. When one spouse dies, his or her assets are used to fund the credit shelter trust up to the exemption amount (currently $5.25 million) less any gift tax exemption used during life. This trust benefits the surviving spouse for life and then distributes the remaining assets to the couple’s children or other beneficiaries. The excess, if any, goes into the marital trust, which benefits the surviving spouse and qualifies for the unlimited...

The Estate Tax Exclusion Amount: It is “Permanent” only as long as they say it is!

The Estate Tax Exclusion Amount: It is “Permanent” only as long as they say it is! We were told at the end of December last year that there is a “permanent” fix to the estate tax issue. Of course, for federal tax law purposes, something is “permanent” only so long as Congress and the President say it is. I am talking about the “basic exclusion amount” for federal gift and estate tax purposes. This is the amount that a taxpayer can give away either during life or at death [or both] before any federal gift or estate tax (“transfer tax”) will have to be paid on the transfer. The American Taxpayer Relief Act of 2012 (the “2012 Act”), signed into law by the President on January 2, 2013, made “permanent” the $5 million inflation-adjusted basic exclusion amount, currently $5.25M. The 2012 Actalso made “permanent” a top marginal transfer tax rate of 40%. But what is this?? Less than 100 days after the President signed the 2012 Act into law, his Administration released the“General Explanations of the Administration’s Fiscal Year 2014 Revenue Proposals” (http://www.treasury.gov/resource-center/tax-policy/Documents/General-Explanations-FY2014.pdf). It appears that the Administration already wants something less “permanent” with respect to the basic exclusion amount and the highest marginal transfer tax rate. The Administration proposes returning to the federal transfer tax law in effect for 2009 for estates of decedents dying, and gifts made after, December 31, 2017. Thus, in just under five years, beginning in 2018, the highest marginal transfer tax rate would increase to 45%, the lifetime gift tax exclusion amount (i.e., the amount a taxpayer can give away during life) would...
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