Michigan Estate Planning Law Blog

Social Security Super Secrets For Married Couples

TJ Wall — Wed, 25 Jan 2012 15:17:53 -0600

Social Security may be broke and busted but it’s still writing checks; get all to which you are entitled before it changes. Here are three "super secrets" for married folks:

1. Pick which retirement you want; yours or your spouse’s. Obviously select the one that pays you the most. Often in a marriage there is a huge difference in wages. But even if the lower wage earner worked and has their own Social Security benefit, he or she may elect to receive an amount equal to half of their spouse’s instead. This is called your Spousal Benefit.

2. Double dip. A person who has reached full retirement age could elect to take his or her Spousal Benefit and delay taking their own Social Security benefit. Working or not, take your Spousal Benefit and delay your own and let it grow until you’re age 70. It doesn’t matter if your spouse is taking their Social Security benefit or not. Upon age 70, if your own benefit is higher than the Spousal Benefit you’ve been receiving, just swap and take your own. That’s more money for you now and potentially more money for you later.

3. Getting paid to wait. Typically, when one spouse hasn’t worked outside of the home as much as their mate, she won’t have much, if any, Social Security benefit and will default to receiving her payments when her higher earning spouse retires and decides to start taking Social Security payments. Do not wait. Once both spouses reach full retirement age, the higher earner (the husband in this example) should go ahead and file for his Social Security benefits. Then the lower earning wife files for her Spousal Benefit and, step three, the husband immediately suspends his Social Security benefit request. His benefit amount will continue to increase (by about 8 percent per year) and then when he reaches age 70, he can re-file to start taking his Social Security retirement benefit. This will give the wife free monthly money instead of thinking she must wait until hubby fully retires and takes a check from Social Security before she can…very cool idea.

Year-End Tax Planning Tips for Seniors

TJ Wall — Wed, 07 Dec 2011 11:18:15 -0600

With the holidays in full gear, it’s time to do some planning that can help reduce your tax bill this year. Recently, U.S. News & World Report published an article geared specifically to seniors. Click on the link to view this article. Always be mindful of both federal and state legislative changes when applying your traditional year-end tax planning techniques. It is not too late to take advantage of some tax-savings opportunities that may not be around next year and, as always, consult with your preferred professional tax advisor for advice tailored specifically to your situation.

Inside Joe Paterno's Estate Planning Ploy

TJ Wall — Wed, 30 Nov 2011 08:09:16 -0600

Joe Paterno's transfer of homeownership to his wife in July most likely was not an attempt to shield assets before a sexual-abuse scandal hit Pennsylvania State University's football program. Instead, the move by the legendary coach more likely was made to take advantage of expiring estate tax rules, lawyers said. Mr. Paterno switched ownership of his ranch-style home in State College, PA from joint ownership with his wife, Susan, to her full ownership on July 21 in a $1 transaction, according to documents filed in Centre County, PA.

A New York Times story suggested that the move could have been an effort to shield the home from future lawsuits that may arise from the child abuse scandal that was first revealed early this month. But attorneys familiar with Pennsylvania law said that the property already was protected from creditors because it was jointly owned and therefore couldn't be subject to creditors of only one of the spouses. The only way that the house, valued at $594,484, could be exposed to creditors is if both Mr. Paterno and his wife were targeted in a lawsuit, lawyers said.

What Documents Are Needed After Someone Dies?

TJ Wall — Tue, 22 Nov 2011 12:33:01 -0600

After someone dies, the surviving family members will need to gather up all of the decedent's important papers. This will give the family members and/or probate attorney who will be assisting with settling the decedent's final affairs all of the pertinent information needed to complete the settlement process. Here's the list of documents that will be needed to settle an estate or trust. Copies of the documents will work just fine unless otherwise noted.

Asset information
Copies or originals of the following documents will be needed:
• Account Statements - including bank, brokerage, and retirement accounts for at least the three months prior to death
• Life Insurance Policies - note that some insurance companies will require the return of the original insurance policy
• Beneficiary Designations - for life insurance, retirement accounts, and payable on death accounts
• Deeds for Real Estate - there's a common misconception that the original deed is needed, but a copy will work just fine
• Automobile and Boat Titles - the originals will be needed to transfer legal title
• Stock and Bond Certificates - for stocks or bonds held in certificate form, the original certificate will be needed to transfer legal title

Business Documents
If the decedent owned a business, then copies or originals of the following documents will be needed:
• Corporate, LLC or Partnership Documents - this includes copies of the corporate charter or articles of organization and minutes; a copy of the shareholder's agreement, operating agreement, or partnership agreement; and original stock or LLC certificates to transfer legal title
• Account Statements - including bank, brokerage, and retirement accounts for at least the three months prior to death
• Automobile and Boat Titles - the originals will be needed if legal title will be transferred
• Contracts - including leases, loans, and employment agreements
• Business Licenses - including local and state licenses
• Income Tax Returns - past three years

Contracts
Copies or originals of the following contracts will be needed:
• Prenuptial Agreements - including any amendments
• Postnuptial Agreements - including any amendments
• Loans - including personal loans, lines of credit, and mortgages, along with the original promissory notes
• Leases - including real estate and automobile leases

Bills
Copies of the following bills will be needed:
• Utility Bills
• Cell Phone Bills
• Credit Card Bills
• Mortgages and Personal Loans - including lines of credit
• Real Estate Tax Bills
• Storage Unit Bills
• Medical Bills
• Funeral Bill

Estate Planning Documents
If the decedent had an estate plan, then copies or originals of the following documents will be needed:
• Last Will and Testament and Any Codicils - the originals will be required because if the originals can't be found, then it's presumed the decedent destroyed them
• Revocable Living Trust and Any Amendments - strangely a copy of the trust or amendment is all that's usually needed

Tax Returns
Copies of the last three years of the following tax returns will be needed:
• Federal Income Tax Returns
• State Income Tax Returns
• Gift Tax Returns

Death Certificates
Multiple, original death certificates will be needed to settle the decedent's affairs. I tell my clients to order at least ten.

Don't Ignore Required Minimum IRA Withdrawals

TJ Wall — Tue, 23 Aug 2011 12:02:22 -0600

IRA owners turning 70-1/2 this year must comply with required minimum withdrawal rules -- or pay a costly penalty.

If you own one or more traditional individual retirement accounts and will turn 70-1/2 this year, get ready to start taking mandatory annual payouts and paying extra income taxes. In fact, the whole reason our pals in Congress dreamed up the so-called required minimum distribution (RMD) idea was to force IRA owners to pay additional taxes sooner rather than later.

Unfortunately, complying with the RMD rules is not something you can afford to put off. If you fail to take at least the required amount each year, the Internal Revenue Service can assess a 50% penalty on the shortfall (the difference between what you should have taken out and what you actually took, if anything).

Keep in mind that simplified employee pension (SEP) accounts and Simple IRAs are considered traditional IRAs for purposes of the RMD rules. So you have to consider these accounts along with any garden-variety traditional IRAs set up in your name when figuring out how much you need to withdraw to avoid the dreaded 50% penalty.

If you have several accounts, you can take the required annual amount from any one account or from any combination of accounts. Here's the rest of what you need to know about RMDs and avoiding the penalty for failing to take them.

Initial Year Required Minimum Distribution (RMD)

For the year you turn 70-1/2 and for every year thereafter, you must take an annual RMD as long as you have any traditional IRA balances. The initial RMD for the year you turn 70-1/2 can be taken as late as April 1 of the following year. Alternatively, you can take it by Dec. 31 of the year you turn the magic age. Then for each subsequent year, you must take another RMD by no later than Dec. 31 of that year.

If you turn 70-1/2 this year, there is a good reason to consider taking your initial RMD by the end of this year rather than taking it next year by the April 1 deadline. Consider the following example.

Example 1: You turn 70-1/2 in 2011. You decide to put off taking your initial RMD until next year. That puts you in the double-dip RMD mode for 2012. You must take your initial RMD by no later than April 1, 2012 (that one is actually for 2011, the year you turned the 70-1/2). Then you must take your second RMD by Dec. 31, 2012 (that one is for 2012). If you have lots of IRA money, falling into the double-dip mode could push you into a higher tax bracket. For instance, say your IRA balance is $500,000, thanks to money rolled over from employer retirement plans. Being in the double-dip mode for 2012 would force you to take two RMDs totaling about $36,000 next year. If you instead take your first RMD in 2011 and the second one in 2012, the RMD for each year would be around $18,000, and you might pay a lower tax rate. Waiting until next year could also cause you to fall victim to various unfavorable rules that kick in at higher income levels. For instance, it could cause a higher percentage of your 2012 Social Security benefits to be taxable.

Bottom line: If you have lots of IRA money, you may be better off taking your initial RMD this year, even though that will trigger some taxable income that could otherwise be deferred until 2012. On the other hand if you don't have so much, waiting until next year is usually the right choice.

How to Calculate RMDs

The RMD amount for a particular year equals the combined balance of all your traditional IRAs (including any SEP or Simple-IRA accounts) as of the end of the previous year divided by a joint life expectancy figure found in IRS tables. As you get older, the life expectancy divisor becomes smaller, and the annual RMD amount becomes a higher percentage of your IRA balance.

The joint life expectancy divisor is based on your age and the age of a beneficiary who is automatically assumed to be 10 years younger. This rule applies even if you have no beneficiary or if the beneficiary is actually older than you. The only exception to the rule is when your spouse is designated as the sole IRA beneficiary and he or she is more than 10 years younger. In this circumstance, you're allowed to calculate RMDs using more favorable joint life expectancy figures based on the actual ages of you and your spouse.

The most important thing to understand is that IRA owners who have reached 70-1/2 cannot afford to ignore the RMD rules. The 50% penalty for noncompliance is too expensive. If you turn 70-1/2 this year, the other important thing to understand is you have an RMD choice to make before yearend. If you sit on your hands, you will be in the RMD double-dip mode next year, which might result in a higher tax rate that could have been easily avoided.

Bank of America Says Power of Attorney Does Not Grant Access to Online Banking

TJ Wall — Mon, 25 Jul 2011 18:01:09 -0600

When one spouse suffers from dementia, the other spouse often must take over managing the couple's finances, usually with the help of a power of attorney. But things don't always go smoothly with financial institutions. Just ask Chicago resident Eva Kripke, who has been handling money matters since her husband, Sidney, was diagnosed with Lewy body dementia four years ago.

Acting as agent for her husband under a power of attorney, for years Ms. Kripke had been going online to check her husband's Bank of America account and writing checks from it, until one day in April when the bank suddenly changed its security procedures and she was blocked from accessing his online account unless she supplied his Bank of America credit card number.

Because of her husband's dementia, Ms. Kripke had torn up the credit card several years previously, but she was able to obtain the card number from her local Bank of America branch. But that wasn't enough -- the bank also wanted the security code and the expiration date, neither of which she or the bank had. Without that, even though she had all the other information about her husband's account, not to mention his power of attorney, she could not access it online.

"[The bank employees] told me that power of attorney was not accepted for online banking," Kripke told the Chicago Tribune's "What's Your Problem?" columnist, to whom she turned for help. "It did not matter that I had been accessing my husband's account for several years. There was no way I could have access to my husband's online account any longer."

Bank of America suggested Mrs. Kripke open a joint account with her husband, something her lawyer advised her not to do, saying it was better for the couple to keep their accounts separate. The bank also said she could go to her branch and get a printout of her husband's account and even offered to have a bank employee drop one off at her house.

"That's not satisfactory at all," said Mrs. Kripke, who noted that the deposits and payments for her husband's 24-hour care often require daily oversight. "I don't want to have to rely on constantly going over there. I doubt that someone would deliver it to me and I'd feel odd asking them to do that."

The American Bar Association Journal picked up Mrs. Kripke's story and asked its readers if they had any suggestions for her. So far, the leading ones are: 1. report the credit card lost or stolen and get a new one, or 2. find another, more accommodating bank. It can also sometimes help to use the financial institution's own power of attorney form, although executing a different document for every bank one has an account with can be time-consuming, and it is likely impossible in Mrs. Kripke's case now that her husband is incompetent.

Who Gets Copies of the Will After a Person Dies?

TJ Wall — Mon, 04 Jul 2011 07:00:00 -0600

Wishing you an Independence Day filled with pride in our country, and the companionship of family and friends!

Many movies and television shows have a scene where a family gathers around a big table after a relative has died to listen to the reading of the will. While this is a great dramatic scene, it doesn't usually happen like that in the real world. There is no requirement that a will be read out loud to anyone. So what does happen with the will?

Once the will is located, it should be given to the estate's attorney. Instead of reading the will out loud, the estate's attorney sends copies of the will to anyone who may have an interest in it. Obviously the person who is named as executor or personal representative is entitled to a copy of the will. He or she is in charge of applying for probate, managing the decedent's property, and making sure the instructions in the will get carried out. (For more information on an executor's duties, click here.)

The estate attorney will also send a copy of the will to anyone who is named as a beneficiary. If any minor children or incapacitated individuals are named as beneficiaries, then their guardians should receive a copy of the will. In addition, if there is the possibility of a legal challenge to the will, the attorney may want to send a copy to any legal heirs, close family relatives, or previous beneficiaries who aren't included in the will, so that they have notice. This will limit the time frame for them to file a will contest. (For more information on will contests, click here.)

Another person who may be entitled to a copy of the will is the estate's accountant, and if the estate is taxable, then the IRS may get a copy of the will as well. If the will funds a revocable trust, then the successor trustee of the trust is entitled to a copy of the will. Note that once a will is probated, it is available to the public and anyone can read it. For more information on estate administration, click here.

Can a Tax-Deferred Annuity be Converted into a Medicaid-Compliant Annuity?

TJ Wall — Fri, 10 Jun 2011 11:07:16 -0600

Yes, a tax-deferred annuity can easily be converted into a Medicaid Compliant Annuity.

If the current carrier does not provide a Medicaid Compliant Annuity, the tax-deferred annuity can be "transferred" to the desired carrier by way of a 1035 exchange.

A 1035 exchange refers to the section of the tax code that allows investors the flexibility to exchange one annuity for another without incurring any immediate tax liabilities. Generally, the surrender of an existing insurance contract is a taxable event since the contract owner must recognize any gain on the old contract as current income. However, under IRC § 1035, when one life insurance, endowment, or annuity contract is exchanged for another, the transfer will be nontaxable, provided certain requirements are met.

Requirement One: Ownership
The owner and insured, or annuitant, on the new contract must be the same as under the old contract. However, changes in ownership may occur before the change is completed.

Requirement Two: Like for Like
Any type of contract cannot be exchanged for any other type of contract. The following rules must be followed in order to avoid tax consequences:

Old Life Contract » New Life Contract
Old Life Contract » New Annuity Contract
Old Endowment Contract » New Annuity Contract
Old Annuity Contract » New Annuity Contract

The exchange process can be initiated by simply completing a transfer form with the new Medicaid Compliant Annuity application.

These are highly specialized financial products and only a select few firms in the industry have expertise in this area. Because qualification (or potential ineligibilty) for Medicaid benefits and, possibly, one's life savings are at stake, you should only consult with a qualified professional advisor. The Wall Law Group welcomes your inquiries in this regard.

President Obama Signs Tax-Cut Bill Setting Estate Tax Exemption at $5 Million for Two Years

TJ Wall — Tue, 18 Jan 2011 08:00:00 -0600

Congress has passed and President Obama has signed into law the deal extending the Bush tax cuts that he struck with Congressional Republicans. The legislation restores the estate tax for two years at a 35 percent tax rate, with estates up to $5 million exempt from paying any tax ($10 million for couples). If Congress does not change the law in the interim, in 2013 the estate tax will revert to what it was scheduled to be in 2011 -- a 55 percent rate and a $1 million exemption. The $801 billion tax-cut bill makes several other significant changes to wealth transfer taxes:

•The new $5 million estate tax exemption and 35 percent rate are retroactive to January 1, 2010. The heirs of those dying in 2010 will have a choice between applying the new rules or electing to be covered under the rules that have applied in 2010 -- no estate tax but only a limited step-up in the cost basis of inherited assets. This will benefit the heirs of tens of thousands who died in 2010 with relatively modest estates and who would have been subject to capital gains tax on inherited assets above a certain threshold.

•The law makes the estate tax exemption "portable" between spouses. This means that if the first spouse to die does not use all of his or her $5 million exemption, the estate of the surviving spouse could use it.

•The law unifies the estate, gift and generation-skipping transfer tax exemptions at $5 million. (For 2010 there is no generation-skipping tax, while the gift tax exemption has been $1 million for a number of years.) A 35 percent tax rate will apply to gifts or transfers over the $5 million threshold. (There is no change in the $13,000 annual exclusion amount for gifts.) These high exemption levels mean that "[t]he rich will have a two-year window in 2011 and 2012 to protect huge amounts of their estates from taxation for generations," wrote estates attorney Kevin Staker on his Estate Tax News Blog.

But that window is open even wider than was previously assumed because of an additional loophole for the wealthy in the new law. Although taxpayers have until December 31, 2010, to transfer funds outright to grandchildren and avoid the generation-skipping tax, there's the risk that the grandkids will squander the sudden influx of cash. As Forbes blogger Janet Novak explains in a recent post, "the money doesn't (as most planners had believed) have to be distributed outright to the grandkids to qualify for the 0% rate. Instead, according to the fine print in the tax deal, it can be put in a trust for them, [noted estate planning lawyer Jonathan] Blattmachr says. That means, he explains, that money can be taken from an existing multigenerational trust, declared subject to the 2010 GST tax, and deposited in a new trust for grandkids' benefit, with the GST tax now pre-paid at a 0% rate." Novak says Blattmachr has been telling his estate planning attorney peers, "Cancel your ski trip or trip to Hawaii. This is a once-in-a-lifetime opportunity."

The generous estate tax provisions were the main sticking point for progressive Democrats. A vote in the House on an amendment to increase the estate tax, including lowering the exemption to $3.5 million, was defeated by a vote of 233 to 194. After some minor changes to the bill were made, it passed the House by a 277 to 148 margin, after having been approved overwhelmingly by the Senate 81 to 19.

The site Politico quotes one senior House Republican aide as saying, "I'm trying to remember something that we passed under Bush that was this good." The new tax law presents previously unavailable planning opportunities, especially for the well-off.

Just click on the following link to read the full legislation, titled the "Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010" as originally introduced.

Social Seurity Payments Will Remain Flat In 2011

TJ Wall — Thu, 18 Nov 2010 13:00:37 -0600

The after-effects of the Great Recession are about to squeeze retirees where it hurts: the monthly Social Security check.

If you have not yet heard, for the second consective year, seniors won’t get a Social Security cost-of-living raise in 2011. A recent article in retirementrevised.com explains the rationale behind the governmment's decison to keep social security payments at their present levels.

By law, Social Security passes along an annual cost of living adjustment-or COLA-to recipients. The increase is tied to a broad measure of inflation in the economy and, up until 2010, a year had not gone by since Social Security was created in the 1930s without a COLA.

The situation might look like a wash at first glance; if consumer prices are down, seniors don’t need a raise, right? But retirees are impacted disproportionately by a sub-set of prices that tend to rise more quickly than inflation in the broader economy-health care, energy and transportation. They’re also grappling with the bad timing of falling home values and investment losses at a time when many need to tap those assets.

The result is that the vanishing COLA will squeeze many retirees hard. Social Security provides, on average, about 39 percent of income for retired households, according to AARP. More than 50 million people receive benefits.

A general decline in the financial picture of seniors is well underway; a recent survey by the Pew Research Center showed that more than a third of seniors have cut their household spending in the past year; nearly 40 percent said the recession has caused stress in their families; a majority (56 percent) said the recession “probably will make it harder for them to take care of their financial needs in retirement.”

Medicaid Estate Recovery--A Medicaid Death Tax

TJ Wall — Tue, 05 Oct 2010 06:00:00 -0600

While Washington and the Media debate what to do about the Federal Estate Tax, another even more pernicious death tax goes unnoticed by lawmakers. Medicaid Estate Recovery is a federal mandate that requires States to recoup the costs of long term care paid by Medicaid.

Medicaid, not Medicare, is the biggest government source of payment for long term care. Most people who reside in nursing homes have part of the cost of their care paid by Medicaid. And many frail seniors who reside at home with help from their family also get some assistance from Medicaid.

If you are elderly and need financial help to meet your care needs, the Government wants your home or farm when you die.

Essentially, estate recovery turns government financial help to frail seniors of modest means into a loan program with collection taking place at death. If Medicaid helped pay for any of your care, your estate may be forced to repay the government after you die.

Estate recovery is a Medicaid “death tax” imposed only on the elderly. Because most assets must be spent before a senior becomes eligible for Medicaid, recovery efforts focus on real estate – mainly the home or family farm. Although States bear the costs and burdens of collection, most of the money collected goes to the federal government.

Estate recovery was first mandated by the federal government in 1993. States are given some discretion over the scope of the assets that will be subject to recovery, although, at a minimum, recovery must include collection from the probate estate of the recipient of Medicaid. Most states have expanded recovery beyond the minimum requirements. Michigan enacted its estate recovery legislation in October, 2007.

Here is an example of how estate recovery works:

When John came back from Korea he took over working the family farm. Eventually, John and his wife Mary inherited the farm from John’s parents. John and Mary were always poor, but they worked hard their whole lives and raised two fine sons. They were proud when both of the boys received degrees in Agriculture from Michigan State University. They were even more proud when both of the boys came home to help their father work the farm.

In 2000 Mary’s health began to decline due to Parkinson’s disease and dementia. Everyone in the family pitched in to care for Mary and keep her home. In 2003, after 3 years of struggle, the family needed some outside help. They applied for home care that was paid for in part by Medicaid. This extra help, combined with the ongoing care by John and the boys and their wives, allowed Mary to stay at home for another full year.

In 2006 John died of a heart attack. Without John's support in caring for Mary, the family was no longer able to care for Mary at home. She moved to a local nursing facility. The family didn't have the cash to fully afford the nearly $8,000 a month cost and Medicaid benefits were needed.

Mary died in January 2009. She was 84. Three weeks later her sons received a letter in the mail from the Government. The letter said Michigan was owed $171,386 for the Medicaid that was provided for Mary’s care, both at home and in the nursing facility. The boys are going to have to find some way to pay off this state lien. But they don't have this kind of money. Most likely, the farm will have to be sold.

In some cases, the fear of losing their home or farm to estate recovery deters seniors from getting the care they may desperately need. Failing to provide needed care puts both the senior and caregiver at risk and is likely to ultimately increase the cost of care.

Because Michigan's estate recovery program is still in its infancy and coordiation between the State and Federal departments is pending, the particulars as to exactly how Michigan will implement and enforce estate recovery remains uncertain. These are tough times for all of us, including the State government. But helping people get the care they need at the end of their lives should not give the government the right to take our property. Much more than money is at stake in the battle over estate recovery. Thousands of families are struggling, often magnificently, to do the right thing for their loved ones. We need to support our families and caregivers, not take their property.

Note: Proper credit for the above article should be given to Jeffrey A. Marshall, CELA of Marshall, Parker & Associates, LLC located in Williamsport, Wilkes-Barre, Scranton, Jersey Shore, Pennsylvania. Attorney Marshall publishes a very informative blog located at: http://marshallelder.blogspot.com/

Steinbrenner Fourth Billionaire in 2010 to Escape Taxes, If Not Death

TJ Wall — Wed, 21 Jul 2010 14:20:26 -0600

New York Yankees owner George Steinbrenner is the fourth known U.S. billionaire to die during 2010, according to Forbes magazine. Why is this significant? Because there is no estate tax in 2010, meaning that the U.S. Treasury has lost billions in tax revenues unless Congress acts between now and the end of the year to reinstate the tax retroactively.

Steinbrenner was worth an estimated $1.5 billion, meaning his heirs could save as much as $600 million in taxes because he died this year. Steinbrenner's wealth -- mostly consisting of the Yankees, a new stadium and a regional cable network -- could pass to his wife tax-free even if the estate tax were in effect, but this year she might have an incentive to disclaim (or turn down) any bequest, which would allow the assets to pass to Steinbrenner's four children free of federal tax. (But Steinbrenner's family would have to pay a huge capital gains tax if it were to sell any highly appreciated assets, since along with the disappearance of the estate tax, there is no "step-up" in the cost basis of inherited assets during 2010.)

The other billionaires to die in 2010 are Janet Morse Cargill of the family that founded Cargill Inc. (net worth: $1.6 billion), Texas pipeline magnate Dan Duncan ($9.8 billion), and California real estate mogul Walter Shorenstein ($1.1 billion). By rough calculation, their deaths in 2010 have cost the government some $6.5 billion.

Motivated by the billion-dollar estates passing to heirs tax-free, Sen. Bernard Sanders (I-VT) and four co-sponsors have introduced a bill that would return the estate tax to the 2009 exemption level of $3.5 million but add a progressive tax rate structure that would start at 45 percent, rise to a top level of 55 percent, and add a 10 percent surtax on billionaires. The proposal would be retroactive to the start of 2010.

The Responsible Estate Tax Act (S. 3533), introduced on June 24, 2010, is cosponsored by Sens. Sherrod Brown (D-OH), Al Franken (D-MN), Tom Harkin (D-IA), and Sheldon Whitehouse (D-RI). According to its sponsors, the proposal would bring in at least $264 billion over a decade while exempting 99.7 percent of Americans from paying any estate tax. The retroactivity provision would likely face a court challenge from heirs of wealthy individuals such as Steinbrenner.

"At a time when we have a record-breaking $13 trillion national debt and an unsustainable federal deficit, people who inherit multimillion- and billion-dollar estates must pay their fair share in estate taxes," three of the senators said in a letter accompanying the bill's release.

The year without an estate tax is a creature of the Bush tax cuts. Under the provisions of a tax-cut bill enacted in 2001, the value of estates exempt from the tax gradually went up over the past eight years while the tax rate on estates was reduced. During 2010, according to the 2001 law, the estate tax disappears entirely, only to be restored in 2011, potentially, at a rate of 55 percent on estates of $1 million or more, which is where things stood before the 2001 change.

Study Findings Support The Value Of Advance Healthcare Directives, Living Wills And Other Means Of Making End-Of-Life Treatment Preferences Known

TJ Wall — Wed, 07 Apr 2010 16:09:50 -0600

According to a new study in the New England Journal of Medicine, one in four elderly Americans require someone else to make decisions about their medical care at the end of their lives.

Here's the good news: the study found that planning improved the likelihood that a patient's wishes would be followed and reduced emotional trauma among family members. "The results illustrate the value of people making their wishes known in a living will and designating someone to make treatment decisions for them, the researchers said," The Associated Press reports. "In the study, those who spelled out their preferences in living wills usually got the treatment they wanted. Only a few wanted heroic measures to prolong their lives. The researchers said it's the first accounting of how many of the elderly really end up needing medical decisions made for them."

I have long advocated that every adult should have a durable power of attorney for healthcare decisions as an integral part of a comprehensive estate plan.

Now for the bad/surprising news: according to a recent article in the Washington Post, five years after the court fight over allowing Terri Schiavo to die, most Americans still don't draft the legal documents that spell out how far caregivers should go to keep them alive artificially. End-of-life experts estimate only 20 percent to 30 percent of U.S. adults have advance directives, the same as before the Schiavo case. Even in polls of older Americans, who fill out such forms at higher rates, there is little if any change from 2005.

Have you taken the time to clarify your end-of-life wishes, what you want out of your final years, how you want to be cared for, where you want to live and so on? You should have this important conversation with your loved ones, and you should memorialize your wishes in the appropriate legal instrument drafted by a trained attorney.

Have Your Parents Planned For Your Protection?

TJ Wall — Tue, 23 Mar 2010 13:51:41 -0600

When your parents die, you are the one who will be responsible for taking care of everything they leave behind. My dad died when I was in law school and even though my mom was still living, ensuring that his estate was administered properly was my responsibility. There are steps you can take today to make sure that it will be as easy for you as possible and that what you inherit will be as protected as possible. Avoid these three mistakes.

Mistake #1 – The Way Your Parents’ Assets are Titled Could Cost You Tens or even Hundreds of Thousands of Dollars. If your parents’ own their home and other assets in their own name and not in the name of a well-drafted living trust, you could have to deal with an expensive, time-consuming and frustrating court process called probate. Probate is totally and completely avoidable by ensuring that all of your parents’ assets are held in trust properly.

Mistake #2 – Failure to Have Powers of Attorney and Health Care Directives Could Leave Your Hands Tied. If one or both of your parents become incapacitated, you could be stuck without a way to access their bank accounts and critical information if they have not executed updated legal documents that not only protect them, but you as well.

Mistake #3 – Your Parents’ Living Trust Might Leave Your Inheritance at Risk. If your parents’ trust is drafted in the best way possible, you could receive your inheritance protected completely from lawsuits, divorce and estate taxes. But, if it’s drafted incorrectly, your inheritance could be at risk.

You can easily avoid all of these mistakes today by having your parents’ estate reviewed by a specialist who can take the necessary steps to prepare everything for a smooth administration. Invest a fraction of the time and energy today to avoid 10x the complication, stress and cost later. It’s one of the best and least expensive investments you can make for your peace of mind.

Congress Lets Estate Tax Expire, But May Act Retroactively

TJ Wall — Wed, 13 Jan 2010 09:06:36 -0600

Happy New Year! I hope you enjoyed the Holidays with your family and close friends. Well, despite my last post about the pending estate tax legislation, there is currently no tax on the estates of those dying during 2010! Although Congress may reinstate the tax retroactively in 2010, perhaps as part of broader tax reform, this is not a certainty. Burned by their near-universal conviction that Congress would act to preserve the tax before it expired on December 31, 2009, experts are now wary of predicting what lawmakers will do.

If Congress fails to act, a few thousand very wealthy families will have reason to celebrate, while tens of thousands of taxpayers of more modest means will pay capital gains on inherited assets thanks to the end of the basis step-up and the start of modified carryover basis rules. In addition, executors will face confusing administrative burdens, and married couples with credit shelter trusts may want to revise their plans, at least for 2010. And if Congress does change the law retroactively, extensive litigation over inheritances is almost guaranteed.

The chief tax counsel for the House Ways and Means Committee estimates that while extending the 2009 estate tax law would have affected about 6,000 estates, 71,400 estates could face new capital gains taxes with the estate tax gone. According to the Center on Budget and Policy Priorities, "at least 62,500 of these are estates that would not owe any estate tax if the 2009 rules were continued and that thus would be adversely affected by estate tax repeal. Farm and business estates would constitute a disproportionately large share of this group." (Small farms and businesses are the groups whose interests opponents of the estate tax have claimed they are defending.)

The Perils of Going Retroactive

Senate Finance Committee Chairman Max Baucus (D-MT) has pledged to try to restore the estate tax retroactively in 2010. This would undo the capital gains increase, but it could also create fertile ground for lawsuits by those whose family members die between January 1, 2010, and the date when any retroactive law is enacted.

"I can guarantee this: if they succeed in getting retroactive in hiking the death tax from zero to 45 percent, there are going to be lawsuits," said Dick Patten, president of the American Family Business Foundation, which opposes the estate tax. "Its going to be messy, its going to be noisy." (For an excellent discussion of the mess that a lapse in the estate tax could create, see this article by Forbes.com. "Beneficiaries will deal with uncertainty for years," warns one tax expert.)

What to Do?

In the meantime, estate planning attorneys and their clients are trying to figure out what to do. Particularly vulnerable are married couples with credit shelter trusts that are designed to allow both spouses to take advantage of their respective estate tax exemptions. With the estate tax gone, the wording of these trusts could be interpreted as completely bypassing the surviving spouse when the first spouse dies, meaning a surviving spouse would get nothing without claiming an elective share. (For commentaries, click here and here.)

Along with the estate tax, the generation-skipping transfer tax also disappears in 2010. Some wealthy individuals may bet that Congress won't extend the law retroactively and therefore make large gifts to grandchildren.

"Ten years ago, there was a lot of gallows humor about repeal when everybody said it would never happen," said Rep. Richard Neal (D-MA), chair of the House Select Revenue Subcommittee. "Now, one of those never-happen moments has happened, and nobody's laughing."

For more on the implications of the disappearance of the estate tax, see the Future of the Estate Tax blog.

Breaking News: House Votes Yes On Estate Tax Bill

TJ Wall — Mon, 14 Dec 2009 07:35:31 -0600

On Thursday, December 3, the House of Representatives passed the "Permanent Estate Tax Relief for Families, Farmers, and Small Businesses Act of 2009" (H.R. 4154) sponsored by Rep. Earl Pomeroy (D-ND) by a vote of 225-200. The bill makes permanent current estate tax provisions of a 45 percent estate tax rate and a $3.5 million per-person exemption. There is no provision for indexing for inflation. The bill also maintains the so-called “step-up in basis” tax rules. Similar action is not expected in the Senate, where a one year extension of current law is considered more likely. To read a record of the proceedings, visit: frwebgate.access.gpo.gov/cgi-bin/getpage.cgi

As I have been advising my clients for the last few years, if Congress takes no action whatsoever, the estate tax is scheduled to enter one year of full repeal in 2010 followed by a return of the estate tax in 2011 with a much lower exemption amount ($1 million) and a much higher maximum tax rate (55%). I am optimistic, however, that logic will prevail (despite the fact that we are dealing with D.C. politics) and our current $3.5 million exemption will be extended for at least the short term.

Two important points I want to stress: (1) The federal estate tax is all-encompassing and is levied upon a deceased person's worldwide gross estate (any and all assets that the individual owned or had an interest in as of the date of death, i.e. real estate, cash, stocks, bonds, life insurance proceeds, patents, etc.); and (2) In a married couple scenario, the present $3.5 million exemption is not "automatic" for each spouse; proper planning must be implemented to take advantage of this "double exemption" opportunity.

Our firm will continue to closely monitor these developments and will certainly alert any clients whose plans may need attention as a result thereof.

Myths & Misconceptions: An Estate Plan Is Not A Will

TJ Wall — Tue, 10 Nov 2009 06:00:00 -0600

Well, Halloween is now over and I'm sure your doorway was packed all evening with scary little goblins, ghosts, witches, and an assortment of other monsters. And, if you're like me, you more than likely bought way too much candy and now you're pondering whether to pitch it or just enjoy some serious sugar munchies. That's just between you and your waistline!

With the House of Representatives passing its plan for overhauling the nation's health care system this past Saturday, no matter what side of the political aisle you are on, there can be no doubt that having access to quality and affordable health care is a huge issue for many Americans. Along those lines, the truth is that now you will more likely experience a long-term disability than a catastrophic death. If all you have is a will, you’ve done nothing to plan for that disability. A comprehensive estate planning approach must include planning for your disability, as well as your passing.

Most people think of “doing estate planning” as the act of creating and signing a will. While in some cases, a will is the best instrument, you can’t get to that answer without engaging in a comprehensive process where the lawyer gets to learn about you and your family, your goals and desires, your values and expectations. Only then can an effective estate planning attorney recommend the best document or set of documents to create an estate plan that “works” for you.

In the end, estate planning should be about giving you the control and flexibility to live your life with peace of mind, knowing that there are safeguards in place that will help you provide for your loved ones if you are disabled. An effective estate plan will let you give what you want, to whom you want, when you want them to have it, and in the way you want them to have it. All the while providing a way to allow you to pass along both your wealth and your wisdom.

Debunking The Myth--Planning Is NOT Just For The Rich!

TJ Wall — Tue, 27 Oct 2009 06:00:00 -0600

I am very privileged to have been selected as one of only three Michigan attorneys (and 70 attorneys nationwide) for the Personal Family Lawyer designation awarded by the Family Wealth Planning Institute. Last week the founder of FWPI, Alexis Neely, appeared on ABC's "View From the Bay" television program. She offered sage advice to three very different types of people - a young single guy, a boomer woman close to retirement, and a mom of two young kids - debunking the myth that estate planning is just for the rich. In fact, it's for everyone who cares about their family.

It's about who takes care of your kids if you can't and who makes medical decisions on your behalf (Remember Terry Schiavo?) if you can't make them for yourself and ensuring you pass on your values and leave behind a real legacy for your loved ones and not a mess. Check out Alexis here:

Protecting Your Children's Inheritance--The Value Of Trusts

TJ Wall — Tue, 13 Oct 2009 10:13:17 -0600

A substantial part of my practice is dedicated to helping families with young children complete their essential legal planning. Today, families are more concerned than ever before about protecting inheritances and making sure that what they leave behind will be there for their children when their children need it most.

Seems like the Wall Street Journal agrees with me. On June 3, 2009, the WSJ printed an article taken from a new book, “The Wall Street Journal’s Financial Guidebook for New Parents” by Stacey L. Bradford. Here’s an excerpt from that article:

Do you anticipate leaving your children more than a modest sum of money?
A trust may not be worth the effort if you think you’ll only be leaving a child (or children) $100,000 or less. On the other hand, if you’re leaving life insurance money to cover four years of school and you own a home, there’s a good chance a trust would make sense for you.

Do you want to have some say in how your children’s money is spent?
A trust allows you to restrict spending to basic support, including food, clothing, education and health care. This is something that can’t be done with a custodial account. If the custodian is a soft touch, he could end up lavishing your child with designer jeans and a fancy car, leaving very little left for the college years. Even worse, if the custodian is also the guardian, he could start writing himself large “support” checks to help cover his other expenses.

Would you prefer that your children not inherit the money when they turn 18 or 21?
If you think giving a high-school senior a large sum of cash is a recipe for disaster, then you should consider a trust. The ability to delay inheritance was the main draw for drafting a trust for Laurie and Greg Wetzel, a New York City couple in their mid-30s with three small children. Should something happen to both of them, they decided, their kids will each receive half of their inheritance at age 30, and the remaining amount when they reach 35.

“Your 20s are such a transitional time that we don’t want our children to have significant financial decisions to make,” Ms. Wetzel says.

Do you want the money to be used for a college education?
If you specifically bought life insurance so that there would be enough money to help fund college in the event of your death, then you’ll definitely want to delay the age at which your kids inherit your money. Otherwise, your child could think a red Ferrari is a better investment than a crimson Harvard diploma.

Would you like your children to have recourse if their money is mismanaged?
One more benefit of a trust that you don’t get with a custodial account is that a trust is a legal contract; the trustee has an obligation to follow your directions and act in a reasonable and prudent manner. If the beneficiary feels the trustee spent the money frivolously, he can demand an accounting, and can sue for reimbursement if the trustee acted improperly with the funds. It may be pretty tough to prove illegal or improper actions with a trust, but just the threat of a possible lawsuit can keep someone in line.

This advice is "spot on" from the Wall Street Journal. However, I disagree with the WSJ author's comment that parents need not worry about signing "standard" forms. I think that’s lazy lawyering, terrible client service, and could result in a client's false sense of security and, ultimately, a failed estate plan. When we design an estate plan for a client, that plan is customized to the client’s specific circumstances and goals. I would recommend that clients demand the same from any estate planning attorney they visit and walk (no, run!) away if that attorney is unable or unwilling to honor that request.

"To Convert, Or Not To Convert"....No Income Limits on Roth IRA Conversions Beginning January 1, 2010

TJ Wall — Tue, 29 Sep 2009 11:17:05 -0600

Part of the 2006 tax reconciliation bill is about to matter to many of us come January 1, 2010. It's sort of a good-news/bad-news deal -- but more good than bad for many. As of January 1, 2010, there will be no income limits for those who want to convert a traditional IRA to a Roth IRA. That's good because in the past, households with an adjusted gross income of more than $100,000 have been barred from converting their IRAs to Roth IRAs, and married spouses filing alone have been barred regardless of their income.

As a quick refresher, Roth IRAs are retirement savings accounts where you pay the income taxes due up front (when you contribute to the account) -- then, it grows tax-free and your withdrawals are also tax-free (but you don't get the income tax deduction when you initially contribute the money).

So, for those of you whose traditional IRAs are now worth far less than they used to be worth (that's the bad news part), converting to a Roth IRA in 2010 could be a great idea: Since the account is now worth so much less, the taxes on the conversion will also be much less than they might have been, and if tax rates go up in the future, as many predict they will, you'll have already paid the taxes due on the account.

For a good analysis on the ins and outs of the new rules, check out this Wall Street Journal online article. And, as always, please contact our firm for advice tailored to your specific situation...happy reading!