North Carolina Estate Planning Blog

Should an Estate Plan be Revised Before or After a Divorce?

Greg Herman-Giddens — Mon, 20 May 2013 06:53:43 -0500

We’ve written about the importance of updating your beneficiaries, but when you’re going through a divorce, should you update your estate plan while navigating separation or after the divorce is finalized? If you do not have an estate plan, an excellent time to create one is when your marital status changes.

Your estate plan directs exactly how you choose your assets to be divided when you pass away, and includes direction on who will make important healthcare and financial decisions on your behalf in the event you become incapacitated. Several variables affect equitable distribution of assets in a North Carolina divorce: Prenuptial agreements, assets acquired during the marriage, dependents, income earning capacity of each spouse, and more.

It is important to revise your estate plan before your divorce is finalized, although some changes may not be effective unless a separation agreement and property settlement agreement have been signed. As you move toward dissolving your marriage, you most likely do not want your spouse to be responsible for making medical or financial decisions if you are incapacitated. When you update your estate plan you can include powers of attorney that appoint an agent of your choosing with the authority to handle these matters. You can also designate secondary agents in the event your primary choices are incapacitated. An estate plan can also include instructions that will reflect your burial wishes. You may also want to update or create trusts that can provide for your children’s needs or the needs of any other dependents you may have.

Working with a North Carolina estate planning attorney to update or create an estate plan before and after your divorce will help ensure protection for you and your assets. Mere physical separation does not terminate your spouse’s rights under estate planning documents you have created; nor does it terminate inheritance rights under North Carolina law. For the best protection you will need a property settlement agreement and new estate planning documents.

Retirement Savings Change Based on Income Projections

Greg Herman-Giddens — Fri, 17 May 2013 10:42:28 -0500

The Boston College Center for Retirement Research released a study that involved over 15,000 employees who were offered projections of their retirement income based on potential voluntary contributions. The projections changed the way individuals decided to contribute to their savings.

According to the study, the less awareness individuals had about the impact tax-deferred contributions can have on their future retirement income, the less they were inclined to save. Savings increased even more for those who were offered projections of their retirement income combined with information on retirement planning. However, the savings choices of those with impulsive financial tendencies and a habit of procrastination were not affected as significantly.

How much did revealing potential retirement income change savings habits? The study showed individuals decided to contribute over $1,100 more per year to their retirement savings. Researchers found by combining employee education on the basics of retirement planning with projected retirement income based on their age, confidence increased along with their knowledge.

North Carolina residents engaging in retirement planning will need to consider income, investments, potential long-term care costs and other expenses, and the impact of any business interests. A meeting with a Certified Financial Planner in North Carolina is an opportunity to reveal issues that are unique to your situation so that you can accurately project your potential retirement income. Once you create a retirement plan, your financial advisor will work with you over time to develop a strategy that will change with you as your life changes. Statistically, having this extra knowledge in advance will increase the probability you will contribute more to savings and enjoy a greater retirement income than you would have otherwise.

No NC Tax Reform Bill Yet, Here's the Plan

Greg Herman-Giddens — Wed, 15 May 2013 11:05:04 -0500

The North Carolina Senate had announced plans to reveal the new NC tax reform bill in early May. However, the press conference instead produced the outline of a measure that the Senate hopes to turn into a bill later in 2013. Citing pending reports of tax collections from April as part of the bill’s delay, the legislators provided the proposed tax changes that will combine to about $1 billion in tax cuts.

Proposed North Carolina tax changes:

Income tax. The highest income tax would be reduced to 4.5% (over 3 years) and low-income earners would not have any tax liability (effective immediately).
Estate tax. The North Carolina estate tax would be eliminated. House Bill 101 was approved the same day as the press conference, which would repeal North Carolina’s estate tax effective immediately.
Corporate tax. Corporate tax would be reduced to 6%.
Business franchise tax. Would be reduced by 10%.
Sales tax. Taxable items would expand to include services; prescription drugs will also be taxable. The sales tax rate would be reduced to 6.5%. Non-profits would no longer be exempt from sales tax.
Real estate tax. No tax changes would occur, but the areas in which these taxes are spent will be amended.

Although these changes are still evolving, all individuals, non-profits, and businesses would be affected by North Carolina’s tax reform in 2013 if the above changes pass. Take time now to discuss financial planning moves with your North Carolina tax attorney and create a strategy to help reduce your tax liabilities.

Creditors Can Still Collect From Foreign Trusts

Greg Herman-Giddens — Mon, 13 May 2013 10:14:43 -0500

Foreign trusts, or offshore trusts, are popular asset protection tools as they are notorious for providing superior protection from creditors. However, foreign trusts are not creditor-proof.

Creditors face a greater challenge when they must pursue assets in foreign trusts. The debt owed may need to be substantial in order for the expensive collection process to be beneficial. The cost of litigation in foreign countries is one of the top deterrents of creditors.

One method that creditors use to access foreign assets is time. This wait-and-see approach allows a creditor to research collection strategies. There is the possibility that during this time a foreign trust holder may not be able to access and benefit from their trust funds. The trust remains protected, but inaccessible. Creditors may use other methods to freeze alternate sources of income in order to pressure the debtor into paying the balance due. Also, creditors may target domestic assets to satisfy the debt owed by foreign assets. Knowing just these few strategies shows why it is important to establish a foreign trust with the guidance of an asset protection attorney.

The vulnerability of foreign trusts is showcased In the April 2013 case of US v. Arline Grant. A foreign trust was not properly set up for Arline Grant’s benefit by her husband, creating a multi-million dollar tax debt to the US government. Three years ago we wrote about a court order directing Grant to repatriate the money so that the US debt could be satisfied. Grant's documented unsuccessful efforts established her inability to repatriate the assets. However, the government waited a few years and monitored Grant’s finances and discovered over $200,000 from the foreign trust was deposited in her children’s US-based accounts. This was viewed as a violation of the Repatriation Order and the US government was able to place an injunction on all future foreign trust funds that both Grant and her beneficiaries were to receive. Instead, all future foreign trust distributions will be given to the government to pay down the debt and interest that is accumulating on the debt.

Foreign trusts still provide a level of confidentiality that is not possible in domestic accounts and they can be properly structured to build an effective shield from creditors. Review offshore and domestic trust options with a North Carolina asset protection attorney and read more about why you may want to consider a foreign trust.

National Elder Law Month: What Does Medicare Cover for Nursing Homes?

Greg Herman-Giddens — Wed, 08 May 2013 08:57:25 -0500

As part of National Elder Law Month, our North Carolina elder law attorneys are providing a series of posts to help educate senior citizens and their loved ones who care for them about their legal options.

Medicare helps many seniors afford necessary healthcare services. All individuals over age 65 qualify for Medicare programs if they meet certain citizenship and asset criteria. Coverage may begin earlier for those who have received disability benefits for more than two years or who have end-stage renal disease and meet a 3-month waiting period. There are asset and income limits that also affect eligibility, which is why it’s important for seniors to meet with an elder law attorney who can offer the best options for structuring assets to remain eligible for disability benefits.

Until January 2013, patients in a nursing home facility needed documentation that their condition was improving in order for Medicare to continue providing coverage. A federal court ruling has now made it possible for Medicare coverage to continue in order to preserve health or slow down failing health.

For nursing home care, what does Medicare cover?

Long-term care in skilled nursing homes is not covered by Medicare unless the patient is admitted within one month of a three-day hospital stay. There are still more requirements:

The nursing facility must be CMS-approved. (Centers for Medicare and Medicaid Services)
Certification from a doctor stating that the patient requires in-patient care only available at a nursing facility.

The nursing home care is covered 100% for the first 20 days, and then the patient is responsible for a co-payment up to 100 days. After 100 days, the patient is responsible for satisfying the balance of healthcare costs.

Other benefits programs, such as Medicaid, may help reduce the financial burden that long-term care places on seniors and their family members. Many programs have complicated applications and restrictions that can be overwhelming to navigate by oneself. A North Carolina elder law attorney can help explain the programs that will apply to your situation.

Top States for Domestic Asset Protection Trusts

Greg Herman-Giddens — Tue, 07 May 2013 08:42:28 -0500

Steve Oshin’s 2013 Annual Domestic Asset Protection Trust State Rankings were released and show the highest scoring state for DAPTs is Nevada.

DAPTs are self-settled trusts that offer spendthrift protections, which shield assets from creditors. Not every state allows these types of trusts, and those that do differ on their requirements. As the top-scoring state, Nevada does not require affidavits for transfers, does not permit spouse or child support claims, and has no state income.

Out of the sixteen states ranked according to their DAPTs respective protections and features, Colorado ranked lowest. Requiring income tax, offering no clear protection from child support or alimony claims, no protection from preexisting credit claims, and no established statute of limitations, the state accrued zero points in the review.

The Top 5 States for DAPTs in 2013:

Nevada
South Dakota
Alaska
Ohio / Tennessee (tied)
Delaware

North Carolina does not currently permit DAPTs. For those exploring North Carolina asset protection options, with possible risks there are ways to take advantage of DAPTs in the sixteen states where they currently exist while you reside in North Carolina. There are also foreign trust possibilities for individuals considering off-shore asset protection. Check with a North Carolina asset protection attorney to learn the best tools for your needs.

Distribution Advantages for Spouse IRA Beneficiaries

Greg Herman-Giddens — Mon, 06 May 2013 07:14:02 -0500

Designating a spouse as a beneficiary of an IRA not only ensures they will have access to retirement accounts in the event their partner passes away, but it offers them unique advantages to which non-spouse beneficiaries are not entitled.

If a spouse is the named beneficiary of an IRA, they have several distribution advantages:

Spousal rollover. Rolling over an inherited IRA into the surviving spouse’s retirement account allows them to treat the inherited account as their own. This allows the money to remain in a tax-advantaged account longer. (There is also the option of transferring assets into an inherited IRA. If a surviving spouse is under age 59 ½, this would allow penalty-free withdrawals. Check with a North Carolina estate planning attorney to learn how these rollovers can be structured.)
Remaining a beneficiary. A surviving spouse does not need to rollover an IRA into their own. Instead, they may choose to “remain a beneficiary” in order to delay the required date for distributions. Choosing this option allows the surviving spouse to delay distribution up until December 31st of the year the decedent would have reach 70 ½ years old. This would only be advantageous if the surviving spouse is significantly older than the account owner. (For non-spouse beneficiaries, part of Obama’s 2013 budget proposal includes a revision that would require IRAs to be distributed over five years instead of over the lifetime of the beneficiary.)
Naming new beneficiaries. Surviving spouses can name new beneficiaries if they choose to rollover the IRA into their own. This also allows the retirement money to last longer since money remaining when they pass will continue to compound tax-deferred for their designated beneficiaries, as beneficiaries they are allowed to stretch distributions over their life expectancies.

Make sure beneficiary designation forms are up-to-date on both spouses’ IRA accounts. Making a decision on how to manage an inherited IRA should be made after consulting a North Carolina estate planning attorney. The beneficiary’s needs must be addressed, but at the same time distribution and federal and state tax requirements must be evaluated. In addition, such as in second marriages, it sometimes makes sense to leave an IRA in a trust for a surviving spouse to ensure it is protected for young generations.

North Carolina Voting Restrictions Proposed for Mentally Incompetent

Greg Herman-Giddens — Fri, 03 May 2013 08:23:51 -0500

A recent North Carolina Senate proposal for the ballots in November of 2014 is an amendment to remove the right to vote in North Carolina for individuals who have been determined incompetent by a court of any state. If passed into law, Senate Bill 668 will take the right to vote away from many senior citizens and individuals with disabilities who have been adjudicated incompetent by a court. (An individual’s constitutional right to vote may be granted back if a court restores their competency.)

The bill will require the State Board of Elections to provide a monthly report to each North Carolina county’s board of elections of all individuals who have been adjudicated incompetent. The county will then be responsible for sending written notice to the affected voters. The voter has 30 days to file an objection; otherwise their voter registration record will be removed.

The right to vote is a basic right of US citizens. However, in some states individuals are disqualified from voting. The National Alliance on Mental Illness helps advocate voting rights on behalf of individuals with mental disabilities, providing information on constitutional rights and federal laws that protect voters’ rights. With organizations like this protecting the right to vote, the elderly and those with special needs have been the target of some political groups that try to steer voting by influencing vulnerable individuals.

In 2012, local news reports uncovered organized voter registration in group homes and assisted living facilities, targeting the mentally disabled in North Carolina. Many families were unaware their relatives with dementia or impaired mental cognizance were taken to vote. If Senate Bill 668 passes, new restrictions will prevent senior living centers from the voting methods used in the past. At the same time, families may need to address other legal issues if an individual’s remaining constitutional rights are similarly compromised in future legislation. Depending on an individual’s health and capabilities, it may be critical for families with a senior or special needs family member to establish powers of attorney or guardianship. Discussing new laws with a North Carolina elder law attorney or special needs planning attorney can help prevent the individual from being taken advantage of, whether for voting, financial, or other important decision making.

Kids in College? North Carolina Income Tax Changes for Parents

Greg Herman-Giddens — Thu, 02 May 2013 06:56:41 -0500

Parents are allowed to take a federal and state income tax deduction for each dependent child. However, North Carolina proposed Senate Bill 667 (Equalizer Voter Rights) in early April 2013 that will not allow parents to claim their child for state income tax purposes if their child has registered to vote at an address other than where the parent or legal guardian resides.

Many parents continue to claim their children as a dependent while their child is away at college. (Children may be claimed as dependents up until the tax year they are 24 and enrolled as a full-time student for at least five months of the year.) Children enrolled at out-of-state colleges where the state’s auto or health insurance rates are cheaper may find it more attractive to establish residency in the state where their college is located. Since public universities offer discounted tuition to in-state students, making the move to establish residency further reduces education expenses and potential student loan debt.

According to the North Carolina Department of Revenue, the amount a parent or guardian may claim is determined by the parent or guardian’s gross income and filing status, the age of the dependent, and if the dependent is physically or mentally incapable of caring for themselves:

For tax years beginning on or after January 1, 2006, the maximum expenses on which the credit is based is equal to the amounts for federal purposes - $3,000 for one qualifying dependent and $6,000 for two or more qualifying dependents. Note: Child support payments do not qualify as child and dependent care expenses.

The bill, if passed into law, will not affect an adult child’s right to vote, but rather make it necessary for them to maintain their place of residence at their parent or legal guardian’s North Carolina home should the parent or guardian choose to claim the child as a dependent. In order for a parent to claim their child as a dependent, it also requires any motor vehicles owned by the child to be registered at their parents’ address. The bill may change how parents and their adult children choose to make claims on their taxes. If the bill passes, it will go into effect January 1, 2014. Check with a North Carolina tax attorney to learn about tools available to reduce tax implications for both parents and children.

Disclaiming Inheritances in North Carolina

Greg Herman-Giddens — Wed, 01 May 2013 06:23:17 -0500

Why would an individual renounce or disclaim an inheritance in North Carolina? An inheritance may not always be expected and it may not be desirable for the beneficiary. Certain assets, like real estate or personal items, may require complicated or expensive maintenance that the beneficiary does not want to manage. An inheritance may also come with a heavy tax burden. For senior citizens, an inheritance could affect their eligibility for Medicaid benefits. Instead, a beneficiary may want another family member to receive their inheritance.

Disclaiming an inheritance is governed under state law, but to avoid the disclaimer being subject to gift tax it must meet federal regulations as well. Since a disclaimer (which is irrevocable) must comply with federal and North Carolina law, it is best prepared by a North Carolina estate planning attorney. Filing and registering disclaimers in North Carolina, when done properly, allows the disclaimant to avoid gift taxes associated with the transfer occurring as a result of the disclaimer. A disclaimer must be filed within 9 months of the date of death and the disclaimant must not have received or benefited from the property.

May is National Elder Law Month. Seniors should consult with a North Carolina elder law attorney if they are due an inheritance. The amount of a disclaimer made within five years of applying for Medicaid will be considered an asset and could result in penalties.

Ways to Protect an Inheritance from Creditors

Greg Herman-Giddens — Tue, 30 Apr 2013 06:41:00 -0500

Bequeathing assets involves more than naming beneficiaries. Creating a proper estate plan offers individuals and families the ability to protect their assets for loved ones after they’re gone. Unexpected claims could drain accounts and threaten properties that were intended to be passed on to beneficiaries. There are asset protection tools that help avoid these situations and minimize exposure to creditors.

April is Financial Literacy Month. In an effort to help spread awareness so that individuals can make better decisions with their finances, our North Carolina estate planning attorneys review the benefits of trusts for structuring assets that protect funds from creditor claims against beneficiaries:

After you’re gone, your beneficiaries may experience bankruptcy, lawsuits, or other claims from creditors. If bank accounts or real estate are left to beneficiaries outright, creditors may legally make claims on these assets. However, a properly structured trust will stop a creditor from attaching a beneficiary’s interest in the trust. Trusts may also protect claims from spouses should the beneficiary divorce. When you create a trust you may choose guidelines on how beneficiaries are permitted to use trust assets (education, maintenance, or otherwise). Living trusts are popular estate planning tools because they can be terminated or updated whenever desired, and they can contain continuing trusts for loved ones. However, Wills can also include trusts that are funded after your death (testamentary trusts). Even if your loved one faces creditor issues one day, they will still retain benefits from the trust you created for them.

Trusts are just one type of tool that can be used to protect an inheritance from creditors. Full utilization of state and federal exemptions and the use of limited liability companies can also be very effective. Discuss the options available to you with a North Carolina estate planning attorney.

Google's Digital Asset Management Tool

Greg Herman-Giddens — Thu, 25 Apr 2013 07:14:10 -0500

2013 seems to be the year of digital afterlife planning. Last month the North Carolina Senate approved Bill 279, a bill for the state’s first-ever laws addressing digital assets. This month Google took their first step forward in post-death account management of their applications. Launching a feature called Inactive Account Manager, Google now offers its users the ability to designate how they wish the data stored on their various Google applications, like Picasa Web Albums, YouTube, Gmail, Blogger, and more, managed after they are gone. Items that do not have inherent financial value, but those that the user chooses to preserve for next of kin.

The Inactive Account Manager allows users to select a specified time frame and actions to take related to their Google account data. Users can pick from 3, 6, 9, or 12 month time frames. After the desired time has passed with no activity, the account information can either be deleted or the access information forwarded along to user-selected contacts. What is the best time frame to select? In North Carolina, it is required that estate distribution be completed in a year unless the court grants an exception. The three-month option would be the best choice since an estate will still be ongoing during this time. Before taking any action, the Inactive Account Manager will send text and alternate email alerts as a warning.

Google’s new tool is a good complement to state law and comprehensive planning documents, but there is potential for controversy. How will North Carolina laws addressing digital assets be reconciled with coinciding individual account management programs like Google is offering? Complications may arise if an individual uses a power of attorney offline to appoint an agent to manage their digital assets, but at the same time pre-selects a different person via Google’s Inactive Account Manager or similar program to do the same. Although it is not a legal requirement, it would be in an individual’s best interest to inform their agent about settings such as these. Laws outside of North Carolina may govern these types of circumstances. Google, based in California, may have their user agreements under their state’s jurisdiction. Cases with other web entities, like a 2005 family’s suit against Yahoo, end up falling under the user agreement, which states account access is non-transferable. Eventually, having a federal law addressing issues like this would help resolve what will become an ever more important part of dealing with an incapacitated or deceased person’s assets.

North Carolina’s digital assets bill is now being reviewed by committee members as it moves along to the House. To ensure access to your online data is not compromised, ask a North Carolina estate planning attorney about updating estate planning documents to reflect the latest laws and practices regarding digital assets. As new digital asset management services are launched, keep your agents, executors, and trustees informed of any settings you choose to make with these applications.

Why You Should Update Your Beneficiaries

Greg Herman-Giddens — Wed, 24 Apr 2013 08:15:42 -0500

Neglecting to update beneficiaries, or failing to name them, may leave life insurance and retirement accounts to unintended recipients, create probate expenses, and cause tax problems. Having a Will does not avoid these issues. The best prevention is having updated beneficiary designations.

Beneficiary designations for IRAs and other retirement plans will supersede any distribution instructions in a Will. If a spouse is named as a beneficiary of life insurance or an IRA, and an individual divorces, re-marries, and forgets to update their forms, their ex-spouse will remain entitled to the assets. Individuals can use POD (payable on death) or TOD (transfer on death) designations to name beneficiaries for bank accounts or investment accounts, respectively.

Probate is avoided for assets that have designated beneficiaries. When completing Beneficiary Designation forms, make certain a person (or in some cases, a trust) and not your estate is named as a beneficiary, which can help avoid probate and tax issues. An IRA left to an estate shortens the tax deferral life of the IRA as there are time limits for distribution requirements. Utilizing beneficiary designations and ensuring they are up-to-date can help reduce taxes and other costs for loved ones.

Common life events provide a good reason for you to contact your North Carolina estate planning attorney and update your beneficiaries:

Marriage
Divorce
New baby
Death of a relative
Job change

As an extra step, name a secondary beneficiary. If you intend to name your spouse as a primary beneficiary and you are both killed in an accident, your assets will pass along as you desired to your contingent beneficiary.

3 Ways to Gift for College

Greg Herman-Giddens — Mon, 22 Apr 2013 08:13:50 -0500

Family members have the best intentions when they offer money to cover college expenses, but if they neglect to use a wise gifting strategy they could affect the student’s eligibility for federal aid. With hundreds of higher education institutions, state and private universities in North Carolina, students have no shortage of options. However, the cost of college can range from several thousand to over $45,000 per year.

One of the best tools available to pay for higher education is a 529 college savings plan. 529 accounts allow anyone to make a gift (which reduces the giver’s taxable estate) and the money can grow tax-free. Later, as long as the money is used for educational expenses, money from a 529 account can be withdrawn with no tax or penalties. North Carolina offers a tax deduction for residents for contributions of up to $5,000 (couple) to a 529 plan. If a 529 account was never set up, family may be inclined to gift money directly to the student. In these situations, advanced planning helps reduce negative tax and financial aid implications.

Whether a child, grandchild, niece or nephew is going off to college for the first time, or if a family member is returning for another degree, the price tag of a college education is no less daunting. Usually the decision to go to college is not an overnight one. Standardized tests must be complete, applications submitted, and a specific institution chosen. Since family members have advanced knowledge about when the student is planning to leave for college, they can time their gifts strategically:

Make gifts after federal aid is established and the tuition bill arrives. Since federal student aid applications require disclosure of savings, any additional money in accounts will reduce the student’s eligibility for aid. For young students who are still dependents, even money under their parents’ names will be factored into their aid application.
Send gifts to parents. When a relative gives money directly to the student they are affecting the student’s eligibility for financial aid. Wait until federal aid is established before gifting money to the student’s parents.
Consider covering other expenses. If you choose to cover the car payment for a commuter student, or the mortgage of a loved one returning to school who is also supporting their own family, make sure the bills you are paying on their behalf do not exceed $14,000 per year (2013). If the amounts given are in excess there are necessary gift tax reporting requirements. (However, gifting directly to an educational institution for payment of tuition is not subject to the $14,000 annual exclusion. These gifts are unlimited.)

Effective January 1, 2009, the North Carolina gift tax was repealed. Individuals in North Carolina who choose to make gifts will only need to consider federal gift tax; the annual exclusion for gifts is $14,000. Start talking about covering the cost of college, and if college is still many years away, set up a 529 plan now to help ease the burden later on.

Obama's 2013 Budget Proposal to Push Estate Tax Back to 2009 Terms

Greg Herman-Giddens — Tue, 16 Apr 2013 07:22:47 -0500

Although Obama’s American Taxpayer Relief Act was said to make permanent changes, lawmakers had also advised that it was just the first step in a series of changes. Now Obama’s 2013 budget proposal has several amendments, of which are changes to tax laws that were recently made permanent by the American Taxpayer Relief Act.

One of the many changes affecting taxpayers in Obama’s 2013 budget proposal is the reversion of the estate tax rate to 2009 terms. According to the proposal, beginning in 2018, estate tax exemptions will return to a $3.5M and amounts in excess will be taxed at 45%. These proposed changes come just a few months after the American Taxpayer Relief Act was signed into law; a law that set forth a higher exemption and lower estate tax requirements that were indexed for inflation. Reverting to 2009 terms means the exemption will not be indexed for inflation.

In addition to the estate tax changes, many “estate tax loopholes” will be removed, limiting tax reduction planning for wealthy Americans unless they quickly take action with the assistance of an estate planning attorney. The budget proposal also affects:

Grantor retained annuity trusts (GRATs). The proposal creates multiple restrictions by posing a minimum term of 10 years and a maximum term of life expectancy of the annuitant plus 10 years.
Eliminates zeroed-out GRATs. Grantors will be required to make a taxable gift when setting up a GRAT.
Reporting requirements of executors and lifetime gift donors. Executors and lifetime gift donors will need to complete valuation paperwork for the IRS and the recipient.
Dynasty trusts. Many families use dynasty trusts to take advantage of the generation-skipping tax exemption, however the proposal sets forth to remove the exemption after 90 years.

With the unpredictable legislation changes affecting estates, it is increasingly important to schedule routine reviews with a North Carolina estate planning attorney. Effective asset protection tools, tax-savings strategies, and other planning devices will help individuals avoid the impact of fluctuating estate tax requirements.

$3M Limit on IRAs in Obama's Proposal

Greg Herman-Giddens — Mon, 15 Apr 2013 10:14:17 -0500

Individual Retirement Accounts are a top retirement choice for individuals who want to enjoy tax-deferred savings. However, Obama’s new budget plan includes caps on IRA accounts. Retirement account holders would no longer be able to maintain an IRA balance in excess of $3M.

Would Obama’s proposed IRA limit apply to each individual account? No. According to Bloomberg, “the cap would apply to the total of all of an individual’s tax-favored retirement accounts.”

Providing tax savings for both retirement planning and to heirs upon inheritance, IRAs have become extremely popular. Most IRA accounts have maximum annual contribution limits of $5,500. Considering these limits, the $3M cap may seem like an insignificant threat. However, individuals who have taken advantage of 401(k) and similar plans, and then rolled these plans over into an IRA, are those who would be affected by the new IRA balance limit. This is a fraction of a percent of IRA account holders in America today.

The Obama Administration is proposing the limit on IRAs because it believes more than $3M is “more than enough to retire comfortably,” according to CNN Money reports. By making this change, within 10 years it is estimated the government will save over $9 billion.

The proposal may impose a variable limit, one that will be determined on an annual basis. This could impact millions more or less each year. The unpredictability would make long-term financial planning and retirement decisions difficult to make for those using IRAs and other tax-preferred retirement accounts, and it would make alternative retirement accounts and creative financial planning more attractive to taxpayers. Annual reviews with estate planning attorneys and financial planners will help individuals arrange funds strategically to ensure maximum tax deferrals are used and sufficient balances are available for retirement.

The budget proposal would take effect in 2014.

3 Reasons Why You Don't Need to be a Senior Citizen to Use an Elder Law Attorney

Greg Herman-Giddens — Sun, 14 Apr 2013 12:35:16 -0500

A common misconception is that elder law attorneys are used primarily by senior citizens. Although elder law attorneys can assist with crisis Medicaid planning and present eligibility for Veterans’ Benefits, they can also help younger individuals make a plan in advance.

All too often families call on elder law attorneys when the cost of housing or long-term care for an older relative becomes a burden, or when the rights of a nursing home resident are compromised. As part of April’s National Financial Literacy Month, our elder law attorneys in Chapel Hill prepared a list of three important reasons why it is just as important for non-seniors to create a financial plan for the future with an elder law or estate planning attorney:

Who will manage your finances if you are unable to? Establish powers of attorney now so that you can designate individuals you trust with handling your finances, real estate, or other personal matters. Should you become incapacitated without a power of attorney, an expensive and time-consuming incompetency and guardianship proceeding may be required.
Will you be eligible for benefits most seniors rely on? Income and assets affect eligibility for senior or disabled benefit programs. Planning now will help you structure assets in such a way that you will still retain your assets, but at the same time remain qualified for Medicaid and other benefits. You can also explore trust planning options, like special needs trusts and Medicaid Trusts, which further protect finances available in senior years.
Who will make important healthcare decisions on your behalf? A Health Care Power of Attorney allows you to appoint another person with the authority to make decisions about your medical care. A Living Will states your wishes about end-of-life care.

Making a plan well in advance of senior years allows individuals to preserve their independence, financial and otherwise, as long as possible. Long-term planning options may be limited if explored at the last minute. According to the North Carolina Division of Aging and Adult Services, in 2012 the state ranked #9 in the nation with the highest number of residents over the age of 60. (North Carolina is 11th in the nation with a population older than 85.) Create a simple plan now with a North Carolina elder law attorney before complicated issues arise.

5 Final Hour Tax Filing Errors

Greg Herman-Giddens — Fri, 12 Apr 2013 08:27:17 -0500

Taxpayers make preventable mistakes every year that cause delays with their tax return processing. Knowing what these mistakes are may help you avoid unnecessary delays of your refund. Courtesy of the IRS, our North Carolina tax attorneys have listed five common mistakes taxpayers make when they filing their taxes in the hours or days before April 15th:

Entering the wrong routing and account numbers. Filers often elect to receive their refund via direct deposit to avoid waiting weeks to receive their check in the mail; however a simple account number error could result in an even longer wait. During the last-minute rush to submit the return in time, filers may miss a digit, enter an inverted number, or use an old account number by accident.
Choosing to file with a paper return. Filing electronically saves time and reduces tax return errors. Taxpayers who still choose to file a paper return are more likely to make errors, not write legibly, or mail the form to the wrong address. Filing a paper return also requires certain documentation to be attached. All of these variables related to paper return filing create the potential for errors and delays.
Entering the wrong personal information. Some taxpayers are focused entirely on the more complicated aspects of their return that they fail to enter the correct birthday, Social Security number, filing status, or spell their name incorrectly.
Forgetting to sign and date the return. A simple signature is another step that is commonly forgotten in the rush to file. For married couples, if one spouse prepares a joint return, they may forget to have their partner sign the return as well. Paper filers must handwrite their signature, while e-filers sign their return with a PIN.
Not using the tax tables. Use the tax tables to determine the appropriate filing status and necessary column. Check with a North Carolina tax attorney to prevent any last-minute errors when selecting your status.

Remember, tax returns are considered on-time if they are e-filed or postmarked on April 15th. If you know you owe taxes and are unable to pay, don’t let that prevent you from filing. You will need to pay a penalty for failing to file. You can file your return now, file for an extension, or make an agreement with the IRS to satisfy your tax balance in installments.

5 Tax Scams of 2013

Greg Herman-Giddens — Thu, 11 Apr 2013 08:03:10 -0500

Every year many innocent people fall victim to tax scams. Taxpayers may be taken advantage of by scammers, dishonest tax preparers, or may have their identity stolen by other means. There are more opportunities for criminals to find sensitive information about people now in the Digital Age. Read below to learn about common tax scams that are expected to affect taxpayers this year and share the information with your friends and family to help spread awareness:

Don’t let others go phish. Phishing is a way for individuals to steal Social Security numbers and file fake tax returns in order to receive fraudulent tax refund checks. Social Security numbers can be stolen from unsuspecting persons who receive authentic-looking IRS, bank, or credit card company emails requesting confirmation of these personal details, however these emails are fake.
Identity theft. According to recent research, approximately 300,000 people in North Carolina are victims of identity theft each year. Phishing is one means of committing identify theft. Dishonest tax preparers and anyone who has had access to your Social Security number has enough information to cause serious damage to your credit file. Scammers are also using information that individuals voluntarily include in their social media profiles, including dates of birth, and the answers to common security questions like names of pets. North Carolina identity theft victims should file a police report immediately in the town where a fraudulent action took place. The next steps are to close compromised accounts and report the activity to all three credit bureaus as well as the Federal Trade Commission. When it comes to your taxes and someone else has already submitted a return and collected a fraudulent refund in your name, you will need to contact the IRS directly.
IRS “free money” offers. Flyers or ads that promise money from the IRS at no cost are usually created by individuals who prey on the elderly. Those with fixed or low-incomes are attracted to these flyers and unknowingly make fake tax claims. Innocent people pay the scammers to file their tax forms. By the time a rejection notice arrives, the scammers are no longer available to contact.
Misuse of trusts. Trusts are excellent asset protection tools—when used appropriately. However, statistics from the IRS show a boost in the misuse of foreign trusts. Work with an established asset protection attorney to create and review trusts to ensure they are structured according to the latest guidelines. Offshore trusts offer asset protection from creditor claims. Some individuals choose to use offshore trusts to “hide” income in order to evade tax requirements—this is illegal. If a tax advisor suggests you use foreign trusts this way, they are misleading you. You ultimately hold legal responsibility for the information on your tax return. There are still necessary forms to file and domestic taxes to be paid on offshore accounts. Failing to submit reports may result in penalties and fines.
Keep a watchful eye over elderly relatives who may fall prey to the above scams. North Carolina elder law attorneys help individuals and families structure assets, but a senior citizen’s accounts could become compromised if they click on a phishing email or sign an agreement with a scammer. Of course, the elderly are not the only ones at risk. American taxpayers at any age are vulnerable to tax scams to some degree. Avoid any programs that resemble the scams above. Stay updated each year with new tax scam information as technology advances and creates more opportunities for scammers.

Ways to Protect Your Finances: Financial Literacy Month

Greg Herman-Giddens — Tue, 09 Apr 2013 06:16:57 -0500

April is Autism Awareness Month, Parkinson’s Awareness Month, and it is also Financial Literacy Month. These three campaigns may at first appear unrelated to each other, but they are interconnected.

The latter campaign was created to help educate consumers about the financial tools available to protect their assets for the future. How is Autism Awareness Month related? Families with children who are autistic have unique financial concerns. Depending on the child’s level on the autism spectrum, they may require specialized caregivers inside and outside of school programs. The cost of care adds up. A recent article in Raleigh’s News & Observer found that North Carolina has one of the highest rates of autism. In the Raleigh-Durham and Chapel Hill area, approximately 1 in 70 children suffer from autism. As special needs children age, parents must manage the needs of their adult special needs children. Will they be able to work and live independently? Special needs trusts are excellent financial planning tools that allow families to structure assets so that their children will remain eligible for public benefits. Special needs trusts also provide parents the ability to appoint a trusted friend or family member to manage finances for their child after their deaths. These trusts cover the costs of a special needs person’s care and well-being. Whether a family member has autism, Asperger’s, or another disability, special needs trusts can help ensure financial security for the future.

How is Parkinson’s Awareness Month related to financial literacy? Parkinson’s is a neurological movement disorder with no known cause or cure. The disease progresses as an individual ages and special care for day-to-day activities may eventually be necessary. The cost for live-in care or a nursing home may deplete a senior citizen’s assets and income later in life. According to the Parkinson’s Disease Foundation, 60,000 Americans are diagnosed annually. Families can create a long-term care plan with an elder law attorney. By creating a plan in advance, family members can prepare for medical and housing costs by preserving their eligibility for public benefits like Medicaid. Ask an elder law attorney in North Carolina about Medicaid Trusts and other special financial planning tools.

How finances are managed today creates long-term effects. Schedule an annual meeting with an estate planning attorney in North Carolina to address present and anticipated financial needs. Life events like a marriage, a new baby, or a major illness or disability may require important estate planning changes to preserve finances for you and your family.