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Year-End Tax Planning In 2012

Tuesday, December 11th, 2012

Year-end tax planning is always important, but this year it is especially difficult because of uncertainty about what the tax laws will be for 2013. The Bush-era tax cuts are scheduled to expire on December 31 and the President and Congress have once again delayed taking any action. No one knows which, if any, of the Bush era tax cuts will be extended or which, if any, will be allowed to lapse, in whole or in part. Almost everyone, however, is expecting that taxes will increase because of the large deficit between the federal government’s spending and its revenue.

While we wait to see what the President and Congress agree on, right now our clients have some exceptional planning opportunities that may soon be gone. We can help them plan with the 2012 opportunities we have, and we can create plans flexible enough to adapt to whatever the President and Congress do. In addition, there are new taxes that we know will apply January 1 that must be planned for. All members of the advisory team need to stay informed and alert to changes in order to help clients at this critical time.

In this article, we will discuss possible and known changes in the tax laws for 2013, strategies for income and estate tax planning, and some planning opportunities that should be taken advantage of now, before they disappear.

Expiration of Bush-Era Tax Cuts Will Mean Higher Taxes for Everyone
If the President and Congress do not act before the end of the year, the Bush-era income tax cuts will expire along with the December 2010 transfer tax increases (estate, gift, and generation-skipping transfer [GST] taxes) and those tax laws will revert to what they were in 2001. If that happens:

*    The 10% income tax bracket will be eliminated and the rates in the current 25% and higher income tax bracket will all increase.
*    The marginal income tax rate for top earners will increase from 35% to 39.6% plus a Medicare surtax (discussed below).
*    The long-term capital gains tax rate will increase from 15% to 20%.
*    Dividends will be taxed as ordinary income instead of at 15%. For top earners, this means dividends will be taxed at 39.6% plus a Medicare surtax.
*    Lower income bracket taxpayers (those now in the 10% and 15% brackets) will no longer be exempt from paying tax on capital gains and dividends.
*    The estate tax exemption will go from $5.12 million to $1 million. Assets over the exempt amount, currently taxed at 35%, will be taxed at graduated rates starting at 35% and going up to 55%. This means more assets will be taxed at higher rates.
*    The same thing will happen to the gift tax exemption.
*    The generation-skipping transfer tax exemption will go from $5.12 million to $1 million, adjusted for inflation, and the rate will increase from 35% to 55%.
*    Many other tax provisions will also become less generous.

New Tax Rules for 2013
We already know that these new tax rules will go into effect on January 1, 2013:

*    A 0.9% Medicare surtax on a taxpayer’s wages over $200,000 if single, $250,000 for joint filers. Withholding begins when earnings exceed $200,000 regardless of marital status. This additional tax also applies to net earnings from self-employment. This additional tax is not imposed on the employer.
*    A 3.8% Medicare surtax on net investment income for singles with MAGI (modified adjusted gross income) over $200,000, $250,000 for joint filers; $11,950 for estates and trusts. This tax applies to the lower of total net investment income for the year or MAGI over the applicable threshold.

Planning Tip: Be sure to determine what is part of net investment income and what is excluded. Also, note the lower threshold of just $11,950 for estates and trusts; careful selection of year-end for estates and trusts can allow for up to 11 more months free from this tax.

*    Itemized medical expenses will be deductible only to the extent they exceed 10% of AGI. Those age 65 and older can continue to use the 7.5% AGI floor through 2016. The 10% floor continues to apply for AMT purposes.
*    Flexible Spending Account salary reduction contributions are capped at $2,500.

Estimated COLAs for 2013
*    Tax brackets would increase by about 2.5%. Note: There will be a 10% bracket only if Bush-era cuts are extended.
*    Personal exemption would increase from $3,800 to $3,900. A phase-out of personal exemptions would again apply if Bush-era cuts are not extended. (There has been no phase-out since 2010.)
*    Standard deductions are expected to increase:
*    Singles: $6,100 (up from $5,950)
*    Heads of household: $8,950 (up from $8,700)
*    Joint filers: $12,200 (up from $11,900)
*    Dependents: $1,000 or earned income plus $350 (up from $950 or earned income plus $300)
*    Additional amounts for age and/or blindness: $1,500 for unmarried (up from $1,450); $1,200 for married filers (up from $1,150)
*    Long-term care insurance taken into account for the itemized medical deduction rises to $360 for those under age 40 and to $4,550 for those over age 70 (up from $350 and $4,370, respectively).
*    Per diem exclusion for long-term care insurance proceeds will be $320 (up from $310)
*    Itemized deduction phase-out will apply unless the Bush-era tax cuts are extended.
*    Adoption credit will be $12,770 (up from $12,650) if Bush-era tax cuts are extended. If not extended, the credit falls to $5,000 ($6,000 for a special needs child).
*    Exclusion of interest on U.S. savings bonds redeemed for higher education; MAGI threshold increased.
*    Foreign earned income exclusion will be $97,600 (up from $95,100).
*    IRAs and Roth IRAs contribution limit increased to $5,500 (up from $5,000 first set in 2009); those age 50 or older by year end can add another $1,000. MAGI limit on making Roth IRA contributions increased. MAGI limit on making deductible IRA contribution by active participants increased.
*    Annual gift tax exclusion will be $14,000 per donee (up from $13,000); joint gifts by married couples up to $28,000 per donee.
*    Lump-sum contribution to 529 plan will be up to $70,000 using the five-year gift tax rule (up from $65,000).
*    U.S. person receiving foreign gifts must file a gift tax return for gifts exceeding $15,102.

Planning Strategies for Income Taxes
Here are some strategies for December 2012:

Assess the client’s current tax picture. Review capital gains and losses already realized for 2012 (including carryovers). Check mutual fund payouts for 2012 (usually available from fund managers by November). Determine whether there will likely be a year-end bonus.

Take action for capital gain and loss planning. Actualize gains and losses on securities in taxable accounts as desired to the extent possible within the accounts. Sell investment real estate this year. Determine whether and how much of ISOs to exercise before the end of the year, being sure to consider AMT. Watch the wash sale rule when harvesting losses.

Planning Tip: Clients will probably want to sell assets in 2012 if they will need the proceeds over the next several years. A $100,000 long-term gain in 2012 will generate $15,000 in taxes; but the same gain in 2013 will generate about $25,000 in taxes as a consequence of scaled-back itemized deductions, the 3.8% surtax and a higher capital gains rate.

Planning Tip: Pull interest income into 2012 and push interest expense into 2013 where possible. For wealthiest clients, their income tax rate will increase from 35% to 43.4%, barring action in Washington.

Take action for dividends. Watch the holding period to nail down the capital gain rate on qualified dividends. Take into account reinvested dividends in figuring the basis of stock/mutual fund shares sold in 2012. Sale of a stock in December that will pay a dividend in January or February could be a good strategy.

Planning Tip: The “wash sale” rule does not apply to gain harvesting, so a stock sold realizing a gain can be added back to the client’s portfolio immediately.

Take action for retirement accounts. Consider converting IRAs to Roth IRAs. All resulting income must be reported in the conversion. (Remember to factor in the 50% conversion income from conversions made in 2010.) Remind clients to take their 2012 Required Minimum Distributions. Assess whether to roll over qualified plan distributions or pay tax on them in 2012.

Planning Tip: Watch for the possible retroactive extension of the ability to make the $100,000 direct transfer from IRA to charity for those age 70 1/2 and older.

Take action for deductible expenses. Pull some deductions into 2012 and push some into 2013. Consider incurring unreimbursed medical costs (such as Lasik eye surgery and dental implants) before year end in light of the increased floor for itemizing medical expenses (7.5% goes to 10%). Consider a Health Savings Account; a full-year contribution for 2012 can be made as long as there is coverage under a high-deductible health plan for December and coverage continues for a set period. For other deductions, offsetting 2013 income may result in larger savings if the Bush era tax cuts applicable to them expire.

Planning Tip: Make charitable deductions now; the phase-out on high-income taxpayers may apply in 2013 unless Congress keeps the status quo.

Planning Tip: Don’t prepay state and local income taxes or property taxes if subject to the AMT. (If Congress has not enacted a “patch” by the end of the year, use the 2011 exemption amounts to make projections.)

Take action for other income strategies. Determine whether to accelerate or defer compensation, including year-end bonuses, if this is an option. Adjust the fourth estimated tax payment to reflect year-end actions.

Take action for year-end strategies for businesses. Cash basis businesses should re-assess the standard strategy of deferring income and accelerating deductions. Purchase machinery and equipment before the end of 2012. (Section 179 deduction is set to decline in 2013 to $25,000 and the 50% bonus depreciation to end.) Review the business structure in light of business considerations as well as the additional Medicare taxes.

For C corporations, determine whether to pay dividends in 2012 if no deal is struck in Washington that will extend the favorable treatment of dividends; watch for excess accumulations; authorize charitable contributions before year end (C corporations can deduct them if paid within the first 2 1/2 months of 2013); review final estimated tax payment (if losses are expected for the year, adjust the final estimated tax payment and prepare to file a quick refund).

Strategies for Estate Planning
It is impossible to predict what will happen with transfer taxes and estate planning, but the climate in Washington is certainly different than it was in 2010 when the Bush tax cuts were extended for two years and the transfer tax exemptions were greatly increased during the extension period. Planners can, and really must, encourage their clients to use the planning tools that currently do exist as they are likely to change adversely in the near future.

Use the $5.12 transfer tax exemptions now. Estate tax and gift tax and GST tax exemptions are all currently linked at this historic level. However, most believe that even if the estate tax exemption stays higher (say, $3.5 million), the gift tax exemption will likely go down, perhaps all the way to $1 million. For many older clients with net estates between $1 million and $5 million, using the unified credits now can be excellent planning, especially if the exemptions are lowered in the next few years.

Planning Tip: High basis assets can be put in a trust for the spouse now and for the children and/or grandchildren later. With low basis property, a switch to turn on a general power of appointment can be included in the trust so that if the surviving spouse has unified credit remaining at her death, the trustee can bring the lowest basis assets into the surviving spouse’s estate.

Use the $5.12 million generation skipping transfer tax (GSTT) exemption now. This can provide significant savings in estate taxes over the generations. Under current law, several states have laws that permit creating trusts that can last forever.

Pay some gift tax now. The current gift/estate tax rate is 35%. If it increases to a top bracket of 55% in 2013, making gifts in 2012 can potentially save 20% on the tax rate for those who will have large taxable estates. Another benefit is the tax-inclusive nature of the estate tax whereas the gift tax is paid only on the amount of the gift.

Make gifts of family entities. For years, the IRS has been talking about getting the government to take away discounts on family entities. It would be smart planning to use this while we still have it.

Make gifts to dynasty trusts. President Obama has proposed a 90-year federal rule against perpetuities, which would take away the opportunity to create long lasting dynasty trusts. For very wealthy clients, these are critical to multi-generation wealth preservation and transfer.

Create spousal access trusts. A husband can create a trust now and his wife can have access to the trust assets until her death. A wife can also do this for her husband. However, these trusts must be created very carefully to make sure there are enough differences in them to avoid application of the “reciprocal trust” doctrine.

Use GRATS and Charitable Lead Trusts. Current low interest rates make these very attractive. President Obama has proposed limiting the minimum GRAT term to 10 years, eliminating the zeroed-out GRAT option, including grantor trust assets in taxable estates and gifts, and imposing a tax on trust distributions. Again, it would be smart to use these tools while we still have them.

Planning Tip: Be careful with gift splitting; it is not permitted if the non-donor spouse is going to be a beneficiary of the trust.

Planning Tip: Be sure to address the GST exemptions correctly when doing gift tax returns. Annual exclusion rules for the GST tax are different from those for the gift tax. Plus, automatic allocation rules are one of the Bush era provisions that are scheduled to end on December 31 and thereafter be treated “as if never enacted.”

Planning Tip: Use projections and illustrations to show clients how much they can save by acting now.

Conclusion
Yes, there is much uncertainty about our future tax laws, but there is much we do know about current laws. While we are waiting and watching, much can be done to help our clients take advantage of incredible tax-planning opportunities that may never exist again and to help them plan for the taxes we do know we will have in 2013.

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Morgan Law Group Offering Free Health Care Directives For Heroes November 6th

Monday, November 5th, 2012

In honor of Veterans Day, the attorneys at Morgan Law Group will offer free healthcare directives on November 6th  for local heroes in the community including active and retired military personnel, veterans, police, fire and first responders.

Newport Beach (11/02/12)- To honor local heroes for their service and sacrifice this Veteran’s Day, the attorneys at Morgan Law Group will offer free health care directives on November 6th.

Active or retired military personnel, veterans, police, fire and other first responders are invited to visit the firm between the hours of 9:00 to 5:00 to legally document their medical and/or end-of-life wishes, and appoint someone they trust to manage their affairs and communicate with doctors on their behalf in the event of an emergency or incapacity.

Local heroes will also receive a Personal Affairs Organizer designed to help loved ones find key insurance, medical and legal information quickly in a crisis, as well as 5 years of free online vault storage of their documents courtesy of Docubank, the nation’s leading electronic storage provider.

“It’s an honor to be able to give back to our local heroes by helping them get the right legal documents in place,” says Darlynn Morgan, founding attorney of Morgan Law Group.  “While we can never repay them for their service, we can certainly offer ours to make life easier for them and their loved ones in the event of a medical crisis,” she adds.

To receive free healthcare directives this Veteran’s Day, Morgan says local heroes simply need to stop by the firm located at 1500 Quail, Ste 540, Newport Beach, CA  92660 on November 6th .  There are no appointments necessary between the hours of 9:00 to 5:00.

For further questions about Morgan Law Group’s Health Care Directives For Heroes event, please call (949)260-1400 or visit www.morganlawgroup.com.

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Estate Planning for Your Small Business in Orange County

Tuesday, October 23rd, 2012

When it’s time to start your estate planning process (that time is right now, by the way), entrepreneurs need to remember to take their small businesses into consideration.  Whether you own the entire business outright and work for yourself or you simply own a portion of the entity, you will need to leave instructions for your family to follow.

By working with an Orange County business lawyer and/or estate planning attorney in advance, you can save your family, business partners, and even your customers from a lot of hassle down the road.  What happens to the business may depend on the form of ownership you have.

Sole Proprietorship:  Generally speaking, if a sole proprietor dies, the business can come to a rather abrupt end.  If there is someone you trust who is interested in taking it over when you are no longer able to run it yourself, it would be a good idea to stipulate that the assets of the business are inherited (or possibly purchased) by that individual.

Partnership:  It’s likely that your partnership agreement has already laid out plans for what will happen when you or one of the other partners passes away.  If not, then it makes sense to get together with the other partners to come up with a workable plan.  It’s usually not too difficult for this type of business to continue after the death of one partner, although the surviving partners may have to buy out your interest with the money most likely going to your heirs.

Limited Liability Company:  Unless you have stipulated otherwise in the operating agreement, an LLC will typically dissolve once one of the members dies.

Corporation:  When one owner of a corporation passes away, it doesn’t usually have major legal implications for the corporation.  Shares that the member held will usually be transferred to his or her heirs.  They may also be purchased by the corporation.  It’s not unusual for this topic to be addressed within a shareholder’s agreement.

Any good business planning lawyer in Orange County will advise you on ways to help the business transition should you become incapacitated or deceased.  A common approach is to set up a succession plan.  There are many aspects to a succession plan, but some of the most important pieces include designating someone who will take over in your absence as well as training that person to be ready when the time comes.

Succession plans can seem a bit daunting, especially for the sole proprietor who hasn’t put much thought at all into if or how the business would survive without them.  Exploring these topics with a business planning or estate planning lawyer in Orange County will get you started moving in the right direction, whatever your small business’ needs are.

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The Proper Approach to Trust Administration in Orange County

Friday, October 19th, 2012

There is a certain amount of responsibility that goes along with wills/trust administration in Orange County. For this reason, it is vital to choose someone very trustworthy to take on this important role. While some individuals will likely see it as an honor to be chosen, it can also be quite a burden, so it is highly recommended that the potential trustee be contacted in advance and asked if he or she is willing and able to take on the role.

If you find yourself in charge of trust administration or are in the process of trying to choose an appropriate trustee for your own estate, here are some very important aspects of the job that should be at the top of your list of responsibilities.

  1. The person in charge of trust administration must be able to be impartial.  This means that family feuds, sibling rivalries, and other real or imagined slights cannot be allowed to interfere with the fair and honest administration of the trust.
  2. The trust assets should be insured, and if they are lost or destroyed due to the trustees’ negligence, he or she can be held liable.  It is also the trustee’s responsibility to file and pay taxes for the trust and take care of other trust-related expenses.
  3. He or she is responsible for ensuring that the trust produces income.  That means that the money can’t just sit in a checking account; rather it needs to be invested wisely so that it generates income for the beneficiaries.  The trustee also distributes this income to the beneficiaries.
  4. Speaking of investments, many states require the trustee to make prudent choices when it comes to those investments.  It is usually helpful to speak with an attorney in Orange County or financial advisor in order to make wise decisions and to find out what specific regulations apply here in California.  In fact, it is the trustee’s responsibility to use his or her best judgment to choose an investment agent to delegate investments to if the trustee isn’t qualified to choose them on his or her own.
  5. The beneficiaries of the trust must be informed of the activity of the trust.  This includes informing them of the trust and the trustee’s role in it, supplying required documentation when requested, and providing all beneficiaries with an annual statement of the accounts.
  6. The person in charge of trust administration must be able to avoid conflicts of interest and cannot make decisions that favor the trustee over other beneficiaries.

Proper trust administration in Orange County requires a combination of personal integrity, business savvy, and interpersonal skills.  When choosing a trustee or accepting the position, it is a good idea to speak with a wills and trust attorney in Orange County to ensure that you fully understand the responsibilities that accompany the position.

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Elder Law Concerns: How to Hire a Home Healthcare Provider

Tuesday, July 24th, 2012

Many of our older estate planning clients wish to remain in their own homes for as long as possible.  With the advances in medications, treatments, and home healthcare options, this wish can be granted more and more frequently.  Whether you are looking for a home healthcare provider for yourself or a loved one, here are some great guidelines to follow:

  1. Determine the level of care that will be needed.  This is going to affect many of your other decisions.  For example, are you or your loved one dealing with a specific ailment?  If so, it may be preferable to choose a provider or agency with experience in that field.  Additionally, do you need round-the-clock care, someone to come a few hours a day, or something else entirely?  There are even adult daycare programs that can provide an outlet for social activities and certain therapies, and these can be used on their own or in conjunction with a home healthcare provider.  You may wish to ask your elder lawyer for a list of possible facilities in the Orange County area.
  2. Decide if you want to hire someone on your own or if you want to go through an agency.  There are advantages and disadvantages to both options.  If you choose to do it on your own, you will likely have more say in who will be providing the direct care, as well as what services he or she will provide.  On the other hand, an agency will be able to screen applicants thoroughly and can handle payroll and other paperwork for you.
  3. Ascertain how you will pay for the home healthcare services.  An estate planning attorney can point you toward a variety of resources, depending upon what your needs are.  You or your loved one may have long-term care insurance set up for just this situation, or you may be looking to Medicare and/or Medicaid to assist with the costs.

Choosing a home healthcare provider is a big job.  Breaking it down into more manageable objectives can help keep you moving forward without getting too bogged down over what to do next.  At any point in the process, an experienced estate planning and elder lawyer will be able to offer practical advice and suggestions.

 

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4 Legal Documents To Amend After Your Divorce in Orange County

Tuesday, July 24th, 2012

The high divorce rate in California and beyond has some interesting ramifications for estate planning lawyers.  While your will, trust, and medical directives may not be the first things that come to mind during the often heart-wrenching process of divorce, they are something that truly needs to be considered.

‘Til Death Do Us Part

You undoubtedly meant this vow seriously when you made it, but we all know that circumstances change.  Unfortunately, if you don’t make it happen, your will and other estate planning documents do not change right along.  It may seem obvious that you would not want your ex-spouse to be the executor of your will or to handle the dispersal of your assets, but if that’s what your will directs, then that is exactly what must legally happen.

Even if you haven’t been married for years, if your will, healthcare directives, power of attorney, etc. still list your ex in an authority position, then he or she is still designated to take on that role.  This can become quite tricky in situations where the divorce was not amicable.

Another problem can arise if the ex-spouse remarries.  If you haven’t updated your estate planning documents after the divorce, then it’s likely that your former spouse, rather than your children, will still be the main beneficiary.  If he or she has remarried and then passes away, your assets can then pass to the new spouse and his or her children!  This is not a scenario that many parents want to consider, but it definitely happens.

The Big Four

Even as the ink is drying on the divorce decree, it is in your best interest to update at least these four estate planning documents:

  • Last Will and Testament – Again, you likely don’t want your ex-spouse to be in charge of your affairs upon your death.  It is a good idea to name a new executor and rethink who your beneficiaries should be.  If you have any trusts set up, it is time to amend them, as well.
  • Powers of Attorney – These types of legal documents determine who will be in charge of things such as your finances should you become unable to take care of them yourself.  Many people would shudder at the very idea of their exes having control over paying their bills, meeting their living expenses, etc.  The power of attorney gives the named party significant financial power, and it is generally wise to revoke that as soon as possible.
  • Healthcare Directives – Your healthcare directives name the party who you have designated to make medical decisions on your behalf if you are not able to do so yourself.  Your ex-spouse would be responsible for making life-or-death decisions for you.  If you have a living will, the spouse may also be named in that, so be sure to update it, too.
  • Beneficiary Designations – Most insurance policies, bank accounts, etc. include the designation of a beneficiary.  This is the person who receives all or some of the money from that policy or account upon your death.  It is easy to forget about these things, but if you don’t update them after the divorce, your money will legally belong to your ex-spouse.

If you live in Orange County then you will want to work with a local estate planning lawyer upon your divorce to ensure that you are getting your affairs set up to match your new life.  Give our office a call and ask if you qualify for a free Family Wealth Planning Session with the mention of this article to ensure your documents are properly amended and your post-divorce ducks are in a row.

 

 

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AVOIDING INHERITANCE CONFLICTS | Orange County Trust Attorney

Tuesday, July 24th, 2012

When your inevitable day comes, your surviving loved ones will grieve for you. Each of them will deal with the loss of you in their own unique way. There will be days, months and years often filled with emotion and conflicts among and between your surviving loved ones. Unfortunately, this can often lead to family battles over personal belongings and other similar inheritance conflicts. Any planning that can be implemented today to alleviate such pain to your surviving loved ones must be considered by you.

Greed and pettiness appear at first blush to be the cause of most inheritance conflicts. However, a closer examination of inheritance conflicts reveals that they are actually signs of the survivors’ deep desire to feel connected and important to you. Studies have found that the battles for dad’s watch or mom’s wedding ring are not just about the material items, but rather what these items symbolize to surviving loved ones, i.e., how important they were to you and how much you loved them.

When families fight about inheritance, money and greed are rarely the cause of the conflict. Most of the time, the source of the conflict can be traced back for years, even back to childhood. As an elder in your family, you probably already know what conflicts exist among your loved ones. The last thing that you would ever want to leave for your surviving loved ones is additional fuel for any existing ongoing conflicts.

Unless you elect to be proactive, upon your death your loved ones could be entrenched in a long inheritance conflict lasting for years and costing thousands of dollars. However, with careful planning, you can avoid the inheritance conflicts among your loved ones. After all, the reason why you plan for your death is not for you, but for those whom you love the most.

This is why you need to seek the advice of an Orange County trust attorney on what is fair and customary. We use our legal training and knowledge to document your wishes while being sensitive to the needs of those left behind. You should consider mending fences while your loved ones are still alive, and implement estate planning that leaves a legacy of love — not of conflicts. We can assist you in these goals and protect your loved ones from predators within and without the family who are most likely to manipulate and abuse your surviving loved ones. In short, we can make a difference.

With your instruction to us regarding the importance of family, money and personal belongings, we will work with you to formulate an estate plan that addresses your family dynamics and wealth so that inheritance conflict is avoided upon your death.

Now is the time to talk with an Orange County Trust and Estates Attorney who can guide you and help you formulate a strategy to avoid inheritance conflicts. To help you obtain the insight and planning you need provide for your loved ones, we are waiving our usual ($750) Family Wealth Planning Session fee. Please come and see us right away because planning can take time. Hurry in and see us.

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Newport Beach Will Lawyer Asks, “Who Would you Rather Be?”

Tuesday, July 24th, 2012

Scenario #1

Jason’s mom has to go for hip replacement surgery. She is in extreme pain and the surgery is the only thing that might help. She is 85 years old and has had heart problems for years. She knows that she has executed a Health Care Directive, but has no idea where it is. She tries to remember and through the pain and somewhat of a fog due to the painkillers she’s self-administering (and not clearly remembering when she took the last one), she and Jason search for the document. It gets to be time to go to the hospital and they still have not found the document. Jason’s mom undergoes the surgery without a Health Care Directive in her medical chart.

Scenario #2

Jane’s dad has cancer. He had surgery and is undergoing chemotherapy. He gives Jane a legal document naming her the Successor Trustee to his Revocable Living Trust (he is currently the Trustee) and provides instructions for how she is to administer the funds in the trust to take care the family. Jane takes the opportunity to request that she no longer be one of his Health Care Agents. Her feelings about removing someone from life support have changed and she feels that she will have difficulty following his wishes in that regard. They agree her father’s best friend would be a better choice.

Would you rather be Jason or Jane?

Both are facing the mortality of a parent. Jason has undergone a fruitless, frustrating search for his mother’s documents while noticing that she’s a little “out of it” due to the extreme pain and her self-medicating. While he waits, he is faced by the uncertainty of what happens if there are complications during the surgery due to his mother’s heart condition.

On the other hand, Jane feels her father’s love in his actions of showing how he wants her to take care of the family as successor trustee. She also expresses her love for her father and her family by sharing that she does not feel that she will be comfortable fulfilling his wishes as his Health Care Agent.

What can else can we take away from these scenarios?

 

  1. Know where your documents are kept and tell close family members so that they can be found when needed. Ask close family members where their documents are kept. If Jason had been told earlier where the “Important Papers” were kept, his mother would not have had to try to remember through the pain and medications. While your Will should be secure, such as in a fire safe, your other documents need only be in safe place. Too often a stack of “important papers” in an envelope from a lawyer’s office gets put in a “decide later” pile. To help our clients with this, we put their documents in a binder that can be kept on a bookshelf.
  1. NOW is the time – later can be too late. In the case of an accident or sudden illness, there is no time for remembering, searching, or informing your loved ones of the location of your documents. Without a plan, each family member’s understanding of your wishes can be fertile ground for arguments. We help our clients develop a documented plan that helps avoid and prevent family arguments, leaving a legacy of peace to their family.
  1. Planning is a gift of love and an opportunity to define what you want to leave behind. Planning shows that you care what happens with your family. But in addition to taking care of your assets and guardian choices, your loved ones will most likely want to remember who you were and your special qualities. We help our clients preserve their personal stories, values and family traditions so that your loved ones have something tangible to remember the most important aspects of your life.

If you’d like to learn more about Health Care Proxy Directives and estate planning, call our office today to schedule a time for us to sit down and talk. We normally charge $750 for a Family Wealth Planning Session, but because of the importance of medical directives and proxies, I’ve made space for the next two people who mention this article to have a complete planning session at no charge. Call today and mention this article.

 

 

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Preparing For Tax Increases Under The Affordable Health Care Act

Tuesday, July 10th, 2012

Now that the health care law has been declared constitutional, the remaining provisions will be going into effect. One little known provision is a new 3.8% investment income surtax, also called the health care surtax or the Medicare tax; it will go into effect on January 1, 2013.[1]

This new surtax will be assessed on the lesser of a) net investment income or b) the excess of modified adjusted gross income (MAGI) over the “threshold amount.” For married taxpayers filing jointly, the threshold amount is $250,000; married filing separately, $125,000; all other individual taxpayers, $200,000. For trusts and estates, it is the beginning of the top income tax bracket ($11,650 in 2012).

Stated another way: 1) If your modified adjusted gross income (MAGI) is less than or equal to the threshold amount that applies to you, you will not pay this tax. 2) If your modified adjusted gross income (MAGI) is greater than the threshold amount that applies to you, you will pay the 3.8% tax on the lesser of a) your net investment income or b) the amount of your MAGI over the threshold amount.

Note that the surtax liability is determined on income before any tax deductions are considered. That means your deductions could put you in the lowest income tax bracket, yet you could still have investment income that is subject to the surtax. Also, the capital gain rate is scheduled to increase for high-income taxpayers to 20% in 2013, so the total tax on capital gains (with the surtax) could be 23.8% in 2013 and beyond.

The good news is that there are some steps you can take this year to help you avoid or reduce the amount of surtax beginning in 2013. Also, 2012 is an exceptional year for estate planning in general. The federal estate tax exemption is $5.12 million, which allows a married couple to transfer as much as $10.24 million from their estate with no estate tax. Under current law, this exemption is scheduled to shrink to $1 million in 2013. Other Bush tax cuts, including income and capital gain taxes, are set to expire at the end of 2012. With the new 3.8% surtax becoming effective in January, 2013 is on track to have the highest tax rates we have seen in years.

Now, more than ever, you need the assistance of experienced professionals to advise you and help you implement the best plan for you and your family. I stand ready to assist you.

 

[1] The content of this letter is adapted in part from information provided by the nationally recognized tax professionals at Keebler & Associates. For more information please visit their website at http://www.keeblerandassociates.com. The full text of the Health Care Act is available online at http://www.healthcare.gov/law/full/index.html, with the relevant provisions beginning at Section 1411 at page 946.

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Check-in with Your Father – or You May Have an Unpleasant Surprise When Your Father Checks Out

Wednesday, June 20th, 2012

Family relationships can be difficult, sometimes leading to a parent and child no longer speaking to one other. When someone is in this situation, it is worthwhile for that person to evaluate his or her long term expectations for what will happen as his or her parent gets older and eventually dies. What is the best case scenario? Are any apologies in order before it’s too late?

The Worst Case Scenario: a Parent Dies Having Been Grossly Taken Advantage Of

When Jane’s father Tim passed away, Jane had not spoken to or visited her father in a few years. After Jane found out that her father had died, she went to the funeral and took a few days to process his death. Then she went to his house to deal with his estate. She was surprised when her old key did not work and she found the house in extreme disrepair. Jane had always thought her father, a bit of a miser and a loner, had a significant amount of money. Part of what caused the rift between them was his assertion that he didn’t need her help in taking care of himself.

The neighbors saw her “poking around” and came over and said they had been close to Tim and, not knowing who else might take care of things, had already submitted Tim’s will to probate. When Jane read her father’s will, she was dismayed to see that he had not left her anything – not money, not the house, not the china set she had loved as a child, not even the silver spoon and cup engraved with her own birthday.

All of Tim’s property was left to his neighbors. Jane found out they had moved in soon after she stopped visiting her father. A couple of years before his death, he had slipped and fallen while shoveling his sidewalk. The neighbors were out shoveling, too, and ran over to help.

The neighbors took him to his house and finished shoveling for him. Jane believe they likely started helping him while he was injured – doing errands, taking out money from his checking account for groceries, etc. At some point, they convinced him they would be able to help him better if they had a Power of Attorney, giving them the power to conduct his financial affairs as if they were him. They bought new cars with the money, gave expensive gifts to their children, transferred title of Tim’s house to their name, and transferred money to their own accounts. They also convinced him to sign a new will.

Jane believed her father had been tricked, taken advantage of, or influenced unfairly, but she also realized that proving this would be a huge challenge. Moreover, undoing any of the transactions executed under the Power of Attorney would be nearly impossible and mostly pointless (the cars were bought and driven, the jewelry was worn and could be claimed to be conveniently “lost”). It would be difficult to prove, now that Tim was gone, that he did not intend to give the neighbors practically everything he owned. The neighbors’ position would likely be that they were there taking care of him and he told them to buy those things as an expression of his gratitude.

What the neighbors did was morally wrong and possibly criminal, but Jane did not have the money to pay an attorney. Perversely, the neighbors could use her father’s money to defend against a will contest or any challenge to their actions under the Power of Attorney.

It Can Be Too Late

So, whatever your relationship with your parent (or other relative), especially if you have a difficult relationship, think about how the future could play out. You don’t want your parent treated like Tim in this story – taken advantage of and stolen from. Even if you have trouble getting along with a family member, this is not the right way for people to be treated when they’re nearing the end.

Check in or have someone else you trust do it to make sure that everything looks “right”. If there’s anything unusual, addressing it earlier will be better. Otherwise it can be too late. Encourage your family to do their planning and name trustworthy people to manage their affairs.

If you’d like to learn more about Powers of Attorney, Wills and other aspects of estate planning, call our office today to schedule a time for us to sit down and talk. We normally charge $750 for a Family Wealth Planning Session, but because this planning is so important, I’ve made space for the next two people who mention this article to have a complete planning session at no charge. Call today and mention this article.

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