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News entries written by The Attorneys at Bonnie McGuire Jones, PLLC
DON’T BE FOOLED! The Increase to New York’s Estate Tax Exemption on April 1, 2017 won’t Protect Large Estates from the “Cliff Tax”
On April 1, 2017, the New York estate tax exemption will increase to $5,250,000 per person. In 2018 and 2019 the New York estate tax exemption is scheduled to increase incrementally until it equals and subsequently tracks the federal estate tax exemption. The federal estate tax exemption is $5,490,000 per person in 2017 and is scheduled to increase annually by a cost-of-living adjustment.
The “cliff” is that an estate, once its value exceeds the $5,250,000, in accordance with the New York estate tax exemption, starts to lose the relief provided by the exemption. Further, the New York estate tax exemption disappears entirely when the taxable estate exceeds 105% of the exemption in effect when the person dies.
As is illustrated below, small differences in estate size can have a dramatic impact on the New York estate taxes due.
Example #1: A widow dies with a New York taxable estate of $5,250,000 on May 1, 2017. As the taxable estate is equal to the New York exemption at the time of her death, no tax is imposed.
Example #2: A widower dies with a New York taxable estate of $5,300,000 on May 1, 2017. Although only $50,000 higher than in example #1, the taxable estate exceeds the New York exemption, so the phase-out of the credit begins. The New York State estate tax, after the partial credit is applied, is $119,200.
Example #3: A widower dies on May 1, 2017 with a New York taxable estate of $5,513,000, which exceeds 105% of the New York estate tax exemption of $5,250,000 by $500. His estate will be subject to a New York estate tax of $432,360, as no credit will be applied to reduce any part of the tax.
When determining the New York taxable estate, keep in mind that certain lifetime gifts are pulled back into the New York taxable estate (and into the federal taxable estate) for the purposes of computing estate taxes at the time of a person’s death. Also, New York did not incorporate “portability” into its estate tax law when the federal government did in 2010. Portability allows the unused estate tax exemption when the first spouse of a couple dies, to be “ported” or carried over to increase the estate tax exemption of the surviving spouse. Due to the lack of portability, there can be New York estates that owe no federal estate taxes when the surviving spouse dies, but that owe significant New York estate taxes.
There are ways to minimize or eliminate your risk to the “cliff tax” if you or your spouse’s taxable estate could be vulnerable to New York estate taxes. A current review of your assets and lifetime gifts would be necessary to see which options might be most appropriate for you. If you would like to review the tax planning component in your Estate Planning, please contact our office to schedule an appointment.
P.S. The Trump administration promises dramatic changes to many federal tax laws, including the federal estate tax exemptions and rate. To keep yourself and your family optimally-positioned in light of new tax laws, you need to be proactive and review your circumstances when any significant changes in the tax laws become effective. “Proactive Estate Planning” has been the mantra of the Attorneys at Bonnie McGuire Jones PLLC for 35 years, and will continue to be, so that our clients remain in optimal shape with all aspects of their Estate Planning, including their tax savings.
Stay healthy, happy and proactive!
Fraudulent IRS Phone Calls
As tax season approaches, taxpayers should be on the lookout for fraudulent IRS phone calls. IRS scammers make the incoming number appear to be legitimate. Occasionally, they spoof the telephone assistance service number of the IRS, 800-829-1040. More frequently, they call from numbers with the same area code as the tax payer, to entice the taxpayer to pick up the phone. Scammers threaten arrest, jail time and seizure of assets unless the taxpayer sends payment immediately.
The “cliff” is that an estate, once its value exceeds the $5,250,000, in accordance with the New York estate tax exemption, starts to lose the relief provided by the exemption. Further, the New York estate tax exemption disappears entirely when the taxable estate exceeds 105% of the exemption in effect when the person dies.
Here is a list of tricks IRS scammers are known to use when making fraudulent calls:
They say they are calling regarding your refund check.
They spoof the IRS toll-free number on caller IDs to make it appear that the IRS is calling.
They may use background noise to mimic a call center.
They leave "urgent" callback requests through phone "robo-calls," or via a phishing email.
They use fake names and fake IRS badge numbers.
They may be able to recite the last four digits of a tax payer's Social Security Number.
They may use the tax payer's name, address and/or other personal information to make the call sound official.
They threaten the tax payer with jail time or driver's license revocation and even call back pretending to be from the local polive or DMV to support their claim.
They ask you to send cash, usually through a debit card or wire transfer.
If you receive one of these fraudulent calls, do not give them any information and hang up. Contact the US Teasury Inspector General for Tax Administration to report the call. Visit their webpage www.treasury.gov/tigta or call 800-366-4484 or report it to the Federal Trade Commission by visiting the FTC Complaint Assistant on FTC.gov and add "IRS Telephone Scam" in your note.
What I Learned from 4 days in Assisted Living
Everything I Know I Learned in Assisted Living!
Remember the popular book from several years ago that was titled “Everything I Know I Learned in Kindergarten”? I had an epiphany after I spent Christmas weekend in Assisted Living with my Aunt Jane, who will turn 98 in March.
My aunt and uncle always looked ahead. They included Revocable Living Trusts in their estate plans 30 years ago because they owned property in two states and wanted to opt out of court-supervised administration in both. When my uncle was diagnosed with cancer, they moved into a continuous care community (independent living apartments, assisted-living suites, skilled care and memory care if needed) with on-site intermediate-level medical care.
Two years ago when my aunt was 95, she moved into an assisted living suite, even though her mental and physical health didn't require it and still don’t. She voluntarily stopped driving and sold her car before her 92nd birthday. She swims almost daily and plays bridge four times a week. She walks without a walker or cane or walking sticks! In the pottery studio at her retirement community, she makes small clay vases that adhere to refrigerator or metal front doors. She just purchased her eighth box of 100 magnets, and isn't planning to reduce production in the foreseeable future! She dines with one of five or six friends and orders library books through a mail delivery service. In 2015 when both of my children married, she watched videos of their weddings online, and said she felt as if she heard their vows in person.
I couldn't have a better mentor as I age! My aunt maintains a positive, forward-looking perspective. These are some observations from my wonderful visit with her last month in assisted living.
My aunt and her friends don't focus on anything that's unimportant.
They've lived long enough to see all kinds of family arrangements work and not work, so they don't pre-judge what's happening in anyone's family.
They're not afraid to ask for help when they need it. I call my aunt every Sunday. One week she mentioned that she was afraid that she was losing her mobility, so she had seen her doctor on Friday and was starting physical therapy on Monday. Three weeks later she told me that she had successfully completed her physical therapy goals!
They keep in contact with interesting people: other residents, family, friends, artists, musicians, and public affairs speakers who live in or come to their retirement community.
She takes short naps twice a day and doesn't hesitate to go to bed early. She said that she doesn’t feel lonesome; if she has any free time, she reads or makes something, like the 3-dimensional 10-pointed stars she taught me to make, which she gives instead of greeting cards.
I hope that I age with half of the wisdom and grace of Aunt Jane!
A good story to start the New Year!
You may have read on our website that we have a long standing arrangement with a Florida Trusts & Estates law firm to assist our snowbird clients.
When I sat down with them on December 28th, the chair of their Trusts & Estates practice told me that she received the best Christmas present of all! Her 16-year-old son, who has been on kidney dialysis for 2 ½ years, received a kidney transplant on Friday, December 16th and was home in time for Christmas!
Her family gratefully acknowledges the donor who signed up for organ donation when he signed his Health Care Proxy.
3 Ideas for "Giving Tuesday" That Can Qualify For a 2016 Charitable Income Tax Deduction
Dear Clients and Colleagues,
Fortunately for our society and world, many of you support humanitarian (and environmental and animal rights) causes.
In addition to writing checks and donating appreciated stock, you might consider these charitable giving arrangements before you finalize your charitable giving for 2016:
A Donor-Advised Charitable Gift Fun can be established locally at the Community Foundation for the Greater Capital Region headquartered in Albany or at the Adirondack Trust Community Fund headquartered in Saratoga Springs;
A Rollover Charitable Gift from your IRA if you are over age 70 and 1/2; and
A Charitable Gift Annuity
You can "Google" each of these topics for general background. If you are seriously interested in implementing one or more of them before the end of 2016 and want to discuss them in the context of your personal circumstances and goals, please call to schedule a time for us to sit down together and discuss your charitable intentions.
The Attorneys at Bonnie McGuire Jones PLLC
IRS Announces 2017 Federal Annual Gift Tax Exclusion and Gift and Estate Tax Exemption
The IRS announced that the 2017 federal annual gift exclusion will remain $14,000, the same as in 2016. The IRS also announced that the federal gift/estate tax exemption for each person will increase in 2017 from $5,450,000 per person to $5,490,000, per person, an increase of $40,000.
The federal annual gift tax exclusion is the amount you can gift to as many individuals as you would like in 2017 without having to file federal and New York gift tax returns or use any of your unified gift/estate tax exemption. In 2017 a married couple can gift $28,000 (2x $14,000) to each recipient.
Above the gift/estate tax exemption amount, a 40% federal gift/estate tax would be owed upon death. With Estate Planning, a couple can fully use two federal exemptions ($10,980,000) if "portability" is elected on the federal gift/estate tax return of the spouse who dies first. New York State does not offer portability, so additional gift/estate tax planning may be required in New York State.
History of federal annual gift tax exclusion amounts:
2002 to 2005 - $11,000 per recipient
2006 to 2008 - $12,000 per recipient
2009 to 2012 - $13,000 per recipient
2013 to 2017 - $14,000 per recipient
Bonnie McGuire Jones to Address Senior Rights Council State Convention
Bonnie McGuire Jones, ESQ. has been asked to speak at the NY Statewide Senior Action Council convention in Saratoga Springs on Wednesday, September 28. Bonnie will speak and then be a panelist with attorneys from Hospice and Compassion & Choices on the topic of "Patient rights at the end of life--examining New York State policies, practices and proposed legislation."
"Life Planning: Navigating the Final Stage"
Tuesday, June 21st
10:00 - 11:30
Clifton Park - Halfmoon Public Library
475 Moe Road, Clifton Park, NY 12065
RSVP to (518) 371-8622 or Register Online
Ways to prepare yourself and those you select to speak for you to make your end-of-life care and experiences better and easier.
Dr. George J. Giokas, M.D. - Director of Palliative Care, The Community Hospice Inpatient Palliative Care Consult Service, Ellis Hospital
NYS Estate Tax Exclusion Amount to Increase April 1, 2016
For the estates of New York residents who die on or after April 1, 2016 there will be no New York estate taxes due if the total New York estate value is $4,187,500 or less. This exclusion amount is $1,062,500 above the $3,125,000 exclusion amount for the estates of New York residents who died on or after April 1, 2015. If an estate is subject to New York estate taxes, the top tax rate remains at 16%.
Keep in mind that there is a limited 3-year look-back period for certain gifts made on or after April 1, 2014. Also, certain gifts made prior to January 1, 2001 will also be included for the purpose of computing the New York estate tax.
Please note that estates exceeding $4,396,875 (105% of the $4,187,500 exclusion amount) will not receive any applicable credit against the New York estate taxes due, so that if an individual’s or a couple’s combined estates exceed the new exclusion amount of $4,187,500, it is advisable for them to include estate tax management provisions in their Estate Plans.
2016 Federal Estate and Gift Tax Exclusions: The federal estate tax exclusion amount is $5,450,000 as of January 1, 2016, up $20,000 from the 2015 exemption amount. The top federal estate tax rate is 40%.
The annual gift exclusion amount for 2016 continues to be $14,000 per recipient, per donor, with unlimited exclusions for tuition paid directly to the school and medical expenses paid directly to the provider. New York honors the federal gift tax annual exclusion.
More Hugs Per Capita Than Anywhere Else on the Planet
This weekend is South Glens Falls High School's 39th Annual Marathon Dance, a student-led fundraiser to benefit persons with disabilities. The Attorneys at Bonnie McGuire Jones PLLC support the South High Marathon Dance with a check and pro bono legal services because these inspired and inspiring students come together to provide much-needed and much-appreciated support for individuals with special needs.
Over the years, this event has raised $4,820,000 million dollars to help 365 individuals and families in our area. In 2015 alone, the 800+ student dancers raised $621,680 for 43 recipients.
South High students don’t just dance; they are involved in every stage of organizing and carrying out the dance marathon. One student said, "It's amazing to be part of an experience where we change people’s lives.” Nothing brings this home more than the closing ceremony where the students meet many of the recipients. “The same student acknowledged, the experience changes our lives as well.” A local journalist found the closing ceremony to be moving as well and wrote the line used as the title of this piece.
We first heard about the South High Marathon Dance when clients of ours were selected as recipients of money raised by the South High dancers, and we've been on board ever since!
Visit the South High Marathon Dance website to watch the Marathon live and to read recipients’ stories. If you wish to donate, please go to http://shmd.org/.
Bonnie McGuire Jones Invited to Present March 7th Program on Special Needs
A Special Needs Planning Program sponsored by Ballston Spa Central School District at the request of parents of children with Special Needs who asked that Bonnie McGuire Jones, Esq. be their speaker.
“Special Needs Trusts (SNTs) – How can they benefit my child and my family?” & “Guardianships – How do I become appointed as my child’s legal Guardian before some of our authority as parents stops?”
Bonnie McGuire Jones, Esq., whose law firm in Clifton Park has been caring for individuals with disabilities and their families for 35 years, will explain how these arrangements fit into the overall picture of taking care of your child.
Gordon Creek Elementary School Library (enter from the back of the School)
50 Wood Road, Ballston Spa 12020
Monday, March 7, 2016
6:30 – 8:00 pm
Gordon Creek Elementary School
518-884-7270 Ext. 3372
Open to the public
IRS Announces 2016 Annual Gift Tax Exclusion and Gift and Estate Tax Exemption
The IRS has announced that the 2016 annual gift exclusion will remain $14,000, the same as in 2014 and 2015. The annual gift exclusion is the amount you can gift to as many individuals as you'd like in 2016 without having to file federal and New York gift tax returns or use any of your unified gift/estate tax exemption.
A married couple can gift $28,000 (two times $14,000) to each recipient. The annual exclusion amount is indexed for cost-of-living adjustments, but only changes in $1000 increments.
The IRS also announced yesterday that in 2016 the gift/estate tax exemption will increase from $5,430,000 per person to $5,450,000, an increase of $20,000. The federal gift/estate tax exemption is also indexed for inflation.
Above this threshold a 40% federal gift/estate tax would be due. With proper estate planning, a couple can fully use two exemptions if "portability" is elected on the federal estate tax return of the spouse who dies first.
Federal Law Enacted on July 21, 2015 Imposes Important Requirements for Tax Returns of Individuals with Inherited Assets
One reason many people hold on to stocks, real estate and business interests that have appreciated in value since they acquired the asset, is that at the time of their death, the asset gets a “stepped up” basis for income tax purposes from the original cost* to the date-of-death value of the asset.
This means that when the person who inherits the asset sells the asset, long term capital gains taxes that are reported on the individual’s personal income tax returns will be calculated on the difference between the sale price and the “stepped up” tax basis. Use of the “stepped up” tax basis to calculate the capital gains tax can significantly reduce the amount of taxes due.
The new law requires the basis reported by the taxpayer who inherited the asset to be consistent with the “stepped up” tax basis reported on the federal estate tax return, and imposes penalties if the taxpayer reports a higher basis on the taxpayer’s personal returns than the date-of-death value as finally determined by the federal estate tax return.
Executors and Trustees will also be subject to penalties if they do not inform beneficiaries of inherited assets of the “stepped up basis” and any change to the “stepped up basis” if an audit of the federal estate tax return required a change to the asset’s date-of-death value.
For 34 years, the Attorneys at Bonnie McGuire Jones PLLC have prepared, filed and successfully defended the tax returns required for Trusts and Estates, including the final personal income tax returns of the individual who died, which is a legal responsibility of the Executor or Trustee of a person’s estate.
*(plus the cost of improvements to real property or the revised basis due to a stock split)
"Love Wins" in Supreme Court's Recent Decision
“Love Wins” filled news and social media headlines this weekend after a 5-4 decision on Friday, June 26 by the Supreme Court of the United States. This monumental decision declared that the Constitution guarantees a right to same-sex marriage. Marriage has long been considered by Courts as protected by the Constitution and a fundamental right and liberty under the Due Process Clause of the Fourteenth Amendment. “No longer may this liberty be denied” to same-sex couples, Justice Anthony M. Kennedy wrote for the majority.
Estate Planning firms can, and the Attorneys at Bonnie McGuire Jones always have created Estate Plans for all types of families, including those with same-sex partners and parents. In the past, families involving same-sex partners have had unique obstacles to overcome in connection with estate planning. The Attorneys at Bonnie McGuire Jones have tried to stay on the forefront of addressing these obstacles.
With the recent ruling, same-sex families will be able to participate in many of the benefits of Estate Planning previously available to only heterosexual couples. These include, among other things, the marital gift and estate tax deduction, spousal rollover beneficiary rights under IRAs, and the income and asset resource allowances for married couples under Medicaid eligibility rules.
While New York has legally recognized same-sex marriage since 2011, these couples now not only have the security that their union be recognized in all states, but that their estate planning will be recognized and administered in all 50 states.
May 6th at Union College - A Presentation by Bonnie McGuire Jones, Esq.
Union College's Academy of Lifelong Learning (UCALL)
"What You Need to Know and Do Before Your Spouse Dies"
Wednesday, May 6th, 2-4 pm at the Reamer Auditorium in the Campus Center
Bonnie McGuire Jones, Esq., author of the course and speaker
FOR ADDITIONAL INFORMATION
EMAIL VALERIE D'AMARIO AT DAMARIOV@UNION.EDU
OR CALL (518) 388-6675
NYS Estate Tax Exclusion Amount Increased on April 1, 2015
For the estates of New York residents who die on or after April 1, 2015 and before April 1, 2016, there will be no New York estate taxes due if the New York gross (total) estate value is $3,125,000 or less. This exclusion amount increased $1,062.500 above the $2,062,500 exclusion amount for the estates of New York residents who died on or after April 1, 2014 and before April 1, 2015.
However, take note that estates exceeding $3,281,250 (105% of the $3,125,000 exclusion amount) will not receive any applicable credit against the estate taxes due, while estates valued between the exclusion amount of $3,125,000 and $3,281,250 (105% of the exclusion amount) will receive an applicable credit in calculating the amount of New York estate taxes due. The top New York estate tax rate remains at 16%.
Also note that there is a limited 3-year look back period for certain gifts made between April 1, 2014 and January 1, 2019. The value of such gifts will be included in the New York taxable estate. Also, certain gifts made prior to January 1, 2001 will also be included in the New York taxable estate for purposes of computing the New York estate tax.
The federal estate tax exemption is $5,430,000 as of January 1, 2015, up from $5,340,000 in 2014. The top federal estate tax rate is 40%.
The annual gift exclusion amount continues to be $14,000 per recipient, per donor, in 2015 with exceptions for tuition paid directly to the school and medical expenses paid directly to the provider.
Important Medicare Policy Change for Coverage
In January 2014, Medicare updated its rules to provide that improvement is no longer necessary to receive coverage for skilled care costs, including physical, occupational and speech therapies, and home health and nursing home care for patients in both traditional Medicare and private Medicare Advantage Plans.
If your provider or a Medicare representative still says that you can't receive treatment because you are not improving, then you will be interested in reading this March 25, 2014 article from the New York Times, "A Quiet 'Sea Change' in Medicare".
Bonnie's Webinar on Revocable Living Trusts, One of New York State Bar Association's 10 Most Watched Webinars in 2013
On January 23, 2014 at 12:00 p.m., the New York State Bar Association will re-broadcast Bonnie's November 2013 webinar, "Effective Trust Planning and Drafting: Revocable Trusts. Following the 90-minute webinar, Bonnie will answer questions from Trusts and Estates attorneys throughout New York.
Annual Gift Tax Exemption Amount to Remain Unchanged for 2014
The annual federal gift tax exemption amount, which generally is the amount that individuals are allowed to gift each year, on a per donee basis, to other individuals and certain trusts without incurring federal gift tax liability or making use of their lifetime gift and estate tax exclusion amounts, will remain the same in 2014 at $14,000 per donee. A married couple will be able to gift $28,000 per donee. However, the lifetime gift and estate tax exclusion amount is set to increase from $5.25 million to $5.34 million in 2014.
At Bonnie McGuire Jones PLLC, we help clients accomplish a wide range of gift-planning objectives, from getting maximum impact through their charitable giving to optimizing their annual exemption gifts and use of lifetime gift and estate tax exclusion amounts. Contact us to find out more.
Firm's Attorneys to Speak at Albany Law School's Senior Rights Day
On Saturday, October 26th, Bonnie will be speaking at Albany Law School’s Senior Rights Day. At 1:00 p.m. she is presenting “Putting Your Affairs in Order,” follow at 2:00 p.m. by “A Good Death: How to start the important conversation with yourself, your spouse, your family...and 3 things you can do to help ensure that decisions within your control will be followed."
On Friday, November 8th, Bonnie will present to the New York State Bar Association on Revocable Living Trusts. The presentation will take place at One Elk Street in Albany for the local audience and will be offered throughout the State via webinar.
Long-Term Care Insurance Rates for Women to Increase Significantly
Due to the fact that the average life expectancy of women is longer than that of men, the insurance industry is claiming that women are more likely to need more care, for longer, and therefore will use more benefits from their Long Term Care (LTC) insurance policies. In response, state insurance commissioners have allowed LTC insurance companies to apply gender-based rates, increasing rates for women by as much as 35-50%.
As of September 23th, New York is one of only six states that does not have gender-based rates. As reported by insurance industry expert Claude Thau (targetins.com), leading LTC insurance companies have moved aggressively to adopt this pricing model. Genworth has adopted gender-based rates in 32 states, John Hancock in 41 states and Transamerica in 36 states.
If you are considering a Long Term Care insurance policy, don’t delay, particularly if you are female.
The attorneys at Bonnie McGuire Jones PLLC offer non-commercial educational materials about Long Term Care insurance to clients of the Firm.
Will Your End of Life Decisions be Followed?
On May 20, 2013 Vermont became the third state to legalize “death with dignity” (others are Oregon and Washington), a term that has come to describe a process of an interview, waiting period and review of diagnoses and prognosis after which a doctor can prescribe a dose of medication that will induce a sleep from which the patient will not awaken.
The laws in these states evolved from a series of publicized cases, including those of Karen Ann Quinlan in New Jersey in 1975, Nancy Cruzan in Missouri in 1989 and Terri Schiavo in Florida in 1990, that recognized the importance of an individual’s right to make end-of-life decisions and have them followed by doctors, hospitals, nursing homes, Hospice and home care providers.
Many people who have made all the major decisions in their lives want to make careful end-of-life decisions, and want them to be followed. Like Governor Shumlin of Vermont, they believe, “It’s the decision of the terminally ill, mentally competent individual, and no one else.” Yet, last June the Wall Street Journal published an article, “A New Look at Living Wills”, about situations where a Living Will did not provide the clarity its signer expected. And, our clients have told us of situations where they were surprised, disheartened, angry when their relative’s or friend’s wishes were questioned, even when there is no uncertainty about what the patient would want.
It is important to know of three practical tips when the Living Will, on its own, doesn’t seem to be enough.
If you have chosen to be cared for at home, you and your doctor can sign a Medical Order for Life-Sustaining Treatment (MOLST) so that home care providers and EMT personnel do not have to transport you to a hospital where a doctor can review your Health Care Proxy and Living Will and declare that your end-of-life decisions are now timely and must be respected. Doctors have been trained about the availability of the MOLST form since June 2010 and can sign it with clients who are likely to be within their last year of life. Our office now offers MOLST forms to clients when they sign their Living Wills.
When discussing your health care decisions with your primary and back-up health care proxies, make sure they feel capable of advocating for you and your decisions if they encounter resistance from your health care providers. Some people feel intimidated by the bureaucracy and seriousness of a hospital setting especially when end of life decision making is involved. Of course you want your agents to respect and listen to the assessments and advice of your medical professionals, but your agents are there to communicate your decisions and wishes and see that they are followed. It is important to select a health care proxy and alternate who is willing to be as strong an advocate as you may need.
Every hospital and nursing home in New York State is required to have an ethics committee whose role is to facilitate communication among the individuals involved in the care of a particular patient, when one of the individuals requests the involvement of the ethics committee. An ethics committee is typically comprised of doctors, nurses, social workers, legal counsel or a senior administrator of the hospital or nursing home, and community members. A patient, or if he or she is too ill, his or her health care proxy or any member of the patient’s care team can request that the ethics committee be convened to review the circumstances. In the context of this article, a health care proxy can go to the nurses’ station or to the front desk of the hospital or nursing home and ask to be connected with the chair of the ethics committee. The chair must pull together other committee members who are readily available, even if it is in the middle of the night, to review a patient’s situation if the health care proxy feels that the patient’s end-of-life decisions and wishes are not being followed. I have served on the ethics committees of The Eddy Senior Living Communities and Ellis Hospital, and participated in helping the health care proxy and members of the patient’s care team resolve differences when end-of-life decisions are questioned. If your health care proxy is aware of ethics committees and knows how to activate them if needed, this can significantly increase the chances that your end-of-life decisions will be followed.
Do You Have a List of Your Internet Accounts and Passwords?
Many people have computers, cell phones, tablets, e-readers, hundreds of digital pictures, more than one email address, and iTunes, Netflix, LinkedIn, Twitter and/or Facebook accounts. In addition, many people have online access to their stock portfolios, bank accounts, and employee benefit records. Some people have a PayPal account with a balance in it.
If your Power of Attorney, trustee or executor has to take over your financial affairs, he or she will need a list of your digital activity, including logins, passwords and answers to security questions. If you have not already done so, please make such a list after you finish reading this newsletter! If you do not have a place to keep the list that you feel is secure, put your list in a sealed envelope and we will store it in our document vaults with your original Estate Planning documents.
While an individual may own the right to his or her online content, many internet licenses expire at death. Since people who set up online accounts do not read the contract/license agreement language to find out what happens in the event of incapacity or death, our law firm has added specific language to our Estate Planning documents to authorize your agents to access your digital accounts. These other authorizations, together with your list of accounts and passwords, will save time and money!
Retirement Savings Plans: Doing the Most With What You Have
Those of you who have been reading the firm’s newsletters for the last 20 years know that we don’t purchase or lift articles from other sources to drop into our newsletter. We write our own articles, created around topics that come up regularly as needs or interests of our clients. This topic, the importance of having the right beneficiary designations for your retirement savings accounts (traditional IRAs, Roth IRAs, 401(k), 403(b), 457, SEPs, Keoghs, etc.) is becoming an increasingly important issue in Estate Planning. We are seeing up to 80% of the value of some clients’ estates held in retirement accounts, and it is not uncommon for a couple to need 8-12 beneficiary designations because they have retirement savings accounts with their current and former employers, as well as at the financial institutions where they have savings and investment accounts.
What we are seeing in our practice is same as what is happening throughout our society. By the end of 2012, Americans had $19.5 trillion in retirement savings accounts. Nationally, retirement savings accounts represent 36% of all household financial assets. You may want to take a moment to calculate the percentage of your estate held in retirement savings accounts. (Don’t forget to count the value of your home, life insurance and business interests.)
Let us tell you about two IRA issues we have recently seen in our practice:
One of our clients’ other professional advisors was reviewing drafts of Wills and beneficiary designations we prepared. (Our firm is happy to send drafts of your estate planning documents to any advisor you request so that he/she can ask questions or suggest changes prior to your signing appointment.) This advisor called me, asking why the beneficiary designation did not steer the IRA through the credit shelter-type Family Trust for the surviving spouse. I explained the Internal Revenue Code provisions that say that steering the IRA through the Trust as opposed to having the surviving spouse inherit the IRA and treat it as his or her own, would limit the payout period for the children to the remaining actuarial life expectancy of the last parent to die. Here is an example of the difference life expectancy can make: If a retirement savings account passes through a Trust for the surviving parent and the surviving parent dies at age 85, the children have to withdraw the remaining amount in the IRA over 7.6 years (the actuarial life expectancy under IRS tables of an 85-year-old) rather than having the opportunity to withdraw the inherited IRA over 31.4 years, which would be the actuarial life expectancy under IRS tables of a 53-year-old child. If $200,000 is left in the IRA when the last parent dies and the average rate of return on the account is 5%, the child would receive $251,292.35 over a 7.6 year payout period compared to $479,610.38 over a 31.4 year payout period. This different result occurs both because of the income tax deferral the IRS allows retirement savings accounts and because of the time value of money. Remember the saying attributed to Albert Einstein, “The most powerful force on earth is compound interest!”
(As an aside, the advisor told me that I was wrong, because he had seen other attorneys do the opposite in Wills, Trusts and beneficiary designations. I responded, saying, “Why don’t we exchange the research that is the basis of our positions?” When he called back to say that he had checked with the national office of his financial network, he acknowledged that my firm had drafted the Wills, Trusts and beneficiary designations correctly.
New clients to our office this spring brought in copies of Wills, beneficiary designations and a Special Needs Trust for one of their children, that they had signed with another firm. Approximately 80% of this couple’s assets are in retirement savings accounts. Their Wills provided that after both of them pass away, 50% is to be distributed to the Special Needs Trust and 50% paid outright to the other child. This is also how the beneficiary designations for each of their retirement savings accounts had been prepared. A Special Needs Trust is for a beneficiary who has disabilities and is receiving government benefits such as Medicaid and Social Security Income. To continue eligibility for these benefits, the child is limited to a certain amount of funds in his or her own name. According to the terms of this Special Needs Trust, the annual Required Minimum Distribution (RMD) that has to be withdrawn from the IRA starting in the year after the last parent’s death, was to be paid out to the child. The result would be that each year when the disabled child received the RMD from the Special Needs Trust, she would lose her eligibility for government benefits because she would have too much money in her own name until she spent down the amount of the RMD, which could have taken a number of months. This was not the result the parents expected from their prior estate planning. We updated the parents’ beneficiary designations for all of their retirement savings accounts and re-allocated the inheritances for the benefit of each child under their Wills.
If you are a client of our firm (we also send our newsletters to many of professional advisors), you know how much time we spend on your beneficiary designations! This is part of why estate planning is so labor-intensive. We explain the importance of getting the right beneficiary designations on your retirement savings accounts throughout the estate planning process, but the point cannot be emphasized enough. Integrating your retirement savings accounts correctly into your overall estate planning can provide a significant “value added” for your beneficiaries. Conversely, if the beneficiary designations for your retirement savings accounts are not prepared correctly, it could cost your beneficiaries lots of income tax savings and missed growth in their inheritance.
The value of Americans’ retirement savings accounts is expected to become an even larger share of their assets, so Congress, the President and the IRS are paying close attention to the value and cost of the income tax deferrals associated with them. One of the many changes circulating as a tax reform proposal is the idea of limiting income tax deferrals on inherited IRAs to three years. An attorney with perhaps the top reputation nationally in connection with IRA issues suggests as a compromise, limiting the income tax deferral on inherited IRAs to 21 years. We don’t have a crystal ball to know if and when Congress and the President might enact legislation that might limit estate planning opportunities with IRAs, but for now, your retirement savings accounts offer you BIG opportunities to stretch their value to you and your beneficiaries.
Immediate Charitable Gifting Opportunity
Until January 31, 2013, IRA owners who are 70 ½ or older can make 2012 charitable gifts of up to $100,000 from required minimum distributions from their traditional IRA that were received in December, 2012, without recognizing the IRA distribution as income.
Charitable gifts made directly from your IRA are referred to as "rollover" charitable gifts. Rollover gifts of up to $100,000, made directly from an IRA by an owner 70 ½ or older by January 31, 2013, may also be counted as 2012 gifts on your income tax return if that provides you with more income tax savings. Since a number of our clients provide critical support to the region's charitable institutions, and since charitable giving is included in a number of the Wills and Trusts we prepare, we thought it was important to alert you to this opportunity.
For example, say you received a required distribution of $30,000 on December 18, 2012. On January 25, 2013, you write a check for $10,000 to your favorite charity (contributions to Donor Advised Funds and most private foundations do not qualify for this opportunity). Your charitable gift qualifies as a 2012 gift, and the new tax law requires you to report only $20,000 of the $30,000 distribution as income on your 2012 income tax return. This opportunity is available because of the new tax law, but only until January 31, 2013.
There is a second way to take advantage of the new tax law for your 2013 charitable giving. If you give a rollover charitable gift directly from your IRA at any time in 2013, the amount of the gift will count toward your required minimum distribution.
Charitable gift planning, including the use of Donor Advised Funds, is a special niche of our firm's Estate Planning and Estate Administration practice.
Long-Term Capital Gains Tax
The top federal rate is now 20% (up from 15%). In addition to affecting your income taxes, this is an important consideration for Estate Planning and Estate Administration because of the different tax basis that assets have, depending on whether they are gifted during lifetime (carry-over basis) or inherited at death (stepped-up basis). When we do tax planning for clients, we take into account estate and gift tax as well as capital gains tax consequences.