Will Proposed Tax Hikes Have an Impact on My Estate Planning?

April 19, 2023

President Biden’s tax proposals are at the center of what the White House estimates is a $3 trillion deficit-reduction plan. They will be immediately rejected by Congressional Republicans. However, the ideas set up Democrats’ approach to the debt-ceiling fight later this year, as Republicans are gearing up to ask for spending cuts.

A major change would almost double the rate of the capital-gains tax, and applying an additional surcharge to fund Medicare, which would mean taxes on investments could rise to almost 45%.

Bloomberg’s recent article entitled, “In Biden’s Tax-the-Rich Budget, Capital-Gains Rates Near 45%,” examines the details of the tax proposals in the budget request that the White House released recently.

Capital Gains. The budget proposal would jump the capital-gains rate to 39.6% from 20% for those earning at least $1 million to equalize the taxation of investment and wage income. President Biden also wants to up the 3.8% Obamacare tax to 5% for those earning at least $400,000 to support the Medicare Trust Fund. As a result, the richest would pay a 44.6% federal rate on investment income and other earnings. The plan also calls for taxing assets when an owner dies. This would end a tax benefit that let the unrealized appreciation go untaxed when transferred to an heir.

Corporate Taxes. Trump’s 2017 corporate tax cut would get significantly rolled back, bringing the top rate to 28% from 21%. The proposal also calls for increasing the taxes US companies owe on their foreign earnings to 21%, doubling the 10.5% included in Trump’s tax law.

Carried Interest. The carried-interest tax break used by private equity fund managers to lower their tax bills would be struck under the Biden plan. Under current law, investment fund managers can pay the 20% capital-gains rate on a portion of their incomes that would otherwise be subjected to the 37% top individual-income rate.

Rich Retirement Accounts. The plan would close a loophole that allows the wealthy to accumulate savings in tax-favored retirement accounts intended for middle earners. In addition, Biden would limit the amount taxpayers with incomes over $400,000 can hold in Roth individual retirement accounts.

Estate, Gift Taxes. Bolstering the tax rules on estate and gift taxes would make the system harder for the wealthy and trusts to avoid taxes.

Reference: Bloomberg (March 9, 2023) “In Biden’s Tax-the-Rich Budget, Capital-Gains Rates Near 45%”

Transfer on Death Isn’t Always a Smart Estate Planning Strategy

April 17, 2023

Transfer on-Death (TOD) and Payable-on-Death (POD) designations on financial accounts appear to be a simple way to avoid probate. However, they can still derail an estate plan if not coordinated with the overall plan, says a recent article from mondaq, “Transfer-on-Death Designations: A Word of Warning.”

Using a TOD or POD benefits the beneficiary and the account administrator, since both avoid unnecessary delays and court oversight of probate. In addition, designating a beneficiary on a TOD/POD account is usually fairly straightforward. Many financial institutions ask account owners to name a beneficiary whenever a new account is opened. However, the potential for undoing an estate plan can happen in several ways.

TOD/POD designations remove assets from the probate estate. If family members or trusts are included in an estate plan, but the TOD/POD designations direct most of the decedent’s assets to beneficiaries, the provisions of the estate plan may not be implemented. However, when thoughtfully prepared in tandem with the rest of the estate plan with an estate planning attorney, TOD/POD can be used effectively.

TOD/POD designations impact tax planning. For example, when an estate plan includes sophisticated tax planning, such as credit shelter trusts, marital trusts, or generation-skipping transfer (GST) trusts, a TOD/POD designation could prevent the implementation of these strategies.

If an estate plan provides for the creation of a GST trust, but the decedent’s financial account has a TOD/POD naming individuals, the assets will not pass to the intended trust under the terms of the estate plan. In addition to contradicting the estate plan, such a mistake can lead to unused tax exemptions.

TOD/POD designations can create liquidity problems in an estate. For example, suppose all or substantially all of an individual’s financial accounts pass by TOD/POD, leaving only illiquid assets, such as real estate or closely held business interests in the estate. In that case, the estate may not have enough cash to pay estate expenses or federal or estate taxes. If this occurs, the executor may need to recover necessary funds from the beneficiaries of TOD/POD accounts.

TOD/POD designations can undermine changes made to an estate plan. During the course of life, people’s circumstances and relationships change. It is easy to forget to update TOD/POD designations, especially if one’s estate planning attorney is not informed of assets being titled this way. An inadvertent omission increases the risk that a person’s wishes will not be fulfilled upon death.

Whenever considering putting a TOD/POD on a financial account, you must consider the impact doing so will have on your overall estate plan. Therefore, be sure to coordinate any such move with your estate planning attorney to be sure you are not undoing all the excellent planning that has been done to achieve your wishes.

Reference: mondaq (March 15, 2023) “Transfer-on-Death Designations: A Word of Warning”

Steps for an Effective Pet Protection

April 10, 2023

Pet trusts and other options are now available to owners to provide for their animals when they can’t—and they’re not just for wealthy people. How to plan for your pet in the event of your incapacity or death is detailed in a recent article, “6 estate planning tips for pet owners” from Puget Sound Business Journal.

First, address your desired level of care and the annual cost of your pet. Depending on the type of pet, breed, health and diet, costs can vary dramatically. If you have multiple pets, consider which one is most likely to outlive you. What do you spend on food, pet insurance, vet care, medications and supplements? Will your pet require additional care as they age?

Create a list of your preferred veterinarians, groomers, daycare, pet walkers, food, sleeping preferences, treats, toys and any particular information you’d want someone to know if you are unable to tell them.

Name an appropriate trustee and caretaker and be sure they are willing to serve in these roles. Pets are considered property and legally may not own property of their own. If you leave an inheritance to them or name them as beneficiaries, state laws will determine who owns the assets. It won’t be the pet.

To ensure your pet is cared for, people typically designate a caregiver and a trustee. The trustee oversees the finances and is charged with ensuring that funds are used to care for the pet. The caretaker is similar to a custodial parent, and your pet will ideally live with them. Compensation for these roles is common, so factor this into your cost analysis.

Next, put it in writing. If you know your caregiver well and trust they will follow your wishes, you may put your request in your will. Your will disposes of all your property, including your pets, and leaves them to a beneficiary, who is your caretaker. It is important to understand that there is no guarantee or legal enforcement if you go this route. Informal agreements for pet care aren’t much better. If you give your pet to someone when you pass away, they can leave it at a shelter or give it to someone else.

Have your estate planning attorney create a pet trust. This is increasingly common, and not just for eccentric billionaires. Pet trusts were approved in 2000 under Section 408 of the Uniform Trust Code. The trust is a legal entity to plan for the care of your pet.

Make sure that your documents are reviewed every few years to be sure they reflect your wishes. This is especially true if you relocate or if caregivers pass away.

Fund your pet trust. This is the process of transferring assets into the trust, so the trustee can distribute them to the caregiver. Once the trust is created, it should be funded, even if you don’t expect to die tomorrow. Your estate planning attorney can discuss ways of funding the trust upon your death if you wish.

Provide directions for any remaining funds after your pet dies. If your beloved Woof passes shortly after you, what would you want to happen to the remaining funds? Beneficiaries could be an individual, a group, or an organization. It’s generally not recommended to leave the remaining funds to the caregiver or trustee—you don’t want to give them a reason to artificially shorten the pet’s life or provide bad care.

Estate planning for pets can easily be overlooked. However, if you are a pet parent, you’ll feel better knowing you’ve taken care to protect your pet so they’ll enjoy a long and happy life, even in your absence.

Reference: Puget Sound Business Journal (March 2, 2023) “6 estate planning tips for pet owners”

What’s the Latest on Bruce Willis’ Dementia Diagnosis?

April 7, 2023

Last year, actor Bruce Willis announced his retirement due to being diagnosed with ‘aphasia.’ However, that diagnosis was recently updated, reports Microsoft’s recent article entitled, “Bruce Willis’ wife Emma Hemming forced to dementia specialist after actor’s new diagnosis.”

Willis and Heming first met in 2007 at their mutual trainer’s gym. Heming is a British-American model and actress raised in north London and California.

“When we first met, I was surprised at how charming and how funny he was – and extremely handsome,” Heming told People. “That was my first thought of you.”

“I was already in love with her,” Willis, then 52, said. The two dated for a year before they got married in March 2009.

Willis’ diagnosis affects his communication and memory. Dr. Allison Reiss, an Alzheimer’s Foundation of America’s Medical, Scientific and Memory Screening Advisory Board Member told the media what the diagnosis means. She said the causes is a “hodgepodge of different things that have been put together” leads to “a lot of devastating consequences,” such as “difficulty saying words, understanding the meaning of words, and remembering and naming familiar objects.”

The doctor also said that everything “just gets more difficult” as “the problem spreads and gets worse”, until “you pretty much lose everything.”

However, she encouraged families to keep up hope through the challenges that come with the diagnosis. This is exactly what the Willis family seems to be doing. Heming has hired Teepa Snow, a professional who provides awareness, knowledge and hands-on skills for dementia care. Heming took to Instagram to appreciate Snow, she wrote, “I’m grateful I had the opportunity to work with @teepasnows_pac who has helped me add to my dementia care toolbox.”

“She’s a loving, compassionate and skilled leader in this space who navigates herself with pure empathy,” Heming continued. “She’s a gift.”

Snow admired Heming and appreciated how she’s been caring for her husband following his diagnosis. She said that she’s done an absolutely remarkable job of providing the right support for Bruce as his abilities have changed and created a place space and life that continues to provide him with what he needs to live well.

She added that “frontal temporal dementia is never easy but with the right programming and support, it truly is possible to continue living life. Congrats to Emma and their entire family for their very, very hard work and dedication. It is truly remarkable!”

Reference: Microsoft (March 1, 2023) “Bruce Willis’ wife Emma Hemming forced to dementia specialist after actor’s new diagnosis”

Does Divorce Have an Impact on Estate Planning?

April 5, 2023

Even the most amicable divorce requires a review and update of your estate plan, as explained in a recent article from yahoo! finance, “I’m Divorcing. Will That Impact My Estate Planning?” This includes your will, power of attorney and other documents. Not getting this part of divorce right can have long-term repercussions, even after your death.

Last will and testament. If you don’t have a will, you should get this started. Why? If anything unexpected occurs, like dying while your divorce is in process, the people you want to receive your worldly goods will actually receive them, and the people you don’t want to receive your property won’t. If you do have a will and an estate plan and if your will leaves all of your property to your soon-to-be ex-spouse, then you may want to change it. Just a suggestion.

State laws handle assets in a will differently. Therefore, talk with your estate planning attorney and be sure your will is updated to reflect your new status, even before your divorce is finalized.

Trusts. The first change is to remove your someday-to-be ex-spouse as a trustee, if this is how you set up the trust. If you don’t have a trust and have children or others you would want to inherit assets, now might be the time to create a trust.

Review insurance policies. You’ll want to remove your spouse from insurance policies, especially life insurance. If you have young children with your spouse and you are sharing custody, you may want to keep your ex as a beneficiary, especially if that was ordered by the court. If you received your health insurance through your spouse’s plan, you’ll need to look into getting your own coverage after the divorce.

Power of Attorney. If your spouse is listed as your financial power of attorney and your healthcare power of attorney, there are steps you’ll need to take to make this change. First, you have to notify the person in writing to tell them a change is being made. This is especially urgent if you are reducing or eliminating their authority over your financial and legal affairs. You may only change or revoke a power of attorney in writing. Most states have specific language required to do this, and a local estate planning attorney can help do this properly.

You also have to notify all interested parties. This includes anyone who might regularly work with your power of attorney, or who should know this change is being made.

Divide Retirement Accounts. How these assets are divided depends on what kind of accounts they are and when the earnings were received. The court must issue a Qualified Domestic Relations Order (QDRO) before defined contribution plans can be split. The judge must sign this document, which allows plan administrators to enforce it. This applies to 401(k) plans, 403(b) plans and any plans governed under ERISA (Employment Retirement Income Security Act of 1974).

Divorce is stressful enough, and it may feel overwhelming to add estate planning into the mix. However, doing so will prevent many future problems and unwanted surprises.

Reference: yahoo! finance (Feb. 3, 2023) “I’m Divorcing. Will That Impact My Estate Planning?”

Key Components of an Estate Plan to Tackle First

April 4, 2023

Despite the importance of estate planning, not everyone takes the time to make an appointment with an estate planning attorney and get it done, according to a recent article from Think Advisor, “6 Trust and Will Considerations That Can’t Wait.” Having an estate plan, including a power of attorney for yourself or an older family member is necessary to avoid a more contentious and expensive alternative: guardianship.

If an elderly family member is showing signs of dementia, the power of attorney needs to be done as soon as possible. Capacity doesn’t get better over time, only worse, and once someone is fully incapacitated, the only option is guardianship.

Wills aren’t just for wealthy people. Anyone with even a moderate estate needs a will. Young people often claim they don’t need a will because of their age. However, young and old people die unexpectedly.

Putting a will in place is particularly important for people who want to leave assets to their “chosen” family, those who may be outside the traditional nuclear family but who are for all intents and purposes, their family. Without the benefit of marriage or kinship, chosen family members do not have any legal right to inherit and will not be considered in any property distribution.

Having a will saves heirs from pain and confusion. If you don’t have a will, the court will make decisions for property distribution and guardianship for any minor children according to the laws of the state, which may not be what you had in mind.

Planning for incapacity is part of an estate plan. Designating a Medical Power of Attorney, Financial Power of Authority and HIPAA Authorization giving a trusted person access to medical records and treatment decisions are best done before there’s an emergency.

Guardianship is not something most people want to deal with, and planning can avoid it. Guardianship at its essence is a legal process effectively stripping a person of the right to act on their behalf and must be approved by a court.

It is often required when the loved one is unable to act responsibly or is undermining their family’s ability to act in their best interest under the power of attorney. However, there are many legal landmines in guardianship. The legal process can become contentious, especially if family dynamics are toxic.

Advance planning saves time, money and heartache. The Power of Attorney gives the person named as agent the right to take care of legal and financial matters in the event they can no longer do so for themselves. An estate planning attorney can create a power of attorney to meet your specific needs, either as broad or as narrow as desired.

Reference: Think Advisor (March 2, 2023) “6 Trust and Will Considerations That Can’t Wait”

Do I Need an Estate Planning Attorney?

March 27, 2023

Sound estate planning can help minimize taxes and expenses associated with transferring your assets and property after your death, says Urban Asia’s recent article entitled “Why Is It Important To Hire An Estate Planning Attorney.”

An experienced estate planning attorney can help you with your estate planning goals efficiently, avoiding legal processes that can be time-consuming and costly. Estate planning through an attorney can help you, and your loved ones avoid legal complications or unwanted delays.

What are the benefits of hiring an experienced estate planning attorney?

Legal expertise: They have specialized knowledge of the laws and regulations governing probate and estates. They can advise you on the best plan to suit the utilization of your assets and needs, and make sure that your estate planning complies with all applicable laws.
Tax implications: Estates can have tax implications. An experienced estate planning attorney can advise you on how to structure your estate plan to minimize taxes and maximize the benefits for your beneficiaries.
Customization: They can help customize your estate plan to suit your individual needs and goals.
Protection of beneficiaries: Estate planning attorneys can help protect your heirs’ interests by ensuring that your will and trust are administered correctly. They can help assure that all your assets are protected from creditors and other legal claims.
Charitable giving: An estate planning attorney can advise you on how to make philanthropic gifts, either during your lifetime or at death, through charitable trusts or other charitable giving vehicles.
Incapacity planning: They can help you plan for incapacity by creating a power of attorney or living will to let you specify how your assets and property should be managed, if you are unable to decide for yourself.

Finding the right attorney for estate planning can be a challenging task. Estate planning can be complex, and selecting an attorney with experience and expertise in this discipline is essential. Therefore, look for an attorney with plenty of experience in estate planning.

Reference: Urban Asia (Jan. 22, 2023) “Why Is It Important To Hire An Estate Planning Attorney”

Do Family Secrets Hurt Estate Planning?

March 24, 2023

A study by the financial services research firm reveals just how big a problem family secrets can be, as reported in Financial Advisor’s recent article “Family Wealth Transfers Undermined by Secrecy.” Most asset holders plan to share their wishes and intentions with family members before they die. However, the research reveals only about half actually do so.

The survey looked at two demographics: affluent investors with more than $250,000 in investable assets and near affluent, investors under age 45 with earnings more than $125,000. Responses were weighted to reflect the distribution of households within these segments, which are wealthier and older than the average U.S. population.

Estate planning attorneys understand the complexity of multi-generational families and are experienced with nuances in family dynamics and the hesitancy of families to share their financial details. After a lifetime of not discussing wealth, it can be difficult to know where to begin.

When asked how well informed heirs are about their parent’s desires and plans for bequests, only 26% said their heirs were very well informed. The greater the wealth, the more likely conversations had taken place. About a third of respondents with more than $1 million in investable assets said heirs knew of their plans.

Those with less than $250,000 to pass on were not sure if heirs knew their wishes or, worse, admitted their heirs had absolutely no idea.

Although skipping generations offers tax advantages, most heirs receive inheritances directly from a parent upon their death. Having an estate plan in order, including wills and trusts agreements, ensures an orderly transfer of wealth.

A key component of successful wealth transfer is communication. However, this survey found a full 25% of respondents never intend to share information about their assets while they are living. This prevents comprehensive planning from taking place, since a number of aspects of wealth planning require active planning and other people to be involved during the parent’s lifetime.

Planning for incapacity requires the involvement of siblings, spouses, and heirs. Advanced directives, power of attorney, health care power of attorney and related documents need to be shared with family members, so they can act on the parent’s behalf. Lacking these documents creates emotional and financial burdens on loved ones.

Reference: Financial Advisor (Feb. 22, 2023) “Family Wealth Transfers Undermined by Secrecy”

More Vets are Enrolling in VA Medical Services

March 22, 2023

The Department of Veterans Affairs experienced a surge in patients signing up for department health care services after the passage of sweeping military toxic exposure legislation last summer. Nonetheless, the VA is confident they have hiring plans in place to absorb the extra work.

Military Times’ recent article entitled “Enrollments in VA medical care spiked after PACT Act passage last year” reports that this is an increase of more than 17% from the same five-month period a year earlier. Elnahal said officials don’t yet have data specifically linking the increase to the signing of the Promise to Address Comprehensive Toxics Act (better known as the PACT Act) last summer. However, officials believe the two issues are connected.

“We are also doing everything we can to make our resources and personnel systems as efficient as possible, so that our clinics can absorb that demand as it really starts to come in,” he said.

“And we do still have targets for this year to reduce wait times, which really means that our priority around staffing up is first and foremost.”

In addition to expanded disability benefits for those suffering from illnesses linked to burn pit smoke and other toxins from military service, the PACT Act mandated 10 years of VA health care coverage for troops when they separate from the military. This extension affected about 800,000 vets. The VA also has made a public push in recent months to encourage more veterans to sign up for department health care to ensure their military-specific conditions are being tracked and treated.

The PACT Act and the fiscal 2023 budget approved by Congress included both funding and flexibility for increased staffing at VA medical centers to address the possible increase in enrollment. VA officials have a goal of about 52,000 new hires this fiscal year to replace departing staffers and add personnel to high-demand areas.

The move builds on efforts to publicize health care and disability payouts available through the PACT Act. Through the first four months of the fiscal year, VA has already hit about half of its hiring goal, he said.

“We need to hire more providers, more clinicians and schedulers, folks from top to bottom in this organization,” he said. “And as we do that, we’re making sure we’re holding ourselves to efficiency and productivity standards that our veterans deserve.”

Reference: Military Times (Jan. 26, 2022) “Enrollments in VA medical care spiked after PACT Act passage last year”

What Recourse Is Available if Inheritance Is Stolen?

March 20, 2023

State inheritance theft laws typically cover four distinct aspects, says Yahoo’s recent article entitled “Someone Stole My Inheritance. What Are My Options?”

The four are:

Who committed the inheritance theft,
When the theft happened,
What was taken, and
How the theft happened.

As far as the “how” goes, note that inheritance theft can take many different forms. One of the most common examples involves elder financial abuse where someone takes advantage of an elderly person’s weakened physical or mental state to steal from them.

If you think someone’s stolen your inheritance, it’s important to review inheritance theft laws in your state. Again, each state has different guidelines regarding:

What constitutes inheritance theft,
Who has the standing to bring a civil claim or file a criminal complaint concerning a stolen inheritance,
The legal grounds for successfully pursuing an inheritance theft claim, and
Penalties and remedies for inheritance theft.

Speaking with an experienced estate planning attorney can help you see if you have standing and grounds to file a claim for inheritance theft. Your attorney may advise you to take certain steps to develop a case, including:

Taking an inventory of the estate’s assets,
Reviewing estate documents, such as wills or trusts, to look for any potential signs of fraud or forgery, and
Verifying the validity of will or trust documents.

With a larger estate, you may need to hire a forensic accountant. They specialize in examining financial documents, which may be helpful if you’re struggling to create a paper trail to support a claim of inheritance theft.

Inheritance theft laws can help to protect your rights to an estate if you think your inheritance was stolen. You can also take actions to preserve your own estate for your heirs by drafting a valid will, creating a trust and choosing trustworthy individuals to act as your executor, trustee and power of attorney.

Reference: Yahoo (Jan. 18, 2023) “Someone Stole My Inheritance. What Are My Options?”

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Will Proposed Tax Hikes Have an Impact on My Estate Planning?