Friday, May 18, 2012 Do You Know Your Taxes Are Going Up?
By Susan M. Graham, Certified Elder Law Attorney, Senior Edge Legal, Boise, Idaho
In April, I attended a national meeting of the American Academy of Trust, Estate and Elder Law Attorneys, a premier educational seminar for attorneys like me who do estate planning. From that experience, I want to share some important information with you.
Taxes are scheduled to increase dramatically in 2013:
2012 2013
Estate and Gift Tax – Top Tax Rate 35% 55%
Estate and Gift Tax Exemption $5 million $1 million
Federal Income Taxes – top rates
Capital Gains 15% 20%
Qualified Dividends 15% 39.6%
Interest & Compensation Income 35% 39.6%
In the current political climate, Congress and the President are not likely to reach a compromise on these issues, and in fact the President wants to make “the rich” pay their “fair share” in taxes.
What does this mean for you? 2012 is a year of opportunity while taxes are lower. It would be wise to schedule an appointment to review your estate plan before September 1, and see if there are steps you can take to improve your family’s position. If you wait to the last minute, it may not be possible to put a plan in place before the law changes.
Friday, November 04, 2011 How Do You Talk To Your Elderly Parents About Their Money? [And Not Sound Greedy?]
By Susan M. Graham, Certified Elder Law Attorney, Senior Edge Legal, Boise, Idaho
Are you thinking about your elderly parents' finances and beginning to worry what you should do to help them in an emergency?
Don't expect your parents to be thrilled at the idea of discussing their finances if they have not been open about this in the past.
If you are lucky, they may bring up the topic. When my Cousin Kathie was age 90, she called me one day to say she was going to be kicked out of her retirement home because she was two months behind in her rent. She asked me to call and check. I looked into it and she was indeed behind in the rent. Right then and there she asked that I take over her finances, which I did, and I continued to handle her finances until she died at the age of 99.
If you are not so lucky to be asked for your help, you need to start the discussion. Be careful that you don't come on too strong, because it may be perceived that you want to take their money. One way to start is to express your concern about your role in an emergency if they should die or worse, they come unable to handle their affairs due to old age, dementia or illness. If they share the information about what they own, the approximate value, and where their records are located, that would be a huge first step. If they don't, be patient. You have opened the door a crack and they may call you later to share this information.
An alternative approach is to suggest that you go to a meeting with them at their attorney's office to get independent, unbiased information on alternative ways to handle the health and financial emergencies worrying you.
Of course, if they say no, you are stuck. You did your best.
If everything goes wrong that could go wrong and there is no plan in place when your parents become mentally or physically unable to handle their affairs, you have the option to go to Court to be appointed as their conservator [the one who handles their finances] and guardian [the one who makes the health and housing decisions].
What can you do? Start the discussion so everyone is prepared for the bad days in life, death, or the possibility of becoming incompetent. Good Luck!
Saturday, October 22, 2011 Would You Want Your Enemy As Your Guardian?
By Susan M. Graham, Certified Elder Law Attorney, Senior Edge Legal, Boise, Idaho
This happened for the heiress of L'Oreal, a French cosmetics company. Liliane Bettencourt is 89. She and her daughter, Francoise Bettencourt-Meyers, have been suing one another for years. A French Court found the mother to have failing mental health and to be showing signs of dementia. The Court then appointed the daughter as her mother's guardian. Now, the daughter can control when her mother can travel and how her money will be managed.1
Could this happen to you?
A simple way to avoid this is to sign a financial power of attorney and health power of attorney stating who you want to make financial and health decisions for you if you are not able to care for yourself. That will be a great first step.
If you have not signed these documents, go to our website (www.graham-lawoffice.com) and download the forms for free. The forms come with instructions to make them easy to fill out.
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1Heiress Loses L'Oreal Family Fight, The Wall Street Journal, page B8, October 18, 2011.
Saturday, September 10, 2011 10 Steps to Take After the Death of a Loved One
By: Susan M. Graham, Certified Elder Law Attorney
This checklist includes important steps to help manage the estate of someone who has died.
1. Follow the specific funeral and burial instructions left by the decedent. Contact your local funeral home or mortuary for assistance in making or following through with any prearranged funeral plan.
2. Arrange for the care of any persons who are dependent on the decedent, such as minor or disabled children, an elderly spouse or the decedent's elderly relatives.
3. Arrange for the care of any pets of the decedent.
4. Secure the residence. You may want to have some trusted friend stay at the house. Change the locks.
5. Arrange to receive several copies of the death certificate - ten is not too many in most cases.
6. Keep track of your time. Get receipts for all out-of-pocket expenses you pay related to the estate administration so you can be reimbursed.
7. Notify the decedent's friends, family members and work associates of the death.
8. Call the attorney who set up the estate plan to make an appointment and learn how to administer the decedent's estate. The attorney can tell you who is legally responsible under a Last Will and Testament, Trust, or even if no documents were prepared. Locate the original Last Will and Testament or Trust to take to the attorney if these doucments exist. It is important to talk with an attorney prior to making any decisions relating to the administration of the estate. Sometimes the wrong decision, taken hastily, can be costly.
9. Do not distribute any personal property items such as rings, guns, china and other household things until you speak to an attorney. If you distribute such items and you did not have the legal authority to do so, you may be personally liable to others.
10. Update your own estate plan to be certain you and your family are protected. It is important that a surviving spouse make changes now that their spouse has died. In most situations, it will be necessary to prepare a new financial power of attorney, new health power of attorney, and new Last Will and Testament or Trust to reflect any changes to your plan.
Friday, January 28, 2011 How Does the New Tax Law Impact You and Your Estate Plan?
The “Temporary” Tax Relief Act of 2010 has created the most favorable estate planning opportunity in modern history.
First let me highlight two parts of the law that directly relate to estate planning.
• The death tax free estate is now five million dollars ($5,000,000) for each individual. That means if someone dies in 2011 or 2012 and the value of their estate is less than $5 million, there is no federal or state of Idaho death tax. A simple definition of the “value of an estate” is the fair market value of all the assets owned by the decedent on the date of that person’s death. So add the value of the home, cabin, cars, bank accounts, stocks and bonds, life insurance and other investments and if the number is less than $5 million there is no death tax. If it is over $5 million the excess will be taxed with the highest rate of 35%.
Once the law expires on January 1, 2013, the death tax free estate is set to return to $1 million, with the excess over the $1 million being charged at 41-55%.
• In addition, under the new law, a married couple can have a combined estate of $10 million with no death tax if they follow a few additional steps.
How can this new “temporary” law benefit you even if you have less than a $5 million dollar estate?
• You can change your estate plan to require upon the first death certain assets pass into an asset protection trust for the surviving spouse so those assets will be protected from creditors, a new marriage, lawsuits and bankruptcy.
• You can gift some of your assets now into an irrevocable asset protection trust for your children. If the law changes after January 1, 2013, to allow only $1,000,000 as a death tax free estate, you will be “grandfathered in” and can protect more than $1 million from death taxes.
Is all this confusing? That is understandable. My suggestion is talk to your estate-planning attorney, or call and schedule an appointment with me to discuss how this new law impacts on your estate planning goals.
Remember the law is temporary and will expire January 1, 2013 so you need to act now if you want to lock in the benefits.
P.S. Our next public presentation is set for Thursday, February 3, at 10 a.m. and 2 p.m. at the AmeriTel Inn, 7965 W. Emerald, Boise, Idaho. If you want to come, call and make a reservation 344-0375.
Friday, January 07, 2011 How to Pay a Relative to Care for Dad Without Stepping on a Land Mine.
Landmines? What are they?
• What is the right amount to pay?
• Should there be a written agreement?
• What about taxes?
• Full discloser to all the family?
• How will this impact getting Veterans Benefits and Medicaid?
“According to a report by the National Alliance for Caregiving and AARP, 43.5 million Americans looked after a friend or relative age 50 or older in 2009, 28% more than in 2004.” [Source: Should You Pay A Relative to Take Care of Mom? by Anne Tergesen, The Wall Street Journal, December 11, 2010]
If care is required, many families prefer to pay a relative rather than hire a complete stranger. It is only fair to pay someone if they are working part-time or full-time to provide quality care.
What is the right amount to pay? That depends on how many hours, the skill level of the provider and the pay rates in the local area.
Should there be a written agreement? Yes, this will be required if the elder ever should need to apply for Medicaid and the future can’t be predicted. To make sure the legal standards for the agreement meet the Idaho Department of Health and Welfare requirements, contact an attorney who is knowledgeable in this area to assist in drafting this contract. Another advantage of the contract is the terms of employment are spelled out so there are no misunderstandings in the future. If you ignore creating a written agreement and pay the relative caregiver, this will create problems in the future for qualifying for Medicaid.
What about taxes? The provider will pay income tax on the wages received, and the elder may have to pay employer taxes. It is recommended that a Certified Public Accountant be contacted to be certain this is done properly.
Why provide full disclosure to the family? If the other family members are aware of the formal arrangement to provide care for an elder, there is less chance of family disputes about who is being hired and how much they are being paid.
How will this impact getting Veterans Benefits and Medicaid? The Veterans Non-service Connected Pension benefits and the Medicaid rules are complex and are not coordinated. That means you can provide care in a way that works for the Veterans Administration but that may not work to qualify for Medicaid.
So what is the bottom line? To make sure everyone is treated fairly and to get the maximum benefit for the elder, the caregiver and the family, get a written agreement that meets the needs of everyone and also meets the legal requirements for the government benefit programs if they should ever be needed. Paying for the preparation of a “Personal Service Contract” will save lots of heartache and money in the future.
P.S. If you need help with a “Personal Service Contract” or your estate plan contact us through our website (www.graham-lawoffice.com) or call 208-344-0375. Friday, December 10, 2010 What a Difference a Week Makes! - Different Tax Rules?
Who would have thought? This “lame duck” session of Congress may pass a tax bill before the end of this year that has good parts and parts everyone can find objectionable.
Part of the plan is an amazing proposal to increase the exemption for death taxes for estates that are $5,000,000 or less for the years 2011 and 2012! Any portion of a person’s estate that exceeds $5,000,000 will be taxed at the rate of 35%. If no change is made to the law, then the death tax free estate in 2011 will be $1,000,000 and any excess over that amount will be taxed at rates ranging from 40% to 55%. Who knows what will come of this proposed legislation. Even standing at the outside, it is apparent that crafting legislation is certainly like making sausage. This is like watching a soap opera - a slow and painful drama.
P. S. On a lighter holiday note, I have been making cookies for holiday gifts. I have been doing this since I was a teenager. I want to share with you my Grandmother, Eliza Barkley Graham Vodermaier’s
Scotch Shortbread Recipe.
½ c. confectioner’s sugar, sifted
1 c. butter
¼ tsp. nutmeg
½ c. rice flour (a critical ingredient)
1 ½ c. all purpose flour
¼ tsp. baking powder
¼ tsp. salt
Heat the oven to 375 degrees F.
Beat the butter with the sifted sugar
Add the remaining ingredients
Roll the dough to a 1/3” thickness on a floured board
Cut into squares or rectangles, prick with a dinner fork for decoration
Bake on an ungreased cookie sheet until light brown for approximately 10-15 minutes.
P.P.S. If you want to make sure your children’s inheritances are protected from divorce, creditors, lawsuits and even bankruptcy you may want to set up an “Inheritance Trust” to receive their share when you die. Go to our website to learn more about this amazing gift to your children, or call and set up an appointment to explore how this can help you and your family.
P.P.P.S. If you have a friend who would be interested in this information, please forward it to them.
Friday, December 03, 2010 Lame Duck Congress-Down to the Wire on Estate Taxes
We are a mere four weeks away from estate tax D-Day. Congress has failed to resolve the estate tax mess over the last eleven months. With the Lame Duck Congress wrestling with the Bush era tax cuts, the pundits are projecting that Congress won't act now, either. That would mean that on Jan. 1, 2011, the estate tax reverts back to the 2000 levels: a $1 million lifetime exemption, and a top tax rate of 55%. That means many people will need to include tax planning in their estate plan, or will need to modify their existing tax planning.
How do you know if your estate is in excess of $1 million? Add up the fair market value (not your dream value or a low value) of all your assets. This includes your real property, vehicles, bank accounts, certificates of deposit, the balance of your IRA or other retirement accounts, brokerage accounts, mutual funds and the death benefit of life insurance. If the total exceeds $1,000,000, after subtracting any major debts, then a death tax will be imposed on the excess over $1 million.
What can you do about this? Make an appointment with your estate planning professional to explore options to reduce or eliminate the death tax being imposed on your estate.
Friday, October 22, 2010 Easy Steps To Make Your Power of Attorney Work
Idaho adopted a new Financial Power of Attorney law in 2008. Everyone is just getting used to the new forms. Why have one? The power of attorney allows the people you elect (your agents) to handle financial business on your behalf. A “durable” power of attorney means it is effective even if you are incompetent.
One reason for the new law was to create a system so the power’s of attorney would be accepted by more banks and financial institutions. Under the new law a financial institution has to tell you if they won’t accept the power of attorney. But if they tell you they won’t accept the power, there is not much you can do to enforce the power of attorney short of a lawsuit. No one wants to go down that expensive road.
So what can you do? If you really want your power of attorney to be accepted by your bank, and you want your agents to be able to use the power if you are too ill to handle your finances, take the document to your bank now and see if they will accept it. If not, the bank may have their own form that you can complete to make sure your agent has the power to help you and access your funds when you are unable to act. Friday, October 01, 2010 How to get a "Stepped-Up" Capital Gains Basis for 2010 Estates
What a mess we have in the tax laws for 2010! For one year only, 2010, there is a law that applies to “stepped-up basis” for estates of individuals who died in 2010. Why do you care? Well, the heirs of someone who dies in 2010 can save thousands of dollars in taxes if they take the proper steps. If they fail to act in certain circumstances, they can pay thousands of extra tax dollars that could have been avoided.
Prior to January 1, 2010, if a person died it was possible to get a new basis for Capital Gains purposes.
The Capital Gains tax is a federal and state of Idaho tax that is imposed on the sale of an asset if the asset is sold for more than the original purchase price, and the cost of any improvements. For example. if a share of stock was purchased for $10 per share and it was sold for $110 per share, there is a Capital Gains tax on the appreciation of $100. Between the Federal and Idaho Capital Gains tax, the $100 increase will be taxed at slightly less than 25% or approximately $25 in tax will be due.
When someone dies, it is possible to get a “stepped-up” basis, which is the fair market value of that asset on the date of death. In the past this could be done easily by getting the value of the investment from the accountant or broker, or getting an appraisal for the value of real property on the date of death.
1. Under the current 2010 law, if a decedent’s gross estate value (excluding cash) is less than $1.3 million, no filing of any kind is required. The basis of the decedent’s capital assets will be automatically adjusted to fair market value as of the date of death, but proof must be available to show the date of death value.
2. If a decedent’s gross estate (excluding cash) is over $1.3 million but the total appreciation in the decedent’s capital assets is less than $1.3 million, the decedent’s personal representative must file a form (not yet published) with substantial financial information in it. This form is due by the filing date of the decedent’s final income tax return to allocate the appreciation to the appreciated assets. If this is not done no upward adjustment in basis will be allowed at all.
3. If the total appreciation in the decedent’s capital assets is greater than $1.3 million, then a true allocation will be required, as the available basis adjustment will have to be parceled out by the personal representative among all of the items in the decedent’s bucket of capital assets, eligible for a basis adjustment.
The end result is a post-mortem filing with the IRS is required for estates in excess of $1.3 million if the heirs want to minimize the Capital Gains tax that may be due upon the sale of estate assets.
Assuming no change in the law, in 2011 we will go back to the simpler, days of an automatic step up in basis for Capital Gains purposes.
P.S. I’ve been out of town the last few weeks, first attending a statewide meeting in McCall where attorneys from all around Idaho met for a day to share information and learn more about the Idaho Medicaid Program. and last week grading exams in Las Vegas for applicants to become nationwide Certified Elder Law Attorneys. Currently there are approximately 450 Certified Elder Law Attorneys.
Monday, August 23, 2010 HOW TO PAY FOR LONG-TERM CARE?-THE MEDICAID PROGRAM CONTINUED-THE MEDICAID ASSET TEST
Last week we discussed what it takes to meet the Income Test to qualify for Medicaid. This week we will address what it takes to meet the Asset Tests to be able to obtain Medicaid benefits.
There are two types of assets: Exempt and Non-exempt assets. The Idaho Department of Health and Welfare refer to “assets” as “resources.”
Medicaid applicants, who are single, are treated differently than married persons.
What is the Asset Test for a Single Person who is applying for Medicaid?
First consider the exempt assets. What are they? A single person can have the following assets:
One residence and the contiguous land with a maximum value of $750,000. This can be a farm, so long as the land is contiguous. Frequently the valuation can be proved by providing the county tax assessment statement.
One vehicle of an unlimited value.
“Stuff” in the home.
Prepaid irrevocable funeral plan or $1500 in an account identified for a “burial fund.” If the burial/funeral plan is “irrevocable,” that means the day of the funeral the family cannot ask for a lower cost funeral and be reimbursed the excess funds that were prepaid.
Funeral plots for family members.
Retirement accounts, so long as the Medicaid applicant is taking the minimum distribution required. If the Medicaid Applicant is under age 70.5, there are different rules that apply.
Less than $2,000 of other non-exempt assets, such as cash in a checking account, a 2nd car, a vacation home, certificates of deposit and all other non-exempt assets.
There are a number of other assets that can be owned by a single person and that single person will still qualify for Medicaid. The information presented in this article is intended as general information. If you have specific questions about your circumstances, it is recommended you contact a professional for legal advice.
Once a single person has the allowed exempt assets and has less than $2,000 in non-exempt assets, they will meet the Medicaid Asset Test.
The list of non-exempt assets is everything that is not an exempt asset. This list can include, but is not limited to the following:
Real property that is not the primary residence
Bank accounts, certificates of deposit, investments, brokerage accounts, and retirement accounts that are not subject to minimum distribution rules
Cash surrender value of life insurance
Other cars and trucks after taking into account the primary vehicle, which is an exempt asset.
Boats, motorcycles and other expensive “toys.”
What is the Asset Test for a Married Person who is applying for Medicaid?
The exempt asset test is slightly different than the test for a single person applying for Medicaid. The healthy spouse of the married couple (often referred to as the “community spouse”) is entitled to keep the following assets:
One residence and the contiguous land with no limit for the value.
One vehicle of an unlimited value.
“Stuff” in the home.
Prepaid irrevocable funeral plan for both spouses or have a burial account of $1500 set aside for each spouse.
Funeral plots for family members
Retirement accounts for the Medicaid applicant so long as the applicant is taking the minimum annual distribution.
All the retirement accounts of the healthy spouse.
One half of the other non-exempt assets but
No more than $109,560 (+$2,000) = $111,560 and
No less than $21,912 (+$2,000) = $23,912.
The non-exempt assets include separate as well as community property owned by either spouse. These non-exempt assets include but are not limited to:
All assets, including a home, titled in the name of a revocable trust in which either spouse has an interest.
Real property that is not the primary residence of the parties.
Bank accounts, certificates of deposit, investments, brokerage accounts, and retirement accounts of the Medicaid applicant that are not subject to minimum distribution rules
Cash surrender value of life insurance
Vehicles other than the one vehicle claimed as an exempt asset.
Boats, motorcycles and other expensive “toys.”
So how do you calculate the total value for non-exempt assets for a married couple?
Start with the “snap shot” date. This is the first day the Medicaid applicant was continuously in a nursing home or assisted living facility for thirty (30) days, or is expected to be in for thirty (30) days or a Registered Nurse administers the Universal Assessment Instrument (UAI) to the individual and finds that the Medicaid applicant meets the required level of care to qualify for Medicaid.
First identify the fair market value of all the exempt and non-exempt assets on the “snap-shot” date. The assessment values assigned by each Idaho county for real estate tax purposed in Idaho can be used as the fair market value for the real property.
Next blog will be on how to meet the asset test if you have to many non-exempt assets.
Friday, March 26, 2010 Should you convert your Traditional IRA to a Roth IRA?
Under new rules, 2010 marks the first time many investors can convert a Traditional IRA to a Roth IRA. This presents an outstanding opportunity to minimize future taxes, avoid required minimum distributions and leave an income tax free legacy for your children and grandchildren!
With a customized estate plan, this legacy may provide for your children and grandchildren decades of tax-free growth, which may be protected from lawsuits, divorcing spouses and estate taxes.
What is special in 2010? The $100,000 Modified Adjusted Gross Income limitation no longer applies. Now anyone can convert from a Traditional to a Roth IRA.
Should you make the conversion?
If you make the conversion who should be your beneficiary?
Find out the answers in one of two ways.
1. Attend a FREE one-hour educational workshop on April 1, Thursday at 10 a.m. or 2:00 p.m. at the Ameritel Inn, 7965 W. Emerald, Boise, Idaho to learn the answers to these questions. Reservations are required so call The Graham Law Office, 344-0375 for reservations.
2. Visit our website after April 5, and the handouts from the April 1 presentation will be available.
Thursday, February 18, 2010 NEW TAX BASIS RULES AND ESTATE TAX REPEAL HAVE COME JANUARY 1st
The impossible has happened. Congress failed to act at the end of 2009, and so we now have one year without the Estate (death) tax, before it is reinstated in 2011. What does that mean for you?
I am reprinting below a short summary provided by the National Academy of Elder Law Attorneys (NAELA). I have been a member of this organization for over ten years. This article highlights two issues: the death tax and the capital gains tax.
NAELA’s Tax Section wishes to alert all NAELA members about two huge tax law changes effective on January 1st that will affect many estate plans. These changes are the repeal of the federal estate tax and the cut back of the important stepped-up tax basis.
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Derailed by more important matters in 2009, Congress failed to prevent the repeal of the estate tax for 2010 only. Next year in 2011, the estate tax is reinstated with only a $1 million exemption, unless Congress acts in 2010. There is talk that Congress may even retroactively reinstate the estate tax sometime in 2010. Estate tax repeal could hurt the surviving spouse of someone dying in 2010 if the couple has a Marital Trust/Bypass Trust Plan (also known as an A/B plan), as the wording of the documents may leave all the assets to the bypass trust, cutting out the surviving spouse.
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The second tax law change introduces new IRC Section 1022, which replaces former IRC Section 1014. New Section 1022 curtails the stepped-up tax basis for capital assets acquired from a decedent. Many read Section 1022 to only allow a step-up for property acquired from a decedent, for revocable trusts, jointly held property, and community property. Some NAELA tax practitioners believe Section 1022 denies a step-up for life estates, all irrevocable trusts and all retained and granted powers of appointment. On the other hand, other NAELA tax practitioners believe that certain irrevocable grantor trusts and life estates will still receive a stepped-up basis. Clients need to be made aware of these issues
The Tax Section, chaired by Robert C. Anderson, CELA, will provide more details on these and other tax changes in the next NAELA News issue to help members get ready to help clients.
Source: NAELA Tax Section Members Robert C. Anderson, CELA; Sharon Kovacs, Gruer, CELA; and Bradley J. Frigon, CELA
What does this mean for you? The simple answer is no one knows. Because Congress can adopt a law that may be retroactive to January 1, 2010, there may be no impact on individuals. The easiest solution is don’t die until Congress straightens this out, or at least wait to die after January 1, 2011, when a new law will be in place. What a mess!
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