Salt Lake City Estate Planning

Which States Will Tax Your Estate the Most in 2018?

The big numbers are because many states have linked their state estate taxes to the federal amount. Since the GOP tax bill doubles the base federal estate tax exemption amount to a little over $11 million, indexed for inflation for tax years 2018 through 2025, those states will also increase their thresholds.

Forbes notes in its recent article, “Where Not To Die In 2018,” that along with this news, there are two states that are eliminating estate taxes in 2018: New Jersey and Delaware. New York is set to match the current federal exemption amount—a base of just over $5 million indexed for inflation—in 2019. Massachusetts and Oregon now tie for the lowest estate tax exemptions at $1 million per person.

The federal estate tax is 40% on assets above $11.2 million. This tax affects just 1,800 estates in the US next year. However, many more taxpayers pay state estate taxes. The number of state taxable estate tax returns in the state of Oregon alone was 1,563 in 2015. That state’s exemption is just $1 million.

The amount of money you can leave to your heirs without any state death tax depends on where you live and own property, to whom you’re leaving the money and whether your estate planning is current. The highest rates are about 16%, and for inheritance tax states, the tax can apply to the first dollar of assets, meaning there’s no credit like there is on federal estate taxes.

Seventeen states and Washington, D.C. will impose an estate tax or inheritance tax (Maryland has both) in 2018. Eight of these states and DC are making changes for 2018.

New Jersey has repealed its estate tax, but there’s a separate state inheritance tax that hits non-lineal heirs like siblings, nieces, and nephews. The Garden State now is in the group of other inheritance-tax only states: Nebraska, Iowa, Kentucky, and Pennsylvania.

Minnesota and Maryland have scheduled increases to their exemption amounts, and Connecticut just made scheduled changes to its exemption in its 2018 state budget. Washington and Rhode Island made minor upward adjustments in their exemption amounts, due to inflation indexing.

You should not believe that you don’t need to do estate planning because of these larger exemptions. There are plenty of non-tax reasons to plan, including designating a guardian for your minor children and naming someone to act on your behalf with a financial power of attorney, if you become incapacitated.

Speak with a qualified estate planning attorney to be sure your estate plan is up-to-date and addresses any tax law changes in your state.

Reference: Forbes (December 21, 2017) “Where Not To Die In 2018”

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Have You Conducted Your “Dostadning?”

“Death cleaning” is the literal translation of the Swedish word dostadning, which means an uncluttering process that begins as people age. There’s even a new book called “The Gentle Art of Swedish Death Cleaning,” by Margareta Magnusson.

Santa Fe New Mexican’s recent article, “How to ‘death clean’ your finances,” says the focus should be on jettisoning junk. However, most senior’s finances could also use a good death cleaning. Simplifying and organizing our financial lives can make things easier for us while we’re alive and for our family after we’re gone.

This task becomes more pressing when we’re in our 50s. Our financial decision-making abilities generally peak around age 53, researchers say, while rates of cognitive decline and dementia start to increase at age 60. As we get older, we may become more vulnerable to fraud, scams, unethical advisers and bad judgment. Here are some steps you can take:

Consolidate financial accounts. Fewer accounts are easier to watch for suspicious transactions and overlapping investments. You also may save on account fees. See if your employer will let you transfer old 401(k) and IRA accounts into its plan or consolidate them into one IRA. Think about exchanging individual stocks and bonds for professionally managed mutual funds or exchange-traded funds (investigate prior to selling any investments held outside of retirement funds). Move scattered bank accounts into one account, but note that FDIC insurance is generally limited to $250,000 per depositor per institution.

Automate payments. Memory lapses can cause missed payments, late fees, and credit score damage. This can drive up the cost of borrowing and insurance. Set up regular recurring payments in your bank’s bill payment system, have bills charged to a credit card and set up an automatic payment, so the card balance is paid in full each month.

Scale back on credit cards. Keep just two credit cards: one for everyday purchases and another for automatic bill payments. Closing accounts may hurt credit scores, so wait until you’re sure you won’t need to apply for a loan before you start cutting down on the plastic.

Assign a watchdog. Identify the person you want to make decisions for you, if you’re incapacitated. Ask your attorney to create two durable powers of attorney — one for finances and another for health care. You don’t have to designate the same person for both, but name backups if your first choice can’t serve. Consider naming someone younger, because someone your age or older could become impaired at the same time you do. Discuss where your agent can find the information and access.

Your emergency file. Create “in case of emergency” files that your trusted agent or heirs will need. The file can include the following:

• Estate planning documents, such as your will, trust, healthcare directives, powers of attorney, and living will;
• Birth, death and marriage certificates;
• Military records;
• Social Security cards;
• Car titles, property deeds and other ownership documents;
• Insurance policies;
• A list of your financial accounts;
• Contact info for your attorney, CPA, financial adviser, and insurance agent; and
• Photocopies of passports, driver’s licenses, and credit cards.

A safe deposit box isn’t the best spot because your agent may need access outside of bank hours. A fireproof safe or a locked file cabinet may be better, but share the combination or key (or its location) with your trusted person. Scan important papers and retain an encrypted copy in the cloud to help you or someone else recreate your financial life, if the originals are lost or destroyed.

Reference: Santa Fe New Mexican (December 18, 2017) “How to ‘death clean’ your finances”

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Do You Still Need to Make Some Big Decisions?

The Almanac’s recent article, “Five mistakes to avoid when planning your estate,” reminds us that you still have to consider your estate, even after all of your other careful planning. 

You should be certain that your assets will be distributed exactly the way you want, to the people or organizations you want and that the government won’t take any more than is necessary. To help with this task, here are some of the top estate planning mistakes you need to avoid.

No estate plan at all.  You at least need a last will, financial power of attorney and health care directive. These should be updated with any major life event. You might also look at a trust that will govern how your assets will be managed for your beneficiaries. If you have no estate plan, the state will default your assets to your spouse or closest blood relatives. This may not be what you really wanted, and it can be time consuming, costly and result in large tax liabilities.

Not updating beneficiaries or listing contingent beneficiaries. All of your IRAs, 401(k)s, annuities, and life insurance policies should accurately designate the person or persons you want to receive the proceeds.

Investing lifestyle and legacy assets in the same way. There are plenty of retirees who spend well below their means and can live comfortably on a much smaller investment portfolio than what they’ve accumulated. You should consider dividing your investment portfolio into a “lifestyle” portfolio, invested conservatively, with a focus on producing retirement income, and a “legacy” portfolio, invested more aggressively, with a focus on maximizing your retiree’s legacy.

Not reviewing life insurance policies. It’s crucial to review your life insurance policies to be certain the policy is performing as expected, and that it’s going to be there when you need it. Your policies should be up to date, reflect your current needs and the accounts must be properly integrated with your overall financial goals.

Reference: The Almanac (December 26, 2017) “Five mistakes to avoid when planning your estate”

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Income Requirements for Medicaid

Is it possible for a married couple to separate their assets so, if one of them winds up in a nursing home, the other's assets won’t be used up

nj.com’s recent article, “Married and protecting assets from Medicaid,” explains that when a single person applies for Medicaid, he or she must have no more than $2,000 in assets to meet Medicaid's eligibility requirements.  However, the rules for married couples are different.

Medicaid deems the married couple to be one unit. Therefore, it doesn’t matter which spouse owns the assets. If you need Medicaid, you can’t just transfer your assets to your spouse in order to qualify. There are certain assets that are exempt from Medicaid rules. These include the primary home (if at least one of the spouses lives in it), a car and term life insurance that doesn't have cash value. The healthy spouse can keep those. Anything else is countable.

Medicaid totals the countable assets and divides them in half. The healthy spouse (called “the community spouse”) gets to keep one half of those assets, but only up to a maximum of just under $121,000. Everything else must be spent down to become Medicaid eligible.

But what if I divorce my spouse and keep all the assets? Provided there’s a valid prenuptial agreement in place that establishes what you can keep, this may be a solution. However, if you just want to shift all the assets to the community spouse by a divorce, the state probably will challenge that when it comes time to apply for Medicaid.

Remember, there’s also a five-year look back rule, if you transfer assets that are gifts and not purchases or other legitimate expenses. These transfers don’t stop a person from applying and receiving Medicaid benefits. However, the transfers penalize the recipient by delaying the amount of time until he or she can be eligible for benefits.

Speak with an experienced elder law attorney who knows how to file Medicaid applications and understands the Medicaid laws and regulations. Your elder law attorney can help you find better strategies to protect assets for the community spouse.

Reference: nj.com (December 13, 2017) “Married and protecting assets from Medicaid”

If you would like more information, give our office a call for a FREE consultation 801.438.7120!

Estate Planning for Your Pets

 

Don’t just say offhand, “Pops, can you take Fluffy, if something happens?” and hope that Fluffy will have a nice long life with dad.

As MarketWatch reports in its recent article, “How to provide for your pet in your estate plan,” many  people do just that: ask a relative and hope for the best. But others set up a formal estate plan for pets to ensure that they get continuing quality care, if their owner dies before they do. Most importantly, a pet estate plan could keep them from the shelter, which happens to many pets after their owners die. These items should be considered when pondering the best future for your pets.

1. Designate a caregiver. When considering a caregiver for your pets, evaluate whether that person is willing, capable and responsible enough to have the pet long-term. In addition, to be safe, name a contingent caregiver.
2. Earmark funds. Pet owners should list all their pet-care costs, and consider the pet’s expected lifespan. One pet owner added up the annual expenses for veterinary care for her two dogs, as well as their medications, monthly grooming, food, toys and a contingency for unanticipated expenses. She multiplied the annual total by what she thought to be the average life expectancy for the dogs and arrived at a budget of $25,000 for lifetime care. Determine how the funds should be set aside. You could create a trust, a bank account controlled by an executor (or by the guardian) or life insurance. Note that the beneficiary of a life-insurance policy can’t be a pet, but it can be a trust that includes provisions for a pet’s care or a trust specifically created for the benefit of the pet.
3. Draft a care plan. Set out clear, detailed instructions on how to care for your pet. That will make it easier for future caregivers to comply with your wishes. Your list may include the food your pet eats, how often he’s fed and his veterinarian.
4. Formalize your agreement. After you have made the basic decisions about your pet’s care, legally document them to help ensure that your wishes are executed. In fact, you can create a pet trust. This legal arrangement is available in all 50 states, but the specifics can vary. A pet trust can stipulate very specific directions for the care and funding of such care for your pet, after you pass away. Talk to an experienced estate planning attorney about creating this arrangement. You can also provide for your pets in your will. If you go this route, make sure that someone can step in immediately to care for your pet, because executing a will takes time. After the administration of an estate is completed, the will’s executor doesn’t have any continuing obligation to ensure the pet’s well-being.

Formalizing and funding a plan are critical, if you want to be certain that your wishes will be executed and that your beloved pet will have a comfortable life, if you die before your pet.

Reference: MarketWatch (November 30, 2017) “How to provide for your pet in your estate plan”

If you would like more information, give our office a call for a free consultation 801.438.7120!

Do I Need a Will and a Living Trust?

The Washington Post answered a question in a recent article, “How a will and living trust will affect your survivors’ ability to sell your home when you’re gone,” about whether you need a living trust if you already have a will.

Assume that a husband and wife are both retired and hold the house as joint tenants with rights of survivorship. If they’d like to eventually downsize, they don’t want a trust to interfere with their ability to sell the home.

It’s good to have a will in place. Why? Because when the couple owns their home in joint tenancy with rights of survivorship, no probate is required when one spouse dies. The other continues to own the home through the rights of survivorship. However, when that surviving spouse dies, then the will kicks in and probate is required.

Depending on the size of a couple’s estate, using the will to go through probate can be expensive. After the surviving spouse dies, the executor of that will would go to court and be recognized by the court as the representative of the estate. He or she would then be able to sell the home and other assets as needed. The executor of the estate would then present an accounting to the court of all distributions made by the executor to close the estate.

To avoid probate, many people place their properties in a living trust. With this approach, you would transfer the title of your real estate and other property to the trust. Upon the death of the owner of the trust, a successor trustee is appointed, avoiding probate.

A power of attorney is also a useful tool to take care of financial matters, should one or the other spouse become incapacitated. Powers of attorney for financial matters can save  stress and headaches.

Reference: Washington Post (September 18, 2017) “How a will and living trust will affect your survivors’ ability to sell your home when you’re gone”

If you would like help getting your Estate Plan set up, give our office a call for a free consultation, 801.438.7120!

Bobby Brown Sues to Stop 'Bobbi Kristina' TV Movie

Bobby Brown filed a lawsuit claiming that the film titled “Bobbi Kristina”—which will soon air on cable—falsely paints him as a neglectful father.

The New York Post reported in its recent article, “Bobbi Kristina estate joins Bobby Brown in $2M suit over biopic,” that Brown claims he hasn’t seen the script, despite his requests.

“The movie contains defamatory scenes about the life of Bobbi Kristina Brown” and also “contains defamatory and untrue depictions of Robert Brown being violent towards Whitney Houston … and [there are] scenes suggesting that Robert Brown does not love his daughter or is [not] committed to Bobbi Kristina Brown,” the amended lawsuit states.

Twenty-two-year-old Bobbi Kristina was found by her husband, Nick Gordon, unconscious in a bathtub in Georgia in July 2015. She lapsed into a coma and was declared brain dead a few months later.

Bobby Brown also claims that he’s sold the rights to a movie about his life to BET, and the TV One film jeopardizes that project. Brown was suing for $1 million, but then amended his claim for $2 million.

Brown is portrayed in the movie as a “hard drug user”, who neglects his fatherly duties after Houston’s 2012 death—in which she was also found unconscious in a bathtub.

Gordon wasn’t criminally charged in Bobbi Kristina’s death, but in 2016 he was found legally responsible by a Georgia civil judge. He was hit with a $36 million judgment, after Brown filed a wrongful death suit against him.

Brown alleges that the producers of the TV One project unfairly took advantage of their previous work with Brown to make the movie. They used footage from a 2004 TV reality show, “Being Bobby Brown,” without his consent, his complaint states. However, TV One says it is standing by the film and its representation of this period in Bobbi Kristina’s life. Its producers have already begun promoting the film.

Reference: New York Post (September 12, 2017) “Bobbi Kristina estate joins Bobby Brown in $2M suit over bio

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Be Honest with Your Doctor and Your Heirs

 

Vanguard advised in a recent article, “The final keys to successful wealth transfer,” that you should communicate honestly with your health care provider for the sake of maintaining your health, and you have to speak honestly with your heirs to preserve your wealth.

It’s hard for many of us to easily disclose personal details about our finances. That’s because money can represent a variety of complex feelings and concepts, like security, control, comfort, selfishness and power. However, it’s imperative to have this important conversation.

You can start by relaying stories about your successes and losses (financial and otherwise). That way, your heirs can learn from your experiences. In addition, even if you detail specific conditions regarding when and how heirs can use their inheritance, you should look at the wealth transfer process with trust and an open mind. You should educate your heirs to make smart financial decisions after you’re gone, by showing them materials to prepare them for the future now.

Have the talk with your heirs when it’s right. If information about a future inheritance might distract them from making wise decisions about their future, you don’t have to disclose specific dollar amounts. Every family is unique, so there’s no one-size-fits-all solution to the question of when you should have “the talk.”

You should also use the counsel of an experienced estate planning attorney who doesn’t have a stake in your legacy and can facilitate the wealth transfer discussion. That will take some pressure off and ensure that all topics are discussed.

A final key to a successful wealth transfer is philanthropy. All family members should be able to participate in the giving process. Finding a charity that matches up well with your family’s values can help your heirs learn how to make decisions, motivate others and develop confidence. These are attributes that will help them be respected stewards of your wealth, when the time arrives.

In summary, to enjoy a successful wealth transfer: (i) identify what’s important to you and your family; (ii) communicate honestly; (iii) stay organized; (iv) get your heirs prepared; and (v) explore philanthropy.

Reference: Vanguard (September 26, 2017) “The final keys to successful wealth transfer”

If you would like more information, give our office a call for a free consultation, 801.438.7120!

Work with an Elder Lawyer for a Special Needs Trust

Say that an 82-year-old was recently diagnosed with Alzheimer's. His 78-year-old wife takes care of him. They have $1 million in retirement funds and want to set up a trust fund for their children who have disabilities. If the father needs long-term care, will his wife have enough to care for herself and the children?

nj.com’s recent article, “How to help Mom when Dad has Alzheimer's,” advises that those in this or similar situations can benefit from meeting with an elder law attorney about special needs trusts and other benefits planning.

In many states, the average daily cost of nursing home care is more than $450. Money from a long-term care policy can help in stretching other available resources to privately pay for long-term care, if necessary. Medicaid might also come into play.

Medicaid is a needs-based program which has income and asset limitations that are applicable before an individual can qualify for assistance. There’s a penalty on any transfers made within five years of applying for Medicaid. The penalty is the number of months that a person will be ineligible for the program. The penalty period begins to run only after an individual enters a nursing home and would otherwise be eligible for Medicaid—not at the time of the transfer. During the penalty period, Medicaid won’t pay for the nursing home. The senior is on his or her own, and private funds must be used.

Gifts and sales, to the extent they’re less than for fair market value within five years of applying for Medicaid, are also subject to a penalty. Therefore, it’s important that seniors and their families understand the consequences of transfers made by a parent for the children within the five-year look back period and the potential imposition of a penalty period, during which Medicaid funding won’t be available after assets are spent.

Talk with an experienced elder law attorney about Medicaid and determining parents’ eligibility.

Reference: nj.com (December 7, 2017) “How to help Mom when Dad has Alzheimer's”

If you would like more information, give our office a call for a free consultation 801.438.7120!

What Can I Do With My Gifts to My Daughter, If I Don’t Trust My Future Son-in-Law?

What if your daughter is getting married and you never have really liked the looks of her future husband? Perhaps you simply don't trust the guy. What if you regularly give her gifts of cash and don't want him to be able to get to that money?

nj.com notes, in its recent article, “Protecting inheritance from future son-in-law,” that the easiest option is for the daughter to create an account to which only she has access and into which she deposits any money from her parents. As long as her future husband's name isn’t on the account, and she hasn’t given him power of attorney over it, he can’t get to it.  However, if there’s a concern that the daughter may not be able to resist her future husband’s attempts to gain access to the funds, a parent will need to take additional steps.

Here are some examples:

Monthly bills: if the daughter uses the gift to pay monthly bills, the parent could pay the bills directly instead of giving her money.

Children: if she has children and is setting aside the money for their college education, the parents could set up a 529 savings account for their grandchildren. They could name themselves as the custodians.

Savings: if the daughter is simply saving the gift money, a trust may be a good solution. However, trusts are not as simple as the other options discussed above. The more restrictive the trust terms are to protect the assets from the son-in-law, the greater the possibility that gift and estate taxes will become an issue.

Prenuptial Agreement: another thing to consider is whether the parents have given their daughter significant amounts of money already and because of that, she’s entering into the marriage with more assets than her spouse. In that case, she should consult with an attorney about a prenuptial agreement. If the marriage then ends in divorce, she will not have to split any of the funds with her ex.

As a final reminder in this scenario, the parents should also speak with an estate planning attorney about updating their estate plan, so that anything they want to leave her when they die, is left to a trust for her benefit.

Reference: nj.com (November 23, 2017) “Protecting inheritance from future son-in-law”

If you would like more information, call our office for a free consultation 801.438.7120!