There are a few changes that have recently gone into affect or will be going into affect that can affect an estate plan. These are all good changes and will make the job of estate planner, whether it is the individual or their attorney, easier.
An owner of any vehicle or boat can now transfer it upon his or her death to a designated beneficiary through the Department of Motor Vehicles (DMV). What does this mean? This means the vehicle or boat will avoid probate if you apply for a certificate of title/number and fill out the beneficiary designation form. It is contractual, so it cannot be revoked by a will. It can be only be revoked, or changed, by completing a revocation form with the DMV.
Also new to the DMV is the ability for an individual to declare on their driver’s license that he or she has a controlling living will. This is a great way for medical providers to know that a living will is in place for that individual they are providing care for. A living will is document that controls end of life decisions of whether or not one would like life-sustaining treatment that only prolongs the process of dying and is not necessary for comfort or to alleviate pain.
There are widespread changes to the durable power of attorney Acts. A new Act was created and many amendments were made to the existing statutory language. The Uniform Power of Attorney Act applies to durable powers of attorney (better known as durable financial powers of attorney or durable powers of attorney for business or financial needs) which allows powers of attorney created in Arkansas to be more specific and to fall under uniform application. I am currently conforming all my existing clients’ durable powers of attorneys to the Uniform Act at no charge.
These changes will allow much more ease and flexibility in estate plans. Please do not hesitate to contact me if you need help implementing any of these changes or if you would like to speak with me about creating an estate plan for you and your family.
I am by no means an expert of the Estate and Gift Tax. My only hope is to provide a basic overview of the estate and gift exemptions allowable to individuals so they can make better decisions regarding their estates.
The gift tax is the Federal Tax levied on all gifts given during one’s lifetime. Every person, however, has a lifetime gift tax exemption amount. The lifetime exemption amount is the dollar amount of gifts that a person can give away without incurring any federal gift tax, but any lifetime gift tax exemption used will reduce the estate tax exemption of the person making the gift.
In 2010 the lifetime exemption from gift taxes was only $1,000,000 with a top tax rate of 35%, but under current law the lifetime exemption from gift taxes has increased to $5,000,000 and the top tax rate remains at 35%. These numbers, however, will only be in effect for the 2011 and 2012 tax years. In 2013, the lifetime gift tax exemption is scheduled to decrease back down to $1,000,000 and the top gift tax rate will jump to 55%.
Similarly, the estate tax is the tax that a person’s estate is assessed upon thier death. Each person currently has an exemption from the estate tax of $5,000,000 with a top tax rate of 35%. That means that the first $5,000,000 of a person’s estate at their death will not be taxed, however, any amounts over that exemption will be taxed at 35%. These numbers also will only be in effect for the 2011 and 2012 tax years. In 2013, the estate tax exemption is scheduled to decrease back down to $1,000,000 and the top tax rate will jump to 55%.
In 2010 and 2011 you can gift up to $13,000 per person, per year without incurring any federal gift tax. These gifts are referred to as “Annual Exclusion Gifts” and are not subject to the federal gift tax at all and therefore do not use any of the giftor’s lifetime exemption from gift taxes. Married couples can combine their annual exclusion gifts and gift up to $26,000 per person, per year, but split gifts must be reported to the IRS on Form 709, United States Gift (and Generation-Skipping Transfer) Tax Return.
Gifts made to a spouse who is a U.S. citizen are entirely exempt from gift taxes due to the unlimited marital deduction, while gifts to a noncitizen spouse are exempt up to the first $134,000 in 2010 and the first $136,000 in 2011.
I hope this helps answer questions and leads others to plan better for their futures. A little bit of time and expense spent planning today can save a lot of time and expense spent tomorrow. As always, this is not intended to be legal advice and be sure to always speak with a representative of the Internal Revenue Service or your Certified Public Accountant before any gifting decision is made.
This is the ninth entry in a series I will be featuring about celebrity estate planning mistakes and what they could have done to prevent the problems that arose.
Name: James Brown
Age: 73
Died: December 25, 2006, Atlanta, GA
Cause: Congestive heart failure due to pneumonia
Family: Six children named in will; many others contending paternity
Estate Mistake: Although he was known for keeping a very tight beat, he left a very loose will and sloppy estate planning, which led to multiple lawsuits and severe tax implications. His will was contested by several parties, partly because he had not updated the document since 2000.
He also left his mansion and music rights to an irrevocable trust to benefit underprivileged students. However, the trustees and family are still battling over it. His assets were not well sheltered so an auction of his personal affects was ordered to help settle the tax bill.
This is the eighth entry in a series I will be featuring about celebrity estate planning mistakes and what they could have done to prevent the problems that arose.
Name: Howard Hughes
Age: 70
Died: April 5, 1976 (somewhere over Texas)
Cause: Heart failure while on a plane from Mexico to Houston for medical treatment
Family: No wife or children, but 22 cousins
Estate Mistake: Famed aviator/industrialist/film producer/eccentric left a $2.5 billion estate. Thousands of people filed claims against the estate once it was in probate. The estate lingered in probate for years as Mr. Hughes died without a valid will. The estate was eventually spread among all 22 cousins and several other extended family members who filed valid probate claims.
Among the dozens of wills that surfaced after his death was the handwritten “Mormon Will” with misspellings and mistakes that inspired extreme skepticism. The will, which named the church as a beneficiary, was produced by Melvin Dummar, a Utah service station owner who claimed to have rescued Howard Hughes out of the desert. Dummar’s claim was finally thrown out of appeal in 1998.
Nuts and Bolts of Arkansas Nursing Home Medicaid Eligibility
I am by no means an expert of Medicaid. My only hope is to provide a basic overview of the eligibility requirements for Arkansans who are entering skilled nursing care institutions or who have questions about how to pay for skilled nursing care institutions.
Most Arkansans pay out of pocket for nursing home care. Nursing home care is simply an area that the majority of people do not plan for. Contrary to popular belief, Medicaid pays for around 2% of nursing home care in the United States. Long term care insurance pays for even less than that. My advice to families who are legitimately concerned about skilled nursing care is to obtain several quotes for long term care insurance. That is a great starting point to be able to determine what is and what is not a sound financial plan for long term care.
Most Arkansans who are living in nursing homes or who are about to require skilled nursing home care are eligible for nursing home Medicaid. However, there are income and asset eligibility requirements. As of January 2011, a Supplemental Security Income recipient with a monthly income of up to $674 (or $1,011 for a married couple) may qualify for nursing home Medicaid, subject to additional qualifications. In certain circumstances, a non SSI married applicant may have up to $2,022.00 of monthly income. An applicant for nursing home Medicaid may have up to $2,000 of assets in his or her name ($3,000 for married couples). Certain assets are excluded from the calculation, including the applicant’s home, personal possessions and the value of a single car so long as the car’s value is below $4,500.
An applicant does not have to include their home in the the total assets equation if the spouse or another dependant relative remains in the house. Additionally, if the nursing home resident intends to return to the home then the house is not included as part of the total assets of the applicant. The applicant does not have to actually return to the home if the applicant’s health forbids it. It just has to be clear that it was the applicant’s full intent to return to the home.
There is also a transfer penalty which prolongs eligibility for nursing home Medicaid. An applicant may transfer assets to whomever he or she wishes, however, for each $4,215.00 transferred, nursing home Medicaid will be denied to that applicant for one month. Also, the Department of Human Services may “look back” for five years of an applicant’s transfers to ensure all transfers qualify under the Code.
I hope this helps answer questions and leads others to plan better for their futures. A little bit of time and expense spent planning today can save a lot of time and expense spent tomorrow. As always, this is not intended to be legal advice and be sure to always speak with a representative of the Arkansas Department of Human Services before any Medicaid decision is made.
This is the seventh entry in a series I will be featuring about celebrity estate planning mistakes and what they could have done to prevent the problems that arose.
Name: Warren E. Burger
Age: 87
Died: June 25, 1995, Washington, D.C.
Cause: Congestive heart failure
Estate Mistake: Even though Warren Burger was once the Chief Justice of the United States Supreme Court, the 176-word will he left his two children failed to empower his executors and did not plan for estate taxes.
His $1.8 million estate lost $450,000 in federal and state estate taxes. The estate was tied up in probate of which court costs and attorney’s fees took more out of the estate. Additionally, even more money was spent because of expenses in going to empower the executors in probate which could have been avoided if the will had granted those powers automatically.
I recently met with clients who brought their estate planning documents to me on their own to ensure they were “up to date” and “said what they wanted them to say”. These clients are by far in the minority. Their plans were from the early 90′s and did require updating. They had one “general power of attorney” that was not durable and gave no specific powers to their attorney-in-fact. We also updated the distribution portion of their will and trust as they had new grandchildren that were not specifically mentioned.
There is not a bright line rule for when one should review documents. It’s a good idea to give your documents a yearly review to ensure laws have not changed and to ensure everything and every person listed are still around. I, as well as most estate planning attorneys, do not charge to sit down with their existing clients on an annual basis to ensure everything is correct.
I also recommend to revisit your documents whenever a life change occurs-new job, retirement, a move, new children and grandchildren, marriage, divorce and death. Additionally, do not forget to review your beneficiaries with your life insurance agent and certified financial planner.
This is the sixth entry in a series I will be featuring about celebrity estate planning mistakes and what they could have done to prevent the problems that arose.
Name: Sammy Davis, Jr.
Age: 64
Died: May 16, 1990, Beverly Hills, CA
Cause: Throat cancer
Family: Daughter, two adopted sons, wife, two ex-wives
Estate mistake: Although he made more than $50 million in the his lifetime, Sammy left $5 million. The bigger problem was he owed $7 million in taxes and had no means such as life insurance to satisfy his the debt. His widow, Altovise Davis, sold many of his personal belingings at auction to help pay the debt, but reportedly only got about $500,000. In 2008, Altovise sued two former business partners she claimed tricked her into signing over rights to teh estate. She died on March 15, alomst 20 years to the exact day of her husband’s death
I receive lots of questions on a daily basis. I am the token family attorney so I get lots of questions covering broad areas of law. I don’t always know these answers, but I can answer most of the questions regarding estate planning. By and far the most the questions I receive about estate planning are about trusts. Revocable trusts are the most common and preferred trusts. I have taken my most frequently asked questions about revocable trusts and answered them here.
WHAT DOES A REVOCABLE TRUST DO?
A revocable trust, like any trust, holds an asset and determines to whom or where that asset goes, when it goes there and how it goes there.
ARE REVOCABLE TRUSTS NECESSARY IF I DO NOT HAVE AN ESTATE TAX PROBLEM?
Yes. Only irrevocable trusts can reduce estate taxes. Revocable trusts, however, still have the following very important purposes:
- all assets in the trust avoid probate
- trusts help avoid accidental disheritances with second marriages and blended families
- trusts hold and distribtue money for minor children and grandchildren
- the management of assets in the event of a disability
DO I LOSE CONTROL OF MY ASSETS?
No. You are still in control of your assets so long as you name yourself as trustee and are competent. You can also determine who the trustee will be in the event of incompetency or death.
ARE THERE ANNUAL COSTS OR CHARGES ASSOCIATED WITH A REVOCABLE TRUST?
Not usually. There are no fees if you are serving as your own trustee. A corporate trustee does charge a small fee. Trusts, like all estate planning documents, should be reevaluated every 5-10 years to determine whether or not they are still in accordance with local laws and statutes and to ensure they still do what you want them to. Additionally, you need to update your documents, including trusts, anytime there are changes in your family’s circumstances.
WHAT OTHER DOCUMENTS USUALLY ARE PREPARED WITH A REVOCABLE TRUST?
- documents transferring your property into your trust
- a pour-over will
- durable financial power of attorney
- durable medical power of attorney
- living will
IS A POUR-OVER WILL NECESSARY IF I HAVE A REVOCABLE TRUST?
Yes. A pour-over will directs that any assets not placed in your trust should be distributed into the trust upon your death. The pour-over will is a safety net. This safety net ensures that all assets get into trust. Sometimes assets are forgotten and not transferred into the trust or an asset in the trust (such as a home) is replaced and new asset does not get transferred.
This is the fifth entry in a series I will be featuring about celebrity estate planning mistakes and what they could have done to prevent the problems that arose.
Name: Heath Ledger
Age: 28
Died: January 22, 2008, New York City
Cause: Probable drug overdose
Family: Daughter
Estate Mistake: Ledger had a will when he died of an overdose in 2008, but it was drafted in Australia before he found huge success and fathered a child in the United States.
His will did not reflect any of this, so a reported $20 million went to his parents and siblings. His family said they would give the entire estate to Ledger’s former girlfriend, Michelle Williams, and their daughter.
