Posts By: Gene Osofsky

The federal estate tax is scheduled to disappear next year (in 2010); and although most people expect lawmakers to pass legislation keeping the estate tax alive, they also vaguely hope that the estate tax (also sometimes called the “death tax”) does disappear—at least for a little while. But this article in the Wall Street Journal asserts that for all the noise that is sometimes made about the estate tax, we may actually be better off with the estate tax than without it.

This assertion is not based on what is best for the government, but what is best for the tax-payer, and has to do with something called the “step-up in cost basis”:

“Step-up means that the property heirs receive is valued as of the date of death. So if Grandma leaves a grandchild stock selling for $75 a share that was bought in 1970 for $2 per share, the heir’s “cost basis” in the stock is $75. If the grandchild then sells the stock for $80, the taxable gain is $5 per share.”

If the estate tax disappears it is likely that the step-up in cost basis will as well. This means that the stock Grandma leaves you would be valued at the original $2 per share rather than the stepped up $75 per share, and when that same stock is sold for $80 per share the taxable gain would be $78 instead of $5!  This change will impact many more families than would be affected by the elimination of the estate tax.

The disappearance of the step-up in cost basis is just one of the concerns people have about the possible elimination of the estate tax and Congress’s failure to act. Other concerns mentioned in the Wall Street Journal article include:

  • A retroactive estate tax
  • A prohibition (or scaling back) of techniques used to trim estate taxes (such as family limited partnerships, grantor retained annuity trusts, and qualified personal residence trusts)

Watch for further developments, which we anticipate after Congress completes its wok on the Health Care Reform Bills, currently occupying its primary attention.

Posts By: Gene Osofsky

Jane Hodges of the Wall Street Journal recently jumped in where few would fear to tread—and lived to write about it. Where most people would prefer not to think about taxes and estate planning at all if they could help it, Hodges went through the process of creating an estate plan not only once, but with four different Do-It-Yourself Will or Trust kits, and shared her findings with her readers.

Although Hodges gives a decent description of her experience with the various kits, her final verdict is inconclusive. But what does come through loud and clear in the article is that a “Do-It-Yourself” (“DIY”) Trust or Will isn’t as easy as it seems, and that anyone with a significant amount of assets (and by significant we mean a house or life-insurance policies) should not be doing it themselves; “the program presented a pop-up note indicating that people with more than $1 million in assets might need an attorney…” One million may sound like a lot, but as mentioned above, just about anybody with a house or life insurance policy is going to fall into this category.

What Hodges and her husband discovered (and we think this would be the experience of most people looking for a DIY solution to estate planning) is that there is a lot more to creating a will or trust than a simple distribution of assets. Most people have specific wishes for leaving their home to their spouse; for ensuring that the surviving spouse has access to joint assets but does not have the ability to bypass your children and leave everything to a new husband or wife if they remarry; for earmarking a certain percentage of the estate for brothers or sisters, nieces or nephews; and so much more. Add to this the complicated and changing state and federal estate tax laws and DIY estate planning kits can be a frustrating recipe for disaster.

The goal of estate planning is not only to distribute your assets, but also to protect them—and to protect and provide for the family and loved ones who are left behind. Ultimately, no program can understand this and help you with it the way a living, feeling, and experienced estate planning attorney can.

Posts By: Gene Osofsky

Most people die in a hospital; sometimes after a long and slow decline, sometimes after a quick and unexpected tragedy. If you are an executor of the deceased’s estate this is significant because it means that there are usually final medical bills to be paid. What most executors do not know is that these final medical bills are not necessarily just like all the other final expenses, especially when it comes to filing a final tax return for the estate: they may either be taken as deductions on the decdent’s final Income Tax Return (From 1040) or , if the decedent’s estate is valued at more than $3.5 Million (2009 exclusion), on the Estate Tax Return (Form 706).   This article from The Wall Street Journal explains why.

“…When a person incurs medical expenses and dies before they are paid, the executor of the decedent’s estate can elect to treat those medical expenses as if they were paid when incurred – as long as the estate pays the expenses within one year after the date of death. In other words, this election allows those expenses to be deducted on the decedent’s final Form 1040, even though they were not paid by the date of death.”

Many executors may not think of this option because medical expenses can only be deducted if they exceed a certain percentage of the deceased’s adjusted gross income (7.5% to be exact); but health care being what it is, final medical expenses can quite often reach this point.  If so, they can be deducted on the Form 1040, even if not paid until after the decedent died.

This sounds easy, but be careful if the deceased’s estate exceeds the $3.5 million estate tax exemption—you may want to look into other options. The Wall Street Journal suggests that in this case it might be beneficial to “forgo the election and count the unpaid medical expenses as liabilities on the estate tax return.”

As the executor of an estate you may have more options than you are aware of when it comes to taxes, probate, and achieving the best results for the beneficiaries. If you are unsure, contact a professional who can help advise you on all angles of the trustee or probate process.

Posts By: Gene Osofsky

If you are a senior 70 ½ or older who owns an IRA we have good news for you. Last year Congress approved legislation that waives the minimum withdrawal requirement for seniors in 2009.

This leaves seniors with more options than usual regarding their IRAs. You can still choose to take the withdrawal, of course; but deferring the withdrawal has the double benefit of allowing your investment to continue to grow within your IRA and lowering your taxable income for 2009.

If you were unaware of this legislation and you’ve already taken your withdrawal for 2009 you’re still in luck—the IRS is allowing seniors who have already taken the withdrawal to change their minds and roll their money back into a retirement account.

Of course, all of this good news doesn’t come without restrictions and exceptions, the first of which is that the deadline for the rollover is November 30th, or 60 days after you receive your withdrawal, whichever is later. Sandra Block explains all of the rules and restrictions—and goes into further detail regarding the benefits to seniors—in her article in USA Today.

The bottom line is that seniors with IRAs have more options this year than usual. You’ll want to explore those options with a trusted advisor and take advantage in whatever way you can. Note:  If you are receiving Medi-Cal nursing home benefits, be sure to check with your Elder Law attorney before you opt for this deferral.

Posts By: Gene Osofsky

The “first victim” is the person who is actually diagnosed with Alzheimer’s disease; the person who finds their memory failing, their personality changing, their past and present fading into a sea of frightening and confusing fragments of recognition. But Alzheimer’s disease affects more than just its victims, it touches the lives of their families and friends as well… especially their spouses.

These are the “second victims”; the spouses and caregivers who find their own lives fading away as they sacrifice and struggle to do right by a person with whom they have spent many loving years, who recognizes them—and whom they recognize—with less and less frequency. These “second victims” can suffer from depression and health problems as well, often with tragic results. This article in the Wall Street Journal states that, “A 2006 study published in the New England Journal of Medicine found that spouses of people with dementia and psychiatric diseases were more likely to die themselves within a year of the afflicted spouse’s death, compared with similar cases involving colon cancer, fractures or heart problems.”

The WSJ article details the diminished existence of “second victims”, and exposes the controversy around how some of them are choosing to protect their mental health and find companionship again. Although this is at heart a very personal issue, it touches on some legal issues as well:

  • How can you prepare financially for the full-time nursing care a late stage Alzheimer’s victim often needs? How does government assistance fit into the equation?
  • How can you ensure that you or your spouse have a loving and trustworthy conservator caring for you when you are unable to understand and make your own medical and financial decisions?
  • Is there a way to ensure that the wealth and assets you accumulated during your life together will pass to your children and grandchildren if your spouse chooses to one day remarry?

If someone you love is dealing with Alzheimer’s disease please don’t hesitate to let us help by taking the legal questions off your plate. Alzheimer’s disease creates enough loss and confusion without the added uncertainty that comes with these legal issues; and when you’re living day by day, every little bit helps.

Posts By: Gene Osofsky

Forget silver, china, or linens; the best gift you can give a newly married couple is an estate plan! This is especially true if the marriage is a second marriage for either of them. Marrying a person means marrying their financial issues as well; this may include children or responsibilities from a previous marriage, a family business, or wealthy and suspicious parents who still control the purse strings. As this article in CNN Money illustrates, the best way to deal with financial issues is to meet the challenge head on, and to do it as soon as possible—preferably before you walk down the aisle.

There will always be challenges when two people merge their finances, but in the case of a second (or third, or fourth) marriage the issues can be particularly delicate. Will it cause hard feelings if part of one spouse’s income goes to pay child or spousal support? Are college savings for step-children the responsibility of both partners, or only the biological parent? And what happens to joint property if one of you passes away—does it belong to the surviving spouse or to the children of the previous marriage?

One of the biggest steps along the path to financial marital bliss is the creation of a clear plan to ensure that the needs of both the new spouse and the children or obligations from a previous marriage are met. This includes an estate plan to provide for their needs if the unthinkable should happen. If you are coming into a relationship with assets and children from a previous marriage, a trust can be written to ensure that your spouse will be cared for financially but that your children remain the ultimate beneficiaries of your estate.

Discussion and planning early on will set clear boundaries and priorities for everybody, and can go a long way toward easing tensions between two merging families.

Posts By: Gene Osofsky

The movies have given people certain expectations when it comes to a death in the family and probating a will; this Hollywood portrayal includes an attorney, a book-lined office, and the entire family assembled for a formal reading of the will which ends in shocked gasps as the entire fortune goes to an unknown and unlikely character. Inevitably, there is some intrigue surrounding a possible forgery of the will.

This Hollywood portrayal may be completely off base, but the basic premise is based on the very real feelings that come with the death of a loved one: helplessness, confusion, familial bonds, and sometimes even betrayal. Forged or secret wills may not be as common as the movies may have us believe, but as recent events and this article in the Wall Street Journal reveal, they aren’t completely unheard of either.

So what should you do if you suspect that the will of a loved one has been forged or tampered with? First of all, don’t try to deal with the situation alone. Dealing with the death of a loved one is stressful and emotional, and everyone—including you—is likely to be quicker than usual to react without thinking. Instead, seek the advice of a trusted third party, someone who can help you distance yourself and look at the situation objectively.

As mentioned in the article above, will forgeries are very rare, but incidents of testators (especially elderly testators) being unduly influenced are sadly not rare enough. If you suspect foul play was involved in the creation of a loved one’s will, make an appointment with an estate or probate specialist.  With professional guidance, you can better work through your suspicions in a safe environment and explore your options should you feel the need to take action.

Posts By: Gene Osofsky

Many people think that there’s no need to update your estate plan documents if none of your beneficiaries or fiduciaries have changed, but that’s exactly the kind of thinking that can lead to disaster. Estate planning documents are based not only on your own wishes, but also on federal and state tax laws. When we draft your documents we take into account a number of different factors, with the goal of providing you the best possible result and an estate plan that we expect will work like a well-oiled machine when the time comes; but it also means that your estate plan needs periodic review, just as your car needs an occasional tune-up.

Our point is perfectly illustrated by an article in the Wall Street Journal entitled Is There A Trap Lurking In The Language of Your Will? As this article points out, new tax laws—and your own changing financial situation—could mean that language originally meant to apportion assets in the most efficient manner could now result in leaving your surviving spouse without full control of any assets at all.

The only way to ensure that this does not happen is to have your estate plan documents reviewed every few years. Luckily, depending on the extent of the update, the cost of a simple review and update is much less than the initial cost of creation. But the longer you wait between reviews,  the more likely it is that the changes needed to bring your plan up to date will be extensive—and thus more expensive.

Don’t let too much time pass between reviews of your plan.  For more on this subject, see “Review Your Living Trust–Older Ones May Need Revision”.

Posts By: Gene Osofsky

In the estate planning business we help people plan for the future, not only for their children and heirs but for themselves as well; which is why we are pleased to share the news that it just got a little bit easier to plan for your own financial future, because according to this article on Emax Health the IRS has just approved higher tax deductions for long-term care insurance.

Advancements in health care and our standard of living mean that Americans are living longer than ever before, but that doesn’t mean they’re living better in their old age. Very few of us are able to remain healthy and hearty until our dying days; rather, most aging Americans will experience a slow decline in their mental and physical health, and require some kind of nursing care, either at home or in a nursing facility. Unfortunately, the cost of that care is prohibitively expensive, and once a patient’s own financial resources have been exhausted the burden then falls on their family, or they end up relying on government benefits.

Long-term care insurance is one way of planning ahead to pay for the nursing care that most of us will almost assuredly need. The higher tax deductions approved by the IRS offer one more reason to consider long-term care insurance: by planning for your future you can save on your taxes right now. But do your research and consult with a professional before you jump in, because the deductions are available only on “qualified” policies, and there are limits on the amount of the premium deduction, depending on the age of the taxpayer at the end of the year.

Posts By: Gene Osofsky

The Ohio Supreme Court has recently taken strong action against two co-owners in a company participating in an illegal “trust mill” operation. According to this article from the Associated Press, the two owners, Jeffrey and Stanley Norman, have been permanently barred from marketing or selling their trust products in Ohio after they were found to have committed “more than 3,800 acts of unauthorized law practice.”

Unfortunately, Jeffrey and Stanley Norman are not the first unscrupulous characters to try to pull one over on the general public. Trust mills exist in every state, and although seniors are often the main targets, anyone can fall victim if they aren’t careful. These trust mills may offer inexpensive documents, but the cheap product is exactly that—cheap. At best these cheap documents are nothing but generic forms with your name slipped in; they often do nothing to reflect your family’s special needs or desires. At worst the documents delivered by Trust Mills won’t even adhere to the laws of your state.

So be wary of any will or trust that is offered at a price too good to be true. Be wary of anybody who tries to sell you a trust or estate plan at a “great price” and at the same time tries to sell you other “related” products such as life insurance or annuities. Be wary of anybody who will come to your home or meet you at a restaurant, but has no local office or local phone number. And be wary of anybody who will have you fill out a form and sell you a trust online. And, be wary of a Non-Attorneys who offer such products. Only an attorney is authorized and licensed to create trusts,

A good trust should be drafted by an experienced attorney who specializes in estate planning and who practices (and usually lives) in your state of residence, and preferably in your geographic area. A good trust is drafted after that attorney has personally met with you, interviewed you, and given you a chance to ask questions as well.

Don’t fall victim to con artists like Jeffrey and Stanley Norman. Be wary, be aware, and be willing to pay for an estate plan that will legally protect your assets and your family.