When Is It Time to Service Your Estate Plan?

If you own a car, then you know it requires regular servicing in order to perform well and be reliable. More than likely, your car came with a recommended schedule for service, based on how many miles it has been driven. After a certain number of miles, you need to change the oil, replace the brake pads, rotate the tires, and so on.
If you have a newer car, you probably have an irritating dash light that comes on when it's time for service and stays on until the mechanic resets it. Either way, whether you pay attention to the odometer or rely on that dash light, it's pretty easy to know when it's time to service your car. And if you keep driving it without servicing it, it's a sure bet your car will let you down.
Like your car, your estate plan needs "servicing" if it is going to perform the way you want when you need it. Your estate plan is a snapshot of you, your family, your assets and the tax laws in effect at the time it was created. All of these change over time, and so should your plan. It is unreasonable to expect the simple will written when you were a newlywed to be effective now that you have a growing family, or now that you are divorced from your spouse, or now that you are retired and have an ever-increasing swarm of grandchildren! Over the course of your lifetime, your estate plan will need check-ups, maintenance, tweaking, maybe even replacing.
So, how do you know when it's time to give your estate plan a check-up? Well, instead of having mileage checkpoints, your estate plan has event checkpoints. Generally, any change in your personal, family, financial or health situation, or a change in the tax laws, could prompt a change in your estate plan. Use the list at the end of this newsletter to guide you.
It's a good idea to review your estate plan every year. Set aside a specific time every year (your birthday, anniversary, family gathering) to review it. Keep these events in mind each time you read through your documents. If you think a change may be in order, don't write on your actual document; contact your attorney. Most changes can be handled by a simple amendment that is attached to your current will or trust.
Planning Tip: Like your car, your estate plan needs regular "servicing." Set aside a specific time every year (your birthday, anniversary, family gathering) to review it. Become familiar with it. Keep it current so it will perform the way you want when you need it.
What Do You Do with Your Estate Plan?
Think for a few moments about what would happen if you became incapacitated or died today. Would your spouse, family and successor trustees know what to do?
Would they know where to find your estate planning and health care documents? Do they know whom should be notified? Do they know what insurance you have and the benefits they can apply for? Do they know what assets you own and where they are located? Do they know who your attorney and accountant are? If you own a business, do they know what to do to keep it operating? Do they know whom to call if they need help?
You don't have to tell your family everything about your assets right now. But it is very important that they know where to find this information when they need it. So, organize it and let someone know where to find it. The point is to try and make things as easy as you can for your loved ones.
Give copies of your signed health care documents to your physician and designated agent. Keep the originals (titles, estate plan, health care documents) in one safe place like a fireproof safe or safe deposit box. (Be sure to add your successor trustee to your safe deposit box so he or she will have easy access.) You may also want to give a copy to your successor trustee; at the least, go over the main provisions with him or her.
Gifting...An Easy and Satisfying Way to Reduce Estate Taxes
If you have a sizeable estate, you may want to consider giving some of your assets now to the people or organizations who will receive them after you die.
Why? First, it can be very satisfying to see the results of your gifts - something you can't do if you hold onto everything until you die. Second, gifting is an excellent way to reduce estate taxes because you are reducing the size of your taxable estate. (Just make sure you don't give away any assets you may need later.) And third, it costs you less in the long run.
One of the easiest ways to gift is through annual tax-free gifts. Each year, you can give up to $13,000 to as many people as you wish. If you are married, you and your spouse together can give $26,000 per recipient per year. (This amount is now tied to inflation and may increase every few years.)
So if, for example, you have two children and five grandchildren, you could give each of them $13,000 and reduce your estate by $91,000 each year - $182,000 if your spouse joins you.
You can also give an unlimited amount for tuition and medical expenses if you make the gifts directly to the educational organization or health care provider. Charitable gifts are also unlimited.
You do not have to give cash. In fact, appreciating assets are usually the best to give, because any future appreciation will also then be out of your estate. For example, if you want to give your son some land worth $52,000, you can give him a $13,000 "interest" in the property each year for four years.
As long as the gift is within these limits, you don't have to report it to Uncle Sam. Just the same, it's a good idea to get appraisals (especially for real estate) and document these gifts in case the IRS later tries to challenge the values. You should do this under the watchful eye of your attorney or tax advisor.
What if you want to give someone more than $13,000? You can, it just starts using up your $1 million federal gift tax exemption. If your gift exceeds the annual tax-free limit, you'll need to let Uncle Sam know by filing an informational gift tax return (Form 709) for the year in which the gift is made. After you have used up your exemption, you'll have to pay a gift tax on any gifts over $13,000 (or whatever the annual tax-free amount is at that time). The gift tax rate is equal to the highest estate tax rate in effect at the time the gift is made. In 2009, it is 45%.
Even though the gift and estate tax rates are the same, it costs you less to make the gift and pay the tax while you are living than it does to wait until after you die and have your estate pay the estate tax. That's because the amount you pay in gift tax is no longer in your taxable estate.
Event Checkpoints for Your Estate Plan
You and Your Spouse

• You marry, divorce or separate
• Your or your spouse's health declines
• Your spouse dies
• Value of assets changes dramatically
• Change in business interests
• You buy real estate in another state

Your Family

• Birth or adoption
• Marriage or divorce
• Finances change
• Parent/relative becomes dependent on you
• Minor becomes adult
• Attitude toward you changes
• Health declines
• Family member dies

Other

• Federal or state tax laws change
• You plan to move to a different state
• Your successor trustee, guardian or administrator moves, becomes ill or changes mind
• You change your mind

Planning Tip: Many people have set up revocable living trusts to avoid the costs, delays and publicity of probate after they die. But all too often they do not change titles of their assets to the name of their trusts. This process is called "funding" the trust. If you have not funded your living trust, you have simply wasted your money. Any assets still titled in your name will have to go through probate - just what you were trying to avoid. Talk to your financial advisor team about funding your living trust right away. And be sure to title new assets in the name of your trust as you acquire them.

VA Benefits For Long-Term Care of Veterans and Their Surviving Spouses

By Valerie L. Peterson, Executive Director, ElderCounsel, LLC

Many wartime veterans and their surviving spouses are currently receiving long-term care or will need some type of long-term care in the near future. The Veterans Administration has funds that are available to help pay for this care. Unfortunately, many are not aware that these benefits even exist, and they are often overlooked by families with veterans or surviving spouses who need additional funds to help care for them.

These following three types of benefits are “pension benefits.” The veteran (or surviving spouse) does not need to have service-related injuries, but must meet certain eligibility requirements for wartime service, age and/or disability, and income/assets.

Pension with Aid and Attendance. This is the most widely known benefit and offers the highest possible monthly payment. It provides benefits for a veteran or surviving spouse who requires the attendance of another person to assist in activities of daily living (eating, bathing, dressing and undressing, cooking, etc.), is blind, or is a patient in a nursing home. Assisted care in an assisted living facility also qualifies. Currently, this benefit can provide up to $1,704 per month to a veteran, $1,094 to a surviving spouse, or $2,020 to a couple. An independent and well veteran who has an ill spouse with medical expenses that deplete their combined monthly income can receive up to $1,338 per month. A physician’s statement that verifies the claimant’s condition and need for assistance is required.

Pension with Housebound Allowance, which has a slightly lower benefit, will help those who do not qualify for Aid and Attendance, and who wish to remain in either their own home or the home of a family member. This pension requires that the individual needs regular assistance, but the criteria is not as limited as for those who would qualify for Aid and Attendance. Care can be provided by family members or outside caregiver agencies. A physician’s statement documenting the claimant’s medical needs is required.

Basic Pension is for veterans and surviving spouses who are age 65 or older or are disabled, and who have limited income and assets. No physician’s statement documenting a medical need is required.

Qualifying for Benefits
A veteran must first meet certain wartime service and discharge requirements before being considered for any type of pension benefit. Additionally, a surviving spouse must meet certain marriage requirements to the qualified veteran.

A claimant (the veteran or surviving spouse filing for benefits) must be 65 or older, or be permanently and totally disabled, which is defined as a) being in a nursing home; b) determined disabled by the Social Security Administration; c) unemployable and reasonably certain to continue so throughout life; or d) suffering from a disability that makes it impossible for the average person to stay gainfully employed.

Income and asset requirements must also be met. When determining eligibility, the VA looks at a claimant’s total net worth, life expectancy, income and medical expenses. A married veteran and spouse should have no more than $80,000 in “countable assets,” which includes retirement assets but does not include a home and vehicle. This amount is a guideline and not a rule.

Income for VA Purposes (called IVAP) must be less than the benefit for which the claimant is applying. IVAP is calculated by subtracting countable medical expenses from the claimant’s gross income from all sources. Countable medical expenses are recurring out-of-pocket medical expenses that can be expected to continue through the claimant’s lifetime.

Note: It is possible to reduce a claimant’s assets and income to a level that will be acceptable to the VA. For example, excess liquid assets (for example, cash or stocks) could be converted to an income stream through the use of an annuity or promissory note. However, because the claimant may need to qualify for Medicaid in the future, it is critical that any restructuring or gifting of assets be done in a way that will not jeopardize or delay Medicaid benefits. An attorney who has experience with Elder Law will be able to provide valuable assistance with this.

Applying for Benefits
It often takes the VA more than a year to make a decision, but once approved, benefits are paid retroactively to the month after the application is submitted. Processing time can be greatly reduced by having the proper documentation (discharge papers, medical evidence, proof of medical expenses, death certificate, marriage certificate and a properly completed application) at the time of application.

Because time is critical for these aging veterans and their surviving spouses, application should be made as soon as possible. And while it is possible to do this without legal assistance, an Elder Law attorney who has experience with securing VA benefits will undoubtedly be able to help the process go as smoothly and quickly as possible.

For more information, visit http://www.va.gov.

National Estate Planning Awareness Week

Congress has designated the third week in October as National Estate Planning Awareness Week (October 15-21, 2012).

Estate planning is one of the most overlooked areas of personal financial management. It is estimated that 70% of American’s do not have an estate plan, many mistakenly believe that this process is for the wealthy or the retired. Estate Planning is for everyone!

Estate planning is an important process that can help protect you, your family, and your assets. Proper estate planning saves you and your loved ones money, passes your assets in the way you desire, provides direction during incapacitation, determines care for your children, and bestows peace of mind.

National Estate Planning Awareness Week is the perfect time to make sure your affairs are in order in the event of sickness, an accident, or untimely death. Contact your estate planning professional to begin your estate plan today. If you already have a plan, it’s a good time to review your plan to make needed adjustments to beneficiary designations or modify retirement accounts and insurance policies.

Can You Trust Your Trust? Why an Online Will or Trust Could Be the Dumbest Mistake You Ever Make

This article was posted on Estateplanning.com.

In this article, WealthCounsel member David Hiersekorn discusses the hidden dangers of consumers using online legal forms, often referred to as “do it yourself (DIY) wills and trusts.” Hiersekorn notes at the end of his article that “You only get to use an estate plan once. If you screw it up, you’ll never know, but your family will.”

Online legal document services offer an enticing bargain. Most people realize that they need an estate plan to manage their affairs if something happens to them. And, let’s face it, estate planning attorneys are expensive.

That’s why many consumers are now questioning whether it’s possible to skip the attorney fees and use a low-cost website to prepare estate planning documents. The short answer is that, yes, it is possible. But, it’s not recommended. You could save a few bucks now, but end up creating an expensive and frustrating mess for your family.

Unfortunately, most people don’t realize what they are getting themselves into with an online document service. That’s because the online services have spent millions trying to create the impression that their services are similar to those of an attorney. They put lawyers in their commercials, hire celebrities to promote them, and even tout stories of people who have successfully used their documents.

But, all the marketing in the world can’t erase the simple truth. The online services aren’t law firms. They aren’t lawyers. They can’t give legal advice. Instead, they are “document assistants” – a term that states use to define service providers who type your information into generic form documents.

In other words, a document assistant is like a mindless typing zombie who enters your information into a form, whether or not it makes sense and whether or not it is a good idea. If you are stuck, they can’t help you. If you make a huge mistake, they can’t warn you.

It would be a crime for them to warn you. It doesn’t matter if the guy working on your documents is an estate planning genius. He’s simply not allowed to give legal advice. Think of it this way. A person needs a law license in order to give legal advice, just the same way that a doctor needs a license to write a prescription. Giving legal advice without a license is very much like selling drugs without a prescription. It’s a crime.

So, these companies design their generic forms so that, even without legal advice, it’s hard to make mistakes. That may seem like a good thing. But, it turns out that the best way to make sure that your documents don’t do anything wrong is to make sure they don’t do anything at all. They’re just do-nothing, one-size-fits-all generic documents.

That leads to the next problem with the online services. They can’t even promise you that the documents will work. Again, they can’t. They aren’t attorneys, which means they can’t promise a particular legal result.

Many clients are excited to learn that they can leave assets to a special needs child without jeopardizing government benefits; or, that they can protect a child’s inheritance from frivolous lawsuits, divorce or bankruptcy. A well-designed estate plan makes sure that your resources get where you want them and that they are used in the way you instruct. It’s about creating legally-enforceable provisions that do what you want done.

And, the online document services can’t promise any of that. They can’t promise you’ll achieve your goals. They can’t point out opportunities, and they can’t warn you about hidden hazards. Really, all they can do is save you a few bucks.

Justin Peltier is a  Massachusetts estate planning attorney with offices located in Merrimac, MA with the sole focus of estate planning, elder law, probate and trust administration, and business planning. Please view our website for more information at www.jpestateplanning.com or join our social media community below. You can also reach me directly at justin@jpestateplanning.com or (978)319-6006.

Take Advantage of the $5.12 Million Dollar Gift Tax Exemption in 2012

Take Advantage of the $5.12 Million Dollar Gift Tax Exemption in 2012

There has been a lot of media coverage about the Bush tax cuts that are set to expire on December 31, 2012 and whether they will be extended for all taxpayers or if they will be discontinued for top earners. But not nearly as much has been said about the current estate and gift tax rates that are also due to expire on December 31.

What we have for the next few months is an historic opportunity in estate planning. At the end of 2010, Congress put in place a two-year estate tax provision that included a huge gift no one had been expecting: a $5 million gift and estate tax exemption, the highest it has ever been. It was indexed for inflation for 2012, making it even higher—$5.12 million—but for this year only.

Not nearly enough people have taken advantage of this. Some think it doesn’t apply to them because their net estate is less than $5.12 million, and others think they can’t use it because they don’t plan to die in 2012. But they are mistaken, and are likely missing the chance of a lifetime when it comes to estate planning. Here’s why 2012 is such an incredible year for estate planning.

* This is a combined gift and estate tax exemption, so you don’t have to die in 2012 to use it. It can be used to make gifts in 2012 and still exclude up to $5.12 million from estate taxes when you die, regardless of the amount of the estate tax exemption at that time. The exemption is per person, so a married couple can give twice this amount, or up to $10.24 million.

* Under current law, this $5.12 million exemption will decrease to just $1 million on January 1, 2013 and the top tax rate will increase from 35% in 2012 to 55% in 2013. Those with estates over $1 million who do not plan now and who die in 2013 (and quite possibly in later years) will pay considerably more in estate taxes—and leave that much less to loved ones.

* The generation skipping transfer (GST) tax exemption is another reason to plan this year. This tax applies when assets are transferred (by gift or inheritance) to a grandchild, great-grandchild or other person more than 37.5 years younger than the person making the transfer. The GST tax is equal to the highest federal estate tax rate in effect at the time and is in addition to the federal estate tax. In 2012 the exemption for the GST tax is also $5.12 million ($10.24 million for married couples) and the tax rate is 35%. Next year, the exemption will be about $1.4 million and the top tax rate will be 55%. Planning now allows considerably more to be given to grandchildren and future generations without incurring this onerous tax.

* In 2012, estate planners have options that are considered “standards.” For example, gifts can be made using life insurance, various trusts, family limited partnerships and others, often using discounted values that leverage exemptions, without losing control. But these may soon be history as lawmakers search for more ways to generate revenue and close perceived loopholes.

* Lastly, interest rates (bound to increase in 2013) are at historic lows and thus there has never been a better time to do intra-family loans and other interest-rate-sensitive planning.

Of course, Congress could change the laws before January 1 but, based on recent history, that seem unlikely. Even if Congress does change the laws, we have no idea what the new ones will be. It’s best to plan based on what we know—not on what we think might happen. This once in a lifetime opportunity is about to expire. You don’t want to miss it.

Justin Peltier is an estate planning attorney with offices located in Merrimac, MA with the sole focus of estate planning, elder law, probate and trust administration, and business planning. Please view our website for more information at www.jpestateplanning.com or join our social media community below. You can also reach me directly at justin@jpestateplanning.com or (978)319-6006.

Blended Families Underscore the Need for Estate Planning

Blended Families Underscore the Need for Estate Planning

Posted on: June 27th, 2012

Anyone with children or modest assets should seriously consider some minimal estate planning, but the increasing number of blended families underscores the need for proper estate planning.
Blended families can involve children from a prior marriage as well as joint children, sometimes joking referred to as “his, hers and theirs.”  And blended families involve both younger and older couples, and nearly everyone in between.
When the new spouse is significantly younger, this sometimes means that the older spouse’s children are close in age to the younger.  These relationships can cause more than friction between the step-parent and step-children.
Most parents want to ensure that their assets will pass to their children, not their stepchildren.  However, absent good estate planning, there is no guarantee that their children will inherit their assets.  In fact, if the couple creates common “I love you” wills such that their assets pass to the survivor of them, there is a significant likelihood their children will be totally disinherited.
This is because all of their assets will pass to the surviving spouse to do with as he or she pleases. More often than not this means excluding the stepchildren, who then receive nothing.
The fact that Americans are living longer, and sometimes remarrying much later in life, means that blended family issues come into play there too. A recent USA Today article, titled With more blended families, estate planning gets ugly, highlights some of these issues. (The full article is available online at http://www.usatoday.com/news/parenting-family/story/2012-03-13/With-more-blended-families-estate-planning-gets-ugly/53516094/1?csp=34news.)
As this article states, “[a]dd the gaping generational divide between Depression-era parents, who valued frugality above all else, and their Baby Boomer children, who relish self-reward, and the dynamics can be explosive.”
Thus, baby boomer children expecting an inheritance may have to wait much longer than expected. But perhaps more difficult, who should pay for the cost of the surviving spouse’s care? Should the stepchildren be forced to use their inheritance to pay for an aging step-parent’s care, particularly after only a short-term marriage?  Or should this burden fall on the children?
There is no one right answer here, but these questions epitomize the many questions that arise with blended families. These questions should be answered with the help of counsel and proper planning.

If estate planning for a blended family is a concern for you, please contact Justin Peltier, a Massachusetts Estate Planning Attorney.

Beneficiary Designation Mistakes

Potential Problems with Beneficiary Designations

Many clients use beneficiary designations, and for good reason. Some significant assets, including life insurance policies, IRAs, retirement plans and even bank accounts, allow a beneficiary to be named. It’s free, it’s easy, and, when the owner dies, these assets are designed to be paid directly to the individual(s) named as beneficiary, outside of probate.

But that is not always what happens. For example:

*    If your beneficiary is incapacitated when you die, the court will probably have to take control of the funds. That’s because most life insurance companies and other financial institutions will not knowingly pay to an incompetent person; they may insist on court supervision.

*    If you name a minor as a beneficiary, you are probably setting up a court guardianship for the child. Life insurance companies and other financial institutions will not knowingly pay these funds directly to a minor, nor will they pay to another person for the child, not even to a parent. They do not want the potential liability and will usually require proof of a court-supervised guardianship.

*    If you name “my estate” as beneficiary, the court will have to determine who that is. The funds will have to go through probate so they can be distributed along with your other assets.

*    If your beneficiary dies before you (or you both die at the same time) and you have not named a secondary beneficiary, the proceeds will have to go through probate so they can be distributed with the rest of your assets.

Even if the funds are paid to the named beneficiary, things may not work out as the owner intended. For example:

*    Some people just cannot handle large sums of money. They may spend irresponsibly, be influenced by a spouse or friend, make bad investment choices, or lose the money to an ex-spouse or creditor. If the beneficiary receives a tax-deferred account, he/she may decide to “cash out” and negate your careful planning for continued long-term tax-deferred growth.

*    If you name someone as a beneficiary with the “understanding” that the funds will be used to care for another or will be “held” until a later time, you have no guarantee that will happen. The money may just be too tempting.

*    If the person you name as beneficiary is receiving government benefits (for example, a child or parent who requires special care), you could be jeopardizing their ability to continue to receive these benefits.

*    If your estate is larger, your choice of beneficiary could limit your tax planning options, causing serious tax consequences for your family.

Beneficiary designations can be quite useful, but they need to be considered as part of an overall estate plan. Naming a trust as beneficiary will generally prevent the problems described above, and by bringing all of the client’s assets together under one plan, you can be sure that each beneficiary will receive the amount the client wants them to have—something that can be difficult to accomplish with multiple designations.

When meeting with a potential client, or reviewing a client’s existing plan, it is important for the estate planning professional to see all beneficiary designations. Correcting any designations now, and making sure the client understands them, will help to prevent significant future problems.

These are very important financial and legal decisions.  Be sure to consult with an Massachusetts Estate Planning Attorney knowledgeable in this area.