Massachusetts Estate Planning & Asset Protection Blog

Step Up Basis Part 2

Posted by Dennis Sullivan & Associates on Tue, Mar 10, 2015

Losing the Step Up Basis Could be a Step Back On Your Estate Planning | Massachusetts Estate Planning Attorney
piggy_bank_Small

Last week we were discussing potential changes to the tax laws proposed by President Obama that would eliminate the step up in basis.  Obama claims the target is wealthy Americans but the change could have a much bigger impact on average middle class citizens.

     That’s because with the federal estate tax exemption currently at $5.43 million, only estates larger than that number must pay federal estate tax.  While Massachusetts estate taxes kick in on estates greater than $1,000,000, removing the step up in basis still means that many heirs would have to pay additional taxes on the assets they will inherit.

     Here is a common scenario:  Mary passes away and leaves her assets to her children.  Those assets include Exxon stock she and Frank bought many years ago and it is now worth $500,000.  The total estate is worth $1,000,000, including her home which Mary and her husband Frank purchased for $30,000, which is now worth $500,000.

     Under current tax laws, the children get a step up in basis on both the inherited stock and home.  Presuming they sell the home immediately after Mary’s passing, there would be no capital gains tax owed on the home.  The new basis would be the sale price.  The stock would also get a step up in basis.  The estate would owe approximately $25,000 in Massachusetts estate tax but no federal estate tax.

     If the step up is eliminated, the estate would still owe the same Massachusetts estate tax but now there would be an additional capital gains tax.  Obama’s proposal does suggest that some amount of capital gain be excluded from tax but let’s assume in my example there is no exemption.  Let’s also assume that the capital gains tax rate is 25%.  In that case, the tax on the home gain would increase to $95,000, almost four times what it is now.

     The tax on the stock would be more complicated to calculate.  We would need to figure out what Mary and Frank bought the stock for in order to determine the original basis. If Mary and Frank didn’t keep good records of their, it may be very difficult for their children to get them since they didn’t buy the stock themselves. The problems will only increase as well if there were stock splits or if the stock was bought in increments over time and different portions have a different basis.

     In any case, if the stock was held for many years then, it is safe to assume there would be substantial capital gains and the tax could easily exceed $100,000.  Add that to the tax on the sale of the home and you can see that a small estate of $1,000,000 could have additional tax of $200,000 or more, on top of the estate tax.

President Obama claims that he wants “wealthy Americans to pay their fair share”, but he doesn’t tell us that in the process everyone else will be paying more than their own fair share. Sure, the wealthy would be subject to this additional tax as well, but Obama’s plan clearly misses the mark.

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At the Estate Planning & Asset Protection Law Center, we provide a unique education and counseling process which includes our unique 19 Point Trust, Estate and Asset Protection Review to help people and their families learn how to protect their home, spouse, life-savings, and legacy for their loved ones, click here for more information. We provide clients with a unique approach so they understand where opportunities exist to eliminate problems now as they implement plans for a protected future.

We encourage you to attend one of our free educational workshops, call 800-964-4295 and register to learn more about what you can do to enhance the security of your spouse, home, life savings and legacy.

 

Click Here to Register For Our Trust, Estate & Asset  Protection Workshop

Tags: estate tax, estate tax savings, taxes, Tax Savings, Inheritance, 2015, heir, stock, step up basis

For Those Left Behind

Posted by Dennis Sullivan & Associates on Fri, Oct 24, 2014

Estate Planning Is for Those Left Behind | Massachusetts Estate Planning Attorney

 
 Older_Couple
 
 

One of Life’s Two Certainties

Many people put off creating their estate plans because of the discomfort they feel when thinking about death. This is a basic trait most people have across almost every culture, and it’s true that preparing a Will or buying life insurance forces us to contemplate our own mortality. Not thinking about it won’t make it go away, and one way or another, the things that we own must pass on to others after our deaths.

 

So What Can You Do About It?

We can plan for that transition, and try to see that it happens in as much of a positive and beneficial manner for those left behind as we can. Or you can ignore planning ahead, live self-indulgently now and let chaos take its toll when you pass. You’ll be gone so really, what does it matter?

Well, that depends on how much you care. If there is no one and nothing that you care about that will still be here after you’re gone, then it doesn’t really matter. However, if you do care (and if you’re reading this I can guess that you do), then you’ve got some planning to do. The problem is that if we do care, then you need to recognize that your death has the potential to do serious harm to the people you who survive you.

 

The First Step In Estate Planning

Our Wills are documents we prepare for our surviving loved ones, not for ourselves. But having an up-to-date Will is just one of the critically important things we can do to protect, care for, and provide for the people we care about the most. A Will is an important document, but by itself it is vulnerable to lawsuits and disputes. That is why we always recommend establishing trusts to safeguard your assets and make sure the right people get what you meant them too.

If you have children, your Will provides you with an opportunity to name a guardian to care for them if they are still minors. You can also appoint a trustee to protect their inheritances, even if they are already adults. If you die without naming a guardian in your Will, the courts will appoint one without the benefit of your knowledge and judgment or approval. Without a trust, inheritances may soon be lost to our heirs' improvidence, divorce or even predatory lawsuits.  

You Must Choose Wisely

After deciding to make your Will, you must next select someone to be the executor. The executor is the person or institution who will be in charge of finalizing your affairs and distributing your estate per your wishes outlined in your Will. It can be a burdensome job since executors must collect your assets, arranges for payment of debts and taxes, and then distributes what is left to your designated beneficiaries. This will be a difficult task, so we recommend making sure that your executor is someone who can withstand the pressures of court, lawyers and grieving family members.

If you die without a Will, the courts will appoint someone to perform these functions, and they may be a total stranger with very little interest in fulfilling your wishes. Without a Will, the identity of our beneficiaries and the amounts they inherit will all be determined by state laws without any input from you. 

Using proper estate planning, including Wills and Trusts, we can take steps to limit (or even eliminate) the taxes that our heirs will have to pay on their inheritance. You can also leave instructions with your trusts to ensure that the right people, get the right inheritances, at the right times. By providing for distribution of our assets in a clear and thoughtful manner, we can avoid the potential for delays and family disputes that can be so hurtful to the people we care about. 

A Will Alone Isn’t Enough
A Will is the keystone of most estate plans, but it is not the only planning we need. You most likely own assets that will pass to others without regard to the provisions of your Will. Life insurance policies, IRAs and other retirement plan accounts, annuities, and the like, will be distributed based upon their beneficiary designations, not your Will. These designations may have been created decades ago, and need to reviewed and updated as appropriate. Assets that we own jointly with another may pass "by right of survivorship" to the joint owner. 

We need to consider the effects of all of these "non-probate" arrangements to make sure that our plan best meets our family’s unique circumstances. An estate planning and elder law lawyer can help make certain that we do not miss any important elements in preparing our estate plan. 

Even if we already have a Will, if our family situation has changed, or our planning has not been reviewed and updated in the last five years, we can do our loved ones a great kindness by taking care of this most important task.  

Although we don’t want to think about dying, Estate Planning is just too important to put off.  

I will now leave you with this quote:

“A man's dying is more the survivors' affair than his own.” ~Thomas Mann, The Magic Mountain.

 

Research shows that 86% of trust & estate plans fail! In Our Newest book we reveal what the ten biggest estate and asset protection mistakes are and how to avoid them. Learn where problems may exist in your current plan, and where there may be hidden opportunities in your plan to protect your home, spouse family and life savings. Click here for more information.

At the Estate Planning & Asset Protection Law Center, we provide a unique education and counseling process which includes our unique 19 Point Trust, Estate and Asset Protection Review to help people and their families learn how to protect their home, spouse, life-savings, and legacy for their loved ones, click here for more information. We provide clients with a unique approach so they understand where opportunities exist to eliminate problems now as they implement plans for a protected future.

We encourage you to attend one of our free educational workshops, call 800-964-4295 and register to learn more about what you can do to enhance the security of your spouse, home, life savings and legacy.

 

Click Here to Register For Our Trust, Estate & Asset  Protection Workshop

Tags: long term care, Estate Planning, estate tax, surviving spouse

Gift Tax Versus Estate Tax

Posted by Dennis Sullivan & Associates on Mon, Oct 20, 2014

Gift Tax Versus Estate Tax | Massachusetts Estate Attorney

 

 elderly-mother-and-daughter

 

 

What Do You Do?

You want to leave gifts for your heirs, but should you wait until you pass away? Or should you give some money to them now? 

Caution: There Is A Lot of Confusion About Gifting

While gifts may make sense for taxes, they can also create a significant penalty for nursing home purposes. With all plans, you need to consider whether it makes more sense to preserve your benefits for nursing home purposes or to obtain tax breaks. As the old saying goes, “Don’t let the tax tail wag the dog.” For those who would like to protect their home, family and life savings with a trust based plan, they will also be able to continue to give gifts without triggering a penalty, but only if as the gifts are made from a qualifying trust. For more information on protecting your home, family, and life savings while also retaining gift giving privilege, take a look at our free report The Ten Biggest Estate Planning and Asset Protection Mistakes People Make and How to Avoid Them

Gift Tax versus Estate Tax
Gift tax is the tax imposed by the federal government on any transfer of property to an individual without any compensation in return. "Property" in this sense includes both tangible property, like art or furniture, and intangible gifts like stocks and cash.

Currently (under 2014 law), you are exempt from gift tax on lifetime donations up to $5.34 million. Once your donations go over that lifetime amount, they can be subject to taxes up to 40%.

However, it's essential to note that this is a lifetime exemption – meaning, that's your cap over the span of your life. The $5.34 million lifetime exemption is a well-known figure in the world of estate planning that's based on what's called the unified gift and estate tax credit.

In any particular year, you can also give a tax-free gift of up to $14,000 per recipient without dipping into the basic exclusion. This is known as the "annual exclusion." However, here's where it gets tricky because of the unified credit. This refers to the federal gift tax and estate tax, combined into one tax system. If you give more than the annual exclusion amount to any one recipient in any particular year, most people are eligible to use the unified credit so that the gift counts against your estate. For example, if you give $15,000 in 2014, $14,000 is eligible for the annual exclusion, and the remaining $1,000 is applied against your lifetime exemption, which also reduces the exemption for your estate when you die by the same amount.

Estate tax is the tax imposed by the federal government on any transfer of property (tangible or intangible) by your estate after you have passed away. It is calculated by figuring out your "gross estate" (all assets including real estate, cash and securities, business interests, etc.) and subtracting any deductions you may qualify for (such as funeral expenses and some charitable contributions). The net amount after these calculations is then added to any taxable gifts you have given that have used up your unified credit to generate your taxable amount. 

There are definite pros and cons to either option; we’ll take a look at some below: 

Giving Heirs the Money Now 
Here are some advantages to giving your heirs money while you're still alive.

  • You get to see them enjoy it. If you'd prefer to see your gifts in action, giving your heirs the money now gives you a chance to see the difference it makes in their lives.
  • You can advise how they spend it. If you'd prefer to see your gifts in action in a specific way, giving the money while you're still alive gives you a chance to let your heirs know how you'd prefer they spend it.
  • You can give the gift in the form of paying for something. If you really want to ensure the money is spent on the thing you want it to be spent on, you can pay for something rather than giving your heirs the money for it. For example, you can pay for their wedding, make a down payment on their dream house, or pay for their tuition (which, incidentally, can qualify for the educational exclusion from gift tax).
  • You can stop giving them money if you see them falling off the rails. If you plan to give your heirs free reign with their money, giving it to them now allows you to put a stop to the cash flow if you see them spending it unwisely (like buying a flashy car instead of paying for tuition or paying down their mortgage).
  • You can avoid taxes up to a certain amount. For 2014, the IRS allows you to exclude up to $14,000 in gifts per heir (or $28,000 per heir if the gift is given by you and your spouse jointly). This means you will not have to pay gift tax on gifts up to that amount. If you choose to give a gift beyond that, you'll need to claim the "unified credit" (and have it count against your estate's lifetime exemption) in order to avoid paying taxes on the gift.

Waiting Until You Pass Away

Conversely, here are some advantages to waiting until you pass away before bequeathing gifts to your heirs.

  • You may need the money later. What if you find that you need the money to pay for your own expenses during your lifetime? You might need more than you think in order to enjoy your hard-earned retirement, pay for medical expenses not covered by insurance, or cover other long-term care costs such as home health aides and nursing home care.
  • Ability to change your mind. At the moment, you might want to split your money equally among your children; but what happens if one of your children later makes poor decisions that make you want to disinherit that person? Conversely, what happens if one of your children gets into a major accident and requires more medical care, and therefore more financial support? You can always adjust your will to change the amount you'll be leaving heirs after you pass away, but you can't take back money you've already gifted. Waiting until you pass away gives you the opportunity to change your mind during your lifetime.
  • Your heirs might appreciate it more and spend it more wisely. By waiting until you've passed away, you give your heirs a chance to "make their own way in the world" at a younger age. Rather than relying on an annual cash infusion from you, your heirs will be older and more responsible when they receive the inheritance. This might cause them to appreciate the gift more, as they will have experienced the task of earning money.

 

At the Estate Planning & Asset Protection Law Center, we provide a unique education and counseling process which includes our unique 19 Point Trust, Estate and Asset Protection Review to help people and their families learn how to protect their home, spouse, life-savings, and legacy for their loved ones, click here for more information. We provide clients with a unique approach so they understand where opportunities exist to eliminate problems now as they implement plans for a protected future.

We encourage you to attend one of our free educational workshops, call 800-964-4295 and register to learn more about what you can do to enhance the security of your spouse, home, life savings and legacy.

 

Click Here to Register For Our Trust, Estate & Asset  Protection Workshop

Tags: Estate Planning, gift tax, estate tax, children

To Give Or Not To Give? A Question of Taxes

Posted by Dennis Sullivan & Associates on Fri, Sep 26, 2014

To Give Or Not To Give? A Question of Taxes
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What Do You Do?

You want to leave gifts for your heirs, but should you wait until you pass away? Or should you give some money to them now?

 

Caution: There Is A Lot of Confusion About Gifting

While gifts may make sense for taxes, they can also create a significant penalty for nursing home purposes. With all plans, you need to consider whether it makes more sense to preserve your benefits for nursing home purposes or to obtain tax breaks. As the old saying goes, “Don’t let the tax tail wag the dog.” For those who would like to protect their home, family and life savings with a trust based plan, they will also be able to continue to give gifts without triggering a penalty, but only if as the gifts are made from a qualifying trust. For more information on protecting your home, family, and life savings while also retaining gift giving privilege, take a look at our free report The Ten Biggest Estate Planning and Asset Protection Mistakes People Make and How to Avoid Them.

 

Gift Tax versus Estate Tax
Gift tax is the tax imposed by the federal government on any transfer of property to an individual without any compensation in return. "Property" in this sense includes both tangible property, like art or furniture, and intangible gifts like stocks and cash.

Currently (under 2014 law), you are exempt from gift tax on lifetime donations up to $5.34 million. Once your donations go over that lifetime amount, they can be subject to taxes up to 40%.

However, it's essential to note that this is a lifetime exemption – meaning, that's your cap over the span of your life. The $5.34 million lifetime exemption is a well-known figure in the world of estate planning that's based on what's called the unified gift and estate tax credit.

In any particular year, you can also give a tax-free gift of up to $14,000 per recipient without dipping into the basic exclusion. This is known as the "annual exclusion." However, here's where it gets tricky because of the unified credit. This refers to the federal gift tax and estate tax, combined into one tax system. If you give more than the annual exclusion amount to any one recipient in any particular year, most people are eligible to use the unified credit so that the gift counts against your estate. For example, if you give $15,000 in 2014, $14,000 is eligible for the annual exclusion, and the remaining $1,000 is applied against your lifetime exemption, which also reduces the exemption for your estate when you die by the same amount.

Estate tax is the tax imposed by the federal government on any transfer of property (tangible or intangible) by your estate after you have passed away. It is calculated by figuring out your "gross estate" (all assets including real estate, cash and securities, business interests, etc.) and subtracting any deductions you may qualify for (such as funeral expenses and some charitable contributions). The net amount after these calculations is then added to any taxable gifts you have given that have used up your unified credit to generate your taxable amount.

 

There are definite pros and cons to either option; we’ll take a look at some below:

 

Giving Heirs the Money Now 
Here are some advantages to giving your heirs money while you're still alive.

  • You get to see them enjoy it. If you'd prefer to see your gifts in action, giving your heirs the money now gives you a chance to see the difference it makes in their lives.
  • You can advise how they spend it. If you'd prefer to see your gifts in action in a specific way, giving the money while you're still alive gives you a chance to let your heirs know how you'd prefer they spend it.
  • You can give the gift in the form of paying for something. If you really want to ensure the money is spent on the thing you want it to be spent on, you can pay for something rather than giving your heirs the money for it. For example, you can pay for their wedding, make a down payment on their dream house, or pay for their tuition (which, incidentally, can qualify for the educational exclusion from gift tax).
  • You can stop giving them money if you see them falling off the rails. If you plan to give your heirs free reign with their money, giving it to them now allows you to put a stop to the cash flow if you see them spending it unwisely (like buying a flashy car instead of paying for tuition or paying down their mortgage).
  • You can avoid taxes up to a certain amount. For 2014, the IRS allows you to exclude up to $14,000 in gifts per heir (or $28,000 per heir if the gift is given by you and your spouse jointly). This means you will not have to pay gift tax on gifts up to that amount. If you choose to give a gift beyond that, you'll need to claim the "unified credit" (and have it count against your estate's lifetime exemption) in order to avoid paying taxes on the gift.

 

Waiting Until You Pass Away

Conversely, here are some advantages to waiting until you pass away before bequeathing gifts to your heirs.

  • You may need the money later. What if you find that you need the money to pay for your own expenses during your lifetime? You might need more than you think in order to enjoy your hard-earned retirement, pay for medical expenses not covered by insurance, or cover other long-term care costs such as home health aides and nursing home care.
  • Ability to change your mind. At the moment, you might want to split your money equally among your children; but what happens if one of your children later makes poor decisions that make you want to disinherit that person? Conversely, what happens if one of your children gets into a major accident and requires more medical care, and therefore more financial support? You can always adjust your will to change the amount you'll be leaving heirs after you pass away, but you can't take back money you've already gifted. Waiting until you pass away gives you the opportunity to change your mind during your lifetime.
  • Your heirs might appreciate it more and spend it more wisely. By waiting until you've passed away, you give your heirs a chance to "make their own way in the world" at a younger age. Rather than relying on an annual cash infusion from you, your heirs will be older and more responsible when they receive the inheritance. This might cause them to appreciate the gift more, as they will have experienced the task of earning money.

 

At the Estate Planning & Asset Protection Law Center, we provide a unique education and counseling process which includes our unique 19 Point Trust, Estate and Asset Protection Review to help people and their families learn how to protect their home, spouse, life-savings, and legacy for their loved ones, click here for more information. We provide clients with a unique approach so they understand where opportunities exist to eliminate problems now as they implement plans for a protected future.

We encourage you to attend one of our free educational workshops, call 800-964-4295 and register to learn more about what you can do to enhance the security of your spouse, home, life savings and legacy.

Click Here to Register For Our Trust, Estate & Asset  Protection Workshop

Tags: Nursing Home Costs, long term care, gift tax, estate tax

Great News About Long Term Care Planning for You and Your Loved Ones

Posted by Massachusetts Estate Planning & Elder Law Attorney, Dennis B. Sullivan, Esq., CPA, LLM on Fri, Aug 01, 2014

More Good News: Estate Planning and Long-Term Care Planning

 Medicare family

Our firm has helped people and their families with long-term care planning for more than 20 years. While helping people, it is very important to help focus  on the health, long term care and estate and life planning needs for the individual and family. This is a holistic approach that helps families plan for obtaining the best quality care in their home, the community or perhaps assited living. Many people we help are also concerned  about the devastating cost of a Medicaid spend down of assets due to a long-term nursing home stay.

 

We have also had other success in Medicaid crisis planning relying on other strategies that are available in Massachusetts law,unlike some other states, that allow  citizens to pay part of their costs with their assets and eventually qualify for long-term care assistance to the Medicaid program.

 

Some people also have a long-term care insurance policy to help pay fort care at home, in the community and many times their plan will even will provide a care coordinator. Thus, we do recommend you contact your insurance advisor to look into the possibility of obtaining long-term care insurance while you can still qualify under medical underwriting.

 

If any of these topics concern or interest you please contact our office at 781-237-2815 to consult with our attorneys or request a copy of our Seniors and Boomers Guide to Health Care Reform & Avoiding Nursing Home Poverty for $14.95 or is available from www.DSullivan.com. We would be happy to be your guides on your Estate Planning/Elder Care journey.

 

At the Estate Planning & Asset Protection Law Center, we help people and their families learn how to protect their home, spouse, life-savings, and legacy for their loved ones.  We provide clients with a unique educational and counseling approach so they understand where opportunities exist to eliminate problems now as they implement plans for a protected future.

We encourage you to attend one of our free educational workshops, call 800-964-4295 and register to learn more about what you can do to enhance the security of your spouse, home, life savings and legacy.

Click Here to Register For Our Trust, Estate & Asset  Protection Workshop

Tags: Estate Planning, Estate Planning, Elder Law, asset protection, long term care, Medicare, durable power of attorney, estate reduction, Estate Planning Tip, estate, estate tax, Massachusetts, senior, Medicare, asset, Estate Planning Recommendations, Dennis Sullivan, long term care insurance

Massachusetts Estate Planning Tips | The Impact of the Fiscal Cliff Deal on Seniors and Boomer

Posted by Massachusetts Estate Planning & Elder Law Attorney, Dennis B. Sullivan, Esq., CPA, LLM on Mon, Jan 21, 2013

The American Tax Payer Relief Act: It's complicated but It Affects Everyone - Especially Boomers and Seniors  

The American Taxpayer Relief Act of 2012 was actually passed by the Senate in at 2:00 am on January 1, 2013. After speculation on whether Speaker Boehner would bring the bill to a vote or if the House would add amendments likely be rejected by the Senate, the House eventually passed the bill at 10:45 p.m. President Obama signed it the next day.  

The bill addresses the Bush-era tax rates, estate and gift tax rates, Medicare reimbursement, among numerous other issues.

TAX RATES 

The bill permanently extends current tax rates for individuals earning less than $400,000 and couples earning less than $450,000. Those earning more will see an increase from 35% to 39.6%. Wealthy folks will see an increase from 15% to 20% on capital gains and dividends. Individuals earning above $250,000, and married couples earning more than $300,000, will see a phase-out of the personal exemption.     

ESTATE TAX 

The estate tax exemption will remain $5.12 million per person, but will be adjusted for inflation. The top rate will grow from 35% to 40%. Portability's extended, as well, and the gift tax exemption will remain at $5 million.   

PAYROLL TAX  

This tax, which funds Social Security, has been at 4.2% since 2011, but will now revert back to the previous of 6.2%.  

OLDER AMERICAN FUNDING 

Funding has been increased for the Older Americans Act and similar programs. This year only, Area Agencies on Aging will receive an additional $7.5 million, and Aging and Disability Resource Centers an additional $5 million.  

The National Center for Benefits and Outreach Enrollment will receive an additional $5 million, and Medicare State Health Insurance Programs will receive an additional $7.5 million.  

There is also a provision that prevents the scheduled 27% reimbursement cuts to Medicare physicians this year.  

At the Estate Planning & Asset Protection Law Center, we help people and their families learn how to protect their home, spouse, life-savings, and legacy for their loved ones.  We provide clients with a unique education and counseling approach so they understand where opportunities exist to eliminate problems now as they implement plans for a protected future.

We encourage you to attend one of our free educational workshops. Call 800-964-4295 to learn more about what you can do to enhance the security of your beneficiaries, digital assests, Estate Plan and legacy

 

Click Here to Register For Our Trust, Estate & Asset  Protection Workshop
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Tags: Massacusetts Estate Tax, Health Care, family, seniors, estate tax, health Care act, Alzheimers Disease, tax, Attorney

Massachusetts Estate Planning Attorney | The Fiscal Cliff Deal and Your Estate Plan

Posted by Massachusetts Estate Planning & Elder Law Attorney, Dennis B. Sullivan, Esq., CPA, LLM on Fri, Jan 04, 2013

What Does Avoiding The Fiscal Cliff Mean for Your Estate Plan?

Nearly 2.5 million Americans die each year, and many haven’t signed the basic documents needed to protect loved ones.  (Click Here to Learn More About How to Avoid the Top Mistakes in Estate & Asset Protection Planning).

Now that the fiscal cliff has been averted there is widespread confusion about the effect on estate planning of the 11th hour tax law passed by the Senate on New Year’s Eve, and by the House of Representatives one day later.  What Congress did in this arena was to make permanent the system that has been in effect for the past two years.

That was an important achievement because without any action the tax-free amount would have automatically reverted to $1 million per person and the rate for most estates would have gone up to 55%.  At the end of the day the only thing the lawmakers actually changed is the gift- and estate-tax rate, which has gone up to a top rate of 40% from a maximum of 35%.

Here are questions and answers on the federal estate tax after the fiscal cliff deal.

Who has to pay federal estate tax?

Once you’re worth more than a certain amount, taxes shrink your estate. Under the 2010 tax law, we can each transfer up to $5 million tax-free during life or at death, but it was due to revert to $1 million effect January 1, 2013. Recent legislature increased the tax free amount for the federal estate tax only to 5.12 million per person. Caution: Massachusetts continues to tax all estates above $1 million.

Do spouses have to pay the tax when they inherit from each other?

The new law doesn’t change this either. There is an unlimited deduction from estate and gift tax that postpones the tax on assets inherited from each other until the second spouse dies. This marital deduction, as it is called, applies only if the inheriting spouse is a U.S. citizen.

How does this relate to lifetime gifts?

The lifetime gift tax exclusion and the estate tax exclusion are expressed as a total amount, currently $5.12 million per person, and it is possible to use this exclusion (sometimes called the “unified credit”) to transfer assets during life or at death, or a combination of the two.  If you exceed the limit however, you or your heirs will owe tax of up to 40%.

The IRS requires you to keep a running tally and report these gifts. For example, if you have used $1 million of the exclusion to make taxable lifetime gifts, the unused exclusion when you die will be $4.12 million, rather than $5.12 million.

Are there lifetime gifts that don’t count?

We can each give another person $14,000 per year without it counting against the lifetime exemption.  Spouses can combine this annual exclusion to double the size of the gift.

The simplest way to use the annual exclusion is to give cash or other assets each year to each of as many individuals as you want. Another possibility is to put money in Section 529 education savings plans. Establishing these plans for relatives could relieve siblings or children of the need to save for college at a time when they are overwhelmed with current expenses.

What Did Change? 

There were several changes made by the Fiscal Cliff Deal.  First, the top personal income tax rate will increase from 35% to 41% (when factoring in the various phase outs of certain deductions for high income individuals).  Additionally, the capital gains tax will increase to 20% for individuals making over $400,000 and couples making over $450,000.

Is it time to review your estate plan? (Click Here to Learn More About Our 19 Point Trust, Estate and Asset Protection Legal Guide)

You should revisit it if there have been changes in your finances or your personal life or if you considering a trust to protect your home, spouse and life savings.  It is essential to be sure your assets are properly coordinated and that everything is in place to protect your home, spouse and life savings.  This message is even more important, as the Congressional Budget Office is considering a proposal that would extend the Medicaid look-back period from 5 to 10 years. 

To learn more about a FREE comprehensive review of your estate planning and gain the peace of mind of knowing your spouse, home and life savings will be protected, register for an upcoming workshop by calling  (800) 964-4295(24/7) or register on line.

 describe the imageClick Here to Register For Our Trust, Estate & Asset  Protection Workshop

 

Tags: Estate Planning, IRS, Estate Planning Tip, seniors, estate tax, income, 2013, plans

Massachusetts Estate Planning Lawyer | 2012 Gifts to Lower Your Estate Tax?

Posted by Massachusetts Estate Planning & Elder Law Attorney, Dennis B. Sullivan, Esq., CPA, LLM on Mon, Nov 26, 2012

Do you have extra assests that you will not need during your lifetime? If so, consider gifting this year because if Congress doesn’t act in the lame-duck session, on Jan. 1, the current $5.12 million per-person exclusion from the federal estate and gift tax will automatically dip to $1 million. Also the tax on transfers above that amount will rise from 35% to up to 55%.

If you have real estate, investments or other assets, in excess of what you and your spouse need to support your lifestyle, you may be a ble to lock in an extra $4 million dollar lifetime exclusion by gifting this year. We recently reviewed an article by by Deborah Jacobs that discusses the timely topic , Will The Estate Tax Boomerang As We Go Over The Fiscal Cliff? which can be accessed here at    Forbes.com.

 

Tax2013 forbes estate planning

Now that the election is over, many folks are wondering what will happen with the federal estate tax. This is one of the Bush era tax cuts set to expire at the end of this year, contributing to the fiscal cliff that we are hearing so much about lately.

From an estate planning perspective, lifetime gifts have always had an advantage over passing assets when you die. Such gifts leave less in your estate for the government to tax, and if the assets increase in value after you have passed them along, you will not owe gift tax on the appreciation. So for the super rich, a drastic drop in the tax-free amount is a huge loss.

Most of us will never come close to using this exemption, however. One reason is that without incurring gift tax or eating into the lifetime exemption, you can give up to $13,000 each year to as many recipients as you like. Couples can combine this annual exclusion to jointly give $26,000. For example, this year a married couple with a child who is married and has two children could make a joint cash gift of $26,000 to the adult child, the child’s spouse and each grandchild – four people – providing the family with $104,000 a year. Starting in 2013, the annual exclusion for gifts goes up to $14,000 ($28,000 per couple).

Feeling flush? Write two checks: one before Dec. 31 for $13,000, and the other on Jan. 1 for $14,000. Just make sure your year-end check is cashed before Dec. 31, or it won’t count for 2012. “To alleviate this problem, wise donors make year-end gifts (usually, anything after Thanksgiving) by way of certified or cashier’s checks,” says Gerry W. Beyer, a professor at Texas Tech University School of Law.

President Obama’s proposed budget for 2013, issued last February, gives us a clear idea of what he would like to do. And it’s not a pretty picture for rich folks or the wealth management industry. The Green Book, as it is called, downloads here as a pdf. For an analysis of its new targets as well as old ones, see my post, “Obama Budget Takes Aim At Rich Folks And Wealth Advisors.”

So should you rush to give away everything to your kids? Not if you might need those assets yourself. But if you and your spouse are worth more than $5 to $10 million together, you might want to check in with your tax advisors–unless, of course, they’ve already called you.

We developed our Unique Self-Guided 19-Point Trust, Estate, & Asset Protection Legal Guide so you can learn where problems may exist in your planning as well as opportunities for improvement and how to implement a plan to protect your spouse, home, family, and life savings. 

Click Here to Download our Trust, Estate, & Asset Protection  Legal Guide

We encourage you to attend one of our free educational workshops to learn more about our process and what you can do to enhance the security of your spouse, home, life savings and legacy. To register for a seat at an upcoming workshop call (800) 964-4295 (24/7) or register online at www.SeniorWorkshop.com

 


Tags: Estate Planning, estate tax, Massachusetts estate tax, assets, tax, lawyer

Massachusetts Estate Planning Attorney | 10 Detrimental Estate Planning Myths

Posted by Massachusetts Estate Planning & Elder Law Attorney, Dennis B. Sullivan, Esq., CPA, LLM on Wed, Oct 10, 2012

There are a variety of misconceptions associated with estate planning, which unfortunately often lead to detrimental mistakes. Please take the time to read “10 Common Estate Planning Myths That Can Be Detrimental to Your Family”, in which Erik Carter of Forbes.com discusses estate planning myths that often keep people from initiating an estate plan that could protect their home, spouse, life savings and legacy.

10 Common Estate Planning Myths That Can Be Detrimental to Your Family

estate plan, estate planning, Massachusetts

1) Estate planning is just for the wealthy. This myth comes from the focus of so many attorneys and financial advisers on the estate tax, which may not be an issue this year until your estate surpasses $5,120,000, an amount that most of us would characterize as pretty well-off, if not downright rich. This focus makes sense for estate planning professionals since they make so much more money dealing with that issue, but estate planning is about so much more than that. It’s also about making sure that your finances are taken care of if you’re incapacitated, that decisions about your health care are carried out the way you’d like even if you’re not able to make them, and that your children and other heirs are taken care of when that time eventually comes. That’s why estate planning isn’t just for the Donald Trumps of the world. Estate planning is for anyone who may become seriously ill or pass away. In other words, it’s for everyone.

2) I’m too young for estate planning. We never know when we might need estate planning and by then, it will be too late. For example, history is replete with the stories of celebrities who unfortunately died before creating a will, many of them at a relatively young age.

3) If I pass away without a will, the state will get my assets. If the last two myths can lead so many to inaction, it always amazes me that this myth hasn’t led to a boom in the will-making business. If you pass away without a will, each state will apply its “laws of intestacy” to determine who will get what. You can check out a site called mystatewill.com to see what that outcome may look like. If you don’t like it, get a will drafted. If you’re fine with it and have minor children, get a will anyway. That’s because the will also allows you to determine who would be the guardian of your children if that need should arise, which is probably not a decision you want a court to make.

4) If I have a will, I don’t have to worry about probate. This may be wishful thinking as probate can be a long and expensive process in which one or more courts decide who will inherit your assets. While a will provides the court with guidance on your wishes, it doesn’t actually avoid the process altogether. Since a will is public information, it can be easily contested in court, adding more time and cost. In addition, if you have real estate in more than one state, each property may have to go through probate in its respective state.

5) I need a lawyer to draft these documents. If your family and financial situation is relatively simple, you can draft many of these documents yourself at no or low cost. For health care decisions, you can get a health care directive from your hospital or download a state-specific form from the National Hospice and Palliative Care Organization here at no cost. Another resource for health care decisions is the Five Wishes, which is a popular, low-cost living will form made available from the non-profit Aging with Dignity organization. You can draft other legal documents like a power of attorney and a simple will for free at sites like DoYourOwnWill.com or for a relatively low cost at sites like LegalZoom and Nolo. Your employer may also offer these documents at no or low cost as an employee benefit.

6) I don’t need a lawyer at all. While these documents may cover most common situations, there may be a complicating issue warranting legal advice that you’re not even aware of. That’s why it’s still a good idea to at least run these documents by a qualified estate planning attorney, which may cost you less than having the attorney draft them all from scratch. You can search for an attorney by asking for referrals from family, friends, and other professionals, by using the lawyer referral service of your local bar association, or by searching the membership of organizations like the American Academy of Estate Planning Attorneys and the National Network of Estate Planning Attorneys.  Finally, don’t forget to ask your employer about any discounted legal services they may offer.

7) To avoid probate, you have to draft a trust. One area that you’re most likely to need an attorney is drafting a trust. Avoiding probate is one of the most common reasons people do this, but there may be cheaper and easier methods that may be sufficient for your needs. First, jointly owned property (like what you own with your spouse) generally passes to the other owner(s) without going through probate (unless it’s a “tenancy in common”). Second, life insurance, annuities, and anything in a retirement plan like a 401(k) and IRA avoids probate as long as there is at least one living beneficiary listed. Some states also allow you to avoid probate by adding beneficiaries to bank accounts with a “payable on death” registration and to brokerage accounts, real estate, and even vehicles with “transfer on death” registrations. You can see what’s available in your state here. Finally, each state has methods to speed up or even skip probate for “small estates,” which in some states can be quite large.

8) Trusts avoid estate tax.  Most trusts do not help you avoid estate taxes in and of themselves. However, if you’re worried about having a taxable estate, be sure to seek qualified legal advice (your nephew who just graduated from law school with a focus on criminal law doesn’t count) since certain trusts can be used as part of a strategy to reduce and even eliminate estate tax liability.

9) I don’t have enough money to worry about the estate tax. This may be true today, but if nothing changes, estates over $1 million are scheduled to be subject to a 55% estate tax starting next year. When you add in the value of your home, life insurance proceeds, and your retirement accounts, that $1 million may start looking a little too close for comfort.

10) I’ll have to pay a gift tax if I give someone over $13k per year. Anything (except for money paid directly to a medical or educational institution, charity, or to a 529 plan) over $13k that you give someone (other than your spouse) in a single year simply reduces your lifetime gift and estate tax exclusion amount (currently the $5,120,000 that’s falling to $1 million next year). Only after you use up the entire exclusion amount do you actually have to start paying anything. In other words, you’d have to give away quite a bit. That being said, you would still have to file a gift tax return and then keep track of how much you’ve reduced your lifetime exclusion amount by, so try to stay within the $13k annual exclusion amount just to avoid that hassle.

As you can see, there are lots of misconceptions out there about estate planning and understandably so as it can be complex, constantly changing, and removed from our everyday lives. Knowing the truth about these myths can help you avoid numerous mistakes."

At the Estate Planning & Asset Protection Law Center, we help people and their families learn how to protect their home, spouse, life-savings, and legacy for their loved ones.  We provide clients with a unique educational and counseling approach so they understand where opportunities exist to eliminate problems now as they implement plans for a protected future.

We developed our Unique Self-Guided 19-Point Trust, Estate, & Asset Protection Legal Guide, so you can learn where problems may exist in your planning as well as opportunities for improvement and how to implement a plan to protect your spouse, home, family, and life savings. 

Click Here to Download our Trust, Estate, & Asset Protection  Legal Guide

We encourage you to attend one of our free educational workshops to learn more about our process and what you can do to enhance the security of your spouse, home, life savings and legacy. To register for a seat at an upcoming workshop call (800) 964-4295 (24/7) or register online at www.SeniorWorkshop.com

Tags: Estate Planning, probate, trusts, gift tax, estate tax, Massachusetts, lawyer, myths

Review Your Estate Plans Regularly | Massachusetts Elder Law Attorney

Posted by Massachusetts Estate Planning & Elder Law Attorney, Dennis B. Sullivan, Esq., CPA, LLM on Mon, Aug 13, 2012

There are many reasons why it is crucial to have your estate plan reviewed. A proper estate plan must be modified to account for legal and tax changes, as well as life changes.

"While certain basic principles have held true over the years, new strategies are constantly developed and legislative changes alter the law and how it is applied. Proper estate planning is rarely a one-time event. Besides accounting for legal changes, the plan must be modified to account for life changes — birth, death, divorce, finances and health" -- Bonnie Kraham, Elder Law Attorney

 

estateplan family

"There is a tendency to view elder law estate planning as a static process resulting in a permanent portfolio. Both are misconceptions.

While certain basic principles have held true over the years, new strategies are constantly developed and legislative changes alter the law and how it is applied. Proper estate planning is rarely a one-time event. Besides accounting for legal changes, the plan must be modified to account for life changes — birth, death, divorce, finances and health.

Also, when a plan is created poorly the first time, often by those without direct experience in this area of the law, it is often necessary for those more experienced in elder law estate planning to fix the "broken" plan.

One of the more common errors we see is a purported MAPT, a Medicaid asset protection trust, that does not comply with Medicaid law. Sometimes, such a trust states that the grantors (Mom and/or Dad) are also the trustees, which is not allowed. Other times, the trust gives the grantors access to principal in trust assets. This also is not allowed.

The common fix for a defective MAPT is creating a new one that follows the law: The grantors may not be trustees, and the grantors have a right to income only from trust assets. They have no right to principal. The downside of starting over is that the five-year "look-back" period must lapse before the assets in the trust are protected. However, the current situation must be assessed to determine if the new MAPT makes sense.

Even the best of plans may be obsolete by the time they are needed, sometimes many years later. At a minimum, an estate plan should be reviewed every three years to see if any life or law changes affect it.

Over time, clients may want to change their backup trustees or plan of asset distribution. They may wish to add inheritance trusts to keep assets in the family. They might wish to change from a revocable trust to the MAPT because they were unable or unwilling to obtain adequate long-term care insurance. Assets for married couples may have grown to more than $1 million and the couple may need estate tax protection.

A systematic updating approach allows the client to have a plan better suited to their current needs. Periodic review reduces the chance of broken elder law estate plans.

If you're competent, you can always update your plan by either amending a trust or signing a new will, power of attorney or health care proxy.

If you are not competent but have an elder law power of attorney with broad gifting powers, your agent under the power of attorney may create, amend or revoke a trust, and make other changes in your best interest, including protecting assets from nursing home costs. The goal is to avoid the last resort, which is a court proceeding to fix a broken plan, or worse, having a plan whose purpose is defeated."

Article Reference:
"Protecting Your Future: Revise Estate Plans Regularly to Meet Needs" by Bonnie Kraham
Link: http://www.recordonline.com

 

At the Estate Planning & Asset Protection Law Center of Dennis Sullivan & Associates, we help people and their families concerned with losing their homes and life savings to increasing medical and nursing home costs, taxes and the costs and time delays of probate. We also protect clients from losing control of their own health and financial decisions.

Research shows that 86% of trusts don’t work.  That’s why we developed our Unique Self-Guided 19-Point Trust, Estate, & Asset Protection Legal Guide, so you can learn where problems may exist in your planning as well as opportunities for improvement and how to implement a plan to protect your spouse, home, family, and life savings. 

 

Click Here to Download our Trust, Estate, & Asset Protection  Legal Guide

 

 We encourage you to attend one of our free educational workshops to learn more about our process and what you can do to enhance the security of your spouse, home, life savings and legacy. To register for a seat at an upcoming workshop call (800) 964-4295 (24/7) or register online at www.SeniorWorkshop.com.

 

 

Tags: power of attorney, health care proxy, HIPAA, Estate Planning, probate, Protective Trusts, Nursing Home Costs, Elder Law, Medicaid, Nursing Homes, durable power of attorney, Beneficiary, elder care, seniors, estate, estate tax

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