Estate Planning Bits

Prearrangements and funeral instructions – preventing misunderstandings and respecting your wishes

In recent past, two public figures died leaving their affairs rather in disorder. One was Ted Williams and the other was Anna Nicole Smith. In both situations, their family members argued over the final disposition of the body, and this held up burial.

This situation would have been an unlikely occurrence if each individual had left specific instructions relative to his or her disposition, including burial, cremation, or cryogenics.

This language should be included not only in your Will, but also in your health care proxy, since by the time your Will is located, read and distributed to your family members, your funeral may have already occurred, without respecting your funeral instructions.

In addition, if you have specific desires, they should be addressed with your chosen funeral director while you are alive and competent. This will assure that all your intentions receive proper attention, including requested clergy, songs, readings and any other specific desires you have. Since there will be very little left to question, whether or not your family agrees, they have a legal as well as moral obligation to carry out your wishes.

As more and more people are opting to pre-plan and often pre-pay their funeral during their lifetimes, these issues should become less frequent, but sometimes disgruntled family members object or attempt to cause problems.

Issues often occur when there is a second marriage and the children from the first marriage do not agree with the second spouse. There have been situations that necessitated two wakes, separate visiting hours for different sides of the family and sometimes even two separate funeral services, since all related family members could not agree or even be in the same room at the same time.

This is indeed unfortunate, and a funeral director and lawyer must often fill the roles of social workers and mediators in an attempt to facilitate funeral arrangements with disgruntled family members. When such matters become severely contested, a judge has to make decisions on a fairly immediate basis in order to allow the matter to proceed. In some cases, the family may not agree with the judge, and they then appeal, which also takes significant time.

A further complication sometimes occurs when a person who has remarried dies, and his or her former spouse has already passed away. The surviving family members may not know whether their parent should be buried with their former spouse or with the second spouse, and certainly, the surviving spouse may have his or her own opinion as to what their now dearly departed would have wanted.

You can never provide too much detail and information prior to your death regarding your post-death instructions and funeral arrangements. That’s the only way you can be assured that your wishes will be carried out rather than those of your family, and even more importantly, prevent a judge from deciding for you.

By: Hyman G. Darling, Esquire

Will Federal Estate Tax disappear?

Under the current system of estate taxes, you owe no federal estate tax unless your estate is greater than the threshold, which is $2 Million in 2007 and 2008. The threshold rises to $3.5M in 2009, and the tax is supposed to be eliminated for those who die in 2010. However, the so-called sunset provision provides that estate taxes will be changed significantly, and the new threshold for people dying in 2011 and thereafter will be reduced to a mere $1 million.

It is highly doubtful that this phase-in and phase-out of taxes will be implemented, but based on the projections and “flavor” of the current Congress, it appears that there will be a political agreement to settle on a figure somewhere between $3.5 million and $5 million after 2009. This will give your lawyer the ability to actually plan without regard to what specific year you anticipate that you will die.

It is estimated that estate taxes affect approximately only one percent or less of the population. This being the case, there is not much sentiment by the masses for the elimination of taxes, but the anticipation of the total elimination of estate tax is not realistic at this time.

Nevertheless, in the event that you don’t have an estate tax liability based on either the fact that you are now under the threshold, or if taxes were to be eliminated by the federal government, there are still several issues to consider, such as the taxation of your retirement plans, the potential for taxes on gifts and state estate taxes.

One of the largest assets you probably now own is your qualified 401(k) or IRA retirement plan. And since there are significant income taxes due if you were to receive a lump sum distribution from them or even from an annuity, you need to plan around this type of deferred income.

Many people believe that their retirement plan or annuity is a tax-exempt asset, but this is truly not the case. Income taxes are due on these assets at some point in most cases. When this happens, you will be heavily income taxed unless there is a plan in place to minimize tax liability upon receipt of the funds.

Although many states tie their state taxes to the federal limits, there are a significant number of states that have “decoupled” from the federal program, and these states have their own limitation and exemptions, as well as tax rates. Some states have exemptions of $600,000, and some have exemptions of $2 million.

There are also states, such as Massachusetts, which have an exemption of $1 million for individuals who die with assets less than $1 million. However, as soon as the estate exceeds $1 million, the exemption disappears and taxes are due from dollar number one at a rate beginning at 3%, with a maximum rate of 16.4%. This may sound high, but it is a relative “bargain” considering that federal estate tax rates begin at 45%.

Somewhere buried in the proposed legislation is the continuation of a gift tax for gifts made during your lifetime. In order to minimize your estate for estate tax purposes, even for the state, it is important to always review not only the federal limitations on gifts but also whatever state statutes that determine what may be exempted or taxed when you transfer property during your lifetime.

The “hopeful” increase in the exemption of estate tax requirements will certainly benefit individuals who are currently in a taxable bracket and now will be exempted from estate taxes. Those already exempted do not have to worry about estate taxes except for those possibly in their own particular state.

Nevertheless, there are always additional tax issues that need to be reviewed before you feel secure in the fact that you have no liability for federal estate tax purposes and are, therefore, in a situation where you don’t have to be concerned about any tax income, gift or estate issues.

By: Hyman G. Darling, Esquire

Financial Elder Abuse

It is an unfortunate circumstance that it’s necessary to have laws that protect the elderly from being abused financially. However, all fifty states as well as the District of Columbia have enacted legislation that requires or permits individuals to report alleged indications of financial abuse or exploitation of an elder to a local or state agency that has the power to investigate and bring necessary actions against an alleged perpetrator. Usually, the person making the claim has had personal experience with the elder, such as serving in the capacity of home care, geriatric care manager, nurse, doctor, etc.

Sometimes, however, a person is reluctant to file a claim or report alleged abuse due to possible liability if their claim is unfounded. Fortunately, many of the new laws that have been enacted allow individuals to have exempt status and immunity from making allegations to encourage them to step forward and provide information when an elder is the suspected victim of abuse.

In many states banks are now required to report alleged abuse. This is very significant since often a bank teller or manager is on the “front line” when an elder withdraws a significant amount of money from his or her account or numerous smaller withdraws made in a manner inconsistent with the elder’s prior spending habits.

In addition, tax professionals are now provided with the responsibility to report suspected elder abuse when reviewing their clients’ records. While each state has its own reporting requirements, it is important for a tax professional to know the laws of the states where their clients live because many clients move to another state for either part or full-year residency.

Sometimes when an elder moves to be closer to their children, this is when financial abuse occurs. Sometimes a person becomes dependent on a caregiver or neighbor who may attempt to take advantage. An elder’s tax advisor should be reviewing assets periodically and reviewing the spending habits of the client, as well as the interest and dividends reported from year-to-year to look for changes when completing income tax returns.

By: Hyman G. Darling, Esquire

Suddenly solo – dealing with the loss of your spouse

Often enough, a person’s spouse dies unexpectedly leaving the surviving spouse single and oftentimes alone. They are caught by surprise in an unexpected turn of events that forces them to change their outlook on life as well as their financial and personal future.

Ideally, a couple had a plan in place to provide for this contingency situation, but far too often, either the plan was never implemented or the surviving spouse was not aware of all of the details, leaving them ill-prepared to deal with the situation.

In the United States, approximately 800,000 people are widowed every year. Upon losing a spouse, usually the best advice I have for my clients is to not make any decisions at all, except for funeral arrangements, filing for Social Security death benefits, and possibly filing for life insurance proceeds.

No decisions should be made immediately until such time as “the dust has settled” and a person has the ability to think clearly and rationally. Even when the death of a spouse is anticipated, it is important to realize that many decisions become irreversible, so they should not be made in haste or as a knee-jerk reaction to a new set of circumstances.

Deciding to stay in the home previously shared with a spouse, paying off a mortgage, selecting a retirement benefit, or engaging professionals to assist with estate planning, financial planning, and estate settlement are all serious considerations. The surviving spouse should obtain as much information as possible to make informed decisions.

Even details such as changing beneficiaries on life insurance policies and retirement benefits have long-reaching effects, but these are easily changeable and most of the time they are not irreversible.

The surviving spouse’s priority is to take care of himself. Learning to cope with being single may involve joining a support group or obtaining individual personal assistance from a mental, psychological and emotional standpoint. In many situations this will help to alleviate stress and allow a person to get back on track in managing his own life.

Often a person is not able to cope, discuss the death of a loved one, and grieve properly to allow him to move forward and regain control of his life. Because nothing will really be the same when a person becomes single, there needs to be some adjustment period, and it is hopeful that “time will heal all wounds.” It is common for a surviving spouse’s standard of living to not improve, but it is also common that there is usually time to decide whether to sell the house and move to a condominium or apartment, or possibly to scale down the size and mortgage of the home.

While the loss of a spouse can be devastating, it may be just as distressing to children left behind who will need to work through the process of losing a parent. The family members may need counseling individually and as a family unit in order to proceed with their lives. At this time, personal advisors, such as an attorney, accountant, trust officer, financial advisor and any other individuals should work together for the best interest of the family.

By: Hyman G. Darling, Esquire