Estate Planning Bits

The reduction of qualifying exemptions and deductions may affect you

Those taxpayers in higher income tax brackets may have noted that they’ve lost portions of their itemized deductions and some or all of their personal exemptions because of their income levels. This situation is gradually being eliminated, and the amount of the reduction in 2006 was only two thirds (2/3) of that which was applicable in 2005. It will be only one third (1/3) of that amount in 2007, and the reduction will be completely eliminated in the calendar year 2008.

You may want to consult your tax professional for replacement tax-savings strategies.

By: Bruce M. Fogel, Esquire

Beware giving your money away as “joint accounts”

Joint bank accounts, such as checking, savings, CD or Money Market seem to be relatively straightforward. However, the disposition of your assets in your account when you become ill or die often becomes problematic.

When you open a bank account, usually the account services person will inquire if you want the account to be jointly held. Unfortunately, this person probably does not provide sufficient information to you to make an informed and intelligent decision. Adding a joint name to the account, which is usually entitled “depositor” or “co-depositor,” basically means that the funds in the account are available to be withdrawn by either you or the survivor.

If you die, the co-depositor, as a joint owner, will have your funds accessible without the need to pass them through your Will or the probate process. These funds may not have been intended to pass to that surviving joint owner, but rather, merely to be available to that joint owner in the unfortunate event that you became incapacitated. Your intention may be simply to alleviate the need for the joint depositor to proceed to the court for a guardianship to have access to your funds to pay your bills.

Depending on your intention, there are several options to alleviate this potentially problematic situation.

• Include language in your Will that specifies that the account is joint for convenience only and is not intended to pass to the surviving joint owner.
• Open the account in your name alone and establish a Durable Power of Attorney that will allow another person to attend to deposits and withdrawals in the event of your incapacitation.
• Make the account “POD,” which stands for payable on death. In this situation, you have complete control of the account during your lifetime while competent. In the event of incapacity, the fund or the account may be attended to by the person you designated in your Durable Power of Attorney. Upon your death, the account is payable to a surviving beneficiary without the need for probate. If you want, the POD beneficiary could be your Trust, which will allow of the assets in your bank accounts to flow relatively easily, without probate and without any significant expense, into your Trust, to be administered in accordance with the terms its provisions
  

As demonstrated above, while adding a joint name appears to be a relatively straight-forward situation, there can be significant adverse consequences when upon your death. If your joint owner believes the funds are theirs, and your Will has a contrary disposition of your assets, then your family and/or other owners will certainly be embroiled in litigation to determine the rightful owners of your deposits when you died. This may all be avoided with careful attention to names on accounts upon their opening.

By: Hyman G. Darling, Esquire

Taking advantage of energy tax credits

There is a new tax credit, (as distinguished from a deduction. and significantly more valuable,) available for any qualifying energy expenditure you make on your home. This credit is applicable to expenditures for insulation, windows or any energy efficient heating and/or air conditioning system spent during the period from January 1, 2006 through December 31, 2007.

There are of course limits on the amount that you can spend that are eligible for the energy credit, but it is something worth considering. Furthermore, there continues to be a credit for hybrid cars that is likewise worthy of consideration - particularly having seen the rapid increase in gasoline prices this past year.

By: Bruce M. Fogel, Esquire

Taking care of your parent financially

Sometimes your parent is no longer able to attend to his or her own finances or may not wish to continue to be in charge of them. It may be too difficult or time consuming, or maybe they just no longer want the responsibility of balancing a checkbook, renewing CD’s or attending to investments.

In these situations, children usually step up to the plate and find themselves in charge of managing their parent’s finances. If this is the case for you, hopefully your parent previously signed a durable power of attorney that allows you or another attorney in fact to attend to your parent’s finances without the need for probate court review and approval.

If not, then you may have to petition the court to proceed with a guardianship or conservatorship in order to legally appoint yourself or another person to be in charge. This becomes time consuming, public and expensive, but there may not be any other choice.

Although not an inclusive list, the following are certain steps or matters that should be taken care of to assure that your parent’s interests are being well cared for:

• Locate all important documents such as powers of attorney, health proxies, wills, and trusts and be sure that the people have copies of these documents, such as the doctor and medical facility having copies of the health proxy.
• Locate all bank accounts and other assets to assure that they are properly managed. If all cannot be found, locate a copy of the prior tax return or 1099 forms received so that a full financial picture may be taken.
• Collect and manage all bills, and be sure that all medical bills are submitted to insurance companies prior to paying balances due. Consider having the address changed on the mail to assure that all bills are forwarded to the attorney in fact.
• If there is a safe deposit box, be sure that the contents are inventoried. It is also usually appropriate to access the box with another person to assure that no one may later state that items from the box “disappeared.”
• Consider hiring professionals such as lawyers, accountants, financial advisors, et cetera, to be sure that all investments are being handled appropriately. Oftentimes, needs change such as the need for income as opposed to growth in later years.
• If there are insurance policies, consider having an appropriate advisor review them to assure that they are being maximized to the fullest extent.
• If documents are old, consider having them updated to assure that all requested changes are made prior to disability or death.
  

Document everything that is done by the attorney in fact. This could be done by daily entry in a notebook, or on a calendar. Often there are problems that arise later, and you’ll want to be able to document exactly what was done and how much time was spent on it.

These are some of the initial important steps that you should consider when tending to another person’s affairs. As with all situations you may be acting as a fiduciary for another, competent advice should be obtained first. If not, you may find yourself having to answer later for your decisions, and as often happens with intra-family matters, other family members are very good Monday morning quarterbacks.

By: Hyman G. Darling, Esquire

Employee Alert - Flex Spending Extension!!!

Those of you who have availed yourself of Flexible Spending Accounts through your employers, whereby you are able to allocate some of your income on a pre-tax basis directly to certain qualified expenditures - most frequently medical expenses - faced the ‘use it or lose it’ prospect come the end of each calendar year.

However, if your employer has amended its plan accordingly, the ability to use 2006’s flexible spending funds will have been extended through March 15th of 2007.

By: Bruce M. Fogel, Esquire

Savings Bonds – Are your old bonds costing you money sitting in a drawer?

Many people bought bonds years ago for a variety of reasons. Some wanted to help finance World War II. Others wanted to give a gift of a bond for a wedding, birthday or other occasion. Others merely bought bonds as an investment when their interest rates were fairly high compared to that of bank accounts.

The trouble is that many people still own bonds that now have an interest rate of zero percent (yes, that’s 0%!) because these bonds stopped earning interest when they matured. There are different dates for the maturities of bonds based on when they were purchased.

Bonds no longer earning interest, based on information supplied by the Bureau of Public Debt as of the writing of this blog post are as follows:

• Series E bonds issued from May 1941 through December 1976
• Series H bonds issued through December 1976
• Series HH bonds issued from January 1980 through December 1986
• All issues of savings bonds Series A, B, C, D, F, G, J and K

Since all of the above bonds no longer earn interest, they probably should be cashed in. You are basically losing money by holding them because in addition to earning no interest on them on them, the cost of inflation is devaluing them.

Even if you redeem these bonds and the interest is taxed, it is probably still a better investment for you. It should also be noted that Series E bonds and EE bonds may no longer be exchanged for Series H bonds, where interest could have been deferred.

The easiest place to calculate your interest earned on bonds is here: Savings Bond Wizard. This is a free website that allows you to track the purchase price of the bond, the amount of the interest accrued and the final maturity date.

Perhaps if you have bonds that have been tucked away and basically forgotten over the years, this is an opportune time to cash them in, pay the tax next year, and earn funds for gift-giving, a vacation or another purchase that you’ve put off because money was tight.

By: Hyman G. Darling, Esquire

Kiddie Tax – change in the rules may affect your tax-planning strategy

Up until 2005, children under age 14, who had unearned income, were required to pay income taxes at their parents highest tax brackets. The rule was put into place in order to offset the frequently employed planning strategy of shifting income from high tax bracket parents to their children who were in lower tax brackets. Thus, taxpayers who had children age 14 and older could put income producing assets into their children’s names to take advantage of tax savings.

However, effective for 2006 and beyond, the so-called Kiddie Tax now applies to children up to age 18. Therefore, parents who have contemplated and/or implemented this strategy in the past should need to think about investment alternatives to try to minimize the potential tax bite.

By: Bruce M. Fogel, Esquire

Required minimum distributions from retirement funds

For those of you who are old enough to be in a position to have to take required distributions from your various pension plans or other retirement arrangements, you need to be certain to make the necessary withdrawals from such plans in order to avoid significant penalties in addition to the taxes that are otherwise payable on such distributions.

For those of you who have turned 70 ½ - the required age to begin distributions - you might want to consider whether to take the first distribution in the year in which you turn 70 ½ or postpone it until the following year, since the first of these distributions is not required to be made until April 1st of the year after the year in which you turn 70 ½.

By: Bruce M. Fogel, Esquire