Estate Planning Bits

Tax planning for 2008 – making things easier

If you’ve been going through all of your records and shoe boxes full of receipts lately in an attempt to determine your deductible expenses for 2007, perhaps you can make your life easier next year by getting organized.

It might be as simple as utilizing different colors for entries in your checkbook register, making lists of charitable, medical, tax and other deductible expenses, or creating folders in which to put these receipts to easily access them next year. Almost anything you do now will be better than what you have probably done already! Putting together a system that works for you will make the tax season in 2008 a whole lot easier.

Next, it is important to determine what your 2007 refund will be in 2008. If it is expected to be significantly large, perhaps now is a good time to change your W-4 form to revise your take home pay per period. Or perhaps it is better to make changes that allow more funds to be put into your 401(k) or other retirement plan. Alternately, perhaps you could have funds withdrawn from your paycheck and deposited into a personal IRA. Be careful to avoid giving the government an interest-free loan during the year.

You may also consider a Christmas club or vacation club as a means to save money. I know a few people who utilize this as a means to pay off credit cards once a year, especially after Christmas.

If your employer offers an opportunity for you to take advantage of a flexible spending account, this is a great tool to pay your medical and/or other dependent care expenses with pre-tax dollars and save money.

If you have inherited money or anticipate an inheritance in the coming year, it is important to also consider making estimated tax payments both to the IRS and your state. If you don’t make these payments, you will be assessed penalties and interest for late or insufficient payments in the following year.

However, if you know of any anticipated significant loss you will have from the sale of real estate, either owned by you or by an entity in which you have an interest, such as a partnership or estate, you may be able to adjust your W-4 form to accommodate additional tax write-offs and a higher refund in 2009.

Any decision made will have a significant impact on you, and it should be reviewed with your advisor so that he or she can properly assist you and perhaps even help you plan accordingly to offset the potential tax nightmare impending.

By: Hyman G. Darling, Esquire

Life Insurance – How much is enough?

In all my years of handling estates, I have never once heard a beneficiary say that they received too much in life insurance proceeds when a loved one died. However, I have seen cases where there wasn’t sufficient life insurance to cover a family’s financial needs.

So how much is enough?

The life insurance industry will tell you that your coverage should be five to seven times your annual salary. However, this is merely a guideline, as some people may have extraordinary expenses and needs that require additional coverage.

If you’re a young wage earner supporting a family, the primary purpose of life insurance is to pay off your mortgage, provide for your children’s education and leave your family in a position where they will have financial security when you can no longer produce disposable income.

The amount of insurance necessary may be adjusted based on the needs of your surviving spouse and dependents. It is also affected by other things, like the ages of your dependents, health, retirement plan benefits, social security benefits and other income and assets available.

You should also keep in mind that income earned from the proceeds of life insurance will be taxable income, although in most cases, life insurance benefits are not income taxable. Generally, life insurance is also not estate taxable when left to your spouse, but if you own it (as opposed to your beneficiary or an irrevocable trust), then life insurance proceeds, although not income taxable, are includable in your estate, and therefore, will have estate tax consequences, unless the total of all assets you owned, including the death benefit of the policy, are below the threshold.

You may choose to purchase life insurance to replace the wealth that will be spent on estate taxes and income taxes on assets such as savings bonds, annuities or retirement plans. In this type of situation, the life insurance should not be owned you, since if it is, it will then be includable for estate tax purposes. If you don’t own the policy, the death benefit will pass estate tax-free and income tax-free to your named beneficiaries.

Prior to canceling a policy, purchasing a new one or merely rewriting current policies, you should look at the following factors to help you make a decision on the amount of life insurance most appropriate for you:

• How much Social Security will be received?
• What will be your family’s total income without yours included?
• What is the earning potential of your surviving spouse?
• Will there be estate taxes with the inclusion of your life insurance policies?
• Are there business or other assets, such as a vacation home, that someone may wish to keep, but need liquidity to pay the estate taxes if you die without sufficient cash to pay them?

Developing a strategy and reviewing it every five years is smart. Having sufficient life insurance to attend to your family’s needs is an important step in your planning process.

By: Hyman G. Darling, Esquire

How a change in family member’s life could affect your estate plan

Recently, one of my clients came for a review of her estate plan. Not much had changed in the past five years in her personal life, as her assets, health, marital status and living situations were the same, and no changes were anticipated in the immediate future.

The only thing that had changed was that her daughter had been divorced and remarried. Thus her last name had been changed. My client was concerned that her health care proxy, power of attorney, and Will would all need to be changed or they would be void, because of her daughter’s name change.

I explained to my client that this is not a significant problem, but it would be easier for her daughter to utilize the documents if they were revised. I suggested that the health care proxy and power of attorney both be revised, as these documents would be used if she became incapacitated, and the agent serving under the documents would have to make medical and financial decisions.

Banks may tend to not allow her daughter to serve or have her name added to bank accounts, pay taxes, make withdrawals, etc., unless she could prove that she divorced and remarried, which would require a significant amount of paperwork.

In addition, her health care proxy, although effective, may have problems with her daughter’s name change, as well as HIPAA, (Health Insurance Portability and Accountability Act) which could prevent medical personnel from discussing matters with her daughter until she could prove that her name had been legally changed.

Although the daughter is one and the same person, I suggested that my client have her documents rewritten with the name change and then have copies forwarded to her doctors, dentist and local hospital, where she had established a record.

As for my client’s will, I suggested that she merely execute a codicil rather than having the entire will rewritten.

Because of the trend toward privacy and the issues regarding HIPAA and possibly the Patriot Act, it was prudent to have the documents re-signed to reflect my client’s daughter’s new name. While it may not be absolutely necessary, it will certainly save time, emotion and expense later when the documents have to be utilized.

By: Hyman G. Darling, Esquire

Planning to care for your special needs child after you’re gone

The most pressing issue for parents with a disabled child is probably determining what will happen to that child when they die. It is estimated that there are over 700,000 adults with disabilities who have parents over age 60 in the United States. This statistic reflects the need for people to plan in advance, since decisions will have to be made for a disabled child when his parents are no longer capable of caring for him.

A simple, so-called life plan will serve as a road map for all the people who will help raise the child, determine his daily care, assist with medical decisions and attend to finances. This plan may be written, recorded, or perhaps put on a computer disk, which may be updated every year as the child’s needs change.

In addition, parents should establish their child’s anticipated expenses and then fund a special needs or supplemental needs trust to ensure that his needs will be met in the event that governmental benefits are insufficient. This may include medical, housing and enrichment programs. The cost of inflation should also be considered.

While attending to financial issues, parents must also consider the potential for public benefits to assure that they are not lost. These may include supplemental security income, food stamps, housing, fuel assistance and possibly a monthly benefit from SSI or some other government source. Parents must be sure that their child’s needs are met even if that means losing one form or another of government benefits.

In short, a trust that attends to all of the needs of the child and a life care plan are important considerations that parents must not overlook when planning to provide support for their special child throughout his lifetime. In addition, the right trust may make it possible to avoid probate, minimize or possibly eliminate taxes and also preserve additional funds for the ultimate beneficiaries after the disabled child has died.

A “special lawyer” should be consulted who understands the needs of disabled individuals and their families while attending to all of these issues. One of the best sources to locate this type of attorney is through the Special Needs Alliance, which is made up of approximately 100 lawyers from across the United States, who must be invited to join the organization. They are normally recognized by their peers for competence, leadership and their expertise in preparing plans for disabled families. These attorneys may be located at www.specialneedsalliance.com, and I am a member.

By: Hyman G. Darling, Esquire

Concerns of the Sandwich Generation

An estimated 16 million Americans find themselves sandwiched between two generations, struggling to raise their children while caring for an aging loved one. These Americans are commonly referred to as the “sandwich generation,” and they are especially stressed over the combination of caring for aging parents, raising their children and planning for their own retirement.

When it comes to the topic of inheritances, many Americans of the sandwich generation say that money is not everything. On the contrary, many of them say their parents' personal items are often as or more important to them.

To address this, a Memorandum may be executed in conjunction with your parents' or your own Will. This is a list of personal property, and it can provide for the property's distribution among your family members or other individuals. Although this document does not create a legal or equitable obligation, as it is not offered for probate as part of your parents' Will, it does express their intent. Since desires regarding the transition of personal keepsakes are often not communicated to heirs, a Memorandum can hopefully eliminate disputes between heirs regarding intent as to who should inherit these personal items.

Those within the sandwich generation must also concern themselves with the disposition of their parents' financial matters; however, discussing personal finances is taboo in many families. Perhaps another approach could be to ask your aging parents how they hope to live out the rest of their lives, their dreams and goals, and worries and concerns prior to discussing more sensitive issues like money, estate planning and their health and welfare.

If you are unable to get through to your aging parents, you may suggest that they talk to their legal or financial advisor about their future. Planning to preserve your aging parents' hard earned accumulated assets for the sake of your children and future generations is not improper. Estate planning not only preserves wealth for succeeding generations; it also gives your aging parent satisfaction and peace of mind.

It is also a good idea to work with your parents to prepare a record of essential financial, legal and medical information. Specifically, you want to include information regarding bank accounts, investment holdings, insurance policy numbers, company names, estate planning documents and professional financial advisors.

Additional concerns of the sandwich generation include funding college savings, contributing to a son or daughter's wedding or other life expenses, and paying for nursing home care for an elderly parent, all the while saving for retirement. You may wish to research a 529 Plan for your children or grandchildren. This is an education savings plan operated by a state or educational institution and designed to help families set aside funds for future college costs. As long as the plan satisfies a few basic requirements, you will enjoy special tax benefits.

By: Todd C. Ratner, Esquire