Estate Planning Bits

Elder law figures for 2012

Every year, the government establishes new numbers and thresholds as allowances for people who are elderly and receive benefits. For the first time in a couple years, the Social Security Administration has increased the amounts based on cost of living calculations for Social Security payments, and the Veterans’ Administration has done the same, increasing benefits that veterans receive on a monthly basis.

The average for a Social Security payment in 2012 will be approximately $1,229.00,and the maximum earnings increases to $110,000.00. Medicare Part D participants will have their Part B premium increased to $99.90 per month as the basic premium, with the maximum Part B premium being $319.70 if one’s income exceeds $214,000.00, or $428,000.00 if married. 

The gift tax exclusion remains at $13,000 per donee per year, which is the amount that any person may gift another person, even if not a relative, without having to file a gift tax return. In addition, one may gift up to $5,120,000.00 over their lifetime and at death before any Federal estate or gift tax would be due. This amount is due to be reviewed before the end of 2012, so someone wishing to make a significant gift should consider making it in 2012. 

If a single person needs long-term care in a facility on a permanent basis, then the amount they may retain continues to remain at $2,000.00. All other assets would have to be expended for that individual who needs care. In Massachusetts, a person who is on Medicaid is permitted to keep $72.80 per month, together with enough other income to cover any medical insurance premiums, with the balance of the funds being spent on their care. 

If a person is married, and that person is living at home, (called a community spouse,) he or she is entitled to keep $113,640.00, but the institutionalized spouse may only keep $2,000.00. There is also a calculation for what is known as the minimum monthly maintenance needs allowance, which permits a person who is home and married to maintain $1,837.75 per month in income, which was effective on July 1, 2011 and will be reviewed again and possibly changed by July 1, 2012. 

The maximum monthly maintenance needs allowance in 2012 also remains at $2,739.00 per month, which may also change on July 1, 2012. There are also additional allowances for standard shelter expenses and utility deductions that change on a yearly basis. These amounts decreased on October 1, 2011 and will probably be reviewed again on October 1, 2012. 

It is important to know the numbers so an individual may make intelligent and informed decisions whan planning for their future, based on all income, including pensions, Social Security, veteran’s benefits, long-term care insurance, etc. Naturally, there are also additional allowances available when there is a special needs planning situation or other situations that permit the exceptions to apply. Good counsel should be obtained before making decisions to assure that the maximum benefits are obtained with the minimum of funds being available for long-term care.

 

Hyman G. Darling, Esq.

 

Photo credit: Microsoft  

Selecting the best option for college savings

There are several alternatives to paying for college education. In one of the most popular scenarios, a family pays out of pocket from disposable income and if necessary, obtains loans from any governmental sources or possibly from a private resource such a home equity loan on a primary residence.

If the child is young enough, it may be more advisable to start saving money in a better type of savings plan such as a so-called Section 529 Plan or an Education Savings Account (ESA.) There are benefits and detriments of each type of plan, so you must make an intelligent decision about your selection based on family circumstances.

A Section 529 Plan allows funds to be deposited into an account, and so long as the funds are used for education, any income or growth earned on the account is withdrawn tax free. A further benefit is that the beneficiary of the plan may be changed if the initial beneficiary elects not to attend college or perhaps obtains a full scholarship and doesn’t need the money. A substitute beneficiary may be named who may utilize the funds for his or her education.

There are, however, some disadvantages. If the funds are not used for education, then there is a 10% penalty and income taxes will be assessed on the funds that are withdrawn that otherwise would have been withdrawn tax free.

Also, in the 529 plan, the selection of investment vehicles may be limited, as most states have elected only one investment source for the funds, so if a particular investment company is desired, a plan must be obtained within that particular specific advisor.

Also, the transfer of the funds within the 529 plan are limited. There is basically no limit on the amount that can be put in a 529 plan, as a parent may fund the plan as well as a grandparent. Since the gift exclusion on an annual amount is $13,000.00 per year, a significant amount of money may be placed in the 529 plan at any time.

Alternatively, with the ESA, contributions for beneficiaries are subject to a maximum dollar amount, currently $2,000.00 for 2012. This amount is also proposed to be reduced in 2013 and later years at the rate of $500.00. In addition, the ESA contribution is phased out as the donor’s modified adjusted gross income rises. When the single individual has income of $95,000.00 to $110,000.00, the contribution is basically phased out. For married individuals, the limits are $190,000.00 to $220,000.00.

However, these limitations do not apply to 529 plans. Also, in an ESA, in order to maintain the tax advantage, all distributions and funds must be distributed by the age of 30. This is also not the case with a 529 plan, as funds may be continued to be held in the plan for children, grandchildren, or any other beneficiary.

Another choice is to merely have funds placed in a Uniform Transfers to Minors Act Account. In this situation, the funds earn interest, which is taxable and payable at the rate of the child. Subject to the limitations and restrictions of the so-called “kiddie tax,” the funds may have income tax consequences, but the funds are withdrawn after taxes when used for education, since they have already been income taxed. However, based on the particular state law, the Uniform Transfers to Minors Act Account must be withdrawn by the age of 18 or 21, thus the child has unlimited access to the funds at that particular time.

How college savings are held may also affect the child’s ability to obtain financial aid. All of the aforementioned techniques may have a detrimental affect on the ability to obtain aid, but if the funds are available within a family, strong consideration should be made to prefund the education as opposed to relying on financial aid or private funding.

 

Hyman G. Darling, Esq.

 

Photo credit: Microsoft  

Guardianship of minors – decide ahead to prevent sticky family battles

Normally, when you think of a guardianship or conservatorship, you likely think of a person being in charge of another’s personal and financial affairs. You probably assume that most of these individuals are elderly or incapacitated. In many cases, however, the person who needs assistance is a minor.

While most minor guardianships terminate at age eighteen, it is possible to convert a guardianship of a minor into a full guardianship of an incapacitated person if the minor is unable to attend to his or her own affairs due to incapacity, even when they reach the age of eighteen.

On the other hand, sometimes a child is in a situation where his parents cannot care for him. One parent may be deceased and one may be incapacitated, for example. In such instances, another person needs to be in charge of this minor. The minor is considered to be incompetent because he is unable to enter into binding legal contracts, and he is not permitted to make enforceable decisions due to his age. When this occurs, another person must petition the Probate Court for the authority to be in charge of the minor’s financial affairs, (a conservator,) and someone must be in charge of day-to-day affairs for the minor, including medical affairs (a guardian.) Unfortunately, these cases often end up in court with family member battling for control because multiple people believe that they are the better choice to handle these affairs. This is when the court involvement is needed to appoint someone to make all decisions.

In a fairly recent case in Arkansas, there were significant family issues that caused the matter to come before the court. In this case, Timothy Wallace shot and killed his wife, Brandy, along with a friend. He was released on bail, and then left the United States, but he was returned, tried, and sentenced to two life sentences. The death of Brandy and the incarceration of her husband left 3 minor children with no parent to raise them.

Several members of the family proceeded to assert their priorities within the court, and Brandy’s mother, brother his wife, as well as her half-sister, all proceeded to request that they be appointed as guardians for the three children. Brandy’s mother, (grandmother to the children,) was appointed together with Brandy’s brother. Subsequently, the brother and his wife were appointed as the permanent guardians, giving the grandmother visitation rights.

This situation worked out fine for several years, but in early 2010, the guardians decided to limit the visitation of the grandmother, requesting that any visitation with her be supervised. The grandmother then requested that the children be returned to the prior visitation schedule.

At a hearing, the judge admonished all parties by telling the brother and his wife that they should not have unilaterally modified the visitation schedule and telling the grandmother that she needed to make visitation schedules more plausible by obtaining and attending to her own means of transportation.

The brother and his wife appealed the imposition of the visitation schedule that was ordered by the court, which was similar to that of divorced parents. Upon appeal to the higher court, it was decided that the judge did not err in making this visitation schedule similar to that in a domestic proceeding. The best interest of the children was to be maintained, and the judge felt that the formulation of a strict schedule was better than leaving the matter to the parties to attempt to work out the schedule, since that had not been effective in the past.

Perhaps this matter could have been resolved by a skillful mediator or third party professional, but often times, when a matter is initiated in the legal system, there is a reluctance to resolve the matter by mediation, as each party wishes to have their day in court. Unfortunately, the three children in this case were right in the middle of the lawsuit and unable to make decisions for themselves as minors.

All of this could have been prevented had the parents decided ahead of the unfortunate events whom should care for their children if they became unable to do so themselves and drawn up the appropriate paperwork with an attorney.

 

Hyman G. Darling, Esq.

 

Photo credit: Microsoft  

Estate planning for same-sex and unmarried couples and singles

There are many unique legal issues to consider relative to the estate planning process for same sex couples, couples who have not decided to get married, and single people. Although many of the planning techniques are similar, since there is no “legal” relationship, special documents must be prepared in many cases.

Naturally, it is important that a Will be given the due consideration in the planning process, but often other required documents are not given as much attention, and they may actually be more important. This “lifetime planning” is relative to your Health Proxy and Power of Attorney, which may allow another person to make decisions for youl upon your incapacity.

Power of Attorney:

Your Power of Attorney is a very important document, since it controls decisions over your finances upon incapacity. Care should be taken to be sure that when a person is named, that individual has business sense, is trustworthy, and also has the time to manage and direct your investments if you cannot do so for yourself. If this document is not prepared, then a conservator will have to be appointed by the Probate Court, and this process often times becomes time consuming, expensive, and emotionally draining.

In this document, a partner or close friend may be named instead of a direct family member. A family member may be displeased with your choice, but once the document is signed, your backup agent is in charge of all financial affairs in the unfortunate event of your incapacity, regardless of your family members’ wishes. Keep in mind though that death revokes the Power of Attorney, and therefore, this document is not used for post-death decisions.

Health Proxy:        

Your Health Proxy is also an important consideration. This person may be someone different than the one serving as Power of Attorney, but it should be someone who is close to you and will who carry out your wishes. Within this document, there should also be a backup person named in the event that the primary decision-maker is unable to make decisions due to their own illnesses.

Once again, a family member may be somewhat aggrieved that they are not making these decisions, but it can be written such that the decision maker should consult with a family member, but need not heed their advice when making decisions. Within this document, there should also be language regarding funeral and final disposition arrangements, so that there will be no question as to who is in charge and what will happen. In addition, whether or not you wish to be an organ donor should be included in this document as well as on your license.

Will/Trust:   

Needless to say, your Will is also an important document, and you should pay particular attention to who is in charge of your estate as your personal representative. This person will be in charge of making all distributions and decisions, attending to tax matters, and possibly closing your business if your own one. If this person is not able to serve, consider who the backup will be, and if there is no appropriate person, perhaps a bank or trust company can serve in this role.

Within your Will, there may also be a memorandum regarding how specific items of tangible property shall be distributed and to whom. Often, these items are more sentimental than material in value, but they could cause a significant dispute. The objective is to prevent dispute with this document.

If a Trust is to be used, often the named personal representative is also serving as the trustee, with specific instructions as to how your assets should be divided. Again, within this document, it is sometimes anticipated that a family member may not be pleased with the ultimate disposition of your assets, and therefore a specific clause may be included within the document that specifies who your family are and who shall not be a beneficiary under your Trust/Will.

In order to further protect your named beneficiaries, it is often advisable to have a so-called “no contest” clause in the document. This means that if an individual is not satisfied with the amount they are receiving, and if they were to challenge the Will on any grounds, and even if they are successful, they will lose a part of their inheritance, and thus relinquish what otherwise would have passed to them. This clause puts the possible objector in a precarious situation, since they would be forfeiting their distribution in order to attempt to gain more. They must give significant thought regarding whether they wish to challenge the document and forfeit the amount that was left to them prior to moving forward with that case.

Although there are many other considerations, it is important that an unmarried person or members of a same sex couple pay attention to the way assets are held and how they are to be distributed before making a decision to finalize their estate planning documents.

 

Hyman G. Darling, Esq.

 

Photo credit: Microsoft  

Alzheimer's Disease: the long goodbye

In 1983, President Ronald Reagan called members of the Alzheimer's Association to the White House for the signing of a proclamation declaring November as the National Alzheimer's Disease Awareness Month. November, which is also National Family Caregiver Month, is an ideal time to raise awareness of the resources and services the Alzheimer's Association offers the more than 5 million Americans living with Alzheimer's, and the nearly 15 million family caregivers.

Alzheimer's disease, the most common form of dementia, is a physical and terminal illness. It is a disease of the brain that causes difficulties with memory, thinking, and behavior. It is not a normal part of aging. There are 10 common warning signs of Alzheimer's disease:

1. Memory changes that disrupt daily life;
2. Challenges in planning or solving problems;
3. Difficulty completing familiar tasks;
4. Confusion with time or place;
5. Trouble understanding visual images and spatial relationships;
6. New problems with words in speaking or writing;
7. Misplacing things and losing the ability to retrace steps;
8. Decreased or poor judgment;
9. Withdrawal from work or social activities; and
10. Changes in mood and personality.

Alzheimer's gets worse over time. One advantage of a timely diagnosis is that the person with Alzheimer's can often participate in their estate planning. He or she can decide who will make medical and financial decisions on his or her behalf in later stages of the disease, provided that they still have the legal capacity - the level of judgment and decision-making ability needed to sign legal estate planning documents. As such, it is imperative that one who is diagnosed with Alzheimer's begin making legal and financial plans as soon as possible, to the extent that they can.

Todd C. Ratner, Esq.

Photo credit: Microsoft