Estate Planning Attorneys

Happy New Year!  Some of you may wonder how much you can give this year without having to file a gift tax return and whether you need to do some estate tax planning.  Here are the key figures to keep in mind for 2015:

Estate Tax Exclusion.     This year, the federal estate tax exclusion is $5,430,000.  Thus, if an estate is worth less than that amount, no federal estate tax will be due.  The estate tax rate is 40% of the amount above estate tax exclusion.  Each spouse has his or her own estate tax exemption and can use a predeceased spouse’s unused estate tax exemption.  This principle is known as the “portability of unused exemption between spouses.”  With portability, couples can now have assets of $10,860,000 without owing any federal estate tax.  A surviving spouse who remarries will lose the prior deceased spouse’s exemption. 

The Connecticut estate tax exclusion remains at $2,000,000.  If an estate is worth less than that amount, no Connecticut estate tax will be due.  The estate tax rate ranges from 7% to 12% depending on the amount above the Connecticut estate tax exclusion.  Like the federal estate tax, each spouse has his or her own estate tax exemption.  Unlike the federal estate tax, however, there is no portability in Connecticut.  The only way for a couple to use their entire $4,000,000 estate tax exclusion is by having a credit shelter trust.

Gift Tax Exclusion.     The annual federal gift tax exclusion is $14,000 for 2015. If a person makes gifts of $14,000 each to 4 different individuals, none of the gifts are considered taxable and none of them have to be reported on Form 709, the federal gift tax return.  In 2015, a taxpayer can split gifts with his or her spouse so that $28,000 can be given to each donee.   A taxpayer, however, must report split gifts on Form 709.  The annual exclusion for gifts to non-citizen spouses is not the same as the annual exclusion for gifts to U.S. citizen spouses.  That is because gifts to non-citizen spouses can be subject to federal gift tax.  Gifts to citizen spouses are not subject to gift tax because of the unlimited gift tax marital deduction.  The annual exclusion for gifts to non-citizen spouses in 2015 is $147,000.

Besides the annual exclusion, each taxpayer also has a lifetime gift tax exclusion.  In 2014, the lifetime gift tax exclusion is $5,430,000.  By applying some of your lifetime gift tax exclusion, a gift with a value in excess of the $14,000 annual exclusion will result in no gift tax owed, but you must file a Form 709 with the IRS.  When you die, your estate tax exclusion will be reduced by the amount of the gift over the annual exclusion.  The lifetime gift tax exclusion is the same for U.S. resident non-citizens and U.S. citizens.  The federal gift tax rate is 40% for the amount above the lifetime gift tax exclusion.

In 2015, the Connecticut lifetime gift tax exclusion is $2,000,000.  Connecticut and the U.S. government have the same annual gift tax exclusion of $14,000.   You have to file a Connecticut gift tax return if you make any taxable gifts.   For example, if you are not married, and you give $50,000 to each of your 2 children, you will have to file a Connecticut gift tax return, even though no gift tax is payable.

Federal and Connecticut gift tax returns are due by April 15 of the year following the gift.

On December 12, 2014, The Centers for Medicare and Medicaid Services (CMS) proposed a regulatory change to ensure that legally married same-sex spouses receive the same rights as opposite-sex spouses in Medicare and Medicaid participating facilities.  These rules apply regardless of whether the state where the facility is located recognizes same-sex marriages. CMS is a federal agency within the United States Department of Health and Human Services. It is responsible for administering the Medicare program and, in partnership with state governments, the Medicaid program.

The new rule would apply to long-term care facilities, hospices, hospitals, ambulatory surgical centers and other health care providers. If the new rules become final, health care facilities and providers would have to recognize all valid same-sex marriages, regardless of whether the state in which the health care facility or provider is located recognizes same-sex marriages.

The new rule was drafted in response to the U.S. Supreme Court’s ruling in United States v. Windsor, 570 U.S.12, 133 S.Ct. 2675 (2013).  That decision declared the federal Defense of Marriage Act (DOMA) unconstitutional. DOMA defined “marriage” and “spouse” to exclude same-sex partners, stating:

In determining the meaning of any Act of Congress, or of any ruling, regulation, or interpretation of the various administrative bureaus and agencies of the United States, the word “marriage” means only a legal union between one man and one woman as husband and wife, and the word “spouse” refers only to a person of the opposite sex who is a husband or a wife.

In the Windsor case, New York residents Edith Windsor and Thea Spyer, wed in Ontario, Canada, in 2007. The State of New York recognizes that marriage. When Spyer died in 2009, she left her entire estate to Windsor. Windsor then sought to claim the federal estate tax exemption for surviving spouses, but was barred from doing so by DOMA. The U.S. Supreme Court held that DOMA is unconstitutional as a deprivation of the equal liberty of persons that is protected by the Fifth Amendment.

The proposed rule was published in the December 12, 2014, Federal Register, and can be viewed here: https://www.federalregister.gov/articles/2014/12/12/2014-28268/medicare-and-medicaid-program-revisions-to-certain-patients-rights-conditions-of-participation-and.

The nation's elderly and disabled Social Security recipients will receive a 1.7 percent increase in payments in 2015. This increase will raise the average monthly payment for the typical retired worker by $22. The increase is slightly higher than last year’s 1.5 percent cost-of-living adjustment (COLA). The same COLA will apply to pensions for federal government retirees and to most veterans.

The standard Medicare Part B monthly premium will remain $104.90 in 2015, the same as it was in 2014.  Most Medicare recipients have their premiums deducted from their Social Security payments.   

The COLA by the Numbers

Starting in January 2015, the average monthly Social Security retirement payment will rise from $1,306 to $1,328 a month for individuals and from $2,140 to $2,176 for couples. The 1.7 percent increase will apply to both elderly and disabled Social Security recipients, and individuals who receive both disability and retirement Social Security will see increases in both types of benefits.  The maximum Social Security benefit for a worker retiring at full retirement age, which is age 66 for those born between 1943 and 1954, will be $2,663 a month.

The Social Security COLA also raises the maximum amount of earnings subject to Social Security taxation to $118,500 from $117,000.  This means that those earning incomes above $118,500 will pay no tax on any income above that threshold.

The COLA increases the amount early retirees can earn without seeing a cut in their Social Security checks.  Although there is no limit on outside earnings beginning the month an individual attains full retirement age, those who choose to begin receiving Social Security benefits before their full retirement age may have their benefits reduced, depending on how much other income they earn.

Early beneficiaries who will reach their full retirement age after 2015 may now earn $15,720 a year before Social Security payments are reduced by $1 for every $2 earned above the limit. Those early beneficiaries who will attain their full retirement age in 2015 will have their benefits reduced $1 for every $3 earned if their income exceeds $41,880 in the months prior to the month they reach their full retirement age.

For 2015, the monthly federal Supplemental Security Income (SSI) payment standard will be $733 for an individual and $1,100 for a couple.

For a complete list of the 2015 Social Security changes, go to: http://www.ssa.gov/news/press/factsheets/colafacts2015.html 

In this day and age, it is not uncommon to remarry after a divorce or the death of a spouse.  Often in these remarriages, one or both spouses have children from a prior marriage.  These blended families can pose some challenging estate planning issues for the newlyweds.  If you die before your new spouse, how do you ensure that both your new spouse and your children from your first marriage receive an inheritance?  Who gets the house – your new spouse or your children?  How will your new spouse get by financially if you choose to provide an immediate inheritance for your children?

In a perfect world, you could leave everything outright to your new spouse and trust your new spouse to eventually leave the balance to your children through a Will.  Unfortunately, your spouse may decide for various possible reasons to disinherit the step-children by simply changing his or her Will.  Don’t think it could happen?  How about this scenario?

Bob and Betty are a married couple with three kids.  Betty tragically passes away at a young age.  Eventually, Bob meets and marries Jane.  Bob and Jane set up reciprocal Wills leaving all of their assets to each other otherwise to Bob’s children.  Bob dies shortly after in a car accident, and Jane inherits all of Bob’s property.

A few years later, Jane marries James who has two children of his own.  James moves into the house that Jane inherited from Bob.  Bob’s children do not get along with the James.  James convinces Jane to revise her will to leave everything to James and his two children upon her death.  James outlives Jane and inherits all of the assets Bob left to Jane.

Do you think Bob ever envisioned James inheriting his assets?  While Jane is taken care of in this scenario, Bob’s children were unintentionally disinherited by Bob.

There are several other ways this scenario could play out with similar results.  Jane could exhaust all of the assets or gift the assets outside of Bob’s family.  Jane could have creditor, bankruptcy or divorce problems and lose all the assets.  Jane may have a falling out with Bob’s children and revise her estate plan to leave them nothing.

The point is Bob’s simple reciprocal Will plan with Jane is fraught with risks that could cause Bob to unintentionally disinherit his children.  The good news is there is an easy solution.  Bob could have his assets pass to a revocable trust agreement that is funded either during his life, through his Will, or through beneficiary designations, or a combination of these methods.  Bob can amend or revoke the Trust at any time so he is free to change his mind.  Upon Bob’s death, the trust would become irrevocable and continue for the benefit of Jane and the benefit of Bob’s children.  The Trustee could invest the assets to make them income producing, and pay all of the income to Jane for the rest of her lifetime while preserving the principal for Bob’s children.  Upon Jane’s death, the remaining principal of the trust would go to Bob’s children either outright or in further trust.  If Bob wants Jane to have access to the trust principal, Bob could name an independent trustee who has the power to pay some of the principal to Jane if she needs the principal.

Some benefits of Bob using a trust in this situation include:
• Adding spendthrift protection
• Bob maintaining post-death control over his assets, and
• Bob ensuring he provides for both Jane and his children.

Spendthrift protection refers to trust language that prevents the trustee from paying any creditors of the beneficiaries.  Thus, if Jane or a child have creditor issues or get divorced, the assets will remain protected inside the trust.

Bob maintains control over his assets because his trust becomes irrevocable at his death.  Jane cannot change the plan to disinherit Bob’s children.  If Bob sees no need to provide for Jane if she remarries, the trust could provide that Jane’s interest in the trust ends upon her remarriage.

Bob can name a trustee or co-trustee to serve with Jane to manage and preserve the assets for the mutual benefit of Jane and for Bob’s children.

There are many options available under a Revocable Trust to suit your individual needs and goals.  The central point is, by proper planning, you can maintain control over your assets to prevent disinheritance of your children while still providing for your second spouse.

Do you remember the first time one of your parents let you drive the family car?  Remember the excitement you felt getting behind the steering wheel, followed quickly by that rush of anxiety as you realized you were accelerating down the road, and the trees appeared to jump out toward the car?  Remember the sound of the engine roaring from you pressing too hard on the accelerator, turning quickly into the sound of a neck jolting screech as you attempted to apply the brakes for the first time?  During my first lesson, my Dad's quick corrections on the wheel saved several unsuspecting joggers.  Fortunately for my Dad, he had a strong neck, and a lot of patience, as I gradually improved with each lesson. 

Over time, our anxieties as new drivers ease, and driving becomes second nature, as we enjoy the new found liberation of being able to come and go as we please.

Driving a car becomes an expectation and a “right” as we age.  Losing that freedom can be difficult for a person to accept.

Unfortunately, our ability to drive may decline due to the effects of aging on our vision, hearing, reaction time, and memory.  So, what should you do if Mom or Dad begins to have difficulty driving safely?

Driving Solutions

First, driving is not necessarily an all-or-nothing activity. Some programs exist to help elderly drivers adjust their driving to changes in their physical condition.

AARP (the American Association of Retired Persons) sponsors a Driver Safety Program, designed especially for drivers age 50 and older, which helps people deal with issues such as:

• How to minimize the effects of dangerous blind spots
• How to maintain the proper following distance behind another car
• The safest ways to change lanes and make turns at busy intersections
• Proper use of safety belts, air bags, antilock brakes and new technology found in cars today
• Ways to monitor your own and others' driving skills and capabilities
• The effects of medications on driving
• The importance of eliminating distractions, such as eating, smoking and using a cellphone
• How to compensate for vision problems associated with aging

These Driver Safety Programs are taught at numerous senior centers and other convenient locations throughout the United States, including Connecticut. Visit www.aarpdriversafety.org or call (877) 846-3299 for locations and dates.  Upon completion of the program, participants may be eligible for insurance discounts.

Additionally, the Association for Driver Rehabilitation offers referrals to specialists who teach people with disabilities, including those associated with aging, how to improve their driving.  Visit www.driver-ed.org or call (866) 672-9466 for more information.

There are many ways for elderly drivers to adjust so they are not a danger to themselves or others. Among them are:

• Avoid driving at night, dawn or dusk
• Drive only to familiar locations
• Avoid driving to places far away from home
• Avoid expressways (freeways)
• Avoid rush hour traffic
• Allow plenty of time to get to their destination
• Don’t drive alone

Other forms of transportation

Encourage your loved one to rely more on public transportation. This will reduce their time behind the wheel and help prepare them for the day when they can no longer drive. Many cities offer special discounts for seniors on buses and trains.  Most town senior centers often provide special transportation for seniors.  Community service agencies also provide transportation. For example, the Eastern Connecticut Transportation Consortium (ECTC) www.ectcinc.com  (860-859-5791) provides free rides for seniors 60 years of age or older who reside in Bozrah and Franklin for medical appointments, shopping and other needs.  Their Resources page list links to other websites for both transportation and social service organizations serving Eastern Connecticut .

How to know when it is time to stop driving

The Connecticut DMV (Department of Motor Vehicles) has a Center for Experienced Drivers with a website containing valuable information for older drivers www.ct.gov/experienced.  According to the website, some signs of diminished capacity for driving safely include:

• Having a series of minor accidents or near crashes
• Having wandering thoughts or being unable to concentrate
• Being unable to read ordinary road signs
• Getting lost on familiar roads
• Having other drivers honk at you frequently
• Being spoken to about your driving by police, family, and friends

How to get them to stop

If your loved one is truly an unsafe driver, it is important for their own safety and the safety of others that you get them to stop driving.   If you are lucky, they will agree without an argument. If not, you have several options:

• Stage an intervention.  Family members, health care workers and anyone else respected by the senior, as a group, confront the elderly driver.  Conduct the intervention firmly but with compassion in order to break through the senior’s denial of the issue.
• Contact the Department of Motor Vehicles and report your concerns.  The DMV may do nothing more than send a letter, but this might help convince your parent or loved one to stop.
• Disable the car.  Take the keys or move the car to a location beyond the elderly person’s control. Leave the headlights on all night or disconnect the battery to disable the car. But, if your loved one is likely to call AAA or a mechanic, you have no choice but to eliminate all access to the car.  While this may seem extreme, it might save the life of your loved one, another driver or a pedestrian.

Our parents led us into the world of driving.  We owe it to them to guide them through their driving challenges as they age.

What responsibilities will I have as an Agent?

The most important thing to remember when you step in as Agent is that the assets you control are not your assets. You are safeguarding them for the principal for whom you are the agent under the power of attorney and for the beneficiaries of the principal’s estate.

As an Agent, you have certain responsibilities. For example:
• You must follow the instructions in the power of attorney document.
• You cannot mix the principal’s assets with your own. You must keep separate checking accounts and investments in the name of the principal but with you as agent. Use the social security number of the principal for the account to assure that any tax documents like Form 1099s bear the name of the principal and not your name.
• You cannot use the principal’s assets for your own benefit (unless the power of attorney authorizes it).
• You must treat the descendants of the principal the same; you cannot favor one over another (unless the power of attorney says you can).
• The principal’s assets must be invested in a prudent (conservative) manner, in a way that will result in reasonable growth with minimum risk.
• You are responsible for keeping accurate records, filing tax returns and reporting to the probate court if a petition is filed requesting an accounting.

Make a preliminary list of the principal’s assets and their estimated values. You'll need exact values later. If the principal has a spouse or dependent children, the Agent may need to do some tax planning right away. Be sure that you have the principal’s social security number and date of birth because you will need them for many transactions.

Collect all checks payable to the principal and put them in an interest bearing account. If a spouse or a dependent child of the principal needs money to live on, you can probably make some partial distributions. But do not make any distributions until after you have determined there is enough money to pay all expenses for the principal, including taxes.

Notify the bank, brokerage firm and others that you are now acting as Agent of the principal under a Durable Power of Attorney. They will probably want to see an original or certified copy of the power of attorney and your personal identification such as a driver’s license.

Keep careful records of medical and household expenses and file medical claims promptly. Keep a ledger of all bills and income received. Contact an accountant to prepare income tax returns, if you will not prepare them yourself. Verify and pay all bills and taxes. Make an accounting of assets and bills paid and give it to the principal at least quarterly if the principal can review them.

Do I have to do all of this myself?

No, of course not. Once you have custody of the principal’s assets, you can have professionals help you.  You can hire an accountant to prepare tax returns and answer income tax questions.  You will also need to consult with an attorney from time to time to help interpret the power of attorney and answer legal questions. You may want investment counsel to provide portfolio management. However, as Agent, you are ultimately responsible to the principal and the beneficiaries of the principal’s estate for prudent management of the principal’s assets.

What do I do when the principal dies?

Your power as Agent ends when the principal dies.  If you know that the principal will die relatively soon make sure all of the paperwork is in order to turn over the finances to the Executor of the principal’s estate.

Inform the family of your position and offer to assist with the funeral. Read the principal’s estate planning documents and look for specific instructions on whom will take over your duties as Agent.  Is there an Executor?  Is a Trustee named as beneficiary of any assets?  Prepare a report of what you have done as well as any final invoice for your services if you were being paid for them.

Once you turn over control of the assets to the Executor, you're finished and your responsibilities end.  As Agent, you have the power to file an accounting in the probate court. The court decree approving the accounting will release you from liability as Agent under the Durable Power of Attorney.

Should I be paid for all this work?

Agents are entitled to reasonable compensation for their services. The power of attorney document may give guidelines on your compensation.  Look at local corporate Agent fee schedules to help determine what you think would be reasonable compensation and make sure that the beneficiaries of the principal’s estate understand how you will charge.  Beneficiaries hate surprises. Remember that you will have to pay income tax on the compensation you receive as Agent.

What if the responsibilities are too much for me?

Consider hiring an attorney, bookkeeper, accountant or corporate Trustee to help you once you have custody of enough assets to pay them. For instance, a corporate Trustee can manage the investments and do all of the recordkeeping for a fee. If you feel you cannot handle any of the responsibilities due to work, family demands or any other reason, you can always resign and let the successor Agent step in. If no other successor Agent has been named, or none is willing or able to serve, a probate court can always appoint a voluntary conservator to succeed you.

Springtime after a long, cold winter means it is time to discard unwanted papers and clutter.  As we age, we tend to hold onto things longer and the piles multiply.  It is difficult to decide what to discard.  Although you may have other reasons for holding onto certain items, in the spirit of spring cleaning, we offer the following guidance on what to keep and what to discard from an estate planning perspective:

1. Tax Records:  Keep income tax returns and backup documentations for at least three years after filing, preferably six years because of the risk of an audit  uncovering a substantial error.  Keep records of contributions to nontaxable traditional IRAs until the assets are sold.  Keep gift tax returns and your parents’ estate tax returns indefinitely because they can be crucial documents in future income and estate tax planning.

2. Cost Information:  For assets subject to capital gains or losses such as your home or your investments, keep cost data until the asset is sold and the income or estate tax return reporting the sale is no longer subject to audit.

3. Vehicle Information:  Keep records of the purchase, registration, title and lien release for as long as you own your vehicle; discard information on cars you have sold or donated.

4. Loan Documents:  Keep the Note, Mortgage or Security Agreement and the last annual statement until the loan is paid off and the mortgage or financing statement is released; if the loan is from a family member, keep the amortization schedule and your record of payments made; keep any copy of liens on your home or business real estate until the lien is released.

5. Warranties:  Keep them as long as the warranty is in effect; discard old warranties and warranties of products you no longer own.

6. Estate Planning Documents:  Keep a copy of your Will, Trusts, Durable Power of Attorney, Appointment of Health Care Representative, and Living Will with a note on where the originals are located.  Discard superseded estate planning documents. Put the original Will and Trusts in your safe deposit box or a fire-proof safe at home.  Put more than one person on the safe deposit box so a court order isn’t needed after you die to get into the box.  Let your attorney know the location of the documents and the safe key or combination to get access to them.

7. Real Estate Documents:  Housing, land and cemetery deeds, time share deeds, easements, and road maintenance agreements should be kept with copies of any title insurance and surveys.  Discard paid off mortgages and liens.  Keep real estate appraisals completed at the time of any gift or any death.

8. Bank and Credit Card Records:  Keep recent bank account statements, credit card statements, safe deposit box inventory and location.  Discard bank statements, credit card statements, pay stubs and receipts after one year unless needed as part of tax records or to resolve a disputed item.

9. Investment Accounts:  Keep brokerage statements, mutual funds, IRA statements for one year.  Discard them after one year unless needed as part of tax records.  Keep savings bonds either in the safe deposit box or at home with your important papers.

10. Health Care:  Keep your personal and family medical history, Appointment of Health Care Representative, authorization to release health care information, Living Will or DNR order. Discard Explanation of Benefits from Medicare or other health insurance providers after filing your income tax return.

11. Life Insurance and Retirement:  Save life insurance policies, annuity contracts, 401(k) accounts and Summary Plan Descriptions, and pension documents.   Discard the policies and account statements for those that have been sold or closed.

12. Marriage and Divorce:  Do not discard your marriage license or, if applicable, divorce decrees or property settlement agreements.  Keep your premarital agreement unless revoked by written agreement.

Springtime is a great time to organize and clean your home.  Make this spring the time you discard what is unnecessary and keep those important documents listed above.