FLORIDA ESTATE PLANNING AND PROBATE LAW BLOG

The Florida Estate Planning and Probate Law Blog is focused on recent federal and state case law and planning ideas.

Showing posts with label estate planning. Show all posts
Showing posts with label estate planning. Show all posts

POTENTIAL CHANGES FOR NONSPOUSE DESIGNATED IRA AND RETIREMENT PLAN BENEFICIARIES ON THE HORIZON

♠ Posted by Marc J. Soss in ,,,,,,,
Important legislation is working its way through Congress. The Setting Every Community Up for Retirement Enhancement Act (“SECURE Act”) as passed by the House of Representatives on May 23, 2019, and would impact how and when an IRA or retirement account beneficiary would be forced to receive distributions from an inherited account. The biggest change under the SECURE Act would be the replacement of the 5-year distribution rule for inherited IRAs with a 10-year rule. It would also eliminate “stretch IRAs.” If signed into law, the Act would impact plan participants and IRA owners who die after January 1, 2020, with limited exceptions. Under current tax law contributions to an IRA and retirement plan are not taxed until distributed after retirement (distribution must begin not later than age 70.5). Until distribution the investments grow tax free and create an incentive for a retiree to withdraw from their IRAs as a last resort to avoid taxation, loss of tax shelter, and potential method to pass an inheritance on to beneficiaries. Under the SECURE Act, all IRA and retirement plan distributions would need to be completed within a ten (10) year period beginning in the year following the year the participant or IRA owner died. The ten (10) year period would replace the current five (5) year default period and would apply regardless of whether the plan participant or IRA owner died before or after reaching their required minimum distribution date (RMD). The change would apply to distributions to a non-spouse beneficiary from retirement plans and IRAs (including Roth IRAs) made after the death of the plan participant or IRA owner who dies after December 31, 2019. Limited exceptions apply for: (i) a new class of individuals called “eligible designated beneficiaries” (surviving spouse, minor child, disabled individual or individual that is not more than 10 years younger than the deceased participant); (ii) collectively bargained plans; (iii) certain governmental plans; and (iv) existing annuity contracts. The minor child exception will cease once the minor child reaches the age of majority. Thereafter, the remainder of the distributions to that individual must be completed within ten (10) years after that date. A “disabled individual” includes an individual unable to engage in any substantial gainful activity due to a medically determinable physical or mental impairment. The determination as to the existence of an eligible designated beneficiary will be made upon the death of the plan participant or IRA owner. For most inherited IRA beneficiaries, the 10-year rule will provide far more flexibility for timing distributions than the existing 5-year rule. However, those desiring to utilize their retirement account as a wealth transfer vehicle could be adversely impacted.
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2018 QUALIFIED PLAN LIMITS - START PLANNING TODAY

♠ Posted by Marc J. Soss in ,,,,,,
The Internal Revenue Service (“IRS”) announced on October 19, 2017, the following dollar limits applicable to tax-qualified plans for 2018: • The limit on the maximum amount of elective contributions that a person may make to a §401(k) plan, a §403(b) tax-sheltered annuity, or a §457(b) eligible deferred compensation plan is increased from $18,000 to $18,500. • The limit on “catch-up contributions” to a §401(k) plan, a §403(b) tax-sheltered annuity, or a §457(b) eligible deferred compensation plan for persons age 50 and older remains unchanged at $6,000. • The dollar limit on the maximum permissible allocation under a defined contribution plan is increased from $54,000 to $55,000. • The maximum annual benefit under a defined benefit plan is increased from $215,000 to $220,000. • The maximum amount of annual compensation that may be taken into account on behalf of any participant under a qualified plan will go from $270,000 to $275,000. • The dollar amount used to identify “highly compensated employees” remains unchanged at $120,000.
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ESTATE PLANNING IS NOT JUST FOR THE OLD AND WEALTHY

♠ Posted by Marc J. Soss in ,,,,,
Is your child ready for college? While you may have purchased for them new clothing, linens, towels, etc. the question becomes whether they have executed an estate plan? Most families fail to recognize that once their child (young adult) reaches age 18 years they are considered an adult under most state laws and their parents can no longer make all financial and health care decisions for them or have access to their medical records. As a result, estate planning is not only for the old or the wealthy and every individual over age 18 should have, at a minimum, a Power of Attorney and Health Care Directive. A Durable Power of Attorney designates another individual to act for the young adult in legal and financial matters. It is mainly used in the event of an accident or incapacity rendering the young adult unable to effectively manage legal and financial matters. Having such a document in place would avoid the necessity of having a guardian or conservator appointed should an accident or incapacity happen. The Health Care Directive empowers another to make health care decisions in the event of incapacity, articulate their wishes and directions in the event health should deteriorate and designates another to act as “personal representative” for purposes of HIPAA to authorize the release of medical records if necessary to obtain medical treatment. Make sure they have these documents in place prior to dropping them off in college.
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NEW STATE OF WASHINGTON POWER OF ATTORNEY STATUTE

♠ Posted by Marc J. Soss in ,,,,,,,
The new State of Washington Power of Attorney statute went into effect on January 1, 2017 (“Act”). The Act provides several changes and additions to the previous law, which aim to address previous ambiguity in the law and to provide safeguards to prevent possible abuse of authority by an agent under the power of attorney. Some of the key provisions of the Act are: Agent/Attorney in Fact: If the principal names co-agents to act on his or her behalf, the Act now clarifies that co-agents must exercise their authority jointly, unless the document specifies that each co-agent may act independently. When Effective: Under the Act, a power of attorney must now expressly state that the document is not affected by the disability of the principal, or that it becomes effective upon the disability of the principal in order for the power of attorney to be “durable” and not affected by the principal’s subsequent disability. The powers granted to the agent may be effective immediately upon signing or may spring into effect only when the principal becomes incapacitated. Powers Granted to Agent: The Act allows the principal to grant authority to the agent over broad subject matters, including but not limited to, the authority to manage the principal’s real and personal property, stocks, bonds, and other financial instruments; to make gifts; to manage the principal’s estate, trusts, and other beneficial interests; and to manage and operate a business. By drafting the power of attorney to refer to certain specific categories of powers the agent may be granted, the power of attorney can incorporate the more detailed descriptions of these powers set forth in the Act. This could eliminate ambiguity in the document itself regarding the scope of the agent’s particular powers and may allow the power of attorney document itself to be simplified. Under the Act, the authority to make gifts is limited to the amount of the federal gift tax annual exclusion ($14,000 per year to each recipient) unless otherwise stated in the document. Formalities: The principal’s signature must either be: (i) acknowledged by a notary; or (ii) attested by two or more witnesses, who are competent, and are not home care providers for the principal or related to either the principal or agent by blood or marriage.
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CONGRESSIONAL ATTEMPT TO CLOSE MEDICAID LOOPHOLES

♠ Posted by Marc J. Soss in ,,,,,,,
Congress is considering making it more difficult for a community spouse to utilize an annuity to qualify for Medicaid. The proposed bill would prevent married couples from using assets to purchase an annuity for the community spouse, so that the institutionalized spouse can apply for Medicaid. The bill would count half of the income from a community spouse's annuity as income available to the institutionalized spouse for purposes of Medicaid eligibility. Savings from the legislation would be utilized to reduce waiting lists for home health care waivers. In addition, Congress is reviewing legislation that would: count lottery winnings as income; and require Medicaid applicants to prove U.S. citizenship or residency before receiving benefits.
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STATE ESTATES AND INHERITANCE TAXES IN 2017

♠ Posted by Marc J. Soss in ,,,,,,,,
For years it has been discussed that for estate tax purposes it was better to die a resident of certain states than others. The following is an updated list, as of January 1, 2017, of the states which impose a "death or inheritance tax" on its residents and those who follow the Federal Estate Tax Exemption amount. Good States in Which to Die a Resident: Alabama, Alaska, Arizona, Arkansas, California, Colorado, Florida, Georgia, Idaho, Indiana, Louisiana, Michigan, Mississippi, Missouri, Montana, Nevada, New Hampshire, New Mexico, North Carolina, North Dakota, Ohio, Oklahoma, South Carolina, South Dakota, Tennessee, Texas, Utah, Virginia, West Virginia, Wisconsin, and Wyoming. Bad States in Which to Die a Resident: Connecticut ($2,000,000), Delaware ($5,490,000), District of Columbia ($2,000,000), Hawaii ($5,490,000), Illinois ($4,000,000), Iowa (inheritance tax on transfers to others than lineal ascendants and descendants), Kentucky (separate inheritance tax), Maine (estate tax and no portability), Maryland ($3,000,000), Massachusetts ($1,000,000), Minnesota ($1,800,000), Nebraska (County Inheritance Tax), New Jersey ($2,000,000), New York ($4,187,500 for April 1, 2016 through March 31, 2017 and then $5,250,000 for April 1, 2017 through December 31, 2018), Oregon ($1,000,000), Pennsylvania (Inheritance Tax), Rhode Island ($1,500,000), Vermont ($2,750,000), and Washington ($2,129,000).
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STUDENT LOAN DEBT AND SOCIAL SECURITY DUE NOT MIX

♠ Posted by Marc J. Soss in ,,,,,,,,
Student loan debt is not dischargeable in bankruptcy. As a result, the baby boomer’s generation enters retirement with student loan debt (approximately seven million Americans age 50 and older owed about $205 billion in federal student debt in 2016), either borrowed for their own educations or to pay for their children’s, with approximately 33% in default. Those in default will be shocked to learn that their Social Security checks can be reduced (known as an “Offset”) to repay their student loan debt. The Offset can be as large as 15% of a social security recipient’s benefit payment. This has left some Social Security recipients at or below the poverty level. Government statistics show that older borrowers had a monthly Offset of approximately $140, and almost half of them were subject to the maximum possible reduction. In 2015, the Department of Education collected about $4.5 billion on defaulted student loan debt. A total of $171 million, almost 10%, was collected through an Offset.
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COMMON FLORIDA MEDICAID MYTHS - DON'T ALWAYS LISTEN TO YOUR FRIEND

♠ Posted by Marc J. Soss in ,,,,,,,
Medicaid is both a federal and state level program through which health care assistance is offered it’s to members. Each state administers their program differently than the next. Your Home in Florida: A Florida residents can own a personal residence (home) and still qualify for Medicaid. Medicare Covers Long-Term Nursing Care: The Florida Medicare program covers skilled nursing care, but only for a limited period of time following a three-day hospital stay. Medicare is only meant to help a person with activities of daily living, such as bathing, eating, and using the bathroom, and can’t be used to cover long-term health care expenses. Transfers Made Within five years of Applying Will Make You Ineligible: Medicaid will consider any uncompensated or below-market transfer (“transfers”) when the office reviews an application. Only certain transfers will be considered when determining whether a penalty period will apply. Medicaid benefits are not available during a penalty period. You Must Spend of All of Your Assets to Qualify: Florida does place a cap on the amount of gross income and assets a person can own and qualify for Medicaid. A person with too many assets or income is ineligible to receive Medicaid benefits. A single person applying for Medicaid benefits may only have $2,000 of countable assets. The other spouse may possess up to $120,900 of countable assets. There are also many exempt assets or noncountable assets that a person or couple may own, including a home. Florida’s Medicaid Rules are the Same as the Rules in Other States: Each state participates in Medicaid funding, it is a federal program, and has its rules on how these funds are administered. A person that lives in another state may not have to meet Florida’s requirements for Medicaid. Further, the rules can change on an annual basis.
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IRS GIFT TAX RULES

♠ Posted by Marc J. Soss in ,,,,,,,,
Under the Internal Revenue Service (IRS) rules, the service has a three (3) year statute of limitations after the filing of IRS Form 709 to assess gift taxes on a gift, so long as the gift is adequately disclosed on the return. If a gift is not disclosed on Form 709, the statute of limitations does not begin to run on that gift. Form 709 requires the disclosures of prior gifts, so that the tax on the current gifts can be properly calculated (since prior gifts can impact the rate of tax and available unified credit applicable to the current year computations). The question has arisen as to what happens if a gift is improperly reported on a return? A recent Chief Counsel Advice 201643020 concludes that the Code does not support an extended statute of limitations in this circumstance. However, I do not recommend filing an improper return with the IRS.
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MASSACHUSETTS ESTATE AND PROBATE TAX TRAP AVOIDANCE

♠ Posted by Marc J. Soss in ,,,,
Since 2001, the Massachusetts Department of Revenue ("DOR") has taken the position that Massachusetts resident who die owning real estate or tangible personal property in states which do not impose a state estate tax (New Hampshire, Florida, etc...)the Massachusetts estate tax is applied to the total net value (including the assets in other states). In effect, if another jurisdiction charges an estate tax on real estate or tangible items located within its borders, Massachusetts allows a credit for the tax paid to the other jurisdiction. If no tax is charged, Massachusetts collected the tax attributable to that value as part of the total tax computed. However, a recent Massachusetts probate court held for the first time that a taxpayer who died with property in such a jurisdiction was able to exclude such property from their taxable estate, thus decreasing the tax significantly. While this decision was made by a state trial court, and not on the appellate level, the reasoning was based on solid U.S. Supreme Court precedent. The DOR does not seem likely to challenge the court’s reasoning. The U.S. Supreme Court previously ruled on this issue and found that such taxing schemes were in violation of the Due Process clause of the U.S. Constitution, because the person owning the land or tangibles in the other state derived no benefit from the laws of the state imposing the tax. Such benefits are held to be the basis of the state’s power to tax.
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SPOUSAL LIFETIME ACCESS TRUSTS

♠ Posted by Marc J. Soss in ,,,,,,,,
Is a Spousal Lifetime Access Trust (SLAT) part of your estate plan? Many families today, for both Florida estate planning and Florida estate protection planning purposes, are utilizing SLAT’s to protect their assets. When both spouses are living, one spouse can establish this type of trust for the other spouse through the use of their lifetime gift tax exemption. A SLAT will typically name the non-gifting spouse as the beneficiary, and allow the trustee to make distributions to them during their lifetime. Upon the non-gifting spouse’s death, the trust assets can then pass to the designated trust beneficiary(s) under the specified terms and conditions of the instrument. For estate planning purposes, the non-gifting spouse can be given a limited power of appointment, effective at their death, which allows them to change how the SLAT assets will be distributed after the beneficiary-spouse’s death. This effectively gives them the ability to change the trust beneficiary(s) and the specified terms and conditions of the instrument. To maximize the asset protection benefits available with a SLAT, the gifting spouse should fund the trust using only their personal assets and not jointly held assets. The non-gifting spouse should only serve as a trustee if the power to make distributions to themselves is limited by an “ascertainable standard” (distributions can only be made for health, education, maintenance, and support). Under no condition should the gifting spouse serve as a trustee of the SLAT.
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THE NEW 2016 IRS DEFINIATION OF HUSBAND AND WIFE

♠ Posted by Marc J. Soss in ,,,,,,,
The Internal Revenue Service (IRS) has formally put into place, effective September 2, 2016, amendments to the regulations that define “who is married for tax purposes.” The new regulations state that it will interpret the term “husband and wife” as any two people who are married to each other, even if they are a same-sex couple. The IRS is addressing this issue as a result of the 2013 U.S. Supreme Court ruling in United States v. Windsor (which struck down the section of the Defense of Marriage Act (DOMA) prohibiting recognition of same-sex marriages for federal purposes) and the 2015 Supreme Court ruling in Obergefell v. Hodges (that made same-sex marriage legal throughout the nation).
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ESTATE PLANNING DOCUMENTS - DONT LET YOUR CHILDREN LEAVE HOME WITHOUT THEIRS IN PLACE

♠ Posted by Marc J. Soss in ,,,,,,
Becoming an empty nester and watching your child(ren) leave the home (for school or a job) can be difficult emotionally. Reality is that when a child reaches the age of 18 they are a legal adult, even though they may still depend on you for financial and emotional support. Most parents are surprised to learn that once a child turns age 18 they are not legally permitted to make financial or medical decisions on their behalf, or even be notified if their child is in the hospital emergency room. To avoid this from happening, it is important to have your child(ren) create their own estate planning documents (Power of Attorney, Health Care Surrogate and Living Will). Estate planning documents are not just for the older generation. These documents will provide authority and allow a parent or family member to step in, when a child needs financial or medical assistance and the child is unable to make such decisions for themselves. Alternatively, a parent will have to commence a guardianship proceeding to obtain legal authority to assist the child. Having your child(ren) execute these documents once they reach age 18 and before they leave home will provide you with piece of mind.
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WHAT IS “SEPARATE PROPERTY” IN A PRE-MARITAL AGREEMENT

♠ Posted by Marc J. Soss in ,,,,,,
The Fifth District Court of Appeals in the case of Colino v. Volino, 41 Fla. L. weekly D1990b (5th DCA, August 26, 2016) recently addressed what “constitutes separate property” for purposes of a pre-marital agreement. The agreement in dispute contained the standard “Separate Property” provision that provided “if a party acquires real property in his or her own name it shall be that party's Separate Property.” However, during the marriage, the husband gifted funds, which he was permitted to do under the agreement, from his personal account to his wife. The wife then utilized the funds to acquire a parcel of real property in her name. Eight months later, the wife transferred the real property solely into the name of her husband. The parties subsequently divorced. At trial, the Court found the real property to be the Separate Property of the wife at the time of divorce. The Court based its ruling on the provision that “if a party acquires real property in her own name it shall be her Separate Property.” The Fifth DCA reversed and determined that the real property constituted the Separate Property of the husband. The Fifth DCA concluded that it was the wife's Separate Property when she acquired it and that it became the Separate Property of the husband when wife transferred the real property to him.
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REASONS FOR LEAVING AN INHERITANCE IN TRUST

♠ Posted by Marc J. Soss in ,,,,,,,,
It is not uncommon today for a parent to leave a beneficiary’s inheritance in a trust for their benefit instead of an outright gift of the funds at death. Factors which must be considered are: (i) the size of the inheritance; (ii) financial savvy and sophistication of the anticipated beneficiary; (iii) high divorce rate; and (iv) desire to protect the beneficiary from themselves. To protect the beneficiary, the following provision may be included into a trust instrument: Creditor Protection: The establishment of an irrevocable trust for a beneficiary upon the parent’s death. To the extent that distributions from the trust are solely discretionary (the trustee does not have to distribute anything to the beneficiary) the assets in the trust will not be attackable by the beneficiary’s creditors. Divorce: While the termination of a beneficiary’s marriage can’t ever be anticipated, a parent can help protect the inheritance being left to them by having it held in an irrevocable trust for their benefit. This will ensure the inheritance is not commingled with the beneficiary’s spouse’s assets and will be treated as their separate and non-marital property (potentially exempt for purposes of spousal support or alimony. Similar to a creditor protection provision, the trust can make all distributions to the beneficiary discretionary. The trust can also include a provision allowing the trustee to terminate the trust and distribute the trust assets to the beneficiary if they believe their marriage is stable or any other legal reason. Estate Tax Savings: A trust can include language to prevent inherited assets from being included in a beneficiary’s estate for estate tax purposes. Despite the federal estate tax exemption being $5,450,000.00 per individual, no crystal ball can tell us what the future holds.
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CAN MY REVOCABLE TRUST OWN S-CORPORATION STOCK

♠ Posted by Marc J. Soss in ,,,,,,,
A Florida Revocable Trust (“Trust”) is a common tool utilized by individuals when creating their Florida estate plans. A Trust is designed to hold assets during the Grantor (the individual who creates the Trust) lifetime and then dispose of those assets at their death (the terms of the Trust will contain the individual’s specific directions as to how the assets will be distributed). In order for a Trust to accomplish its objective it must be funded (assets retitled into the name of the Trust) with all of the Grantor’s assets during their lifetime. This will require the Grantor to retitle real property, bank and investment accounts, and any business interests (LLC interests or stock in an S-Corporation) into the Trust. If a Grantor intends to title S-Corporation stock into the name of their Trust there are specific guidelines which must be adhered to. While a Trust is a permitted shareholder of an S-Corporation, Section 1361 of the Internal Revenue Code only permits certain kinds of trusts (a Qualified Subchapter S Trust or Electing Small Business Trust) from owning the stock. If an unauthorized Trust becomes a S-Corporation stock shareholder, the Corporation will cease to be a qualified S-Corporation and will be taxed as an ordinary C Corporation. Additional pitfalls must be avoided when a married Grantor dies. Upon a Grantor’s death, the Trust assets may be divided and distributed into separate trusts (share for the surviving spouse and one for the deceased spouse). The deceased spouse’s share is typically held in an irrevocable trust for the survivor’s benefit (a “Credit Shelter Trust” or “Bypass Trust”). If the S-Corporation stock is utilized to fund the Credit Shelter Trust, not a grantor trust, then it must qualify as either a Qualified Subchapter S Trust or Electing Small Business Trust and make a timely election with the IRS.
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DISCRIMINATION PROVISION IN WILL UPHELD AS VALID

♠ Posted by Marc J. Soss in ,,,,,,,,
In the New Jersey Appeals Court case of In re the Estate of Kenneth E. Jameson, (NJ App., Aug. 12, 2016), a New Jersey appeals court upheld NJ law which allows discrimination provisions in testamentary bequests. The law does not preclude an "individual from disinheriting his or her child for religiously discriminatory reasons." The Ohio Supreme Court previously upheld a similar provision. The court upheld the specific provision contained in the Will, which disinherited his daughter if she married someone of the Jewish faith, because "neither the New Jersey Law Against Discrimination nor New Jersey public policy bars disinheriting a child based on religion or religious affiliation."
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NEW HOSPITAL NOTICE REQUIREMENT FOR MEDICARE BENEFITS

♠ Posted by Marc J. Soss in ,,,,,
On August 6, 2016, a new Medicare law went into effect that requires hospitals to notify patients, who receive observation services as an outpatient, that they may incur out-of-pocket costs if they stay more than twenty-four (24) hours in a hospital without being formally admitted. Most patients are unaware that any time spent in “observation status” will not count towards their three (3) day hospital requirement, even if it is spent in a hospital bed or they receive hospital services (tests, treatment and medications), and Medicare will not be obligated for their hospital bills and will not pay for subsequent nursing home care. Medicare benefits will only apply when the patient has spent three (3) consecutive days in the hospital as an inpatient. The new notification requirement is part of the Notice Act passed by Congress in 2015. The notice requirement is designed to prevent hospitals from keeping patients in an “observation status” and avoiding an inappropriate admission under the Medicare rules. Under the new law, hospitals can still keep patients in observation status, and those patients who fail to meet the Medicare requirements will continue to be responsible for their nursing home costs. Medicare covers up to one hundred (100) days of skilled nursing home care at a time.
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STABLE ACCOUNTS - AS A PART OF YOUR ESTATE PLANNING

♠ Posted by Marc J. Soss in ,,,,,
The Achieving a Better Life Experience (ABLE) Act of 2014 will soon allow individuals to incorporate STABLE accounts in their estate plans for disabled family members. The accounts will allow family members to save money to be used by the disabled family member throughout their life without losing eligibility for government benefit programs. The account earnings will grow tax-free as long as they are utilized for qualified expenses. In order to establish a STABLE account, the individual must have been disabled before 26 years old and entitled to benefits under the SSI or SSDI programs.
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NEW 2016 CONNECTICUT POWER OF ATTORNEY LAW

♠ Posted by Marc J. Soss in ,,,,,,


 Effective October 1, 2016, the new Connecticut law governing “Powers of Attorney” (written designations of authority) will go into effect (a major update to the 1965 law. The new law, known as the Connecticut Uniform Power of Attorney Act imposes new obligations on banks to whom POA’s are presented by requiring them to either accept a notarized POA or request additional documentation within seven (7) business days. Once the documentation is presented, if the bank requests it from the agent, it will have five (5) days to either accept the POA or reject it (based upon suspected abuse or the bank’s knowledge that the POA has been revoked). In those cases, the bank continues to be free to refuse to accept the POA, without sanction or liability. Alternatively, if the bank refuses to accept the POA without sufficient cause, the attorney-in-fact can obtain a court order mandating acceptance of the POA and potentially recover reasonable attorney’s fees and costs from the bank.



The new law also provides that (i) the commencement of a divorce or separation proceeding will automatically revoke the POA designation of a spouse; (ii) the POA remains effective during incapacity without any additional language; (iii) existing POA’s remain valid; and (iv) the new law’s presumptions, such as revocation of a former spouse’s designation as attorney-in-fact and durability, will apply to prior POA’s. In addition, the new law creates a second, long statutory form that includes estate planning powers, allowing gift giving and other powers.
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