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.

2016 CHANGES TO AID AND ATTENDANCE BENEFITS ELIGIBILITY

♠ Posted by Marc J. Soss in ,,,,

Unknown to many veterans, the Veteran's Administration (VA) offers a pension benefit, known as “Aid and Attendance,” to low-income veterans (or their spouses) who are in nursing homes or who need help at home with everyday tasks (dressing, bathing, etc.).  In 2015, it could provide a wartime veteran with up to $21,466 a year ($1,788 per month) to cover care at home or in assisted living. A veterans surviving spouse was also eligible for Aid & Attendance benefits up to $14,353 per year ($1,196 per month). While the benefit is currently underused, new regulations have made it available to even fewer veterans. The new regulations specify asset limits for qualification and impose a look-back period and transfer penalties similar to Medicaid’s.

The regulations set an asset limit of $119,220 in 2016 (the same amount that a Medicaid applicant’s spouse may retain) for eligibility. This number will include both the applicant's assets and income and will be indexed to inflation in the same way that Social Security increases. The VA will not reduce the applicant’s assets by the amount of any mortgages or encumbrances on their primary residence or provide a hardship exception. Fortunately, an applicant's home (subject to a two acre lot size limit) will not count as an asset. The home exception will apply regardless of whether the applicant is residing in a nursing home, medical foster home, or an assisted living or similar residential facility that provides custodial care, or resides with a family member for custodial care. However, if the home is sold the sale proceeds will count as assets.


The regulations also establish a three-year look-back provision. This will adversely impact an applicant who has transferred assets within three (3) years of applying for benefits.  Those who violate the regulation can be subject to a ten (10) year penalty period (the penalty period will in months by dividing the amount transferred by the applicable maximum annual pension rate). An applicant can avoid the penalty if they can “present clear and convincing evidence that the transfer was not made in order to qualify for Aid and Attendance benefits.” Under the prior regulations, there was no penalty if an applicant divested themselves of assets before applying.
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POTENTIAL PITFALLS OF PAY-ON-DEATH ACCOUNTS

♠ Posted by Marc J. Soss in ,,,,,,

It is not uncommon to hear an individual refer to a “Pay-On-Death” (“POD”) account as a poor individual’s version of a Will. The reason being is that upon the death of the account owner the account assets pass directly to the payee without going through probate. However, a 401k, IRA's, annuities and life insurance policies also falls into this category. Upon your death, the beneficiary designation on these accounts will determine to whom the account assets pass.  

In a recent case, an attorney prepared a Last Will and Testament (“Will”) for a client who wanted their substantial assets to be equally divided between her two sons.  The bulk of her assets were held in two brokerage accounts.  She named her oldest son as both the Personal Representative of her estate and as the “pay-on-death” beneficiary of the brokerage accounts. Upon her death, the oldest son took the position that it was his mother’s intention that he receive one-hundred percent of the brokerage accounts and that he and his brother would only split the assets passing under the Will.  The other son threatened to file a lawsuit and ultimately settled for an amount substantially less than his intended one-half share. Even if the woman had specifically bequeathed her accounts under her Will, the beneficiary designation would override the bequest and the account assets would pass to the designated beneficiary.

When should you utilize a POD?

The best use of a POD account is only when an individual wants a certain account to go to only one certain individual.  For example, an individual wants to leave their entire account or estate to their only child. Naming them as the pay-on-death account beneficiary will pass the assets directly to them and avoid the probate process. This same logic applies to 401k, IRA's, annuities and life insurance policies as well.

Review Beneficiary Designations Often:


To avoid unintended results, it is important to review beneficiary designations as a part of the estate planning process. A well intentioned estate plan can be foiled by a forgotten beneficiary designation.
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PREPARING FOR YOUR ESTATE PLANNING MEETING

♠ Posted by Marc J. Soss in ,,,,,,,
Many individuals become overwhelmed with the decisions that they need to make when preparing or updating their estate planning documents. The purpose of this list is to help you analytically consider all the questions and issues that must be addressed, provide you with time to reflect on them and work your way through what will be discussed at your meeting with your estate planning attorney. The goal is to achieve your planned result.

1. Create A List Of Your Assets And Liabilities. Knowing what you own can make the estate planning process a lot simpler. Your asset list should include your house (and mortgage), bank accounts, investment accounts, business interests, personal belongings with value (e.g., artwork or jewelry), insurance policies on your life and retirement accounts. For each asset on the list, include an estimate of its value or current balance, as well as whether you own the asset in your individual name or in joint name with another person, such as your spouse. It is equally important to make a list of your debts and legal obligations (mortgage on home, lines of credit, business loans that you have personally guaranteed, etc..

2. Decide Which, If Any, Personal Belongings You Want To Leave To A Specific Person. You should consider what you own and to whom you want it to pass upon your death. The value of the item should not be a consideration as it may have great sentimental value to the recipient. Most couples provide that all of their household furnishings, jewelry, collections, etc., pass to the surviving spouse, when the first spouse dies, and then everything will be divided equally among their children when both of them are gone. If there is a concern that your children or heirs may fight over items which have nothing more than sentimental value you should consider empowering an independent individual to be the ultimate decision maker.

3. Who Should Be The Personal Representative(s). A Personal Representative is the individual or entity appointed to administer your estate at death.  Their duties include collecting your assets, paying debts, expenses and any taxes that may be due and then distributing the assets as directed by your estate plan. People typically name their spouse and then child(ren) to serve as the personal representative of their estate. Florida law only requires that the individual named be (i) a state resident; or (ii) family member.  You can also name more than one person to serve as your Personal Representative.

4. Outright Distributions or Creation of Trusts For Your Children And Grandchildren. Since it is your hard earned money, at your death you can decide how and to whom you want it distributed.  You can elect to have it all distributed to your surviving spouse and then child(ren) or held in trust for their benefit and distributed to future generations. Other options include dividing the trust property into equal/unequal shares, with each share held in trust for a child or grandchild until they reach a specified age (e.g., 1/3 at age 30, 1/3 at 35, and the balance at 40), or their entire lifetime (Florida allows a trust to exist for 360 years after the creators death) or attain certain accomplishments (college or post-graduate degree). Two benefits of holding an inheritance in trust is that (i) the property can be insulated from the claims of that beneficiary’s creditors, including a divorcing spouse; and (ii) it can prevent rapid depletion of the funds by a youthful recipient. 

5. Who Should Be The Trustee(s). As with the appointment of a Personal Representative, the individual or entity that select as the trustee of your trust, following your death, can be a family members, friend and/or professional.  The trustee will be responsible for managing the assets and making sound distribution decisions, so there will be adequate resources to meet your spouse’s and/or your children’s needs after you are gone. Unlike a Personal Representative, there is no restriction on who you can select to serve as a trustee.

6. Who Should Make Medical Decisions For You If You Are Incapacitated. Your health care surrogate is appointed as your agent to make health care decisions for you. Make sure the individual(s) selected are capable of performing their responsibilities on your behalf. There is no restriction on who you can select to make these decisions on your behalf.

7. Who Should Take Care Of Your Financial Affairs If You Are Unable.  Your power of attorney appoints the individual(s) to act as your agent with regard to financial matters during your lifetime. In Florida, a power of attorney is in effect immediately after execution, even if you are not incapacitated. There is no restriction on who you can select to make these decisions on your behalf.
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FLORIDA CLOSER TO GUARDIANSHIP REFORM

♠ Posted by Marc J. Soss in ,,,,,,,
 
Guardianship reform has been an issue growing in prominence due to the many abuses found in systems across the nation. Florida is in the process the guardianship reform movement and a step in the right direction as the state Senate is set to have a final vote on a bill that would create a team to oversee the state guardianship system. Scandals have rocked Florida in recent years including one case where a judge was appointing his wife who would then initiate lawsuits on behalf of the ward which family members saw as unnecessary and intended as a vehicle to increase the fees paid to the supposed protector. However, this is not the first attempt at reformation after a bill was passed in recent years which supposedly ended judicial favoritism towards specific Florida guardians although advocacy groups argue that it did little to deter judges. Let us hope this new bill does the trick since guardianship abuse undermines public confidence in the legal system and harms the most vulnerable members of our society.
 
A link to the bill can be found at:
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IS THIS THE YEAR TO MAKE A ROTH IRA CONVERSION

♠ Posted by Marc J. Soss in ,,,,,

The crazy 2015 stock market offers some excellent planning opportunities, if you qualify.  While year-end has not brought the stock market back to where it started the year, it opens the door to those interested in making a Roth IRA conversion. Converting a traditional Individual Retirement Account (IRA) to a Roth IRA would allow the assets to grow tax-free, while remaining in your account, and tax-free distributions once you start withdrawing funds.

There is no income limit or other restrictions on who is eligible to convert a traditional retirement account to a Roth IRA. The account owner will have to pay income taxes on the account’s value on the date of conversion.  However, the new investment account will never again be subject to income taxes or required minimum distributions. Considerations that should be reviewed include (i) whether your income tax rate be lower now, or during your future retirement years; and (ii) do you have funds to pay the income taxes, other than the converted funds (if you’re under age 59 ½ and use a portion of the IRA to pay the tax bill, the payment is treated as an early distribution of the traditional IRA). 
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2015 YEAR END TAX PLANNING CONSIDERATIONS

♠ Posted by Marc J. Soss in ,,,,,,
2015 Year-End Planning Moves:

·  Realize losses on stock while substantially preserving your investment position. There are several ways this can be done. For example, you can sell the original holding, then buy back the same securities at least 31 days later.
·  Postpone income until 2016 and accelerate deductions into 2015 to lower your 2015 tax bill. This strategy may enable you to claim larger deductions, credits, and other tax breaks for 2015 that are phased out over varying levels of adjusted gross income (AGI). These include child tax credits, higher education tax credits, and deductions for student loan interest. Postponing income also is desirable for those taxpayers who anticipate being in a lower tax bracket next year due to changed financial circumstances.
· Consider converting traditional-IRA money invested in beaten-down stocks (or mutual funds) into a Roth IRA if eligible to do so. Keep in mind, however, that such a conversion will increase your AGI for 2015.
·  If you converted assets in a traditional IRA to a Roth IRA earlier in the year and the assets in the Roth IRA account declined in value, you could wind up paying a higher tax than is necessary if you leave things as is. You can back out of the transaction by recharacterizing the conversion, transferring the converted amount (plus earnings, or minus losses) from the Roth IRA back to a traditional IRA via a trustee-to-trustee transfer.
·  Use a credit card to pay deductible expenses before the end of the year. This will increase your 2015 deductions, even if you don’t pay the bill until 2016.
·  If you expect to owe state and federal income taxes when you file your return next year, ask your employer to increase withholding of state and federal taxes (or pay estimated tax payments of state and federal taxes) before year-end to pull the deduction of those taxes into 2015 if you won’t be subject to the alternative minimum tax (AMT) in 2015.
·  Estimate the effect of any year-end planning moves on the AMT for 2015, keeping in mind that many tax breaks allowed for purposes of calculating regular taxes are disallowed for AMT purposes. These include the deduction for state property taxes on your residence, state income taxes, miscellaneous itemized deductions, and personal exemption deductions. Other deductions, such as for medical expenses of a taxpayer who is at least age 65 or whose spouse is at least 65 as of the close of the tax year, are calculated in a more restrictive way for AMT purposes than for regular tax purposes. If you are subject to the AMT for 2015, or suspect you might be, these types of deductions should not be accelerated.
· You may be able to save taxes by applying a bunching strategy to “miscellaneous” itemized deductions, medical expenses, and other itemized deductions.
· Take required minimum distributions (RMDs) from your IRA or 401(k) plan (or other employer-sponsored retirement plan). RMDs from IRAs must begin by April 1 of the year following the year you reach age 70- 1/2. That start date also applies to company plans, but non-5% company owners who continue working may defer RMDs until April 1 following the year they retire. Failure to take a required withdrawal can result in a penalty of 50% of the amount of the RMD not withdrawn. If you turned age 70- 1/2 in 2015, you can delay the first required distribution to 2016, but if you do, you will have to take a double distribution in 2016, the amount required for 2015 plus the amount required for 2016. Think twice before delaying 2015 distributions to 2016, as bunching income into 2016 might push you into a higher tax bracket or have a detrimental impact on various income tax deductions that are reduced at higher income levels. However, it could be beneficial to take both distributions in 2016 if you will be in a substantially lower bracket that year.
· Increase the amount you set aside for next year in your employer’s health flexible spending account (FSA) if you set aside too little for this year.
·  Make gifts sheltered by the annual gift tax exclusion before the end of the year and thereby save gift and estate taxes. The exclusion applies to gifts of up to $14,000 made in 2015 to each of an unlimited number of individuals. You can’t carry over unused exclusions from one year to the next.

Tax Factors for Consideration:

Higher-income earners have unique concerns to address when mapping out year-end plans. They must be wary of the 3.8% surtax on certain unearned income and the additional 0.9% Medicare (hospital insurance, or HI) tax. The latter tax applies to individuals for whom the sum of their wages received with respect to employment and their self-employment income is in excess of an unindexed threshold amount ($250,000 for joint filers, $125,000 for married couples filing separately, and $200,000 in any other case).  The surtax is 3.8% of the lesser of: (1) net investment income (NII), or (2) the excess of modified adjusted gross income (MAGI) over an unindexed threshold amount ($250,000 for joint filers or surviving spouses, $125,000 for a married individual filing a separate return, and $200,000 in any other case). As year-end nears, a taxpayer’s approach to minimizing or eliminating the 3.8% surtax will depend on estimated MAGI and NII for the year. Some taxpayers should consider ways to minimize (e.g., through deferral) additional NII for the balance of the year; others should try to see if they can reduce MAGI other than NII, and still other individuals will need to consider ways to minimize both NII and other types of MAGI.

The 0.9% additional Medicare tax also may require year-end actions. Employers must withhold the additional Medicare tax from wages in excess of $200,000 regardless of filing status or other income. Self-employed persons must take it into account in figuring estimated tax. There could be situations where an employee may need to have more withheld toward the end of the year to cover the tax. For example, if an individual earns $200,000 from one employer during the first half of the year and a like amount from another employer during the balance of the year, he would owe the additional Medicare tax, but there would be no withholding by either employer for the additional Medicare tax since wages from each employer don’t exceed $200,000. Also, in determining whether they may need to make adjustments to avoid a penalty for underpayment of estimated tax, individuals also should be mindful that the additional Medicare tax may be overwithheld. This could occur, for example, where only one of two married spouses works and reaches the threshold for the employer to withhold, but the couple’s combined income won’t be high enough to actually cause the tax to be owed.

Tax Breaks Not Extended, as of Yet:

Some of these tax breaks ultimately may be retroactively reinstated and extended, as they were last year, but Congress may not decide the fate of these tax breaks until the very end of 2015 (or later). These breaks include, for individuals: the option to deduct state and local sales and use taxes instead of state and local income taxes; the above-the-line-deduction for qualified higher education expenses; tax-free IRA distributions for charitable purposes by those age 70- 1/2 or older; and the exclusion for up to $2 million of mortgage debt forgiveness on a principal residence.
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FLORIDA GUARDIAN DENIED FEE FROM MEDICAID RECIPIENT'S ASSETS

♠ Posted by Marc J. Soss in ,,,,,,,,,
On November 25, 2015, the Second District Court of Appeals, in the case of Lutheran Services Florida, Inc. v. Department of Children and Families (Fl. Ct. App., 2nd Dist., No. 2D13-5840, Nov. 25, 2015) held that the guardian of a Medicaid recipient may not deduct a guardianship fee from the recipient's income because the fee is not medically necessary. The case originated from a court order which authorized a professional guardian to deduct a monthly sum from an indigent and incapacitated individuals income and patient responsibility amount. The professional guardian then petitioned the Department of Children and Families (DCF) to deduct the monthly guardianship fee on their behalf, which they denied to do. DCF took the position that the fee could not be deducted from a Medicaid recipient's income because it is not "medically necessary" under state law. A hearing officer upheld the determination, noting that state law defines medically necessary as services provided in accordance with generally accepted standards of medical practice and reviewed by a physician. The 2nd DCA affirmed the decision on appeal.
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SELECTING THE RIGHT TRUSTEE FOR YOUR TRUST

♠ Posted by Marc J. Soss in ,,,,,,,
Upon creation of a Revocable or Irrevocable Trust (a legal arrangement through which a trustee holds legal title to property for another person), you will need to appoint an individual or trust company to serve as its trustee (person or entity in charge). With a Revocable Trust, that individual is typically the creator of the Trust. With an Irrevocable Trust, this can be either an individual or individual (but not the creator). Regardless of the type of Trust created, it is important to appoint an individual or institution to serve if the named individual or institution is unable to continuing serving for the Trust. Selection of the right trustee can be crucial to making sure the intent of the Trust is fulfilled and your goals accomplished. Their responsibilities include making proper investments, paying bills, keeping accounts, and preparing tax returns. The main consideration when selecting a trustee is whether they are trustworthy and can manage the assets in the beneficiary's best interest. Regardless of whom may be selected, it is important to revaluate the selection every few years to ensure they are the right individual or entity for the job and still capable of fulfilling their obligations to the beneficiaries. The right individual or institution today may not be right tomorrow.
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YEAR END RETIREMENT PLANNING TIPS

♠ Posted by Marc J. Soss in ,,,,,,,

Year end retirement planning deadlines you need to meet in order to qualify for income tax deductions and credits:

Make last-minute 401(k) contributions. An employee can contribute up to $18,000 to a 401(k) account in 2015. Workers age 50 and older can make catch-up contributions worth an additional $6,000, or a total of $24,000 in 2015, which are also due by Dec. 31. An investor over age 50 who is in the 25 percent tax bracket and maxes out his traditional 401(k) will save $6,000 on his federal income tax bill. But even a smaller contribution of $5,000 would save him $1,250 in taxes. At a minimum, double check that you have saved enough to get any employer match offered by your company.

Take required minimum distributions. Retirees born before July 1, 1945, are required to take distributions from their individual retirement accounts and 401(k) plans by Dec. 31, 2015. The distribution amount is calculated by dividing the account balance by an IRS estimate of your life expectancy, and sometimes a spouse's age is also taken into account. The penalty for missing a required distribution is a stiff 50 percent of the amount that should have been withdrawn. However, if you turned 70 1/2 in 2015, which is those born after June 30, 1944, and before July 1, 1945, there is a special rule that allows you to delay your first required distribution until April 1, 2016. But the second (and all subsequent) distributions will be due by Dec. 31 of the same year. Retirees who delay their first required minimum distribution will need to take two distributions in the same year. "Taking a double distribution in 2016 could cause you to pay more for taxes and may even push you into a higher tax bracket," says Helga Cuthbert, a certified financial planner for Cuthbert Financial Guidance in Decatur, Georgia. "You're usually better off taking it the year you turn 70 1/2."

Extra time for IRA contributions. You have until April 15, 2016, to contribute up to $5,500 to an IRA that can be applied to tax year 2015. Workers age 50 and older are eligible to contribute an additional $1,000, for a total contribution of $6,500 in 2015. You can reduce the amount you owe and help increase your retirement savings by putting some money in an IRA. 

Claim the saver's credit. If your adjusted gross is below $30,500 for individuals, $45,750 for heads of household and $61,000 for couples in 2015 and you contribute to a 401(k) or IRA, you may be able to qualify for the savers credit. This valuable tax credit is worth between 10 and 50 percent of the amount you contribute to a retirement account, up to $2,000 for individuals and $4,000 for couples.

Get ready for 2016. 401(k) and IRA contribution limits will remain the same in 2016. But if you weren't able to max out your accounts in 2015, consider setting your contribution amount a little higher next year. If you get a raise, bonus or tax refund, redirecting part of it to a retirement account will set you up for a lower tax bill in 2016.
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FLORIDA GUARDIANSHIP REFORM - IS IT ON THE WAY?

♠ Posted by Marc J. Soss in ,,,,,
For decades, states have granted courts the power to appoint guardians or conservators for elderly or disabled people unable to tend to their basic needs. Most appointed guardians are family members, but judges can turn to a growing industry of professional, unrelated guardians. Often the guardians are granted broad authority over a ward’s finances, medical care and living conditions. But guardianship systems across the country are plagued by allegations of financial exploitation and abuse, despite waves of reform efforts, according to a Wall Street Journal Page One story. As a result, critics say, many elderly people with significant assets become ensnared in a system that seems mainly to succeed at generating billings. “These laws which were designed to protect the vulnerable are being used against them to exploit them,” says Dr. Sam Sugar, founder of Americans Against Abusive Probate Guardianship, an advocacy group. Because guardianship systems vary by state and county and record-keeping systems are inconsistent, precise national data is unavailable. But the roughly 1.5 million adult guardianships in the U.S. involve an estimated $273 billion in assets, according to Anthony Palmieri, auditor for the guardianship fraud program in Palm Beach County, Fla. The problems are more urgent as aging baby boomers cause the population of seniors nearly to double by 2050, according to Census estimates. In New Jersey, the number of adult guardianships added annually increased 21% from 2009 to 2014, to 2,689 cases. Guardians properly supervised by courts typically do a good job protecting elderly people from exploitation by acquaintances and others, says Catherine Seal, a guardianship attorney in Colorado Springs, Colo., and president-elect of the National Academy of Elder Law Attorneys. “The worst cases that I see are the ones where there is no guardian,” she says. Expenses that arise as a result of a guardianship, including lawyers for both guardians and wards, typically get paid from the ward’s assets. (In some jurisdictions, there is a public guardian’s office that handles cases for indigent clients.) The financial arrangement, critics say, encourages lawyers and guardians to perpetuate guardianships indefinitely. Check out the story for anecdotes involving guardians and their wards. Linda McDowell, of Sequim, Wash., lost about $470,000 in assets during her 30-month stay in Washington state’s guardianship system. After Ernestine Franks of Pensacola, Fla., was placed into guardianship, withdrawals from a $1.3 million trust set up to pay her expenses jumped to $297,000 in 2014 from $94,000 in 2011, when Ms. Franks mostly made her own financial decisions. Article published in the Wall Street Journal on Oct. 30, 2015.
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