What’s New for 2010?
Congress has left us with a mess when it comes to estate planning for 2010.
Remember this chart? Well, 2010 is now here. Most estate planning professionals fully expected Congress to do something before 2010 arrived, even if it was only to extend the 2009 federal estate tax laws into 2010. But Congress was so consumed with health care reform that it did not get to the estate tax before the Christmas break. So, as of January 1, 2010 there is NO estate tax.
Year
“Exempt” Amount
2000-2001
$675,000
2002 – 2003
$1 million
2004 – 2005
$1.5 million
2006 – 2008
$2 million
2009
$3.5 million
2010
N/A (estate tax repealed)
2011 and therafter
$1 million
Note that this is not a permanent repeal. If Congress continues to do nothing, the estate tax comes back in 2011 with a $1 million exemption and a top tax rate of 55%.
Many believe that Congress will want as many tax dollars as possible to help pay for its spending programs and will act soon to reinstate the estate tax. But we don’t know what Congress will do or when it will act. Here are some of the possible actions that Congress might take:
* Reinstate the 2009 estate tax laws, making them retroactive to January 1, 2010.
* Reinstate the 2009 estate tax laws for 2010 only, but not make them retroactive.
* Reinstate the 2009 estate tax laws and make them permanent.
* Pass extensive estate tax reform.
* Do nothing, and let the current law run its course. This means, in 2011, we would have a $1 million federal estate tax exemption and a top tax rate of 55%. By comparison, in 2009 we had a $3.5 million exemption and a top tax rate of 45%.
In the meantime, we have a new set of estate tax laws. What does this mean to you?
No Estate Tax
Your current estate plan may include some formulas to save the maximum in estate taxes, make charitable gifts, and provide for your spouse, family and friends. In 2010, when there is no estate tax or marital deduction, these provisions may not work properly. For example, if you have beneficiaries other than your spouse, the current wording in your plan could cause your spouse to receive fewer resources than you had intended. Also, some states have their own death or inheritance tax, so even though there is currently no federal estate tax, your estate may still be subject to a state tax.
Income Tax on Inherited Assets
The basis of an asset is the value used to determine gain or loss for income tax purposes when the asset is sold. Before January 1, 2010, assets that were inherited were automatically given a new “stepped-up basis” to full market value as of the date of the deceased owner’s death. This saved the beneficiaries a substantial amount in income (capital gains) tax when the asset was sold.
Beginning January 1, 2010, the amount of assets that can receive a step-up in basis is limited. Assets that do not receive the stepped-up value will be taxed based on the deceased owner’s original cost basis (what that owner paid for the asset). This means your beneficiaries could have to pay a considerable amount in income taxes when the assets are sold.
Most estates will be able to step up $1.3 million worth of assets. An additional $3 million of assets left directly to a surviving spouse can also be stepped-up. But there are some complicated hoops to jump through to make this happen.
Generation Skipping Transfer Tax Repealed (For One Year Only)
In addition to the estate tax, the generation skipping transfer tax was applied to assets that “skipped” the living parent (your child) and went directly to a grandchild. This tax was also repealed for 2010, but it is scheduled to come back in 2011 with an approximately $1.5 million exemption and a 55% tax rate. By comparison, in 2009 the GSTT exemption was $3.5 million and the top tax rate was 45%.
What Should You Do?
Now is the time to have your estate plan reviewed by your attorney. Remember, your plan needs to reflect the tax laws that are currently in effect. Some changes will probably need to be made to make sure your assets are distributed the way you want and to maximize income tax savings. And, depending on what Congress does or doesn’t do this year, more changes may need to be made later.
Understanding Living Trusts: Doesn’t joint ownership avoid probate?
Not really. Using joint ownership usually just postpones probate. With most jointly owned assets, when one owner dies, full ownership does transfer to the surviving owner without probate. But if that owner dies without adding a new joint owner, or if both owners die at the same time, the asset must be probated before it can go to the heirs.
Watch out for other problems. When you add a co-owner, you lose control. Your chances of being named in a lawsuit and of losing the asset to a creditor are increased. There could be gift and/or income tax problems. And since a will does not control most jointly owned assets, you could disinherit your family.
With some assets, especially real estate, all owners must sign to sell or refinance. So if a co-owner becomes incapacitated, you could find yourself with a new “co-owner” — the court–even if the incapacitated owner is your spouse.
Antelope Valley Estate Planning Law Firm Thompson Von Tungeln Advises California Residents to Review Their Power of Attorney Options
Antelope Valley estate planning law firm Thompson Von Tungeln advises California residents to review the different power of attorney options available to them. The power of attorney options include the General Power of Attorney, the Durable Power of Attorney, the Non-Durable Power of Attorney, and an Advanced Health Care Directive. Each has its uses, and a combination of them is essential to good estate planning.
Lancaster, California (PRWEB) January 5, 2010 — Antelope Valley estate planning law firm Thompson Von Tungeln recommends that California residents review the different power of attorney options available to them as part of their estate planning process.
“There are a number of different types of power of attorney vehicles available for use in estate plans,” said Kevin Von Tungeln, partner at Thompson Von Tungeln. “Each type has its uses, and can provide protection in the event of incapacitation. You should consult with your estate planning attorney to determine, which, if any, are necessary for your estate plan.”
A General Power of Attorney designates a person to handle the business, financial and legal affairs of another person, either for a specific function or for overall day-to-day needs. This basic estate planning document is necessary in the event you become incapacitated or unable to make decisions for yourself. A Durable Power of Attorney comes in two forms for estate planning purposes. It can be effective immediately or upon disability. Estate planning attorneys utilize the Durable Power of Attorney to designate someone to make financial, housing and other care decisions for someone who can no longer make them for his or her self.
An Advanced Healthcare Directive is an estate planning document that allows you to designate someone to make medical decisions on your behalf. Your estate planning attorney can help you include your wishes on life-saving measures, end-of-life care, organ donation and choice of a physician into your directive. Another, less commonly used vehicle is the Non-Durable Power of Attorney.
“The time to review these with your estate planning attorney is when you are healthy and in the process of creating your estate plan,” said Von Tungeln. “Directives that are signed when a person is seriously ill are prone to being challenged in court if one of your loved ones believes you were not of sound mind and body when you signed the Power of Attorney form. Your estate planning attorney can review your options on which of these Power of Attorney forms to include in your estate plan.”
How Should You Hold Title to Real Estate?
Your home is probably the most valuable asset you own. Yet most people don’t think about how to hold title until the title company poses the question when you buy or refinance. But this deserves careful consideration, because how you hold title to real estate has far-reaching effects. Let’s look at some common ways to hold title.
Individual Name: You can hold title in just your name even if you are married. However, there are some drawbacks you should know about.
First, what would happen if you become mentally or physically incapacitated due to illness or injury and the property needs to be refinanced, or a line of credit needs to be opened or increased? If you are unable to conduct business, the court will need to appoint someone to act for you.
“But, I have a will,” you say. A will can’t help; it only goes into effect after you die, not if you are incapacitated.
“But, I have a power of attorney,” you say. Most powers of attorney end at incapacity. A durable power of attorney is valid at incapacity. However, many financial institutions will not accept one unless it is on their form. And if accepted, it may work too well, giving the person the ability to do whatever he or she wants with your assets. You could recover to find the property mismanaged or even sold and the proceeds gone.
The court’s job is to provide supervision to protect your assets. But once the court gets involved, it will stay involved until you recover or die. The court, not your family or friends, will control how your assets are used to care for you. It is a public process that can be expensive, embarrassing, time consuming and difficult to end if you recover.
Next, what happens when you die? If yours is the only name on the title, the property will almost certainly have to go through the probate court system before it can be distributed to your heirs, even if you have a will. Think about it: if your name is the only one on the title, and you have died, you can’t sign your name to transfer title. While there can be exceptions, in most cases the only way to remove your name and put the new owner’s name on is through the probate court.
Joint Tenants with Right of Survivorship: This is how most married couples hold title, because it seems fair, it’s easy and it’s free. Parents and their adult children also often hold title this way, as do unmarried couples.
Indeed, when one owner dies, full ownership does transfer automatically to the surviving owner without probate. But usually this just postpones probate. If the surviving owner dies without adding another owner (which often happens), or if both owners die at the same time, the property will almost certainly have to go through probate before it can go to the heirs.
There are other problems, too. When you add a co-owner, you lose control. With real estate, all owners must sign to sell or refinance. If your co-owner disagrees with you, you could end up in court. If your co-owner is incapacitated, the court will probably get involved to protect your co-owner’s interest…even if the ill owner is your spouse.
You expose the property to your co-owner’s debts and obligations; you could even lose your home to your co-owner’s creditors if he or she is successfully sued. There could also be gift and/or income tax problems if your co-owner is not your spouse.
Finally, because a will does not control jointly owned assets, you could disinherit your family when your co-owner inherits your share. Sadly, and all too often, children from a previous marriage are disinherited when a new spouse is the surviving owner.
Tenants-In-Common: With this kind of ownership, each owner’s share will be distributed as directed in his or her will. If there is no will, the property will go to the owner’s heirs.
Community Property: Nine states (Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin) have a form of joint ownership between spouses commonly called community property. When you die, your share of community property automatically goes to your surviving spouse, unless your will says otherwise.
The problem with both tenants-in-common and community property is that you could find yourself with several new co-owners when your co-owner dies and the heirs inherit the property. Imagine how difficult it could be to get several owners to reach an agreement, especially if you are trying to sell the property.
You can also run into the other problems (incapacity, lawsuits, etc.) as explained under joint tenants with right of survivorship, but with several owners involved, your risks and problems are multiplied.
Tenants-by-the-Entirety: This form of joint ownership, available between spouses in some states, is similar to joint tenants with right of survivorship in that when one spouse dies, his/her share automatically goes to the surviving spouse, even if the will says otherwise. So you have many of the same risks, including unintentional disinheriting and court interference if one spouse becomes incapacitated.
However, as tenants-by-the-entirety, neither spouse can transfer his/her half to someone else without the other’s approval – something joint tenants with right of survivorship and tenants-in-common can both do.
Revocable Living Trust: When you have a living trust, the title of your real estate can be held in the name of the trustee of your trust. Usually you will be your own trustee, so you keep full control of the property. You can buy, sell and refinance real estate just as you can when the property is not in your trust.
If you become incapacitated, the successor trustee you named when you set up your trust will be able to step in and act for you. Because the title is no longer in your individual name (or joint names if married), there will be no need for court interference. (If you are married, you and your spouse can be co-trustees, in which case your successor trustee would step in only after you have both become incapacitated or have died.)
Your successor is legally obligated to follow the instructions you put in your trust. If you recover, your successor simply steps aside and lets you resume control. When you die, the property will be distributed without probate according to the instructions in your trust, so you don’t have to worry about unintentionally disinheriting someone.
SUMMARY: How you hold title to real estate should be given careful consideration. Check your titles and make any changes now while you can.
If you would like more information concerning holding titile to real estate, or any other aspect of estate planning, visit www.EstatePlanningSpecialists.com today. www.EstatePlanningSpecialists.com is a comprehensive online resource for estate planning and related issues. As Board Certified Specialists in Estate Planning, Trusts and Probate as certified by the State Bar of California Board of Legal Specialization, Mark E. Thompson and Kevin L. Von Tungeln are expertly equipped to serve clients with the creative, effective and custom solutions they demand.
An Introduction to Planning for Long Term Care
Long term care is the kind of care you need if you are not able to perform normal daily activities (such as eating, dressing, bathing, and toileting) without help, and it is expected that you will need this help for an extended period of time, often for the rest of your life.
This kind of care is often needed due to aging, chronic illness or injury, and most of us will need it for at least some time before we die. But it is not just for the elderly; a good number of younger, working-age adults are currently receiving long term care due to accident, illness or injury.
Long term care can be provided in your home, in an assisted living facility, or in a nursing home. All can become very expensive.
Home health care can easily run over $20,000 per year. That’s at $16 per hour, for just 25 hours a week. Depending on the skill required, number of hours needed and where you live, it can cost considerably more.
Assisted living facilities can cost more than $25,000 per year; the more services you need, the higher the cost. Nursing home facilities, with round-the-clock care, are now $50,000 or more a year. Expect to see these costs go even higher, thanks to rising medical costs.
Also, expect to pay these costs for a while. The average stay in a nursing home is three years. Alzheimer’s patients usually need care longer.
Unfortunately, long term care is not covered by health insurance, disability income insurance, or Medicare.
Health insurance plans cover nursing home expenses only for a short period of time while you are recovering from an illness or injury.
Disability income insurance will replace part of your income if you are not able to work after a specified time, but it does not pay for long term care.
Medicare, which covers most people over the age of 65, provides limited coverage for skilled care for up to 100 days immediately following hospitalization. After that, you’re on your own.
So who will pay the cost if you need long term care? There are only three sources: your (or your family’s) assets, Medicaid, and long term care insurance.
Medicaid pays the bills for a large number of people in nursing homes today. But because the program is designed to provide services for those who cannot support themselves (children, the disabled, the poor), you will have to “spend down” your assets and be practically penniless in order to qualify for benefits. Your spouse is also limited to the amount of assets he or she can have. Also, you will only be able to receive care from a facility that accepts Medicaid. But if you have minimal assets, it may be the best option for you.
For many people, long term care insurance is the best option, especially if you have assets and income you want to protect, you want to avoid being a financial burden on others, and you want to have some choice in the care you receive. With LTC insurance, you will have the option of receiving care in your home or a private pay facility. The premiums are lower when you are younger and in good health. If you wait too long, the cost could be prohibitive and you might not qualify.
When planning for long term care, the experience and advice of a qualified professional can be most helpful. If you are considering trying to qualify for Medicaid, make sure you talk with an expert in Elder Law before you do anything. An innocent mistake could disqualify you from receiving benefits for many months.
How Can I Prevent My Children from Fighting Over My Belongings After I Die?
You probably own some items of real or sentimental value (jewlery, antiques, art, heirlooms, furniture, clothing, etc.) that you want a certain child, grandchild, special friend, relative, or organization to have after you die.
Or maybe you just want to provide for some orderly way for your belongings to be divided among your heirs after you’re gone. We’ve all heard stories about the heirs fighting over Grandma’s piano or china. The damage is often so deep that sisters don’t speak to each other for the rest of their lives!
Here are some suggestions that can help you prevent this from happening in your family.
Make A Special Gifts List: If you have a living trust, you can make a list of these special gifts and whom you want to have them. Date the list, have it notarized (or witnessed; your attorney can tell you which is appropriate in your state) and keep it with your trust document. If you change your mind, just make a new list and have it notarized. To prevent disagreements about your intentions, be very specific. If your list is long, make a separate list for each person. If your estate is sizeable or if a gift is of substantial value, have your attorney review your list to resolve potential tax issues.
If you have a will, your special bequests will be listed on a codicil prepared by your attorney. If you want to make a change, your attorney will need to prepare a new codicil. (There’s one often overlooked advantage of having a living trust.)
Ask What They Want: Ask your children and others if there is something of yours they would like to have. There may be an item that has special meaning to someone that you aren’t even aware of. Wouldn’t it be nice to know that?
Make gifts now, especially if it is something that you no longer need, or if you are concerned there might be a problem later on.
Hold a family “sale” now, while you can provide information and referee. Gather your kids some weekend or holiday and have them take turns selecting items they want. If one item proves popular, let them bid against each other or make trades. Then write up a list for each person. What doesn’t “sell” to family members can be sold in an estate sale after you die and the proceeds divvied up. (If your family is reluctant to do this, tell them you’ll leave instructions for everything to be sold after you die.)
Write a description, especially if it has sentimental value or is a family heirloom. How else will they know this turkey platter belonged to your favorite Aunt Jessie and that one was picked up at a garage sale?! If the item is large enough, label it.
Qualified Personal Residence Trust
A qualified personal residence trust lets you continue to live in your home but transfer it to your children now so you will save estate taxes when you die.
When you set up a qualified personal residence trust, you transfer your home or vacation home to an irrevocable trust. For a specified period of time (often 10 to 15 years), you retain the right to use and live in the residence. After that time, the residence transfers to your beneficiaries (usually your children).
In effect, you are giving your home to your children today. But because your children will not receive it until sometime in the future, the value of this gift is discounted (reduced). This uses less of your federal gift and estate tax exemptions than if you had kept the home (and any future appreciation) in your estate.
If you die before the term of the trust is over, there is no penalty. Your home will just be included in your taxable estate, which is what would happen anyway without the trust. If you live longer than the duration of the trust and want to keep living there, you will have to pay rent (at fair market value).
And, of course, the house will not receive a stepped-up basis when you die. So you will want to see whether it’s better for your beneficiaries to save the capital gains taxes or to save the estate taxes.
Antelope Valley Estate Planning Law Firm Offers Seminar on Pending Changes to Medi-Cal and How they Affect Long-Term Care Planning
Antelope Valley estate planning law firm Thompson Von Tungeln is offering a November 12 seminar on the upcoming changes to Medi-Cal and how those changes will affect your long-term care planning.
Lancaster, CA (PRWEB) November 6, 2009 — Antelope Valley estate planning law firm Thompson Von Tungeln is offering a complimentary seminar on the changes to the Medi-Cal program and how those changes can affect long-term care planning.
“Long-term care planning is an intricate process,” said Kevin Von Tungeln, partner at Thompson Von Tungeln. “Compliance with the changes to Medi-Cal is akin to a chess games with draconian penalties if you make a mistake. That is why consumers need to be informed of the changes and have expert legal counsel guiding them through the process.”
The changes to Medi-Cal, the California Medicaid program, are centered on the ability to give away assets such as a home or financial instruments, and changes regarding annuities. Many individuals have established planning strategies to give away assets that will need adjusting.
“Anyone living today has a greater than 50 percent chance of needing long-term care when he or she reaches age 65,” said Von Tungeln. “At least 70 percent of persons over 65 will require long-term care at some point in their lives. Being knowledgeable about the new rules and planning accordingly can save you, your spouse and your heirs a great deal of trouble in the future.”
The seminar is on Thursday, November 12 at the Hilton Garden Inn in Palmdale. Registration is requested due to limited seating. To register for the complimentary seminar, call 661.945.5868.
About Kevin Von Tungeln
With more than 18 years’ legal experience, Kevin L. Von Tungeln serves Thompson Von Tungeln in the areas of estate planning, probate, trusts, wills, trust administration, conservatorships, guardianships and elder law. He is certified by the State Bar of California Board of Legal Specialists as a Board Certified Specialist in Estate Planning. Get to know more about Kevin’s approach to estate planning by viewing his informational videos at: http://www.youtube.com/user/EstateLawyers. Kevin can also be found at LinkedIn by going to: (www.linkedin.com/in/kevinvontungeln)
About Thompson Von Tungeln
Antelope Valley estate planning law firm Thompson Von Tungeln (TVT) offers sophisticated estate planning and administration for the affluent, discriminating client. As Board Certified Specialists in Estate Planning, Trusts and Probate as certified by the State Bar of California Board of Legal Specialization, partners Mark E. Thompson and Kevin L. Von Tungeln are expertly equipped to serve these clients with the creative, effective and custom solutions they demand. For more information, contact TVT at 661-945-5868 or visit their website at www.EstatePlanningSpecialists.com.
Business Owners: Have You Planned Your Exit?
You’ve worked hard building your business, but have you thought about what will happen when you are no longer there running the show?
According to one study (Small Business Review, Summer 2001), only 30% of all family-owned businesses survive to the next generation; only 12% make it to the third generation; and a meager 3% are functioning into the 4th generation and beyond.
Why? Most business owners simply do not plan an exit. They do not do proper estate planning, which often results in unnecessary estate taxes that drain the life out of their businesses. And they do not plan for a successful transition to the next generation.
Who could take over your business? You may have more choices than you think.
Family members are often a logical choice. Most business owners feel a certain pride in being able to pass down a family business. In fact, you may already have a child or two working in the business with you.
Depending on your financial needs, you can gift and/or or sell your business to family members. Some techniques will provide you with retirement income and let you transfer the business at a discount, saving estate and gift taxes. Most let you keep some control.
Be sure to consider family members who will not be involved with the business. Life insurance is often used to “equalize” inheritances. You also need to be objective when considering the abilities of family members whom you consider potential successors.
Business partners are also logical options. You can have reciprocal buy/sell arrangements with each other, so that when one of you is ready to retire or dies, the other automatically buys his/her share of the business. Life insurance is often used to fund these arrangements.
Your employees could also be a source. An Employee Stock Ownership Plan lets your employees enjoy the benefits of ownership, yet you can keep control until your retirement or death.
How about a charity? Charitable trusts can provide terrific income, capital gain and estate tax savings. With a charitable remainder trust, you can receive a lifetime income. And you have the added benefit of helping a charity that has special meaning to you.
Of course, you can also consider an outright sale to another company. But the tax benefits are usually not as good as other planning options.
A good business succession (exit) plan should also provide for the possibility of a long-term illness or disability. Make sure you work with an experienced professional who can help you evaluate your goals and objectives, and can provide you with the best options for your situation.
Private Charitable Foundation
Instead of giving all that tax money to Uncle Sam after you die and letting Congress decide how to spend it, you can set up your own charitable foundation, donate your assets to it and keep some control over how the money is spent! (The IRS does have a few restrictions on how the money is used.)
You can set up the foundation while you are living, or it can be established after you die. To qualify, a small percentage of the trust assets must be distributed to charity each year. But you can name whomever you wish to run the foundation, including your children, and the foundation can pay them a reasonable salary. You can be very specific about which charities you want to support, or you can leave that up to the trustees of the foundation to decide (within the IRS guidelines, of course).
The tax benefits of setting up your own foundation can be substantial. You can save estate, capital gains and ordinary income taxes:
* The assets you give to the foundation will be removed from your taxable estate. So, for example, if you give your entire estate to the foundation (or the entire amount over the estate tax exemption), your estate will pay no estate taxes!
* There will be no capital gains tax when the assets are sold by the foundation, so it’s great for appreciated assets.
* And, if you donate publicly traded securities to a private foundation, you can get a charitable income tax deduction for their full fair market value – up to 30% of your adjusted gross income. (The deduction is less than the 50% limit for standard charitable contributions because this is a private charitable foundation.)
