The sun has risen again. How you and your family can benefit from a (legal) late portability election.

The concept of “portability” is still relatively new in the law of estate planning, having become available only after 2011. Since then, it’s been both a blessing (for its tax saving benefit) and a curse (because of rules that seemed to be constantly shifting). Fortunately, the IRS has recently clarified some important deadlines about portability.

How can a portability election benefit you and your family? It could help save hundreds of thousands of dollars of estate and gift taxes for your family if you lost your husband or wife in the last few years. Although the exact mechanics of the tax are involved, portability makes it much easier for estate planners and tax professionals to save taxes for you and your family. However, portability is not automatic (even under the new regulations), so you must take some action.

Why should I care?

Portability allows a surviving spouse to inherit and use the estate tax exemption from a deceased spouse. If you’re planning isn’t as good as it could otherwise be, portability can save hundreds of thousands of dollars of estate and gift taxes. For those who are proactively planning, it also makes crafting your trust or will much more flexible so we can tailor the plan to you and your family’s needs, rather than to the needs of the IRS.

What’s new with portability?

Under a new IRS revenue procedure, you now have additional time to take advantage of portability. In the past, you had only 15 months after the death of a loved one to file for portability. Now, you now have two years after the passing of a spouse to file for portability, making this option much easier to use than before.

The IRS also knows that the rules have shifted and been confusing for everyone over the last few years. So there’s a unique opportunity to file a late portability estate tax return, as long as you meet certain requirements and have it submitted by January 2, 2018.

Of course, if you have a substantial estate (over $5.49 million) or are not a US citizen or resident alien then the traditional 15-month rule will continue to apply to you. Also, like any legal or tax issue, it’s always a good idea to obtain qualified assistance as early as possible so you can have the widest possible set of options and best possible outcome.

What do I need to do now?

If you’ve lost your spouse after 2011 and hadn’t yet spoken with an estate planning attorney about your options, now is the time. As the stock market and housing markets have recovered in the last few years, it might be worth a second look to see if a portability election is right for you and your family, even if you decided against one before.

Although available now, you can’t rely on this relief being available forever – January 2, 2018, will be here before you know it. Now is the time to give us a call to discuss whether a portability election can help you and your family save taxes. We look forward to hearing from you.

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The Most Important Love Letters You’ll Ever Write

Many Americans have the misperception that estate planning is simply preparing for one’s death and is only necessary for the affluent. To the contrary, estate planning is as much about passing values to loved ones as it is about passing material possessions.

Thus it should come as no surprise that a February 16, 2012 Forbes article describes estate planning as “the most important love letters you’ll ever write,” encouraging readers to “find inspiration in knowing that you’re caring for the people and causes you love, even if you’re not here anymore.”

The Forbes article correctly concludes that estate planning is for every American (other than minors), and that everyone should successfully complete “thoughtfully prepared estate planning documents.” The complexity of those documents may change for more affluent Americans, but the need to care for loved ones and causes exists for everyone. And working with a qualified estate planner helps enlighten people as to all they can accomplish through the estate planning process.

The full article, titled The Most Important Love Letters You’ll Ever Write, is available online at http://www.forbes.com/sites/timmaurer/2012/02/16/the-most-important-love-letters-youll-ever-write/.

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Blended Families Underscore the Need for Estate Planning

Anyone with children or modest assets should seriously consider some minimal estate planning, but the increasing number of blended families underscores the need for proper estate planning.

Blended families can involve children from a prior marriage as well as joint children, sometimes joking referred to as “his, hers and theirs.” And blended families involve both younger and older couples, and nearly everyone in between.

When the new spouse is significantly younger, this sometimes means that the older spouse’s children are close in age to the younger. These relationships can cause more than friction between the step-parent and step-children.

Most parents want to ensure that their assets will pass to their children, not their stepchildren. However, absent good estate planning, there is no guarantee that their children will inherit their assets. In fact, if the couple creates common “I love you” wills such that their assets pass to the survivor of them, there is a significant likelihood their children will be totally disinherited.

This is because all of their assets will pass to the surviving spouse to do with as he or she pleases. More often than not this means excluding the stepchildren, who then receive nothing.

The fact that Americans are living longer, and sometimes remarrying much later in life, means that blended family issues come into play there too. A recent USA Today article, titled With more blended families, estate planning gets ugly, highlights some of these issues. (The full article is available online at http://www.usatoday.com/news/parenting-family/story/2012-03-13/With-more-blended-families-estate-planning-gets-ugly/53516094/1?csp=34news.)

As this article states, “[a]dd the gaping generational divide between Depression-era parents, who valued frugality above all else, and their Baby Boomer children, who relish self-reward, and the dynamics can be explosive.”

Thus, baby boomer children expecting an inheritance may have to wait much longer than expected. But perhaps more difficult, who should pay for the cost of the surviving spouse’s care? Should the stepchildren be forced to use their inheritance to pay for an aging step-parent’s care, particularly after only a short-term marriage? Or should this burden fall on the children?

There is no one right answer here, but these questions epitomize the many questions that arise with blended families. These questions should be answered with the help of counsel and proper planning.

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How You Can Build an Estate Plan that Includes Asset Protection

Much of estate planning has to do with the way a person’s assets will be distributed upon their death. But that’s only the tip of the iceberg. From smart incapacity planning to diligent probate avoidance, there is a lot that goes into crafting a comprehensive estate plan. One important factor to consider is asset protection.

One of the most important things to understand about asset protection is that not much good can come from trying to protect your assets reactively when surprised by situations like bankruptcy or divorce. The best way to take full advantage of estate planning in regards to asset protection is to prepare proactively long before these things ever come to pass — and hopefully many of them won’t. First, let’s cover the two main types of asset protection:

Asset protection for yourself:

This is the kind that has to be done long in advance of any proceedings that might threaten your assets, such as bankruptcy, divorce, or judgement. As there are many highly-detailed rules and regulations surrounding this type of asset protection, it’s important to lean on your estate planning attorney’s expertise.

Asset protection for your heirs:

This type of asset protection involves setting up discretionary lifetime trusts rather than outright inheritance, staggered distributions, mandatory income trusts, or other less protective forms of inheritance. There are varying grades of protection offered by different strategies. For example, a trust that has an independent distribution trustee who is the only person empowered to make discretionary distributions offers much better protection than a trust that allows for so-called ascertainable standards distributions. Don’t worry about the complexity – we are here to help you best protect your heirs and their inheritance.

This complex area of estate planning is full of potential miscalculation, so it’s crucial to obtain qualified advice and not solely rely on common knowledge about what’s possible and what isn’t. But as a general outline, let’s take a look at three critical junctures when asset protection can help, along with the estate planning strategies we can build together that can set you up for success.

Bankruptcy

It’s entirely possible that you’ll never need asset protection, but it’s much better to be ready for whatever life throws your way. You’ve worked hard to get where you are in life, and just a little strategic planning will help you hold onto what you have so you can live well and eventually pass your estate’s assets on to future beneficiaries. But experiencing an unexpected illness or even a large-scale economic recession could mean you wind up bankrupt.

Bankruptcy asset protection strategy: Asset protection trusts

Asset protection trusts hold on to more than just liquid cash. You can fund this type of trust with real estate, investments, personal belongings, and more. Due to the nature of trusts, the person controlling those assets will be a trustee of your choosing. Now that the assets within the trust aren’t technically in your possession, they can stay out of creditors’ reach — so long as the trust is irrevocable, properly funded, and operated in accordance with all the asset protection law’s requirements. In fact, asset protections trusts must be formed and funded well in advance of any potential bankruptcy and have numerous initial and ongoing requirements. They are not for everyone, but can be a great fit for the right type of person.

Divorce

One of the last things you want to have happen to the nest egg you’ve saved is for your children to lose it in a divorce. In order to make sure your beneficiaries get the parts of your estate that you want to pass onto them — regardless of how their marriage develops — is a discretionary trust.

Divorce asset protection strategy: Discretionary trusts

When you create a trust, the property it holds doesn’t officially belong to the beneficiary, making trusts a great way to protect your assets in a divorce. Discretionary trusts allow for distribution to the beneficiary but do not mandate any distributions. As a result, they can provide access to assets but reduce (or even eliminate) the risk that your child’s inheritance could be seized by a divorcing spouse. There are a number of ways to designate your trustee and beneficiaries, who may be the same person, and, like with many legal issues, there are some other decisions that need to be made. Discretionary trusts, rather than outright distributions, are one of the best ways you can provide robust asset protection for your children.

Family LLCs or partnerships are another way to keep your assets safe in divorce proceedings. Although discretionary trusts are advisable for people across a wide spectrum of financial means, family LLCs or partnership are typically only a good fit for very well-off people.

Judgment

When an upset customer or employee sues a company, the business owner’s personal assets can be threatened by the lawsuit. Even for non-business owners, injury from something as small as a stranger tripping on the sidewalk outside your house can end up draining the wealth you’ve worked so hard for. Although insurance is often the first line of defense, it is often worth exploring other strategies to comprehensively protect against this risk.

Judgment asset protection strategy: Incorporation

Operating your small business as a limited liability company (commonly referred to as an LLC) can help protect your personal assets from business-related lawsuits. As mentioned above, malpractice and other types of liability insurance can also protect you from damaging suits. Risk management using insurance and business entities is a complex discipline, even for small businesses, so don’t only rely on what you’ve heard online or “common sense.” You owe it to your family to work with a group of qualified professionals, such as us as your estate planning attorney and an insurance advisor, to develop a comprehensive asset protection strategy for your business.

These are just a few ways we can optimize your estate plan in order to keep your assets protected, but every plan should be tailored to an individual’s exact circumstances. Give us a call today to discuss your estate plan’s asset protection strategies. LAMBERT ELDER CARE LAW,  229-292-8989.

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How Your Trust Can Help a Loved One Who Struggles with Addiction

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How to Build Freedom From Court Interference Into Your Estate Plan

It’s clear why you might want to avoid court involvement in your estate for financial reasons, knowing that probate can quickly get costly and time consuming for those involved. But there is an emotional component to it as well. Your assets are just that: yours. And the idea of them being discussed and deliberated on in a public forum might not be such an appealing one.

If you feel that the matters of your estate should be kept private and that your assets should be distributed to your loved ones rather than eroded by court fees, you’re not alone. And luckily, all it takes to get there is a proactive attitude toward planning your estate. Let’s dive in:

Court Interference 101

Two of the most common situations in which the court becomes involved in your estate are guardianship and probate:

Guardianship and Conservatorship

When someone experiences mental incapacity, documents in their estate plan can direct a trusted person to carry out that individual’s wishes for the situation. But what if no such documents have been drafted? Then their business becomes the government’s business, too. A court proceeding called guardianship or conservatorship (also known as “living probate”) will be held to appoint guardians and conservators to manage the affairs of the incapacitated person.

Probate

When an estate goes through probate, the court oversees the gathering of the probate assets, payment of any outstanding debts, determining whether a will is valid, and who the deceased’s heirs are. The proceedings ultimately determine who should receive the assets that are left after payment of debts, taxes, and costs.

Free your estate from interference

In order to avoid guardianship, conservatorship, and probate, you can work with us to keep your affairs out of court entirely.

1. Powers of attorney

Agents or attorneys-in-fact are the individuals or entities you appoint to make decisions for you, be they medical or financial. You designate agents or attorneys-in-fact in a document known as a power of attorney. Durable powers of attorney are documents that continue in validity after the incapacity of the maker of the document (i.e. “durable” against incapacity). Since a durable power of attorney continues in validity, a durable power of attorney can help bypass the need for court-appointed guardianship or conservatorship.

2. Trusts

Trusts are agreements that hold some or all of your assets, and trustees can be either individuals or corporate entities. Unlike wills, trusts do not go through probate. There are several types of trusts, and we can help you decide exactly which kind is best suited to your estate. By setting up and completely funding a revocable living trust, you can accomplish two important things. First, you can rest assured that your assets will be distributed to your chosen beneficiaries and won’t go through probate upon your death. Second, you also retain the ability to change or cancel the arrangement during your lifetime enabling you to adjust your plan as your financial or family circumstances change.

Make sure your estate plan is air-tight

Deciding on appropriate powers of attorney and drafting revocable living trusts are just two of the many steps we can take together to keep your affairs free from court involvement. With a solid estate plan put into place with the help of a trusted attorney, you can take comfort knowing that everything you’ve worked so hard to build and maintain will be passed along to only the people who matter most. Give us a call today to learn more about interference-proofing your estate plan. Lambert Elder Care Law, 229-292-8989.

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3 Decidedly Dumb Ways to Leave an Inheritance for Your Children

Estate planning offers many ways to leave your wealth to your children, but it’s just as important to know what not to do. Here are some things that are all-too-common, but textbook examples of what not to do or try….

“Oral Wills”

If you feel you have a good rapport with your family or don’t have many assets, you might be tempted simply to tell your children or loved ones how to handle your estate when you’re gone. However, even if your family members wanted to follow your directions, it may not be entirely up to them. Without a written document, any assets you own individually must go through probate, and “oral wills” have no weight in court. It would most likely be up to a judge and the intestate laws written by the legislature, not you or your desired heirs, to decide who gets what. This is one strategy to not even try.

Joint Tenancy

In lieu of setting up a trust, some people name their children as joint tenants on their properties. The appeal is that children should be able to assume full ownership when parents pass on, while keeping the property out of probate. However, this does not mean that the property is safe; it doesn’t insulate the property from taxes or creditors, including your children’s creditors, if they run into financial difficulty. Their debt could even result in a forced sale of your property.

There’s another issue. Choosing this approach exposes you to otherwise avoidable capital gains taxes. Here’s why. When you sell certain assets, the government taxes you. But you can deduct your cost basis—a measure of how much you’ve invested in it—from the selling price. For example, if you and your spouse bought vacant land for $200,000 and later sell it for $315,000, you’d only need to pay capital gains taxes on $115,000 (the increase in value).

However, your heirs can get a break on these taxes. For instance, let’s say you die, and the fair market value of the land at that time was $300,000. Since you used a trust rather than joint tenancy, your spouse’s cost basis is now $300,000 (the basis for the heirs gets “stepped-up” to its value at your deatah). So, if she then sells the property for $315,000, she only has to pay capital gains on $15,000, which is the gain that happened after your death! However, with joint tenancy, she does not receive the full step-up in basis, meaning she’ll pay more capital gains taxes.

Giving Away the Inheritance Early

Some parents choose to give children their inheritance early–either outright or incrementally over time. But this strategy comes with several pitfalls. First, if you want to avoid hefty gift taxes, you are limited to giving each child $14,000 per year. You can give more, but you start to use up your gift tax exemption and must file a gift tax return. Second, a smaller yearly amount might seem more like current expense money than the beginnings of your legacy, so they might spend it rather than invest. Third, if situations change that would have caused you to re-evaluate your allocations, it’s too late. You don’t want to be dependent on them giving the cash back if you need it for your own needs.

Shortcuts and ideas like these may look appealing on the surface, but they can actually do more harm than good. Consult with an estate planner to find better strategies to prepare for your and your families’ future. Give us a call to see how we can help.

Lambert Elder Care Law, 229-292-8989

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The Impact of Caregiving on Women

The Impact of Caregiving on Women

Women routinely serve as caregivers for spouses, parents, in-laws and friends. In fact, an estimated 66% of all caregivers are female. The value of the informal care women provide has been estimated as high as $188 billion annually. While some men serve as caregivers, women spend approximately 50% more time caregiving than men.

When it comes to caring for a loved one with dementia, a recent study showed the out-of-pocket cost for the patient with dementia were the highest of any other disease, in large part due to the need for caregivers – the cost of which is not covered by Medicare.   In responding to the results of the study, Dr. Kenneth Covinsky, a geriatrician at the University of California in San Francisco stated, ‘It’s stunning that people who start out with the least end up with even less. It’s scary. And they haven’t even counted some of the costs, like the daughter who gave up time from work and is losing part of her retirement and her children’s college fund.”

The financial impact on women caregivers is quite substantial.  It reduces work hours by around 41%, and can result in a financial loss of over $324,000 based on lost wages and social security benefits.  And worse, a 2004 study conducted by Rice University found that women who are family caregivers are 2.5 times more likely to live in poverty, and 5 times more likely to receive Supplemental Security Income (SSI).

The mental and physical effects of caregiving have also been well-documented.  Increased stress, anxiety and depression are common effects of caregiving. When caring for a spouse, women are nearly 6 times as likely to suffer depressive or anxious symptoms as non-caregiver spouses. Providing care to someone with dementia increases the levels of distress and depression higher than caring for someone without dementia.

Physical effects include higher blood pressure, increased risk of developing hypertension, less time spent on preventative care and a higher risk of developing coronary heart disease.
Conclusion

It is clear that women are at great risk when providing care to a loved one. Their financial stability is at risk, and they are at greater risk of developing mental and physical ailments. Are they at risk for negative long-term effects as well, including a higher death rate? Stay tuned – a new study titled, “The Long-Term Effects of Caregiving on Women’s Health and Mortality” will be published in the Journal of Marriage and Family in October, 2016, and ElderCounsel will post a follow-up article to help answer that question. (Credit: Valerie Peterson, J.D.)

LAMBERT ELDER CARE LAW

(229) 292-8989

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How you might beat the annuity actuaries…

Life insurance and annuity companies have the big buildings for a reason: They know when you’re going to die. Or do they?

Knowing when you are going to die doesn’t mean that actuaries are evil, but it does mean that they fully understand life expectancy. When you buy an annuity and structure it for a lifetime payment, you are in essence betting with the carrier that you are going to live longer than they project you to live. Regardless of how long you last, the carrier is on the hook to pay. (more…)

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Safeguarding Your Estate Plan Against Three Worst-Case Scenarios

There is no such uncertainty as a sure thing.

                                     –Robert Burns

Even with an estate plan, things can always happen that may cause confusion for the estate–or threaten the plan altogether. Below are three examples of worst-case scenarios and ways to demonstrate how a carefully crafted plan can address issues, from the predictable to the total surprise.

Scenario One: Family Members Battle One Another

Despite your best intentions, what happens if the people you care about most get into a knockdown, drag-out fight over your estate? Disputes over who should get what assets, how to interpret an unclear instruction from you, or how loved ones should manage your business can open old wounds.

Lawsuits between family members can drain your estate and tarnish your legacy. Family infighting can lead to less obviously dramatic problems as well. For instance, let’s say you name your daughter as the executor, and she holds a deep grudge against your youngest son. Your daughter cannot do something as drastic as rewriting your will to leave him out. However, she could drag her feet with the probate court, interpret the will “poorly” (unfairly privileging herself and your other son over your youngest), or engage in other shenanigans. In all of these cases, your youngest son would have to hire a lawyer and potentially get involved in a protracted legal battle. This is a bad outcome for everyone.

To prevent such scenarios, consider using an impartial (e.g. third party) trustee or executor. Moreover, speak with a qualified estate planning attorney to prepare for likely future conflicts among family members.

Scenario Two: Both Spouses Die Simultaneously

Many estate plans transfer assets to a surviving spouse, but what happens if both spouses die at or near the same time? This situation may be even more complicated if both spouses have separately owned assets or if the size of the estate is significant. In that case, asset distribution may depend on who predeceased whom, the amount of estate tax paid, and other factors. There are, however, ways to address this in an estate plan making it easier for your family to understand your intent, including, as recently discussed in Motley Fool:

  •  A simultaneous death clause that automatically names one spouse as the first to die;
  • A survivorship deferral provision, delaying transfer of assets to a surviving spouse, thus preventing double probate and estate taxes; and
  • A so-called “Titanic” clause that names a final beneficiary in the event all primary beneficiaries die at once.

Scenario Three: Passing Away Overseas

Expatriates may need particular care in estate planning. If a death occurs outside the U.S., foreign laws may conflict with provisions of an American-made estate plan. Thus a plan may need to be reviewed both for the US and other nations’ laws. If you intend to live abroad for an extended period, as discussed in this New York Times article, it may be smart to draw up a second will consistent with those nations’ laws, too. However, the starting point is completing your estate planning (will, trust, and other documents) here in the United States first.

If you have concerns as to whether your current estate plan is safeguarded against these three worst-case scenarios or anything else you might be worried about, we are here to help. Contact our office for an appointment. Lambert Elder Care Law,  229-292-8989.

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