Philadelphia PA Estate Planning Blog

Thinking about making a gift in 2013? The rules have changed a bit since 2012 and years past. Each person has an annual gifting exemption and a lifetime gifting exemption. 

Annual Gifting Exemption: $14,000/Per Year

• Each year, you can give $14,000 to an individual, tax-free to you and the individual. 
• You can give to multiple people per year, so for instance, with 3 kids, you can give $42,000 total to the three.
• If you're married, you can double your gifts. Therefore, you and a spouse can give $28,000 to each child.
• For example, with three children, you could gift $84,000 total per year under the annual gifting exemption.

Lifetime Gifting Exemption: $5 Million/Lifetime

• You can give OVER $14,000 per person.
• Hwever, any gift over that amount would trigger an IRS filing (Form 709) and the amount above $14,000 would count towards your $5 million lifetime exemption.
• Just to be clear, the gifts of $14,000 or under do not count towards that lifetime exemption, so you have a LOT of opportunity for tax-free gift-making.

Income Tax Liability on Gifts: 

• There is no income tax liability to the kids for the gifts.
• Obviously, what the person receiving gifts does with those gifts could generate taxes if they invest it, etc.

Contact us today at (215) 706-0200 for more gifting help.

We have been getting a lot of questions into our office about how the impending 'Fiscal Cliff' may affect estate plans. The Fiscal Cliff would occur starting January 1, 2013 if Congress takes no action. Income taxes would increase, capital gains taxes would increase, estate tax and gift tax exemptions would sharply drop down, and much more.

The Fiscal Cliff may not be resolved by the end of this year, as negotiations have stalled and both sides have criticized the other. Perhaps a deal will be struck on December 31, 2012 at midnight. Who knows?

In terms of estate and gift taxes, most of our clients would not be immediately affected if there was a reversion to old tax rates. Besides, it is our opinion in this office that any fiscal cliff would be temporary. The political pressure on all parties and members of Congress to get something done would be too great to ignore. 

Keep checking this blog for more updates. Thanks!

Elder planning is legal planning for your long-term care needs and the costs associated with the care. Nursing homes today cost over $100,000 a year, and the figures rise annually faster than inflation. At such a high cost, nursing home care can easily wipe out a modest estate before one must utilize Medicaid (without any planning, you would have to spend down close to everything you own).  

There are two types of elder planning: Advanced planning and crisis planning. Advanced planning can help shield some significant assets from being spent down on a nursing home, while still allowing qualification for Medicaid. This involves use of irrevocable trusts. The best assets to preserve with trusts are typically second homes or investment accounts that you will never need.

Other options for advanced planning include the purchase of life insurance, with a death benefit that can be used for long-term care costs. This is typically a win-win situation for clients that can get covered and are comfortable paying the premiums.

Advanced planning is great for those that have certain assets or money to plan with and also want to ensure their family is left an inheritance.

On the other hand, crisis planning occurs immediately before the individual is admitted to a nursing home. Sometimes, some assets can be preserved, but the options are usually limited and costly.

If you want to plan in advance, the optimal time is typically in your 60’s while you’re still in good health. Adjust the age based on your health history, family health history and other factors. Also, planning is best done for clients with estates valued at between $500,000 and $1,500.000. Anything below or above those numbers usually makes advanced planning less urgent.

For more questions about elder planning, please contact me at jeremy@jawatlaw.com.

Probate is the process of settling one's estate and the items/assets that were left through the individual's Last Will & Testament. In comparison to other states, Pennsylvania's process is easier. 

Here are a few tips regarding probate, which may be useful to you if you are an Executor of an estate:

• The county where the deceased individual last resided is the county in which probate occurs. Each county has a Register of Wills office where probate occurs, typically at city hall, the municipal court building, etc.
   
• Be as transparent as possible with the beneficiaries of the person's will. This will make the process easier.
   
• If the estate is complex (multiple accounts, beneficiaries, family issues, etc.), you may want to hire an attorney to help you through the probate process.
   
• If possible, pay an estimated Pennsylvania Inheritance Tax amount within 3 months. You'll receive a 5% discount from the tax due.
   
• Keep a list of all transactions, and keep all receipts. The more organized you are, the better.
   
• Understand that as an Executor, you are a fiduciary, and are legally responsible for the estate. Do not take the job lightly, and make sure you follow all rules and laws.

Long Term Care Insurance: A small minority of individuals own a long term care insurance policy. They're expensive and many providers are dropping coverage. But if you can get underwritten at a good rate, a small policy may make sense to cover some of the costs. However, even small policies can be expensive.

Hybrid Life Insurance Policy: New whole life insurance products are available to convert a death benefit into available funds for long term care costs. In addition, whole life insurance has a host of other benefits, including being tax free, estate/inheritance tax free, and can be used as a wealth transfer and accumulation tool depending on the policy.

Asset Preservation Planning with Trusts: An elder law attorney can help shelter a portion of your wealth so that it doesn't have to be "spent down" on long term care before you can qualify for Medicaid. However, this type of planning must be done while you're still healthy.

Do Nothing: Many people take a chance and hope they don't have long term care needs. Even if you end up needing long term care, an elder law attorney can help preserve assets at that moment of crisis.

Are you concerned that your Last Will & Testament will possibly be challenged or contested by members of your family after you pass? If so, you're not alone. There are many people with conflicts in their family that may bubble up after you pass, resulting in estate litigation.

While we cannot prevent a will from being challenged, we can minimize the risks and discourage such behavior. Here are a few tips:

1. Get all of the family issues out in the open while you’re alive and try to resolve them. This may be easier said than done, but it's important to at least consider the idea. If you don't resolve the problems now, it doesn't mean they go away after you pass on. If you are concerned about your family, you should think about how to find a solution now.
    
2. Communicate what’s in your will and inform loved ones who you chose as beneficiaries of your estate.  Unpleasant surprises always breed resentment and conflict, especially in a sensitive time of one's passing.
    
3. Make sure your will is created professionally by a lawyer, executed properly and stored properly. "Self-help" and online wills may look tempting, but "you don't know what you don't know." Be careful, and have a professional work with you to ensure you're covered.
    
4. Limit giving copies of your will to people. In fact, don’t give copies to anyone at all. Just let the Executor know where to find the will when the time comes.
    
5. Review your will regularly and update it with an attorney when necessary. Make sure there is a "no-contest" clause in your will. 
    
6. Consider how your estate is set up.  Use more payable-on-death accounts, annuities, life insurance, trusts, etc. to facilitate the direct passage of that asset to a beneficiary (a will does NOT affect those assets that transfer directly to individuals through beneficiary forms).

Estate planning is about as exciting as going to the dentist. But just like the upkeep of your teeth to prevent cavities, root canals, etc., keeping up your estate plan can help avoid bigger problems and conflicts later down the road.

Everyone should have a plan, no matter how much or little wealth you have. Furthermore, your life and circumstances will continue to change, and so should your plan. Get a check-up at least every few years!

Here are the five things you can do NOW to enhance your current plan:

1. Organize - Your plan won't be helpful to you or your family if no one can find it. Make sure you keep the originals in a fire-proof safe at home, and leave instructions for your Executor and Agent to be Power of Attorney.

2. Communicate - Surprises when a plan is needed is never fun. Talk to your Executor and Power of Attorney in advance
 

3. Supplement - Funeral instructions, last wishes, health care concerns - these are all things with which you can supplement your plan.
 

4. Consider an irrevocable burial reserve and make all of your last arrangements now - it will be one less step for your family
 

5. Electronic data - make a plan for your electronic data. Think of all of the "stuff" we have on our computer today. Photos, sensitive financial information, etc. What's your plan to ensure that your electronic data is handled the way you want it to be handled?

Yes, it can be done.

Now, that's not to say that tax-planning concerns have gone by the wayside. In the last few years, middle class families have been lucky because the federal estate tax has been basically non-existent. But, we seem to be hearing a lot about a "fiscal cliff" on the way. Part of the cliff is that estate taxes will again become relevant for many more people if Congress doesn't act before 12/31/12.

I am following this matter and other important developments very closely. I will continue to make sure my clients are kept up to date with any news regarding estate or elder law.

I hope you find this newsletter helpful. I appreciate any feedback you have, and also invite you to forward this to your friends or family that may have an interest.

In our feature article this month, I discuss five steps you can take right now to improve your estate plan. I hope you find it informative and helpful.

Thanks again for reading, and see you next month.

Jeremy

Does a marriage or civil union by a same-sex couple translate to the same rights in Pennsylvania, particularly for inheritance taxes? According to a recent article in Forbes magazine and a recent case in Pennsylvania, the answer is no.

Although more states have added civil unions or marriage for same sex couples in recent years, Pennsylvania has not and still has their own Defense of Marriage Act (DOMA). 

For estate tax and inheritance tax purposes, that means you're treated in PA as not being married. If you're married in Pennsylvania, you can transfer all of your assets to your spouse inheritance tax free. However, if Pennsylvania doesn't recognize the marriage or civil union, the inheritance tax is 15% of the assets transferred. For a $1 Million estate, the difference between marriage recognition or not is $150,000!

Read the Forbes article here. 

Veterans pensions are available to veterans who are over 65 or disabled and have served in an active duty war zone. The program can provide the veteran, his or her spouse or kids several thousand dollars per year. There are strict limitations on income and resources. However, the program has never had a “look back period” like Medicaid, meaning you can transfer assets to a trust or out of your name to qualify immediately for this benefit.

However, as a result of the apparent abuse of this program, Congress is considering establishing a look-back and penalty periods for pension claimants who transfer assets.

Read more about the story here:  https://www.nytimes.com/2012/06/06/us/veterans-pension-program-is-being-abused-report-says.html?_r=2&ref=us

What is filial responsibility? It's an old (but existing) law in Pennsylvania that allows nursing homes to come after children of parents in nursing homes for unpaid bills. It's an unpopular law that made more sense hundreds of years ago. 

Recently, a case was decided in the Superior Court of Pennsylvania that awarded $100,000 to a nursing home, collected from an adult child of a mother who was under care for less than a year. It was a strange case, and very few cases are on the books under this law. But this is a concern for elder law practitioners. My view is that this case will probably (hopefully) result in changes in the law. 

An expert on filial responsibility discusses the developments in this 4 minute video. https://www.youtube.com/watch?v=cD-vLRK3vmc&feature=youtu.be