2016 Tax Update

As many seniors will attest, it was very disappointing to learn that there will be no cost of living increase for social security recipients in 2016. The lack of cost of living adjustments has also impacted the various tax rates and retirement contribution rates, most of which are remaining the same as the 2015 rates.

For 2016 the estate and gift tax limits have been slightly adjusted with an increase in the federal estate and gift tax exemption amount to $5,450,000 per person. This is an increase of $20,000 from the 2015 exemption amount. Thus, for a married couple, a proper estate plan can protect a total estate of $10,900,000 in 2016.

Unfortunately, like last year, the annual gift tax exclusion amount remains at $14,000 per person. A donor can gift $14,000 to any number of donees with no tax consequence, but larger gifts would need to be reported on a gift tax return (form 709).

For 2016 the annual contribution limits for retirement plans remain the same. The annual limit for 401(k), 402(b) and 457 plans is $18,000. For employees that are over age 50, a catch-up contribution in the amount of $6,000 per year is allowed. Thus, those employees over 50 can contribute up to a total of $24,000 into their 401(k). For IRA contributions, the annual limit remains at $5,500.

* The information contained in this Blog is intended for general information and educational purposes only and does not constitute legal advice or an opinion of counsel.

Some Facts About Decedent Debts

As part of the probate or trust administration process, the decedent’s debts must be addressed. If there are debt collectors involved, this can be the worst part of the administration process. Although it would be nice, debts do not go away when the debtor passes away. Debts must be paid from the decedent’s estate, if there is enough money. The family members do not become personally responsible for the debt unless a family member co-signed for the debt or was the spouse of the decedent.

Creditors must comply with certain restrictions relating to the debt. Creditors can discuss the debt with the person who has authority for the deceased person, which is typically the executor or personal representative, the successor trustee, or perhaps a family member such as a spouse or parent. The debt collectors must comply with the Federal Fair Debt Collection Practices Act, and they are prohibited from using abusive or deceptive practices in their attempts to collect the debt. The collectors cannot pressure the family to use their own funds to pay the debt, and may not imply that the family must personally pay this liability.

It is always important to verify a debt of a decedent prior to payment. You may request proof of the debt and details regarding the debt owed. You should always ensure that the debt is actually owed prior to making any payments from the decedent’s estate. If a formal probate estate is open, you should always consult with your attorney prior to paying any debt, especially in the case of an insolvent estate to ensure that debts of a higher priority (like taxes) are paid first.

* The information contained in this Blog is intended for general information and educational purposes only and does not constitute legal advice or an opinion of counsel.

California Revocable Transfer on Death Deed

Effective January 1, 2016, but only effective until January 1, 2021, there will be a new option for the transfer of real property without a probate proceeding in California. A Revocable Transfer on Death Deed (RTODD) will now be authorized. A transferor, who has the capacity to contract, may deed property to a clearly identified beneficiary. The RTODD must be signed, dated, notarized and recorded within sixty (60) days of signing to be valid. If recorded, and not revoked, the deed will be effective upon death to transfer the property to the named beneficiary. As this is a revocable transfer, the transferor can always change his or her mind and either name new beneficiaries or simple revoke the prior transfer. The property transferred via the RTODD would remain includable in the transferor’s estate, including for Medi-Cal eligibility and recovery purposes and for the transferor’s creditors.

Although this law is touted as a simple way for a non-probate transfer of a residence, which is used in many other states, there are concerns this law will encourage elder abuse and fraud. As this is a revocable transfer, it is easy to see how lawsuits could emerge if multiple deeds were recorded, or if the transfer conflicted with set estate planning documents. In addition, it would seemingly be very easy for an abuser to have an elder sign such a document.

Consider the following fact pattern. A single widowed gentleman consults his attorney and sets up a general estate plan, including a trust, which leaves all assets equally between the transferor’s son and daughter. He later decides he wants his son to receive the house, so without consulting his attorney, he executes and records a RTODD. After he passes, while the RTODD will now give the house to the son, the trust indicates that all property should be divided 50/50. The son would thus receive 50% of the assets in the trust as well, giving him a windfall, and not giving the daughter an overall equal share of all of the assets. Unless this was the goal, that the son should receive the house in addition to his 50% share, the RTODD has created a potential estate distribution issue that may push the estate into litigation.

Thus, while we do feel that the RTODD is a good option to utilize along with other estate planning options, there can easily be abuses of this new deed option. In order to ensure that the RTODD is utilized properly, and that all requirements are met, a consultation with an attorney is still in order. Please contact our office if you have questions about this deed and whether it is appropriate to utilize it in your planning.

* The information contained in this Blog is intended for general information and educational purposes only and does not constitute legal advice or an opinion of counsel.

Federal Tax Updates

 

Qualified Charitable Distributions from an IRA:

The prior, expired tax law allowing for qualified charitable distributions from IRA’s has been revived. This law allows individuals over 70 ½ to exclude from gross income up to $100,000 in Qualified Charitable Distributions from an IRA. This requires a distribution from an IRA directly to a public charity. If done correctly, the individual can exclude the IRA withdrawal from gross income, although no further charitable deduction is allowed. This is a better tax result than claiming the withdrawal as ordinary income and then taking the charitable deduction, as given some other tax limitations the deduction never completely offsets the amount claimed in income even though the whole amount was donated to charity. This change is beneficial for those individuals who would like to donate their required minimum distributions for instance.

 
Portability Regulations:

We have been reporting in the past few years of changes in the estate tax law and the increase in the estate tax exemption amount to $5,000,000 as of 2011, which is indexed for inflation, and stands now at $5,430,000. For many clients, this larger exemption amount has lessened the concern for estate taxes and often can allow for a less complex trust. One tax planning option is the use of Portability, which is the ability of the surviving spouse to utilize the unused estate tax exclusion amount of the deceased spouse. The IRS has now issued final regulations which apply to decedents dying after June 12, 2015. The regulations confirm that to claim the deceased spouse’s unused exclusion amount (DSUE amount) an executor (not necessarily the surviving spouse) must timely file an estate tax return. As an estate tax return would typically not otherwise be required, this can place a burden on families and the executor to prepare and file a rather complex return. Unfortunately the IRS has not opted to issue a more simplified estate tax return form to claim the election. Whether to file the estate tax return and claim the DSUE amount is a complex discussion that should be part of the trust administration process at the death of the first spouse. Please feel free to contact Sugai & Sudweeks if you have questions about estate taxes or the impact of portability options on your estate planning.

 

Same Sex Couples – Right to Marry and Tax Implications:

With the Supreme Court ruling that the Fourteenth Amendment requires a state to issue marriage licenses and recognize marriages performed in other states for same-sex individuals, these couples now have tax planning options to consider that were not previously available. All provisions in the code that previously only applied to husband, wife or heterosexual spouses, will now apply to all individuals lawfully married under state law to someone of the same sex. This may necessitate the filing of amended income tax, estate tax and gift tax returns depending on the year of marriage. Property taxes should also be examined to determine if refunds are applicable.

 

* The information contained in this Blog is intended for general information and educational purposes only and does not constitute legal advice or an opinion of counsel.

2015 Estate and Gift Tax Update

The 2015 estate and gift tax limits, as well as retirement plan contribution limits have been released by the IRS. For estate taxes, the top tax rate remains unchanged at 40%. However the federal estate and gift tax exemption amount has increased to $5,430,000 per person. This is an increase of $90,000 based on the annual increases for inflation. Thus, for a married couple, a proper estate plan can protect a total estate of $10,860,000 in 2015.

With estate tax limits so high, many clients no longer need to be concerned about estate taxes and can opt for trusts and estate plans that are no longer as complex. Many want to now revise their plans for simplification purposes and are pleased that estate taxes are no longer such a large concern.

Annual gift tax exclusion amounts remain at $14,000 per person. A donor can gift $14,000 to any number of donees with no tax consequence. Gifts in excess of $14,000 in 2015 would have to be reported on a gift tax return (form 709). In addition, a 529 college savings plan can be funded, and up to five (5) years worth of annual gifts may be made at one time ($70,000) without reducing the lifetime gift tax exemption, although a gift tax return would have to be filed to report the gift. To avoid reporting requirements, gifts can be paid directly to providers for medical, dental or tuition and do not count towards the annual limits.

For 2015 the IRS has increased the annual contribution limits for retirement plans. The annual limit for 401(k), 402(b) and 457 plans is $18,000, an increase of $500. For employees that are over age 50, a catch-up contribution amount has also increased by $500 to a maximum of $6,000 per year. This catch-up contribution can be made in the year you turn 50, no matter your birthdate. For IRA contributions, the annual limit remains at $5,500, and the catch-up contribution limit remains at $1,000.

* The information contained in this Blog is intended for general information and educational purposes only and does not constitute legal advice or an opinion of counsel.

When a Good Estate Plan Goes Bad!

We recently hosted a client seminar to discuss things that can go wrong with even a well drafted estate plan.  Most often things go wrong with an estate plan as a result of lack of communication between the parties (i.e. our clients, their successor trustees, and the beneficiaries).  While documents are drafted to follow the clients’ wishes, many times the clients do not consider the impact the documents may have on their beneficiaries after they have passed away.

Communication about the estate plan can help alleviate some of the difficulties which can occur following a death.  If the family is aware of the parents’ intent regarding the distribution of personal property for instance, the arguments regarding the jewelry, piano or grandfather clock might be eliminated.  If the parents have carefully considered their choice of trustee, the administration of the estate will be smoother and there will be less potential for conflict, even if this means that a non family member should serve as trustee.

A new legal practice method is being utilized to help with some of these areas.  A collaborative practice is designed to involve the whole family in the estate planning process.  The goal is to avoid family conflict following the passing of the parents.  The hope is that if everyone is involved and aware of the provisions in the documents, the conflicts will be minimized after the death of the parents.  While not every family can have meaningful and useful discussions about these areas, for those that can, having a discussion regarding the estate plan can make the administration much easier.  These meetings can be held with the attorney, a mediator or professional facilitator to review and discuss the issues that are presented in the plan.

If you would like to learn more, please click here to view our slide presentation from the program.

* The information contained in this Blog is intended for general information and educational purposes only and does not constitute legal advice or an opinion of counsel.

Deed Scam

Nothing makes me angrier than people trying to scam other people.  The latest scam has hit two of my clients in the last week.  Both received an official looking envelope with correspondence inside entitled Local Records Office.

The rather official looking documentation requests $89.00 to be sent in to receive a copy of their latest filed deed.  Only if you turn the document over do you see in very small print the words “not affiliated with any State or the United States or the County Records”. However the disclaimer is small and not very noticeable, so my clients could have easily complied with the request. Luckily, they called us first.

This so called service is really not a service that you need.  You can get a copy of your deed by requesting it from the recorder’s office.  However in most instances, you already have the document in your possession.  In my client’s cases, I had just recorded deeds for them, so I would have sent them the same document free of charge.

It is appalling to send out such forms, which look so official that most people would pay the charge without realizing that it is unnecessary.  The company apparently has just enough disclaimer language in the form to avoid prosecution and they do offer a service, although you could easily obtain the deed yourself and save your money.

All we can do is get the word out to try and help prevent people from being taken advantage of by this scam.  For every official looking form you receive, be cautions, check the back of the form for fine print. It can also be helpful to do a search on the name of the agency sending the information. When you type Local Records Office into google, you get a list of articles about the scam.

* The information contained in this Blog is intended for general information and educational purposes only and does not constitute legal advice or an opinion of counsel.

Social Security Benefits Increase

In January, 2013, Social Security monthly payments will increase by 1.7%.  The cost of living increase is low as a result of low inflation over the year.   Last year the increase was 3.6%.  This increase of only 1.7% is one of the smallest increases since automatic annual cost-of-living adjustment was adopted in 1975.

While any increase is certainly a benefit to Social Security recipients, it is expected that some of this increase will be wiped out by higher Medicare premiums.  Although exact figures for the increase in the Medicare premium have not yet been released, it is expected that the premiums will increase from $99.90 per month to approximately $107.00.

Social Security is funded with 12.4% taxes on wages of employees, with that tax being split between the worker and the employer.  The Social Security tax paid by workers had been temporarily cut from 6.2% to 4.2% for 2011 and 2012.  This tax rate will revert back to 6.2% in 2013 unless there is some change by Congress.  Social Security taxes were previously on wages of up to $110,100 and this amount will increase to wages of up to $113,700 in 2013, which will increases taxes for workers and employers.

* The information contained in this Blog is intended for general information and educational purposes only and does not constitute legal advice or an opinion of counsel.

Alzheimer’s Networking for Caregivers

Caring for someone with Alzheimer’s or other dementia type illness is extremely demanding on the caregivers. We are always concerned about the stress on the caregivers and want to make sure they do not burn out or become ill themselves as they provide the care to their loved one.

Support groups for caregivers of Alzheimer’s patients offer help to those caregivers who otherwise feel so isolated.  However, often the caregivers are unable to attend the group meetings as a result of not having any other respite caregivers available.  If you find yourself in this situation, consider the use of social media outlets to provide needed support.

The Alzheimer’s association has developed its own social media site called ALZconnected.  This site allows caregivers who are otherwise unable to attend group meetings to connect with other caregivers who know exactly what they are facing.  You may also post questions as well as helpful tips on the site which may be useful to other caregivers, on their solutions page.  For anyone facing the care of an Alzheimer’s patient this site provides good information, contact with others and an opportunity to know that they are not alone.  Message boards focusing on various topics are included on the site, with specific boards for caregivers, family members and even for the patient themselves.

Given the isolation of caring for an Alzheimer’s or dementia patient, it is comforting that there are resources that can be accessed without leaving your home.  Consider the use of social media to help the caregiver feel supported while they attend to the very difficult job of caring for their loved one.

* The information contained in this Blog is intended for general information and educational purposes only and does not constitute legal advice or an opinion of counsel.

Resources to Stay at Home as we Age

A big concern for most of us is how to financially manage to stay at home as we age, despite ever increasing care needs.  For those that are fortunate enough to have adequate savings, care costs may not be much of a concern.  However, care costs are quite high, with average hourly rates around $25 per hour, and many find paying for care in their home outside of their means.  It is not unusual for 24/7 care to cost $10,000 – $20,000 per month.  Thus other resources need to be located in order to keep our elders in their home, with the proper care.

For those that were forward thinkers and purchased Long Term Care insurance, that insurance can provide payments to help offset the costs of long term care in your home.  The policy typically will begin payments once the elder is unable to perform two activities of daily living.  Most policies have a stated maximum payout per day, and while this will cover some basic level of care, most policies will not cover the cost of 24/7 care.  However, the policies many times will provide enough funds to enable elders to remain at home with a minimal level of care.

In order to stay in their homes, some elders opt to obtain a mortgage on their home, but as a “forward” mortgage does require repayment, and has income requirements to qualify, many elders may not qualify or may not be able to maintain the monthly mortgage payments as their care costs increase.   In these situations, a reverse mortgage may be a good option.  A reverse mortgage allows elders to access the equity in their homes to pay for care and no repayment is required until the elder leaves the residence or passes away.  While fees and interest rates on a reverse mortgage can be high, this can still be a good option for elders who are “cash poor” and “house rich”.  The reverse mortgage primarily provides three payment options, with one being a set monthly payment, one being a flat amount up front, and the third option similar to a home-  equity line, where the senior can draw on the funds up to a stated maximum when those funds are needed.

For our totally and permanently disabled Veterans and their spouses, or those Veterans and spouses over the age of 65, funds may be available to pay for care costs if they qualify under the asset and income limitations.  Funds for Aid & Attendance are designed to supplement your resources to pay for care as the Veteran’s Administration wants you to pay for the care for which you can afford to pay.  The Aid & Attendance program (pension) is not widely known, and can provide up to a maximum of $1,703 to a single Veteran or $2,019 to a married Vet, for those that qualify under the asset and income tests.  These funds may be just enough to keep the Veteran and his/her spouse in their home with the necessary caregivers.

Other community resources are available to help our Elders remain in their home, and ensure that they are safe.  Resources include Outreach or other transportation services, to assist with transportation when the Elder no longer drives, Meals on Wheels and other meal services, to bring hot meals and easily prepared meals, Day Programs which provides needed respite for the family caregivers and for socialization for our Elders, with many programs specific for certain conditions, for instance Alzheimer’s.  If the Elder qualifies, In Home Support Services (IHSS) administered through Medi-Cal can provide limited funds for caregivers to come to the home to provide needed services.

* The information contained in this Blog is intended for general information and educational purposes only and does not constitute legal advice or an opinion of counsel.