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Friday, May 31, 2013

Older Americans Are Worried About Health Care Issues

As Americans continue to live and work longer, health care issues have become the biggest worry for retirees.  That is one of the major conclusions in a study commissioned by Bank of America Merrill Lynch in partnership with Age Wave, a leading consulting firm on the aging work force.  The survey gathered responses from more than 6,000 individuals, age 45 and older, from all walks of life (including pre-retirees as well as retirees) who weighed in with their hopes and fears regarding retirement.

When asked about their greatest concern in regard to living longer, 72% said they were worried about serious health problems.  60% said they were worried about not being a burden to their family and 47% said they were worried about running out of money.  Only 13% of the respondents said they were worried about not having enough money to leave an inheritance to children and grandchildren.

The survey also asked about the top financial worries.  Again, the greatest response related to health care where 52% of respondents, with at least $250,000 in investable assets, indicated they were worried about the cost of health care.  Interestingly, only 6% of people with at least $250,000 in investable assets said they were worried about a lack of social security.  

A complete copy of the study may be found at:

According to the study, unanticipated medical expenses can derail years of retirement preparation and 60% of bankruptcies in the U. S. today are related to medical bills.  Health issues are also the number one reason why people retire early.

Monday, May 13, 2013

How Does the New Estate and Gift Tax Law Affect Your Planning?

Many of our clients have wondered how the new estate tax law affects their current estate plan.   The short answer is that the change in the tax law doesn't hurt anyone with a smaller estate and is certainly helpful for people with larger estates.

We often refer to the estate tax exemption as your "coupon."  Every American is allowed to pass the "coupon amount" to their heirs without paying any federal estate or gift taxes. The coupon has now been set at $5 million, indexed for inflation.  The law has no expiration date.  So how does this change affect existing plans?

Many of the living trust-based plans that we have implemented for our married clients in the past 10 years include planning that maximizes the amount of wealth that can pass to others upon the second death.  These plans provide that upon the death of the first spouse, the decedent's portion of the estate (up to the coupon amount in effect in the year of death) passes to an irrevocable trust we call the Family Trust. With a $5.25 million coupon this year, the first spouse could transfer up to $5.25 million to the Family Trust. But if a couple doesn't have $5 million, the Family Trust will simply be funded with less money. 

The Family Trust planning we have done takes into consideration that the coupon amount was increasing, but might also decrease. Therefore, if you have a Family Trust in your plan, flexible language provides for maximum funding of the Family Trust based upon the current coupon amount.

Some clients might ask whether they need a Family Trust any more as part of their estate plan after the death of the first spouse, if together they have less than a $5 million estate.  The answer to this question is, "It depends."  The Family Trust provides tax planning, but it also provides asset protection for the surviving spouse and protection that the wealth will not be given to the wrong people by the surviving spouse later on.  We call this bloodline protection.  We anticipate that most of our clients will probably keep the Family Trust as part of their estate plan, even if they no longer have a taxable estate.

Periodic plan review is included in our Generations Trust Maintenance Program.  If your circumstances have changed, or if you are not sure what your plan says and want to know exactly how the new law affects you, feel free to schedule an estate plan review with our office.

Wednesday, April 17, 2013

Congress Makes Estate Tax Exemption Permanent at $5 Million

For the first time since 2001, Congress has provided some degree of certainty about the federal estate and gift tax.  The new estate and gift tax law was part of the more sweeping American Taxpayer Relief Act of 2012 (ATRA 2012) that was negotiated to avoid the "fiscal cliff" created by the expiring 2001 law and automatic spending cuts.  The new law was signed by President Obama on January 2, 2013.

When the 2001 law was originally passed, the estate tax exemption was immediately raised to $1 million and periodically increased over the last decade to $3.5 million in 2009.  But the law was scheduled to expire in 2011.  The exemption was raised to $5 million in 2010, and the law was extended by two years until December 31, 2012.  The expiration provision threatened to roll back the exemption to $1 million this year, if Congress was unable to pass a new law.

Under ATRA 2012, the estate and gift tax exemption was made permanent at $5 million, subject to inflation indexing.  With indexing, Americans can actually pass up to $5.25 million in 2013 to their heirs without incurring any gift or estate taxes.  The tax rate for gift or estate transfers above $5.25 million was raised from 35% to 40%. This means that an individual who is passing $6.25 million to children this year would incur a tax of $400,000.

Married couples can each pass $5.25 million of wealth, so that, with proper planning, a family can actually transfer $10.5 million to their heirs.

Call us or attend one of our regular estate planning workshops if you have questions about how the new law affects your personal estate planning.

Wednesday, February 20, 2013

Umbrella Insurance: What It Is and Why You Need It

Lawsuits are everywhere. What happens when you are found to be at fault in an accident, and a significant judgment is entered against you? A child dives head-first into the shallow end of your swimming pool, becomes paralyzed, and needs in-home medical care for the rest of his or her lifetime. Or, you accidentally rear-end a high-income executive, whose injuries prevent him or her from returning to work. Either of these situations could easily result in judgments or settlements that far exceed the limits of your primary home or auto insurance policies. Without additional coverage, your life savings could be wiped out with the stroke of a judge’s pen.

Typical liability insurance coverage is included as part of your home or auto policy to cover an injured person’s medical expenses, rehabilitation or lost wages due to negligence on your part. The liability coverage contained in your policy also cover expenses associated with your legal defense, should you find yourself on the receiving end of a lawsuit. Once all of these expenses are added together, the total may exceed the liability limits on the home or auto insurance policy. Once insurance coverage is exhausted, your personal assets could be seized to satisfy the judgment.

However, there is an affordable option that provides you with added liability protection. Umbrella insurance is a type of liability insurance policy that provides coverage above and beyond the standard limits of your primary home, auto or other liability insurance policies. The term “umbrella” refers to the manner in which these insurance policies shield your assets more broadly than the primary insurance coverage, by covering liability claims from all policies “underneath” it, such as your primary home or auto coverage.

With an umbrella insurance policy, you can add an addition $1 million to $5 million – or more – in liability coverage to defend you in negligence actions. The umbrella coverage kicks in when the liability limits on your primary policies has been exhausted. This additional liability insurance is often relatively inexpensive in comparison to the cost of the primary insurance policies and potential for loss if the unthinkable happens.

Generally, umbrella insurance is pure liability coverage over and above your regular policies. It is typically sold in million-dollar increments. These types of policies are also broader than traditional auto or home policies, affording coverage for claims typically excluded by primary insurance policies, such as claims for defamation, false arrest or invasion of privacy.

Wednesday, February 6, 2013

The ‘Sandwich Generation’ – Taking Care of Your Kids While Taking Care of Your Parents

“The sandwich generation” is the term given to adults who are raising children and simultaneously caring for elderly or infirm parents.  Your children are one piece of “bread,” your parents are the other piece of “bread,” and you are “sandwiched” into the middle.

Caring for parents at the same time as you care for your children, your spouse and your job is exhausting and will stretch every resource you have.  And what about caring for yourself? Not surprisingly, most sandwich generation caregivers let self-care fall to the bottom of the priorities list which may impair your ability to care for others.

Following are several tips for sandwich generation caregivers.

  • Hold an all-family meeting regarding your parents. Involve your parents, your parents’ siblings, and your own siblings in a detailed conversation about the present and future.  If you can, make joint decisions about issues like who can physically care for your parents, who can contribute financially and how much, and who should have legal authority over your parents’ finances and health care decisions if they become unable to make decisions for themselves.  Your parents need to share all their financial and health care information with you in order for the family to make informed decisions.  Once you have that information, you can make a long-term financial plan.
  • Hold another all-family meeting with your children and your parents.  If you are physically or financially taking care of your parents, talk about this honestly with your children.  Involve your parents in the conversation as well.  Talk – in an age-appropriate way – about the changes that your children will experience, both positive and challenging.
  • Prioritize privacy.  With multiple family members living under one roof, privacy – for children, parents, and grandparents – is a must.  If it is not be feasible for every family member to have his or her own room, then find other ways to give everyone some guaranteed privacy.  “The living room is just for Grandma and Grandpa after dinner.”  “Our teenage daughter gets the downstairs bathroom for as long as she needs in the mornings.”
  • Make family plans.  There are joys associated with having three generations under one roof.  Make the effort to get everyone together for outings and meals.  Perhaps each generation can choose an outing once a month.
  • Make a financial plan, and don’t forget yourself.  Are your children headed to college?  Are you hoping to move your parents into an assisted living facility?  How does your retirement fund look?  If you are caring for your parents, your financial plan will almost certainly have to be revised.  Don’t leave yourself and your spouse out of the equation.  Make sure to set aside some funds for your own retirement while saving for college and elder health care.
  • Revise your estate plan documents as necessary.  If you had named your parents guardians of your children in case of your death, you may need to find other guardians.  You may need to set up trusts for your parents as well as for your children.  If your parent was your power of attorney, you may have to designate a different person to act on your behalf.
  • Seek out and accept help.  Help for the elderly is well organized in the United States.  Here are a few governmental and nonprofit resources:
    • – Hosted by the National Council on Aging, this website is a one-stop shop for determining which federal, state and local benefits your parents may qualify for
    • – Sponsored by the U.S. Administration on Aging
    •  -- National Association of Professional Geriatric Care Managers
    • – National Adult Day Services Association

Wednesday, January 23, 2013

Preserving and Protecting Documents Is Part of Healthy Estate Planning

In the unsettled time after a loved one’s death, imagine the added stress on the family if the loved one died without a will or any instructions on distributing his or her assets.  Now, imagine the even greater stress to grieving survivors if they know a will exists but they cannot find it!  It is not enough to prepare a will and other estate planning documents like trusts, health care directives and powers of attorney.  To ensure that your family clearly understands your wishes after death, you must also take good care to preserve and protect all of your estate planning documents.

Did you know that the original, signed version of your will is, in many jurisdictions, presumed to be the only valid version?  If your original signed will cannot be found, the probate court may assume that you intended to revoke your will.  If the probate court makes that decision, then your assets will be distributed as if you never had a will in the first place defeating your estate plan.

You should keep your original will, power of attorney, and related documents in a safe place so that they may be located by your personal representative and agents if something happens to you.

Many clients plan on keeping their estate planning documents at home in a safe or at a safety deposit box at their local bank.  Storing your documents in a safe or safety deposit box, however, may prove difficult, and even impossible, for your heirs and personal representative to locate in the event of an emergency or your death.  And if you leave clear detailed instructions to several people on how to find or access your documents in the safe, you may be creating a risk of privacy invasion.   Also, if you keep your will in a safety deposit box, only the signers on the deposit box are authorized to access the documents you have locked away.  In other words, your personal representative or family will not have access to your estate plan and other important documents unless you have listed them as a signer and key holder on the box.

You can also have your lawyer deposit your will with the court for safekeeping.  A quick search of the court docket online can reveal if you have a will on record. 

You may also be able to store your will and other documents online.  Many large financial institutions have begun offering long-term digital storage of important documents.  However, any electronic version of your original will is – by definition – a copy, not the original.  So, you still must find a safe place to store the original, signed and witnessed will.  Online storage “safes” may be an excellent back-up, but you must still find a secure place to store the paper originals.  Copies of your health care related documents may also be deposited on a site like for safekeeping and access in case of an emergency.

Wednesday, January 9, 2013

Ten Things That Can Complicate an Estate Plan

We strive to keep things simple for our clients.  Some complications can be avoided and some cannot.  Just knowning that these conditions exist can help your estate planning go more smoothly.  Ten things that tend to make estate planning more complicated are:

1.  Greater Wealth.  Larger estates tend to be more complicated because of estate and gift tax issues and the desire of clients to establish a plan that avoids or reduces taxes.

2.  Greater Number and Types of Assets.  Every asset adds complexity to planning and estate administration.  A client who has one bank account that holds $5 million has a simpler situation than a client who has $5 million spread throughout multiple accounts, real estate, business interests, airplanes, stocks, bonds, IRAs, and gold coins. 

3.  Real Estate in Multiple States or Countries.  Planning for a second home in another state or country, or a piece of the family farm in Iowa, increases estate plan complexity.

4.  Blended Families.  When the family includes “my” children, “your” children, and “our” children, the nature of the plan can become more complicated to assure that everyone receives the "right inheritance."

5.  Unmarried Couples. State and federal laws provide certain benefits and protections to married couples when it comes to estate planning.  These laws can be planned around when unmarried couples do their planning together, but such plans tend to be a little more complicated.

6.  Non-US Citizen.  Federal tax law may complicate planning when a client is married to a non-US citizen.

7.  IRAs and 401(k)s.  Large IRAs and 401(k)s are special assets because they are taxed deferred and subject to special regulations that can restrict client flexibility. 

8.  Other Types of Regulated Property.  Certain types of property are highly regulated by state or federal law which can add complexity to an estate plan.  Highly regulated property includes restricted stock in native corporations, native land allotments, fishing permits and individual fishing quotas, liquor licenses, timeshares, and US Savings Bonds.

9.  Operating Businesses. Operating businesses should (but rarely do) have an effective succession plan in place in the event the owner or key manager passes away.  This problem is magnified  when the business is a professional practice requiring a special license.

10. Significant Philanthropic Planning.  Many clients want to leave a large part of their estate to charity which seems simple.  But structuring a charitable gift in the right way to the right charities can increase complexity and require special effort and focus on the part of the client.

Wednesday, December 26, 2012

Limit on Tax Free Gifts Set to Increase

The IRS recently gave taxpayers certainty about one part of the estate and gift tax law.  In October, an increase in the annual exclusion for gifts was announced.  That amount will increase from $13,000 to $14,000 per recipient in 2014. 

The annual exclusion is the total amount you can give away to one person in a calendar year without triggering a requirement to file a gift tax return.  Annual exclusion gifts may result in a lower estate tax, as gifts made prior to death are not part of the taxable estate at death.  Married couples can join to make gifts of twice the exclusion amount per year, per recipient.

A gift tax return will need to be filed for gifts above the annual exclusion amount, although these gifts may not be taxed.  In 2012, tax won't be due until you've given $5.12 million (total) in gifts reported on gift tax returns.  All bets are off, though, for 2013.  Currently, the law for 2013 is that taxes will be due on all reportable gifts above $1 million. 

If you want to gift more than the annual exclusion amount to any recipient in one calendar year, it's a good idea to contact Foley & Foley first.  We can give you ideas about how to reduce or eliminate the gift tax on those large gifts.

Wednesday, December 12, 2012

Estate Planning with Gold

Some people believe that the best way to protect wealth from the government is to bury gold in the garden and keep lots of cash in the mattress.  A recent story reported by NBC News illustrates why this strategy might not be the best estate plan.

             When Walter Samasko, Jr., passed in May 2012 in Carson City, Nevada, he was not discovered until at least a month later. At 69 years of age, Mr. Samasko died from heart problems without a will or any immediate family.

            The city clerk's office undertook wrapping up the estate and selling the house under the assumption that Mr. Samasko had died broke with only $200 in his bank account.  But when cleanup crews arrived at the home, they discovered boxes of gold, including gold coins, gold bullion, $20 gold pieces, Austrian ducats, South African Krugerrands, and English Sovereigns dated to the 1840's. The $7 million estimated value of the gold was based on the weight of the gold alone.  The value could be much higher considering the rarity of some of the coins discovered.  The gold had to be removed in two wheelbarrow loads.

            After investigating potential heirs, the city clerk determined that the closest next of kin was a first cousin, Arelene Magdanz,  a substitute teacher who lives in San Rafael, California.  When contacted by a lawyer regarding the estate and her newly found inheritance, she was shocked.  Ms. Gagdanz had not seen her cousin in over a year. 

            Mr. Samasko was described as being "anti-government, paranoid, and a reclusive hoarder.”  Evidently, Mr. Samasko believed that he could avoid taxes and government intervention in his estate by holding everything in gold.  But things didn't work out that way.  The City of Carson City has undertaken to wind up Mr. Samasko's estate and the Internal Revenue Service will collect at least $750,000 in estate taxes from Mr. Samasko's estate.

            We have a number of clients who hold a substantial amount of gold and cash in safety deposit boxes or in their homes.  These clients often fail to tell their estate planning attorney and CPA about the gold or cash on the assumption that it will be passed to the next generation without anyone discovering it.  But this is a risky plan for two reasons:

            First, the next of kin have a legal obligation to report the transfer of wealth to the IRS if the entire estate is over the estate tax threshold amount ($5.12 million in 2012 and, if and when the current law expires, $1 million in 2013).  Failure to report the transfer of wealth is considered tax evasion, a serious federal criminal offense.

            Second, next of kin who are willing to be dishonest with the IRS are likely to be dishonest with other family members, too.  In such cases, the first family member to find the gold and cash simply carts it away and doesn't report it to other family members who were intended to share the inheritance. 

            Gold has recently been a very good investment.  But when raw gold is held in an estate, the transfer of the gold should be properly handled.  There are legitimate ways to avoid estate taxes with these assets. Hoarding and hiding is not the best plan.

Wednesday, November 28, 2012

Even the Rich and Famous are Victims of Poor Estate Planning

In his recent article in Wealth Management, Jim Moniz illustrates how estate planning, or a lack thereof, has come to be known as the "great equalizer."  With so many newsworthy battles of heirs and estate planning disasters, Mr. Moniz ponders how a majority of American adults still have no plan in place for the assets they leave behind.  Here are a few examples:

Sonny Bono: He left his third wife to manage claims from Cher and an alleged love child in an estate worth an estimated $1.7 million, including the right to exercise Sonny's music rights. He did not set up a will or a trust before his untimely death in a skiing accident.

Howard Hughes: This famous businessman, aviator, and philanthropist died intestate after a handwritten will found on a church official's desk was deemed forged. One of the richest people in the world, his $2.5 billion estate was split among 22 cousins after thirty-four years of litigation.

James Brown: James Brown tried to leave his $100 million to a special trust to benefit poor and needy children. He did not discuss his wishes with his family, however, and failed to update his will while he was married to his fourth wife. These mistakes left his money in limbo and ultimately only benefited legal teams.

To read the article in its entirety, see Jim Moniz, "Lessons of the Rich and Famous,", Nov. 21, 2012.

Wednesday, October 17, 2012

Fall 2012 Estate Tax Law Update

The current estate tax law is scheduled to expire on December 31, 2012, together with other "Bush Tax Cuts" affecting overall tax rates, capital gains taxes and taxation of trusts.  If Congress does not act by December 31, 2012 or pass a retroactive tax law change, the current $5.12 million estate tax exemption will expire and the law will revert to the 2001 exemption, adjusted for inflation, of $1.3 million.  Because of the risk that the larger exemption might expire and not be renewed retroactively, some wealthier Americans are choosing to take advantage of the $5.12 million exemption by making larger gifts in 2012 to family members or to trusts for themselves or their family. 

Contact us if you want to discuss your situation and how you might take advantage of the current law before it expires.

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