Federal Estate Exclusion Up Slightly to $5.49M in 2017

The Internal Revenue Service has announced that the basic federal estate tax exclusion for the estates of decedents dying during calendar year 2017 will be $5.49 million, up from $5.45 million for calendar year 2016.  

In addition, if a fiduciary chooses to use the special use valuation method for qualified real property, the available aggregate decrease in the value of the property resulting from the choice may now not exceed $1,120,000, up from $1,110,000 for 2016.

The increase in the estate tax exclusion means that the lifetime tax exclusion for gifts will also rise to $5.49 million, as will the generation-skipping transfer tax exemption. 

The annual gift tax exclusion of $14,000 will not change for 2017. 

For details on many of these and other inflation adjustments to tax benefits, go to: https://www.irs.gov/pub/irs-drop/rp-16-55.pdf

If you want help understanding how these numbers impact your ability to protect your family's legacy from the tax collector, call the offices of Fabisch Law, L.L.C. to set up a consultation with Rhode Island Estate Planning Lawyer Matthew Fabisch at 401-324-9344.

Forbes.com Article Highlights Family Feuds in the Probate Process

While I work with my clients to eliminate many of these challenges during the estate planning process, I saw the issues highlighted by this forbes.com article on probate and family feuds pop up all too often in my time as a probate judge, among those clients who come to me after a loved one with no estate plan has passed, and when do-it-yourself estate planning documents lack the detail and clarity needed to avoid will contest litigation. As with most aspects of estate planning, in my experience, preventing these issues from becoming problems involves carefully determining your wishes and making sure your will and trust documents are carefully drafted to make sure those wishes are carried out. 

If you want to make sure your estate plan is drafted to avoid these and other potential pitfalls call the offices of Fabisch Law, L.L.C. to set up a consultation with Rhode Island Probate Lawyer Matthew Fabisch at 401-324-9344.

Why a will is not enough (or why your estate plan should include a revocable trust)

Your will is a legally binding statement directing who will receive your property upon your death. It also appoints a legal representative, often called an “executor” or “personal representative,” to carry out your wishes. The process by which a person’s property is passed to the people or institutions named in the will is called probate. However, a will covers only probate property. Many types of property or forms of ownership pass outside of probate. Examples of property that pass outside of probate and, thus, are not mentioned in a will, include: jointly-owned property, property in a trust, life insurance proceeds, and property with a named beneficiary, such as IRAs or 401(k) plans.

A trust is a legal arrangement through which one person (or an institution, such as a bank or law firm), called a “trustee,” holds legal title to property for another person, called a “beneficiary.” The rules or instructions under which the trustee operates are set out in the trust instrument. There can be a number of advantages to establishing a trust, depending on the individual situation. Particularly important for the basic estate plan, revocable or living trusts give the donor complete control over the trust. The donor may amend, revoke or terminate the trust at any time. The donor can take back the funds he put in the trust or change the trust’s terms. The donor can also title other assets, including non-probate assets in the name of the trust. Thus, the donor is able to reap the benefits of the trust arrangement while maintaining the ability to change the trust at any time prior to death.

Revocable trusts are generally used for the following purposes:

1. Asset management. They permit the trustee (the person who manages the trust) to administer and invest the trust property for the benefit of one or more beneficiaries of the trust.

2. Probate avoidance. At the death of the person who created the trust, the trust property passes to whomever is named in the trust. It does not come under the jurisdiction of the probate court and its distribution need not be held up by the probate process. However, the property of a revocable trust will be included in the donor’s estate for tax purposes.

3. Tax planning. While the assets of a revocable trust will be included in the donor’s taxable estate, the trust can be drafted so that the assets will not be included in the estates of the beneficiaries, thus avoiding taxes when they die.

4. Disability planning. Wills only provide for death. Trusts can help a person have a plan in place in the event of their own illness.

Who takes care of my estate if there is no will?

Continuing with our recent theme of Rhode island probate basics, today's post explains who takes care of (administers) your estate if you don't have a will.

If there is no will, then the decedent has not properly named someone to serve as executor and administer the estate. In this case, it is up to the Probate Court where the decedent lived to decide who will be appointed as the administrator of the estate. Because there is no will to execute, the person who administers an estate without a will (an intestate estate) is called an administrator.

By law the Probate Court is to consider the appointment of a surviving spouse or next of kin first. If there is no one fitting that description who is competent, suitable, or willing to serve, or of the surviving spouse or next of kin fail to petition the court to be appointed as administrators within thirty days of the death, the court may appoint any suitable person. 

The administration of the estate of someone without a will follows closely along the lines of that of an estate under a will, with all of the same requirements for filing the Inventory, Accounts, and tax returns. The personal representative collects the estate assets, pays its debts and expenses, and finally distributes the estate to the heirs. 

One important difference, however, is that if there is no will, the decedent could not waive the legal requirement of a surety bond on the executor, which may cause the estate to incur the additional expense of a surety premium in order to have an administrator appointed. Another difference is that executors are usually granted certain powers under the will to transact estate business, such as selling real estate, which the administrator of an intestate estate cannot do without making special, often times more costly, application to the court.

If you need assistance with a probate matter, medicaid planning, estate planning or other elder law matters call the offices of Fabisch Law, L.L.C. to set up a consultation with Rhode Island Probate Lawyer Matthew Fabisch at 401-324-9344

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The Tax Deductibility of Long-Term Care Insurance Premiums

Qualified long-term care insurance policies receive special tax treatment. To be "qualified," policies must adhere to regulations established by the National Association of Insurance Commissioners. Among the requirements are that the policy must offer the consumer the options of "inflation" and "nonforfeiture" protection, although the consumer can choose not to purchase these features.
The policies must also offer both activities of daily living (ADL) and cognitive impairment triggers, but may not offer a medical necessity trigger. "Triggers" are conditions that must be present for a policy to be activated. Under the ADL trigger, benefits may begin only when the beneficiary needs assistance with at least two of six ADLs. The ADLs are: eating, toileting, transferring, bathing, dressing or continence. In addition, a licensed health care practitioner must certify that the need for assistance with the ADLs is reasonably expected to continue for at least 90 days. Under a cognitive impairment trigger, coverage begins when the individual has been certified to require substantial supervision to protect him or her from threats to health and safety due to cognitive impairment.

Policies purchased before January 1, 1997, are grandfathered and treated as "qualified" as long as they have been approved by the insurance commissioner of the state in which they are sold. Most individual policies must receive approval from the insurance commission in the state in which they are sold, while most group policies do not require this approval. To determine whether a particular policy will be grandfathered, policyholders should check with their insurance broker or with their state's insurance commission.

Premiums for "qualified" long-term care policies will be treated as a medical expense and will be deductible to the extent that they, along with other unreimbursed medical expenses (including "Medigap" insurance premiums), exceed 7.5 percent of the insured's adjusted gross income. If you are self-employed, the rules are a little different. You can take the amount of the premium as a deduction as long as you made a net profit--your medical expenses do not have to exceed 7.5 percent of your income.

The deductibility of premiums is limited by the age of the taxpayer at the end of the year, as follows (the limits will be adjusted annually with inflation):

Age attained before the end of the taxable year	Amount allowed as a medical expense in
	2011	2012
40 or under	$340	$350
41-50	$640	$660
51-60	$1,270	$1,310
61-70	$3,390	$3,500
71 or older	$4,240	$4,370

 

If you need assistance with Medicaid Planning, Estate Planning or other elder law matters call the offices of Fabisch Law, L.L.C. to set up a consultation with Rhode Island Elder Law Attorney Matthew Fabisch at 401-324-9344.

10 Reasons to Create an Estate Plan Today

Many people think that estate plans are for someone else, not them. They may rationalize that they are too young or don't have enough money to reap the tax benefits of a plan. But as the following list makes clear, estate planning is for everyone, regardless of age or net worth.

1. Loss of capacity. What if you become incompetent and unable to manage your own affairs? Without a plan the courts will select the person to manage your affairs. With a plan, you pick that person (through a power of attorney).

2. Minor children. Who will raise your children if you die? Without a plan, a court will make that decision. With a plan, you are able to nominate the guardian of your choice.

3. Dying without a will. Who will inherit your assets? Without a plan, your assets pass to your heirs according to your state's laws of intestacy (dying without a will). Your family members (and perhaps not the ones you would choose) will receive your assets without benefit of your direction or of trust protection. With a plan, you decide who gets your assets, and when and how they receive them.

4. Blended families. What if your family is the result of multiple marriages? Without a plan, children from different marriages may not be treated as you would wish. With a plan, you determine what goes to your current spouse and to the children from a prior marriage or marriages.

5. Children with special needs. Without a plan, a child with special needs risks being disqualified from receiving Medicaid or SSI benefits, and may have to use his or her inheritance to pay for care. With a plan, you can set up a Supplemental Needs Trust that will allow the child to remain eligible for government benefits while using the trust assets to pay for non-covered expenses.

6. Keeping assets in the family. Would you prefer that your assets stay in your own family? Without a plan, your child's spouse may wind up with your money if your child passes away prematurely. If your child divorces his or her current spouse, half of your assets could go to the spouse. With a plan, you can set up a trust that ensures that your assets will stay in your family and, for example, pass to your grandchildren.

7. Financial security. Will your spouse and children be able to survive financially? Without a plan and the income replacement provided by life insurance, your family may be unable to maintain its current living standard. With a plan, life insurance can mean that your family will enjoy financial security.

8. Retirement accounts. Do you have an IRA or similar retirement account? Without a plan, your designated beneficiary for the retirement account funds may not reflect your current wishes and may result in burdensome tax consequences for your heirs (although the rules regarding the designation of a beneficiary have been eased considerably). With a plan, you can choose the optimal beneficiary.

9. Business ownership. Do you own a business? Without a plan, you don't name a successor, thus risking that your family could lose control of the business. With a plan, you choose who will own and control the business after you are gone.

10. Avoiding probate. Without a plan, your estate may be subject to delays and excess fees (depending on the state), and your assets will be a matter of public record. With a plan, you can structure things so that probate can be avoided entirely.

If you need assistance with Medicaid Planning, Estate Planning or other elder law matters call the offices of Fabisch Law, L.L.C. to set up a consultation with Rhode Island Elder Law Attorney Matthew Fabisch at 401-324-9344.

Five Components of a Good Estate Plan

Many people believe that if they have a will, their estate planning is complete, but there is much more to a solid estate plan. A good plan should be designed to avoid probate, save on estate taxes, protect assets if you need to move into a nursing home, and appoint someone to act for you if you become disabled.

All estate plans should include, at minimum, two important estate planning instruments: a durable power of attorney and a will. A trust can also be useful to avoid probate and to manage your estate both during your life and after you are gone. In addition, medical directives allow you to appoint someone to make medical decisions on your behalf.

Will

A will is a legally-binding statement directing who will receive your property at your death. If you do not have a will, the state will determine how your property is distributed. A will also appoints a legal representative (called an executor or a personal representative) to carry out your wishes. A will is especially important if you have minor children because it allows you to name a guardian for the children. However, a will covers only probate property. Many types of property or forms of ownership pass outside of probate. Jointly-owned property, property in trust, life insurance proceeds and property with a named beneficiary, such as IRAs or 401(k) plans, all pass outside of probate and aren't covered under a will.  

Trust

A trust is a legal arrangement through which one person (or an institution, such as a bank or law firm), called a "trustee," holds legal title to property for another person, called a "beneficiary." Trusts have one set of beneficiaries during those beneficiaries' lives and another set -- often their children -- who begin to benefit only after the first group has died. There are several different reasons for setting up a trust. The most common reason is to avoid probate. If you establish a revocable living trust that terminates when you die, any property in the trust passes immediately to the beneficiaries. This can save time and money for the beneficiaries.

Certain trusts can also result in tax advantages both for the donor and the beneficiary. These could be "credit shelter" or "life insurance" trusts. Other trusts may be used to protect property from creditors or to help the donor qualify for Medicaid. Unlike wills, trusts are private documents and only those individuals with a direct interest in the trust need know of trust assets and distribution. Provided they are well-drafted, another advantage of trusts is their continuing effectiveness even if the donor dies or becomes incapacitated. 

Power of Attorney

A power of attorney allows a person you appoint -- your "attorney-in-fact" -- to act in your place for financial purposes when and if you ever become incapacitated. In that case, the person you choose will be able to step in and take care of your financial affairs. Without a durable power of attorney, no one can represent you unless a court appoints a conservator or guardian. That court process takes time, costs money, and the judge may not choose the person you would prefer. In addition, under a guardianship or conservatorship, your representative may have to seek court permission to take planning steps that she could implement immediately under a simple durable power of attorney.  

Medical Directives

A medical directive may encompass a number of different documents, including a health care proxy, a durable power of attorney for health care, a living will, and medical instructions. The exact document or documents will depend on your state's laws and the choices you make.

Both a health care proxy and a durable power of attorney for health care designate someone you choose to make health care decisions for you if you are unable to do so yourself. A living will instructs your health care provider to withdraw life support if you are terminally ill or in a vegetative state. A broader medical directive may include the terms of a living will, but will also provide instructions if you are in a less serious state of health, but are still unable to direct your health care yourself. 

Beneficiary Designations

Although not necessarily a part of your estate plan, at the same time you create an estate plan, you should make sure your retirement plan beneficiary designations are up to date. If you don't name a beneficiary, the distribution of benefits may be controlled by state or federal law or according to your particular retirement plan. Some plans automatically distribute money to a spouse or children. Although others may leave it to the retirement plan holder's estate, this could have negative tax consequences. The only way to control where the money goes is to name a beneficiary. 

If you need assistance with Medicaid Planning, Estate Planning or other elder law matters call the offices of Fabisch Law, L.L.C. to set up a consultation with Rhode Island Elder Law Attorney Matthew Fabisch at 401-324-9344.