Avoiding so-called “Fiscal Cliff” and Estate Planning: What of Estate Tax Exemption?

One of many good reasons people consult with me on their Estate Planning is to try figure out a way to avoid “death taxes.”

By death taxes, what they usually mean is Estate, Inheritance, and or Gift taxes.

There are no “inheritance” taxes in Virginia (there is a very modest “probate” tax though)

For some time now, thanks to Bush-era tax cuts, there has been a very high exemption on Estate taxes and Gift taxes. As of December 2012, the exemption on estates was $5.2 million. In other words, if you estate was not worth that much, you didn’t pay any estate or gift taxes (if you inherited). And if you did have that much, the marginal tax rate was 35%.

That all changed last night. What changed? First and foremost, the exemption was apparently made PERMANENT.

<snip> “The Association for Advanced Life Underwriting is very pleased that the agreement brings permanence and certainty to the estate tax regime — which we have been advocating for over the last decade,” said David Stertzer, AALU president and CEO.

Under the agreement, U.S. estate tax law will provide a $5.12 million per-person exemption. The deal raises the highest tax rate from 35 to 40 percent but continues the current policy of reunifying the estate and gift taxes. All other current policies related to the estate tax will also remain in place.

“This provides a key tool for business succession planning, and helping preserve jobs and economic investment in the process,” Sterzer said. <bold emphasis added, dwg more at the link>

Since the House signed off on the deal as passed by the Senate in the wee hours of New Years day, and Obama has said he will sign it, looks like its a done deal.

So something’s more certain…. death and estate taxes. For now.


New Years Resolutions – Redux: Wills, Advance Medical Directives and Powers of Attorney

Estate Planning
Who Needs a Will? YOU DO.

As a new year approaches, I am reminded by a friend in Massachusetts that this is a very good time to consider some basic legal documents all adults should have, A Will or Living Trust, a General Durable Power of Attorney and at a bare minimum,  I really hope that you will consider having an Advance Medical Directive and Healthcare Power of Attorney drawn up.  And if you already have them, please consider revisting them at least once every five years.  When’s the last time you looked at yours?

Advanced Medical Directive with Healthcare Power of Attorney is what we call them in Virginia. In other places they might be called Living Wills and Healthcare Proxy.

Why do you need one?  Two word explanation: Terry. Schiavo.  You can read the linked story to refresh your memory if you like. Basically, Terry Schiavo lay in a “persistent vegetative state” from 1998 to 2005 while her husband and her parents repeatedly sued one another on the national stage – all the way to the Supreme Court. Schiavo’s parents demanded life support continue, her husband insisted that he knew that his wife would not like to continue in the state she was in and demanded that it be removed.   Lacking legal documentation to tell anyone what she herself would have wanted, the courts ultimately sided with her husband and she was finally taken off life support and allowed to die. Except insofar as she lived on in the media circus and continuing court battles. Terry Schiavo was just 36 years old.

An Advanced Medical Directive and Health Care Power of Attorney tells your healthcare team and your loved ones:
a) what kind of care you would like in the event you’re nearing death;

b) what kind of care you would like in the event you’ve lost your ability to interact meaningfully and it is unlikely you are to recover;

c) in the event you cannot make healthcare decisions for yourself, who you would like to make them for you.

I tell my clients that an Advanced Medical Directive is the legal document that tells people what to do with your “person” – admit or release you from a hospital or other facilities, hire & fire doctors, decide what treatments are going to be used and the like

The other pieces are a General Durable Power of Attorney and a Last Will and Testatment. These are the legal documentation that tells people what’s to be done with your “stuff” — your property.

Its my view that it is as important to have a General Durable Power of Attorney to deal with your “stuff” in the event you are not able to do it yourself as it is to have a Medical Directive. A Durable General Power of Attorney (DGPOA) gives someone you pick the power to transact your personal business when you cannot.  Here’s one example:

Lets say you have a stroke. You’re admitted to the hospital and after a few days there, you must go to a Rehab facility where you will be for an extended period. Your dominant hand has been impacted and your ability to speak is severely limited. You ask your friend to have the cable TV and some other services at your house cut off to save some money. Too bad. Without a power of attorney, your friend cannot even do something as simple as cut off your cable bill. You may also need someone to pay write checks for you and conduct other personal business.

The last piece is dealing with your “stuff” once you’re done with it….. after you die.  Of course I mean your Will.  Many of you don’t think it matters much; after all, you’ll be gone so who cares?  Well its true that you probably won’t care by then (but who knows? maybe there’s an IRS on the other side? That would be Hell I suppose)  Anyway, people often don’t realize that by failing to make a Last Will and Testament they can leave their families in a heck of a mess. There may be no clear path to pay for your burial and other liabilities (like taxes and other creditors). People that you can’t stand and would never have left anything to may lay claim to your money and property.

There are many ways to pass property after you die, and it bears talking to a lawyer to consider the best options to maximize your property and minimize taxes and annoyance to your family.  Generally when I write Wills for people, we take a pretty holistic view of their entire estate – investments, real property, personal property etc. and consider all the options of avoiding both taxes and probate complications.  This does not have to be a complicated undertaking, but it should be done thoroughly and carefully.

Its a New Year. Put this on your list of resolutions — if not for yourself, for your family. They’ll thank you for it – I promise you.



Wills & Trusts Program at Charlottesville Senior Center

Here’s one of the few ways we had to publicize things before we had blogs and social networking sites to post things on:

Sr. Center Marquis

Honored to be invited to speak at Senior Center on the third Tuesday of EVERY month.  This month we are doing a closer look at Wills & Trusts.   Hope you’ll come and bring a friend.

BTW: I have a friend that lives nearby the Senior Center. He calls that area — Greenbrier Dr., Pepsi Place and Hillsdale Drive “death valley” because of all the companies and agencies located there for old folks (my friend is 90, he can call it whatever he wants). Just to name a few of the agencies in that vicinity: JABA, JABA Care Advantage Home Health, Branchlands (independent living) Our Lady Of Peace retirement community, Rosewood Village Assisted Living, The Laurel (nursing/rehab), The Alzheimer’s Association. And of course, the Senior Center. But it is FAR from folks waiting for the inevitable. It is a vibrant, active community where it’s possible to watch the deer and wild birds outside your window and then take an easy walk over to the mall.

 Charlottesville is a GREAT place to retire!



One thing certain…. Death withTaxes! Estate Planning

The time is nigh! No, no, no…. not time to die yet.

Beware the grim reaper
One thing you can be sure of — death and taxes. But death taxes are changing on December 31, 2012

But it is just about time for that fun political war over “death taxes”Actually, there’s really no such thing as a “death tax”  Usually what is meant by “death tax” is actually estate or inheritance taxes.

Estate tax is an amount that a deceased person’s estate is taxed based on the net value of that estate.

We’ve been enjoying a very high exemption from Federal estate taxes over the past several years, peaking this year at $5,120,000 (that’s right, five MILLION, one hundred twenty thousand). So if your estate was worth less than that amount, you needn’t worry about paying Federal EstateTax. Virginia matched that exemption.  The top tax rate for estates valued above the $5.120M exemption is 35%

I don’t have many….uh, any…. clients who have an estate that even approaches that value. But I would welcome you if you if you want to call!

Anyway, that’s all about to change as we roll to the edge of the “Fiscal Cliff” at the end of the year. Yes, the ‘death tax’ exemption is one of those that will sunset on December 31st 2012.

So then what happens? (if congress does nothing)  Very simple: we revert to the tax rates/exemptions that were in place in 2001/02.  And THAT exemption is a mere $1 million. But the top rate for taxable estates skyrockets back to 55%.

Most of my clients have estates valued at well under 1 million dollars. So their death and taxes concerns are pretty minimal.

If your estate plan was done during the period that these changes have been made, and you calculate that your assets – home, investments, cash, automobiles, antiques, art, guns etc. etc. might be greater than $1M, you may want to have a new look at your estate plan.  Indeed, you should (generally speaking) revisit your estate plan every 5 years or so.

Want to learn more about Wills and Trusts? Come to the FREE “More on Wills & Trusts” program at the Charlottesville Senior Center on Tuesday, November 20, 10-11 a.m. All ages welcome and open to the public.  Charlottesville Senior Center is located at the corner of Greenbrier and Pepsi Place.


11/20/12– More on Wills, Trusts and Probate

You asked for it, you got it. A more in depth discussion on estate planning and the probate process.

Why would you want to “avoid probate?”

Do you need a trust? Why?

What are some other strategies for settling my estate?

What if I don’t have very many assets? Do I need a will at all?

Do I need a lawyer to write my Will?

All those questions and much more will be answered!

Free! Open to the Public


Will? or Trust?

I’m often asked by people of all social strata about the need for a Trust.  Why would someone need a trust rather than a will?

Like Jeff Foxworthy of “you might be a redneck if….” fame,  my short answer is:

You might need a trust if you have:

appropriate for trust?
  • a very large estate (right now > 5 million, subject to change by the end of 2012)
  •  complicated tax issue
  •  business succession issues as part of your estate
  •  a child or adult dependent with special needs
  • a need to protect a “spendthrift” from themselves
  • a need to plan for long term care

Inevitably, when I ask why my client thinks they need a Trust, I’m told that she wished to “Avoid Probate” (a phrase forever captured in the title of that perennially bestselling book: “How to Avoid Probate!” )

But very few people seem to understand why they might wish to avoid Probate at all.

The fact is, most states now offer a means of by-passing probate for small estates (in Virginia, currently < $15,000)   Often that can be accomplished without need for drawing up a Trust through the use of joint ownership of property and accounts, named beneficiaries, creation of life estates, pay on death accounts and the like.

When I discuss Trusts with a client, I try to explain that basically, from an estate planning perspective, Trusts and Wills are just two different approaches toward accomplishing the same thing. Both are intended to pass property to someone else. The former – a Trust – does it during your lifetime; the other – a Will – does it when you die.   Perhaps the most important thing to know (and one many people never do figure out until it’s too late) are the tax consequences of one method over the other.  Also, creating a trust during your lifetime tends to require both some sophistication in administering a trust and/or paying someone who can administer it for you.

I tell people to imagine that both a Trust and a Will can be thought of as “buckets.” That is, buckets which hold your stuff – property, accounts, stocks, assets, jewelry – whatever you decide to put in it.

With a trust, you transfer that stuff “into” the bucket during your lifetime and effectively, you no longer “own” or hold title to it, the Trust does. You can name yourself as Trustee and still control the assets in some cases. You can also be the “beneficiary” of the Trust which means that if you have assets – for example, rental properties – that produce income, you may be receiving that income as the named beneficiary. (as another example, you could have income from investments in stocks that may be paid to you while the stocks are an asset of the Trust).

On the other hand, with a Will, you only fill your “bucket” with your stuff when you kick it. The bucket that is.  You create a “probate estate” only after you die, and your executor (or personal representative) presents your Will for probate.  During your lifetime you maintain full ownership and control of everything. If you sell or otherwise use up those things before you die, the bucket just doesn’t get filled up.

There are many and varied ways to set up Trusts – from relatively simple to extremely complicated. I have very few clients for whom it pays to set up a Trust.

Wills too can be complicated, but generally it is a pretty straightforward document to draft. Sometimes the hardest part is determining who you trust enough to carry out your wishes as executor.  What I spend more time doing is making sure that I keep as many assets out of the “probate bucket” as I can so that the Will is not the vehicle used to pass the property at all. For example, between husbands and wives it is common to hold real property “by the entireties” with survivorship. That means that whoever remains alive, keeps the whole ball of wax.  You can set up property ownership between people who are NOT married as “joint tenants” with rights of survivorship which basically would work the same way. This is extremely important for people who for whatever reason, are not, or cannot get married but who wish to leave real property to another.  In this way, the property passes OUTSIDE the Will (or “probate bucket”) and it passes immediately. This is also true for automobiles and other “titled” property.

There are many goals when planning your estate. One of them is making sure your LIFETIME needs are met.  Most people don’t think of it that way. But when I talk to people about their current financial status, I want to make sure they are comfortable and well taken care of through their entire life. That often means planning for long term care. This is another whole post which I’ll write about another day.  But simply “avoiding probate” is not enough. In fact, that’s relatively easy.

Another goal is making sure that gifts you wish to make, get to your loved ones. And that both you and they pay the least amount over to the government along the way.

It’s true that both death and taxes are certain. How and how much is still an open question.