Wisconsin Estate Planning

Procrastinating on Filing Your 2012 Tax Return? Don’t Sweat It

The IRS still needs time to prepare dozens of other forms and software programs for new and retroactive tax exemptions, credits, and other provisions tucked into the fiscal cliff bill, passed by Congress and signed by President Obama in early January after months of partisan wrangling.

 According to Psychology Today, "Everyone procrastinates sometimes, but 20 percent of people chronically avoid difficult tasks and deliberately look for distractions—which, unfortunately, are increasingly available."  Whether you are among the 80 percent or the 20 percent, don't feel guilty if you're procrastinating filing your 2012 income tax return. You've got a good excuse!

 Because Congress waited so long to act on the so-called fiscal cliff bill (American Taxpayers Relief Act of 2012), the IRS has had to prepare new tax forms and develop and test software programs to accommodate all of the last-minute code changes. In fact, the IRS still needs time to prepare dozens of forms and software programs for new and retroactive tax exemptions, credits, and other provisions. As a result, the Boston Globe article "Delayed forms give new excuse to procrastinators" reports that "about 27 million Americans won’t be able to file 2012 tax returns until late February or even March, as the IRS tries to ready and distribute all the necessary forms."

 The IRS says the delayed forms cover about 30 tax provisions, including the general business tax credit, the mortgage-interest credit, and the work-opportunity credit. They also need to process a number of energy related tax forms, such as for residential energy credits and for plug-in electric car credits.

 So, for once at least, there's no need to feel guilty about a little tax-time procrastination. Remember, though, that while Congress and the IRS extended their own deadlines, they won't extend yours. April 15 is still the filing deadline for 2012 taxes.

 Reference: The Boston Globe (Feb. 10, 2013) "Delayed forms give new excuse to procrastinators"

The Challenges of Being an Estate Executor

It is important for an executor to pay close attention to detail and engage in a careful, deliberative process.  And remember that the best advice will come from an experienced and knowledgeable estate planning attorney.

Scenario: You’ve been named the personal representative of a loved one’s will.  You feel honored to be selected, but then the reality of it all hits you – what responsibilities are entailed in this role?

To take on the role of personal representative is to take on several important duties, and sometimes liabilities as well. Whether you are a newly named personal representative or are selecting a personal representative as part of your estate planning, the role of personal representative requires in-depth understanding.

None other than Forbes recently took up this important issue with an article titled “Understanding the Role and Responsibilities of an Executor.” In effect, the personal representative (also known as the “executor”) is the named agent of the deceased, tasked with carrying out their will and tying up all of the legal and fiscal loose ends of life. Even a simple estate typically requires filing the will in probate and distributing assets appropriately to creditors and beneficiaries alike.

As you might imagine, when there is an inheritance in play a messy trifecta of courts, creditors, and family drama isn’t far behind. Depending on the nature and number of creditors, the family dynamics, and even the kinds of assets involved, things can get complicated fast.

When facing the challenge of becoming an personal representative (or selecting your own), it certainly helps to have the assistance and counsel of a professional. Be sure to secure the services of competent legal counsel sooner rather than later.

For assistance and more information on Wisconsin probate and trust and estate administration, visit my website, sign up for my free e-newsletter, or contact my office for an appointment.

Reference: Forbes (February 14, 2013) “Understanding the Role and Responsibilities of an Executor”

Long-Term Care Insurance (LTCI) Expands Gender Gap

While life insurance has long been priced by sex, companies that provide long-term care insurance (LTCI), mainly used to cover healthcare expenses in old age or for severe illness, have long avoided it. But for the first time this year, they will introduce gender-based pricing, starting with policies from Genworth Financial Inc, the nation's largest seller.

Long-term care is rapidly becoming one of the most important matters of financial security and asset protection. As a result, long-term care insurance (LTCI) is becoming more complicated and increasingly pricey.

Apparently, women should not delay when it comes to assessing their long-term care needs as LTCI policies start ratcheting rates up on the longer-living sex. This development was explored by Reuters in a recent article titled “Long-term care policies will soon cost more for women.”

Gender has long been a factor in the pricing of insurance policies, and always for very actuarial reasons. Why? Because women tend to live longer. Still the market for LTCI policies is trying to find its footing. As a consequence, at least one insurer is going to follow the actuarial numbers to higher rates.

Genworth Financial Inc., the largest seller of these LTCI products, announced that it will introduce new rates for new policies procured by women individually by as much as 20 to 40 percent. Note: for now, rates won’t increase on married couples purchasing the same policies and so that’s an important caveat, and strategy, if applicable.

This latest development is just one more reason why planning is important. It remains to be seen where the market will lead these policies, so do your homework to know what makes sense for you.

Reference: Reuters (February 14, 2013) “Long-term care policies will soon cost more for women”

Lifelong Careers – When Do You Retire?

Pope Benedict, 85, is reportedly the first pope to retire in almost 600 years, which made his decision all the more momentous. But since the pope believed his health issues were impacting his job, the decision seems relatively clear-cut.

For the growing number of retirement-aged professionals who are still hale and hearty, however, the decision gets more complicated.

Many were surprised at the announcement by Pope Benedict XVI to step down from his post. This decision is sure to go down in history, and it triggers an important question in those with lifelong careers – when is the right time to retire?

While you may not have the same problems or responsibilities as the Pope, have you reflected on your own future and when may be time to step down? This especially is true if you have no mandatory retirement age for your position.

A Marketwatch article titled “Retirement lessons from Pope Benedict” explored this timely issue. Whether you are the Pope, a business owner, or even a CEO there is always the question of succession. Aside from the business aspects, on a personal level make sure your advance health directives are current in the event you became infirm or incapacitated. While you are at it, a good top-to-bottom review of your estate planning likely is in order.

Whether you are responsible for millions or just a few, the take-a-way is the same - always be prepared! Seek appropriate counsel regarding your retirement and/or succession plans.

Reference: MarketWatch (February 11, 2013) “Retirement lessons from Pope Benedict”

The Trials of Caring for Elderly Parents in Blended Families

Research shows that the ties which lead adult children to become caregivers — depending on how much contact they have with parents, how nearby they live, how obligated they feel — are weaker in stepchildren, Dr. Silverstein said. Money sometimes enters the equation too, Ms. Keller added, if biological children resent a parent’s spending their presumed inheritance on care for an ailing stepparent.

Today’s “modern family” can make good material for divorce courts and sitcoms alike, but it’s also becoming clear that there is a new family crisis brewing in elder care within these blended families. A New Old Age Blog article titled “In Blended Families, Responsibility Blurs” addresses this blended family challenge.

When it’s just parents and just the kids born from those parents, caring for elderly parents can be difficult enough. Generally, most families assume that the adult children can work things out to take care of their elderly parents. In a blended family, however, and especially in one where the parents of those adult children have remarried late in life, the boundaries can get blurry. Moral decisions once clear become blurry.

With elderly parents in such situations, there oftentimes are changes in relationships for the worse that can lead to petty angers which further add to complications. Remember, every family requires ongoing communication and shared understandings to make a family run smoothly. That is easier said than done. Nevertheless, you owe it to yourself and to your loved ones to come to that point.

Here is an important takeaway: the coming generations of elderly persons are more likely to be in a blended family, so be prepared now for the challenges that may affect you and those you love.

Reference: The New York Times – The New Old Age Blog (February 5, 2013) “In Blended Families, Responsibility Blurs”

The Appropriate Time for Asset Protection Planning

…Proper Asset Protection is most appropriately done when the client knows that he or she has no outstanding claims, i.e., the skies are perfectly clear of creditors. Asset Protection is all about avoiding fraudulent transfers, not designing and implementing them.

Plans are made with the intent to put them into action in the future (if necessary). Asset protection planning is no different, although many people attempt this type of planning entirely too late.

A recent Forbes article is a good reminder that asset protection is like fire insurance – the best time to take out a policy (i.e., make proper asset protection plans) is before the fire department arrives. The article is appropriately titled “Existence Of Claim Renders Some Clients Seeking Asset Protection Effectively Dead On Arrival.”

Asset protection is about making sure matters are structured now to protect them if a legal claim may threaten them later. If there already is a claim, then any act to protect assets becomes suspect and reversible (or punishable).

If you have reason to protect your assets due to some future risk you can envision, then now is the time to plan. Courts do not look favorably on last minute plays to protect assets.

Consult with your estate planning attorney on all of your asset protection needs. Planning now will ensure peace of mind for the future.

Reference: Forbes (January 31, 2013) “Existence Of Claim Renders Some Clients Seeking Asset Protection Effectively Dead On Arrival”

Avoid the Sting of the Estate Tax Rules

The good news is the estate tax won’t apply to as many business owners as we feared; the bad news is that when it applies, it has a nasty sting.

Over the past several years, we’ve seen estate taxes go through many alterations. We’ve seen changed exemption amounts, a one-year repeal, and “band-aid” fixes to name a few. In fact, the only thing certain about the federal estate tax was its uncertainty.

Until now.

Congress finally gave us permanent estate tax rules; and by permanent, I mean that except for a built in inflation factor for the estate and gift exclusion, the provisions don’t expire or change with the passage of time.

Interestingly, despite its potentially onerous tax bite, the federal estate tax remains largely a voluntary tax. As Forbes points out in a recent column, “Want to Avoid the Estate Tax Cliff? Five Ways to Help,” the new provisions still allow savvy planners to substantially reduce, or even eliminate, federal estate taxes -- even on estates that far surpass the $5.25 million exemption.

Forbes goes on to list five powerful strategies for reducing federal estate taxes:

     Gifting. The new provisions allow you to make tax-free lifetime gifts up to an amount equal to the federal estate tax exemption, currently $5.25 million. Straightforward gifting of assets while you are alive removes them -- and their future growth or appreciation -- from your estate tax-free.

     Discounting. There are still a myriad of techniques that can be used to discount the value of stock for transfer purposes. These techniques center on lack of control/minority interest and/or lack of marketability, and can create a substantial valuation discount.

     Loans. Family business owners can take advantage of historically low interest rates for loans used to execute sales of stock. As Forbes points out, “currently, a parent can sell shares of the family-owned business to the child for a fixed long term interest rate as low as 2.52%, and not incur a gift tax because of the loan rate.”

     Insurance. Properly purchased and owned, life insurance can be used to provide the cash needed to pay any federal estate taxes that may remain after other planning strategies are exhausted. Remember, the cash-call on federal estate taxes is due within nine months of the business owner's death.

     Charitable Giving. If the family is not interested in the business, but is interested in the wealth it has generated, a charitable gift of a business interest may be a savvy way to dispose of the business while also saving on taxes. As Forbes points out, “there are still a number of tax-smart ways to transfer the business to a nonprofit organization, and fulfill your estate planning goals.”

What we love about the new estate tax rules is their permanence, but what we don’t like is their sting -- in the form of 40 percent on the first dollar over the exemption amount (currently $5.25 million). Be sure to plan wisely for your estate tax liability, or risk being “stung” by the rules.

Reference: Forbes (January 30, 2013) “Want to Avoid the Estate Tax Cliff? Five Ways to Help”

Disinheritance Challenges

As cruel as it sounds to disinherit a child, people have their reasons. Sometimes there is no relationship. Other parents might feel the adult is well-off and does not need an inheritance.

Estate planning largely involves the process of distributing assets to your heirs.  But what if you decide not to distribute assets to certain heirs? Be forewarned:  disinheritance, regardless of your reasons, can lead to hurt feelings and even quarrelsome legal battles.

A recent article from Reuters, “Disinheriting someone is not easy,” illustrates some of the many reasons people choose not to leave assets to certain heirs. The reasons are as varied as the assets involved, and may include anything from hard feelings within a family to a desire to "equalize" wealth among adult children with differing degrees of financial success. 

If you choose to disinherit someone, realize that some classes of heirs have legal rights that cannot be violated, such as spouses and minor children. Reuters explains it well:

Just as you cannot tell a divorce judge that you refuse to split assets or pay alimony, you cannot leave your surviving spouse's house and all of the money to a child or some other family member. Using language to disavow and disinherit your spouse will not help ...  the spouse can waive the will and receive whatever he or she is entitled to under state law. Minor children are also protected by the courts. Whatever financial support the minor is entitled to receive, he or she will get, assuming the money is available.

Regardless of the reason(s) you may have to disinherit someone, be sure to discuss them with your estate planning attorney. Properly drafted legal documents can help ensure your wishes are followed, as well as prevent unintended consequences such as hurt feelings or court battles.

Remember, disinheritance is a decision not to be taken lightly. Even if you do it for the right reasons, it can turn ugly if not done properly.

For more information on Wisconsin Estate Planning, visit my website, sign up for my free e-newsletter, or contact my office for an appointment. 

Reference: Reuters (January 31, 2013) “Disinheriting someone is not easy”

Tax Breaks Available for Supporting Elderly Parents

You might be able to claim your parent as a dependent, take a dependency care tax credit, write off your mom or dad’s medical expenses or get some combination of these tax breaks.

It’s that time again – Uncle Sam is knocking on your door and ready to collect taxes. If you have been caring for an elderly parent, you may find that Uncle Sam can actually help with some of those care costs through favorable tax treatment. How, you ask? Depending upon your circumstances, you may be able to claim your parent as a dependent, take a dependency care tax credit, deduct a portion of their medical expenses or get some combination of these tax breaks.

Forbes offers guidance on whether you might qualify in a recent article “How To Claim Tax Breaks For Supporting Your Parents." If you think you may qualify, consult an accountant or tax professional to maximize your tax savings.

Sadly, caregiving frequently also means managing end-of-life care ... and the attendant expenses. While it may be difficult to focus on financial matters during these stressful times, tax breaks can help extend available resources. Of course, the first step is to determine which expenses qualify and to what extent. Expenses that frequently apply to people with advanced illness include health insurance premiums not paid through work, deductibles, co-pays, medication, alternative care, medical supplies such as bandages, dental care, Medicare B premiums, lodging while traveling for care, and transportation costs. The IRS has a very detailed list of what is and isn’t deductible in Publication 502. You can refer to this publication for details, as well as to another excellent Forbes article, “Save Money On Taxes At The End Of Life -- How And Why It Matters.”

Taxes can be tricky, so make sure you ask your accountant for tax assistance if you think you may have qualifying expenses. The tax savings will be well worth your time.

References: Forbes (January 29, 2013) “How To Claim Tax Breaks For Supporting Your Parents”

Forbes (February 4, 2013) “Save Money On Taxes At The End Of Life -- How And Why It Matters”

Passing On the Family Home to the Next Generation

There are nearly half a dozen ways to give a home to your child.

You’re probably well aware that for many families, the family home is the single most important estate asset. Can you imagine your kids having to part with the home they grew up in? The thought evokes many emotions when making end-of-life plans, and passing along the family home to the next generation is certainly an option. Family homes may also be the most valuable estate assets, and estate taxes may complicate plans for passing them along. If this is your goal, however, don't give up. There are tax-savvy strategies to make it happen, but they require you to plan ahead.

For a good overview of this topic, turn to a recent article in SmartMoney, “Passing Your Home to Heirs.” The article is pretty easy reading on a fairly complex subject, and includes a run-down on some effective strategies: from the simple bequest in your will, to variously structured sales, to more sophisticated trust-based strategies.

Which planning strategy will work best for you depends upon your unique circumstances. This definitely is not a do-it-yourself undertaking. There are many factors to be considered and legal land mines to avoid.

If passing a family home to your heirs is one of your goals, be sure to discuss this with your estate planning attorney, who can guide you to implement a strategy that will work for you. 

For more information on Wisconsin Estate Planning, visit my website, sign up for my free e-newsletter, or contact my office for an appointment.

Reference: SmartMoney (February 5, 2013) “Passing Your Home to Heirs”