Thursday, June 6, 2013

Don't rely on your divorce decree to settle your estate

Are you divorced? Do you think that your divorce decree settled everything? Think again. Unless you make sure to change the beneficiaries on all of your forms, your ex might be entitled to your money, even if you get remarried. If you name your spouse as beneficiary of a 401(k) plan, pension plan, or employer-provided life insurance policy, and later divorce, you must change the beneficiary. The Supreme Court ruled that 401(k) and similar plans, including severance plans and employee savings accounts are governed by federal law, Employee Retirement Income Security Act (ERISA). That law requires the plan administrator to pay the proceeds to the named beneficiary - not to figure out who should get them. For example, when Warren Hillman died in 2008 at the age of 66, his assets included a life insurance policy worth $124,558.03. For the past five years his ex-wife and his widow have been fighting over that money. On June 3, 2103, the U.S. Supreme Court found that Judy Maretta, who Hillman divorced 10 years before he died, was entitled to every penny of it. All of this was because Mr. Hillman never changed the name on his beneficiary form. Forgetting to coordinate these non-probate assets, as they are called, with the rest of your estate plan can completely thwart your objectives, as it may have done for Mr. Hillman. This case reminded me of another example involving annuities. A couple gets divorced and the divorce decree stated that the husband had no more rights to his wife's retirement benefits. However, the decree did not mention the annuity specifically. As a result, when the woman died her ex-husband was legally entitled to the annuity benefits. LESSON OF THE DAY: Keep beneficiary forms up to date. Don't rely on what you believe is common sense to ensure that your assets will go to whom you intend.

Friday, May 31, 2013

Why Create an Estate Plan

I often talk with people who erroneously believe that since they are not millionaires or billionaires that they do not need an estate plan. They laugh and tell me that they have "no estate" and that they only have a house or car so they have no estate hence no need for an estate attorney. In truth, my clients are not diving into pools filled with gold coins. They are hard-working people. They have dedicated their lives to trying to take care of their families. Just because you do not have a private yacht does not mean you do not need an estate plan. The biggest reason you want an estate plan is that you want to have an idea of who is going to get your property after you pass. Even if you do not care what happens to it - which is not the case most of the time - you still need to consider what will happen to your heirs if you do not plan anything. Most likely, your loved ones will contribute to the Commonwealth with some high cost on probate and estate taxes coming out of your property. If you have any real property such as the house or a car, there might be a fight within the family or even a loss of that property in an effort to choose where it goes. IN the end, an estate can rip a family apart with "I should get this" and "you don't deserve that". You may have your own reason for planning an estate. Perhaps you want to make sure someone gets something particular or you have minor children that you want to ensure are cared after. You may want to make sure that the government does not get too much of your property. The point remains there are many reasons to create an estate plan that do not involve.

Wednesday, May 29, 2013

Subbing in - the benefits of will substitutes in avoiding probate

Everyone I meet with has heard me say multiple times that everyone needs at least 4 estate planning documents: a will, living will, health care directive and financial power of attorney. But just because you have those documents (and kudos to you if you do) that does not mean you have done everything you may need to to provide for and protect your family. And here is where will substitutes enter. Will substitutes are documents that help your estate avoid probate and work with your will to maximize your control of your estate. Will substitutes such as Trusts (Irrevocable, Revocable, Living etc) are good for those who: a) do not want to waste time - Probate is a lengthy process. If you know your family will need your estate quickly (ie to pay for funeral/medical bills). A trust or another will substitute will allow your property to be transferred immediately so that your family will have income while they go through the probate process. b) do not want to waste money - the cost of probate is high. A short meeting with an experienced attorney could save your family thousands in the long run. c) want more control - since you are creating these documents during your lifetime, you will have more say in what happens to your property. The best way to determine which will substitute will be the best for you is by working with a team of advisors.

Sunday, May 12, 2013

Mother's Day? Son Claims $1.2M Tax Write-Off For Helping Mom

How much would you pay to have your child take care of you when you’re old and infirm? What if your child gave up practicing as a lawyer–a tax lawyer no less–to care for you? Perhaps plenty, but probably not $1.2 million. That’s one lesson from Estate of Olivo v. Commissioner. The court considered whether mom’s estate could deduct $1,240,000 for son’s services before mom died. Tax lawyer Anthony Olivo worked in law firms from 1976 to 1988, then opened his own practice. Yet by 1994, he was devoting so much time to his parents and their health problems that it was hard to maintain his practice. He lived with his parents and gave them round-the-clock care. That left little time to practice law, so from 1994 through 2003, he earned almost nothing from his practice. So when they died he figured the estate should pay him all those lost wages. Hey, it’s deductible, he said. The court had to decide whether the estate could deduct the $1,240,000. On top of that was the $44,200 administrator’s commission Anthony received, not to mention $55,000 in accountant’s and attorney’s fees. The court was careful to say that Anthony rendered extraordinary care. Hey, this was a doting son. His efforts were commendable. However, mom’s estate couldn’t prove that Anthony was entitled to any pay or how much his services were worth. There was no contract, no invoice, and no evidence the family agreed to pay him anything. Sure, Anthony gave round-the-clock care. The family would have hired round-the-clock nurses if he hadn’t been there. But he was, and the fact that a nurse would have been paid didn’t mean pay to Anthony was deductible. Anthony even considered billing the estate for his legal services. After all, apart from his personal care and for administering the estate, he performed legal work too. He filed the estate tax return, handled an IRS audit and the estate’s Tax Court petition. But here again, Anthony was out of luck. He didn’t keep time records, prepare invoices, or establish the value of what he did. He merely estimated his hours at a $150 hourly rate. That kind of loosey-goosey estimate wasn’t enough for a deduction. The biggest lesson? Contracts, invoices, and good record-keeping are as important with family or related parties as anywhere else. In fact, perhaps there’s a bigger reason for being scrupulous with family and related parties: to save yourself headaches with the IRS. Happy Mother’s Day, Mom. For the complete article

Wednesday, May 1, 2013

Picking your battles: How far has our society come in how we view domestic violence

This morning I woke up at the unholy time of 4:30 in order to drive my husband to the airport. As I was driving home I started to scan the stations on his radio and stopped when I heard a peppy little song that sounded like it was from the 1930's. My head started bopping. Then my jaw dropped when I heard the lyrics. I wish I was kidding, but the singer actually sang "my man is sometimes mean and he hits me, but as long as he doesn't quit me I don't care." The song also included lovely little stories about how this guy is unemployed and she has to steal in order to get him money (which was never enough) so that he can go out while she has to stay at home alone because "it's better that way". But, she loves this man, so despite her ability to be with other men who would treat her better, she stands by this gem of a human being. At that point I turned off the radio and started to think how different the times are today. We as a society would be shocked if songs that glorified domestic violence and subjugation of women blared through the airwaves. Right? For a moment, I was really proud how far our society has come. But then, as sun started its climb, my silly notion and pride evaporated. The truth is our society is not that far from that of the song recorded probably 80 years earlier. Last year in Norristown, Pennsylvania, Lakisha Briggs who was physically assaulted by her boyfriend called the police and had him arrested. The police officer then told this woman "you are on three strikes. We're going to have your landlord evict you." You read that right. The police threatened this woman with an eviction because she called the police. The police officer was enforcing a Norristown law that allows the city to penalize tenants or landlords when the police respond to three instances of "disorderly behavior" in a four month period. This ordinance includes incidences of domestic violence. After her first strike, Ms. Briggs was terrified of calling the police and risk losing her home. Her now ex-boyfriend's violence continued to incidences of attacking her with a brick and stabbing her in the neck. Ms. Briggs still didn't call the police because she was afraid of losing her home. Someone else did however call the police. Now Ms. Briggs was on three strikes and the city pressed her landlord to evict her. Thankfully a housing court refused to order the eviction. Unfortunately, laws like this one are present in towns and cities across this country. As a society, how far are we from a song that rationalizes physical abuse in order to keep your man to a city ordinance that rations police intervention in order to keep your home.

Thursday, April 11, 2013

Am I my parent’s keeper?

Am I my parent’s keeper? I just read an interesting story about one Pennsylvania son who was hit with his mother’s $93,000 nursing home bill. John Pittas’ mother entered a nursing home for rehabilitation following a car crash. After she left the nursing home, she moved out of the country. His mother’s $93,000 bill at the home was left unpaid. The mom had applied for Medicaid, which would normally pay the bill if she couldn’t. The mom’s Medicaid application did not get approved in enough time to satisfy the nursing home, and it sued her son for the bill. The state of Pennsylvania, like 29 others in our country, has something called a “filial responsibility law”. Those laws require that spouses, children and even parents of needy adults support the indigent. These laws were rarely ever enforced. The nursing home decided to enforce it rather than have Medicaid do what it was designed to do. Mr. Pittas lost in trial court and appealed stating that the bill should go to his mother’s husband or other two adult children. Unfortunately, the appellate court did not agree and went further to state that the nursing home didn’t have to wait until the Medicaid claim was resolved and that the nursing home could choose any family member it wanted to when seeking payment for the bill. So my question to you reader is, is that “fair”? If a son or daughter has the money and wants to pay for mom or dad’s care, that’s an upright choice. But what if they choose not to pay? Should a child’s own financial portfolio be a factor? Since when is it okay to unfairly discriminate against a financially successful family member?

Thursday, February 28, 2013

Top 3 reasons to update your estate plan

1. Your family dynamic changes - Your estate plan should reflect your family values. Family dynamics change with the birth or adoption of a child, the passing of a loved one or going through a separation. All of these life changes are reasons to schedule an appointment with an estate planner. Even if you are contemplating a divorce, a simple conversation with an estate attorney can clarify important outcomes of your decision. As your family dynamic changes, your estate plan should be updated to reflect your new wishes for distribution. 2. The Law changes - The American Taxpayer Relief Act made permanent tax rates and exemptions for estate, gift, and generation-skipping transfer taxes. If your estate plan was influenced by prior laws which incorporated "sunset" provisions for tax rates and exemptions, you need to revisit your estate plan. A competent attorney can inform you how the latest laws affect your estate plan. 3. Life is busy - Our lives are full and often hectic. Take some time to periodically review your life insurance or retirement account beneficiary designations. This quick check can ensure that your forms reflect your current wishes. Perhaps your retirement plans are more than enough to meet your retirement needs. In that case, donating your life insurance to your favorite charity may be a highly attractive option by providing an important deduction.