Orlando Estate & Elder Law

Deduction Limitations - Other Side of the Cliff

While most people are fixated on tax rate increases adding to their income tax bill in 2013 and beyond, very few people are aware that the Pease limitation reinstatement can add to their income tax bills by phasing out some key itemized deductions.

Although some areas of the tax law became better after the fiscal cliff deal, now that the laws are more predictable, other areas took a hit – namely charitable giving and donors themselves.

The Fiscal Cliff Deal reintroduces the Pease Amendment, so named after former Congressman Donald Pease. Forbes recently wrote about this in an article titled “Pease Limitation Puts A Lid On Itemized Deductions For Wealthy Folks.” Indeed, as you can tell by the title of the article, the Pease Amendment is just one more of those “stealth taxes” working to decrease deductions rather than increase taxation. In this case, for example, this stealth tax chips away at the charitable deductions for high-earners.

For taxpayers with adjusted gross incomes (AGI) above $250,000 (or above $300,000 for joint filers), they will see an itemized deduction limitation kick in that is the lesser of (a) 3% of the adjusted gross income above the applicable amount, or (b) 80% of the amount of the itemized deductions otherwise allowable for the taxable year.

Among other itemized deductions, this hits the charitable deduction, deductions for mortgage interest, deductions for various lower level taxes, and so on with some specific exclusions. That can start to really add up in a year when you happen to have an increase in your AGI.

So, the tax game has gotten a bit more complex, and charitable giving has fewer tax deduction rewards for some individuals these days. Do you think this will impact the amount of charitable giving for 2013? Only time will tell.

Reference:

Forbes (January 9, 2013) “Pease Limitation Puts A Lid On Itemized Deductions For Wealthy Folks”

Should You Opt to Convert to Roth IRAs? Maybe

Under the new rules, a Roth conversion would be available to anyone with a traditional 401(k) and an employer who offers a Roth account and conversion.

It’s no doubt that the Roth IRA is a favorable option to many people when it comes to retirement planning.  And after the fiscal cliff deal, the Roth IRA just keeps getting better and better for more and more people. How do you know whether it is right for you?

A recent CNN Money article titled “More savers can convert to Roth 401(k)s under fiscal cliff deal” says it all. Nevertheless, there is more to a Roth IRA than meets the unaided eye. 

Essentially, the Roth IRA reverses the normal IRA by requiring that you pay the income taxes on money deposited in the account up front when you deposit them instead of when you withdraw the money later. Also, in addition to no income taxes when withdrawn, with a Roth IRA you have no Required Minimum Distributions (RMDs) later on.

The fiscal cliff deal lets more people, and those of lower incomes, convert their IRAs into Roth IRAs if they settle the tax burden up front. This can help with estate planning for their loved ones, too.

According to experts, however, a Roth IRA may not be right for some folks. A recent MarketWatch article titled “Roth conversions easier, but are they right?” addresses this concern.

As with all things financial, as well as legal …look before you leap. This is especially true when it comes to tax law changes brought by the fiscal cliff deal.

Reference:

CNN Money (January8, 2013) “More savers can convert to Roth 401(k)s under fiscal cliff deal ”

MarketWatch (January 3, 2013) “Roth conversions easier, but are they right?”

Location Inflation: Where You Live Determines Your Health Care Costs

Inpatient hospital prices in Los Angeles average 149% of Medicare rates; in Richmond, Va., those rates are 192% of Medicare's prices, according to CSHSC.

Ever noticed how prices of certain items can be more or less depending on where you buy them? Take for instance a simple purchase such as coffee. A cup of coffee will cost you just a bit more or a bit less depending on where you get it. Is the cost dependent on how good the coffee tastes? Not really -- when it comes to geography and what you pay for something, remember the phrase “location, location, location.” And the effect of location on medical care and old-age expenses can be significant.

Planning for your old-age, or for the needs of an elderly loved one, is partly a test of geography in the health care economy. In fact, it’s more important to understand this fact of life now more than ever.

For some fresh analysis of this familiar topic, you might want to take a look at a recent Morningstar article titled “Health-Care Costs: Why Your Location Really Matters.” The article speaks to the “numbers” and to international comparisons. Regardless, the key for you to note is not the economics or even the politics behind this issue, but rather the very real circumstances you and your loved ones may be facing now or in the future.

So, how will you plan for the geography of medical expenses? Be sure to consult appropriate counsel when planning for the future health care costs you or a loved one may encounter.

Reference: Morningstar (January 11, 2013) “Health-Care Costs: Why Your Location Really Matters”

International Charitable Giving

One of the most notable trends in philanthropy, according to the 2012 Giving USA Study of charitable giving, is that international giving has steadily grown despite a tumultuous economy.

Thinking about going global with your charitable giving? When it comes to crossing borders for charitable endeavors, one would think processes and protocols would help ease the effort. Unfortunately, just like the globalization of the economy, the globalization of individual charitable giving has brought with it more complex legal challenges.

This is an increasing trend, too.

According to the 2012 Giving USA Study of charitable giving, international giving has been increasing for the past several years. This increase has come despite the struggling economy and overall challenges to domestic giving. In fact, international giving has experienced a 15.2% growth from 2009 to 2011, with the data yet to come for 2012.

To gain an appreciation of the challenges that have come with this unprecedented rate of growth, it’s worth reading a recent article by WealthManagement.com titled “Giving Without Borders.”

In practical reality, giving without borders often requires analyzing all relevant “borders” to determine how each side of the border will account for the gifts. Indeed, “gift” can be something of a misnomer with the rise of “impact investments.” All the same, when an individual decides to transcend borders with generosity, the laws of each nation and a tangle of international law may come into play.

If you do decide to go global with your charitable giving, be sure to carefully navigate the tumultuous sea of laws you will encounter along the way – on both sides of the border.

Reference: WealthManagement.com (January 14, 2013) “Giving Without Borders” 

A Gift You Cannot Return

The Brooklyn Museum seemed to have garnered a bonanza in 1932 when it received a large bequest from the estate of Col. Michael Friedsam, president of the elegant retail emporium B. Altman. But eight decades later … the museum potentially faces a hefty bill to store the 229 pieces it no longer wants.

Ever been in possession of a gift you cannot return? No, I’m not talking about a post-Christmas conundrum where you don’t have the receipt or the tags are missing. What happens if you can no longer keep a gift given to you through someone’s will? This is a problem so many museums face each year in regards to gifts they receive through the wills of deceased art collectors.

One museum currently on the hook is the Brooklyn Museum in New York. The New York Times recently reported on its plight regarding a gifted collection in an article titled “Brooklyn Museum Finds Some Problematic Gifts Can’t Be Returned.”

It seems that in 1932, Colonel Michael Friedsam gave a massive collection to the then fledgling museum. Nevertheless, since then the museum has grown and has too much to put on its walls, no longer displays items like historic battle axes, and half the Colonel’s collection turned out to be fakes or “not of museum quality.” Bottom line: the museum wants to give or sell the artworks and stop paying the exorbitant storage and restoration fees.

Now, it’s not that the museum is unappreciative. No, it’s more complicated even than that. Unfortunately, the Colonel’s will legally excludes any option the Colonel’s estate executor hasn’t signed off on. Even more unfortunately, the last executor died in 1962.

The lesson for those with artworks worth preserving for future generations is to include alternatives permitting like-minded individuals (executors) to further your objectives for your gifts in the future.

Frankly, the Colonel and his estate planners couldn’t have foreseen the next 90 years. But let that be a lesson when it comes to your planning. Predicting the future can be a very tricky thing. So, how are your gifts structured? Consult your estate planning attorney for more advice.

Reference: The New York Times (January 15, 2012) “Brooklyn Museum Finds Some Problematic Gifts Can’t Be Returned”

Fiscal Cliff Deal Brings New Tax Hikes for Trust Beneficiaries

“It’s hitting where it really shouldn’t,” says Laurie Hall, an estates lawyer and head of the Wealth Management Group at Edwards Wildman in Boston. “These increases weren’t intended to hit people with income below $200,000, and they will.”

Many of us are at ease now that we’ve ridden out the Fiscal Cliff, being that the tax law changes were largely restricted to the uppermost income brackets. In fact, the “average” person may not even see a rise in income taxes. Unfortunately, there is still a chance the “middle class” may see some tax hikes if they are trust beneficiaries. As reported in a Forbes article titled “Tax Hikes Hit Trusts Hard, Beneficiaries Pull Money Out”, the new tax laws are affecting income to trusts. This new taxation has everything to do with the capital gains tax that recently jumped from 15% to 20%, plus an extra 3.8% for the Medicare surtax under Obamacare. Taken together, this tax increase adds up to a whopping 8.8% on profits held in trusts. This gets even worse. The trust and the beneficiary pay separate taxes on the income gain in the trust and the income distributed to the beneficiary. This new increase seems to be pushing a number of beneficiaries toward reconsidering the trust itself. Regardless, it’s important to consider all of the positives when it comes to trusts, especially since so many beneficiaries fall fully into the “middle class.” If you are a trust beneficiary, be on the lookout for taxes affecting you and your trust. Changes are bound to occur in the future. Reference: Forbes (January 9, 2013) “Tax Hikes Hit Trusts Hard, Beneficiaries Pull Money Out”

Retirement Possibility: Make a Run for the Border

Among the top retirement spots in the world this year, you’ll find great variety in the cultural offerings, climates and lifestyles.

When you hear “make a run for the border,” you may be reminded of Taco Bell’s slogan in the mid-1990s.  But this phrase isn’t just reserved for tacos and burritos.  It also applies to Retirees, as some are considering international soil for their retirement landing spot. Is this the year you start thinking about retirement, or even making serious plans? If yes, then you may be interested in the recently released list of top international retirement venues.

International Living has compiled its annual listing of the best places to retire abroad in 2013, as outlined in a recent article titled, “The World’s Top Retirement Havens in 2013.”

Maybe it’s been in the back of your mind for a while, and maybe it’s just never even occurred to you to look past the U.S borders, but either way it’s something worth considering. While retiring abroad is simply not the same as retiring in the States, that’s precisely one of its draws. On the other hand, the devil is always in the details and the differences can be significant.

For example, were you living abroad, would there be something or someone of importance to you that would be state-side? Similarly, is there something important to you and your family that couldn’t be taken abroad, or even owned from afar?

Once you have assessed the ins and outs of retiring abroad, you’ll be able to decide if the option is right for you.  Retiring internationally can represent an opportunity to finally go back out into the world, make some new discoveries, and maybe have a few adventures. Either way, when it comes to retirement, planning now will give you peace of mind about your future days as a Retiree.

Reference: International Living (December 14, 2012) “The World’s Top Retirement Havens in 2013”

Safeguarding Your Elders: Is It Time To Take Away the Keys?

What can you do when a strong minded elder should stop driving but refuses to do so?

Remember the freedom you felt as a teenager when you learned to drive? If yes, then you can appreciate how difficult it is for elderly loved ones to relinquish that sense of freedom. Imagine how hard it is for them to accept the fact that they can no longer have this liberty.

For so many who have stepped in to oversee or care for an elderly loved one, the most dreaded transition that is so often fought is from driver to passenger: how do you make mom or dad give up the car?

For some guidance on handling this common, but difficult life transition, read a recent Forbes article titled “True Story: The Prominent Dad With Dementia Who Refused to Stop Driving.”

In these cases, when your loved one is very strong minded, the article suggests consulting the help of their doctor and – although you may not want to go there – law enforcement if necessary. A doctor can contact the Department of Motor Vehicles and, if your state allows it, request a re-test before your elder’s license renewal date.

Bear in mind that the consequences of not taking action are far worse than dealing with an offended elder. It is more important to protect your family member before they end up hurting themselves or others on the road.

Reference: Forbes (January 7, 2013) “True Story: The Prominent Dad With Dementia Who Refused to Stop Driving”

Portability Provision Extended in Fiscal Cliff Deal

Portability makes it unnecessary for spouses to use bypass trusts solely to preserve the federal exemption amount. As with any new process there is a shakeout period, though.

The good news has resounded and there is much to celebrate with the passing of ATRA 2012 (or the Fiscal Cliff deal). One particularly positive element of ATRA 2012 is the continuation of certain estate and gift tax laws.

A recent Forbes article titled “A Married Couple's Guide To Estate Planning,” explores some important considerations when it comes to fundamental estate planning.

As so many of us hoped it would, the fiscal cliff-bridging budget extended the provision known as “portability.” As you may know, portability is the ability to pack up the unused tax exemption of the first spouse – that is, their gift/estate tax exemption – and pass it on to the surviving spouse. The surviving spouse doesn’t have to worry quite as much about triggering the estate tax when they pass. Why? Because they now have everything they own plus everything their spouse left them, and all of it can be sheltered from estate taxes by the estate tax exemptions of both spouses.

The original article has more to say regarding how to secure this portability. For that matter, portability is also a limited achievement and a limited kind of protection between married persons.

There is more to “portability” and proper estate planning than meets the eye.  Be sure to contact us if you want to see how portability affects you.

Reference: Forbes (January 9, 2013) “A Married Couple's Guide To Estate Planning”[updated to ATRA 2012]

A Trustee’s Interpretation of a Trust: Prevention or Promotion? - Orlando, Florida Estate Planning

I suspect that trustees are most often comfortable with a prevention-focused mindset.

Here’s my take: Our ability to recognize and deliberately change our mindset just might be a game-changer.

For all the laws and expectations put upon trust officers, it’s important to note that they are human and differ in how they approach their work. This is important to remember, whether you are leaving the inheritance or are the beneficiary of one in trust. As reported by WealthManagement.com, “A Tale of Two Trustees” explores the different mindsets of trust officers. Take note – this applies to trustees as well.

The original article offers the diverging stories of trust officers A and B, and is really written to an audience of other trust officers to advise them. Nevertheless, that doesn’t mean the article isn’t also useful to you non-trust officers. The trust is a tool that operates on paper and through the legal code. Under the terms of the trust, the trustee is bound by the clear language of the trust, but language can only take you so far. Interpretation of the not-so-clear language is left to the trustee.

According to the article, there are at least two important mindsets for trustees to adopt: “prevention-focused” and “promotion-focused.” This is equally important regardless whether you are choosing a professional trustee or an independent individual trustee.

So, do you want a trustee who plays things conservatively and works to protect the language of the trust as written, or do you want a more proactive approach that may lead to a greater boon to the beneficiary? In the end, there is a necessary character assessment required when choosing the most appropriate trustee.

For more information about: Inter Vivos Trusts/Living Trusts in Orlando, Florida, please visit my estate planning website

 

Reference: WealthManagement.com (January 9, 2013) “A Tale of Two Trustees”