Category: Estate Planning/Wills and Trusts

Estate Planning Family Meeting

Posted by heschlawadmin on November 15, 2021

One often-overlooked aspect of estate planning is the family meeting. Family meetings are important to the estate planning process because they allow you to communicate your wishes to your loved ones while you are capable of doing so. Transparency with your family is vital in order to lessen any surprises to them after your death, to reduce or eliminate fighting between your beneficiaries, and to explain any steps you have taken and the reasons for those steps. A meeting can also be a good time to resolve any conflict between your family members and to set general expectations about the distribution of your assets as well as any decisions you have made about your end-of-life care. If possible, it is best to schedule a family meeting when you are in good health, and after your estate planning documents have already been signed.

A well-planned family meeting will allow everyone to have access to the same information at once and will give family members a chance to ask questions to better understand your wishes and their roles after your death. You may wish to have a neutral third party such as your estate planning attorney present if you feel that there may be potential conflict needing to be resolved. Your attorney may also be able to better explain the legal documents that you will be discussing.

Documents for Estate Planning Family Meeting

Some of the documents that your family will need to know about include your advance healthcare directives, such as your healthcare power of attorney, living will, and/or do-not-resuscitate order. This will let them know who you have authorized to make healthcare decisions on your behalf should you become incapacitated. Since this is a difficult topic and discussion could become emotional, it may be wise to cover this at the beginning of your meeting, while everyone is calm and emotions are under control. Try to keep the tone of the meeting positive as well. Remember – while the conversation may be uncomfortable, the long term peace of mind you are hoping to achieve for everyone involved will make the conversation worthwhile.

Other items to discuss with your family are how you have structured your estate, your will, and any trusts that you have created. The family meeting is a perfect time to potentially disclose your assets to your family members, as well as address any nonfinancial assets. Your family may have sentimental items they would like to request. Some people choose to make lists of these requests to include in their wills.

How to Plan Your Estate Family Meeting

1. Create An Agenda

Decide what you need to discuss and in what order to discuss it.

2. Decide Who to Invite

Next, decide who to invite – usually, any fiduciaries, children, and sometimes grandchildren. Take into consideration that holding two meetings may be necessary if you have a blended family and your plan is to keep assets separate. It may be helpful to get input from your estate planning attorney about who should be at your family meeting and what documents people will need to see.

3. Announce the Meeting to Invitees

After your preliminary planning is finished, announce the meeting to your invitees. Try to announce the meeting in a way that does not create any alarm – for instance, letting your invitees know that you are in good health and that a family meeting is a normal part of estate planning will help to alleviate their worries. Make sure that you make the reason for the meeting clear so that everyone can be emotionally prepared and nobody is blindsided by the topics you will discuss. If possible, try to schedule the meeting as its own event, and not on a holiday or a day that may be significant to someone in your family, such as a birthday. While your goal should be for everyone to have a positive experience, if conflict does take place, it would be best not to create negative memories on a special day.

4. Host the Meeting

When you sit down with your family to hold the meeting, make sure to follow the agenda you have created so that you discuss everything that you want to. After your initial meeting, you may need to hold follow-up meetings, especially if you make any changes to your legal documents after a birth or death in the family. You may also want to encourage your family members to create their own estate plans.

If you want to make sure that your estate is properly planned, your assets are accounted for, and your loved ones are properly prepared to carry out your wishes, please Contact Bill Hesch, attorney, CPA, and financial planner today.

Bill Hesch is a CPA, PFS (Personal Financial Specialist), and attorney licensed in Ohio and Kentucky who helps clients with their financial and estate planning. He also practices elder law, corporate law, Medicaid planning, tax law, and probate in the Greater Cincinnati and Northern Kentucky areas. His practice area includes Hamilton County, Butler County, Warren County, and Clermont County in Ohio, and Campbell County, Kenton County, and Boone County in Kentucky.

(Legal Disclaimer: Bill Hesch submits this blog to provide general information about the firm and its services. Information in this blog is not intended as legal advice, and any person receiving information on this page should not act on it without consulting professional legal counsel. While at times Bill Hesch may render an opinion, Bill Hesch does not offer legal advice through this blog. Bill Hesch does not enter into an attorney-client relationship with any online reader via online contact.)

Should You Draft Your Own Will on the Internet?

Posted by heschlawadmin on January 20, 2021

WHY DRAFTING YOUR OWN WILL ON THE INTERNET MAY HURT YOUR INTENDED HEIRS

All too often, people with good intentions make an attempt to draft their own will or will substitute. Unfortunately, this frequently leads to disastrous results and the inheritance goes to the wrong heirs. Below are a few hypotheticals showing what can go wrong when one tries to draft their own will or dies without one:

Example 1: John has two children: Anne and Beth. Anne is independently wealthy and John wants to provide the majority of his estate to go to his daughter Beth. John decides to type his Will himself and has Beth and a neighbor act as witnesses to the Will. Under Kentucky and Ohio law, since Beth is an heir who witnessed the Will, the Will is valid because it had two witnesses. However, now Beth cannot inherit more than she would take as if he died without a will as she was an interested witness. Unfortunately for John, the entirety of his estate will instead be divided as if he died without a will and the assets will be divided equally among Anne and Beth, despite his wishes.

Example 2: John is currently married to Jane. However, they are separated with no desire to reconcile their relationship, although they never actually divorced. John has two natural children from a previous marriage: Anne and Beth. Intending his assets to go only to his two natural children at the time of his death, John drafts his will and specifically leaves all of his estate to them. Unfortunately for John, once he passes away, under Kentucky and Ohio law, his estranged spouse Jane can take against his will and claim a sizable portion of his assets. Even though she was not listed in the will, she can inherit her spousal share. John’s natural children will not receive all of his assets.

Example 3: John drafted his own will several years ago with very specific intentions for distributing certain property to family and non-family individuals. upon his death. John has recently passed away and no one is able to locate his will or a copy of it. As a result, John’s estate will be administered in probate. Under the laws of intestacy, the estate assets will go to his family tree as determined under Ohio and Kentucky laws. John’s true wishes will never be fulfilled, and the non-family members including his live-in partner would receive nothing.

Example 4: John is married to Jane. Each have two children from a prior marriage. Jane passed away before John. Having become very close to his stepchildren, John intends to give them and his natural children each an equal share of his estate upon death. John sadly passed away at age 45. He never had a will drafted as he felt he was still young and had plenty of time left to do so. Even though he did not have a Will, he believed his assets would be divided equally amongst his children and step children. Unfortunately for John, this resulted in the entirety of the estate being inherited by his natural children, and his stepchildren receiving nothing.

In each of these hypotheticals, John’s mistakes could have been prevented by consulting an experienced attorney. Bill Hesch and the attorneys of William E. Hesch Law Firm have years of experience in assisting in estate and financial planning. For more information about how to plan your estate and have a professional Will or Trust drafted to properly ensure your wishes are met, call Bill Hesch to set up a free consultation at 513-509-7829.

(Legal Disclaimer: William E. Hesch submits this blog to provide general information about the firm and its services. Information in this blog is not intended as legal advice, and any person receiving information on this page should not act on it without consulting professional legal counsel. While at times Bill Hesch may render an opinion, Bill Hesch does not offer legal advice through this blog. Bill Hesch does not enter into an attorney-client relationship with any online reader via online contact.).

Biden’s Tax Plan: Income & Estate Death Tax for Wealthy Taxpayers

Posted by heschlawadmin on December 23, 2020

It’s no surprise that once Joe Biden takes office in 2021, some of his initial actions will likely revolve around his plans and campaign promises to increase taxes on Americans of at least moderate wealth (those earning a minimum of $400,000 per year). However, one less-known caveat is the effect Biden’s taxation plans will have on estates should his plans come to pass.

At this time (December 2020), the unified federal estate and gift tax lifetime exemption sits at $11.58 million ($23.16 million for married couples). This exemption is set to expire on December 31, 2025, which will result in it reverting back to an exemption in an estimated amount of $6 million, affecting an estimated 7 million American families. However, one Biden proposition would include rolling back the lifetime exemption rate even further to $3.5 million, meaning any assets in the estate at the time of death over the $3.5-million-dollar threshold would be subject to today’s estate tax of 40 percent. There is concern that Biden could also accelerate the sunset provision of the $11.58 million exemption, resulting in this occurring much sooner than 2025. Further, additional Biden proposals include not only lowering the amount of exemption for estates but also raising the estate tax from 40 to 45 percent.

In addition to Biden’s plans for estate tax, concerns have also arisen regarding his plans to increase the capital gains tax rate for those earning greater than $1 million to 39.6 percent and terminate the tax code’s step-up provision that currently allows heirs to bypass taxes on gains accumulated before death. In addition, the estate would be subject to income taxes on the transfer of assets to heirs at death. The unrealized appreciation would be taxed to the estate on the transfer of assets to heirs. If this takes effect, compounded with the 3.8 percent Net Investment Income Tax, estates would face an immediate 43.4 percent income tax at the time of death under Biden’s plan. Further, on assets having unrealized appreciation, the estate will be paying income taxes at 43% and estate taxes at 45%. This equates to a combined effective tax rate of 71%.

These changes could result in millions in additional taxes being taken out of the estate instead of that wealth being passed along to heirs and named beneficiaries. Bearing that in mind, now could be the time to act in order to ensure that your loved ones receive the bulk of your assets rather than having it taxed away. For more information about how to maximize the assets passed on by your estate, call Bill Hesch to set up a free consultation at 513-509-7829.

2018 Tax Reform for Meals and Entertainment

Posted by heschlawadmin on November 14, 2018

The 2018 Tax Reform made a lot of changes to the meals and entertainment deductions. Here’s a short list of what died on January 1, 2018, so you can get a good handle on what’s no longer deductible:

Entertainment and meals while entertaining included in the cost of the event are not deductible
Golf
Skiing
Tickets to football, baseball, basketball, soccer, etc. games
Disneyland

Meals during the course of entertainment will be deductible if purchased separately from the entertainment event.

Employers who for their convenience provided business meals for their employees that were 100 percent deductible but are now 50 percent deductible beginning January 1, 2018, include:

Meals served at required business meetings on your business premises
Meals served at required business meetings in a hotel or other meeting place that passes the test for business premises but is located outside of the office
Meals served to employees who are required to staff their positions during breakfast, lunch, and or dinner times
Meals served to employees at in-office cafeterias
Food and meal costs for employees who are required to live on premises for the convenience of the employer

For 2018, you need to create accounts in your chart of accounts that separate non-deductible meals and entertainment, meals subject to 50% deduction, and entertainment expenses that are 100% deductible.

As you may know, you may no longer deduct directly related or associated business entertainment effective January 1, 2018.

The good news is that tax code Section 274(e) pretty much survived. Under this section, you can deduct:

Entertainment, amusement, and recreation expenses you treat as compensation to employees and that are included as wages for income tax withholding purposes
Expenses for recreational, social, or similar activities (including facilities therefor)primarily for the benefit of employees (other than employees who are highly compensated employees)
Expenses that are directly related to business meetings of employees, stockholders, agents, or directors (here, the law limits expenses for food and beverages to 50 percent)
Expenses directly related and necessary to attendance at a business meeting or convention such as those held by business leagues, chambers of commerce, real estate boards, and boards of trade (here, the law limits expenses for food and beverage to 50 percent)
Expenses for goods, services, and facilities you or your business makes available to the general public
Expenses for entertainment goods, services, and facilities that you sell to customers
Expenses paid on behalf of nonemployees that are includible in the gross income of a recipient of the entertainment, amusement, or recreation as compensation for services rendered or as a prize or award

When you are considering the above survivors of the tax reform’s entertainment cuts, you will find good strategies in the following:

Renting your home to your corporation
Taking your employees on an employee party trip
Partying with your employees
Making your vacation home a deductible entertainment facility
Creating an employee entertainment facility
Deducting the entertainment facility, because the facility use creates compensation to users

If you would like help implementing any of the strategies above, please don’t hesitate to call me on my direct line at (513)509-7829.

Estate Planning Lessons to Be Learned From the Passing of Aretha Franklin

Posted by heschlawadmin on September 25, 2018

Aretha Franklin, a.k.a. the Queen of Soul, died August 16, 2018. She influenced millions through her music and civic actions. She was a longtime resident of Michigan, where she lived until her death. Aretha Franklin left behind four adult sons, and unfortunately for them, she did not have a will or trust. Her estate has been widely estimated to be worth currently about $80 million, and under Michigan law, her four sons will divide the estate equally among themselves.

One of the biggest reasons a person, especially someone in a financial position like
Aretha, should have a trust is for the added privacy it provides. If a person has only a will or nothing at all in place, the estate would go through probate. One of the worst things about the probate process is that it is all public record, and available to anyone’s eyes. A trust would have ensured that the nature of her assets be kept private because it avoids probate, and not put on public display.

Unfortunately for her family, Aretha Franklin never had a will or trust drafted, which will result in her entire estate going through probate. Probate is notoriously time consuming and expensive to navigate, especially for an estate worth an estimated $80 million. For Aretha Franklin’s Estate, dividing her assets equitably among her four sons will be very time consuming and costly because of its valuable assets, and the complexity of the rights to her music, royalties, real estate, and many other avenues of income. A validly executed estate plan, using a trust properly, could have saved years and countless dollars by avoiding probate for the administration of her large estate.

While it is still early, and no one knows for sure how long it will take for Aretha’s estate to get settled, there are lessons to be learned. First, at the very top of your list should be not putting your estate planning on the back burner. Aretha’s attorney has said that he repeatedly suggested that she have a trust and a will, but she just never got around to it.

Another sad lesson is that Aretha could have better provided for friends and family if she had a will or trust. It is possible that she was happy with only her sons getting her assets, but had she drafted a will or trust, she could have included other close friends and family, or even charities. However, because she did not have a will or trust, the State of Michigan will now decide who gets what. Unless you want to have your state of residency decide who gets what, make sure you have a will or trust drafted that accurately reflects your wishes.

While Aretha Franklin was loved by many, and her music will live on, she did not do her family any favors by neglecting her estate planning. Had she done so, she may have wanted to include friends and family in her estate plan, saved the estate the costly time and money associated with probate, and decreased the chance that her sons may damage their relationships over what assets each son gets. If you want to make sure that your estate is properly planned, your assets are accounted for, and your loved ones will not have to endure the stress of probating your estate, call Bill Hesch, attorney, CPA, and financial planner today.

ABLE Accounts

Posted by heschlawadmin on February 15, 2018

Last month we told you about Special Needs Trusts, which are an important tool in planning for the support and care of a disabled person. Today, we will continue that conversation and tell you a little about how you can use both a Special Needs Trust and an ABLE Account to plan for the support and care of a disabled person.

ABLE Accounts have been talked about on our blog in the past, but here is a little refresher. ABLE Accounts are available in both Kentucky and Ohio, through the National Achieving a Better Life Experience (“ABLE’) Act. ABLE Accounts allow for a disabled person to save and invest money without losing eligibility for certain public benefits programs, like Medicaid, SSI, or SSDI. Additionally, earnings in your ABLE Account are not subject to federal income tax, so long as you spend them on “Qualified Disability Expenses.” Some examples of “Qualified Expenses” include education, housing, transportation, employment support, health prevention and wellness, assistive technology and personal support. However, ABLE Accounts have limited deposits of $15,000 a year, lifetime funding limits, and a medicaid payback provision. Additionally, the onset of the disability must have occurred prior to age 26. These restrictions on ABLE Accounts make planning all the more important.

So you might be asking, which planning tool do I need? A Special Needs Trust or an ABLE Account? The answer could be both. ABLE Accounts allow for more accessibility of funds, with a prepaid debt card feature. The card does not pull money directly out of your ABLE Account. Instead, you get to choose a specific amount of money to load onto your card. This way, you can better control budgets and plan for your Qualified Disability Expenses. They also allow the disabled person to easily receive and save funds from employment without affecting government benefits. If a disabled person is able to work, SSI limits benefits for that person if they have a balance in personal bank account exceeding $2,000. ABLE Accounts allow a person on SSI to work and retain income without diminishing their maximum SSI benefit. However, the money in an ABLE Account will be counted as a resource for SSI purposes if the balance increases over $100,000.

Unfortunately, the funds placed in a ABLE Account are not protected long term because of the medicaid payback provision upon the account holders death. If a family member, by gift or inheritance, plans to leave money for a disabled person the Special Needs Trust is the preferred planning tool. The Special Needs Trusts discussed last month can hold unlimited funds while also allowing for the disabled person to continue receiving SSI.

There are many considerations to look at when trying to protect government benefits for a disabled person and making sure to plan properly is so important. The rules for both Special Need Trust and ABLE Accounts are very complex and it is highly recommended that you work closely with your attorney, CPA, and financial advisor.

Two Common Pitfalls for Traditional IRA Beneficiary Designations in Blended Familis

Posted by heschlawadmin on November 22, 2017

Baby Boomers Beware!

I have found over the years that many of my baby boomer estate planning clients share the same common facts: (1) their IRAs, 401(k)s, or other qualified retirement accounts are typically their largest asset; and (2) they increasingly have blended families – meaning, they are in their second or third marriage and have children from prior relationships. Since most baby boomers’ largest assets are their IRAs, they need to be careful when designating their beneficiaries for these accounts. This becomes especially important when the account owner has a blended family. Failing to properly plan their IRA beneficiary designations can result in the accidental disinheritance of a child, create unnecessary legal fees, and trigger significant income tax consequences for their family. Unfortunately, most IRA account owners are unaware of the complicated rules surrounding beneficiary designations and so the estate plan they thought was in place does not become a reality. This article will address common pitfalls for IRA beneficiary designations for blended families.

Pitfall 1: The Account Owner Names His or Her Spouse as Beneficiary

Most commonly, an IRA account owner will designate his or her spouse as beneficiary. In some situations, this designation works just fine, but other times, and especially for those in blended families, naming the spouse as beneficiary will make their estate plan inconsistent with their overall estate planning goals.

When a surviving spouse inherits an IRA, they can choose how the IRA is paid out, including, but not limited to: (1) rolling it over into their own IRA; or (2) cashing it in, paying taxes, and spending the proceeds at their discretion. To learn more about the different options surviving spouses have, please click here. Surviving spouses also have the opportunity to designate their own beneficiary on their inherited IRA. Oftentimes, a surviving spouse will designate a beneficiary who is inconsistent with those who the account owner originally intended, such as the surviving spouse’s new spouse or to the surviving spouse’s own children. The surviving spouse has no obligation to leave the IRA asset to any of the account owner’s children from a prior relationship. Most baby boomers with blended families want to provide for their own children upon the death of their surviving spouse, but are unaware that simply naming their spouse as beneficiary of the IRA could compromise their estate planning goals if their surviving spouse leaves the IRA to someone other than their own children. An IRA account owner can avoid this problem by setting up a trust and naming the trust as the IRA beneficiary instead of the surviving spouse. This solution is discussed in further detail below. IRA account owners are encouraged to consult with their attorney, CPA, and financial advisor to determine if naming their spouse as their IRA beneficiary is an appropriate option to meet their estate planning goals.

Pitfall 2: The Account Owner Names His or Her Trust as Beneficiary

Naming a trust as the IRA beneficiary instead of their spouse is a typical option for clients in blended families who want to ensure that their IRA will pass down their blood line. A typical trust for a baby boomer client provides that upon the first spouse’s death, the trust provides for the surviving spouse, and upon the survivor’s death, the remaining assets are distributed to the designated children and stepchildren in equal shares. As long as the IRA account owner’s children are beneficiaries under the trust, naming the trust as the IRA beneficiary will ensure that his or her children from a prior relationship will not be left out. This prevents the spouse from inheriting the IRA outright and leaving it to someone other than the account owner’s children. However, naming a trust as the beneficiary of an IRA comes with its own faults, as discussed below.

The biggest problem with naming a trust as IRA beneficiary is that if the trust is not drafted properly to optimize tax deferral for IRAs, there could be significant income tax consequences for the account owner’s family. There are certain requirements a trust must have to qualify as a designated beneficiary of an IRA to receive favorable tax treatment. If these specific requirements are not met, the trust will not receive a favorable “stretch” payout method option that individual beneficiaries otherwise enjoy. The stretch IRA payout method “stretches out” the distributions from the IRA over the life expectancy of the oldest identifiable beneficiary of the trust, which in turn stretches out the annual income tax liability for each beneficiary. When a trust is not drafted properly, the trust beneficiaries will be disqualified from receiving this favorable tax treatment. Instead, the beneficiaries are required to take either a lump sum distribution of the IRA or take distributions over a 5 year period. For more discussion on payout options for trusts and other non-spouse beneficiaries, please click here.

Another issue that arises when an account owner names a trust as IRA beneficiary is that the account owner does not properly fill out the beneficiary designation form with the IRA custodian. If proper language is not used on the beneficiary form, the account owner may encounter difficulty with the custodian accepting the designation. Furthermore, depending on the language of the trust, if the trust is split into sub-trusts for the children and the sub-trusts are not specifically identified as the beneficiaries of the IRA, the children may not be able to use their own life expectancy for the tax-preferred stretch payout method.

It may seem simple in theory, but designating the right IRA beneficiary can be complicated. Baby boomers in blended families need to be aware of the consequences of naming the wrong beneficiary of their IRAs. IRA account owners are encouraged to meet with their attorney, CPA, and financial advisor before naming their spouse or trust as their IRA beneficiary so that their IRA beneficiary designations will meet their overall estate planning goals.

Don’t Shoot Yourself in the Foot: Protect Your Firearms in Your Estate Plan

Posted by heschlawadmin on August 7, 2017

Kentuckians love their guns. According to CBS News, Kentucky ranks number 16 in the number of registered firearms among all 50 states with almost 60,000 federally registered firearms. Ohio, although much more populated than Kentucky, ranks in at number 23. Much like items of personal property like jewelry and antiques, firearms aren’t cheap and can also hold sentimental value among family members and friends. As such, firearms need to be accounted for in an estate plan. Failure to properly account for firearms in an estate plan could result in excessive fines or even jail time for the recipient.

Laws Relating to Transfers of Firearms

Federal law addresses the issue relating to receipt of firearms, stating that “it shall be unlawful for any person to receive or possess a firearm which is not registered to him in the National Firearms Registration and Transfer Record; or to transport, deliver, or receive any firearm in interstate commerce which has not been registered as required by this chapter.” These laws are regulated strictly and are enforced with a zero tolerance policy. Violations can create potential criminal liability of up to ten years in prison and a $250,000 fine.

Kentucky state law has few restrictions on the transfer of firearms, although it does prohibit transferring firearms when the person transferring the firearms knows the recipient is prohibited from possessing firearms under Kentucky law.

Applying These Laws to Estate Planning

In light of the current state and federal laws relating to the transfer of firearms, there are several estate planning and probate considerations gun owners need to think about. The owner should list alternate recipients of the weapons in case the primary recipient is not legally allowed to receive firearms at the time of the owner’s death. Another solution for gun owners is setting up a gun trust for their firearms. Gun trusts are considered “individuals” in the eyes of the law, so the trust can legally own the firearms and provide instructions for the Trustees and beneficiaries. Gun trusts also streamline the distribution of the firearms upon the owner’s death and avoid the probate process.

Upon a gun owner’s death, the Executor of the Estate or Trustee of the Trust should take possession of firearms immediately. A new 2016 federal law says that Executors of Estates can take possession of a decedent’s firearms without triggering a transfer. This can protect the Executor from liability for possessing unregistered firearms under federal law. However, the Executor should forfeit all previously-unregistered firearms to law enforcement to avoid potential criminal liability for its recipient.

If you are one of the many people who own firearms, you need to be aware of the laws and regulations relating to the distribution of your guns upon your death. Contact your estate planning attorney to discuss your estate planning goals for your firearms. Your attorney can give you peace of mind that your loved ones won’t run into problems upon your death.

Is Your Old A-B Trust a Tax Burden for your Family?

Posted by heschlawadmin on March 3, 2017

Save Taxes by Updating your Estate Plan

If you have an old A-B Trust in place, you may be unaware that recent tax law changes have transformed your A-B Trust from an estate tax shelter into an income tax burden for your loved ones. An A-B Trust, also known as a Credit Shelter Trust or Bypass Trust, typically provides that on the death of the first spouse, a particular share of the married couple’s assets are transferred into an irrevocable sub-trust (the “B” trust), rather than to the surviving spouse directly. Traditionally, using an A-B Trust was an estate planning strategy to preserve the deceased spouse’s estate tax exemption to be used upon the death of the surviving spouse. Without sheltering the first spouse’s unused exemption in the “B” trust, any assets in excess of the survivor’s exemption amount would be exposed to very high federal estate taxes.

However, tax law changes in 2013 made permanent an individual federal estate lifetime tax exemption of $5 million (adjusted annually for inflation – 2017 is $5.49 million). If you and your spouse won’t surpass the combined $11 million threshold, your A-B Trust may need to be changed from an estate tax planning perspective. Married couples whose combined assets including life insurance proceeds are less than $5.49 million clearly need to review whether their A-B Trust structure needs to be changed. BEWARE – if you keep your old A-B Trust in place, you might actually be creating a negative income tax consequence because of a specific tax basis rule.

The Internal Revenue Code provides that the tax basis in inherited property gets “stepped up” to its date-of-death fair market value when it is included in a decedent’s estate. When the first spouse dies and the couple has an A-B Trust in place, the assets passing to the “B” Trust get this “stepped up” tax basis. However, when the surviving spouse dies and there are assets remaining in the “B” trust, those assets will not receive the same basis adjustment since those assets are not included in the surviving spouse’s estate. As a result, when the surviving spouse dies and the beneficiaries of the A-B Trust sell the “B” trust assets, the beneficiaries will be responsible for paying any capital gains taxes associated with those assets. If a long amount of time has passed between the spouses’ deaths and the “B” trust assets are valuable, the income tax liability for the beneficiaries could be significant.

While the non-tax reasons for having a trust in place may ultimately drive your estate plan, saving income taxes should now be an important consideration. There are several strategies your estate planning attorney can use to help you maximize income tax savings, and each strategy has its own advantages and disadvantages. Your estate planning lawyer can give you peace of mind by identifying and implementing strategies to help your family save income taxes when you pass away. If you have an old A-B Trust in place, contact your estate planning lawyer today to review your estate plan.

New POA Law Highlights the Need for Estate Planning Review

Posted by heschlawadmin on September 29, 2016

Financial elder abuse, although often overlooked, is a serious problem in our world today. As baby boomers age and the average life expectancy rises, the number of elder abuse cases will continue to increase. More often than not, the abuser in these types of cases is someone in a trusted role – a caretaker, a child, or even an agent appointed in a financial Power of Attorney. While most agents acting under a Power of Attorney are honest, some have abused their power. To prevent and punish this kind of misconduct, the Ohio legislature passed the Uniform Power of Attorney Act (UPOAA) in 2012.

The UPOAA says that unless certain “hot powers” are specifically granted in a Power of Attorney document, an agent cannot do the following: (1) create a trust or make changes to an existing trust; (2) make gifts; (3) create or change rights of survivorship for certain assets; (4) change beneficiary designations; (5) allow others to serve as the agent; or (6) waive rights to be a beneficiary under certain annuities and retirement plans.

If these “hot powers” identified above are blindly granted to the agent in a Power of Attorney, he or she has almost unlimited power to deplete assets or change an estate plan. One could argue that everyone should just leave these “hot powers” out of their Power of Attorney to prevent that from happening.

However, there are certain situations where it might be necessary for someone to grant these powers to his or her agent, and he or she may not realize it unless they consult with an estate planning attorney. For example, effective August 2016, Ohio Medicaid law now requires that a Medicaid recipient living in a nursing home set up a trust if the recipient’s monthly income exceeds a certain limit. Let’s say a Medicaid recipient has dementia and is she determined to be incapacitated. In the recipient’s Power of Attorney, the agent is not granted the specific power to set up trusts on the recipient’s behalf. Since the recipient herself lacks the capacity to set up trusts, she could become ineligible for Medicaid assistance and even evicted from the nursing home!

Furthermore, if an elderly person or couple wants to protect their nest egg from the nursing home, they may want to grant their agent the “hot power” to make gifts to family members in their Power of Attorney documents. That way, their agent can implement advanced Medicaid planning strategies on their behalf if the elderly person or couple becomes incapacitated. Advanced Medicaid planning typically requires making gifts to an irrevocable trust or to loved ones directly to protect assets from being depleted. These gifts must be made at least five years before applying for Medicaid or the applicant will be ruled ineligible for benefits for an extended period of time. Last minute Medicaid planning may require the agent to make gifts and purchase an annuity to pay for nursing home expenses during a period of Medicaid ineligibility.

If you already have a financial Power of Attorney in place, contact your estate planning attorney to find out what updates, if any, need to be made to your estate plan as a result of these recent law changes. If you don’t already have a financial Power of Attorney in place, contact an estate planning attorney right away. He or she can review your unique situation and determine which “hot powers” should be included in your Power of Attorney document. Your estate planning attorney can also counsel you through the important decision of selecting your trusted agent or co-agents.

Bill Hesch is an attorney, CPA, and PFS (Personal Financial Specialist) who is licensed in Ohio and Kentucky and helps clients get peace of mind with their tax, financial, and estate planning matters. He focuses his practice in the areas of elder law, corporate law, Medicaid planning, tax law, estate planning, and probate in the Greater Cincinnati and Northern Kentucky areas. His practice area includes Hamilton County, Butler County, Warren County, and Clermont County in Ohio, and Campbell County, Kenton County, and Boone County in Kentucky.