Despite the strong standards that are set by the state and federal governments that are supposed to ensure that our elderly nursing home residents receive good care, a recent federal study found that over one third of all short term patients who enter a nursing home for rehabilitation are harmed. Moreover, the study found that almost sixty percent of the harm caused to these residents could have been preventable.
Federal Nursing Home Study
The report, published by the Office of the Inspector General of the U.S. Department of Health and Human Services, studied the number of adverse events occurring in skilled nursing facilities across the United States. The experts discovered that an estimated 22% of Medicare beneficiaries suffered an "adverse event" during their stay at a nursing home facility, and an additional eleven percent suffered a temporary harm during their time at a facility.
Physician reviews determined that 59% of all of the adverse events and temporary harm were clearly or likely preventable. Much of this preventable harm was attributed in the study to substandard treatment, inadequate monitoring of the residents, and a failure or delay in necessary care.
Over fifty percent of the residents who suffered an adverse event or temporary harm had to return to a hospital for treatment, which cost Medicare an estimated $208 million in one month alone. In total, Medicare spent an extra $2.8 billion on hospital treatment for harm caused by adverse events or temporary harm in nursing home facilities.
Federal Study Recommendations
Because the majority of the adverse events and temporary harm was deemed preventable, the experts of the study concluded the need and opportunity for skilled nursing facilities to greatly reduce the incidents of resident harm. They suggested that other federal agencies like the Centers for Medicare and Medicaid Services and the Agency for Healthcare Research and Quality begin campaigns to raise awareness of nursing home safety and look to reduce the incidents of harm through methods used to promote hospital safety standards.
In addition, the researchers suggested creating and promoting a list of potential nursing home events that lead to these adverse events in order to help nursing home staff better recognize potentials for harm. Federal agencies were also encouraged to instruct state agencies to review nursing home practices in order to identify and reduce the number of adverse events.
Federal Nursing Home Law
The federal government has enacted laws that are supposed to prevent the number of adverse events in nursing homes and achieve a high level of care for each patient. Part 483 of Title 42 of the federal code, otherwise known as the Nursing Home Reform Law, sets forth strong standards for care in long-term care state facilities.
According to the law, each resident must be provided the care needed to attain and maintain their highest practicable physical, emotional and social well-being. All skilled nursing home facilities are required to have sufficient staff to achieve this, and unnecessary drugs are prohibited. However, with this most recent study released, it may signify the need for stricter rules regarding our senior's nursing home care.
Despite the strong standards that are set by the state and federal governments that are supposed to ensure that our elderly nursing home residents receive good care, a recent federal study found that over one third of all short term patients who enter a nursing home for rehabilitation are harmed. Moreover, the study found that almost sixty percent of the harm caused to these residents could have been preventable.
According to the Boston College Center of Wealth and Philanthropy, the Baby Boomer generation stands to inherit over $27 trillion in the United States alone over the next four decades. A large portion of that wealth is invested into your parent's home, but when you inherit the house it can come with emotional and financial issues. When siblings are involved in the decision making process, deciding what to do with the home can be even trickier.
There are three options that you can elect after you have inherited your parents' home: sell it, move in, or rent it. Each choice comes with its own advantages and disadvantages, emotionally and financially, for you and your siblings.
Selling the House
One of the biggest benefits of selling the home is called a "stepped up basis." This helps heirs avoid paying large taxes on the sale of the home. The stepped up basis of a house is the fair market value on the date of your parent's death. When you sell the home, you only pay capital gains tax on the amount that is above the stepped up basis, and that tax rate can be as high as twenty percent.
The best way to go about selling the home is to look at comparable homes in the area and deciding on a minimum price. You should also make sure that the homeowner's insurance, utilities, and property taxes are paid up and the estate or trust is named as the insured. This negates any issues that may arise between the dates of your parent's death and the sale of the home.
Moving into the House
If you or a sibling is planning on moving into the home after your parent passes away, the best thing to do is establish advance planning through a family legacy book. This book provides clear instruction on how the assets of the house will be administered while the parent is alive in order to avoid sibling squabbles after death.
Another advantage of moving into the home is that it gives you and your family more time to sort through any belongings or family heirlooms left in the home. However, it is important to keep in mind that your property taxes may increase if your parent had a senior citizen tax break for the home.
On the bright side, there is another advantage down the road if you later decide to sell the home. You may be able to qualify for a capital gains exclusion if you have lived in the home for at least two of the last five years before selling. You can pocket up to $250,000 in profit as a single person or $500,000 as a couple without paying capital gains taxes.
Renting the House
If you do not wish to sell the home, but you also do not want to move in, a third option for your parent's home is to use it as rental property. You or your siblings can act as a property manager if you live nearby, or you can hire a private company. Another important thing to remember is to change the insurance to a landlord policy to cover any accidents by guests.
However, having the property as a rental can mean a large tax break for you as a depreciation expense. A certain amount of the property can be deducted every year, and improvements to the home can be deducted, as well.
Not only is it important to create an estate plan that documents your final wishes for your estate and medical choices, but it is equally important to remember where those documents are when they are needed. Family members or close friends need to know where they can locate your estate planning documents in the time just before or after your passing. If someone does not know where these documents are kept, it could mean that your final wishes are not fulfilled.
Problems with Lost Documents
Being unable to find estate planning documents can have a drastic effect on your final wishes. One man wished to be buried at Arlington Cemetery after he had died, but his son could not find the paperwork after his passing. The cemetery offered to place his father in cold storage for six months while the son tracked down the proper forms documenting his military discharge. He eventually found it being used as a bookmark in his father's home.
Another example came from a mother who belonged to the Neptune Society, which cremates its members and spreads the ashes out at sea. However, after the mother's passing the Society informed her children that it had no record of their mother's membership and therefore could not accept her body. One child had even seen the paperwork that her mother had of registering with the organization, but it was nowhere to be found. Had the children known where the documentation was, this issue could have been avoided.
How to Avoid Lost Documentation Problems
Communication is vital when creating an estate plan. You should go over your plan with your children, spouse, or other loved ones that will be taking care of your final wishes after you are gone. Distribute copies of vital documentation or give specific details about where it can be found. Be sure to let your heirs know where to find all of your important documentation, including your living will, healthcare proxy and durable power of attorney forms, bank account information, password log-ins, and more.
In addition to those documents, consider also adding information regarding a list of all subscriptions you have, both online and in the mail. Also consider placing tax documents in the same location along with any credit card or debit card information. One final piece to add to estate planning documents is a medical history for you, your spouse, and your parents so that your children and theirs will know if there is a history of any medical issues in the family.
Another recommendation is to place all of these important estate planning documents in the same location. This avoids the problems of tracking down separate pieces of paper in order to put together your entire estate plan. Consider placing all of the documents into a safety deposit box, filing cabinet, desk drawer, or on the computer in a single folder.
Preparing for your own death can be tedious and unpleasant, but if something happened to you would your loved ones know what you have, where it is, and what your wishes are? That is why the creation and location of your estate planning documents are vitally important for you and for your loved ones.
More and more grandparents are now using some of the money that they have tucked away using retirement and estate planning to help their grandchildren pay for college. According to a study done by Sallie Mae, 17% of families in the United States relied on relatives to help pay for college. This percentage is expected to increase as more grandparents use their estate plans to help benefit their families.
However, it is important that grandparents should be smart about how they help their grandchildren pay for school because it can have major tax consequences for them and their loved ones if the correct steps are not taken.
Understanding Estate Planning Gift Taxes
One of the biggest tax implications for grandparents and grandchildren are the federal gift tax rules. In 2014, the federal gift tax exclusion is $14,000. This means that each grandparent cannot gift more than that amount to a single person during the year without incurred taxes. At most, grandparents can gift one grandchild up to $28,000 without being taxed.
However, these is an exception to the gift tax rules if the grandparents are contributing the gift to a "529 plan." Up to five years of gifts, or $70,000 per grandparent, can be contributed at once if paid directly to a 529 plan for a total of up to $140,000.
Establishing a 529 College Savings Plan
Estate planning experts usually recommend setting up a 529 college savings plan for grandparents that wish to help pay for their grandchildren's college. One of the main benefits is that the grandparents maintain control of the account and the funds within it. The grandchild is named as a beneficiary of the account, but the grandparents remain the account holders. This allows them to transfer assets out of their estate into the account for estate planning purposes.
If the grandparents own the 529 plan, the account is treated like a student asset and is assessed as such. In addition, FAFSA assessed student income at 50% from the 529 plan which can seriously reduce the amount of aid given. However, if the grandparents transfer the account into a parent's name before their grandchild applies for aid, all of these problems are avoided.
Disadvantages of Other Plans
A lot of grandparents assume that setting up a UGMA account for their grandchildren is the best course of action when helping pay for college, but the rules have changed drastically for these types of accounts over the years. The tax benefits that the accounts used to receive are now almost completely eliminated.
Additionally, the grandchild owns all assets in the account and can technically do what they wish with the funds, even if they were gifted for the purposes of paying for college. Because the grandchild owns the assets in the account, it can also dramatically impact the amount of financial aid that they receive through FAFSA and other government programs. This is because federal aid programs typically take into consideration twenty to 25% of the student's assets, which includes any money gifted through a UGMA account.
Battles over estates can intensify underlying issues between siblings and ultimately tear families apart. However, there are ways to lessen the chances of infighting among your heirs before you pass on. Advance planning can drastically help minimize conflicts among your children, spouse, and other heirs.
Not Just About the Money
According to a prominent wealth management group, around $30 trillion of wealth will be passed to the younger generations over the next thirty to forty years. Roughly 70% of those families will lose a chunk of their inheritance, mostly due to estate battles.
Battles among heirs are not always about the money. Estate planning attorneys almost always have a story about a wealthy estate where the children are fighting over a simple piece of jewelry or other item in the house. It isn't uncommon for fighting families to spend more on paying for legal fees battling the other heirs than they actually stand to inherit.
What is Fair May Not be Equal
One of the most common issues among people creating their estate plans is that they assume that equal means fair. However, when it comes to property and other possessions that are not cash, it is almost impossible to apportion an estate equally.
A good place to start is to determine what means "fair" within the context of your family. If there is one child better off and one child struggling financially it may make more sense to leave one more than the other. If there is a child with special needs, that child may benefit more from money than a piece of real estate. On the other hand, you may not think it is fair to leave a significant amount to an estranged child or someone that you have given a chunk of your estate to during your life.
Preventing Heir Battles
Communicating your final wishes regarding your assets, possessions, and estate is vital in deterring family feuds after you are gone. Expressing your wishes explicitly in a will is the most common way to prevent fighting. Many people also create an addendum to their will or trust explaining why they divided their estate in the way that they did. The less ambiguity that you have in your estate means the less chance that there is for heirs to misconstrue your wishes.
Some people find it easier to make a list of all of the beneficiary accounts, bank accounts, and big ticket items in the estate as well as a corresponding list of who will inherit what. Having the visual lists can make it easier to see who is getting what in their inheritance.
One of the easiest ways to avoid fighting heirs is to speak with them and ask for their input in your estate plan. You never know what your heirs might really want or what they have no desire to hold on to once you are gone. The key to family discussion is equality. If one heir gets a say in what they inherit then they all should, and you should explain your reasons for disproportionate division of assets, as well.
Far too many entrepreneurs, despite their successes in business, have put far too little time into planning for the eventual sale of their business for retirement. In fact, more often than not business owners do not start planning the sale of the business until the day that they sit down with a potential buyer. Starting this late almost always means that money is left on the table, and it is far too late to make a meaningful difference in the money that you will be able to keep when you sell your business.
Talk to Estate Planning Attorneys
One of the most important people to speak with when planning the sale of your business is an estate planning attorney. After explaining the financials and structure of your business as well as a timeline for when you wish to sell, your estate planning attorney can review your tax situation and explain what your options are to save the most money in an estate plan.
There are many different estate planning tools at your disposal to mitigate the amount that you will owe in taxes after you sell. Keeping more money from the sale is essentially the same as selling your business for a higher value.
Craft a Narrative Through Your Financials
Many business owners believe that their financials are good enough for them. However, those financials are not always good enough for potential buyers. To maximize the amount that you can sell your business, you need to tell your buyers a story through your financials that will resonate.
Consider making sure that your financial statements is GAAP (General Accepted Accounting Principles) compliant. In addition, it is also good practice to have your financials audited before starting the selling process.
Institutionalize Your Management Team
Small business owners tend to wear many hats in their business: CEO, Accountant, Payroll Manager, and janitor to name a few. However, buyers want a sustainable business that will not fall apart the second that you walk away, and if you fill all of those roles the business is probably not sustainable without you.
You need to take time to institutionalize your management team so that the business will still be standing after you sell. The alternative is that you sell your business for less value and stay on until the new buyer can build the team that needs to be put in place to fill the void.
Manage Your Risk
You should try to reduce as much risk as possible before selling your business. Common examples include solidifying client relationships, contracts, leases, and suppliers that will last after the business has been sold. Don't forget to think about solidifying employee relationships, too, so that most of the workers do not leave after you do.
Talk to an Attorney
In addition to speaking with an estate planning attorney, also consider speaking with a mergers and acquisitions advisor, as well. Getting a professional assessment of your business can make a huge difference when it comes time to sell.
When you hear about Medicare taxes, you probably do not also consider how it affects investments. However, these new taxes can impose higher costs both on wages and net invested income. If you are concerned about how the Medicare tax may affect your estate or retirement plan, speak with an experienced estate planning attorney today.
Medicare Tax and Payroll Income
Medicare tax on payroll income is 2.9%. It applies to all earned income, which includes payroll from your employer in addition to any tips. Half of the tax is paid by you, and the other half is paid by your employer. For high wage earners, Medicare tax imposes an additional 0.9% tax on individuals who make over $200,000, $250,000 for couples filing taxes together, or $125,000 for spouses filing separately. Your employer is required to withhold the 0.9% from your paycheck once you exceed the $200,000 limit.
Medicare Tax and Net Invested Income
In the past, taxpayers were not required to pay Medicare tax on any net invested income generated from assets like capital gains, dividends, and taxable interest. However, since 2013 the rules have changed, and you could owe up to 3.8% Medicare tax on some or all of your net invested income.
The amount that you owe is based upon the lesser of two amounts: your total net invested income or the amount of your modified adjusted gross income (MAGI) that exceeds $200,000 for individuals, $250,000 for couples filing together, or $125,000 on spouses filing separately. You owe 3.8% on the amount of investment income that exceeds those thresholds. If your income wages alone already exceed the limits, you will owe the 3.8% Medicare tax on the lesser of net investment income or MAGI that exceeds the thresholds.
How to Prepare Wisely
The best thing for you do to prepare is to know the Medicare tax law or speak to someone who does. If you are married, filing jointly, and your income will exceed the limits you will want to make sure that your joint Medicare tax bill for the year is not higher than what you initially anticipated.
It is important to note that your employer will not take your spouse's income into consideration when figuring your Medicare tax withholding, but you can use a W-4 form to have the additional amount deducted from your pay to cover the additional 0.9% tax on the amount over the limit for combined income.
Reducing your MAGI can be more difficult, but many people have used successfully reduced their amount owed by maximizing their investment in pretax retirement plans like traditional 401(k)s or 403(b)s. Also, qualified distributions from retirement accounts like a Roth IRA are not included in your MAGI.
The more complex challenges come from reducing the amount of net invested income, but there are ways to reduce the amount based on sound investment strategies. One option is to move some investment income into municipal bonds or municipal bond funds. Another option is to place investment income into a tax deferred account like an IRA. Investing in a permanent form of life insurance can also reduce the total of net investment income, as the cash value of the policy when withdrawn is not considered investment income anymore.
A lot of people assume that estate planning is just for the old and the wealthy; however, that is not the case. As a Daily Finance article discusses, when you are in your thirties, planning for your eventual passing is not usually a top priority, but most estate planning experts agree that this is the best time to begin to create an estate plan that will protect you and your family in case the unexpected occurs.
Sometimes it can be even more important for people in their thirties to create an estate plan because they have just as much to lose, sometimes more, than their parents and elders. A lot of people entering this decade are settling down, getting married, buying their first home, and having children - all of which needs to be protected.
An estate planning attorney can help you start to draft your estate plan, and here are the basic documents that you should consider putting into place:
A Basic Will or Trust
A basic will or trust establishes who will inherit your possessions and assets when you die. These documents also state who you want to administer you estate, and if you establish a trust it will also contain any specific instructions or requirements for inheritance.
Durable Power of Attorney
In the unfortunate case that you are incapacitated and unable to make decisions for yourself, a durable power of attorney appoints another person to make decisions regarding your finances and other legal, non-medical decisions. This can include paying bills, managing your assets, and handling any other accounts.
If you do become incapacitated or unable to communicate your decisions with others, a living will outlines what your wishes are regarding your own personal care. It includes what medical procedures you do or do not wish to have, what medications you do or do not want, and whether you wish to be resuscitated in the event of a life-threatening event.
A healthcare proxy, otherwise known as a medical power of attorney, is bound by the directives set forth in your living will regarding your medical care if you are unable to make those decisions on your own. If there is no living will, the healthcare proxy is given the responsibility to make all medical decisions on your behalf according to what they think that you would want.
Life Insurance Policy
Term life insurance can be a cheap, cost-effective way to protect your loved ones in the case of your death. It will allow them to cover any costs or debts after you are gone. Many people in their thirties also consider a permanent life insurance plan to fund retirement, growth, education savings, and any other unforeseen emergency.
One of the most essential parts of an estate plan for a person in their thirties is to establish a retirement fund. This is particularly important if your employer offers incentives like profit-sharing or matching contributions to an IRA or 401(k). An important thing to note for both a retirement fund and life insurance policy is to name someone responsible as the beneficiary and to update it as your life changes.
Making the move from working to retiring requires smart planning and decades of preparation. You may have married, bought a home, raised children, and enjoyed a successful career - all of which you are ready to fully enjoy. As you make the transition to retirement, here are some key steps to take first as explored in a recent Forbes article:
Prepare a Retirement Budget
Create a budget that takes into account your typical monthly costs of living in addition to any plans for big expenses. These can include travel plans, home renovations, moving, gifts, and the like.
Check that You are Financially Ready
Meet with a financial planner and your estate planning attorney to make sure that you are financially ready to retire. A second opinion from the experts can give you peace of mind that you have set aside enough to live comfortably.
Assess Your Emergency Fund
Most experts agree that for a couple where one spouse is retired and the other is still working, you should have an emergency fund that could cover twelve to eighteen months in cash assets, just in case. If both spouses are retired, the recommendation is increased to two years to fully fund all living expenses. It will help you avoid needing to sell assets to raise cash in a downturned market.
Figure out Healthcare Insurance
Know before you retire what you will do for healthcare insurance once you leave your job. Private insurance and Medicare are two popular options for retirees. Keep in mind that Medicare does not provide for dental or vision coverage, so if you choose that option you must find that coverage elsewhere.
Consider Downsizing Your Home
Once you have retired and all of your children are out of the home, you may want to consider downsizing your current living situation. Consider moving into a smaller home, or a home that is a single floor in order to avoid arthritis-inducing stairs in your later years.
Update all Estate Planning Documents and Beneficiary Forms
Before retiring, double check all of your estate planning documents and beneficiary forms. Make sure that this major life event will not shift your inheritance plans or trust instructions. Because accounts with beneficiaries attached do not fall under the instructions in a will, it is especially important to double check all beneficiary designations.
Examine Risk Management Policies
Risk management policies refer to insurance plans, weighing needs and costs of items in your life, and deciding whether you should take up a part time job or do consulting work in order to make a little extra money in your retirement.
Discuss with an Estate Planning Attorney any Tax Implications
Retiring can have some major tax implications on your life, some good and others not so good. Consult with your estate planning attorney to see how your retirement may affect your tax filings for the coming years.
Double Check Your Retirement Benefits
Before you leave your job, double check that you know exactly what retirement benefits that you should be expecting from your employer. Meet with your HR representative to know what all of your options are, and make sure that you are maximizing your benefits as you retire.
Create a Social Security Strategy
The final thing to do before retiring is to create a Social Security strategy. Technically, you can start receiving reduced benefits at age 62, but you can receive more if you wait until you are 66 and the most if you wait until you are 70. Look into your current retirement situation and figure out when would be the best time to start collecting your Social Security benefits.
Prenuptial agreements, or prenups, are almost always associated with marriage and divorce; however, they can also be a powerful tool for estate planning. This type of agreement can be used to clarify the rights and responsibilities of both spouses if one suddenly passes away. A prenuptial agreement can be used in estate planning to reduce family in-fighting and other legal issues by predetermining what the spouse is entitled to in the estate.
Using a Prenup to Prevent Estate Nullification
Most prenuptial agreements are made when one or both spouses come into the marriage with significant assets, land, or wealth, if one or both spouses have been previously married, or if children from a previous relationship are involved. One of the biggest advantages to a prenup for the purposes of estate planning in these situations is that the agreement prevents the spouse from nullifying the existing estate plan.
Typically, a spouse can elect to take a statutory percentage of the estate, determined by state law. This is usually done if the will leaves less to the spouse than what is allowed to be taken under law. However, with a prenuptial agreement the amount that the spouse can take is already determined, and it cannot be overturned by nullifying the estate plan.
Using a Prenup to Allocate Assets in an Estate
One of the biggest points of contention between a new spouse and children from a previous marriage usually surrounds the inheritance of the primary home or vacation property. If you wish for your children to inherit the real estate, or any other valuable assets for that matter, you can explicitly state it within the prenuptial agreement.
The agreement can prevent in-fighting amongst members of your previous family and new family over pieces of your estate. In addition, it can prevent the selling and distribution of major aspects of the estate if you really want to keep the home, cars, or other valuables in the family.
Using a Prenup to Protect a Family Business
Another way that a prenup can help in estate planning is to protect a family business in the case of an unexpected death. Using a prenuptial agreement together with an estate plan, you can make sure that the business assets and decision making authority is transferred to the family members that you wish to run the business after you are gone. Many agreements specify that the business is transferred to the children or other family members, and in exchange the spouse in the prenuptial agreement gets a larger portion of the estate.
A prenup can also ensure that the decision making authority in a family business is transferred accordingly. If the business is split among all members of the family, including the new spouse, decisions regarding the running of business, profit sharing, and long and short term planning receive input from everyone. This can lead to a lot of family fighting if the decision making authority is not established in a prenup or estate plan beforehand.
Knowledge of estate planning is not simply for those creating an estate plan, but is important for anyone named as an heir or beneficiary, as well. One of the most devastating, confusing, and stressful times in your life comes when you lose a loved one, and in those moments you must also take on the responsibility of becoming a beneficiary. Having a knowledge of estate planning can ensure that you are fulfilling your loved one's final wishes and minimize the stress that comes with being a beneficiary.
It can be difficult to know where to start or who to contact after you have lost a loved one. Here are seven steps that you can use as a roadmap to make certain that you are fulfilling your obligations as a beneficiary:
Collect critical documents
There are several documents that you will have to collect and organize after losing someone close to you. These can include multiple certified death certificates, insurance policies, and will or trust forms, beneficiary forms, tax returns, bank statements, social security number, and other important documents. Consider discussing with the testator where all of these documents can be found in order to make the collection easier later on.
Contact an attorney and other professionals
An estate planning attorney will be able to help guide you through the intricacies of fulfilling your responsibilities as a beneficiary. Be sure to get an attorney who specialized in the area and not a "jack of all trades."
Forward mail and email
After the testator has passed away, set up the mail and email to forward to your address. It will make sure that you know about any accounts or subscriptions that the testator had, as well as generally keep you in the know.
Apply for benefits
You should also discuss with an estate planning attorney about applying for any benefits you may receive as a beneficiary. This applies to retirement accounts, life insurance plans, veteran's benefits, employee benefits, and social security.
Rollover and update plans
Once the investment companies and retirement plans rollover the testator's accounts to you as the beneficiary, you need to update the plan's beneficiary listing to one of your heirs. You should also discuss transferring the title of any vehicles, boats, or real estate.
Review your plan
After the beneficiary accounts have been rolled over into yours, you need to reevaluate your own estate plan. It is important to look at the risk and exposure involved in the influx of wealth, and discuss with an attorney the best way to structure your assets. Reviewing tax strategies and investment strategies are also encouraged at this time.
File tax returns
One of the final responsibilities of a beneficiary is to file a final tax return for the deceased. If you are filing for your deceased spouse it is important to remember that this is the last year that you file a joint return. Because the tax rate is typically lower for joint returns, it is again important to discuss tax and investment strategies with an estate planning attorney in order to best protect your interests and inheritance.
According to the Pew Research Center, the number of never married Americans is at an all-time high. In 2012, almost twenty percent of all adults over the age of 25 had never been married, compared to only nine percent in the same age bracket back in 1960. The research center cites shifting public attitudes towards marriage as one of the top reasons why Americans are putting off marriage or never marrying at all. Half of all never married adults do not wish to ever walk down the aisle and are perfectly comfortable just remaining in a committed relationship.
But for a committed couple, there are estate planning benefits that come with marriage that you do not receive with a domestic partnership. Here are some of the few financial and legal benefits that come with a marriage certificate:
Qualifying for an estate tax marital deduction
When one spouse dies, the estate is passed to the surviving spouse tax free. For domestic partners the deduction does not apply, and although the federal level of exemption is high at $5.34 million, the state estate tax exemption levels can be very low.
Qualifying for a gift tax marital deduction
As long as your spouse is an American citizen, you can make gifts of any amount tax free. Unmarried couples are subject to a gift tax if they financial support the other spouse, and the maximum tax free gift an unmarried person can make each year is only $14,000.
Rolling over deceased spouse's IRA into surviving spouse's IRA
If your partner dies with an IRA and names you as the beneficiary you must start taking distributions immediately, regardless of your age. If you are married, the surviving spouse has the option of rolling the IRA into their own, allowing the surviving spouse to delay making distributions until age 70 ½.
Contributing to a spousal IRA
If you are domestic partners and one does not work, that partner cannot contribute to an IRA for retirement savings because there is no earned income. However, if you are married and one spouse is not working, the non-working spouse can use the working spouse's income to qualify for IRA contributions.
Receiving survivor's benefits from a pension plan
If your spouse has a pension and elected for survivor's benefits you will continue to receive pension benefits after the other spouse dies. However, that does not apply for domestic partnerships.
Receiving Social Security benefits
Married couples can file for spousal benefits that allow the surviving spouse to collect up to fifty percent of the deceased spouse's social security amount. There is also the possibility for a larger benefit upon the death of a spouse. In a domestic partnership there is no option.
Saving on health insurance
Even if it is an employer sponsored plan, most health insurance plans are cheaper for one plus a spouse, as opposed to two single plans. This is particularly helpful if one partner does not have access to insurance through an employer, like if one partner is self-employed.
Legal advantages in case of spouse's incapacitation
If one partner is incapacitated in the hospital, it can be incredibly difficult to see them if you are not a blood relative or a spouse. You must go to a judge in order to be named as a healthcare proxy, and that takes time and money. If there is any family discord you could be battling family members over everything.
In a major victory for art collectors, the Fifth Circuit court recently gave a $14.4 million estate tax refund and affirmed the use of fractional interest discounts for artworks to reduce estate taxes. Rejecting the government's random assessment of a 10% discount on the valuation of the art, the Fifth Circuit instead agreed that the estate's assessment of 47.5% should be used. This ruling opens the door for art collectors to greatly reduce the taxable amount of their estates.
Art Collecting and Estate Plans
Prior to this ruling, there have been major issues for art collectors and estate planning. If wealthy families sell their art while they are alive, a 28% capital gains tax is added to any appreciation in the value of the art. If they keep the artwork in the estate after they die, the full value of the art is included in the estate at the full fair market value on the date of death.
The ruling in the Fifth Circuit that allows art owners to discount the value of their works is huge. Most art collectors do not want to part with their art, but most estate planning attorneys encourage it because it drastically reduces the overall value of their estate. Many art collectors are forced to sell, donate, or gift art to their children in their final years.
Elkins Artwork Case
In the case of Estate of James A. Elkins, Jr. v. Commissioner of Internal Revenue, the Elkins family began planning to transfer their artwork to the next generation. Mr. Elkins and his wife collected 64 different pieces of contemporary art over the last four decades that includes pieces from Picasso, Pollack, Cezanne, Twombly, Motherwell, Francis, and Hockney among others. The stipulated fair market value of these works is $24.6 million.
The couple used a variety of estate planning tools to begin transferring the artwork to their three adult children, including a GRIT, a co-tenancy agreement, a lease, and a disclaimer. When Mr. Elkins passed away, his wife predeceasing him, he held a 50% interest in three works and a 73% interest in the remaining 61 pieces.
The IRS claimed a deficiency notice on the estate, stating that it was impossible to own a fraction of a piece of art. The Elkins family disagreed, and they went to trial. The Tax Court dismissed all arguments made by the Elkins family and arbitrarily assigned a 10% discount to the art.
The family appealed, and the case went to the Fifth Circuit. This court overruled the Tax Court and agreed with the valuation of the fractionally owned artwork for the Elkins family. The Fifth Circuit stated that "...in the absence of any evidentiary basis whatsoever, there is no viable factual or legal support for the court's own nominal 10% discount," and "the Estate, as taxpayer, presented all of the evidence and a surfeit at that, further eschewing the propriety of a nominal discount."
Effects on Estate Planning
The fractional valuation is based on what an art expert would say is a fair price for the artwork, discounted to the fractional value of ownership. To see the idea in action, the Elkins' Jackson Pollack painting was valued at $6 million. Mr. Elkins had given away a 50% interest in the painting, dropping his estate tax value to $3 million. Taking into consideration the additional 47.5% fractional ownership discount the value added to his estate from that painting is only $1.59 million. This has the potential to greatly reduce the value of art collectors' estates and any taxes due.
All across the country there are cemeteries for people and cemeteries for pets. Virginia has become the third state in the nation to pass a law allowing pet owners to be buried with man's best friend. Joining New York and Pennsylvania, Virginia's new law went into effect in July and could affect many pet owners' estate planning options.
New Burial Law
In Virginia, a new state law allows cemeteries to set aside parts of their property to create sections where pets and humans can be buried next to one another. Most states do not allow for pets and humans to be buried together or their laws do not address it. This law was introduced by Republican member of the House of Delegates, Israel O'Quinn, and was passed in April.
The Code of Virginia Section 54.1-2312.01 states that a cemetery may have a section devoted to the interment of human and pet remains, provided that the following rules apply:
· The pet must be considered a companion animal under Virginia law
· The pet must have its own casket and cannot be interred with human remains
· The section of the cemetery must be clearly marked
The new law has a growing popularity in Virginia. Since its enactment in July, one funeral service owner already has a waiting list of 25 people who wished to be buried alongside their pets. Because the pets must be in their own caskets, funeral directors are working with specialty companies that make containers in pet sizes.
New York and Pennsylvania's Pet Burial Laws
Virginia joins New York and Pennsylvania in passing laws that allow human owners and their pets to be buried together. However, New York's law differs from that in Virginia. New York adopted regulations in June passed last fall which allows pet cemeteries to accept the remains of the pet's owner.
Under New York's regulation, human cemeteries do not set aside a specific section for combined burials. Pet owners can be cremated and their remains can be interred with their pets in a pet cemetery. The pet cemeteries are not allowed to charge a fee and cannot advertise their human burial services.
Pennsylvania has had a combined burial law on the books for almost eight years. Hillcrest Memorial Park in western Pennsylvania was the first to set up a cemetery where a human body, not cremains, could be buried with their pets. Like the regulations passed in Virginia, the cemetery in Pennsylvania has three sections: one for humans, one for pets, and a combined area.
Impact on Estate Planning
When estate planning it is important to consider what will happen to your pets after you are gone or to set aside money to take care of their remains if you expect your pet to pass away before you. Currently, professionals who dispose of pet remains estimate that over 90% of pet owners have their pet's remains cremated, compared to just 23% of humans. However, with new laws allowing for pets' bodies to be buried with their owners, those statistics may start to change.
If you are considering taking advantage of these new laws and being buried with your furry companion, it is important to make your wishes clear and plan accordingly in your estate. Consider purchasing a plot in a combined section of the cemetery ahead of time, make sure that there are funds for both you and your pet's interment, and specifically state within your will that you wish to be buried with your pet.
Celebrity estate plans often come with extraordinary wealth and considerable resources. However, celebrities are still not immune to estate planning issues and the consequences of poor planning. Several recent celebrity estate planning issues in the news have highlighted the importance of proper estate planning getting the professional advice that you need.
Think Carefully about Who is Involved in Your Trust
When Robin Williams passed away in August, he had created an irrevocable trust to provide for his three children. One of the main reasons to create a trust is to protect your privacy in addition to caring for your loved ones' welfare; however, the trust documents were made public after one of the co-trustees also passed away. The other co-trustee had to make the documents public in order to petition the court to appoint a new person to the position.
The lesson to take away from Williams' estate is to make sure that you know what will happen if key people involved in your estate plan are no longer able to fulfill their roles. In addition, you should consider the age and maturity levels of your children, and have an honest contemplation about whether they will be capable of making big decisions regarding money.
Plan for Second Marriages
Casey Kasem's final months were full of tabloid fodder between his second wife and his children from his first marriage. His wife challenged the decision to make his daughter Kasem's conservator and removed him from his nursing home in order to have control over his medical decisions. The dispute lasted for months over his medical care, and since his death in June his family has been fighting over his estate.
The lesson to take away from Kasem's estate is to communicate. Try to foster a good relationship between the members of your family, especially if there is a subsequent marriage. If that fails be sure to clearly communicate to everyone in your family your wishes for your care and estate.
Don't Lose Your Money to the IRS
One of Phillip Seymour Hoffman's greatest fears for his children was that they would grow up as entitled, trust fund kids. In an effort to prevent that from happening, Hoffman gave his entire estate to his longtime girlfriend and mother of his children. Hoffman never created any trusts, never married, and his estate is going through public probate so there are no opportunities for his family to avoid estate taxes.
The lesson from Hoffman's estate is to plan in advance and make sure that your wishes are reflected properly in your estate plan. Trusts can be created that dictate when and how your heirs can receive money so that your wishes are still reflected in addition to help your family avoid probate and major estate taxes.
Remember to Update Your Plans
Michael Crichton earned millions from authoring popular novels, but he died unexpectedly while his fifth wife was pregnant with their child. Crichton never updated his estate plan to include his newest child, and the previous version of his plan specifically excluded future children from inheriting. It has resulted in a major court battle between his last wife, representing their child, and his adult children from his previous marriages.
The lesson to take away from Crichton's estate is to update your plans regularly as your life changes. Whenever there is a marriage, divorce, new child, new business, or a loss be sure to update your estate plan to ensure that it still reflects your wishes accordingly.