No Kids? An Estate Plan is Still Important

hoffmankimcolorThere are certain times in life where the need for a proper estate plan is so clear, its like the wail of a newborn at 3AM.  How will that child be cared for if something happened to you?

But what if you do not have children?  The answer may not be as clear, but it is no less important.

If you do not specify in a proper Will or Trust to whom and how your want your assets disposed of at your death, the State will do so for you.  Generally, the State will find your closest heirs and divide your assets among them.  Sound ok since that’s where you would send your assets anyway?  Then you should know that intestate (without a will) probate proceedings tend to be much more costly and time consuming than proceedings with a properly drafted Will.  The urgency is even greater when you do not want your brother and his kids to inherit your assets.  To direct otherwise requires an estate plan.

An estate plan is more than just a will though.  A Healthcare Directive and a well-drafted Power of Attorney are key components to a basic estate plan.  A Healthcare Directive names someone to make medical decisions for you in the event you cannot do so, it grants such person authorization to access your medical records under HIPAA, and it may include preferences for end of life care in the event of a terminal condition.  These directives make it much easier on loved ones to properly care for you in the event you can no longer communicate your medical preferences.  Anyone over the age of 18 needs a Healthcare Directive.  A parent no longer has automatic access to the medical records of their children after age 18, but so often an 18 year old is still under the care (financially, and otherwise) of their parent.

The last leg of the stool is a properly drafted General Power of Attorney.  These may be drafted to be “springing”; so that they spring into effect only upon incapacity.  Then, in the event of incapacity, you have previously named a trusted individual to manage your financial and personal affairs.  Should incapacity occur without a Power of Attorney in place, a court may appoint a Guardian or Conservator after an administrative process.

These Powers of Attorney and Healthcare Directives are essential documents, even for those individuals who do not feel a will is necessary because they have no children.  We, of course, still disagree with that notion, and we will be glad to discuss how each of these components of a good estate plan fit your specific needs.

For more information regarding this or any other estate planning concern, please visit the Hoffman & Associates website at www.hoffmanestatelaw.com, call us at 404-255-7400 or send us an email.

 

Donald Sterling and the L.A. Clippers: There’s Even More to the Story

Kim NewDonald Sterling was the controlling owner of the L.A. Clippers who made racially insensitive comments that went viral earlier this year.  After a hefty fine from the NBA, a lifetime ban, and a threat to force him to sell his controlling interest, Mr. Sterling, at age 80, still refused to sell his ownership interest in the team.  However, it was not the NBA that forced the sale of the team, it was his wife, Rochelle Sterling (“Shelly”), and the interplay of their estate plan that forced the sale and turned this scenario akin to a made-for-TV movie.

The Sterlings, California residents, created a lifetime revocable trust and funded it with all of their assets, including a controlling stake in the Clippers.  Both of the Sterlings were Co-Trustees and primary beneficiaries.  The revocable trust is the core document of an estate plan in many states, including California.  It controls assets during a person’s lifetime and manages the disposition of those assets at death without the need for the probate process.  As Co-Trustees, Donald and Shelly made decisions jointly with regard to their assets.

About the same time as the racial comments came to light, Shelly had Donald evaluated by two doctors for a determination of his mental capacity.  The doctors concluded Donald indeed suffered from diminished cognitive ability and was exhibiting signs of Alzheimer’s disease.  Pursuant to the Sterling’s revocable trust agreement, Donald could no longer serve as Co-Trustee with such diminished capacity, leaving Shelly as the sole Trustee with sole power to administer the trust’s assets.

Shelly negotiated the sale of the Clippers to former Microsoft CEO Steve Ballmer for $2 billion, despite the protests from Donald.  Donald sued to enjoin the sale and sought damages from Shelly and the NBA.  He argued that he had the proper capacity to remain Trustee, and that Shelly failed to follow the proper protocol in his medical evaluation; therefore, she was not sole Trustee and did not have authority to sell the Clippers

The dispute went to Probate Court in California where the Judge heard arguments as to whether Donald was properly removed as Co-Trustee based on his mental capacity and whether Shelly had authority to sell the Clippers under the terms of the Trust agreement.  In late July, the Probate Court Judge ruled entirely in favor of Shelly and held the sale of the Clippers could proceed even if Donald appealed the ruling.  The Judge dismissed the claim that the capacity argument was merely a scheme by Shelly to sell the Clippers.

This case received a lot of attention for Donald Sterling’s racially charged comments, but the case also deserves a lot of attention for highlighting the issues of incapacity and estate planning.  As the population ages, reports of dementia, Alzheimer’s disease and other forms of diminished mental capacity are on the rise.  Planning for someone else to manage your personal and financial affairs in the event of such illnesses or accident is a crucial part of an effective estate plan.  Who you choose to act on your behalf and how it is determined that you are “incapacitated” are equally important.  Although the events surrounding the sale of the Clippers were not as Donald and Shelly likely anticipated when creating their Revocable Trust, the Trust functioned exactly how it was intended.  Upon the death or incapacity of either Donald or Shelly, the survivor or remaining Trustee would serve as sole Trustee and continue to manage their joint assets, no court intervention needed.

A General Durable Power of Attorney and a Healthcare Power of Attorney or Directive are two key documents that plan for incapacity.  Without these in place, a time-consuming and costly court action will be required to name a Guardian or Conservator to manage the affairs of someone who is incapacitated.

Talk to your estate planning attorney about getting these documents in place for your family.  If you already have Powers of Attorney, give them a quick review, and make sure they still express your wishes and appropriately plan for the determination of incapacity.

 

For more information regarding this or any other estate planning concern, please visit the Hoffman & Associates website at www.hoffmanestatelaw.com, call us at 404-255-7400 or send us an email.

In accordance with IRS Circular 230, this article is not to be considered a “covered opinion” or other written tax advice and should not be relied upon for IRS audit, tax dispute, or any other purpose. The information contained herein is provided “as is” for general guidance on matters of interest only. Hoffman & Associates, Attorneys-at-Law, LLC is not herein engaged in rendering legal, accounting, tax, or other professional advice and services. Before making any decision or taking any action, you should consult a competent professional advisor.

Musings from the CEO – Summer 2014

Mike HoffmanI saw a headline the other day that declared “Why You Should Update Your Estate Plan”. Now, there is a topic that I could write a book about!

I have heard statistics that up to 80% of Americans either have no Will, or some attempt at a Last Will and Testament that is sorely inadequate. The basic core documents that everyone needs are a Will, a General Power of Attorney (that kicks-in upon disability or incapacity), and a Health Care Directive. Once these documents are in place, they need to be reviewed periodically. Obviously, tax laws and family circumstances change. Also, more and more people move because of job changes, they retire to another part of the country, or they move closer to their kids and grandchildren.

A little over two years ago, the $5,000,000 estate tax exemption became “permanent”. This does not mean that it won’t change, and in fact, it does change by going up a little bit each year. Going from $600,000 (the exemption in the ‘90’s) to $5,000,000 took most of us off the estate tax paying rolls and did change the focus of a lot of estate planners. We generally pay more attention to income tax matters than we did before. For instance, if a married couple has over $10,000,000 of exemption available, rather than trying to get everything out of their taxable estates, we would like for at least that much property to go to their heirs from their estates (after death), therefore, with a brand new income tax basis.

I read that one commentator expressed that an estate plan is not meant to be put in a time capsule and to be opened and dissected at death. An estate plan will change and evolve. There are many things that can be accomplished with a comprehensive estate plan. Not only are we saving estate taxes, income taxes, and probate costs, we are protecting assets, providing sound management of assets, and taking care of other responsibilities.

How are we leaving assets to our spouse and descendants? Can we be better stewards of our wealth by considering appropriate planning techniques, such as trusts?

It is important to periodically check the ownership and beneficiary designations of life insurance policies to make sure that these liquid assets will be handled appropriately. It is extremely important to review beneficiary designations on IRA accounts and other retirement plan assets. Not only do you want to make sure the assets go where you intend, but you want to maximize potential tax savings.

The ownership of all assets ought to be reviewed periodically. There are several types of joint ownership that have different consequences for estate planning and tax purposes. It is not just deeds for real property that should be checked, but it’s also important to understand how the titling of your investment accounts can affect the treatment of your assets at death.

If you own property in other jurisdictions, such as a house at the beach or in the mountains, this can complicate probate matters for the family. It is a relatively simple matter to use one of several techniques to remove that particular asset from your probate estate, potentially saving a great deal of time, money and aggravation for your spouse and descendants.

Most family/closely-held businesses do not have a succession plan or an exit strategy. This is particularly concerning when it is that family business that created the wealth. Will the business suffer a potential loss of value to the family when the patriarch or matriarch is no longer in the picture?

There are countless reasons why you should update your estate plan. First and foremost, make sure you have an estate plan. A failure to plan is a plan to fail.

 

For more information regarding this or any other estate planning concern, please visit the Hoffman & Associates website at www.hoffmanestatelaw.com, call us at 404-255-7400 or send us an email.

In accordance with IRS Circular 230, this article is not to be considered a “covered opinion” or other written tax advice and should not be relied upon for IRS audit, tax dispute, or any other purpose. The information contained herein is provided “as is” for general guidance on matters of interest only. Hoffman & Associates, Attorneys-at-Law, LLC is not herein engaged in rendering legal, accounting, tax, or other professional advice and services. Before making any decision or taking any action, you should consult a competent professional advisor.

Update to the “DOMA” Ruling

The Treasury Department announced on August 29th that legally married same-sex couples will be treated as married for federal tax purposes regardless of what state they live in starting Sept. 16th, 2013.  Any same-sex couple legally married in a jurisdiction that allows it has the freedom to move to other states that don’t allow it and the federal government will recognize the marriage for tax purposes.

“Today’s ruling provides certainty and clear, coherent tax filing guidance for all legally married same-sex couples nationwide. It provides access to benefits, responsibilities and protections under federal tax law that all Americans deserve,” Treasury Secretary Jacob Lew said in a statement. “This ruling also assures legally married same-sex couples that they can move freely throughout the country knowing that their federal filing status will not change.”

However, this ruling will not apply to same-sex couples in states that don’t allow same-sex marriage for social security purposes.  It will also not apply to those same-sex couples in domestic partnerships or same-sex unions.

On June 26, 2013 the Supreme Court of the United States held Section 3 of the Defense of Marriage Act (“DOMA”) unconstitutional “as a deprivation of the liberty of the person protected by the Fifth Amendment” in United States v. Windsor, an estate tax case.  As a result, the federal government must henceforth recognize same-sex marriages as valid if they are conducted lawfully in a state that allows them.  This means that legally married same-sex couples will be able to file joint income tax returns and will qualify for other income and estate tax benefits previously associated with marriage between a man and a woman.

However, the DOMA ruling does not mean that states have to recognize same-sex marriage.  Georgia has a constitutional ban on same-sex marriage.  Therefore, same-sex couples in Georgia remain under the same rules that existed prior to the DOMA ruling.  That is, same-sex couples may not file joint Georgia income tax returns.  Further, a same-sex partner will not be treated as next of kin for purposes of medical decision making or sharing of medical information under HIPAA.  Likewise, it will remain difficult for a same-sex partner to get appointed as guardian or conservator of their partner without proper estate planning documents.

Regardless of a same-sex couple’s marital status in Georgia, well drafted estate planning documents, including wills, health care directives and financial powers of attorney, can incorporate many of the otherwise available benefits for same-sex couples.

 

For more information regarding this or any other estate planning concern, please visit the Hoffman & Associates website at www.hoffmanestatelaw.com, call us at 404-255-7400 or send us an email.

In accordance with IRS Circular 230, this article is not to be considered a “covered opinion” or other written tax advice and should not be relied upon for IRS audit, tax dispute, or any other purpose. The information contained herein is provided “as is” for general guidance on matters of interest only. Hoffman & Associates, Attorneys-at-Law, LLC is not herein engaged in rendering legal, accounting, tax, or other professional advice and services. Before making any decision or taking any action, you should consult a competent professional advisor.

Understanding the DOMA Ruling

On June 26, 2013 the Supreme Court of the United States held Section 3 of the Defense of Marriage Act (“DOMA”) unconstitutional “as a deprivation of the liberty of the person protected by the Fifth Amendment” in United States v. Windsor, an estate tax case.  As a result, the federal government must henceforth recognize same-sex marriages as valid if they are conducted lawfully in a state that allows them.    This means that legally married same-sex couples will be able to file joint income tax returns and will qualify for other income and estate tax benefits previously associated with marriage between a man and a woman.

However, the DOMA ruling does not mean that states have to recognize same-sex marriage.  Georgia has a constitutional ban on same-sex marriage.  Therefore, same-sex couples in Georgia remain under the same rules that existed prior to the DOMA ruling.  That is, same-sex couples may not file joint Georgia income tax returns.  Further, a same-sex partner will not be treated as next of kin for purposes of medical decision making or sharing of medical information under HIPAA.  Likewise, it will remain difficult for a same-sex partner to get appointed as guardian or conservator of their partner without proper estate planning documents.

But what if Georgia same-sex couples legally get married in another state or move to Georgia from another state where they were legally married?  Well, no one is really sure what that means for them on a federal level.

“I think (the ruling) gives a false confidence that everything is taken care of and it’s not,” University of Florida Estate Planning Professor Lee-Ford Tritt told the Tampa Bay Times. “It’s going to be very confusing for people.”

For federal income taxes, it seems like the IRS will need to change its policy on filing jointly since it currently considers a state of residence.  This appears to be something that can be administratively fixed.  The status of many other federal benefits is still uncertain in a situation like this.

Regardless of a same-sex couple’s marital status in Georgia, well drafted estate planning documents, including wills, health care directives and financial powers of attorney, can incorporate many of the otherwise available benefits for same-sex couples.

 

For more information regarding this or any other estate planning concern, please visit the Hoffman & Associates website at www.hoffmanestatelaw.com, call us at 404-255-7400 or send us an email.

In accordance with IRS Circular 230, this article is not to be considered a “covered opinion” or other written tax advice and should not be relied upon for IRS audit, tax dispute, or any other purpose. The information contained herein is provided “as is” for general guidance on matters of interest only. Hoffman & Associates, Attorneys-at-Law, LLC is not herein engaged in rendering legal, accounting, tax, or other professional advice and services. Before making any decision or taking any action, you should consult a competent professional advisor.