Asset Protection: Why Vampires Need Estate Planning

Yes, even the undead need an estate plan. After you stop laughing you need to hear me out. As we’ve learned from the likes of The Vampire Chronicles, the Twilight saga, and HBO’s True Blood, vampires aren’t immortal.  They do die, and it’s usually unexpected and messy.

While vampires aren’t good candidates for life insurance and probably don’t need an Advance Healthcare Directive (after all, their wounds seem to heal quickly and they never end up in the hospital), they should have a Power of Attorney to allow Mrs. Dracula or Dracula Jr. to manage finances just in case they need to take an extended trip. 

And what happens if Dracula is sued? A good asset protection plan will insure that his hard earned assets aren’t wasted away defending an expensive lawsuit and snatched up by a judgment holder.

And of course Dracula could cross paths with Buffy the Vampire Slayer or run out of gas in the middle of the desert at dawn.  While not likely, these things are nonetheless possible and will lead to that messy and unexpected death.  That’s where a will and trust come in handy – directing who will be in charge of settling Dracula’s final affairs and who will inherit his worldly possessions.  And what about Dracula Jr., what if he’s still a toddler or an adult who isn’t financially savvy?  A trust can be used to protect Jr. in either situation.  And then there’s always the concern that Mrs. Dracula will remarry.  A trust can be used to provide for Mrs. Dracula during her lifetime but insure that what’s left when she bursts into flames goes to Dracula Jr. and his children.  Oh, and these trusts can include creditor protection and tax planning that’s designed to minimize taxes for years to come.

If it’s clear that even the undead need an estate plan, what about you?  What are you, a mere mortal, waiting for?  Without an estate plan your final wishes will remain a mystery.  Worse yet, your state’s laws will provide your estate with a default plan that your loves ones will be stuck with and probably isn’t the plan you would have wanted.  Now is the time to create your estate plan on your own terms.  Please call our office now to arrange for your estate planning consultation.

If you want to ensure that your family is cared for, please click here to schedule your complimentary Estate Planning Strategy Call with San Francisco’s premier estate planning attorney, Matthew J. Tuller.

How to Maintain Control of Your Estate And Keep Your [Second] Spouse Happy

Estate planning for couples in a second or later marriages that have disproportionate estates can be tricky. One solution for allowing the well to do spouse to maintain control of their assets but keep their other half happy is the Lifetime QTIP Trust. 

 The Basics of Creating a Lifetime QTIP Trust

In the estate planning world a “QTIP Trust” is a type of trust that allows a wealthier spouse to transfer an unrestricted amount of assets into trust for the benefit of their less wealthy spouse free from estate and gift taxes.

Typically married couples would make use of a QTIP Trust after death under the “AB Trust” strategy:  After the first spouse dies the “B Trust” holds an amount equal to the federal estate tax exemption (currently $5.43 million in 2015) and the “A Trust” holds the excess. Under this strategy the “A Trust” is in fact a “QTIP Trust” which qualifies for the unlimited marital deduction, meaning that property passing into the trust will not be subject to estate taxes until the surviving spouse dies. 

But what if instead of creating and funding the QTIP Trust after death, the wealthy spouse creates and funds the QTIP Trust for their spouse’s benefit with tax free gifts while the wealthy spouse is alive?  This is the “Lifetime QTIP Trust” which must meet the following criteria to qualify for the unlimited marital deduction:

     1.The trust must be irrevocable.

     2.The trust must be created for the benefit of a spouse who is a U.S. citizen.

     3.The spouse must be entitled to receive all of the net income from the trust at least annually. 

     4. The spouse must have the right to demand that any non-income producing property be  converted into income producing property.

     5. The spouse must be the only one who has the power to appoint trust property

     6. A federal gift tax return must be timely filed.

 Planning With a Lifetime QTIP Trust Offers a Multitude of Benefits

 Outright gifts to your spouse during life or after death lead to total loss of control. If you and your spouse have lopsided estates and families from prior marriages the problem is exacerbated by the difference in your wealth – while the well-to-do spouse will be just fine if the less wealthy spouse dies first, the opposite is not true.  If you and your spouse are in this situation, a Lifetime QTIP Trust offers the following benefits:

•  The wealthy spouse can create and fund a Lifetime QTIP Trust without using any gift tax exemption.

•  The generation-skipping transfer tax exemption is not portable, so a Lifetime QTIP Trust can be used to take advantage of the less wealthy spouse’s exemption. This might reduce overall taxes.

•  During the less wealthy spouse’s lifetime he or she will receive all of the trust income and may be entitled to receive trust principal for limited purposes.

•  When the less wealthy spouse, dies the assets remaining in the trust will be included his or her estate, thereby making use of the less wealthy spouse’s otherwise unused federal estate tax exemption.

•  If the less wealthy spouse dies first, the remaining trust property can continue in an asset-protected, lifetime trust for the wealthy spouse’s benefit (subject to applicable state law) and the remainder will be excluded from the wealthy spouse’s estate when he or she dies.

•  After both you and your spouse die, the balance of the trust will pass to the wealthy spouse’s children and grandchildren or other beneficiaries chosen by the wealthy spouse.

Do You and Your Spouse Need a Lifetime QTIP Trust?

 As with other types of estate planning, Lifetime QTIP Trusts are not “one size fits all” and must be specifically tailored to each couple’s unique family dynamics and financial situation. Please call our firm if you think you and your spouse fit the Lifetime QTIP Trust profile and we will help you determine what will work best for your family.

 If you want to ensure that your family is cared for, please click here to schedule your complimentary Estate Planning Strategy Call with San Francisco’s premier estate planning attorney, Matthew J. Tuller.

You Can Easily Disinherit Family Members

Believe it or not, in the U.S. it isn’t easy to disinherit your spouse. However, the same is not true for other family members. For example, you can use your estate plan to disinherit your brothers and sisters, your nieces and nephews, or even your very own children and grandchildren. 

However, in the majority of states and the District of Columbia, you can’t intentionally disinherit your spouse unless your spouse actually agrees to receive nothing from your estate in a Prenuptial or Postnuptial Agreement.

Beware:  Spousal Disinheritance Laws Vary Widely From State to State:

Unfortunately there isn’t one set of rules that govern what a surviving spouse is entitled to inherit.  Instead, the laws governing spousal inheritance rights, referred to as “community property laws” or “elective share laws” depending on the state where you live or own property. These laws vary widely:

1. In some states the surviving spouse's right to inherit is based on how long the couple was married.

2. In some states the surviving spouse’s right to inherit is based on whether or not children were born of the marriage.

3. In some states the surviving spouse’s right to inherit is based on the value of assets included in the deceased spouse’s probate estate.

4. In some states the surviving spouse’s right to inherit is based on an “augmented estate” which includes the deceased spouse’s probate estate and non-probate assets.

For example, in Florida a surviving spouse has the option to receive a portion of their deceased spouse's estate called the "elective share."   This share is equal to 30% of the deceased spouse's "elective estate," which includes the value of the deceased spouse's probate estate and certain non-probate assets such as payable on death and transfer on death accounts, joint accounts, the net cash surrender value of life insurance, property held in a revocable living trust, and annuities and other types of retirement accounts, reduced by the deceased spouse's debts (this is an example of the last category described above).

Aside from this, state laws also vary widely regarding the time limit a surviving spouse has to seek their inheritance rights, which can range anywhere from a few months to a few years.

Disinherited Spouses Need to Act Quickly!

If your spouse has attempted to disinherit you, you must seek legal advice as soon as possible before state law bars you from enforcing your rights. Only an experienced estate planning attorney can help you weigh all of your options and protect your interests as a surviving spouse.

If you want to ensure that your family is cared for, please click here to schedule your complimentary Estate Planning Strategy Call with San Francisco’s premier estate planning attorney, Matthew J. Tuller.

Decanting: How to Fix a Trust That Isn’t Working Out

While many wines get better with age, the same cannot be said for some irrevocable trusts.  Maybe you’re the beneficiary of a trust created by your great grandfather seventy years ago that no longer makes sense.  Or maybe you created an irrevocable trust twenty years ago, that doesn’t work, as it should.  Is there any way to fix an irrevocable trust that has turned from a fine wine into vinegar?  You may be surprised to learn that under certain circumstances the answer is yes, by “decanting” the old broken trust into a brand new one.

 What Does It Mean to “Decant” a Trust?

 Wine lovers know that the term “decant” means to pour wine from one container into another in order to open up the aromas and flavors of the wine.  In the world of irrevocable trusts “decant” means the legal process through which the trustee appoints or distributes trust property in further trust for the benefit of one or more of the beneficiaries.  In other words, the trustee transfers some or all of the property held in an existing trust into a brand new trust with different and more favorable terms.

 When Does It Make Sense to Decant a Trust?

 Decanting a trust makes sense under many different circumstances:

1. Tweaking the trustee provisions to clarify the person who is allowed to serve as the trustee.

2. Expanding or limiting the powers of the trustee.

3. Converting a trust that terminates when a beneficiary reaches a certain age into a lifetime trust.

4. Changing a support trust into a full discretionary trust in order to protect the trust assets from the beneficiary’s creditors.

5. Clarifying ambiguous provisions or drafting errors in the existing trust.

6. Changing the governing law or trust situs to a less taxing or more beneficiary-friendly state.

7. Adding, modifying or removing powers of appointment for income tax or other reasons.

8. Merging similar trusts into a single trust for the same beneficiary.

9. Creating separate trusts from a single trust to address the differing needs of multiple beneficiaries.

10. Providing for and protecting a special needs beneficiary.

What is the Process for Decanting a Trust?

 First of all, decanting must be allowed under applicable state case law or statutory law.  Aside from this, the trust agreement may contain specific instructions with regard to when or how a trust may be decanted.

 Once it is determined that a trust can and should be decanted, the next step is for the trustee to create the new trust agreement with the desired provisions.  The trustee must then transfer some or all of the property from the existing trust into the new trust.  Any assets remaining in the existing trust will continue to be administered under its terms, otherwise the empty trust will terminate.

 Beware:  Decanting is Not the Only Solution to Fix a Broken Trust

 While decanting may work under certain circumstances, it is not the only way to fix a “broken” irrevocable trust.  Our firm can help you evaluate all of the options available to fix your broken trust and determine which ones will work the best for your situation.

If you want to ensure that your family is cared for, please click here to schedule your complimentary Estate Planning Strategy Call with San Francisco’s premier estate planning attorney, Matthew J. Tuller. 

A New Online Resource for Older Americans and Their Families

More than 10,000 people turn 65 in the U.S. every day according to Aging.gov, a new website recently launched by the Obama administration.  The goal of this website is to act as gateway for older Americans and their families, friends and caregivers to locate information about leading a healthy lifestyle, options for health care, preventing elder abuse, and retirement planning. 

 Healthy Aging:

 According to the website, healthy eating habits, physical activity, and involvement in your community help contribute to living a long, productive, and meaningful life.  This section of the website offers links to dietary guidelines for older Americans, the American Dietetic Association, the National Institutes of Health (NIH) Senior Health website, and resources for volunteering and senior employment.

 Health Issues:

 According to the website, focusing on preventive care, managing health conditions, and understanding medications help contribute to an increased quality of life.  This section of the website offers links to various Medicare resources (hospital compare, home health compare, dialysis facility compare); information about mental health, Alzheimer’s disease and dementia; information about other specific diseases, conditions and injuries (arthritis, cancer, diabetes, fall prevention, hearing, heart and lung, HIV/AIDs, vision); and resources for medications (Medicare prescription drug coverage) and treatments.

 Long-Term Care:

 According to the website, long-term care – either through in-home assistance, community programs, or residential facilities – allows you to stay active and accomplish everyday tasks.  This section of the website offers links for finding home care and assisted living facilities; resources for caregivers; securing benefits (Benefits.gov, Medicare.gov); planning for long-term care (LongTermCare.gov, Medicaid.gov); veteran’s services; and preparing for end of life (Advance Directives, funeral planning, organ donation).

 Elder Justice:

According to the website, millions of older Americans encounter abuse, neglect, exploitation, or discrimination each year.  This section of the website offers links to help you identify scams, prevent fraud, address senior housing issues, stop elder abuse, and find legal assistance.

Retirement Planning & Security:

According to the website, planning for retirement will allow you to enjoy financial security as you age without the risk of outliving your assets.  This section of the website offers links to resources for retirement planning, understanding your employer’s retirement plan, and investing (IRAs, investing wisely for seniors, preventing financial fraud).

State Resources:

The final section of the website points out that resources to support older Americans and their families, friends and caregivers can vary from state to state and offers links to the departments of aging for all 50 states and the District of Columbia.

Final Thoughts on Aging.gov:

Aging.gov offers a diverse amount of information to help you or a loved one navigate the challenges of growing older.  Instead of randomly searching for guidance and advice, this website is a good starting point for locating more specific information related to aging healthy, wealthy, and wise.

If you want to ensure that your family is cared for, please click here to schedule your complimentary Estate Planning Strategy Call with San Francisco’s premier estate planning attorney, Matthew J. Tuller.

What’s Hot in Estate Planning Right Now May Surprise You

Estate planning has truly evolved over the past 20 years. Gone is the uncertainty about federal estate taxes and the absolute requirement for married couples to use complex trusts to minimize these taxes.  But also gone is planning for the “traditional” family.  In fact, today’s estate planning is more complicated than ever before.

Estate Planning in 1995 Versus 2015:

In 1995 the federal estate tax exemption was only $600,000 and the estate tax rate was 55%.  Back then it was easy to accumulate a taxable estate by simply owning a home, a few investments and some life insurance.  And while married couples could pass on two times the exemption ($1.2 million) free from estate taxes by incorporating Marital/Family Trusts into their estate plan, these trusts came with strings attached.  Yet these inflexible trusts were worth it to avoid the hefty 55% tax.  

Today the federal estate tax exemption is a whopping $5.43 million (and will increase annually based on inflation) and the federal estate tax rate has dropped to 40%.  In addition, married couples can now combine their estate tax exemptions and pass on two times the threshold ($10.68 million) without Marital/Family Trust planning by making the “portability” election.  As a result, the focus of estate planning has shifted away from estate tax planning to more releevant concerns:

1. While the federal estate tax rate has decreased from 55% to 40%, since 2012 the top federal income tax rate has increased from 35% to 43.4%, and the top long-term capital gains rate has increased from 15% to 23.8%.  This has made minimizing income taxes an integral part of estate planning.

2.  Today many families are blended, dysfunctional or completely estranged.  This has made flexible  estate planning and finding ways to modify what was thought to be an irrevocable plan the “new  normal.” 

 Estate Planning for the “New Normal”:

Today with the generous and ever-increasing estate tax exemption and “portability” of the exemption available to married couples, it is estimated that 99.8% of Americans will have no federal estate tax exposure.  As a result, traditional Marital/Family Trust planning is no longer a necessity for a majority of families.  Therefore, instead of planning for excluding assets from the taxable estate, the new trend for couples with less than $10 million is to plan for estate inclusion so that their heirs will receive a basis step up.  This can be accomplished by:

1. Leaving assets outright to your spouse and making the portability election; but beware if your spouse is a spendthrift, has creditor issues, or if you want to insure your assets stay within your bloodline.

2. Taking a wait-and-see approach, such as all to the Family Trust with the ability to disclaim to the Marital Trust or vice versa.

3. Including flexibility in the Marital Trust provisions.

4. Using a Revocable Family Trust and allowing for basis increase through a customized power of appointment.

But while building flexibility into your estate plan is ideal, what happens if your plan becomes irrevocable before you have had a chance to make it flexible?  What if it would be advantageous to include assets in the estate of your spouse or a beneficiary, change the situs of your trust or its governing law, add or remove beneficiaries, add a trust protector or advisor, or change the trustee structure?  Is it possible to modify or even revoke your inflexible, irrevocable trust?  Under many circumstances the answer is yes; these things can be accomplished by agreement or a court order through:

1. Reforming the trust:                                                                                       a. Using judicial interpretation to determine and properly restate your           intent.

2. Modifying the trust:                                                                                        a. Changing the terms of the trust to meet your tax‐saving objectives.

3. Equitably deviating the trust:                                                                        a. Modifying the trust provisions upon the showing of an unforeseen change in circumstance the impact of which would frustrate your intent.

4. Invoking the Trust Protector:                                                                        a. Allowing a third‐party to exercise specific powers as defined in the trust agreement.

5. Decanting the trust:                                                                                       a. Allowing the trustee to distribute property in further trust for a                      beneficiary. 

 Where Should Your Estate Plan Go From Here?

Estate-tax-driven estate plans are becoming a thing of the past.  Higher income tax rates, changing state laws, unfavorable jurisdictions and wayward heirs add up to the need for an estateplan that is able to adapt over time.  Modern families need modern estate planning solutions, and our firm stands ready to help you create a flexible estate plan.

If you want to ensure that your family is cared for, please click here to schedule your complimentary Estate Planning Strategy Call with San Francisco’s premier estate planning attorney, Matthew J. Tuller.

Act Now! IRS Signals Intent to Issue New Regulations That Will Limit Valuation Discounts on Family Business Entities

The IRS recently signaled that it may be ready to issue new regulations that will affect valuation discounts on family business entities by early September. 

What Are the Benefits of Planning With a Family Business Entity?

For years wealthy families have taken advantage of limited partnerships and limited liability companies (collectively “family business entities”) to hold a family business or investments for the following reasons:

1. Centralized Wealth Management. 
           a.       Such an entity allows the family to create a cohesive investment policy, teach investing skills, consolidate investments, and pool assets for better diversification and risk allocation. 

2. Consolidation of Tax Reporting. 
           a.       Gathering investments held in various accounts into one business entity allows for the streamlining of tax and business reporting.

3. Creditor Protection. 
         a.       Assets held within a properly managed family business entity will be protected from the personal creditors of its members and assets of members that are held outside of the business entity will be protected from liabilities incurred by the business.

4. Divorce Protection. 
         a.       A divorcing spouse of a member of a properly managed family business entity will only be able to attach their spouse’s membership interest, not the underlying assets held in entity, which will have little or no value to the divorcing spouse.

5. Ease of Transfer After Death.
          a.       Transferring assets held within such an entity after death is accomplished by assigning membership interests to heirs, while transferring individually held assets requires retitling each and every asset.

6. Valuation Discounts for Gift Tax and Estate Tax Purposes. 
          a.       Gifting assets held within such an entity during life or bequeathing interests at death allows for discounts on the value of the underlying assets due to lack of marketability and control.

It is only this last benefit – valuation discounts for gift and estate tax purposes – which the new IRS regulations will attempt to curtail.  If you would like to teach your children and grandchildren about investing, protect their inheritance from creditors, predators and divorcing spouses, all the while maintaining control of your investments, you should consider consolidating your investments into a single family business entity to accomplish these and the other goals listed above.

How Do Valuation Discounts on Family Business Entities Work?

Under current rules a family business entity allows for the shifting of wealth from older generations to younger generations at a discount for gift tax and estate tax purposes due to the following:

1. Lack of Marketability.
         a.       Younger generations will not receive any ownership rights in the underlying assets owned by the entity, but merely a fractional interest in the entity itself.  This results in a discount on the value of the interest since the owner will not be able to easily convert the interest into cash.

2. Lack of Control.
         a.       Younger generations will not receive any management or voting rights in the business entity.  An ownership interest in a business that has no control over how the business is run is less valuable than an interest with management rights.  

What Will Be the Effect of the Impending New Regulations on Valuation Discounts for Family Business Entities?

Under §2704(b)(4) of the Internal Revenue Code, the IRS is given broad authority to impose regulations that would disregard certain restrictions in determining the value of an interest in a business entity transferred to a family member.  Throughout the years the drafting and implementation of these regulations has been put on hold for various reasons, but IRS officials have now indicated that the regulation project is progressing, with new regulations being issued as early as September 2015. 

Speculation is that these regulations will create a new category of restrictions that will be disregarded when valuing an interest in a family business entity, in turn reducing or even eliminating the use of valuation discounts for these entities.  Further speculation is that the new rules could be made effective when they are released.

With New Regulations Looming, What Should You Do Now?

While an operating family business with actual sales will most likely still provide planning opportunities using valuation discounts after the new regulations go into effect, family business entities that are created mainly to take advantage of valuation discounts will become all but obsolete.  Therefore, if you are interested in setting up a family business entity for the purpose of taking advantage of valuation discounts, you must proceed without delay to insure your planning can be implemented before the new regulations go into effect.

Our firm is available to assist you with the immediate implementation of your wealth transfer plan using valuation discounts. If you want to ensure that your family is cared for, please click here to schedule your complimentary Estate Planning Strategy Call with San Francisco’s premier estate planning attorney, Matthew J. Tuller.

Skyrocketing Probate Fees—Let’s Avoid Probate Court

As of July 1, 2015, Connecticut probate courts earned the dubious distinction of charging the highest probate fees in the U.S.  Amazingly, the Connecticut legislature voted to completely cut general fund support for the state’s probate courts for the next two fiscal years, thereby creating a $32 million deficit.  In order to cover the shortfall, the fees charged for settling a deceased person’s estate in Connecticut were significantly increased and the $12,500 cap on probate fees was eliminated.  To make matters worse, these changes apply retroactively to all deaths dating back to January 1, 2015.  As a result, it is estimated that a handful of Connecticut estates will owe in excess of $1 million in probate fees and at least a dozen will owe in excess of $100,000.

Which Other States Also Charge High Probate Fees?

Connecticut’s new fee structure assesses a 0.5 percent fee on estates worth more than $2 million and most probate court filing fees were also increased from $150 to $225.  While both North Carolina and New Jersey assess probate fees of 0.4 percent, North Carolina’s fee is capped at $6,000, but New Jersey does not have a cap.  In Maryland the probate fee for an estate valued between $2 million and $5 million is $2,500 and for estates valued over $5 million the fee is $2,500 plus .02 percent of the excess over $5 million.

How Can Your Loved Ones Avoid Paying Probate Court Fees?

Even if you don’t live in a state that charges high probate fees now, budget shortfalls and fee changes could occur at any time. Also, in most situations it’s easy to keep your estate out of probate court and avoid all of the fees and costs associated with it:

 1.      Gift your estate while you’re still alive.  While it really isn't practical to give all of your assets away during your lifetime, it is possible to gift assets into a special type of trust or a family business entity of which you can be a beneficiary or stakeholder. 

 2.      Own property jointly with others.  If an asset such as a home is owned by two people as joint tenants with rights of survivorship and one of the owners’ dies, the surviving owner will become the sole owner of the home outside of probate.

 3.      Use beneficiary designations.  By design, life insurance and retirement accounts (such as IRAs, 401(k) s and annuities) avoid probate through the designation of a beneficiary.  In addition, you can name a beneficiary for your bank accounts using a payable on death account and for your investment accounts using a transfer on death account.

 4.      Create and fund a revocable living trust.  When you create a revocable living trust and transfer the title of your assets into the name of the trust, you will no longer hold title to your assets in your individual name.  Instead, your assets will be converted into property under the control of the Trustee (which can be you while you’re alive and a spouse, child, friend or bank after you die).  After you die, the property held in the trust will pass to the beneficiaries you name in the trust agreement outside of probate. 

Final Thoughts on Avoiding Probate Court

While probate is easy to avoid using any of the methods described above, there are pros and cons that need to be considered for each method.  Please contact our office if you are interested in determining the best way for your estate to avoid probate court and all of the fees and costs associated with it.

What You Need to Know About the Final Estate Tax Portability Rules

Recently the IRS issued the final rules governing the “portability election” as it relates to the federal estate tax exemption.  Married couples need to understand how these final rules may affect their existing estate plans, while recent widows and widowers need to understand how these finals rules may affect their deceased spouse’s estate.

What is the “Portability Election” and How is the Election Made?

The “portability election” refers to the right of a surviving spouse to claim the unused portion of the federal estate tax exemption of their deceased spouse and add it to the balance of their own exemption.  Since in 2015 the federal estate tax exemption is $5.43 million per person (the exemption changes every year since it is indexed for inflation), this means that a married couple can potentially pass on $10.68 million to their heirs free from federal estate taxes.

To properly make the portability election, the surviving spouse must timely file a federal estate tax return, known as the “United States Estate (and Generation-Skipping Transfer) Tax Return,” or “Form 706” for short.  Form 706 is due on or before nine months after the deceased spouse’s date of death, but an automatic six-month extension of time to file the return can be requested by filing an “Application for Extension of Time to File a Return and/or Pay U.S. Estate (and Generation-Skipping Transfer) Taxes,” or Form 4768 for short, on or before the due date of the estate tax return.

Which Estates Are Subject to the Final Estate Tax Portability Rules?

The portability election first went into effect for the estates of decedents who died on or after January 1, 2011, and in response the IRS issued temporary regulations to guide taxpayers and their advisors through properly making the election.  The final regulations that were recently released replace the temporary regulations for the estates of decedents who die on or after June 12, 2015, while the temporary rules still apply to the estates of decedents who died on or after January 1, 2011, and before June 12, 2015.

What Do the Final Rules Provide?

The final rules clarify that a regulatory extension of time to make the portability election will only be granted to estates that have a gross value below the estate tax exemption in effect in the year of death.  In other words, in 2015 the gross estate must be valued less than $5.43 million in order for a request for a regulatory extension to be made. 

The final rules also make it clear that the administrator of the estate of a decedent who was not a U.S. citizen at the time of death may not make a portability election on behalf of the non-citizen decedent.

Unfortunately the IRS ended up rejecting a recommendation made by the American Institute of CPAs for the creation of a shorter version of Form 706 that would be used solely for the purpose of making the portability election.  The IRS cited problems it has had with other types of abbreviated forms and the difficulties and costs associated with maintaining alternate forms as the reasons for rejecting this recommendation.

How Do the Final Rules Affect Existing Estate Plans?

Married couples that already have an estate plan should consult with their estate planning attorney to determine if any changes need to be made to their plan in view of these final rules.  Things to consider include the potential for an estate to be subject to state estate taxes, whether the portability election is a viable option in view of second or later marriages, the projected value of the couple’s estate over their life expectancies, and the loss of the step up in basis when traditional AB Trust planning is used.

How Do the Final Rules Affect Recent Widows and Widowers?

Surviving spouses of decedents who died within the past eight months should immediately consult with an estate planning attorney to determine if the portability election can and should be made with regard to their deceased spouse’s estate.  Failure to timely make the election or seek an extension may end up shortchanging heirs and putting the estate administrator at risk of being sued

If you want to ensure that your family is cared for, please click here to schedule your complimentary Estate Planning Strategy Call with San Francisco’s premier estate planning attorney, Matthew J. Tuller.

Financial Advisory Firms Aim To Stop Financial Elder Abuse

With cases of financial exploitation of the elderly on the rise, advisors who work with older clients are looking for ways to head off the abuse before it happens.  Enter the “Emergency Contact Authorization Form,” a document in which clients can list a trusted person who should be contacted if an advisor suspects a client is starting to lose their mental capacity or, worse yet, being financially abused or scammed.

How Does an Emergency Contact Authorization Form Work?

The Emergency Contact Authorization Form is a document which allows you to identify someone your financial advisor can contact if your advisor becomes concerned about your ability to continue to manage your finances or believes you are being taken advantage of financially by a relative, friend, caregiver, or even a complete stranger.

The Emergency Contact Authorization Form does not take the place of your “Durable Power of Attorney,” which is a legal document in which you give a person you trust the authority to make financial decisions and carry out financial transactions on your behalf.  Instead, the form allows you to designate an individual your advisor can contact to discuss concerns they have about your slipping mental capacity, unusual activity in your accounts, requests for transfers of large sums of money to an unknown person or a foreign bank account, and the like.  This designated individual could be the same person as the agent named in your Durable Power of Attorney or some other trusted person in your life. The idea is that once your advisor makes your emergency contact aware of the issues, your contact can reach out to you to determine if the advisor’s concerns are legitimate.

What Should You Do?

Since your financial advisor is in a unique position to know your financial history (for instance, you take a trip to Europe every June, you have been helping your grandkids with their college tuition, you like to make your charitable donations in October to avoid the year-end rush), your advisor is also in a unique position to spot unusual activity and requests.  Thus, when your advisor asks you fill out an “Emergency Contact Authorization Form,” carefully consider who you should name, discuss your choice with your advisor, complete the form, let the person you’ve chosen know that they have been designated, and give that person your advisor’s contact information.

Nonetheless, keep in mind that while an Emergency Contact Authorization Form is a good start, it will only work at the institution where it is on record.  To insure that all of your financial accounts will continue to be managed and your bills will get paid if you become mentally incapacitated, you will need to sign a Durable Power of Attorney. 

Please contact our office if you have any questions about Emergency Contact Authorization Forms, Durable Powers of Attorney, or if you suspect a family member or friend is being financially exploited or abused.

If you want to ensure that your family is cared for, please click here to schedule your complimentary Estate Planning Strategy Call with San Francisco’s premier estate planning attorney, Matthew J. Tuller.