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The Affordable Care Act and Your Estate

Estate Planning

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The Supreme Court’s recent decision to uphold the Affordable Car Act effects more than just your health care and your health insurance. It could also have important implications for your estate plan that you should talk to an estate planning attorney about.

The Affordable Care Act implements a new 3.8% surtax on investment income, including investment income of estates and Trusts that is not distributed to heirs and beneficiaries. It only applies to net investment income over approximately $12,000. Of course, any investment income that is distributed to heirs and beneficiaries will be applied to calculate their potential liability for the new tax. This new investment income surtax goes into effect January 1, 2013.

The estate tax is also scheduled to change at the same time. Both of these tax issues could effect your current estate plan, so you need to review your estate plan with your attorney before the end of this year and make any necessary changes to your plan. You cannot afford to wait until the tax changes go into effect. Prepare for the new laws now, so that you and your estate do not face an unexpected tax next year.

Davidov Law Group is a member of the American Academy of Estate Planning Attorneys.

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When you pass away, it’s often necessary for someone else to be able to access your email account. Many business deals today are done almost solely by email and to properly wrap up your affairs, someone will need to check your email to make sure that there is nothing that needs to be acted upon.

Accessing someone else’s email is difficult without a password, however. The person attempting to access your email will need to get the information from your email provider. The provider will not release that information to just anyone. For example, Gmail requires a death certificate, a power of attorney and other types of personal documents to prove identity. Yahoo will only release the information with a specific court order granting access to the email account. Other companies have different requirements.

The best solution is to leave your password somewhere that your heirs can find it. That does not mean a desk drawer where they can find it now. Leave the password in a safety deposit box or other secure location that only you can access. If you do not have that type of secure location, ask your attorney to keep the password secure and to release it upon your death.

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It’s hard to think of almost anything good that has come out of the scandal at Penn State. When children are abused, it’s never good. Now that Jerry Sandusky has been convicted by a jury of his peers, however, it’s time to ask what we can learn from the scandal. There are certainly a lot of lessons that should be learned by university administrators and athletic departments, but this is an estate planning blog. As it turns out, there is an estate lesson in the scandal too.

If you know anything about the scandal, you have heard the allegations that head football coach knew about Sandusky’s abuse of children and helped to cover it up. Of course, that may not be the case and we might never know what happened as Paterno passed away shortly after the scandal broke. He did not tell his side of the story. However, his family might not have gotten the lesson about keeping things from public consumption as they requested that Paterno’s Will be sealed by the Court. After a media outcry, the family backtracked in a couple of days and released the Will to the public.

As it turns out, there was nothing controversial in the Will and it was originally sealed for privacy reasons. However, the lesson to be learned is that when you hide things from a public that wants to know, you create more speculation than the situation often calls for.

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Our legal codes often do a particularly poor job of keeping up with how people actually live. Our legal system developed out of the traditions of Medieval England and were refined in the 19th and early 20th centuries. Throughout those times periods, a man and a woman got married and typically stayed married until they passed away. Our estate laws assume that’s what everyone does. However, today, many men and women move in together without ever getting married. This can create problems if one of them passes away.

In a typical New York scenario, one person might own a nice walk-up brownstone. When the couple decides to move in together, the other person moves into the brownstone but is never put on any titles or deeds. What happens if the owner passes away without an estate plan? The law does not have provisions that give ownership to the other person, even if he or she has contributed towards household expenses and the mortgage. Instead, the walk-up will go to the deceased owner’s relatives. Things get even more complicated if the unmarried couple jointly own property.

It’s now socially acceptable to live together out of wedlock, but that does not mean that the law has kept up with the times. It hasn’t. Talk to an estate planning attorney if you are not married to your live-in boyfriend or girlfriend

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People who create their own estate plans often make the mistake of thinking that they only need to use one legal instrument and that it will take care of everything. This is usually a Revocable Living Trust. While a Living Trust is a great estate planning tool, it is probably not the only thing you need. Estate planning is more like putting a puzzle together to find the right fit between various legal instruments to effectuate your goals.

A Revocable Living Trust is only effective for the property that you transfer to the Trust. If you forget to transfer something or are unable to transfer something for some reason, than the Trust has no legal authority over that property. If you pass away before you can transfer everything into the Trust, the Trust will also not be effective. The normal solution for this problem is to execute a Pour Over Will. This is a very simple Will that directs that any property in your estate should be transfered to the Trust. That allows the property you didn’t transfer to be distributed according to the terms of the Trust.

There might be other estate planning instruments that you want to use with your Revocable Living Trust. Each person’s estate planning puzzle is different. An attorney can help you solve your puzzle.

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After you set up a Revocable Living Trust, one of the first things that you do is to transfer your other assets into the Trust. Most people will try to make sure that everything they have when they pass away will transfer through the Trust to the beneficiaries. However, it is not always a good idea to do that. It depends what you are trying to transfer through the Trust.

For example, if you have an IRA, you can name the Trust as a the beneficiary. By doing that, the money in the IRA will be handled according to the terms of the Trust. However, if you name a person as your IRA beneficiary, then that person can keep the IRA open and continue to take advantage of the tax benefits. A Trust cannot do that as an IRA requires the owner to be a person with a life expectancy in order to take advantage of the tax benefits.

Most assets should be transferred into a Revocable Living Trust. Exercise caution, however, and make sure that you are not losing other important benefits with some instruments. Ask you estate planning attorney if you have questions about your Revocable Living Trust and transferring your assets into it.

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There has been a lot of talk recently in the media about the Facebook IPO and how company insiders are avoiding paying taxes on their earnings from it. The tools that they are using are called. Grantor Retained Annuity Trusts (GRATs). They can be an excellent way for wealthy people to transfer assets.

A GRAT has a set term of at least two years, and the granter loses control of the assets for the length of the term. The granter receives an annual payment from the Trust plus a return on investment income at an interest rate fixed by the IRS. When the term of the Trust expires, the Trust assets pass to the Trust beneficiaries. You can name another Trust as the beneficiary or a person. GRATs even allow you to name future children or grandchildren as beneficiaries.

GRATs are not for everyone, as the granter loses control of the Trust assets until the term of the Trust expires. However, for some people, they are a great solution to lower the tax burdens associated with wealth transfer. For example, it is estimated that the Facebook insiders will save approximately $200 million in taxes. If you are ever in a position to receive wealth from a stock offering, talk to an attorney about setting up a GRAT.

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People are often similar and predictable. It is no different when it comes to their estate plans. Most people want the same thing. Almost universally, when a husband and wife in a first marriage devise an estate plan they want the same thing: when the first spouse passes away, everything goes to the surviving spouse. When the second spouse passes away, everything goes to the children. Executing this plan with joint Wills is not always the best option.

Most people do not want to think about it, but there is always a possibility that a surviving spouse will get remarried. It happens all the time. The new spouse is entitled to a share of the surviving spouse’s estate by law. This may or may not leave enough of the property available for the original couple’s children to receive the originally contemplated inheritance.

The initial goal of most couples is laudable. It is an excellent idea to leave your assets to your surviving spouse with the plan that everything will eventually pass on to your children. It is not the idea that is wrong. It is often the execution. Circumstances change and what we expect to happen often doesn’t. Talk to an estate planning attorney about ways that you and your spouse can accomplish the same goals in ways that take changing circumstances into consideration.

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College is extremely expensive and the cost keeps rising. Parents and grandparents routinely struggle with how they will pay for their children or grandchildren’s college education. If you plan ahead, you can make paying for the college education a part of your larger estate plan. You have many different options.

The traditional way to pay for a college education is by setting up a Trust. This allows you to set up the account long before it will be needed and let the Trust assets earn interest. However, there are other ways to pay for college if you have not planned far in advance. Parents and grandparents can directly pay tuition to the education institution. Money paid directly to an accredited school is not subject to the gift tax. You can then give living expenses to the student directly up to the gift tax limit. Another option is to set up a 529 college savings plan. However, like a Trust, that should be done long before it is needed.

Paying for college is important and most people want to see their children and grandchildren go to college without having to worry about how it will be paid for. Talk to an estate planning attorney about making your loved ones’ college expenses part of your estate plan.