Tuesday, November 26, 2013

Thanksgiving Conversation, Estate Planning Attorney Style

It is upon us, the week of Thanksgiving.  Hands down this is my favorite holiday.  The change of season is still new (at least here in Madison, Wisconsin).  The verdant colors of summer long gone.  Only a few burst of gold can be seen on a tree here and there.  And a blanket of white snow covers the ground.  Soon we'll gather in kitchens, sit around tables adorned with a feast, and chat by the fire.  Yes, it is my favorite holiday.   And given how I spend my work days, I see it as the perfect time of year to cover some basics in estate planning with the friends and loved ones you'll spend the holiday with.

Okay, so these are not my suggestions for conversations over the actual turkey meal (or tofu if that is your preference), but sometime over the long weekend you might want to:
  1. Tell loved ones that you have completed a will, power of attorney, and or beneficiary forms.  They do not need to know the specifics, but they do need to know where originals are stored;
  2. If copies of powers of attorney are valid in your state, make sure the people you have named are given a copy; and
  3. If your visit is spent with the people you have named to make your medical decisions, keep them up-to-date on your wishes and desires.  Has anything about your health condition changed in the past year?  Should s/he know about the change.
Looking beyond your own documents, assess your older loved ones.  Is there health failing?  Are there signs of dementia?  Are you comfortable asking if they have done documents themselves?  And if so, where they can be found.  Not every relationship can be this open and honest, but ask yourself -- what would happen if you received a call about a loved one who has fallen into a coma.  Will you be expected to act?  Will you know his/her wishes?  Does the person even have documents created?  If not, who in the family and or friend group would step forward.  Know that you cannot make a person do anything in the area of estate planning.  But, I have found that the smallest amount of thought beforehand can save enormous time and energy when "life happens".  So give it some thought, not too much, and then go back to enjoying one another's company and the loveliness that is Thanksgiving!

The hearth at our home, waiting for the fire Thanksgiving Day!

Wednesday, November 13, 2013

The Art Work of Grandma AnnaLee

Grandma AnnaLee is in her late 70s, living in a Midwestern town.  Like many people, over the years she has acquired some art work.  Paintings to be specific.  Some she purchased, others were inherited from an uncle who was an artist.

Unlike many people, Grandma AnnaLee is comfortable with the fact that one day she will be gone, but her art work will remain.  Wanting to take control of the situation now, when she still has a say, she contacted the big art museum in town.  One she enjoys visiting and thought would be a good home for her paintings when her time comes.  To her surprise the museum said "thank you for thinking of us, but do know that if you leave them to us they will essentially be put in storage...in our basement, we have more than we can display." By now you know that Grandma AnnaLee is a savvy woman, and she took this cue from the museum and tried another approach.  After some thought and research she located a smaller, more regional (county run) museum that did have space to display the paintings.  It is here that her art work will move when her earthly days come to an end.  

The wisdom of Grandma AnnaLee translates to all art collectors.  Whether it is paintings, cookie jar collections, or wood carvings -- before you bequeath your collection, ask if it can be accommodated. Thinking outside the box may mean talking to:

  • smaller, more regional art museums;
  • considering historical societies; or
  • locating a nonprofit willing to auction the item(s) as part of a charity fundraiser.
M. Gustafson Gervasi, 2013 -- Space Shuttle on display at Air and Space Museum, Dulles.  Remember -- museums have limited space, will your collection actual make it to the display area?

Thank you for reading, and do note that a blog is not legal advice but rather a forum for discussion and education.  Please do not rely on this post for legal advice, but rather contact an attorney in your state for advice specific to your situation.

Monday, November 4, 2013

Gift Taxes: Annual Exclusion versus Lifetime Exclusion

Reviewing headlines posted in an email summary of important news in the world of estate planning, one caught my eye.  Gift tax limits to increase in 2014 per an IRS announcement.

What -- I thought the amount was going to remain the same in 2014, what's going on?  This is what immediately popped into my mind.

As I dug into the article clarity hit.

Oh, the lifetime gift tax exemption is increasing in 2014, not the annual gift tax exemption.  Got it! And then I realized, this is the type of news that makes sense to me, but not many of Americas middle class. Annual exclusion, lifetime exclusion, what....?  I have given enough seminars to know this is the type of distinction that makes people roll their eyes and throw their hands up on frustration.

Here is my breakdown:

  • The annual gift exemption is the amount any one person can give another person in one calendar year and not worry about telling the IRS.  In 2013 that amount is $14,000, and it will remain the same in 2014;

  • The lifetime gift tax exemption is the amount any one person can leave over a lifetime of gifting and avoid a tax if the credit allotted by the IRS is used.  In 2014 it will increase to $5.34 million, and the amount in excess would be taxed at  rate of 40%;

  • A gift occurs when one person gives another property and receives little or nothing in return.  See the IRS web site for more detail on what is a gift.  All too often I hear the comment, we sold the cabin for $1.  I immediately this, oh the IRS is not going to agree that it was a sale, it was a gift!
Keep in mind there are always exceptions, this is the tax code we are talking about.  Married couples, gifts paid directly to colleges or medical facilities, and of course donations to charity all offer avenues to pass more assets than the limit.  

The vast majority of my clients do not need to focus on the lifetime exclusion as they will not have millions to pass on. However, those annual limits pop up more often than they would guess.  Adding an adult child to your bank account so that he or she can write checks if you are ill -- the IRS may view that as a gift.  Including your child's name on the deed to vacation property?  Another chance for the IRS to call it a gift -- meaning a tax was owed if the annual exclusion was triggered.

Remember - a blog is not legal advice, but rather a forum to prompt thought and discussion.  Please see a lawyer in your state for advice specific to your situation.  Thanks for reading!