Monday, January 18, 2010

What is a specal needs trust in a will?

A third party special needs trust ("SNT"), generally included in a person's will, is a supplemental needs trust established by a person for the benefit of someone who is disabled. In a will, property that would otherwise have been distributed to the disabled beneficiary outright will instead be held in a SNT for his or her benefit. The SNT is designed so that the trust property will not be counted as an available resource when determining whether the disabled beneficiary is eligible for public benefits. As long they do not have the legal ability to revoke the trust or direct that the trust assets be distributed for their benefit, the assets in the SNT will not be counted as the disabled beneficiary's assets when determining his or her eligibility for Medicaid. A third party SNT has no payback provision to the State of Texas. Also, the trust can be written so that the property of the trust which remains upon the disabled beneficiary's death can be distributed to other family members or beneficiaries of your choosing. These are the major benefits of a third party SNT.

If you need a Texas estate planning lawyer, contact Peterson Law Group.

Sunday, January 17, 2010

What changes have been made in dealing with estates?

Under the now-repealed estate tax laws, property passing from a decedent used to receive a step-up in cost basis equal to the property's fair market value as of the decedent's date of death. That tax benefit has been eliminated for persons who die in 2010, and instead, the basis of property acquired from a decedent will be the lesser of the decedent's adjusted basis or the property's fair market value on the decedent's date of death. Under this rule, it is possible that the cost basis of property will be stepped down.

These new carryover basis rules will not only cause the imposition of capital gains taxes that previously were avoided following a person's death, but the beneficiaries who inherit your estate now need to know what your cost basis was in the properties they receive. In this regard, you should endeavor to organize your records so that the beneficiaries of your estate will be able to calculate your cost basis in the properties you own. For many people who inherit property in 2010, records will not exist or will be incomplete, thus making it difficult or impossible for them to determine a particular property's cost basis.

There are two important exceptions to the carryover basis rules. A decedent's Executor is allowed to allocate up to $1,300,000 to various assets owned by a decedent, thereby increasing the cost basis of those assets. Also, an additional $3,000,000 of basis increase can be allocated to properties passing to a spouse or to a special "qualified terminable interest property" trust for the spouse (often called a "QTIP" trust or a "marital" trust). Under the tax laws in 2010, just like the laws which existed prior to estate tax repeal, any person may give an unlimited amount of property to his or her spouse or to a QTIP trust (the "Marital Deduction") without generating any gift or estate taxes.

For estate planning help, contact Peterson Law Group.

Saturday, January 16, 2010

What changes have been made to the Federal generation skipping transfer tax?

Like the estate tax, the skipping transfer tax has been repealed the 2010 tax year. Under the old law, each person could give away during lifetime or at death up to $3,500,000 (the "GST exemption") without owing the generation skipping transfer tax. Any gifts to grandchildren or great-grandchildren (and to certain other persons two or more generations younger than the person making the gift) in excess of the GST exemption would have been subject to the GST tax which was equal to the highest marginal estate tax bracket (45% in 2009). Although the GST tax has been eliminated for 2010, it will be reinstated in 2011, and the available GST exemption will be reduced to its former level of only $1,000,000 (although this amount will be indexed for inflation) and with a 55% rate of tax.

If you need a Texas estate planning attorney, contact Peterson Law Group.

Friday, January 15, 2010

What changes have been made to the federal gift tax?

Contrary to what many think, the Federal gift tax has not been repealed. However, the gift tax rate has been lowered to 35%, down from the 45% rate in 2009. Under the current gift tax law, each person may give away (during his or her lifetime) as much as $1, million in cash or other property without paying any gift taxes. Any gifts which exceed this amount will be taxed at 35%. However, the gift tax will not apply to most of the gifts people make because each person can give $13,000 per year to any person without reducing the $1 million exemption. This $13,000 per year exclusion from the gift tax is known as the "Annual Exclusion." The Annual Exclusion, combined with other estate planning techniques, can help to reduce your estate for estate tax purposes and transfer wealth to your children and grandchildren.

If you need estate planning help, contact Peterson Law Group.

Wednesday, January 13, 2010

Do I need to file gift tax returns?

Gifting property to children can be a great way to reduce your estate tax burden, but when you make gifts that exceed a certain threshold amount, you will want to file a gift tax return.

It is important that you file gift tax returns (IRS Form 709) each year to report gifts you make which exceed the annual exclusion from the gift tax (currently $13,000 per donor per donee each year). Gift tax returns may also need to be filed for generation skipping transfer ("GST") tax purposes if you have a GST trust where distributions are made during the term of such trust or upon the termination of such trust to any of your grandchildren or great-grandchildren (or to other persons who are "skip persons" for GST purposes). Imposition of the GST tax can be avoided if you allocate (or are deemed to have allocated) a portion of each of your $3,500,000 GST exemptions as you make gifts in trust each year.

If you gift tax returns, they will be due at the same time as your Federal income tax return, normally April 15th of the year following the gift, unless extended.

If you need a Texas estate planning lawyer, contact Peterson Law Group.

Tuesday, January 12, 2010

What is an ILIT?

An Irrevocable Life Insurance Trust, or ILIT, is a way to avoid estate taxes by removing life insurance proceeds from your estate. By giving an existing life insurance policy to this Trust or by giving cash to the Trust which is ultimately used to purchase a life insurance policy, you should effectively remove the proceeds of the insurance from your estate according to the IRS.

If you transfer an existing life insurance policy to the Trust, you must outlive the transfer by three years in order for the proceeds to be excluded from your estate. Any new insurance which is purchased by the Trust is not subject to this three year rule.

Once the Trust owns a life insurance policy, the Trust becomes obligated to pay all premiums which come due on the policy. Since the Trust will need funds to pay for the insurance policy, you would make gifts to the Trust each year in the amount of the insurance premiums.

It is important to remember that gifts to the Trust will be irrevocable once made, and you cannot take back a gift once it is made. In addition, all income which accrues to the gifted property will benefit the Trust, not you.

For many, an irrevocable life insurance trust has numerous estate tax benefits and is a great method to transfer wealth to their children.

If you need an Irrevocable Life Insurance Trust lawyer, contact Peterson Law Group.

Monday, January 11, 2010

What is the status of the estate tax currently?

As of January 1, 2010, the Federal estate tax has been repealed -- but only for one year. As part of the 2001 tax act, Congress increased the amount persons could give away tax-free at death (the "Exemption Amount"),. This amount increased each year over a 10 year period. The Exemption Amount reached $3,500,000 in 2009 and ultimately became unlimited this year. In other words, the Exemption Amount in 2010 is equal to the value of your entire estate.

However, tax law changes were limited to a 10 year duration. Thus, in 2011, the estate tax will be reinstated with an Exemption Amount of only $1,000,000 and a rate of tax equal to 55%, the same exemption and tax rate as in 2000. Larger estates will also have an extra 5% tax that was repealed 2001, but be reinstated in 2011.

If you have questions about how the estate tax affects you specifically or if you need a Texas estate planning lawyer, contact Peterson Law Group.

How do I appoint a future guardian for my children?

In Texas, appointing a guardian for one's children is normally done in one of two ways:
  1. in a person's Will
  2. or in a separate Appointment of Guardian document.
While I typically include that information in a will, I prefer to also appoint guardians using a separate instrument. The reason that I prefer this approach is that a will does not become authoritative until the time of your death. On the other hand, the Appointment of Guardian is active upon death or incapacity/disability (if you are longer able to care for your child). Most people with minor children are more likely to become disabled or incapacitated than to die, so I think the second approach is the better one.

If you need a Texas Wills, Trust & Estate Planning lawyer, contact Peterson Law Group.

Sunday, January 10, 2010

What is a codicil?

A codicil is a legal document that amends your existing Will without revoking the Will in its entirety. Codicils can be used to an existing will provision, a new will provision, or delete an existing will provision. Usually, if the changes someone wants to make to their will are relatively minor (for example, changing executors), a codicil is a quick, inexpensive way to amend the Will without re-drafting the entire document.

If you need a Texas Wills, Trust & Estate Planning attorney, contact Peterson Law Group.

Saturday, January 09, 2010

What is a medical directive?

A Medical Directive (or Directive to Physicians) allows you to state whether you want or do not want life-sustaining treatment to be utilized to keep you alive if faced with a terminal or irreversible medical condition. It is much better for you to make your end of life decisions made in advance so that your loved ones, your doctors, and your medical power of attorney knows your desires. Typically, we include a medical directive in our standard will packages.

If you need a Texas Wills & Trust lawyer, contact Peterson Law Group.

Friday, January 08, 2010

What is a HIPAA release?

HIPAA (the Health Insurance Portability and Accountability Act of 1996) requires health care providers to be very careful how they release health care information. All health care providers are required to make reasonable efforts to limit the release of protected health information to the minimum necessary to accomplish the intended purpose of the particular disclosure or request for disclosure. A HIPAA release allows you to name one or more persons who will be able to have access to all of your information. This is especially important to have in your estate planning so that your medical power of attorney can have access to complete medical information in the event that they needed to make a medical decision on your behalf. We typically include such a release in our standard will packages.

If you need a Texas wills & trusts lawyer, contact Peterson Law Group.

Thursday, January 07, 2010

What is a pourover will?

When someone has created a revocable trust, we usually create a pourover will. This will protects the individual or couple in case there is property that does not get contributed to the revocable trust. For example, someone with a revocable trust may forget to title a new car in the name of the revocable trust. In that instance, the will, when probated, would serve to place the ownership of that car into the name of the revocable trust, i.e. "pours it over into the trust".

If you need a revocable trust, pourover will, or other estate planning advice, contact the Peterson Law Group.

Wednesday, January 06, 2010

Key Elder Law Numbers for 2010

ElderLaw Answers released a short summary of the key elder law numbers for different federal tax and benefit programs for 2010. The summary is much better than sifting through the various governmental portals for this information.

The highlights include:
  • Gift tax exclusion stays at $13,000
  • There was no cost of living adjustment to Social Security and SSI since the consumer price index did not increase
  • Medicare premiums, deductibles and copayments increased slightly
  • The amount you could deduct from your taxes for buying long term care insurance increased slightly
  • Medicaid's community spouse resource allowance, monthly mainteance and income cap remained the same as in 2009.
If you need a Texas Estate Planner, contact Peterson Law Group.