Monthly Archives: March 2013

Long-Term Care Planning

When you are ready to think about your financial future and what it means for your family, drawing up an estate plan is essential. It is a complicated process with plenty of room for mistakes and omissions, and hiring the help of a qualified estate planning attorney is important. As you begin to think about your estate plan, one major aspect is long-term care planning, which may be necessary for potential future illness or disability. The National Clearinghouse for Long Term Care Information defines long-term care (LTC) as “a range of services and supports you may need to meet your health or personal needs over a long period of time.” The Clearinghouse was developed by the U.S. Department of Health and Human Services to help Americans get a grip on what it means, and to help families get started—but again, no website or information bank is a substitute for an estate planning attorney.

DuPage County Estate Planning AttorneyAccording to the Clearinghouse, “almost 70 percent of people over 65 need LTC.” In 2008, that was 21 million people in America. Many people put off planning because “they do not want to think about a time when they might need it.” However, putting it off can leave you without the LTC services you need and leave your family in a difficult situation. When you begin to plan, according to the Clearinghouse, there are some major considerations to make. You cannot predict how much money you will need, or what type of care you will require, but you can make educated guesses based on personal factors, housing considerations, and assistive technology.

Personal factors, according to the Clearinghouse, include how old you are now and your family history. If you have a disability, LTC may need to begin earlier. “Between ages 40 and 50, on average, 8 percent of people have a disability that could require long-term care services.” Housing considerations include an evaluation of your home to determine if it will be appropriate later on—is it one story? Would you need to make modifications in the event of a disability? Assistive technology refers to devices that you may need that help you communicate or move. Is there a good chance you will need special software? A walker? These can cost money, and should be taken into consideration when beginning to plan for your LTC. You can work with your estate planning attorney to determine how you will pay for the care you will need, whether it is an in-home caregiver, or living in a care facility. It is important to discuss with your lawyer the available assets and resources you have for your long-term care needs.

Long-term care is just one aspect of estate planning. It is never too late—or too early—to begin planning. Contact a dedicated estate planning attorney today.

Image courtesy of FreeDigitalPhotos.net

New Tax Laws for Estate Planning

TaxesThe end of 2012 saw a flurry of gifting in order to avoid proposed estate taxes by the government that was set to begin in 2013.  This was part of the fiscal cliff tax increases which also affected income taxes, payroll taxes and others.  Now that the rules are more settled after the enactment of the American Taxpayer Relief Act, it is a good time to plan your estate.

Now, the amount excluded from estate taxes is $5.25 million per person and can be doubled for couples to $10.5 million.  This is a limit that is set to be adjusted by inflation by $130,000.  A good estate plan can even limit taxes for amounts above that exemption by setting up trusts suited for your needs.   This is a lot more than the $1 million limit that was going to be law if the US government did nothing to stop the fiscal cliff.

There are also new tax limits for gifting to individuals, estate tax, and generation skipping transfers. Currently the highest rate for this tax is 40% which is a kind of compromise from the rate in 2012 to the initially proposed rate in 2013.  It increased from 35% in 2012 but is still less than the 55% rate after the expiration of Bush’s tax cuts.

Since these changes are more certain it is an opportunity to move money around to benefit from investments and other appreciating assets.  An estate planning lawyer will be able to review your current situation to make sure that gifting and trusts provide the most benefits to you and your family.  Contact an experienced estate planning attorney in DuPage County today to begin this important process.

Prenuptial Agreements: The Beginning

Prenuptial Agreements IMAGEMany people avoid estate planning because they feel it is either not for them—perhaps only for the wealthy—or because it seems too morbid a task to undertake early in life. Yet estate planning is not just for the rich, and it is never too early to begin planning for the future. In fact, many experts think that estate planning should begin before marriage, before kids. The earliest form of estate planning can be considered to be obtaining a prenup before marriage. According to the AARP Magazine, “a prenuptial agreement… is a legal contract, between you and your spouse-to-be, setting forth what will happen to the money when you die or divorce.” Having one, even at the beginning of a healthy, young marriage, can save headache not only for you and your spouse but for your children as well when it comes to estate planning.

While for some, a prenuptial agreement feels as though it is plan enough, it’s only the very beginning of an estate plan, and sometimes people overlook important aspects of estate planning because they feel protected by agreements such as this. According to the New York Times, the top oversights that should be double-checked in estate planning—likely with the help of a qualified estate planning attorney—include, but are not limited to:

  • The designation of wrong beneficiaries.  People commonly forget to update documents years after they were originally filled out. Things like new spouses, new children, and new bank accounts must be current on all documents in order to avoid confusion.
  • Liquidity deficit. Estate taxes are due nine months after death. Your heirs will need enough liquid cash to pay them.
  • Deciding on an executor. Your spouse may be the love of your life, but that spouse may not be the best with money.

Prenuptial agreements are just the beginning to estate planning, a long process that is best undertaken with the assistance of a dedicated estate planning attorney. Contact our offices today.

Image courtesy of FreeDigitalPhotos.net

New IRS Surtax Pays for Healthcare Reform

With tax season upon us, it’s may be a good time to look at the 159 pages of new rules the IRS has come up with for  investment income taxes on capital gains and dividends earned by high-income individuals that passed Congress as part of the 2010 healthcare reform law. All of the new rules went into effect January 1, 2013.

It is important to understand these new laws when planning your finances. A qualified Illinois estate planning attorney can help you ensure that your finances will be handled according to your wishes even when you are gone. The following is a short summary of some of these new rules, however your attorney can help you to understand how the new regulations will affect you.

This is the first surtax to be applied to capital gains and dividends. The 3.8 percent tax is earmarked to pay for healthcare. Individuals who have a modified adjusted gross income (MAGI) of more than $200,000 and married couples who file jointly and have a MAGI of more than $250,000 are those who will be affected.

A taxpayer’s MAGI is found by taking the adjusted gross income and adding back certain items such as foreign income, foreign-housing deductions, student-loan deductions, IRA-contribution deductions and deductions for higher-education costs.

Many investment securities ranging from stocks and bonds to commodity securities and specialized derivatives are included in the tax. Also included in the new tax laws is a 0.9 percent healthcare tax on wages for high-income individuals.

A report about the new regulations appeared in Reuters. The publication offered an example of how the new tax works, citing an individual filer, with $180,000 in wage income plus $90,000 from investment income. The person’s MAGI is $270,000. According to the IRS calculations, the 3.8 percent tax applies to the $70,000, and the individual would pay $2,660 in surtaxes.

According to a Joint Committee on Taxation analysis, the new tax revenue to be raised is estimated at $317.7 billion over 10 years.

The new changes to capital gains and dividends can be confusing and costly if not handled correctly. Consult with a qualified Illinois estate planning attorney to make sure that your finances are protected, even after you’re not here to take care of them in person.

Tax Laws and Estate Planning

Estate planning continues to evolve as federal and state laws change over time. A recent Financial Planning article highlighted the significant impact of the fiscal cliff tax deal on the world of estate planning.

  One of the hallmarks of the tax deal was making the estate tax $5.12 million exemption permanent. Furthermore, the exemption is now adjusted with inflation, and is now portable between spouses. The practical effect of these changes is that the vast majority of individuals, except those with extreme amounts of wealth, will never fear the federal estate tax again.

For most Americans, tax cuts enacted in 2001 have now become permanent, which means that their tax rates will continue unchanged. For wealthier individuals, however, income taxes may be significantly higher. For instance, Congress has developed a new 20% tax rate on dividends and capital gains. A 3.8% Medicare tax will apply to investment income. Additionally, itemized deductions and personal exemptions will now phase out at incomes of $250,000 for single individuals and $300,000 for married couples who file a joint income tax return. It is estimated that in some cases, individuals could face a combined tax rate of more than 50%.

Fortunately, careful estate planning may be able to alleviate some of these higher taxes for wealthier Americans.  While this goal often may be achieved, it can be a complicated process that may require estate planning attorneys, clients, and investment advisors or trustees to coordinate their actions so as to avoid any costly moves.

Charitable giving is another way that individuals may be able to avoid some increased taxes. Although the itemized deduction for charitable giving does phase out at higher incomes, the deduction could still be used to offset at least some gains. Some of these benefits also may be realized through the use of charitable remainder trusts, to which the new Medicare tax does not apply.

These are only a few examples of ways in which some of the new taxation can be eliminated or at least minimized. Of course, individuals also need to mindful of state estate tax requirements, which may also significantly impact their estate planning techniques. Due to the complexity of these new laws, it is essential that you consult with an experienced Illinois estate planning attorney. Contact your Wheaton estate planning lawyer today for a comprehensive evaluation of your estate planning needs and goals, and the assistance that you need in making those goals a reality.