"Permanent" estate tax, right? Um, maybe not

The American Taxpayer Relief Act provided just that - relief - to estate planners and clients when it was passed by Congress in January 2013. The so-called federal "fiscal cliff" legislation was hailed as putting to rest the uncertainty that has surrounded federal estate and gift taxes since the Bush tax cuts took effect over a decade ago. 

The Act set the unified federal estate tax and gift tax at $5 million per person, with annual adjustments for inflation (the current rate is $5.25 million). The law allowed married couples to double that exemption, and allowed survivors to use the deceased spouse's exemption, too ("portability").

We too breathed a sigh of relief when we reported the news back in January. But we also added this proviso:"Bear in mind that no legislation is indelible or unchangeable." That caution was underscored in April, with the release of President Obama's proposed budget for 2014. Under that proposal, the estate tax would revert in large part to its 2009 levels, as follows:

• The federal estate tax exemption would decrease from its current level of $5.25 million indexed to inflation, to $3.5 million, not indexed to inflation. Obviously this would scoop up many currently nontaxable estates. 

• The top estate tax rate would increase from 40% to 45%.  

• The generation-skipping transfer tax exemption would revert to $1 million. 

• The gift tax exemption would return to $1 million and there will no longer be a unified estate and gift tax exemption.

Like we said, when it comes to legislation, nothing is permanent -- except the possibility of change.  We will continue to keep you posted on any new developments.

Happy Mother's Day to all!

In this photo, circa 1940s, that's my beloved late mother Beatrice Karp at right. At left is her younger sister, my dear Aunt Pearl, who has always been like a mother to my brothers and me. Pearl is a dynamo still and I feel lucky to have her in my life.

This Mother's Day, I suggest giving your mother- or any woman you love like a mother - a valuable gift that is often overlooked. No, not flowers, dinner or candy - those are nice, but you can figure that out on your own. The gift I'm recommending is helping your mother get her files and paperwork in order. Locating and organizing years of records is a formidable challenge for anyone. If your mom is elderly, even more so.

Getting organized is important because it is an essential step in developing a good legal plan to deal with whatever the future holds. That plan should include making sure someone can make her medical decisions and financial affairs if she cannot with a Health Care Power of Attorney and Durable Power of Attorney, respectively; making plans to deal with the expense of long-term nursing care should she ever need it; and making sure the people of her choice get whatever she leaves behind in her estate. 

All this preparation means that your mother will be able to stop worrying about the "what ifs." And really, can you think of any better gift than a peaceful mind?

If Mother agrees, here's a partial list of items that you can help her locate and organize:

1. Investment, bank accounts for checking, CD's, brokerage statements.
2. Social Security information.
3. Insurance policies: life insurance, auto insurance, homeowners insurance.
4. Medicare information and statements.
5. Tax documents.
6. List of credit cards.
7. Utility bills.
8. Important documents like birth certificates, naturalization papers, death certificates, etc.
9. Deeds for property, registration papers for cars.
10. Estate planning documents: wills, trusts, power of attorney, health care power of attorney.
11. Mortgage and loan papers.
12. Retirement accounts, pension, etc.
13. List of all her health care providers.

Helping Mom with this process can be a wonderful and lasting gift to her - and to you, ultimately - provided you approach it with the utmost sensitivity. Happy Mother's Day.

What happens to the money of a Florida resident who dies without a will?

Dying intestate - without a will - rarely creates headlines. Generally it creates only confusion and  unnecessary expense for those left behind.

Unless you're Roman Blum. The Staten Island, New York resident's death is making headlines because he left behind $40 million - and absolutely no clue as to how he wanted it distributed.

A Holocaust survivor and real estate developer, Blum was not married at the time of his death, nor did he have children. The public administrator in the Richmond Surrogate Court is searching for any living distant relatives. If none can be found, the money will pass to New York State. The case would be handled in the same fashion by Florida if Blum had been a Florida resident.

Speaking to The New York Times, Blum's accountant Mason Corn said, “I spoke to Roman many times before he passed away, and he knew what to do, how to name beneficiaries. Two weeks before he died, I had finally gotten him to sit down. He saw the end was coming. He was becoming mentally feeble. We agreed. I had to go away, and so he told me, ‘O.K., when you come back I will do it.’ But by then it was too late. We came this close, but we missed the boat.”

Many mysteries follow Blum to the grave. Did he have a will that can't be located? If so, it's as good as not having one. Did he not do one because he did not wish to face his own mortality? Or did his miraculous escape from the Nazis make him think his luck would never run out?

If a Florida resident dies without a will or other instrument directing the distribution of assets, the estate is distributed to the decedent's heirs according to Florida intestacy law.  If there are no blood relatives, as in the case of Roman Blum, the estate goes to the State of Florida. Few people would choose to leave what they've managed to accumulate to the government (one exception is my late client Maria Woods, who mindfully chose to do just that). Even if someone doesn't have relatives, there may be a particular charity that is meaningful to the person that could greatly benefit from the gift. 

Consult a Florida estate planning attorney to discuss who you want to get your heard-earned assets when you pass away.

Read more about Roman Blum here.
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Goodbye tour over, Glenn Campbell appears at Senate hearing

Country singer Glen Campbell was officially diagnosed with Alzheimer's Disease in 2011, joining more than five million Americans and their families who are battling the disease.

Although Campbell no longer has the capacity to tour, he did play an important gig this week, taking the stage on Capitol Hill. Campbell sat beside his daughter at a hearing of the Senate Special Committee on Aging. Ashley Campbell described how the disease had affected her father and their family, and encouraged the Senate to approve the Obama proposal for additional funding for research into the disease. Click here for a short clip of her testimony.

Campbell's daughter was the driving force behind her father's now-concluded "Goodbye Tour," which gave the musician and his fans a chance to connect following the diagnosis, while the disease had not yet progressed too far. As Ashley told the committee, "Dad thought it was important for people to know you can keep doing what you love — that life doesn't end right away when you get Alzheimer's."

Every Alzheimer's patient and family deserves their own "goodbye tour," while competency remains, to do the things that are important to them. During this time, the affected individual should make the appropriate legal and financial plans that will make the transition smoother for everyone. Someone should be empowered to make the patient's health care decisions with a health care power of attorney; someone should also be named to make financial decisions with a durable power of attorney.  The entire estate plan should be revisited, or created if there is not one. It's also advisable for the spouse, if there is one, to revisit her own legal plans. An experienced estate planning/elder law attorney will be able to advise you about all these matters.

We wish Campbell and his entire family well on their journey. 

Florida Medicaid personal services contracts under scrutiny

Personal services contracts are being scrutinized in the Florida Legislature. Under the proposed legislation, Florida House Bill 1323 and Florida Senate Bill 1748, these contracts may have to meet far more stringent guidelines, or could even be eliminated entirely as a transfer of assets for Medicaid eligibility purposes.

Currently, a personal services contract provides compensation to a caregiver in return for his/her providing various personal services to a disabled relative. Most often, it is a contract between an adult child and disabled parent. The caregiver need not be licensed or trained as a health care provider; he just must perform services that are required as a result of the parent's physical or cognitive incapacity. The parent could be at home, or in a nursing home. Caregiver services may include but are not limited to: handling personal finances; serving as a liaison among the nursing staff, doctors and patient if the parent is residing in a nursing home; providing the patient with transportation to and from doctor's visits; or taking care of the person's day-to-day needs at home.

Currently, the law permits the parent (or the parent's agent) to give the caregiver a lump sum of money in advance, based on the parent's life expectancy. The contract must be properly and carefully drafted, very specific, and Florida Medicaid's legal department must approve it if and when the individual applies for Medicaid long-term care benefits.

Obviously, compensation is essential for a caregiver who might otherwise not be able to take time off work, or even quit work, to care for an aging parent. The compensation is for services rendered or to be rendered, and the recipient must declare it as income on his/her tax returns. Clearly, being able to be compensated can make the difference between an aging parent residing at home or having to live in an institution.

The sponsoring legislators, Republican Senator Greg Evers and Republican Representative Janet Nunez, contend that the rules for personal services contracts are too lax and too generous. They argue that the contracts permit the transfer of money to adult children so that parent can deplete assets and therefore receive Medicaid benefits for long-term care. Among the proposed provisions of the new laws is: requiring the amount and scheduling of services to be spelled out in advance, rather than on an as-needed basis; limiting payments to caregivers to minimum wage; eliminating services that duplicate those of other providers; and requiring a definite commitment to a number of hours on a monthly basis, not on an as-needed basis, as the current law allows. Then there is also the possibility that personal services contracts may be eliminated entirely.

To my mind, this is throwing the baby out with the bathwater. Some of the proposed changes are simply unrealistic. For example, what caregiver can accurately predict when an aging parent is going to have a health crisis, or how many hours of hospital waiting rooms and doctors' visits it will entail? Moreover, personal service contracts seem a natural component of Florida's plan to move more nursing home residents back to the community, or more importantly, prevent them from having to go into a nursing home to begin with. Allowing family members who are willing to care for the elderly to be compensated furthers the state's goal. Without personal services contracts, or with contracts that are too restrictive, more elderly people will end up needlessly institutionalized.

I will keep you posted on the status of these bills as they make their way through the legislature. You can read the Florida Senate bill here and the House version here.  Read more about Medicaid benefits for long-term care.

Your child with autism: Legal planning to secure his future

April is National Autism Awareness month.  A 2011-2012 survey by the Centers for Disease Control estimates that 1 in 50 schoolchildren falls somewhere on the spectrum. If your child is affected with autism and is unlikely to be able to manage his own finances and affairs when he reaches adulthood, you should seek the advice of an experienced elder law attorney. Your elder law attorney - ignore the word "elder" for a moment - will help you set up the financial and legal framework that will secure your child's future and give you, his siblings and the rest of the family peace of mind.

The core of that legal framework is a Special Needs Trust. Here's how it works: You place property (cash, stocks, bonds, real estate, etc.) in the trust. A trustee you select will manage the trust for the benefit of the child. The child can have no ownership interest in the assets. The trust can be funded during your lifetime, or at your death. Because the money is held in the trust, not directly in your child's name, the funds will not be used by the government when it asses your child's eligibility for benefits, such as Medicaid or SSI. The trust provisions must state that the money is to be spent only for supplemental services and items, NOT on services and items provided by government benefits. For example, trust funds could be used to provide your child with a personal attendant, specialized home furnishings or equipment, supplemental therapies, transportation, etc.

Grandparents and other family members may also contribute to the trust, and you should make it clear to well-meaning relatives that contributing to the trust is the ONLY way to assist financially, since giving money directly to the child could jeopardize his government benefits.

Some parents create the special needs trust prior to their own demise, and prior to their child attaining the age of majority, naming themselves as trustees and selecting one or more of the child's siblings to serve as successor trustee(s) of the trust. Setting up the trust in advance thus gives grandparents and other family members a place to park funds for the child's benefit now or upon their own death. Frequently grandparents would like to have the ability to leave funds to a special needs grandchild, but if there is no special needs trust in place, they will simply "cut out" that grandchild.

If the trust is properly drafted and administered, the state and the federal government will have no claim to the assets and upon the death of the beneficiary, and the remaining trust assets can then be distributed to persons or entities of your choice, be it surviving siblings, a charity, etc.

The above is a third-party trust, and is the most frequently used legal tool to protect a child with special needs, but there is  another possibility: a pooled trust. A pooled trust is set up and run by various nonprofit organizations. As the name suggests, monies from various families are put into one general fund administered by the organization. Pooled trusts are always operated by a nonprofit entity. The advantages of a pooled trust may include:

• Reduced administrative fees.
• A better rate of return.
• Access to professional financial management.
• Access to professional legal management familiar with the rules governing disbursement of funds, thus ensuring your loved one's access to public benefits is not jeopardized.
• If there are limited funds, creating an individual Special Needs Trust can be economically impractical, given the costs of setting it up and maintaining it. A pooled trust can be a cost-effective way to set aside funds for a special needs individual.

However, a pooled trust also has a big disadvantage: When the beneficiary passes away, any funds remaining in the pooled trust will not be returned to the family, but instead will be used to reimburse the government for what it has expended on the beneficiary. 

For more information on the Karp Law Firm's Special Needs Trust, click here.

Federally insured reverse mortgage rules are getting a makeover.

If you are considering applying for a reverse mortgage, take note: The Federal Housing Authority has made changes to its Home Equity Conversion Mortgage program (HECM) effective April 1, 2013. 

Private lenders offer reverse mortgages, but almost all reverse mortgages are federally insured by HECM. Seniors must be age 62 or older and own their own homes to qualify for a reverse mortgage. The cash can help seniors with living expenses, payment of an existing mortgage or other debts, etc. Some of my clients have used reverse mortgage money to pay the premiums on long-term care insurance.

Starting April 1, the fixed rate HECM Standard mortgage will be discontinued. The program is being suspended because of the increasing number of borrowers who are unable to keep up with the required property taxes and insurance payments, sending a record percentage of loans into default. According to a Feb 2013 report to the House Financial Services Committee, projected losses for the nation's reverse mortgage program stood at $2.8 billion as of 2012.

Starting April 1, seniors who want to tap their home's equity using a reverse mortgage and who desire the predictability of a fixed rate loan must apply for a HECM Fixed Rate Saver Mortgage. This more conservative program provides a smaller payout from the borrower's home equity, although the up-front costs are lower. The Upfront Mortgage Insurance Premium is .01% of the lesser of the appraised value or current $625,000 lending limit.  

Seniors will see see more changes in the near future as the Department of Housing and Urban Development continues stabilizing the HECM program. Among the anticipated modifications: providing administrators of estates with incentives to sell the property of a deceased borrower, rather than convey the property to the Federal Housing Authority which must then shoulder the expense of liquidating the property. Another slated change: more intensive counseling of prospective borrowers, to ensure that a reverse mortgage is truly suitable for their situation.

If you own your own home, are at least age 62 and want to explore how a reverse mortgage may benefit you,  contact us. We can refer you to a reputable financial professional as well as advise you about how a reverse mortgage can be coordinated with your Florida estate planning. Reverse mortgages can be useful tools, but their complexity requires a thorough analysis before you take the plunge.

Read more about the changes to the federal HECM program here.

Read the National Council on Aging's 2013 booklet on reverse mortgage basics.

Sassoon's final cut: late hairstylist cut son from will

In my Feb. 18 post I noted that Florida law does not require you to leave anything to an adult child in your will. From time to time I will meet with a client who wishes to disinherit a child. It is a decision generally accompanied by considerable anguish, often following an extended period of estrangement and discord. This is the decision that was apparently made by Vidal Sassoon, the avante-garde hairstylist and business mogul. Sassoon died of leukemia in California last May. The Daily Mail now reports that Sassoon's will cuts out David Sassoon, one of his three children. The will was written two months before Sassoon's May 2012 death. David Sassoon, 41, will get none of his father's reported $152 million fortune. Sassoon had noted in his memoir that David was a "mischievous" child, but the details of their relationship are not known.  Sassoon has two other children.

Will there be an estate challenge? On what basis? How will the disinheritance impact the relationship of David and his two siblings? I suspect we have not heard the last of this story.

If you are considering disinheriting an adult child or leaving him/her a significantly lesser amount than the child likely feels entitled to, I urge you to  consult an experienced estate planning attorney and think, re-think and think again. If you decide to disinherit, your attorney will advise you on the best way to proceed. Just as there are smarter methods to pass assets to your heirs, so there are smarter ways to cut out an heir. For example, contrary to popular belief, it is not advisable to leave $1 to the child you wish to disinherit; that can open the door wider to a possible estate challenge and delay the administration and closure of your estate.

Many people mistakenly think that adding an in terrorem clause to their will or trust will defuse potential estate challenges if a child is disgruntled with the size of his inheritance or cut out entirely. The in terrorem clause states that the person challenging the estate loses the right to receive anything that he would have otherwise received under the instrument. However, Florida does not recognize the validity of the in terrorem clause.

If you need help with these matters, contact The Karp Law Firm lawyers for assistance.  

Women and long-term care insurance

Ladies, this is a good time to get serious about buying long-term care insurance. You'll soon have to pay more than your male counterparts.

Long-term care insurance pays for assistance with activities of daily living, such as bathing and dressing. Now Genworth Financial, one of the biggest players in the long-term care insurance industry, is raising premiums for women. The rate increases will begin rolling out in various states this spring, and could go as high as 40%. Experts predict other companies will follow suit.

Why? Economics. Women live longer, so they cost the insurance companies more. Genworth says two thirds of every dollar it pays out goes to women. Consider these statistics from The New York Times  (Feb. 6, 2013):

• On average, women outlive men by 5 years. Among those born in 1960, the average man will live to age 67 and the average woman to age 73. And women who reach age 65 can expect to live an average of 20 more years.  
• By age 75, 7 in 10 women are widowed, divorced or have never been married. Some 40 percent of them live alone, compared to 22 percent of men. Two-thirds of those past the age of 85 are women, as are 80% of centenarians.  
• Women who live to age 65 experience on average two years of disability requiring assistance before death. Those who reach age 80 will require three years of assistance.
• In nursing homes, the most expensive form of long-term care, 7 in 10 residents are women. They represent 76 percent of the residents in assisted living facilities and two-thirds of the recipients of home care.

The average premium in 2011 for a 55-year-old who qualified for preferred health discounts and bought between $165,000 and $200,000 of coverage was $1,720 (Source: American Association for Long-Term Care Insurance).  A 40% percent increase adds $688 in premium - and that's on top of the big price hikes we've already seen in the past years.

Genworth's new gender-based rates will apply only to women who buy new policies, not to women with existing policies or those who apply with their husbands. Companies generally provide discounts to couples who apply jointly for a policy.  

What should you do now? I advise that you look into purchasing long-term care insurance BEFORE the new rates roll out. In addition to the traditional long-term care policy, you may also want to look into alternatives like annuities and life insurance policies with long-term care riders, which allow you to pass to your beneficiaries any monies left over when you pass on. You may even be able to convert your current annuity or life insurance policy tax-free, and without any additional out-of-pocket expenses. You may contact our office if you need a referral to a financial professional who is familiar with these new products.

Even your deceased loved one's identity can be stolen: here's how to prevent it from happening

Identity theft is not just for the living. In fact, it is often easier for thieves to get their hands on information about a deceased person than a living one. Once they do, thieves can use the information to fraudulently get loans and credit. According to a March 2013 article in AARP, thieves tap information such as obituaries, the Social Security Death Index, and Florida probate records. (In Florida, a will becomes public record once it is filed; protecting family privacy is one reason some Florida residents prefer to use a living trust, rather than a will, as their primary estate planning vehicle.)

Sadly, identity theft is not the purview of professional criminals only. An angry and dishonest relative can use "inside" information to steal the decedent's identity and commit fraud.

While it's unlikely that the family or the estate of a deceased person can be held liable for fraudulent debts, the family of a decedent whose identity has been stolen may start getting calls from collection agencies, and will have to devote time and effort to straighten things out. This is the last thing a grieving family needs.

It is important to realize that credit reporting agencies and other financial institutions are not automatically notified when someone dies. Thus, there is a window of time in which thieves can operate with near impunity. The sooner you notify the appropriate parties about your loved one's passing, the more protection you have.

Our Florida probate attorneys advise our clients about these issues. Here are additional valuable tips from the excellent Identity Theft Resource Center to prevent scammers from getting their hands on information about your deceased loved one:

Don't include too many details in the obituary.  
Of course you want to honor the life of your loved one. But do not include details like mother's maiden name or exact date of birth.


Once death certificates are available, notify the appropriate parties.
The personal representative or the trustee of the estate will have the authority to communicate and make requests of the appropriate parties. Entities to notify include:

Credit Bureaus:
Notify by certified mail the major credit bureaus of the death, and include the death certificate. Request that the file be flagged, credit not be issued, and ask to be notified of any requests for credit. The three major credit reporting bureaus are:


Equifax 
PO Box 105069
Atlanta, GA 30348
888-766-0008

Experian
PO Box 9530
Allen, TX 75013
888-397-3742

TransUnion
PO Box 6790
Fullerton, CA 92834
800-680-7289

The Identity Theft Resource Center has a model letter which you can use to send to the credit bureaus. 

Other institutions:
Also contact other financial institutions with which the deceased had a relationship, requesting that they make a notation that the account holder has passed away. Do this if the account was owned solely by the decedent or held jointly with someone else. Contact:

Pension issuer

Credit card companies

Stores

Insurance company

Bank

Brokerage house

Social Security Administrator

Credit unions

Veterans administration

Some experts also suggest that you contact the Division of Motor Vehicles to prevent the agency from issuing a duplicate license. 

Check out the Identity Theft Resource Center's exhaustive guidelines on decedent identity theft.