Estate Planning

The Wisconsin 2013-2014 Budget Bill May Have Severe Results for Medicaid Recipients

This is a very good article by Carol Wessels, who is an attorney who practices elder law in the Milwaukee area at the firm of Nelson, Irvings & Wessels, S.C.

http://wesselselderlaw.wordpress.com/2013/07/09/will-medicaid-recipients-ever-be-able-to-sell-their-homes-under-wisconsins-new-budget-law/

This article discusses the potential impact of the new real estate notice requirements for recipients of Medicaid. These new notice requirements were part of Wisconsin’s 2013-2014 Budget Bill that was signed into law on June 30, 2013.  This Budget Bill incorporates changes to the Medicaid program, including changes to the rules governing estate recovery, which expand the state’s ability to recover Medicaid costs from the estate of a deceased recipient of Medicaid.  The new real estate notice requirements are part of these changes to the estate recovery rules.  As pointed out in this article, these new rules could have severe effects on recipients of Medicaid and those recipients’ families.

If you or a close family member is a Medicaid recipient, you may want to consult an elder law attorney on what effects these new rules may have on you and what planning options may be available to avoid those effects.

The U.S. Supreme Court’s Decision in U.S. v. Windsor and Its Effect on Estate Planning

On June 26, 2013, the United States Supreme Court issued an opinion, U.S. v. Windsor, in which it struck down a major part of the Defense of Marriage Act (DOMA) as unconstitutional because it denies same sex couples equal protection under the law in violation of the Fifth Amendment.  In that case, Edith Windsor, who was married to her same sex partner in New York, where the couple also resided, and which recognizes full marriage rights for same sex couples, was denied the opportunity to claim the marital exemption from federal estate taxes upon her partner’s death based on the definition of marriage under Section 3 of DOMA.  This Section defines marriage for federal purposes as “only a legal union between one man and one woman.” 1 U.S.C. § 7.  The U.S. Supreme Court, however, in a 5-4 decision determined that Section 3 of DOMA unconstitutionally denied Edith Windsor from taking advantage of the estate tax marital exemption, which would have been available to opposite sex married couples.  This thus violated the Fifth Amendment’s directive for equal protection under the laws by singling out and demeaning a certain class of people – same sex couples.  The Court also indicated that this provision interferes with the states’ power to regulate marriage.  Therefore, the Court struck down this section of DOMA.  Windsor, No. 12-307 (U.S. 2013).  For further information on the Windsor decision, see the article, “Supreme Court strikes down Defense of Marriage Act in estate tax case” at http://www.journalofaccountancy.com/news/20138222.htm.  See also the article, “The Same Sex State Death Tax Trap Post DOMA” at  http://www.forbes.com/sites/ashleaebeling/2013/07/01/the-same-sex-state-death-tax-trap-post-doma/.

The effect of this ruling is that legally married same sex couples can now claim the same federal benefits and marital tax exemptions as opposite sex married couples can.  It remains unclear, however, whether federal benefits will be available to same sex couples who do not live in a state that recognizes same sex marriage.

What this means for estate planning is that the same estate planning tools and techniques utilized in opposite sex couples’ estate plans to minimize the federal estate tax owed may be used in same sex couples’ estate plans in states that allow same sex marriage.  In states that do not recognize same sex marriage, however, these estate planning techniques would not be effective and same sex couples in those states would not be able to avoid estate taxes in that way.

In Wisconsin, though domestic partnerships are recognized between same sex couples, same sex marriage is not.  It is therefore uncertain whether same sex couples would be able to take advantage of the federal estate tax marital exemption, since these couples cannot be legally “married” in Wisconsin.  We are hoping, however, that both the federal and state governments will provide guidance as to these issues and questions in the near future and will establish processes and procedures that will facilitate the implementation of these new policies.

What to Expect From the New Tax Bill

On January 1, 2013, Congress finally passed a tax bill that avoided the so-called “fiscal cliff” and included significant changes to the tax laws.  Some of the key provisions are summarized here.

The change that will probably have the greatest impact on most taxpayers is the expiration of the payroll tax reduction.  Congress did not renew the 2% payroll tax holiday, so the employee portion of the Social Security tax will return to 6.2%, thus decreasing slightly most employees’ paychecks.

Also of significant impact: the Bush income tax cuts were made permanent for all but the highest-income-earners.  For this purpose, the highest-income-earners are those who have taxable income over $400,000 for singles and $450,000 for married couples.  The income tax rate for them was raised from 35% to 39.6%.  The capital gains tax rate on these highest-income-earners was also increased to 20%.

This chart, from the Kiplinger Tax Letter, summarizes the income tax rates for 2013:

Marrieds: If taxable income is The tax is
Not more than $17,850 10% of taxable income
Over $17,850 but not more than $72,500 $1,785.00 + 15% of excess over $17,850
Over $72,500 but not more than $146,400 $9,982.50 + 25% of excess over $72,500
Over $146,400 but not more than $223,050 $28,457.50 + 28% of excess over $146,400
Over $223,050 but not more than $398,350 $49,919.50 + 33% of excess over $223,050
Over $398,350 but not more than $450,000 $107,768.50 + 35% of excess over $398,350
Over $450,000 $125,846.00 + 39.6% of excess over $450,000
Singles: If taxable income is The tax is
Not more than $8,925 10% of taxable income
Over $8,925 but not more than $36,250 $892.50 + 15% of excess over $8,925
Over $36,250 but not more than $87,850 $4,991.25 + 25% of excess over $36,250
Over $87,850 but not more than $183,250 $17,891.25 + 28% of excess over $87,850
Over $183,250 but not more than $398,350 $44,603.25 + 33% of excess over $183,250
Over $398,350 but not more than $400,000 $115,586.25 + 35% of excess over $398,350
Over $400,000 $116,163.75 + 39.6% of excess over $400,000
Household heads: If taxable income is The tax is
Not more than $12,750 10% of taxable income
Over $12,750 but not more than $48,600 $1,275.00 +15% of excess over $12,750
Over $48,600 but not more than $125,450 $6,652.50 + 25% of excess over $48,600
Over $125,450 but not more than $203,150 $25,865.00 + 28% of excess over $125,450
Over $203,150 but not more than $398,350 $47,621.00 + 33% of excess over $203,150
Over $398,350 but not more than $425,000 $112,037.00 + 35% of excess over $398,350
Over $425,000 $121,364.50 + 39.6% of excess over $425,000

The standard deduction and personal exemptions were raised slightly, but these, along with itemized deductions, are being phased out for high-income-earners.  For these purposes, high-income-earners are those whose Adjusted Gross Income (AGI) is over $250,000 for singles and $300,000 for married couples.

The alternative minimum tax (AMT) exemptions were also increased and will be permanently adjusted for inflation.

The Medicare surtax for high-income-earners (total earnings of over $200,000 for singles and $250,000 for married couples), which was included in the health care reform bill, will take effect in 2013, as will the Medicare surtax on net investment income for high-income-earners (modified AGI of over $200,000 for singles and $250,000 for marred couples), both at the rate of 3.8%.

The tax rates for Social Security will also be higher, due to the expiration of the 2% tax holiday and the 0.9% increase for high-income-earners, mentioned above.  The Social Security wage base, however, was raised to $113,700, and Social Security benefits go up by 1.7%.

With regard to the federal estate and gift tax, the $5 million exemption was made permanent and was increased for inflation to $5.25 million in 2013 and will continue to be indexed for inflation.  This continues to be the unified exemption amount for the estate and gift tax, and it continues to be portable between spouses.  Portability means that a married couple has $10.5 million in exemption between the two of them with the first spouse to die passing his or her unused share to the surviving spouse.  In order to use this portability, however, the surviving spouse must file an estate tax return indicating that election.  The tax rate on estates beyond the exemption amount was increased from 35% to 40%.

The annual gift tax exclusion was also increased to $14,000 per donee.  This means that in 2013 a person may gift $14,000 per donee without being required to report it or count it towards the $5.25 million lifetime exemption amount.

If you have questions regarding the new tax laws or about how these changes will affect your estate plan, please contact us, and we will be pleased to assist you..

Ten Reasons To Do Your Estate Planning NOW!

  1. To control the distribution of your assets and ensure your assets go to whom you want, when you want, how you want
  2. To decide and control who you want to raise your minor children and how any inheritance your children receive will be used and distributed
  3. To ensure children from prior marriages are included as recipients/beneficiaries of your estate
  4. To make succession planning work for the continuation of your small business
  5. To maintain the privacy of your estate
  6. To avoid the cost, expenses and inconveniences of probate
  7. To preserve your property through the generations
  8. To designate a charity that is important to you
  9. To protect spendthrifts from wasting away their inheritance.
  10. To attempt to preserve family dynamics

The result of estate planning – Peace of Mind!.

National Estate Planning Awareness Week

If you are amongst the estimated 120,000,000 Americans who do not have up-to-date estate plans, you probably do not know that this week, October 17–23, 2011, is National Estate Planning Awareness Week.  In 2008, the House of Representatives passed a bill making the third week in October a week to build awareness of the need for estate planning and to educate the public regarding estate planning resources and services.

This bill was passed in response to the general lack of awareness that many Americans have as to the importance of estate planning and the consequences of not having a plan in place.  Many Americans assume that only the wealthy need estate planning, but in a time when life expectancies are rising along with the cost of healthcare and retirement planning is falling increasingly on the shoulders of the individual, no one can afford to be without a plan for the future.

So if you are one of those Americans without an updated estate plan, this is a great time for you to take that step to safeguard your future security and that of your family and loved ones.  Careful estate planning can be an essential tool to ensure that you have adequate funds for retirement, that the assets you have built up over your lifetime are preserved for the benefit of your family and heirs, and that, should you in the future be unable to make healthcare or financial decisions, the person of your choice is designated to do so for you.

If you are interested in learning more about the estate planning options that would be most appropriate for your situation, you can visit the National Association of Estate Planners & Councils (NAEPC) website for educating the public about the many aspects of estate planning (http://www.estateplanninganswers.org/) or you can call and make an appointment to speak to one of our firm’s estate planning attorneys..

Estate Taxes: The Lifetime Exemption

Over the past 18 months, the estate tax has been a hot topic in the news and on the floor of Congress.  Sometimes referred to as the “death tax”, the estate tax is a tax levied on “the transfer of the taxable estate of every decedent who is a citizen or a resident of the United States.”  26 U.S.C. § 2001(a).  A “decedent” is a deceased individual.  The decedent’s “taxable estate” includes the assets in a decedent’s estate after applying deductions.  Several of the available deductions and exemptions will be discussed in future posts.  For now we will just discuss the biggest of them all, the “lifetime exemption.”

The lifetime exemption gets all of the press when the media is discussing the estate tax.  When you someone in Congress or on cable TV ranting about the “estate tax” or “death tax”, this is what they are talking about.  Essentially, the lifetime exemption provides an individual the right to pass a specific dollar amount’s worth of assets to whomever they desire without incurring tax on those transfers.  Below is a chart of the federal lifetime estate tax exemptions for the past ten years and for next year:

Year Exclusion Amount Top Tax Rate
2001 $675,000 55%
2002 $1 million 50%
2003 $1 million 49%
2004 $1.5 million 48%
2005 $1.5 million 47%
2006 $2 million 46%
2007 $2 million 45%
2008 $2 million 45%
2009 $3.5 million 45%
2010 Repealed [1] 35%
2011 $5 million 35%
2012 $5 million 35%

To illustrate the lifetime exemption, assume that a single individual died in 2011 and has $6 million in assets.  Let’s also assume that the decedent does not read this blog, has not come in to meet with one of our estate planning attorneys and thus has not taken advantage of any other estate tax minimizing strategies (which will be discussed in future posts).  Given the $5 million lifetime exemption in 2011, the first $5 million of the decedent’s assets may be passed to his or her heirs tax free.  The remaining $1 million, however, will be subject to the estate tax ($1 million x 35% = $350,000.00 in taxes to be paid).

The estate tax is owed by the estate, not the recipients of the decedent’s assets.  Thus, the estate will have to withhold sufficient assets to make the $350,000 estate tax payment.  This means that $350,000 of assets, at least some of which could have gone to the decedent’s heirs, will have to be sold and paid to the IRS.  Accordingly, the personal representative of the estate should not disburse the estate property until the estate tax is paid (or until he or she knows how the estate tax will be paid from the estate assets).

Over the coming weeks we will discuss strategies by which the decedent could have reduced or potentially eliminated the estate taxes owed.  Stay tuned!



[1] An individual dying in 2010 would not have to pay any estate tax to transfer their assets to heirs, etc.  At the time, some were worried that allowing the estate tax to lapse would result in this.  In actuality, those concerns were largely unfounded, but there were some stories of estates legally transferring immense wealth to their heirs free of taxation. Like this one and this one.

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Health Care Powers of Attorney

Recently, after running with some friends and while enjoying our customary cool-down beer (a must for summer running – after you rehydrate with water or a sports drink of course) a friend asked me about health care powers of attorney and whether he should get one.  Obviously, this individual had not read my August 31, 2011 post.  After explaining to him the benefits of executing a health care power of attorney and how it differs from a living will (discussed below), I asked the group how many had executed one.  Only a few raised their hands.  Sadly, this did not surprise me.

A Health Care Power of Attorney (“HCPOA”) is a document which allows an individual (the “Principal”) to appoint another individual (a “Health Care Agent” or “Agent”) to make health care decisions on the Principal’s behalf in the event the Principal is unable to do so.  A HCPOA is different from a Living Will because of the appointment of an Agent, whereas a Living Will actually sets forth an individual’s health care wishes.  Anyone over the age of 18 and “of sound mind” may execute a HCPOA.  An Agent may be anyone except a Principal’s health care provider or an employee of a health care facility at which the Principal is residing, unless that Agent is related to the Principal.   A HCPOA is not effective immediately, but only upon a finding of incapacity by two physicians.

Generally, an Agent is granted the authority to make any decision that a Principal could make for themselves.  There are few limitations to this authority, some created by statute and others drafted into the HCPOA.  Given the broad decision-making powers, it is vitally important that the Principal and Agent thoroughly discuss the Principal’s desires for treatment (more on this in a future blog post).  So long as the Agent acts in good faith and consistent with the desires of the Principal, the Agent is allowed to consult with the Principal’s doctors and make health care decisions for the Principal’s benefit.

Once executed, I provide a Principal with several copies of their HCPOA and advise them to keep a copy with their other estate planning documents.  By law, a photocopy of an HCPOA is just as effective as the original signed copy.  The additional copies should be provided to the Agent, the secondary Agent (if named) and the Principal’s primary physician.

A HCPOA may be revoked at any time through any of the methods listed in Wis. Stat. § 155.40, including by obliterating it – one of my favorite actually legal words.  If not revoked, a HCPOA is effective for the entire life of the Principal (there is no expiration date), however, HCPOAs should be reviewed from time to time and revised upon the occurrence of major life events (marriage, divorce, death of an agent, etc.).

If you would like to discuss the benefits of a HCPOA, feel free to contact one of our estate planning attorneys at (608) 837-7386 (we won’t even make you run with us first).

Disclaimer:  Please note that reading and/or commenting on this blog post does not create an attorney-client relationship with Eustice, Laffey, Sebranek & Auby, S.C. absent an express agreement between the firm and the client.  Contacting Eustice, Laffey, Sebranek & Auby, S.C. or any of its attorneys or employees via this website or via email does not create an attorney-client relationship.

We would be pleased to communicate with you by email. However, please note that if you communicate with us-through this website, via email, or otherwise-in connection with a matter for which we do not already represent you, your communication may not be treated as privileged or confidential and may be disclosed to other persons..

Beneficiary Designations: Do you know where your money is going?

When you die, most of your property will be passed to your heirs according to your will or other estate planning documents (assuming you have contacted us first!).  However, if you happen to have a bank account, brokerage account, retirement account, annuity, 529 account or life insurance policy, which, let’s face it, nearly everyone does, these assets will be passed according to the beneficiary designation on file with the administrator of that account.  All too often, a beneficiary designation is a piece of paper filled out when an account is set up and is then quickly forgotten by the account owner.  This article by Bill Bischoff of Smartmoney.com examines how not reviewing beneficiary designations on a regular basis can lead to unintended, disastrous (and costly) results.

The moral of the story is that you should review your beneficiary designations at least once a year or whenever a significant life event (a birth, death, marriage or divorce are the most common) occurs.  Checking your beneficiary designations usually takes a few minutes and is an easy way to ensure that your estate planning goals are met.

For more information about beneficiary designations or to schedule an appointment with one of our estate planning attorneys to review your estate plan, please contact our firm at (608) 837-7386.

Disclaimer:  Please note that reading and/or commenting on this blog post does not create an attorney-client relationship with Eustice, Laffey, Sebranek & Auby, S.C. absent an express agreement between the firm and the client.  Contacting Eustice, Laffey, Sebranek & Auby, S.C. or any of its attorneys or employees via this website or via email does not create an attorney-client relationship.

We would be pleased to communicate with you by email. However, please note that if you communicate with us-through this website, via email, or otherwise-in connection with a matter for which we do not already represent you, your communication may not be treated as privileged or confidential and may be disclosed to other persons..

Why Don’t Young Adults Estate Plan?

As a young lawyer, one of my main goals is to get out in the community and meet as many people as possible.  Given that I am 28 years old, my networking efforts typically involve people my own age.  After discovering that I am a lawyer in Sun Prairie and practice estate planning, the conversation almost always goes like this (NYP = Noncommittal Young Person):

NYP:     Estate planning…yeah, I looked at having a will and some other documents drafted a while back.  I really meant to get it done, but I never quite got there.  I really should.

Me:      Why didn’t you have them done?

NYP:     I don’t know, I was going to get it done but I got sidetracked / I didn’t really know the attorney / the form was really long / I forgot to call the attorney back / I was really busy with other things at the time / I didn’t want to think about it / I didn’t know who should take care of my kids, dog, etc. / I am not married or don’t have any kids / I was told that I didn’t need to do it and that the state would take care of me.

In my experience, most young people do not see the pressing need for executing estate planning documents.  They view estate planning as something their parents and grandparents should be worried about, not them.  They also don’t think they need to execute any documents unless they are married or have children.

These views are all false.  Everyone over the age of 18 should have a Will, Financial (Durable) Power of Attorney and Health Care Power of Attorney document in place.  End of story.  My reasoning for this is quite simply that accidents happen, even to us young people!  According to recent CDC data (the most recent available, as far as I could find, was for 2007) the single leading cause of death for individuals aged 25-45 was accidents (24%).  I will grant you that it is statistically unlikely that a young person will be affected by an accident.  However, if such an accident occurs and you have not executed these documents, then you are ceding your decision-making authority regarding your health treatment, finances, etc. to other people (judges, state-appointed social workers, etc.).  Nothing against these fine individuals, they are very good at what they do and they work very hard, but when you consider that the state procedures are already over-burdened, and are costly, stressful and time-consuming to families, all at a time when that family is already scrambling to get back on its feet, I hope it isn’t hard to see why being proactive and executing estate planning documents (and, thus, avoiding the majority of this hassle) is good advice.

Moral of the story: Accidents happen.  Even to young people.  You owe it to yourself and to your family to be proactive and get these documents in place.  If you would like to discuss your estate planning needs, please call (608) 837-7386 and one of our estate planning attorneys would be happy to assist you.

Disclaimer:  Please note that reading and/or commenting on this blog post does not create an attorney-client relationship with Eustice, Laffey, Sebranek & Auby, S.C. absent an express agreement between the firm and the client.  Contacting Eustice, Laffey, Sebranek & Auby, S.C. or any of its attorneys or employees via this website or via email does not create an attorney-client relationship.

We would be pleased to communicate with you by email. However, please note that if you communicate with us-through this website, via email, or otherwise-in connection with a matter for which we do not already represent you, your communication may not be treated as privileged or confidential and may be disclosed to other persons..

Digital Assets – A New Frontier in Estate Planning

In their first year, every law student takes a class called Property in which these eager future lawyers learn, among other things, how real property (a/k/a real estate) can be passed on to future generations.  In later estate planning classes, law students come to learn the laws pertaining to “personal property” (a/k/a nearly everything else).  Personal property is further divided into tangible and intangible personal property.

Tangible personal property (cars, household furnishings, etc.) may be passed on to specific beneficiaries through an individual’s will and incorporated property list (as described in Wis. Stat. § 853.32(2)).  Intangible personal property (stocks, bonds, bank accounts, 401(k)s, etc.) is generally passed on, depending on the specific type, via a will, payable on death designation or beneficiary designation.

Until recently, these categories and mechanisms were sufficient to describe and guide lawyers in handling and disbursing of all of the property owned by an individual.  However, as described in this Wisconsin Lawyer article, a new category of quasi-property – so-called “Digital Assets” – has emerged and doesn’t quite fit into the current estate planning structure.

The article generally defines Digital Assets as “(1) any online account; and (2) any file stored on a person’s computer or on a server.”  Common digital assets include the following:

  • Email accounts;
  • Facebook accounts;
  • Digital photos (stored on an individual’s computer or with an online service like Picasa);
  • Websites, blogs or domain names;
  • Online sellers accounts (i.e., eBay or Amazon.com);
  • Paypal.com;
  • Online trading accounts;
  • Paid online subscriptions; and
  • Important computer files stored on an individual’s computer (i.e., bank account statements, tax records, etc.).

Under this definition almost everyone, whether they realize it or not, owns digital assets.  Obviously, similar to personal property, some Digital Assets will have monetary value (i.e., Paypal accounts and online trading accounts) and others will simply have sentimental value (i.e., digital photo albums and facebook accounts).  In either case, you will want these assets to end up in the hands of your desired beneficiary.  Attorneys at Eustice, Laffey, Sebranek & Auby, S.C. have teamed up with the fine folks at Entrustet.com and are prepared to assist you with your digital estate planning needs.

For more information about Digital Assets or to schedule an appointment with one of our estate planning attorneys, please contact our firm at (608) 837-7386.

Disclaimer:  Please note that reading and/or commenting on this blog post does not create an attorney-client relationship with Eustice, Laffey, Sebranek & Auby, S.C. absent an express agreement between the firm and the client.  Contacting Eustice, Laffey, Sebranek & Auby, S.C. or any of its attorneys or employees via this website or via email does not create an attorney-client relationship.

We would be pleased to communicate with you by email. However, please note that if you communicate with us-through this website, via email, or otherwise-in connection with a matter for which we do not already represent you, your communication may not be treated as privileged or confidential and may be disclosed to other persons..