Health Care

Federal Estate Taxes of Little Worry for Most

If you are worried about the federal estate tax (more commonly referred to as the “death tax”), it is a good problem to have. It means that your asset level is above the limits brought about by the new tax laws. That wasn’t the way things were 10 or 20 years ago, when federal estate tax limits were much lower. As a result, many middle-class families found themselves with big estate tax issues, when estates were settled. A recent article in the Rome Sentinel addresses the estate tax from an historical perspective and what you need to know about it today. The article is titled “2019 update: Should you be concerned about the estate tax?”

For starters, there are many loopholes and nuances in the tax laws. Therefore, every situation is different. Your estate planning attorney will be able to review your individual situation and work with the laws of your state to make sure that your estate plan works for your family and minimizes your estate tax liability.

Estate Tax
Most of us will never have to worry about paying estate taxes.

The estate tax concept is based on laws from past centuries, when the goal was to limit the amount of property that individuals could pass from one generation to the next. The death tax is now government’s way of saying you had too many assets, or assets that could not be fully valued or taxed, except upon your death. After death, the net worth of your estate is calculated by valuing your assets minus any liabilities.

Assets are counted as anything of value. However, they include: cash, insurance policies, stocks, bonds, real estate, annuities, brokerage accounts, business interests and today, digital assets. They are brought to present market value to create the “gross estate.” Liabilities are counted as debts, mortgages, assets, funeral and estate expenses, and any assets lawfully passing to a surviving spouse. The liabilities are deducted from the assets to get to the “net estate” value.

Federal limits to the estate tax deduction were doubled, and today very few estates in the US are subject to the federal estate tax. Here’s a comparison: in 2000, the federal estate tax exemption was $675,00 and an estimated 52,000 estates had to pay taxes. The top 10% of income earners paid almost 90% of the tax, with more than a quarter of that paid by the wealthiest 0.1%. Even those percentages have decreased since 2017.

When the new Tax Cut and Jobs Act became effective, the exclusion for federal estate tax increased from $5.49 million per person to $11.18 million per person. In 2019, there has been a further increase, to $11.4 million per person. That remains in effect until 2025.

Many states impose their own estate taxes. In New York State, the Basic Exclusion Amount for New York State Tax for estates for people who died on or after Jan. 1, 2019, and before Jan. 1, 2020, has increased from $5.49 million per person to $5.74 million per person. These amounts will increase in 2020 and will be adjusted for inflation in the future.  Florida imposes no estate tax.

However, even without the federal death tax, people still need estate plans to protect themselves and their families. A will ensures that your assets are distributed to the people you want to receive your assets. An estate plan includes Power of Attorney, to name the person you want to make financial decisions in the event you are incapacitated. You also want to have a Health Care Power of Attorney, so someone can make decisions about your health care, if you cannot speak on your own behalf. Talk with an estate planning attorney to make sure that your plan will work as intended to protect you and your family.

Reference: Rome Sentinel (Jan. 22, 2019) “2019 update: Should you be concerned about the estate tax?”

What is an Advance Directive and Do I Need One?

These are difficult questions to think about. However, as every estate planning attorney knows, the questions “What is an Advance Directive?” and “Do I need one?” are very important. Should you ever become unable to speak for yourself, reports the Enid News & Eagle in the article “Veteran Connection: What you should know about advance directives,” there is a way to make a plan, so your wishes are known to others and by legally conveying them in advance, making sure you have a say, even when you don’t have a voice.

Everyone needs Advance Directives
Everyone over the age of 18 should have an Advance Directive so family and doctors know your wishes.

The advance directive helps family members and your doctors understand your wishes about medical care. The wishes you express through these two documents described below, require reflection on values, beliefs, views on medical treatments, quality of life during intense medical care and may even touch on spiritual beliefs.

The goal is to prepare so your wishes are followed, when you are no longer able to express them. This can include situations like end-of-life care, the use of a respirator to breathe for you, or who you want to be in the room with you, when you are near death.

It should be noted that an advance directive also includes a mental health component, that extends to making decisions on your behalf when there are mental health issues, not just physical issues.

There are two types of documents: a durable power of attorney for health care and a living will.

The durable power of attorney for health care lets you name a person you trust to make health care decisions when you cannot make them for yourself. This person is called your health care agent or surrogate and will have the legal right to make these decisions. If you don’t have this in place, your doctor will decide who should speak for you. They may rely on order of relationships: a legal guardian, spouse, adult child, parent, sibling, grandparent, grandchild or a close friend.

A living will is the document that communicates what kind of end of life health care you want, if you become ill and cannot communicate with your doctors. This helps your named person and your doctor make decisions about your care that align with your own wishes.

Another very important part of this issue: the conversation with the people who you want to be on hand when these decisions have to be made. Are they willing to serve in this capacity? Can they make the hard decisions, especially if it’s what you wanted and not what they would want? Do you want a spouse to make these decisions on your behalf? Many people do that, but you may have a trusted family member or friend you would prefer, if you feel that your spouse will be too overwhelmed to follow your wishes.

For additional information about Advance Directives and estate planning, download our free books and reports.

Reference: Enid News & Eagle (March 13, 2019) “Veteran Connection: What you should know about advance directives”

Get Estate Planning Details Done in 2019

Are you ready to resolve some of the things in 2019 that you really, really, did plan on doing in 2018? This article from the Pittsburgh Post-Gazette, “As a new year closes in, resolve to get those pesky estate details resolved,” offers to act as a reminder—or a kick in the pants—to get you to take care of these frequently overlooked estate planning details.

Health Care Plans. If you’ve got health care issues or a chronic condition, get your advance directive for health care done. The name of the documents vary by state (in Florida they’re called a Designation of Healthcare Surrogate and a Living Will), but whatever you call it, work with your estate planning attorney to create the documents that convey your wishes, if and when you are not able to communicate them yourself. That means your end of life wishes, so if you end up in the hospital’s intensive care unit your family or health care providers aren’t making decisions based on what they think you might have wanted, but what you have actually declared that you want.

Power of Attorney for Financial Affairs. You’re not giving up any power or control over your finances in having this created. Instead, you are preparing to allow someone to act on your behalf for financial matters, if for some reason you are unable to. Let’s say you become injured in an accident and are in the hospital for an extended period of time. How will your bills be paid? Who will pay the mortgage?

For both of these documents, talk with the people you want to name first, and make sure you are both clear on their responsibilities. Have at least one backup, just in case.

A will and if appropriate, trusts. If you don’t have a will or a trust, why not? Without a will, the state’s laws determine who will receive your assets. Your family may not like the decisions, but it will be too late. Speak with an experienced estate planning attorney to get your will and other documents properly prepared.

Check how your assets are titled. Are they in your name only, jointly titled, etc.? If you have trusts, have you retitled your assets to conform to the trusts? If you have beneficiaries on certain accounts, like life insurance policies and 401(k)s, when was the last time you reviewed your beneficiaries? Don’t be like the doctor who did everything but check beneficiaries. His ex-wife was very happy to receive a large 401(k) account, and there was no recourse for his second wife of 30 years.

Make a list so assets can be located. To finalize these details, you’ll need a list of assets, account numbers and what financial institution holds them. The information will need to be gathered and then organized in a way so key people in your life—your spouse, children, etc.—can find them. Some people put them on a spreadsheet in their home computer, but if your executor does not have a password, they won’t be able to access them. If they are in a safe deposit box that only has your name, they won’t be accessible.

Reference: Pittsburgh Post-Gazette (Dec. 24, 2018) “As a new year closes in, resolve to get those pesky estate details resolved”

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