The Future of the Estate Tax

The Federal Estate Tax (affectionately called the "Death Tax" by opponents) is a tax on property owned by an individual at death. If any individual dies with assets (including proceeds of life insurance) that exceed the current "tax-free" amount, then there may be estate taxes due. The tax rate is roughly 45% of any assets exceeding the current tax free amount.

The current tax-free amount is $2,000,000. It is scheduled to increase to $3,500,000 in 2009. In 2010 there is no estate tax and then the tax returns in 2011 with a tax-free amount of $1,000,000. The tax returns due to a sunset provision. The current system makes planning difficult and may put the lives of many wealthy individuals in jeopardy in 2010!

We will probably not have a resolution until after the elections this fall. The Presidential candidates do have their own plans regarding the estate tax. Barack Obama is recommending a permanent tax-free amount of $3,500,000 with a maximum tax rate of 45%. John McCain is proposing a tax-free amount of $5,000,000 with a 15% tax rate. Both proposals demonstrate that the tax is probably here to stay and George Bush's dream of permanent repeal is unlikely.

Travel Plans

Here are some legal tips to help with your holiday travel/hurricane evacuation plans:

-Leave a list of emergency numbers with a friend or family member

-Keep a copy of your Advance Medical Directive in your glove box

-Wear your seatbelt

-Do not drink and drive

-If an officer stops you, do not voluntarily consent to a search of your car

-Obey the speed limit-- it will keep you safe and save your gas!

"Practical" Estate Planning Tips- 4

The estate planning process forces people to address many uncomfortable subjects. If you are already addressing the issues, you might as well hit for the cycle and cover burial and organ donation.

Burial wishes contained in a Will are legally binding. However, as a practical matter, an individual's Will is usually not reviewed until well after burial. If the family is reviewing the Will prior to your death, then there may be more important issues to address! Even if you include wishes in your Will, you should still discuss these wishes with your family. It is also a good idea to include these wishes in another document, such as a separate writing or an Advance Health Care Directive.

A person may also include his or her wishes regarding organ donation in several legal documents. Yet, it is still important to discuss these issues with the family. Regardless of your wishes, if a member of your family objects to your wish to be an organ donor, the local organ center will probably refuse to accept a donation. Although this may seem like an unfair result, the organ procurement organizations do not have time to fight, nor do they like any situation that might result in negative publicity.

The bottom-line: please discuss these issues with your family.

"Practical" Estate Planning Tips- 3

Who are you going to call? A contact list for your family or friends can be a valuable tool in the event of an emergency, for otherwise, they might not have access to this important information. Such a list should be in the hands of an individual who will have immediate notice of any emergency situation. Consider including contact information for some of the following individuals on such a list:

-Your employer

-Your attorney

-Your CPA

-Your insurance agent

-Your financial planner

-Close friends and family members

-Your priest or minister

-A counselor or therapist

-Your doctor

-Any other person that should be aware of an emergency situation

"Practical" Estate Planning Tips- 2

How safe is a safety deposit box? It is probably pretty safe, but it may not be the best location to store an original Will. If you die with your Will in your box, and there is no one else with access to the box, then the only individual able to open the box is your Personal Representative (Executor). There is an immediate Catch-22, as one cannot be appointed as Personal Representative without the Will, which is of course in the box. Courts can issue an order to open a box for sole purposes of removing a Will. However, you can prevent many of these steps by ensuring that your family will have easy access to your Will after you are gone.

Paws and Patriots

Please consider joining the Alabama War Dog Memorial Foundation for the 2008 Paws and Patriots Walk and Festival at Heardmont Park on September 6. For more information, please visit our website (below). It will be a great family event. In order to maintain the integrity of this legal blog, I must add that you should not forget to include charitable beneficiaries (such as the AWDM) in your Last Will and Testament!

www.pawsandpatriotswalk.com

"Practical" Estate Planning Tips- 1

Many people fulfill their obligation to protect their loved ones by signing a Last Will and Testament. While a Will is an excellent document for your family, it does not work if it cannot be found! I have met several people who were certain a loved one had a Will, but they could never locate any copy. I even received a phone call from a woman who was calling large law firms in Birmingham to see if her father was a client. He had always told her that he had a Will, but she could find no evidence of it after his death.

I can understand the desire to keep the contents of a Will private. However, please ask yourself if your family will be able to locate your Will after you are gone. At the very least, provide them with the name and number of your attorney, accountant and/or financial planner. You may also want to leave a writing providing the locations of various important documents. You can find a personal record book tool that might be helpful at www.jackcarneylaw.com/resources.aspx.

Pain at the Pump

It may not be too much comfort, but the IRS feels your pain at the pump. Effective July 1, 2008, the IRS raised the standard mileage rate (for purposes of tax deductions) to 58.5 cents per mile. This new rate can provide a substantial benefit if you deduct mileage for business or charitable purposes. For more information, please consult your tax advisor or www.irs.gov.

Powers of Attorney- Part 7

The Document Itself

A power of attorney is conceptually a simple document. It names someone to act on your behalf. However, this simple concept does not necessarily mean that the document will be short or concise. A one page doocument (they are out there, I have seen them) that names "John Doe as my agent under this power of attorney" and nothing more would probably not be effective. Here are some tips about what to include in your Durable Power of Attorney:

-A long list of powers for your agent. The general rule of thumb is that if a power is not specifically listed in the document, then the agent does not have that power. I therefore recommend that you err on the side of over-inclusion, as you never know which powers you will need in the future.

-A statement that the power of attorney is "durable" and that it will survive the grantor's incapacity.

-Language specifically referencing medical records, making sure to include the magic acronym, HIPPA.

-A statement about the agent's responsibility for health care.

-It is helpful to include a statement that photocopies will have the same force and effect as an original.

Powers of Attorney- Part 6

Is your Power of Attorney Fresh?

The power of attorney theme for the blog continues this week with an additional tip to ensure the effectiveness of your document. I recommend "freshening" your power of attorney every three to five years. By freshen, I mean execute a new document, even if it contains the same terms and provisions as your existing document. A power of attorney with a more recent date is less likely to be questioned when you put it to use. If you document is decades old, yellow and full of coffee rings, then a bank or financial institution might think twice about accepting it.

Powers of Attorney- Part 5

Is your Power of Attorney Durable?

I have interchangeably used the words "durable power of attorney" and "power of attorney" in previous posts. In fact, the word "durable" has a significant impact on the effectiveness of your power of attorney. A power of attorney that is durable survives the incapacity of the grantor. As a default rule, all powers of attorney terminate upon the incapacity of the grantor of that power unless the document states that it will continue during incapacity. In most cases, it is important to ensure that your power is durable, as most people want a power of attorney to protect against incapacity.

In order to determine if your power of attorney is durable, review it to see if the term "durable" is used or if there is a specific statement that the power will survive the incapacity of the grantor.

Powers of Attorney- Part 4

Who to Serve?

One of the most important decisions in creating a power of attorney is the selection of an agent. One's agent should be an individual who is responsible, generally organized and trustworthy. You can name one agent to serve at a time or name two or more individuals to serve simultaneously. It is also important to name successor agents. I once spoke with a 70 year old man who was serving as agent for his 96 year old father. His father was no longer able to make business decisions and no longer had the capacity to execute legal documents. The son was named as the sole agent under his father's durable power of attorney (there was no successor). The son was beginning to contemplate his own health and mortality and was concerned about who would care for things should something happen to him. Unfortunately, as there was no successor named, the power of attorney would fail should something happen to the son. If you do not have an adequate number of successors named in your durable power of attorney, consider updating your document while you still can.

Powers of Attorney- Part 3

Today or Tomorrow?

One question to decide in preparing your power of attorney is to determine whether you want it effective immediately (sprung) or effective only in the event of incapacity (springing). As with most legal questions, there is no right or wrong answer, but rather pros and cons.

Your agent can use your sprung power of attorney the moment they need it (without taking any additional steps). This type of document is very efficient. It may also be used if the grantor of the power is simply out of town or unavailable.

Some individuals can not sleep at night knowing that there is an effective power of attorney out there. In that case, a springing power may be the best option. The downside of a springing power is that the grantor must be declared incapacitated (by a doctor or court). A grantor's doctor may be reluctant to declare his or her patient incapacitated, especially in a close case. Another variation of the springing power of attorney is to utilize a committee of friends and/or family members that must vote to determine that the power of attorney is effective.

If you have any questions about whether your power of attorney is springing or sprung, please consult your legal advisor.

Powers of Attorney- Part 2

What a Power of Attorney is Not

Many individuals are uncomfortable with giving another person power of attorney for fear of abuse or mismanagement. However, an agent serving under a power of attorney is not granted free reign to control someone's assets as they see fit. An agent has a fiduciary duty to act in the grantor's best interest. In other words, an agent can only act for the benefit of the grantor and do those things that the grantor him or herself would do. If ever there is an allegation of wrongdoing against someone who has a fiduciary duty, that person is basically guilty until they prove themself innocent.

My wife and I had an opportunity to witness the "suspect" use of a power of attorney first hand. We were enjoying dinner out of town. The waiter was delivering the bill to the party at the next table, when one of the members of that party jumped up to grab the bill, shouting "I'll pay for this one, I got Daddy's power of attorney." Normally, as an estate planner, I would have immediately jumped up and questioned this exercise of her fiduciary duty. However, this particular dinner group was most scary and I am afraid it would not have ended well for me.

Even though your agent owes you a strict fiduciary duty in the administration of your power of attorney, you should still take care in who you select to serve in that role.

Powers of Attorney- Part 1

What is a Power of Attorney?

I have previously written about the importance of having a durable power of attorney. It is worth more discussion, as these documents that can be so useful are so simple to prepare. The next several posts will focus on the nuts and bolts of powers of attorney.

A power of attorney is a document that allows an individual to appoint someone to make business or financial decisions in his or her place. The power may be limited (such as a limited power for purposes of selling a home) or more general (such as a general durable power allowing someone to handle all business matters).

Absent a power of attorney, an individual must seek court approval in order to handle another individual's financial or business affairs. The time and cost of seeking court approval are enormous compared to a simple and cost effective power of attorney. This document is one of the best legal investments an individual can make!