BizLawBuz …. The Power of Know

It has long been said that the only things certain in life are death and taxes. While most Americans pay any number of local, state and federal taxes while living, depending upon the extent of one’s property and the estate planning techniques used, additional taxes may be owed at death. According to the IRS website, “The Estate Tax is a tax on your right to transfer property at your death.” While the federal estate tax, therefore, has an impact on estate planning, the extent of that impact is currently in a state of flux. While death remains a certainty that all will face, the amount of federal estate tax is not.

In 2001, the Economic Growth and Tax Relief Act of 2001 (the “2001 Act”) was signed into law, significantly changing key provisions of the Internal Revenue Code dealing with the federal estate tax. Changes included an incremental increase in the estate tax unified credit exclusion from the pre-2001 amount of $650,000.00 per person, to $3.5 million per person in 2009, with no federal estate tax at all in 2010. In addition, the top estate tax rate declined from 55% to 45%. However, the 2001 Act contains a sunset provision and is set to expire on December 31, 2010. At that time the federal estate tax exclusion is scheduled to revert to $1 million per person and the maximum tax rate of 55% will be restored.

At 2009 rates, only inheritances above $3.5 million for an individual and $7 million per married couple were subject to the federal estate tax, at a tax rate of 45%. While it was estimated that only 1% of all inheritances would exceed those thresholds (encompassing an estimated 6,000 estates), Congress expected the federal estate tax to generate upwards of $25 billion in taxes in 2009.

Although there is no federal estate tax in 2010, the 2001 Act replaces the federal estate tax with a 15% capital gains tax on property inherited in 2010. Prior to 2010, beneficiaries of appreciated assets received those assets at their fair market value at the time of the decedent’s death (”stepped-up basis.”) Under stepped-up basis rules, the difference in the value of the asset from the time it was acquired by the decedent (the decedent’s “basis”) and the value of the asset at the time of the decedent’s death (the “gain” or “appreciation”) was not taxed as capital gains to the beneficiaries. This total exclusion no longer applies in 2010. While the capital gains scenario for 2010 is complicated and has its own system of exemptions, experts agree that many who thought that the elimination of the federal estate tax in 2010 would amount to a windfall may be in for a surprise.

The new capital gains treatment in 2010 notwithstanding, it is uniformly acknowledged that Republicans and Democrats alike are not going to accept the total elimination of the federal estate tax in 2010. In fact, on December 3, 2009, the House passed the Permanent Estate Tax Relief for Families, Farmers and Small Business Act of 2009, making permanent the $3.5 million per person exclusion, the 45% top tax rate, and stepped-up basis rules. However, the Senate, while focused on healthcare reform in the closing weeks of 2009, did not address the federal estate tax. As a result, the 2001 Act remains controlling — at least for now. Some Democratic Senators have vowed to reconvene early in January in order to pass an act that will be retroactive to January 1. As of this writing, the only thing that is certain is uncertainty.

We at Wright Penning & Beamer will continue to monitor this situation and the impact of future federal legislation on the estate planning needs of our clients. Stay tuned.

Duane L. Reynolds

Michigan Trust Code Becomes Law

On June 18, 2009, the new, Michigan Trust Code (MTC) was signed into law by Governor Granholm. In adopting the MTC, Michigan becomes the 23rd state to revise its laws pertaining to trusts in order to reflect the Uniform Trust Code as promulgated by the National Conference of Commissioners on Uniform State Laws. The MTC recognizes that revocable trusts in particular have become increasingly popular as a means to settle one’s affairs at death, as opposed to nothing more than a simple Will.

Although the MTC totally replaces existing Michigan black-letter law pertaining to trusts, only a few provisions of the MTC are significantly different from current law.

The first change deals with the mental capacity of a person to make a trust and a Will. Whereas Michigan law has recognized different standards in the past, the MTC clearly provides that the same standard of capacity will apply to both Wills and trusts. And, that standard has been modified to bring it in line with the standard of capacity to execute other estate plan documents such as powers of attorney.

The second change recognizes the authority of “trust protectors.” A trust protector is a person or persons designated in the trust with the authority to direct certain actions under certain circumstances. The authority of a trust protector can thereby supersede the authority of the trustee. Although Michigan attorneys have used the concept of trust protectors in the past, their authority has never been recognized under Michigan law. The MTC provides for, and recognizes, the authority of trust protectors.

As with EPIC, many of the provisions of the MTC are default rules, that is, fallback rules that will apply in the event that the creator of the trust does not provide otherwise. As with prior law, however, there are a number of rules that cannot be modified by the creator of the trust.

If you have not created an estate plan, or have not reviewed or updated your plan in recent years, now is an excellent time to make sure that your wishes for the disposition of your assets at death are properly secured.

Duane L. Reynolds

Just the other day, I met with a new client. “Beth” is the young daughter of long-standing clients, just turned 18 and off to Michigan State University in a few days to start her freshman year. Beth was in my office to sign her very first General Durable Power of Attorney, Health Care Power of Attorney and Release for medical information.

Beth came to see me not because she’s an astute and responsible young person, although she is certainly both of these. She came in because her parents had recently watched friends, whose 18-year old son suffered devastating injuries that landed him in intensive care, be denied access to any information about their son because he was now an adult. Beth’s parents were deeply alarmed and asked me how their family could avoid ever being in that horrific situation. The answer was simple: Beth, if she was willing, needed to sign powers of attorney giving her parents authority to access her information and to act for her should she be unable to act for herself.

Many parents don’t realize that once their kids turn 18, they are responsible for their own decisions and all of their information becomes private. If you have an 18-year old, for instance, you may discover that you can no longer set your child’s medical or dental appointments. You will certainly discover that you cannot call your child’s school and find out whether tuition has been paid or what their grades are. And, most importantly, you will not be able to make a health care decision or get information from a hospital or doctor unless your child is capable of giving that permission at the time.

General and health care powers of attorney, which give you power to speak and act on behalf of your child, are the answer. They are something that every adult should have and are relatively simple documents to put in place. You do so much to prepare your kids for college. Please don’t neglect this important detail!

Lee Flaherty

Without regard to whether family members are legally obligated to pay the debts of their deceased loved ones, credit card companies and debt collectors are targeting those family members to satisfy outstanding balances. Generally, unless a family member is a joint owner or guarantor of a deceased person’s debt, family members are not individually responsible for those debts. Debt collectors hope, however, that the majority of family members they contact will be ignorant about their obligations to the deceased’s creditors. In fact, a creditor’s ability to recoup funds to satisfy a deceased person’s debt is limited to those assets titled in the deceased person’s name at the time of death. If the deceased person died without assets, the debt collectors are out of luck and most likely cannot legally collect from next of kin. Family members would therefore be well-served to challenge any debt collectors looking to collect on a deceased person’s debts and demand written proof of another obligor on the account aside from the deceased. If the deceased died with assets, it is particularly advisable to consult with an attorney, preferably one well-versed in probate matters, to properly determine how a deceased’s debts should be handled.

To read more information about debt collectors targeting family member of the deceased, please visit this New York Times article: New York Times

Julie Pfitzenmaier

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Estate Planning

A law office with extensive estate planning experience

Services offered: We protect you and your family and loved ones in the event of misfortune through the preparation of wills, trusts, powers of attorney and patient advocate forms.

Estate planning has been a core component of our practice since the day it opened. It’s a natural extension of the services we provide for our business-owner clients. We have extensive experience in preparing everything from the simplest of wills to the most complex of plans involving multiple trusts, disability and charitable planning.

In addition, our attorneys spend dozens of hours each year in continuing education, frequently lecturing on the subject of estate planning. Lee Flaherty has received and annually renews a Certificate of Completion in the areas of probate and estate planning issued by the Institute of Continuing Legal Education and the Probate and Estate Planning Section of the State Bar of Michigan. Dan Penning taught estate planning courses for several years at Oakland University. One of our founding partners, Bill Wright, is a regular presenter at probate and estate planning seminars sponsored by the Institute of Continuing Legal Educations.

To learn about our other asset protection services, please use the following link: Additional Asset Protection Services