IRS Announces 2020 Estate and Gift Tax Exemption Amounts

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On November 6, 2019, the IRS announced the final estate and gift tax exemption amounts for 2020, as adjusted for inflation.  The estate and gift tax exemption for 2020 will be $11.58 million per person, whereas the annual gift tax exclusion amount is unchanged at $15,000.  The adjusted estate tax exemption amount means that an individual will be able to shelter up to $11.58 million in assets from estate tax upon his or her death in 2020, and a married couple will be able to shelter up to $23.16 million in assets (assuming that portability is utilized).

Keep in mind, however, that the Tax Cuts and Jobs Act will sunset on December 31, 2025 without further legislation, at which point the increased exemption amounts will return to those in effect in 2017 ($5 million, as adjusted for inflation).  In addition, new legislation reducing the estate, gift tax, and GST exemption amounts could be in the works depending on the results of the 2020 election.  For examples of some previously introduced bills to this effect, see our two recent blog posts, Dueling Estate, Gift, and Generation Skipping Transfer Tax Senate Bills and Yet Another Estate, Gift, and Generation Skipping Transfer Tax Senate Bill.  The moral of this story, therefore, is that the historically high exemption amounts now in effect may not be here to stay.

If you have any questions on this topic, please contact Lin Law LLC at (920) 393-1190.

National Estate Planning Awareness Week

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In 2008, the 110th United States Congress passed House Resolution 1499, designating the third week of October (October 21-27, 2019) as National Estate Planning Awareness Week.  In doing so, Congress undoubtedly hoped that it would increase awareness with regard to the importance and benefits of estate planning.  However, a 2019 Caring.com survey found that only 43% of respondents had prepared an estate plan, compared to the 76% of respondents who believed estate planning to be important.  Some indicated that this was the result of procrastination, whereas others mistakenly stated that their assets were not significant enough to require estate planning.

This Estate Planning Awareness Week, remind yourself and your loved ones of the benefits of an estate plan.  A Last Will and Testament or Revocable Trust ensures that your assets are distributed according to your wishes upon your death (as opposed to the default rules under state law).  Durable Powers of Attorney for Finances and Powers of Attorney for Health Care allow your designated agents to act on your behalf in the event of your incapacity, thereby avoiding the necessity of guardianship.  Finally, documents such as a Living Will and Authorization for Final Disposition memorialize your wishes with regard to end of life care and your funeral and burial arrangements.

If you have any questions on this topic, please contact Lin Law LLC at (920) 393-1190.

You aren’t cookie-cutter, so why is your estate plan?

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You may have seen a recent news article about the Will of Dennis Valstad, a man from Ripon, Wisconsin, who specifically bequeathed the sum of $500,000, in equal shares, to those individuals who attended his funeral.  To that end, the envelope containing Dennis’ Last Will and Testament instructed: “Do not open until after the funeral”.  Dennis, who had living siblings but no spouse or children, left additional instructions that, if an attendee felt they did not need the money (roughly $1,800.00 per person), they should donate it to charity.

Dennis’ nontraditional bequest might not be something that you would include in your own Will or Revocable Trust, but it goes to show that your estate plan can truly be anything you want it to be (within the confines of the law, of course).  While most individuals generally want to leave the majority of their estate to their children or close family members upon their death, there is always opportunity to customize your estate plan to meet your individual goals and circumstances.  Examples of this include adding specific bequests of liquid assets or tangible personal property to individuals or charities, establishing a trust for the care of your pet, or, like Dennis, distributing a portion of your estate among those who attend your funeral.

If you have questions on this topic, please contact Lin Law LLC at (920) 393-1190.

What is probate, and why does everyone want to avoid it?

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During our initial meetings with clients, they often tell us that one of their goals in preparing an estate plan is to avoid probate.  However, they don’t always have a good understanding of what probate is or what avoiding probate might entail.

“Probate” is, essentially, the court-supervised process of winding up a decedent’s affairs by preparing an inventory of the decedent’s assets, paying any outstanding bills, claims, or expenses, and distributing the decedent’s remaining assets to his or her designated beneficiaries or heirs.  The important phrase in that description is “court supervised,” as most, if not all, of the same work is required even if probate is unnecessary, either during the decedent’s lifetime or upon his or her death.  All documents filed in connection with the probate administration, including a list of the beneficiaries, an inventory of the assets, and a final accounting of the probate administration, are public record.  And, even with the advent of electronic filing, probate is a lengthy process that occasionally requires court appearances by the involved parties or their attorneys.

So, probate is often vilified in light of its public and sometimes tedious nature, and people seek to avoid it.  Some methods of bypassing probate include joint ownership with rights of survivorship (most frequently used in the case of married couples), re-titling assets to a revocable trust, or making assets payable on death to one or more designated beneficiaries.  However, whether or not “probate avoidance” is desired or necessary in a given situation will depend, in large part, upon the nature of the assets that would otherwise be subject to probate.

If you have any questions on this topic, please contact Lin Law LLC at (920) 393-1190.

What’s Mine is Yours – even if we move to Florida

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Wisconsin is one of a minority of states and U.S. territories that operates under a marital property (aka community property) regime. What this means for married couples is that each spouse owns an undivided one-half (1/2) interest in “marital property,” which, as a general rule, includes any and all property acquired during the marriage, with some exceptions. The marital property regime provides various estate planning and tax benefits to married couples, provided that the marital property characterization of real and personal property is maintained.

However, what happens to a couples’ marital property assets if they relocate to a common law state (one without a marital/community property regime), such as Florida?  Luckily, Florida is one of sixteen total states that have adopted the Uniform Disposition of Community Property Rights at Death Act. The Act creates a rebuttable presumption, with limited exceptions, that marital property brought from a community property state to a common law state will remain community property. The Act also permits individuals to exchange assets while maintaining the marital property characterization of assets that are received in return.

For states that have not adopted the Act, and as additional insurance for couples residing in those that have, married individuals can enter into a written agreement (e.g., a post-nuptial agreement, community property agreement, marital property agreement, etc.) that specifically dictates the character of their assets.

If you have any questions on this topic, please contact Lin Law LLC at (920) 393-1190.

Your Estate Plan is Not a Slow Cooker (don’t set it and forget it)

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One of the cardinal sins of estate planning is to “set and forget” your estate plan. Estate plans are not one size fits all, and should be reviewed and updated as circumstances change.

A common example is a married couple who implement an estate plan upon the birth of a child. They most likely appoint guardians for their minor child, and name close friends or family members (perhaps their parents or a sibling) as personal representative or trustee. Twenty years go by, and the couple fails to revisit their estate plan. Now, that child is no longer a minor, individuals named as personal representative or trustee may be deceased or no longer willing and able to serve, and our couple may no longer be married to each other! While Wisconsin law automatically revokes most dispositions of property and fiduciary designations in favor of a former spouse upon dissolution of marriage, it cannot create a completely new estate plan out of thin air.

Another example is an unmarried individual with no children who leaves his or her estate to a parent. If that unmarried individual later marries and has children, failure to update his or her preexisting estate plan and/or beneficiary designations may effectively disinherit said spouse and children. As with divorce, there are Wisconsin statutes intended to avoid this (presumably) unintentional result, but they are not a catch all and should not be relied upon to reform an out-of-date estate plan.

The moral of the story is that while you can “set it and forget it” with your Ronco® rotisserie oven or Crock-Pot® slow cooker, you should not do this with your estate plan. Creating an estate plan is only the beginning; your plan should be reviewed and updated periodically, especially after significant life events such as births, deaths, and divorces.

If you have any questions on this topic, please contact Lin Law LLC (920) 393-1190.

Yet Another Estate, Gift, and Generation Skipping Transfer Tax Senate Bill

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In an earlier post, “Dueling Estate, Gift, and Generation Skipping Transfer Tax Senate Bills,” we discussed two different Senate bills concerning the federal estate, gift, and generation skipping transfer (GST) tax rates and exemption amounts.  On June 25, 2019, Senator Chris Van Hollen (D-Md) introduced yet another bill, the “Strengthen Social Security by Taxing Dynastic Wealth Act.”  This bill would simultaneously reduce the federal estate, gift, and GST lifetime exemption amounts while increasing the applicable federal estate, gift, and GST tax rates.

The bill would reduce the lifetime exemption amounts to a basic estate tax and GST tax exemption of $3.5 million (the exemption amount in effect in 2009) and a gift tax exemption amount of $1 million.  Notably, this would appear to “de-unify” the gift tax exemption from the estate and GST tax exemption amounts.  In addition, the bill would increase the maximum estate tax rate from 40% to 45%.  Finally, the bill would divert estate tax revenue to the Social Security Trust Fund in an attempt to bolster the program’s depleted reserves.  The projected revenue generated by the bill would cover approximately one-fifth (1/5) of Social Security’s estimated long-term funding gap.

Like the previous two bills, this one is unlikely to become law.  However, the number of bills introduced in the last year should remind us that the applicable exemption and exclusion amounts are always subject to change, and that it’s important to periodically review your estate plan with the current exemption amount in mind.

If you have any questions on this topic, please contact Lin Law LLC at (920) 393-1190.

Creating an Estate Plan for Your Digital Assets (and what they are in the first place)

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In creating and implementing an estate plan, one category of assets is often neglected—digital assets. In addition to accumulating liquid assets and tangible personal property, we are increasingly accumulating more and more digital assets throughout our lifetimes. But what are digital assets? They can include:

  • Photographs and videos stored in an electronic format;
  • Playlists and digitally recorded music;
  • Social media accounts such as Twitter, Facebook, and Instagram;
  • Website domain names;
  • Other information and assets that are stored electronically, such as Bitcoin and other cryptocurrencies.

So, how do we plan for and protect our digital assets? First, create a list of any and all digital assets, including where to find them and how they are accessed. Second, make sure that this information is secure but accessible by your personal representative or trustee. Finally, ensure that your fiduciaries are authorized to access and use your digital assets by implementing an Authorization and Consent for Release of Electronic Information.

If you have any questions on this topic, please contact Attorney Emily E. Ames at eames@llattorneys.com or (920) 393-1190.

To pay or not to pay… to what state does my Trust pay taxes?

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In a recent U.S. Supreme Court decision, North Carolina Department of Revenue v. Kimberly Rice Kaestner 1992 Family Trust (“Kaestner”), the Court held that a State may not tax the income earned by a trust based solely on the state of residence of the trust’s beneficiaries.

Kaestner concerned a trust established by Kimberly Rice Kaestner’s father, a New York resident, for the benefit of Kimberly and her three children, who were North Carolina residents during the tax years at issue.  North Carolina attempted to tax income earned by the trust for the 2005-2008 tax years based on a North Carolina law authorizing the State to tax any trust income “for the benefit of” a state resident.

However, the trust itself was subject to New York law, the trustee was a New York resident, and the trust’s assets were managed by a custodian in Massachusetts.  The fact that the trust’s beneficiaries were North Carolina residents was, therefore, the trust’s sole link to the state.  Finally, the language of the trust gave the trustee complete discretion over distributions of income and principal, and no income was distributed to Kimberly or her three children during the tax years in question.

The Court struck down the North Carolina statute, holding that it was an unconstitutional violation of the Due Process Clause of the Fourteenth Amendment.  The Due Process Clause limits the States’ authority to impose taxes to those that “bear a fiscal relation to protection, opportunities and benefits given by the state.”  In the context of a tax premised on the residency of a trust’s beneficiary, the beneficiary in question “must have a degree of possession, control, or enjoyment of the trust property or a right to receive that property.”  The Court held that, because Kimberly and her three children did not receive any income from the trust during the relevant tax years, nor did they have the right to demand any such distributions, the trust lacked the requisite minimum contacts with the state of North Carolina.

While the Court’s holding in Kaestner is undoubtedly a “win” for grantors, trustees and trust beneficiaries, the holding is very narrow and fact-specific, and therefore provides limited guidance with respect to other state income tax regimes.

If you have any questions on this topic, please contact Lin Law LLC at (920) 393-1190.

Medicaid Eligibility – What is a “divestment” and why should I care?

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The Medicaid application process uses various terminology to refer to eligibility requirements.  For example, what is a divestment?  A “divestment” is defined as any transfer of income, non-exempt assets, or homestead property belonging to the Medicaid applicant and/or his or her spouse for less than fair market value.

Any divestment during the applicable look-back period triggers a period of Medicaid ineligibility, with certain limited exceptions.  The look-back period is 60 months and is measured from the date that the applicant is institutionalized and applies for certain Medicaid benefits.  The penalty period is equal to the value of the divestment, divided by the average daily nursing home private pay rate ($286.15 as of July 1, 2018).

As an example, Jane gifts her personal residence, with a fair market value of $50,000, to her son John in May 2018.  In May 2019, Jane is admitted to a nursing home and applies for Medicaid to cover the cost of her long-term care.  Because Jane transferred homestead property for less than fair market value during the 60 months prior to her admission to the nursing home, she will incur a penalty period of 174 days ($50,000 divided by $286.15 = 174.73 days, rounded down) during which she will be ineligible for Medicaid.

Certain transfers, such as the purchase of an annuity or a promissory note, are not considered a divestment if they meet certain requirements.

If you have any questions on this subject, please contact Attorney Emily E. Ames at eames@llattorneys.com or (920) 393-1190.