#TuesdayTips: Major Changes for Maryland’s 2019 Estate Tax Exemption  

Effective July 1, 2018, for individuals dying on or after January 1, 2019, the Maryland estate tax exemption will be $5 million.  This is a drastic change from the 2014 law that gradually increased the Maryland estate tax exemption each year until 2019 when it was scheduled to match the federal basic exclusion amount. 

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By Jessica L. Estes

Effective July 1, 2018, for individuals dying on or after January 1, 2019, the Maryland estate tax exemption will be $5 million.  This is a drastic change from the 2014 law that gradually increased the Maryland estate tax exemption each year until 2019 when it was scheduled to match the federal basic exclusion amount.

Under the 2014 law, Maryland’s estate tax exemption was scheduled to increase beginning January 1, 2019 to match the federal exclusion amount, which was anticipated to be $11.4 million.  Further, under the 2014 law, Maryland’s estate tax exemption would have continued to increase based on inflation.  Now, however, Maryland has decoupled from the federal exclusion amount and Maryland’s exemption amount will remain static at $5 million, with no adjustment for inflation in the future.

Though, Maryland’s new law does provide that a surviving spouse may use any unused portion of his/her deceased spouse’s Maryland exemption (“portability”).  The unused portion of the deceased spouse’s exemption would be in addition to the surviving spouse’s $5 million exemption, but only if certain requirements are met.  For predeceased spouses dying on or after January 1, 2019, there must be a timely filed Maryland Estate Tax return on which is calculated the unused portion and an irrevocable election is made to use such unused portion at the surviving spouse’s death.  For predeceased spouses dying before January 1, 2019, or who were not Maryland residents and did not have taxable property within Maryland, there must be an election under §2010(c) of the Internal Revenue Code (“IRC”) on the predeceased spouse’s Federal Estate Tax return.

Moreover, Maryland’s new law does not provide any retroactivity, so if you have a predeceased spouse that died before July 1, 2018 (the date this new law takes effect) and there was no Federal Estate Tax return filed with an election under §2010(c) of the IRC, you will not be able to take advantage of the portability component of the new law.  Similarly, if you have a spouse that dies prior to the end of this year, you will want to consult with an attorney to make sure a timely election is made to preserve any unused portion of your predeceased spouse’s Maryland exemption.

In summary, instead of an estimated $11.4 million exemption per person, both federally and for Maryland, individuals dying on or after January 1, 2019 will now be limited to a $5 million exemption for Maryland, with the possibility of portability for married couples, but only if timely elections are made.  Even though this is roughly a $6.4 million difference, Maryland still does not have a gift tax so any gifts during an individual’s lifetime would not count against their $5 million Maryland exemption at death.

WHAT IS ELDER LAW?

Elder law focuses on long-term care planning and how to pay for it.

By Jessica L. Estes

Ever wonder what “Elder Law” is?  Most people think that if you are 65 or older, it is called Elder Law and if you are younger than 65, it is called Estate Planning.  The real difference, though, is the focus of the representation.

Generally, the focus of estate planning is to make sure you have legal documents in place that provide the following: (1) the ability to control your property while you are alive and able, (2) planning for you and your loved ones should you become disabled, and (3) after you die, making sure your assets go to the people you love without unnecessary cost or delay.  Usually, these documents include financial and health care powers of attorney, advance directives or living wills, last will and testaments and perhaps, trusts.

Elder law, on the other hand, focuses on long-term care planning and how to pay for it.  Long-term care is required when an individual is unable to perform the basic activities of daily living such as bathing, dressing, eating, toileting, walking and transferring, for a period exceeding thirty days.  Long-term care can include homecare, adult daycare, respite care and assisted living or nursing home services.  And, in this area, those types of costs can be daunting – more than $100,000 per year, and most people simply cannot afford to pay that.

Moreover, one might require long-term care, but be under the age of 65.  For example, if you have a child or a younger adult who is disabled and requires long-term care, most likely you would want to consult an Elder Law attorney to determine what, if any, benefits are available to help pay for that care even though the disabled person may not be elderly.

Not only can an Elder Law attorney advise a client about public benefits (including Medicaid and Veteran’s benefits) that may be available to help pay for long-term care, but they can also assist with the qualification and application process.  As part of this process, Elder law attorneys often engage in asset preservation to protect a client’s assets from the high costs of long-term care.  This is especially true if there is a dependent spouse or child at home, or if the individual does not have long-term care insurance to help pay those costs.

Finally, Elder Law also encompasses special needs planning.  Elder law attorneys are well-versed in the different types of special needs trust that may be available to a disabled individual and can advise which option is the best for a particular client.  So, Elder Law is not just for the elderly!

#TuesdayTips: Caring for Aging Parents

Currently, it is estimated that approximately one-third of the U.S. population provides care for a chronically ill, disabled, or aged family member and spends, on average, twenty hours per week providing that care.  Caring for your aging parents is not an easy task. 

 

By Jessica L. Estes 

Currently, it is estimated that approximately one-third of the U.S. population provides care for a chronically ill, disabled, or aged family member and spends, on average, twenty hours per week providing that care.  Caring for your aging parents is not an easy task.  Not only can it be overwhelming, but it may cause stress in your life which can manifest itself in various ways, including illness, depression and/or anxiety, or strained family relationships. There are things you can do, though, to make the job less stressful.

First, it is important to know your parent’s personal wants and needs.  Satisfying those requirements will depend largely on the type of long-term care your parent is likely to require.  For most, living independently for as long as possible is ideal.  Usually, this requires that the parent stay healthy both physically and mentally, so the more physical and social activities your parent participates in, the more likely they are to maintain their health and independence.

Second, you and your parent should discuss where the caregiving is going to take place.  Will your parent be moving, or will you travel to your parent?  Any decision in this regard will have an impact on your immediate family (i.e. your spouse and/or children) so they should be included in that part of the discussion.  To determine the best housing option for your parent, you will need to compare the costs of any modifications to the home as well as the cost of assistive devices needed to continue to reside in their home, with the costs of an assisted living or nursing facility.  Also, be sure to check if there are any in-home or community services available to assist with transportation, shopping, housekeeping or yard-work and their respective costs.

Next, there should be a discussion about end-of-life care.  Make sure your parent has a health care power of attorney and an advance directive or living will.  Also, if your parent has any final disposition instructions for their body after their death, they should be included in these documents as well.

Finally, what is your parent’s financial situation?  Do they have sufficient funds to pay for their long-term care?  If not, what programs are available to pay for that type of care?  Generally, Medicaid is the only program available to pay for long-term care, but it is a needs-based program so your parent will have to meet the eligibility requirements.  You should make sure your parent has a durable financial power of attorney that names an agent to manage their finances if they become incapacitated or incompetent.  That agent also should be made aware of what income and assets your parent has and where the assets are located.

Organizing the caregiving duties into the above four manageable categories: personal, housing, medical and financial, will keep you calm and able to focus on specific tasks rather than feeling overwhelmed by everything all at once.  Call ERA Law Group, LLC today at (410) 919-1790 and ask how we can help!

#TuesdayTips: Utilizing Asset Protection Trusts

To utilize an Asset Protection Trust you must Assess your needs; Create what is missing; and Tie in your plan.  In other words, you must ACT!

By: Jessica L. Estes, Esq.

If you read last week’s #TuesdayTips article, you learned how to protect your stuff in three easy steps: 1) know the rules; 2) know your predators; and 3) know your options.  Easy, right?  But, knowing is only half of the equation.  Now, it is time to: Assess your needs; Create what is missing; and Tie in your plan.  In other words, you must ACT!

Protecting your stuff starts with an assessment of your needs, which, in turn, requires careful consideration of your goals and values.  Typical goals of an estate plan include maintaining control and not becoming a burden to loved ones, all the while keeping it as simple as possible.  Most people would agree that protecting their stuff from future long-term care costs, is important to them.  That way, they maintain control of the assets, protecting them after they are gone for the benefit of their loved ones, while at the same time, minimizing the costs of such long-term care and the burden to their family while they are alive.

So how, exactly, does an asset protection trust work? First, there are three parties to a trust – the grantor, trustee and beneficiary.  The “grantor” is the person who is transferring his or her assets to the trust.  The “trustee” is the person who manages and administers the trust in accordance with the trust provisions.  The Trustee is responsible for making all decisions regarding the trust, including any management or investment decisions, as well as deciding whether to make distributions from the trust.  The “beneficiary” can be a single person, multiple people or an entity such as a church or charity.  There are two types of beneficiaries: “lifetime” beneficiaries and “residuary” beneficiaries.  “Lifetime” beneficiaries are those individuals named by the grantor who are entitled to receive distributions of income and/or principal during the grantor’s lifetime.  The “residuary” beneficiaries are those individuals named by the grantor who are entitled to receive distribution of the trust assets after the death of the grantor.

After the trust is established, your assets must be transferred to the trust and the trust will become the owner of the assets.  Even though you will no longer own the assets, you maintain control of them because you are the trustee.  The plan must, of necessity, though, limit direct access to the principal to ensure that creditors, predators and lawsuits do not obtain access to it.  Still, the trust can provide indirect access to the principal during the remainder of your life through your designated lifetime beneficiaries.

Finally, upon your death, and because the trust is a separate entity, any assets owned by the trust would bypass probate and could be distributed immediately to your residuary beneficiaries.  Overall, irrevocable asset protection trusts are not only a great way to protect your stuff, but also can be very flexible and easily customized to meet your individual goals.

Call ERA Law Group, LLC today at (410) 919-1790 to learn more!

 

#TuesdayTips: Charitable Remainder Trusts

It’s that time of year again… the hustle and bustle of the holidays are upon us!  If you are like me, you may still be searching for that perfect gift for everyone on your list.  Perhaps this year, as you make your list and check it twice, you may want to consider a charitable remainder trust.

It’s that time of year again… the hustle and bustle of the holidays are upon us!  If you are like me, you may still be searching for that perfect gift for everyone on your list.  Perhaps this year, as you make your list and check it twice, you may want to consider a charitable remainder trust.

A charitable remainder trust is an irrevocable trust that allows the donor, or anyone else you name, to receive each year either a fixed dollar amount from the trust or a percentage (at least 5%) of the value of the trust.  The right to receive this distribution is either for the individual’s lifetime or for a period of years not to exceed 20 years.  At the end of the term, the amount remaining in the trust is distributed to a qualified charity.  Generally, a qualified charity is one that has been deemed tax-exempt by the Internal Revenue Service.

Moreover, the charity will serve as trustee of the trust and will be responsible for investing and managing the asset(s) to produce income for you.  Because the charity is also the remainder beneficiary, it has an incentive to increase the value of the trust, which in turn, benefits not only the charity, but you as the income beneficiary of the trust.

In addition to the income benefit, there are three primary tax benefits.  First, after you have transferred the asset(s) to the trust, you may take an income tax deduction, spread over five years.  You are not, however, allowed to deduct dollar for dollar the amount that you gave.  Rather, you are only allowed to deduct the amount of the “gift,” which is the amount donated less the amount of income you are expected to receive.  Second, whatever the charity receives at the end of the trust term, is not subject to estate tax.  Similarly, the donation will not be subject to gift tax based on the amount the “gift,” unless the income beneficiary of the trust is someone other than the donor or their spouse, in which case, there may be a gift tax imposed on the amount of income that is paid to the income beneficiary.  Lastly, because the charity is tax-exempt, there is no capital gains tax on the sale of the asset(s) in the trust.  So, you can turn non-income-producing property that has increased significantly in value from the time at which you acquired it, into cash without having to pay capital gains tax on the profit.  This enables you to invest the full proceeds of the sale into an income-producing asset.

Further, you can elect to have either fixed annuity payments or a percentage of the current value of the trust.  If you choose the fixed annuity, you will receive a fixed dollar amount each year.  This is beneficial if the trust has a lower than expected income return because you will still receive your fixed payment.  Sounds great, but be careful.  The higher your annuity is, the lower your income tax deduction.  Also, if the trust does not generate enough income to cover your annuity payment, then the trust’s principal will be used.  The more principal that is used, the less likely it is that the charity would receive anything at the end of the trust term and consequently, the less likely it is that the charity would accept your donation in the first place.

Conversely, if you elect a percentage of the value of the trust, your payments will reflect any gains or losses in value of the investments each year.  And, it is important to note, that once a decision is made, you cannot change it later.  If you are considering a charitable remainder trust, call ERA Law Group, LLC at (410) 919-1790 before making a final decision.  Happy gift giving!

#TuesdayTips: My Role as Court Appointed Counsel

Guardianship is the court process whereby an individual (usually a family member) is appointed by the court to make health care and/or financial decisions form someone who the court has deemed incompetent and not able to make those decisions him or herself. Because this is such an important proceeding, the legislature has felt it necessary that when a guardianship petition is filed in the court, the court shall appoint a member of the bar (an attorney) to represent the alleged disabled person (ADP for short) during the process.  The Court Appointed Counsel is responsible for representing the ADP and asserting their wishes and instructions regardless of their physical or mental status. 

What is guardianship and do I need it?  Guardianship is the court process whereby an individual (usually a family member) is appointed by the court to make health care and/or financial decisions form someone who the court has deemed incompetent and not able to make those decisions him or herself.  It is what the court calls, “the means of last resort” because the court prefers alternatives over guardianship because it is so restrictive.  Such alternatives are powers of attorney, joint account ownership, etc.

Guardianship is taken by the court very seriously.  Why? The answer is actually simple.  When a person is incarcerated in prison, he or she has lost their liberty, i.e., their ability to make their own decisions.  With guardianship, even though it is a civil matter and not criminal, the court is making a determination that a person is not competent based on medical evidence, and essentially taking that person’s rights away to make medical and financial decisions from that point forward.  The only way to get guardianship removed is to prove that the medical condition no longer exists or the person has regained the ability to make their own decisions.

Because this is such an important proceeding, the legislature has felt it necessary that when a guardianship petition is filed in the court, the court shall appoint a member of the bar (an attorney) to represent the alleged disabled person (ADP for short) during the process.   That attorney is referred to as the Court-Appointed Counsel or CAC.  The CAC is responsible for representing the ADP and asserting their wishes and instructions regardless of their physical or mental status.  That means that if a person with end-stage Alzheimer’s Disease does not believe anything is wrong and does not want a guardian, it is the CAC’s job to tell the court the ADP does not want a guardian.

Additionally, as part of the job of a CAC, he or she may also interview family members, review medical records, request depositions of medical professionals, and although very rare, conduct a jury trial on behalf of the ADP if competency is strongly contested.  Often times, the ADP is either unconscious or non-communicative due to a disease or physical trauma, like a head injury.  The court will regularly call on the CAC to opine as to the best-suited person to serve as guardian because the CAC is the court’s eyes and ears during the guardianship process.

Since the guardianship process can be very intense and contentious, it is best to be prepared and get your estate planning documents in order.  The best part about estate planning is YOU get to choose who makes those difficult medical and financial decisions.  If a guardianship is initiated, you may not get who you want.  For example, you might not get along with your child, and would prefer your sibling be your guardian; however, if a guardianship is initiated, your child stands in a higher priority of appointment than your sibling.  Therefore, if the matter is contested, your sibling would have to prove that he/she is better suited to be your guardian than your child.  So as parting words of wisdom…make sure you are prepared!  Get your estate planning documents together so you can avoid guardianship at all costs!  Call the attorneys at ERA Law Group, LLC today at (410) 919-1790.

#TuesdayTips: DIY Estate Documents Gone Wrong

Estate planning can be a very complicated area of the law.  Before going online to print off your documents, ask yourself, if I needed open heart surgery, would I go to WebMD to get the “how-to” instructions?  Not likely, so why go online to get the how-to instructions to complete your own estate documents? 

Did you create your own documents?

Why pay a lawyer when I can get my estate documents online for free (or at least at a lesser cost than a lawyer)?  Every estate planning attorney has fielded that question at some point or another.  My response is usually: “I love online documents…because it usually means I’ll have more work that makes more money in the future.”  After I say that, I typically get a grin across the client’s face and then they ask “why”?

Using online documents to accomplish your estate planning goals is not generally a good idea and in many cases can lead to severe consequences.  Have you ever heard the saying, “you get what you pay for”?  When you get your documents online, you don’t have the opportunity to talk to an attorney, to ask questions about your specific situation unique to only you or your family, and your documents will not be tailored to your specific circumstances.

Prior to your documents being drafted, you meet with an attorney to discuss your estate planning goals and objectives at the consultation.  My estate planning consultations usually last at least an hour if not an hour and a half.  During the consultation, we review your health status, family status and financial status all before we even mention the words “will” or “power of attorney” or “trust.”  You also have the opportunity to ask questions and receive specific answers related to your situation.  When you get your documents online, they are almost  never tailored to your specific situation.

What happens if you are a blended family?  I can almost guarantee you that the basic online Will does not address how to provide for your spouse and your biological children if you were to die first.  Many estate litigation cases arise from blended family situations where the surviving step parent does a new will after the spouse dies cutting out the spouse’s biological children from any inheritance.

What about your million-dollar IRA?  Who does that go to?  Many clients think the Will directs who gets that money.  WRONG!!  If you have beneficiaries on that IRA, then the beneficiaries listed on the IRA account receive the money and the beneficiaries named in the Will get none of it!  So many people believe the Will controls everything, and unfortunately, if you get your documents online, you will not be educated on what happens to each asset that comprises your estate.

What if you own property in multiple states?  Chances are you were not advised by the online website that you will have to likely do probate in each state you own property.  To avoid this common situation, often times estate planning attorneys will employ trusts so that ownership of those properties are consolidated into the Trust.  That way, upon the death of the owner, the Trustee can sell the properties and does not have to go through the probate/ancillary probate process in each state the Decedent owned property.

Estate planning can be a very complicated area of the law.  Before going online to print off your documents, ask yourself, if I needed open heart surgery, would I go to WebMD to get the “how-to” instructions?  Not likely, so why go online to get the how-to instructions to complete your own estate documents?  Instead, call ERA Law Group, LLC at (410) 919-1790 today!