Federal
Estate Tax Exemption Increases
Written By:
Attorney
Jeffrey A. Marshall
, CELA*
Happy
New Year from the IRS! On
January 1, 2004
the federal estate tax exemption for
individuals jumped to $1.5 million and the top tax rate dropped to 48%.
The increase means that by planning properly married couples can now
protect up to $3 million from the federal death tax.
The 2004
changes are the result of the Tax Act that was enacted back in 2001.
Under that law, reductions in federal estate tax rates and
increases in the exemption amounts are being phased in through 2009.
Then, in 2010, the federal estate tax will be repealed.
Unfortunately, in 2011, if lawmakers do nothing, the federal death
tax will return and apply to estates as small as $1 million with tax rates
of up to 55%.
It seems likely
that Congress will modify the federal death tax law again before 2010.
In light of the budget deficits that are currently being projected,
it seems unlikely that the repeal of the estate tax will be made
permanent. More likely,
however, is a permanent increase in the exemption amount.
Given this
confusing “phase out” followed by the return of the estate tax,
consumers with potential estates of $1 million or more need to create
plans that are flexible enough to change along with the tax laws.
Married couples may want to include the use of planned disclaimers
which can allow the surviving spouse to create a tax saving trust as
needed.
No matter the
size of your estate, remember that the primary goal of estate planning is
to provide in the best manner for your heirs, and ensure that your assets
are distributed to the right people, in the right amounts, at the right
times.
Understanding
Your IRA
Written
By: Attorney
Matthew
J. Parker
More
often than not, the retirement plan of the average American constitutes
the largest part of his or her savings. These plans include traditional
IRAs, profit sharing plans, 401(k) plans, Keogh plans and 403(b) plans.
The rules and tax issues surrounding these plans are often
complicated and confusing. To
address these concerns, Marshall & Associates is presenting a series
of articles discussing the common questions regarding retirement plans.
This is the second article in the series.
Part
II:
What
is the Required Minimum Distribution?
During
most of the retirement plan owner’s lifetime, the plan has grown tax
deferred. However, once the
plan owner reaches the required beginning date, the owner must determine
and withdraw their required minimum distribution.
The required minimum distribution (RMD) is the amount that must be
taken out of the retirement plan each year once the owner reaches their
required beginning date. New
rules issued by the IRS in April of 2002 greatly simplified calculation of
the RMD.
Under the new
rules, the RMD is calculated the same for all plan owners, regardless of
the beneficiary. The only
exception is when there is a spouse that is ten (10) years younger than
the plan owner. The new rules
ensure that a plan owner will never outlive the plan if they withdraw the
RMD for the remainder of their lifetime.
To calculate
the RMD, a plan owner must determine the following: A) the account balance
as of the preceding calendar year, B) the age of the owner in the
distribution year and C) the divisor from the Uniform Lifetime Table
(which can be found on the IRS web site at www.IRS.Gov
). In the event the plan
owner has a spouse that is ten (10) or more years younger than the owner
and the spouse is the beneficiary of the plan, then the divisor is taken
from the Joint Life & Last Survivor Table.
The plan owner
then divides the account balance by the divisor to determine the RMD. For
example, a 71 year old plan owner with a plan having an account balance of
$100,000, would divide the account balance by 16.3, the life expectancy
taken from the Uniform Lifetime Table.
The result is a minimum distribution of $6,134.97.
This same calculation will be done for each retirement plan.
The RMD requirement does not apply to Roth IRAs.
If a plan owner
fails to take the RMD, the IRS has the authority to levy a penalty equal
to 50% of the amount the owner failed to withdraw.
The RMD will be taxed at the plan owner’s then-existing tax rate.
If
you would like more information on this topic and other issues relating to
retirement plans and estate planning, please stay tuned to the Elder
Care Law Alert for more articles and for information about our
upcoming free seminars entitled, “Understanding Your IRA and
Essential Estate Planning.”
Case
Discusses Mental Capacity Required to Give Power of Attorney
Written By:
Attorney
Jeffrey A. Marshall
, CELA*
Is
Mom still competent to sign a power of attorney?
This can become an important question for family members.
Without a power of attorney, families may have to resort to the
court system to get the authority to handle needed financial and health
care matters for an incapacitated spouse or parent.
Sometimes, it
is difficult to determine whether or not mental capacity is sufficient to
sign a power of attorney. The
senior may be suffering from some dementia, the level of which can vary
substantially at different times during the same day. And, unfortunately,
the correct legal standards to apply in making a competency determination
are also far from clear.
It is generally
accepted that the standards for capacity to execute legal documents differ
depending on the complexity of the document; but there is no clear
agreement regarding the level of capacity required to execute a power of
attorney. Some legal writers have suggested that a power of attorney is an
“agency” contract and that the capacity required should be the same as
that required to enter into any simple contract.
Others argue for a lesser standard -- that the person signing the
power of attorney only needs to have a general understanding that the
document authorizes another to handle his or her affairs.
The limited
Pennsylvania
case law that exists seems to
support this latter, more lenient, standard.
A recent
Chester
County
court decision discusses the
question of the intellectual capacity required to execute a power of
attorney. In April 2002, Mary
Govett, age 81, executed a power of attorney. A month earlier, a
Department of Aging employee had administered a standard mental acuity
test which indicated that Ms. Govett was severely incapacitated.
In April, a physician performed a psychological evaluation which
produced a diagnosis of “likely dementia with secondary
agitation/suspiciousness.”
Given the opinions of the doctor and Department of Aging employee, was
Mrs. Govett still competent to sign a power of attorney?
When the case went to court, the Judge noted that an individual is
first presumed to be competent. The burden of proving that someone was not
competent to sign a power of attorney thus falls on the party contesting
the instrument. Lack of
capacity must be proved by clear and convincing evidence.
The Judge went
on to say that someone who is suffering from dementia may still be
competent to execute a valid power of attorney. “Evidence of dementia
does not necessarily imply that one is legally incapacitated.” The Judge
noted that there was testimony that Mrs. Govett understood what was
happening, was oriented to time, place, and person, and knew what she was
doing when the power of attorney was signed.
As a result, the Judge concluded that there was no clear and
convincing evidence of intellectual incapacity and upheld the validity of
the power of attorney.
Govett, Incapacitated Person, 23 Fiduciary Reporter 2d 287 (
Chester
, 2003).
“Understanding
Medicaid” Presentations Set for
Williamsport
and
Wilkes-Barre
G
etting good information about
options for long term care is critically important for seniors. Four out
of every ten people reaching age 65 will spend some time in a nursing home
and many more will require home care and assistance with daily living.
The Elder Law
Firm of Marshall & Associates is known throughout
Pennsylvania
for the expert help we provide
seniors who are faced with long term care needs. We help families
struggling to care for their loved one at home find the programs and
financial help they need.
If nursing home
placement becomes necessary, we work with the facility to help make the
transition go as smoothly as possible. We make certain that the nursing
facility gets paid in a timely manner while helping the family qualify for
government programs that help pay the costs.
Marshall & Associates
occasionally holds free educational
forums to help educate families about the options that are available to
pay for long term care in the home or a nursing home.
Join us for one of these free presentations and learn what you need
to know about how to get the help you need and protect your family's
financial security when your spouse or parent is faced with a long term
illness.
Each
presentation is FREE and open to seniors, their families, elder care
professionals, and anyone else who needs to learn more about this complex
subject. Each presentation
lasts about 1 ½ hours, including a “Question & Answer” Session.
-
Williamsport
:
Wednesday,
January 21st, 2004
at
6:30
PM
The
Radisson Hotel,
Williamsport
-
Wilkes-Barre
:
Thursday,
January 22nd, 2004
at
6:30
PM
The
Woodlands,
Wilkes-Barre
Reservations
are suggested, but not required. SIGN
UP ONLINE
or call 1-800-401-4552 for more information or to reserve your spot for
one of these free seminars!
Do
you have a friend or colleague who would enjoy reading the
Elder Care Law Alert? If
so, please feel free to forward it to them. Simply use the “Forward”
button on your e-mail program.
To
subscribe or unsubscribe to the Elder Care Law Alert,
simply
send your request to:
webmail@paelderlaw.com
Does
Your Club Or Organization Need A Speaker?
If
you are interested in having an attorney or geriatric planning specialist
from
The
Elder Law Firm of Marshall & Associates speak to your group, or at an
upcoming event, please contact
our
Public Education Coordinator, Melissa
Bottorf
at mbottorf@paelderlaw.com
or 1-800-401-4552
*Attorney
Marshall
is
certified as an Elder Law Attorney by the National Elder Law Foundation
under authorization from the Pennsylvania Supreme Courtt.
© 2000-2005
Marshall & Associates www.paelderlaw.com
