PLANNING FOR MENTAL DECLINE

by Monte L. Schatz

When the topic of estate planning comes to mind, most individuals think about the distribution of their assets at death.   The increased longevity of our population requires equal attention to diminished cognitive skills caused by dementia or other diseases that affect normal cognitive functioning.

Dementia is a syndrome in which there is deterioration in memory, thinking, behavior and the ability to perform everyday activities.  An estimated 5.5 million Americans of all ages have Alzheimer’s disease.  One in 10 people age 65 and older has Alzheimer’s dementia.  The average survival time for people diagnosed with dementia is about four and a half years, new research shows. Those diagnosed before age 70 typically live for a decade or longer.  The time frame from mild cognitive decline to the onset of dementia averages seven years.   Typically, when an individual is in the moderately severe cognitive decline, assistance may be required for daily activities and management of the person’s financial affairs.

The difficulties that families encounter is determining when the person no longer can manage their own affairs or maintain his or her own physical well-being.  The ultimate question of capacity is a legal determination and in some cases a judicial determination, not a clinical finding. A clinical assessment stands as strong evidence to which the lawyer must apply judgment considering all the factors in the case at hand.  While psychologists and other health professionals may use different terms than lawyers, conceptually the clinical model of capacity has striking similarities to the legal model.

The best estate planning approach is to take proactive legal steps ahead of mental decline to assure adequate personal and financial care and to minimize unnecessary legal costs or litigation expenses.  The legal tools available to circumvent legal capacity issues include:

  • A will drafted in advance of cognitive decline to minimize heirs contesting an estate.
  • A living trust should be considered to assure proper management of assets and continuity of financial management by a trustee for the incapacitated person’s benefit.
  • A durable power of attorney for financial matters designating a trusted and financially responsible individual to manage assets upon the onset of mental incapacity.
  • A health care power of attorney or directive that provides for a designated person to make health decisions in the event of incapacity.
  • A living will that outlines, in advance, the wishes of a person who receives artificial life sustaining treatment.

Thoughtful estate planning in advance of mental decline can help avoid expensive court alternatives that can include court conservatorships or guardianships during life and/or estate litigation after the person’s death.  More importantly, well designed advanced planning minimizes the possibility of disputes among heirs that may disrupt family relationships.

© 2017 Vandenack Weaver LLC
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Using Intra-Family Loans to Transfer Wealth

Intra-family Loans can be a great opportunity for families to give their children or relatives additional funds, or if a relative is looking to make a significant purchase, a relative can borrow from a member of the family at a much better rate than going to a financial institution. Most individuals are familiar with the idea of making gifts to their children or relatives of an amount below the annual gift exclusion of $14,000, but those seeking to make transfers to their family that exceed the annual exclusion should be considering intra-family loans because of current low interest rates.

If making such a loan, the loan should be properly documented and interest must be charged and paid. If these requirements are not met, the Internal Revenue Service (“IRS”) may recharacterize the loan as a gift. If treated as a gift, the loan will reduce the lender’s gift and estate tax exemption or may cause the gift to be taxed at the current gift tax rate of 40%. It is recommended that the loan be documented with a promissory note and a fixed payment schedule. An interest rate equal to or above the Applicable Federal Rate (AFR) must be charge on the loan. The AFR will depend on the length of the loan. For loans with an annual compounding interest, the January interest rates are as follows: short-term (< 3 years): .56%; mid-term (3-9 years): 1.68%; and long-term (> 9 years): 2.61%. The recommended length and structure for repayment of the loan will likely depend on the AFR at the time of the loan, the financial needs of the lender, and the funds available to the borrower.

As an example of the effectiveness of such a loan, Parent makes a loan to Child for $500,000 and Child invest such funds with an annual return of 5%. If the loan is for a term of 9 years with a balloon payment at the end of such time, the applicable January mid-term rate would be 1.68%. At the end of the 9 year period, Child would have $775,664. The payment due on the loan would be $580,885. Child nets $194,779. Parent would be required to report the amount of interest, $80,885, as interest income.

While current rates remain low, it is likely that the rates will increase over the course of 2016. If you want additional information or would like to take advantage of the current interest rates, contact the attorneys at Vandenack Williams LLC.

© 2015 Vandenack Williams LLC
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Who Should Be My Power of Attorney?

A Video FAQ with Mary E. Vandenack.

There are 2 different types of power of attorneys to consider when making that decision. The first type is a legal power of attorney. When you execute a legal power of attorney you are giving someone the ability to act for you on financial matters, to sign checks for you, or to enter into contracts for you. That power of attorney or agent needs to be somebody you have a lot of trust in in that regard.

The other type of power of attorney is a power of attorney for health care. That is a death-bed type of decision or one in which you are very ill or incapable of acting for yourself. You’re going to want to choose someone who is knowledgeable about what you want in those types of circumstances and that you feel will be an active advocate for you with the health care system.

© 2014 Parsonage Vandenack Williams LLC

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Should Your Company Consider A Cybersecurity Disclosure Policy?

Cybersecurity breaches represent a significant, rapidly growing risk to virtually all companies doing business today.  Small companies are particularly prone to a variety of potential cybersecurity breaches, including loss of physical property, social engineering, malicious attacks, or breaches caused by employee conduct.  The consequences of these breaches can include increased costs, lost revenues, reputational damage, and litigation. As a result, the Securities Exchange Commission has recently indicated that public companies must consider cybersecurity risks when disclosing risks to their investors. While the SEC guidance primarily applies to public companies, private companies may also be subject to these requirements if they do business with public companies.

Given the growth of cybersecurity risks and breaches, many states have also acted to promote disclosure of cybersecurity issues. Currently, 46 states have enacted legislation that requires companies to notify customers if a cybersecurity issue compromises their personal information. The potential ramifications of cybersecurity risks may create liability not only for the company itself, but also for its board of directors and officers. Accordingly, companies should regularly review their policies relating to the disclosure of cybersecurity risks and incidents.

© 2012 Parsonage Vandenack Williams LLC

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Bill Introduced to End the Nebraska Inheritance Tax

A bill was introduced in the Nebraska Unicameral that would end the Nebraska inheritance tax.  The tax is paid to counties by people who inherit property from deceased friends and relatives.  Nebraska is currently one of only eight states to have such a tax.  The proposal comes amid Forbes Magazine naming Nebraska as one of the states “where not to die.” 

 

Proponents of LB 970, including Governor Heineman, argue that the tax is causing Nebraskans to move out of the state to avoid being subject to the tax.  Opponents, mainly counties who rely on the money, counter that property taxes will have to be raised to offset the lost revenue.  Douglas County alone collects between $7 million and $9 million from the tax annually.  Expect a contested battle over LB 970 as efforts to reduce the inheritance tax have failed in previous legislative sessions.

© 2012 Parsonage Vandenack Williams LLC

For more information, contact info@pvwlaw.com

HIRE Act Introduces New Tax Incentives for Employers For Hiring Employees

The  Hiring Incentives to Restore Employment (“HIRE”) Act, signed into law March 18, 2010, includes several important tax provisions designed to promote job growth and stimulate the United States economy.

Hire Now Tax Cut

$13 billion in tax breaks  are available to qualified employers both in the form of payroll forgiveness for Social Security taxes paid for qualified new hires, as well as a tax credit to employers for keeping those employees on payroll for 52 consecutive weeks.

Social Security Tax Forgiveness

Qualified Employer. A qualified employer is any non-governmental entity hiring in the United States. Federal, state or local governments or instrumentalities, except for state colleges and universities, do not qualify. Any employer may choose to opt out of the forgiveness program.

Qualified Employee. A  qualified employee is any previously unemployed individual hired between February 3, 2010 and January 1, 2011.  The individual must be able to show no more than 40 hours employment in the 60 days prior to hiring. The new hire cannot replace an employee unless the replaced employee’s departure was either voluntarily or for cause. Relatives of the employer, or shareholders owning more than 50 percent of the business, are not eligible employees.

Retained Worker Tax Credit

Employers will be eligible for an additional tax credit for each qualified retained worker kept on the payroll for 52 consecutive weeks. That credit will come as an increase to the Code Sec. 38(b) credit by the lesser of $1,000 or 6.2 percent of wages paid during the 52-week period.

 Qualified Retained Worker. A new worker kept on the payroll for 52 consecutive weeks might qualify as a retained worker. To ensure just pay, that worker needs to earn an amount equal to at least 80 percent of his or her first 26-week accumulated wage in his or her second 26 weeks.

 Employers may claim the retained worker credit only if the full 52-week period is met. Should a worker spend 51 consecutive weeks in employment and then leave, the employer would not be eligible for any portion of the tax credit.

© 2010 Parsonage Vandenack Williams LLC

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TAX COURT RULES GIFTS OF NEBRASKA LLP NOT A GIFT OF A PRESENT INTEREST

The United States Tax Court recently published a tax court memorandum opinion, T.C. Memo 2010-2 entitled Walter Price v. Commissioner. In Price the Tax Court held that a couple’s gifts of interest in a Nebraska limited partnership to their children did not qualify for the gift tax present interest annual exclusion under I.R.C. § 2503(b), determining that despite distributions of nearly $530,000 in the six years following the initial gift because the Price’s failed to show that the gifts had an unrestricted and noncontingent right to immediate use. For a link to the full Price v. Commissioner opinion, see our website at www.pvwlaw.com.

Link for website: http://www.ustaxcourt.gov/InOpHistoric/PRICE3.TCM.WPD.pdf

© 2010 Parsonage Vandenack Williams LLC

  For more information, contact info@pvwlaw.com

IRS Issues Guidance on Correction of Certain Failures under Code Section 409A (Notice 2010-6)

The IRS has issued guidance for taxpayers with nonqualified deferred compensation plans on correcting certain failures to comply with the document requirements of IRC Section 409A. Taxpayers may rely on this guidance for tax years beginning on or after January 1, 2009.

Unless specific requirements are met, amounts deferred under a nonqualified deferred compensation plan are includible in gross income under Section 409A to the extent that the deferred amounts are not subject to a substantial risk of forfeiture and were not previously included in income. The amounts includible in income are also subject to two additional taxes.

Nonqualified deferred compensation plans must comply with Section 409A in both form and operation. The newly issued guidance mainly addresses the failure to comply with Section 409A in form (i.e. document compliance).

The IRS guidance, issued in Notice 2010-6, includes the following information:

  1. Clarifies that certain language that is commonly included in plan documents will not cause a document failure.
  2. Provides relief by allowing certain document failures to be corrected without current income inclusion or additional taxes under Section 409A as long as the corrected plan provision does not affect the operation of the plan within one year following the date of correction.
  3. Provides relief by limiting the amount currently includible in income and the additional taxes under Section 409A for certain document failures if correction of the failure affects the operation of the plan within one year following the date of correction.
  4. Provides relief by allowing certain document failures to be corrected without current income inclusion or additional taxes under Section 409A if the plan is the service recipient’s first plan of that type and the failure is corrected within a limited period following adoption of the plan.
  5. Provides transition relief by allowing certain document failures to be corrected without current income inclusion or additional taxes under Section 409A if the document failure is corrected by December 31, 2010, and any operational failures resulting from the document failure are also corrected in accordance with Notice 2008-113 by December 31, 2010. Many examples of common types of failures and the related corrections are also provided.

Modification of Notice 2008-113. The newly issued guidance also modifies Notice 2008-113, which addresses certain operational failures of nonqualified deferred compensation plans. The areas of Notice 2008-113 that have been clarified include: (1) the application of the subsequent year correction method to late payments of amounts deferred; (2) the calculation of the amount that must be paid to the service provider as a correction of a late payment of an amount deferred under a plan if the payment would have been made in property; and (3) the calculation of the amount that must be repaid by the service provider as a correction of an early payment of an amount deferred under a plan if the early payment was made in property.

Modification of Notice 2008-115. Notice 2008-115, I.R.B. 2008-52, 1367, which relates to reporting and wage withholding for 2008 and subsequent years, has also been modified. Specifically, the notice has been modified with respect to: (1) the amount that is required to be included in income by a service provider under Section 409A, and (2) the amount that is required to be reported by the service recipient as an amount includible in income under Section 409A on Form W-2 or Form 1099-Z.

© 2010 Parsonage Vandenack Williams LLC

  For more information, contact info@pvwlaw.com

When to review your estate plan

You should review your estate plan when:

* You move to another state.

* You have a significant change in assets.

* You have a change in family situation (birth, death, marriage, divorce).

* Retirement.

* There are significant law changes.

* Every three years.

© 2009 Parsonage Vandenack Williams LLC

For more information, contact info@pvwlaw.com

ESTATE PLANNING IN UNCERTAIN ECONOMIC TIMES

In uncertain economic times, it is common that clients become more interested in the estate planning process and making sure their affairs are in order. At present, there is a particular interest in the asset protection aspect of the estate planning process.  This article is the first in a series of articles that will address the estate planning process.   This first article briefly covers a few basic estate planning tools.  Future articles will address the use of trusts in estate planning and various asset protection planning techniques. 

 

There are certain basic estate planning vehicles that everyone should have in place.  The most basic is a will.  If you haven’t written your own will, you do have a will; it’s just that your will is written by the State on your behalf.  In Nebraska, your will reads something like the following: “I leave one half plus $50,000 to my spouse if I have a spouse.  I leave the balance to my children even if my spouse is still living and the children are minors. If I don’t have a spouse, I leave everything to my children.  I leave it to the State to decide on the guardian for my children and to establish a conservatorship to manage their inheritance. Regardless of how much my children inherit, they should have the right to all of it as soon as they turn 19.  The handling of my estate shall be accomplished through an expensive probate process and no consideration needs to be given to tax effective methods of passing on my assets.”

 

A will is easy. If you don’t have a will and don’t want to consult an attorney, consider writing your own will.  Nebraska permits holographic wills (which is a better alternative than most computer programs).  Your holographic will is valid if it is in your handwriting, expresses what you want to do with your assets, and is signed and dated by you.  If you have minor children, be sure to name a guardian.

 

Another basic estate planning tool is the advance directive. Advance directives express your desires as to what happens when health care issues arise for you.  The possibilities in Nebraska include Declarations and Health Care Powers of Attorney.

 

The Declaration is commonly known as a “living will”.  The Declaration comes into play when you are terminally ill or in a persistent vegetative state.  The Declaration includes provisions specifying whether you want extraordinary life support measures and artificial nutrition or hydration.   The Declaration usually directs in favor of total relief from pain even if it shortens life.

 

The Health Care Power of Attorney permits an agent to step in when the principal becomes “incapable” of making health care decisions.  The Power of Attorney can incorporate the provisions of a Declaration.

 

As long as your advance directives are executed in accordance with the law of your state or residence, they are likely to be effective in most places when you travel.  Consider having your advance directives available online (via a safe and secure source) in the event you need them while away from home.

 

Trusts are the next tool to be considered in estate planning.  There are many uses for trusts.  Those possibilities will be addressed in the next article.

 © 2008 Parsonage Vandenack Williams LLC

For more information, contact info@pvwlaw.com