IN THIS ISSUE
Irrevocable Trusts,
Income Taxes &
Decanting
1
Agents Beware!
2
I’ll Never Retire,
I’ll Keep Working
2
Income Taxes, Identify
Theft and Identity Fraud
2
Funding Failures
3
Free Workshops
4
Special Events Schedule
4
Our Team
4
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Irrevocable Trusts, Income Taxes and Decanting
As the federal estate tax exemption has
ballooned from $1.5 million ten years ago to
$5.45 million today, the need for estate tax
planning has drastically decreased. Today,
income tax is commonly the most important
tax to plan for, and in estate planning,
leveraging the step up in basis is particularly
important. Income taxes are implicated when
assets are left in an irrevocable trust. How to
maximize the step up in basis, minimize
income taxes and still provide protection
afforded by a properly drafted trust are now
common planning goals.
In its simplest form, income tax basis is the cost
to buy an asset. The basis of an asset must be
tracked because when an asset is sold, income
tax liability, in the form of capital gains, is
calculated by subtracting the basis from the
sales price. If the sales price is more than the
basis, the taxpayer must report a capital gain,
if the sales price is less than the basis, the
taxpayer reports a capital loss.
Basis plays an important role in estate
planning in two ways:
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1. Basis and lifetime transfers: When
property is gifted during life, the
recipient of the gift receives the donor’s
basis in the property. This is referred to
as carry-over basis. If the donee sells the
property gifted, to determine whether or
not there will be capital gains she must
look to the donor’s basis in the property
given to her.
2. Basis and transfers after death: When
property is transferred after death, the
inheritor’s basis in the property is
generally the fair market value on the date
of death. This is referred to as stepped-up
basis. In this case, if the donee sells the
gifted property, she will look to the new
basis to determine if a tax will be due.
Today many estate plans contain irrevocable
trusts that will continue for the benefit of a
surviving spouse and thereafter for the
benefit of one or more further generations.
With these plans it is common for trust assets
not to be included in the beneficiary’s estate.
This will likely create an income tax liability
when the asset is sold because it will not
receive another step up in basis at the
beneficiary’s death. Drafting trusts to include
special powers of appointment or giving a 3rd
party the authority to grant powers of
appointment can go a long way toward
addressing this issue, without losing the
protection of the trust.
Another increasingly popular technique is to
decant assets from one irrevocable trust to
another irrevocable trust with more favorable
terms. Several states, including New
Hampshire, have adopted decanting statutes.
Provisions for trust decanting are also often
included in trusts intended to last decades
into the future. Decanting gives irrevocable
trusts flexibility, including the ability to
clarify ambiguities or drafting errors in the
trust agreement; providing protection for a
special needs beneficiary; protecting trust
assets from the beneficiary’s creditors;
changing the governing law or situs to a
different state for income or estate tax
purposes; and causing estate tax inclusion to
minimize income taxes.
Including trust decanting provisions in an
irrevocable trust agreement or a revocable
trust agreement, especially in states that have
not adopted decanting statutes, can be
critical to the success of a trust. It will help
insure the trust agreement has flexibility in
future years—but be careful, you may want to
limit the flexibility as well!
If you are interested in adding decanting
provisions to your trust, want to explore
modifying an irrevocable trust, or decanting
assets from an old irrevocable trust to a new
irrevocable trust, please contact us.
independently. It is common for couples to be unable to live
together when one of them needs a higher level of care,
increasing not only expenses but emotional stress.
AGENTS BEWARE!
Assisted living and nursing facilities in New Hampshire may sue
any person to whom property was gifted within 5 years of
donor’s application for Medicaid. For example: Mom gives you
$13,500—or any amount; 4.5 years later Mom applies for
Medicaid. A transfer penalty will be imposed. In New
Hampshire the nursing home may sue you for payment up to
the value of the gift. In Vermont the gift is likely to delay Mom’s
eligibility.
Barring health issues, employment prospects among retirees
vary greatly, inflation effects fixed incomes, interest rates can
reduce retirement income, and there are fluctuations in the
stock market.
What to do?
1.
In addition, New Hampshire nursing homes and assisted living
facilities may sue any fiduciary (“helper”) who fails to timely
submit an application for Medicaid.
Finally, all fiduciaries take care! Thoroughly read the application
for residency at a nursing home or assisted living facility. By
signing the application will you become a “responsible party?”
Sign as the applicant’s agent, (or other fiduciary) NOT as the
responsible party.
2.
3.
I’ll Never Retire, I’ll Keep Working
Recently, USA Today highlighted a survey of American workers
that found 82% of those age 60 and older either expected to keep
working past age 65 or already were. Their reasons involved less a
desire to stay active than more practical concerns about simply
staying financially secure when considering potential health,
housing and financial pitfalls that can eliminate life savings. Many
said they were afraid of outliving their investments and savings.
If you do not already have one, start a
financial plan to account for all reasonably
likely outcomes. Your plan should include
budgeting and cover everything from
insurance to taxes to nursing care to estate
planning.
Start a cash cushion by setting aside a
minimum of three months of living expenses,
and considering saving more to cover
expenses not insured or only partially
insured.
Check your employer’s benefit package.
Since many workers suddenly retire due to
health issues, such as disability, you may
need to buy additional insurance.
Income Taxes, Identify Theft and
Identity Fraud
According to the Bureau of Justice Statistics, about 17.6 million
people in the U.S. were victims of identity theft in 2014. When a
data breach occurs at a company, the company may offer to provide
identity protection services to its customers, employees, or other
affected individuals. Is the value of the identity protection services
taxable income? Yikes!
In our experience, preparing a strategic retirement and estate plan
is the best way to address those worries,
and it is crucial to consider the curveballs
that will inevitably get thrown at us. We
are continually hearing from our clients
they are worried about outliving their
resources and are afraid of being unable
to leave anything to their loved ones.
Happily, the IRS has determined the answer is no, both for an
individual whose personal information may have been
compromised and identity protection services have been provided
by a company that experienced a data breach and for an employee
whose personal information may have been compromised in a data
breach of the employer, of an agent of the employer, or of a service
provider of the employer.
USA Today cited another study that found 1 in 10 workers said
even though they never planned to retire, some were still forced to
do so unexpectedly because of health problems or some other
disability. Other reasons were changes at the workplace, changes in
the required job skills and having to act as a caregiver for a spouse
or relative.
The IRS has extended these conclusions to identity protection
services provided before a data breach occurs.
Identity protection services include credit reporting and monitoring
services, identity theft insurance policies, identity restoration
services, or other similar services.
Healthcare costs can be difficult to gauge for individuals far into
the future. What is more, there are life changes that may affect a
retirement plan a client might not have considered while still in
the workforce. A sudden illness or accident could lead him or her
to a change in housing needs due to the inability to live
As the 2016 income tax filing season begins, it is important for
taxpayers and tax preparers to take extra precautions regarding
identity theft, tax refund fraud, and tax-related scam emails. The
2
Funding Failures
IRS has issued Publication 4524 on Security Awareness for
Taxpayers and Publication 4557 on Safeguarding Taxpayer Data.
The IRS also has released as series of security awareness tax tips.
Funding is one of the most critical, yet overlooked aspects of
estate planning. It determines the effectiveness of your estate
plan, whether you are planning with a Will or a Trust. Many
people set up a revocable trust with the goal of avoiding
probate. When properly prepared and funded, a trust-based
estate plan will avoid the public, costly, and time-consuming
probate court process. But many people still make a big
mistake, hurling their assets and loved ones right into the oft
dreaded probate court system. Their mistake? Failure to fund
their trust, and keep it funded!
If you are concerned about identity theft or identity fraud, read the
recent report from the U.S. Public Interest Research Group Why
You Should Get Security Freezes Before Your Information is Stolen—Tips to
Protect Yourself Against Identity Theft & Financial Fraud. According to
the report, a security freeze is the only reliable way to prevent
someone from opening new financial accounts in your name.
Here are the steps US.PIRG recommends for all consumers
whether their information has been stolen in a data breach or not:
•
Here is an example -Place a security freeze, also known as a credit freeze, on
your credit report at each of
the three major national
Next Funding Workshop Getting Title Right!
credit bureaus Equifax,
Experian, and TransUnion
For Trust-Based Clients
– This is the ONLY reliable
March 23, 2016 – 12 pm to 1 pm
prevention of someone
Lunch Provided – Limited Seating
opening
new
financial
RSVP by calling Candice at (603) 643-7577
accounts in your name.
John and Jane Doe have trustbased estate plans designed to
protect assets for the survivor of
them and to avoid probate. We
assisted in funding their revocable
living trusts. To our knowledge,
their trusts were fully funded; that
is, all of their assets were
or register at www.estateandelderlawgroup.com
transferred to their respective
• Next steps, after placing
trusts. However, Jane had a secret
security freezes include:
bank account titled in her name alone which she did not
o Use your free annual credit reports as a form of “free
disclose to Caldwell Law or anyone else.
credit monitoring.”
Following Jane’s death the settlement of her trust estate was
o Opt out of allowing your credit reports to be used to
near completion when her secret bank account was discovered.
generate pre-approved (pre-screened) credit &
Probate administration was required to access and distribute
insurance offers.
the account. The balance in the account at the time of Jane’s
death
was $10,000. In the end, the cost of going through the
In addition to the above steps, the following steps are also
probate court process consumed much of the value of the asset.
recommended for people whose information has been stolen in a
This
could easily have been avoided had the account been
data breach:
transferred to Jane, as Trustee of her trust during her life.
• Sign up for free ID protection services and credit
•
•
monitoring, if they are offered for free as a result of your
personal information being stolen.
Place free, renewable fraud alerts on your credit report (if
your Social Security number was stolen and if you decide
not to place security freezes on your credit reports.)
Additionally, Identitytheft.gov is the government’s official
website. It will walk you through clear checklists of actions
you can take to recover from identity theft.
Neither estate planning nor funding are one-time events; your
estate plan should be maintained over the course of your
lifetime if you expect to achieve the goals you established for
your well-being and the care of your loved ones. This means
not just properly funding your assets today, but also making
sure newly acquired assets are properly titled as well.
Failure to retitle assets or designate beneficiaries properly can
lead to unwanted probate administration at incapacity and
death, unintended consequences, including no asset protection
from divorce proceedings, creditors, predators and
irresponsible spending, unanticipated taxes or benefiting the
wrong person upon your death. An unfunded trust is like a car
with an empty gas tank!
Learn how to avoid funding failures at our Funding
Workshops: March 23 and September 21 (trust-based clients)
and June 22 (will-based clients).
3
Free Workshops Practically Every Week in 2016
Tell your friends and relatives about this valuable resource.
Visit our website for dates, times and topics or call the office.
Caldwell Law is a proud sponsor of the
35th Annual Prouty 2016 Bike Ride &
Challenge Walk on July 8 th and 9 th
Each year we sponsor a team in memory
of Tim’s sister who died from cancer in
2 0 1 1 . You can make a difference in the
fight against cancer. To donate and/or
participate, visit our website or call the
office. We appreciate your support!
2016 Annual Events Schedule
We host a number of special events throughout the year. Visit
our website to learn more and register. The following special
events are now being planned for this year:
•
Classicopia – April 29, 2016
•
Annual Client Meeting – May 19, 2016
•
Helper Training – June 30, 2016
•
AVA Art Gallery – October 25, 2016
Our Team
Annual Client Meeting May 19th
David Currow, MD will be our guest speaker at
our Annual Client Meeting. Dr. Currow leads the
Center for Palliative and Hospice Care, which
provides interdisciplinary patient and familycentered care and Dartmouth-Hitchcock. Dr.
Currow is a renowned author and educator, and will partner with
Sharona Sachs, MD, the section chief in palliative medicine.
Top Row left to right: Attorney Renée Harvey, Brenda Johnson,
Madison Simoneau, James Thaxton, Sheila Smith, Pamela Lain
and Attorney Timothy Caldwell
Bottom Row left to right: Jaclyn Hatt and Candice Gates
Have you moved? Has your phone number or email address changed? Call Candice at (603) 643-7577 or email your updated
information to [email protected]. Please also send us the updated contact information for your “helpers.”
Hanover Road Professional Center
367 Route 120 - Suite B - 6
Lebanon, NH 03766-1430
Think of us as your family lawyer, the one you call before anyone else. If you or someone you know
needs legal advice, call us. If we can’t take care of what you need, we will find someone we know and
respect to handle it. We have a network of excellent professionals.