Round Rock, TX Attorney Blog

Friday, April 1, 2016

Living Wills and DNRs from an Estate Planning Perspective

What is the difference between a living will and a DNR?

For most of us, it is uncomfortable to think about our own death. But, as people are living longer and medical technologies are becoming more advanced, it has become more likely that you will end up in a position where you are alive but unable to tell others what you want or to make decisions for yourself. There are a number of documents that can protect you in this type of situation. Two that are usually confused are the Read more . . .

Monday, March 28, 2016

What is an Estate Tax?

While the terms "estate tax" and "inheritance tax" are often used interchangeably, they are not synonymous. Let's try to clarify the difference.

Estate Tax

Estate tax is based on the net value of the deceased owner's property.  An estate tax is applied to these assets when they are transferred to the beneficiary. It is important to remember that an estate tax doesn't have anything to do with the beneficiary or that person's resources.

Federal estate tax only affects individuals who die with more than $5.45[s1]  million in assets and individuals with such large estates can leave that amount to their beneficiaries without being subjected to a  tax liability. Ninety-nine percent of the population will not owe federal estate tax upon their death.

In most circumstances, no federal estate tax is levied against spouses. As of the Supreme Court's recent ruling, this includes gay married couples as well as heterosexual couples. Federal estate taxes can, however, be charged if the spouse who is the beneficiary is not a citizen of the U.S. In such cases, though, a personal estate tax exemption can be used.  Even where remaining spouses have no liability for federal estate tax, they may be charged with state taxes in some states, taxes which cannot be avoided unless the couple relocates.

Inheritance Tax

Inheritance tax, as distinguished from estate tax, is imposed by state governments and the tax rate depends on the person receiving the property, and, in some locations, on how much that person receives. Inheritance tax can also vary depending upon the relationship between the testator and the benefactor. In Pennsylvania, for example, a spouse is not taxed at all; a lineal descendant (the child of the deceased) is taxed at 4.5 percent; a sibling is taxed at 12 percent, and anyone else must pay 15 percent.


There are exemptions that can reduce the amount of inheritance tax owed by significant amounts, but it is important that there be proper documentation of such exemptions for them to be applicable. Any part of the inheritance that is donated to charity does not require inheritance tax payment on the part of the beneficiary. Because of the inherent complexities of tax law and the variations from state to state, working with a tax attorney who has expertise with state tax laws s the best way to make sure you take advantage of any possible tax exemptions or avoidance.


Tuesday, March 22, 2016

Choosing a Personal Representative

Can an individual residing out of state act as my executor?

A last will and testament, commonly known as a will, is a document that instructs those left behind on the way in which a deceased individual would like his financial and personal matters to be administered. A well thought-out will specifies the distribution of assets and guardianship of minor children, as well as funeral or burial arrangements.

The will also names a personal representative, also referred to as an executor, who is responsible for administering the estate. Choosing an executor requires careful consideration because this individual must be capable and trustworthy in order to handle your affairs. It is also important for the executor to work with your estate planning attorney to ensure your wishes are carried out and to minimize the potential for disputes among loved ones and other beneficiaries.

Indiana Requirements for a Personal Representative

In order to be named as a personal representative of an estate in Indiana, an individual must be at least 18 years of age and cannot be incapacitated. A person who has a physical illness, impairment or infirmity, however, may still be eligible to serve as an executor. Further, an individual convicted of a felony or deemed unsuitable by the court cannot be named as executor.

Naming an Individual outside the State of Indiana

While the state permits an individual residing outside of Indiana to be named as a personal representative, the law imposes additional requirements. In addition to meeting all of the above-mentioned conditions, an out-of-state executor must also post a bond and appoint a "resident agent." The role of the agent is to accept service of process, notices and documents. The law requires the appointment of a resident agent to ensure that personal representative will be bound by the jurisdiction of the probate court.

Pros and Cons of an Out-of-State Personal Representative

An individual who is naming a personal representative should choose the person who is most qualified and, in some cases, the executor will be living in another state. This option should be carefully considered, however. Though you are free to choose who you want, regardless of where he or she lives, this individual may need to travel to attend meeting and hearings, which could lead to delays. Furthermore, relying on the mail for papers and pleadings to be signed and returned can also slow down the probate process.

That being said, these hurdles can be overcome provided that the person named as personal representative is responsible and trustworthy. In the final analysis, it is important to name the right person for the job, one who also will work well with your estate planning attorney.

Monday, March 21, 2016

What would happen if another child is born after establishing an estate plan?

This question presents a fairly common issue posed to estate planning attorneys. The solution is also pretty easy to address in your will, trust and other estate planning documents, including any guardianship appointment for your minor children.

First, its important to note that you should not delay establishing an estate plan pending the birth of a new child.  In fact, if your planning is done right you most likely will not need to modify your estate plan after a new child is born.  The problem with waiting is that you cannot know what tomorrow will bring and you could die, or become incapacitated and not having any type of plan is a bad idea. 

In terms of how an estate plan can provide for “after-born” children, there are a few drafting techniques that can address this issue.  For example, in your will, it would refer to your current children typically by name and their date of birth. Then, your will would provide that any reference to the term "your children" would include any children born to you, or adopted by you, after the date you sign your will.

In addition, in the section or article of your will that provides how your estate and assets will be divided, it could simply provide that your estate and assets will be divided into separate and equal shares, one each for "your children." That would mean that whatever children you have at the time of your death would receive a share and thus the will would work as you intend, even if you did not amend it after having a new child. 

On a side note, you should make certain that your plan does not give the children their share of your estate outright while they are still young.  Rather, your will or living trust should provide that the assets and money are held in a trust structure until they are reach a certain age or achieve certain milestones such as college graduation or marriage. Any good estate planning attorney should be able to advise you about this and help walk you through the various options you have available to you.

Monday, March 7, 2016

Would transferring your home to your children help avoid estate taxes?

Before transferring your home to your children, there are several issues that should be considered. Some are tax-related issues and some are none-tax issues that can have grave consequences on your livelihood. 

The first thing to keep in mind is that the current federal estate tax exemption is currently over $5 million and thus it is likely that you may not have an estate tax issue anyway. If you are married you and your spouse can double that exemption to over $10 million. So, make sure the federal estate tax is truly an issue for you before proceeding.

Second, if you gift the home to your kids now they will legally be the owners. If they get sued or divorced, a creditor or an ex- in-law may end up with an interest in the house and could evict you. Also, if a child dies before you, that child’s interest may pass to his or her spouse or child who may want the house sold so they can simply get their money.

Third, if you give the kids the house now, their income tax basis will be the same as yours is (the value at which you purchased it) and thus when the house is later sold they may have to pay a significant capital gains tax on the difference. On the other hand if you pass it to them at death their basis gets stepped-up to the value of the home at your death, which will reduce or eliminate the capital gains tax the children will pay.

Fourth, if you gift the house now you likely will lose some property tax exemptions such as the homestead exemption because that exemption is normally only available for owner-occupied homes.

Fifth, you will still have to report the gift on a gift tax return and the value of the home will reduce your estate tax exemption available at death, though any future appreciation will be removed from your taxable estate. 

Finally, there may be more efficient ways to do this through the use of a special qualified personal residence trust.  Given the multitude of tax and practical issues involved, it would be best to seek the advice of an estate planning attorney before making any transfers of your property.

Monday, February 29, 2016

Common Tax Deductions for Small Businesses

Automobile deductions:

Whether an individual uses a personal vehicle for his or her own business or company owns a vehicle, the depreciation of value and costs associated with that vehicle may be deducted from the company’s income at year's end. A taxpayer must keep track of all of these expenses and document them by maintaining receipts and records of expenditures in order to claim the deduction. Alternatively, a business may declare standard deductions for the vehicle based on the mileage of the vehicle. In 2015, this standard deduction is 57.5 cents for every business mile driven. If a vehicle is driven for both business and personal use, the IRS will require a taxpayer to identify the percentage of use dedicated to business.

Capital expenses: Also called startup costs, the IRS allows a business to deduct up to $5,000from its income in its first year of expenses for expenditures made before the doors of the business opened. Any capital expenses remaining after the first $5,000may be deducted in equal increments over the next 15 years.

Legal and professional fees: Fees paid to professionals like lawyers, accountants, and consultants, may be deducted from a company’s income each year. If the benefit of a professional’s advice is spread out over a number of years, the tax deduction must also be spread equally over the same period. The cost of books or tuition for classes to help avoid legal or professional costs may also be deducted.

Bad debt: A business may deduct the losses suffered as a result of a customer who fails to make payment for goods sold. However, a business that deals in providing a service may not deduct the time devoted to a client or customer who does not pay. A service business may deduct expenses made in an attempt to help that customer or client.

Business entertaining:The cost of meals or entertainment purchased for business purposes must be documented by receipts in order to maintain the right to deduct the cost from income for tax purposes. Only 50percent of the total cost of entertainment expenses may be deducted.

Interest: If a business operates on a business loan or a line of credit, the interest on that loan may be deducted from income for tax purposes.

Normal business expenses: The cost of advertising, new equipment, depreciation of existing equipment, moving expenses, business cards, office supplies, travel expenses, coffee and beverages, software, casualty and theft losses, postage, business association dues, and all other business expenses can be deducted.

Monday, February 22, 2016

Inexpensive Online Estate Planning Forms Can Prove Costly

Why do do-it-yourself estate planning tools often backfire?

For an individual in need of a will, ads for self-service online tools such as LegalZoom are tempting. Instead of paying a trusts and estates attorney, why not just fill in the blanks yourself? Sadly, in many cases, the mistakes made in completing the forms without the advice of a lawyer can lead to even greater legal bills later to correct problems. Even worse, some problems cannot be fixed at all.

One Indianapolis trusts and estates attorney recalled a case in which a do-it-yourself will was not valid because it was improperly witnessed. The decedent was deemed to have died intestate, and the probate court divided his assets among his legal heirs in a way he had not intended.

While some lawyers worry about competition from do-it-yourself legal services, others say that the services actually generate more legal work for attorneys. Unless an individual's needs are extremely simple, using an online form frequently creates problems. 

In addition to improperly witnessed wills, some documents are not completed properly, and trusts may not be funded adequately. Do-it-yourselfers may miss out on simple advice from an attorney, such as how including the phrase "I waive bond" can sometimes save thousands of dollars in fees. Those who proceed without legal advice may also not be aware of the nuances of document-recording procedures in Indiana.

The fees of attorneys are modest relative to the cost of some of the mistakes that can be made. In addition to technical proficiency, attorneys have perspective and experience that can be useful to someone trying to provide for a spouse and future generations fairly and with a minimum of tax liability and other complications. While do-it-yourself forms may sometimes work in some very straightforward situation, for many estate planning matters, the advice of counsel may, in the end, be much more cost-effective.

Sunday, February 14, 2016

Lawmakers to Take Aim at Elder Abuse, Financial Exploitation

In the words of Indiana’s Director of Adult Protective Services, elder financial abuse is “a drain on our resources if we don’t get a handle on it” – and, from the looks of it, Indiana authorities are far from having a handle on this widespread and devastating problem.

According to the details of one recent case, a 79-year old woman had enlisted the services of a home-based healthcare provider – who proceeded to rack up over $110,000 in stolen funds for everything ranging from a 60” television to divorce court fees. Yet, several years went by before anyone realized what had happened – at which point the money was long gone.

Unfortunately, elder financial abuse is one of the lowest priorities for law enforcement, as cases involving physical harm and neglect take precedent. According to national averages, as little as 1 in 44 cases of financial exploitation ever come to the attention of authorities – and unraveling the financial mess can be a daunting task in and of itself. Moreover, data suggests that as many as 1 in 10 victims of financial exploitation actually end up needing state and federal benefits to continue accessing long-term care – presumably due to the complete depletion of the individual’s assets by wayward caregivers.

In Indiana, data from 2010 reveals that 1,277 official criminal complaints of elder abuse were launched statewide – compared with just 110 bank robberies, for perspective. While those bank robberies involved an aggregate total asset loss of $1 million, the alleged elder abuse involved a sum as large as $38 million – and those are just the cases we know about.

Many in the Indiana legal community have been advocating for an increase in funding for Adult Protective Services – but so far, efforts have been all but futile. Currently, there is a bill awaiting review by the Indiana legislature, however it merely “urges the Legislative Council to assign the topic of APS, including that of “appropriate funding,” to a study committee later this year.”

If you are concerned about financial protection in the golden years, you should consult with qualified estate planning and elder law attorney.

Thursday, January 28, 2016

Understanding Indiana’s Medicaid Divestment Rules

Understanding Indiana’s Medicaid Divestment Rules

Planning for long-term care is a vital component to proper estate planning, particularly if an individual or couple is anticipating financial hardship as a result of an extended stay in a nursing home. One of the most important distinctions between the Medicare and Medicaid programs is that while the latter provides coverage for long-term care, the former does not. Also important to note is that Medicaid eligibility is dependent upon financial need, and applicants must be able to show a lack of sufficient assets to cover the staggering costs of long-term care.

When it comes to Medicaid planning, the term “spend down” is used frequently to describe the process through which applicants intentionally divest their assets to qualify for coverage. However, this process is highly regulated, and applicants could face significant penalties if assets are not properly divested in accordance with state and federal guidelines. Currently, the following asset and income threshold are in place in Indiana:

  • Monthly income cap: $2,199.00
  • Individual resource allowance: $2,000.00
  • Monthly allowance for personal needs: $52.00
  • Maximum community spouse allowance: $119,200.00
  • Resource allowance for married couple: $3,000.00

To prepare for Medicaid eligibility, there are a number of divestment strategies to consider – particularly if an applicant does not anticipate needing long-term care for several years to come. Currently, transfers of assets and wealth that occur outside the five-year ‘look-back’ period are generally not subject to a penalty. When planning for long-term care, many consider the option of an irrevocable trust in which to transfer assets, as this is one of the safest ways to insulate assets from creditors and the like. However, there are a number of options available to those considering long-term care planning, and each individual or couple will require a unique approach.

With more and more Indianans requiring long-term care services, the Indiana Legislature ultimately opted to eliminate many of the costly and time-consuming spend-down rules formerly required of Medicaid applicants. If you need assistance planning for long term care, you should consult with a qualified elder care and estate planning attorney. 

Friday, January 22, 2016

Four Signs It's Time to Update Your Estate Plan in the New Year

I am planning a spring wedding, should I consider an estate plan?

If you were recently engaged over the holidays, it may well be time to consider updates and changes to your estate plan. As a matter of fact, if you are like the majority of adult Americans and are without an estate plan altogether – it is definitely time to get started

Other Milestones that Indicate It's Time for an Estate Planning Update

[1]You are expecting a child – Planning for a new baby involves more than nursery decorating and scheduling maternity leave. On a serious note, in the event of an accident leaving both parents incapacitated or deceased, a comprehensive estate plan can help ensure that surviving children are placed in the care of relatives or friends specifically selected by the parents. Such a plan also ensures the distribution of trust funds left to the children by their parents.

[2] You are anticipating divorce -- Though certainly not as happy an occasion as a marriage or the birth of a child, contemplating divorce also necessitates updating your estate plan. If you are anticipating a marital dissolution during the next year, it is important to change your Will and other pertinent documents so you do not leave your assets to the person you are about to divorce.

[3] You are planning to remarry – On a brighter note, if you are planning to remarry in 2016, be sure to place “estate planning updates” at the top of your to-do list. An old, outdated estate plan that makes no mention of a current spouse, stepchildren or new offspring, could quickly be invalidated all together, as the courts will assume the testator inadvertently forgot to add the missing family members.

[4] You recently experienced a loss – If the year 2015 included the death of a family member – particularly an immediate family member or spouse, it is definitely time to update your estate plan. If your spouse passed away, and your current Will or Trust leaves everything to him or her, it is necessary to re-evaluate your original plans to coordinate with your altered lifestyle. Sad as it is to contemplate, the death of a child should also trigger an estate planning update, particularly if that child was set to receive a large portion of your estate. The passing of any loved one to whom you were leaving even a small part of your estate, should be reworked in view of recent events.

If you expecting any major life changes in 2016, now is the time to consult with a competent estate planning attorney to bring all of your documents up to date.  

Monday, December 28, 2015

Wise Ways to Give Holiday Money

What are some of the tax benefits of holiday giving?

Giving especially generous monetary gifts over the holidays can be helpful to the giver as well as the receiver, particularly when it comes to taxes. By giving large monetary gifts, the giver may avoid paying taxes on a block of stock or reduce a future high estate tax bill.

Possible Hazards of Gift-Giving

Profitable though it may be, emotionally and financially, to reward your children and grandchildren while you're all together to enjoy the process, there are often inherent dangers in the giving of large gifts. In many cases, the receipt of a large amount of money can be a corruptive force. If an immature person suddenly has a small fortune in his or her hands, it may result in a foolish, frivolous, or even hazardous expenditure. Young people, unprepared to invest wisely, may buy a very expensive piece of unnecessary equipment, or may even use the money to buy drugs.

Protecting Recipients from Themselves

Because of the hazards mentioned, many givers want to maintain some control over how their money will be used. There are several ways to protect both the recipient and the money.

These include:

• Setting up a custodial account for a child under the age of 18 or 21 (depending on the state) under the Uniform Gift to Minors Act or Uniform Transfer to Minors Act
• Establishing one of various types of irrevocable trust
• Setting up a trust for a married child in that child's name alone, to protect assets in case of a divorce
• Establishing a 529 Plan to help with a college education --a 529 Plan is free of federal, and sometimes state, tax when used for approved college expenses
• Making five annual tax-free gifts of $14,000 gifts to an individual
• Making tax-free payments (even over $14,000 per year) directly to a college or medical provider
• Making a large down payment for the home of another (but in this case the $14,000 rule still applies)

Things to Remember

In giving sizable gifts, it is important to be aware that:

• It's a good idea to give the gift as much as a year before any purchase is made
• You should file proper gift-tax returns, reporting the sum to the IRS as a gift
• If you give stock, the recipient will have to pay tax on all gains over original price
• The tax obligation should be taken on by the person in the lower tax-bracket, whether giver or recipient
• If the gift involves a money-losing investment, it's best to sell it first and claim the tax loss yourself

In all matters of inheritance and tax, especially when you're dealing with a large estate, it is essential to engage the services of a knowledgeable, experienced estate planning attorney.

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