Round Rock, TX Attorney Blog

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.

Monday, December 14, 2015

Estate Planning in the Digital Age

Why is it important to consider computer information when engaging in estate planning?

In this age of technological acceleration, when most people are constantly increasing the daily use of their computers to include banking, personal and business record-keeping, shopping and, medical and tax information, it is essential to include conversations about computer data in estate planning consultations. Access to computer information is most often protected by not one, but a multitude, of passwords. Without finding a reliable, safe way to pass along knowledge of these passwords to your heirs, your most careful inheritance plans can be thwarted.

A case that highlights the problem occurred in the United Kingdom last year when two brothers had to fight Apple, Inc. in order to get their full inheritance. Though one of the brothers had inherited his mother's iPad, he did not have access to her password. The documents he did have -- death certificate, Will, an attorney's letter stating he was his mother's co-executor -- were all considered insufficient evidence of his mother's intention to provide him with access to her iPad. Fortunately for these brothers, Apple finally relented, saving them the expense and inconvenience of obtaining a court order. Nonetheless, this case demonstrates the problems inherent in ignoring the digital aspects of estate planning.

Managing electronically stored finances is currently vital because such digital storage is so widespread. As some estate planners have noted, a decade ago, even 5 years ago, the issue was not as crucial as it is now, and it is becoming more relevant every day. Without providing your heirs with user identification and passwords, you will certainly delay the inheritance process and may precipitate a situation in which probate is required.

Not only can the absence of password and ID information prevent financial management of a deceased monies and documents, it can prevent access to intellectual property, such as personal writings, photographs, artwork, architectural or engineering plans.

For all of these reasons, clients must, when consulting with their estate planning attorneys, go over any and all matters that they routinely handle on their computers and make sure to record important access information. What complicates this process is that such information is not static. Because people frequently change their passwords, records must be regularly updated.

When planning your estate, it is essential to have a competent estate planning attorney at your side, one who is familiar with ever-changing, laws and computer systems. Doing this will give you peace of mind that your loved ones won't have to suffer added stress at the time of your passing and that the inheritance you worked so hard to leave them will not become part of the billions of dollars of unclaimed assets that are annually turned over to the state.

Monday, November 30, 2015

Five Common Reasons a Will Might Be Invalid

There are several reasons that a will may prove invalid. It is important for testators to be aware of these pitfalls in order to avoid them.

Improper Execution

The requirements vary from state to state, but most states require a valid will to be witnessed by two people not named in the will. Some jurisdictions require the document to be notarized as well. Although these restrictions may be relaxed if the will is holographic (handwritten), it is best to satisfy these requirements to ensure that the testamentary document will be honored by the probate court.

Lack of Testamentary Capacity

Anyone over the age of 18 is presumed to understand what a will is. At the end of life, individuals are often not in the best state of mind. If court finds that an individual is suffering from dementia, is under the influence of drugs or alcohol, or is incapable of understanding the document being executed for some other reason, the court may invalidate the will on the grounds that the individual does  not have testamentary capacity.

Replacement by a Later Will

Whenever an individual writes a new will, it invalidates all wills made previously. This means that a will might be believed to be valid for months until a more recently executed document surfaces. The newest will always takes precedence, controlling how assets should be distributed.

Lack of Required Content

Every will is required to contain certain provisions to carry out its purpose. These provisions, ensure that the testator understands the reason for executing the document.  Although these provisions vary from state to  state, some are common to all jurisdictions. It should be clear that the document is intended to be a will. The document  should demonstrate an individual’s wishes in regard to what should happen to his or her property after death. A proper will should also include a provision to appoint an executor to act as an agent for the estate and enforce the terms of the will. If the document  lacks any of these provisions, the will may be declared invalid. 

Undue influence or fraud

A will that was executed under undue influence, coercion or fraud will be invalidated by a court. If a will has been presented to a testator for a signature as if it were any other document, like a power of attorney or a business contract, the court will find that the will was fraudulently obtained and will not honor it. If an individual providing end of life care with exclusive access to the testator threatens to stop care unless a will is modified, that modification is considered to be the result of undue influence and the court will not accept it.

Monday, November 16, 2015

Glossary of Estate Planning Terms

Will - a written document specifying a person’s wishes concerning his or her property distribution upon his or her death.

In order to be enforced by a court of law, a will must be signed in accordance with the applicable wills act.

Testator/Testatrix - the person who signs the will.

Heirs - beneficiaries of an estate.

Executor/Executrix - the individual given authority by the testator to make decisions to put the testator’s written directions into effect.

Once the will is entered into probate, the executor’s signature is equivalent to the testator’s. The executor has a legal duty to the heirs of the estate to act in the best interest of the estate, and may collect a fee for performing such service.

Administrator/Administratrix - the person who assumes the role of the executor when a person dies without a will (intestate).

The Administrator must apply with the local probate office and may be required to provide a bond to be held in escrow as collateral for control over the assets of the estate.

Codicil - an amendment to a will.

In order to be valid, a codicil must comply with all the requirements of the applicable wills act.

Holographic Will- a handwritten will. 

Holographic wills are often exempt from requirements of the applicable wills act.

Bequest - a gift given by the testator to his or her heirs through a will.

Residual Estate - the balance of a testator’s belongings after debts have been paid and specific bequests have been distributed. 

Intestate - not having signed a will before one dies; a person who dies without having signed a will.

Life Estate - a bequest that gives an heir the right to have exclusive use of a property for the remainder of his or her life, but without the power to transfer such property upon the death of that heir.

The property will transfer to the heirs of the residual estate after the death of the beneficiary of the life estate.

Per stirpes - a Latin phrase precisely translated as “by the branch” meaning that, if an heir named in the will dies before the testator, that heir’s share will be divided equally among that beneficiary’s own heirs.

 An alternative to per capita, described below.

Per capita - a Latin phrase precisely translated as “by the head” meaning that, if an heir named in the will dies before the testator, that heir’s share will be divided among the testator’s remaining heirs.

 An alternative to per stirpes, described above.

While it is a good idea to have a basic understanding of fundamental estate planning vocabulary, this cannot serve as a substitute for the services of an experienced attorney.

Saturday, November 7, 2015

Why Choosing an Executor is One of the Most Important Decisions in the Estate Planning Process

Should I appoint all four of my children to serve as co-executors?

When a person dies, it becomes necessary to begin the estate administration process. For those dying with a Last Will and Testament, the terms of this document dictate not only the distribution of the estate, but the person(s) responsible for ensuring that all debts are paid, properties are sold, and beneficiaries are paid. In sum, it’s a big job, not for the faint of heart.

Choosing an executor is an extremely important component of the estate planning process. When it comes time to make this decision, testators often assume that the best course of action is to simply appoint all of their children, who will then work together to get the job done in a timely and efficient manner. In some cases, this may be the best arrangement. More often than not, , however, appointing a group of individuals – particularly the children of the decedent– to handle the administration of the estate leads to conflicts, bickering, and tension.

When choosing an executor, it is often advised to select one person who possesses a responsible nature, is somewhat savvy financially and has the ability to complete the task at hand. When selecting an executor, consider each candidate’s place of residence, as it is often difficult to administer an estate from several states away. Likewise, consider whether the candidate is responsible, punctual and trustworthy – as these are all necessary qualities for the proper administration of an estate.

After selecting an executor, it is usually a good idea to select an alternate person to take over in the event the first executor is unable, unwilling, or predeceases the testator. In any event, all executors should be notified of their role, and should be willing to take on the responsibility from the outset.

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