Posts By : Darcy

Eligible Wartime Periods for V.A. Pension Benefits

ELIGIBLE WARTIME PERIODS FOR V.A. PENSION BENEFITS

If you, or your deceased spouse, served during wartime you may be eligible to receive V.A. pension benefits or Spousal benefits. The V.A. recognizes the following wartime periods to determine eligibility for VA Pension benefits:

  • World War I (April 6, 1916 – November 11, 1918)
  • World War II (December 7, 1941 – December 31, 1946)
  • Korean conflict (June 27, 1950 – January 31, 1955)
  • Vietnam era (February 28, 1961 – May 7, 1975 for Veterans who served in the Republic of Vietnam during that period, otherwise August 5, 1964 –  May 7, 1975)
  • Gulf War (August 2, 1990 – through a future date to be set by law or Presidential Proclamation)
Senate Bill to Reduce LLC Filing Fees in Illinois House for Consideration

SENATE BILL TO REDUCE LLC FILING FEES IN ILLINOIS HOUSE FOR CONSIDERATION

Currently Illinois LLC fees are among the highest in the nation. To address this, the Senate, on April 1, 2014 passed SB 2776 (the bill) with bi-partisan support and without opposition. The bill would amend the filing fees currently charged to LLCs pursuant to 805 ILCS 180/50-10.  The bill calls for a reduction in the filing fee of an LLC from the current charge of $500.00 to $39.00, and a reduction in series LLCs from $750.00 to $59.00.    If approved, LLCs may be encouraged to form in Illinois rather than form in another state. The bill remains in the House for consideration.

Clark Et UX v. Rameker, Trustee, et al., U.S. no. 13-299

CLARK ET UX v. RAMEKER, TRUSTEE, ET AL., U.S. no. 13-299

In January 2014, we reported that the U.S. Supreme Court had granted certiorari to the United States Court of Appeals for the Seventh Circuit (the Circuit in which Illinois is located). In, Clark v. Rameker, U.S. no. 13- 99, the U.S. Supreme Court decided to resolve a conflict among the District Courts regarding whether an inherited IRA is subject to receiving protection from creditors – specifically to be addressed in Clark was whether an inherited IRA was to be considered “retirement funds” pursuant to 11 USC §522(b)(3)(C) and thus exempt from consideration as individual assets during bankruptcy proceedings.

The Supreme Court, with Justice Sotomayor delivering the opinion of a unanimous Court, settled the matter on June 12, 2014, when it held that funds contained in an Inherited IRA are not “retirement funds” within the meaning of 11 USC §522(b)(3)(C) and therefore, not exempt from consideration in bankruptcy proceedings. The rationale for the Court’s decision was based on the fact that the purpose of the exemptions, specifically the “retirement funds” exemption in the bankruptcy code, is to balance the creditor’s interest in receiving payment with the debtors need to provide for himself during retirement years. The Court looked to the plain meaning of the term “retirement funds” and determined the definition could be properly understood as “…sums of money set aside for the day when the individual stops working.” The Court applied an objective analysis to determine whether the legal characteristic of the account in which the funds are held is one in which the account is of the type that the funds are set aside for the day when an individual stops working.

In its analysis the Court pointed out the differences between an Inherited IRA, and a traditional and Roth IRA, classified as “retirement funds” within the meaning of §522(b)(3)(C). The first distinction the Court identified was that the holder of an inherited IRA is unable to contribute additional money to that account, whereas there are incentives to regularly contribute to a traditional IRA or a Roth IRA account. In addition, holders of inherited IRAs are required to withdraw all money from the account within five years of the original owner’s death, or take mandatory minimum distributions annually, no matter how close or far they are from retirement. In fact, a beneficiary of an inherited IRA could withdraw the entire amount of the account at anytime without penalty. In comparison, a holder of a traditional or Roth IRA cannot withdraw funds from the account prior to age 59 1/2 without incurring a tax penalty; a rule that was designed to encourage holders of such accounts to leave the funds untouched until retirement. These fundamental differences led the Court to conclude that the legal characteristic of an inherited IRA did not match the characteristics of a retirement fund within the meaning of 11 USC §522(b)(3)(C). The Court noted that to hold otherwise would be to transform the “Fresh Start” bankruptcy provides into “Free Pass” as nothing could prevent the beneficiary of an inherited IRA from withdrawing all the funds and going on vacation after declaring bankruptcy.

U.S. Supreme Court To Consider Whether Inherited IRA is Creditor Protected

U.S. Supreme Court To Consider Whether Inherited IRA is Creditor Protected

In April 2010 we reported on the cases, In re Chilton, No. 08-43414 (Bankr. E. D. Tax. Mar. 5, 2010) and In re Nessa, No. BKY 09-60081 (Bankr. D. Minn. Jan 11, 2010). The Chilton court found that while an IRA is given creditor protection, that protection does not extend to an inherited IRA.  The Nessa court found the opposite.

In a recent case arising from the Seventh Circuit of the Court of Appeals, (the Circuit in which Illinois is located), Clark v. Rameker, U.S. No. 13-299, cert. granted 11/26/2013, the U.S. Supreme Court as agreed to hear the Clark case, and perhaps to resolve the conflict among the Districts.  The underlying facts of Clark turn on a woman who inherits a $300,000 IRA.  Shortly afterward she and her husband declared bankruptcy.  The Seventh Circuit Court of Appeals found that the inherited IRA does not warrant the same protection as an IRA or 401(k) since no new contributions may be made to it and the inherited IRA cannot be merged with any other account.  Further, the assets in an inherited IRA must begin to be distributed to the beneficiary over the beneficiary’s life expectancy and in some cases, as soon as within 5 years.  Accordingly, an inherited IRA should not be considered “retirement assets” and given the same protection in bankruptcy court as IRAs and 401(k) plans.

Illinois Emergency Contact Database

 

Illinois Emergency Contact Database

 

Did you know that you can sign up for the Illinois Emergency Contact Database free of charge?  The database was established in 2009 and allows residents with a state license or ID to enter the name, address, and phone number of two emergency contacts.  In the event of an emergency, if you are unable to effectively communicate with health care professionals, law enforcement may access the database to help reach your designated contact.  You can sign up today by visiting the website below:

http://www.cyberdriveillinois.com/departments/drivers/ECD/home.html

Estate Planning for Pet Owners

Estate Planning for Pet Owners

 

Many pet owners consider their pet a beloved part of the family…and yet when they update their estate plan, they often forget to make provisions for these furry family members.  The following is a brief summary of some helpful tools that may ensure your pets receive appropriate care in the event you are unable to provide it yourself:

  1. Power of Attorney:

Powers of attorney are documents that appoint an agent to make financial or medical decisions on your behalf if you are unable to do so.  You may want to include a provision in your power of attorney specifically authorizing your agent to care for and make decisions regarding the needs of your pet.

What if your entrusted agent is allergic to cats or nervous around large dogs?  One option is to execute a limited power of attorney, which can be limited in scope to simply grant a pet-savvy agent decision-making authority over your pet (not you).

You should also consider what would happen if a sudden emergency arose:  Would your agent have access to your house key to feed your pets?  Do they live close enough to do so on short notice?  Speak to your agent or a trusted neighbor to arrange an emergency plan.

  1. Will:

A will provides for the distribution of property at your death.   You may include a provision that names an individual who shall receive your pets upon your passing, or you may grant the executor the ability to select an individual of his choosing.  Although you may not leave a sum of money directly to your pets, you may leave the individual in charge of your pets a sum of money, with the request that she use it to care for your pets.  Note that such a will provision would not be legally enforceable.

In some situations, this may be sufficient.  In other situations, you may prefer to have the money set aside with a more secure guarantee that the funds be used for the benefit of your pet.  In that case, you may prefer to execute a “pet trust” as described below.

  1. Trust:

In 2005, the Illinois Trust and Trustees Act was amended to authorize the creation of pet trusts.  A pet trust allows you to set aside money for the care and maintenance of your pet.  You may leave the money to a trustee to dole out to the individual charged with caring for your pet.  This can in turn create a system of checks and balances to provide greater assurance that the funds are applied appropriately without being depleted too soon.

A trust provides an added benefit of taking effect quickly in the event of the owner’s death, whereas probating a will can be a process that can drag on for months or years in probate court.  Note that a judge does have the authority to reduce the amount of property transferred to the pet trust if the amount is deemed excessive.

  1. Letter of Instruction:

Regardless of whether you choose any of the aforementioned estate planning documents to ensure the care of your pets after your passing, we strongly recommend leaving a letter of instruction.  This informal document provides care instructions so an agent can appropriately and confidently provide care for your pet if you are unable to do so.  This document should include instructions regarding your pets’ food, water, shelter, veterinary care, medical conditions, daily schedule, and general preferences so your agent can begin caring appropriately for your pet as soon as it becomes necessary.

2014 Tax Update

2014 Tax Update

 

The American Taxpayer Relief Act, which was signed by President Obama on January 2, 2013, implemented those federal estate and gift tax laws that shall control during 2014.  Under this law, the federal estate and gift tax exemption was indexed for inflation, and therefore increased from $5.25 million per person in 2013 to $5.34 million per person in 2014.  In other words, each individual can transfer up to $5.34 million tax free, during life or at death, but transfers over this amount will be taxed (the maximum tax rate is 40%).  Likewise, the generation-skipping transfer (GST) tax exemption was reunified with the federal estate tax exemption, meaning it will continue to match the federal estate tax exemption, subject to the same annual inflation index.

There is still an unlimited marital deduction from the federal estate and gift tax that operates to defer estate tax on assets inherited from a spouse until the second spouse dies.  This marital deduction only applies if the inheriting spouse is a U.S. citizen.

The Act had also made permanent the concept of “portability,” which is a tax break offered to married couples.  A surviving spouse can add a recently deceased spouse’s unused exemption to their own unused exemption.  This enables a surviving spouse to transfer up to $10,680,000 federal estate tax free for 2014.  While the unused exemption might be portable, the amount sheltered does not adjust for inflation.

Keep in mind that portability is not automatic.  The fiduciary of the estate of the spouse who died must transfer the unused exemption to the surviving spouse by timely filing a federal estate tax return.  Furthermore, portability may not be an attractive option to some couples since there is no portability for unused Illinois exemption.

On a state level, the Illinois estate tax exemption is fixed and consequently not indexed for inflation.  As such, it will continue to be $4 million for 2014, with a maximum tax rate of 16%.  Portability is not available for the Illinois estate tax exemption.

There continues to be a disconnect between the federal and Illinois estate tax exemptions.  Some estate plans call for a division of assets between a credit shelter trust (sometimes called the “Family Trust”) and a marital trust according to a formula that allocates the maximum amount that can be sheltered from the federal estate tax to the credit shelter trust.  Of course, with the substantially increased federal exemption, a greater portion (or perhaps all) will be allocated to the credit shelter trust.

With the Illinois estate tax exemption set at $4 million, an Illinois decedent with a $5.34 million estate that is administered under a typical formula clause (allocating the $5.34 million to the credit shelter trust) would expose that trust to Illinois estate tax.  The Illinois legislature created a “patch” – the so-called “Illinois QTIP election” to defer the Illinois tax until the death of the surviving spouse, but the trust must be drafted to qualify for that election.  If you have not reviewed your current estate plan, we recommend that you consider doing so to make sure your plan document is eligible for the Illinois QTIP election.

One simple way you can reduce estate taxes and, in limited circumstances, shelter assets to achieve Medicaid eligibility, is to give some or all of your estate to your children (or anyone else) during their lives in the form of gifts.  Certain rules apply, however.  There is no actual limit on how much money you can give during your lifetime, but if you give any individual more than $14,000 in 2014, you must file a gift tax return reporting the gift to the IRS and use your available exemption to offset the gift tax due.

The $14,000 figure is an annual exclusion from the gift tax reporting requirement.  You may give $14,000 to each of your children, their spouses, and your grandchildren (or to anyone else choose) each year without triggering any IRS reporting requirements.  In addition, if you’re married, your spouse can duplicate these gifts.  For example, a married couple with four children could gift up to $112,000 in 2014 to their children with no gift tax implications.  In addition, the gifts would not count as taxable income to their children (although any earnings on the gifts would be taxed.)

Keep in mind that payments directly to an institution for tuition or to a provider for medical expenses on someone else’s behalf are not treated as taxable gifts and do not count against the $14,000 annual exclusion.

There is still no news on whether Congress will extend the tax break on IRA rollovers to charities.  Until February 1, 2014, there is a $100,000 “charitable rollover” of IRA distributions for anyone older than 70 ½.  Consequently, a taxpayer can direct up to $100,000 from an IRA to a charity and not have the amount included in his gross income.  These rollovers, known as qualified charitable distributions, were in effect for 2013 with special rules being applied:

  1. An individual who received an IRA distribution during the month of December 2013 may transfer a portion not exceeding $100,000 in cash to a qualified charity before February 1, 2014, and the distribution will be excluded from 2013 income.
  2. Alternatively, during January 2014, an individual may request that up to $100,000 be transferred directly from his or her IRA to a qualified charity before February 1, 2014, and have that amount included from 2014 income.
Preventing Overmedicalization During End-Of-Life Care

 

Preventing Overmedicalization During End-Of-Life Care

The Atlantic published an article in May 2013 by Jonathan Rauch entitled “How Not to Die,” which discussed the problem of over overmedicalization and proposed a solution using educational videos.

 

According to the article, patients routinely receive unwanted care, especially when the patient is nearing his or her end of life.  The physicians administering these unwanted treatments are not necessarily motivated by any malevolent intent, but are simply determined to save lives, whereas the patient, if fully informed, often focuses on the quality of his or her remaining time.  When physicians recommend treatment based on “highly inaccurate” assumptions of the patients’ goals, the result is unwanted treatment that many say is tantamount to abuse or even torture.

 

Medical professionals are supposed to hold “The Conversation” with their patients, which would include a meaningful explanation of the patient’s condition and treatment options, as well as a discussion about the patient’s goals and desired treatment.  Evidence indicates, however, that The Conversation happens infrequently, and, when it does take place, is often rushed and loaded with medical jargon, which the patients and families fail to fully comprehend.  Instead, Dr. Angelo Volandes found he could make a stronger, cleaner impression on his patients by showing them treatments, rather than simply trying to describe them.

 

With this in mind, Dr. Volandes began creating Advanced Care Planning Decisions videos.  There are videos on a range of topics, from CPR to advanced stage dementia, and each video is intended to educate and empower patients about their choices for medical care.  Each film is on average six minutes long, and is meant to be screened on iPads or laptops while in a clinic or hospital room.  The impact is apparent: In a 2009 study, more than 90% of patients chose comfort care after watching a video on cancer treatment, whereas only 22% did so after receiving only a verbal description of such treatment.

 

The videos are meant to provide clearer information and, more importantly, trigger The Conversation between the patient and medical professional.

 

These videos are inexpensive and low-tech, and might avert misunderstanding, prevent suffering, improve doctor-patient relationships, and incidentally, save the health-care system a lot of money.  Only a few dozen out of 5,700 hospitals are presently using the videos, though Dr. Volandes hopes their use becomes more prevalent, which he believes will revolutionize end-of-life care.

 

For more information, and to see a sample video on CPR, go to here.  The full article from The Atlantic may be found here.

 

Record Keeping

Record Keeping

Many families are busy spring cleaning their homes this time of year, making it a great time to declutter those financial records by following these helpful guidelines:

Records to keep for one year:

  • Paycheck stubs
  • Bank statements (including cancelled checks)
  • Brokerage statements(keep longer for tax purposes if they show a gain or loss)
  • Credit card receipts
  • Receipts for health care bills (in case you qualify for a medical deduction)
  • Utility bills to track usage (but keep for 7 years if you deduct a home office)

Records to keep for 7 years:

  • Monthly investment account statements
  • Income tax returns
  • Supporting documents for taxes, including:
    • W-2s
    • 1099s
    • Receipts or cancelled checks that substantiate deductions

Note that although the IRS has up to three years after you file to audit you, it may look back up to six years if it suspects you substantially underreported income or committed fraud.

Records to hold while active:

  • Contracts
  • Stock certificates
  • Property tax records
  • Warranties
  • Disputed bills
  • Pension and retirement plans
  • Home improvement records

Records to keep indefinitely:

  • Tax returns with proof of filing and payment
  • IRS forms that you filed when making contributions to a traditional IRA or Roth conversion
  • Receipts for capital improvements that you have made to your home until seven years after you sell the house
  • Retirement and brokerage account annual statements
  • Receipts for big-ticket purchases for as long as you own the item (to support warranty and insurance claims)
  • Wills
  • Life insurance information
  • Mortgage data

Records to toss:

  • ATM receipts once recorded
  • Bank deposit slips once the funds show up in your account

Finally, if you’re having trouble getting organized for taxes, try purchasing a 13 folder accordion file.  Label each tab with that month’s name, and keep that month’s bills, credit card receipts, and bank statements in that file.  Once you’ve completed your tax returns, add a copy in the 13th folder for future records.

 

Gift, Estate and Generation Skipping Tax After the American Taxpayer Relief Act of 2012

Gift, Estate and Generation Skipping Tax After the American Taxpayer Relief Act of 2012

In 2012, there was a federal estate tax in effect, with a $5,120,000 exemption per person.  This exemption was temporary and would have been reduced to $1,000,000 unless Congress took action on or before December 31, 2012 to extend, reduce or increase the exemption.

On January 2, 2013, the American Taxpayer Relief Act was signed into law and it provides some measure of certainty regarding the federal estate tax.  In essence, Congress made permanent the changes that went into effect in 2010, with the only significant change being made to the gift and estate tax rate, with a top rate of 40% from the prior top rate of 35%.

Under the 2010 law, each individual could transfer up to $5,000,000 tax free, during life or at death.  This exemption amount is adjusted for inflation.  For 2012, it was raised to $5,120,000 per person and we expect the exemption for 2013 to be $5,250,000 per person.

There is still an unlimited marital deduction from the federal estate and gift tax that operates to defer estate tax on assets inherited from a spouse until the second spouse dies.  This marital deduction only applies if the inheriting spouse is a U.S. citizen.

The new law makes permanent “portability”, a change that went into effect in 2010.  Portability enables a surviving spouse to add any unused exemption of the spouse who died most recently to their own unused exemption. In essence, a surviving spouse could transfer up to $10,500,000 federal estate tax free.

Nevertheless, while the unused exemption might be portable, it does not adjust for inflation nor is it automatic.  The fiduciary of the estate of the spouse who died must transfer the unused exemption to the surviving spouse by filing a federal estate tax return.  Further for some couples, relying on portability may not be the solution since portability is not recognized by the State of Illinois.

As of January 1, 2011, there was no Illinois estate tax; however, as part of the legislation that Governor Quinn signed which increased the state income tax, the Illinois estate tax was reinstated.  Effective January 1, 2013, the Illinois estate tax exemption is now $4,000,000.  There is no portability for unused Illinois exemption.

One simple way you can reduce estate taxes and, in limited circumstances, shelter assets to achieve Medicaid eligibility, is to give some or all of your estate to your children (or anyone else) during your life in the form of gifts.  Certain rules apply, however.  There is no actual limit on how much you may give during your lifetime.  But if you give any individual more than $14,000 (increased from the $13,000 available in 2012), you must file a gift tax return reporting the gift to the IRS and use your available exemption to offset gift tax due.

The $14,000 figure is an exclusion from the gift tax reporting requirement.  You may give $14,000 to each of your children, their spouses, and your grandchildren (or to anyone else you choose) each year without reporting these gifts to the IRS.  In addition, if you’re married, your spouse can likewise make exclusion gifts.  For example, in 2013, a married couple with four children could gift up to $112,000 to their children with no gift tax implications.  In addition, the gifts will not count as taxable income to your children (although the earnings on the gifts if they are invested will be taxed).

In addition to the annual gift tax exclusion, payments directly to an institution for tuition or to a provider for medical expenses on someone else’s behalf, such as your child, are not treated as taxable gifts.