Louis A. (Drew) LaGrande, Esq. is a contributing author to the Yesner & Boss, P.L. blog and the following is a recent article which he contributed. Drew is a partner at Akerman Senterfitt based in Tampa, FL and specializes in legal areas such as estate planning and taxation.

An important part of any estate plan is the Durable Power of Attorney and Advance Directives. The Advance Directives include a Designation of Health Care Surrogate, Living Will and Designation of Preneed Guardian. There are many situation in which such documents can be effective and should be apart of every estate plan.

Durable Power of Attorney

A “power of attorney” is a written document by which one person (as the “principal”) appoints another as his or her agent (the “attorney in fact”) and confers upon him or her the authority to perform certain specified acts or kinds of acts on behalf of the principal. A power of attorney creates an agency relationship pursuant to which the attorney in fact is able to act on behalf of the principal. The instrument creating this relationship defines the scope and duration of the powers conferred upon the attorney in fact and establishes to third parties the authority of the attorney in fact to step into the shoes of the principal for designated transactions. There are three different kinds of powers of attorney commonly used in Florida:

1. A “limited” power of attorney, which usually allows the attorney in fact to perform acts only with respect to certain of the principal’s assets or special transactions. A common form of a limited power of attorney is one with respect to real estate owned by the principal.

2. A “general” power of attorney, which, as its name implies, gives a broad range of powers to act in the principal’s stead in all matters.

3. A “durable general” power of attorney, which is a general power of attorney with “durability” language. Generally, a power of attorney is deemed to become ineffective upon the incapacity of the principal, unless the power of attorney document contains certain specified language. This “durability” language allows the principal to designate the individual(s) desired to help manage his or her affairs in the event of incapacity, rather than having a court make that decision in adversarial guardianship proceedings.

A durable power of attorney ceases to be effective at of the earlier of (i) the revocation by the principal, (ii) the death of the principal, or (iii) under certain circumstances, the formal adjudication of total or partial incapacity of the principal. It is also suspended upon the filing of a petition to determine capacity, and generally remains suspended until there is an adjudication by the court.

A durable general power of attorney gives a broad range of powers to act in the principal’s stead in all matters and such powers survive the subsequent incapacity of the principal. Given the broadness of such a power of attorney, many individuals are reluctant to turn over the original to the attorney in fact unless they are expected to act immediately.

Advanced Directives

Advance directives address the issue of substitute-decision making with respect to medical treatment, including the withdrawal or withholding of life-prolonging procedures. “Advance Directive” is a term of art and as used by the law means a health care surrogate and living will. Health care advance directives allow a person to plan for later incapacity and to prevent the loss of control over the course of his or her own medical treatment by designating another person to intervene in the event of incapacity.

Designation of Health Care Surrogate

The law provides for the appointment of a health care surrogate who can act on behalf of a declarant. The powers that can be delegated to the surrogate include general authority to act for the declarant; to make decisions in the health care area; to provide informed consent for health care; to be provided access to the declarant’s medical records; to apply for benefits on the declarant’s behalf; and to authorize the admission or transfer of the declarant to or from a health care facility. A designation of health care surrogate, in which a surrogate is named to make all decisions concerning health care on the declarant’s behalf, ensures that someone will be authorized to make decisions. It can be used alone, leaving all health care decisions within the full and complete discretion of the named surrogate, or it can be used in conjunction with a living will. Probably the best approach is to execute both types of directives. Even the most detailed directive cannot anticipate every circumstance in which a decision must be made; accordingly, the exercise of the surrogate’s individual judgment should be authorized to make the necessary decisions.

Having a living will giving a clear indication of the declarant’s intentions can serve to relieve any burden of guilt from family members and others who must make difficult health care decisions. Also, if the surrogate is not available for some reason, and an alternate has not been designated or is also unavailable, the document may serve as a guide for the family and medical personnel as to the declarant’s wishes.

Living Will

A living will is generally a declaration directing the providing, withholding, or withdrawal of life-prolonging procedures in the event a person suffers from a terminal condition. A living will may be made by a competent adult at any time, and can be either (i) a witnessed document in writing, voluntarily executed by the declarant in accordance with the law, or (ii) a witnessed oral statement made by the declarant expressing the declarant’s instructions concerning life-prolonging procedures.

A living will can outline the basic treatment philosophy and objectives of the declarant regarding life-prolonging procedures, or identify at length and in very specific detail the declarant’s specific wishes regarding the provision, withholding, or withdrawal of any form of health care, including life-prolonging procedures.

Preneed Guardian

A declaration of preneed guardian is a document that names a person or banking institution to serve as the guardian of the person, property, or both, of an individual in the event such individual is determined to be unable to handle his or her own affairs. The person (called the “ward”) usually is unable to manage their own affairs because of incompetency or because they are a minor. A guardian of the person is someone who is generally given the authority to make all non-financial decisions, such as medical, living arrangements, etc., on the ward’s behalf, and a guardian of the property is someone who is generally given the authority to make all financial decisions on a ward’s behalf. Of course, anyone acting as a guardian has a fiduciary responsibility to the ward to handle the ward’s affairs in a prudent manner, and usually must make accountings and reports to the court overseeing the guardianship.

The primary purpose of a declaration of preneed guardian (used in conjunction with a durable power of attorney) is to avoid guardianship; however, it also can be useful to avert conflicts that often arise if an individual were to suffer incapacity. For example, the filing of a petition to determine incapacity temporarily suspends a durable power of attorney, thus there is no person authorized to act on such individuals behalf until the issue of incompetency is resolved by a court. If an individual fails to indicate a preference for a particular guardian in writing, the law directs the court to give preference to a person who is related by blood or marriage to such individual, regardless of whether that person would have been the logical choice. As long as the preneed guardian is not found to be disqualified under the law, a rebuttable presumption arises that the preneed guardian is entitled to serve as guardian and he or she will assume the duties of guardian immediately upon an adjudication of incapacity.

The "Helping Families Save Their Homes in Bankruptcy Act of 2009"

On December 29th we posted a blog article entitled "Foreclosure Prevention Programs Fail." The article highlighted the National Association of Consumer Bankruptcy Attorney's (NACBA) view that a court ordered process of loan modifying is necessary in order to solve the current mortgage crisis as opposed to the current voluntary loan modification process which is available. Several proposals have been made in this effort but the latest, a United States Senate Bill, seems to be gaining the most momentum and has been also endorsed by both the United States President-Elect Barack Obama and Vice-President Elect Joe Biden.

Currently, the Bankruptcy Code prohibits the modification of mortgage loans on primary residence. The proposed Senate Bill (S.61) seeks to amend certain provisions of the Bankruptcy Code in order to allow a Homeowner to be able to modify their mortgage loan in a bankruptcy proceeding through a judicial rather than voluntary process. The bill was introduced on January 6th, 2009 by Illinois Senator Dick Durbin. Senator Durbin's view appears to be that the provisions of the Bankruptcy Code of which this bill seeks to amend are outdated, especially in today's mortgage crisis. The goal of this Bill is to give Bankruptcy Judges the power to modify mortgage loans secured by principal residences during a bankruptcy proceeding possibly to reduce the balance to the current fair market value (cramdown), extend the payment period, modify the interest rate, convert an adjustable rate mortgage into a fixed rate mortgage, or any other modification the court may choose.

Proponents of this bill believe that it is the first viable step in a foreclosure prevention plan of some sort and that if passed this bill will help millions of homeowners stay in their homes and also help towards stimulating growth in the economy. We will be sure to keep our clients informed on the progress of this bill and other options or programs that are available to our clients so please check back routinely for any updates and contact us with any questions or for any further information regarding your particular situation to find out how we may be of assistance.

2008 Year End Estate Planning Ideas To Consider

Louis A. (Drew) LaGrande, Esq. is a contributing author to the Yesner & Boss, P.L. blog and the following is a recent article which he contributed. Drew is a partner at Akerman Senterfitt based in Tampa, FL and specializes in legal areas such as estate planning and taxation.

Annual Exclusion Gifting

The most common methodology for tax-free giving is the annual exclusion gift of up to $12,000 per year per beneficiary in 2008. As stated above, in 2009, the annual exclusion amount will be increased to $13,000 per beneficiary per year. A married couple could give $24,000 per beneficiary in 2008 and, on January 1, 2009, could give an additional $26,000 per beneficiary.

The annual exclusion gift may be made in cash or "in kind." In other words, you may be able to make gifts of appreciated property, including limited partnership interests or other interest in closely-held family businesses, to maximize your annual exclusion gifting. If properly structured, the value of the interest can be discounted for tax purposes, thus enabling you to give more value to your beneficiaries. In some instances, an appraisal may need to be obtained to determine the value and the proper discount for such gifts.

In addition, a gift tax return may need to be filed to reflect the gifts to your beneficiaries. In some cases, this will add additional costs to the gift, but the potential for appreciation and the reduction of your gross estate may outweigh the economic cost in making such gifts.

Low Interest Rate Environment

It is important to consider interest rates when establishing and reviewing estate plans and lending money to family members. The current rates used to value wealth transfers are close to, if not already at historical lows. The Federal Reserve as recently slashed rates yet again to an all time low of .25%, which will also effect rates as published by the IRS. Generally, the interest rate which are used to value transfers involving trusts are known as the 7520 Rate. The rate is linked to US Treasury notes with 3-year to 9-year terms and is calculated monthly by the IRS and the December 2008 7520 Rate is 3.4%.

Following are three examples of wealth transfer options available in these low interest rate conditions:

1. Grantor Retained Annuity Trust

A Grantor Retained Annuity Trust, or GRAT, is an irrevocable trust to which the grantor transfers assets but retains the right to receive an annual payment of a fixed dollar amount for a specific term years. At the end of the GRAT term, the remaining trust assets pass to the designated beneficiaries who are family members. The term of a GRAT is generally short, between 2 to 6 years.

The IRS assumes that the GRAT will grow at a rate equal to the 7520 Rate. The lower the interest rate, the larger the potential gift to the remainder beneficiary. For a GRAT to be effective, the asset transfer to the GRAT must actually return or earn a rate greater than the 7520 Rate. The transfer of assets to a GRAT generally does not result in a gift to the remainder family member beneficiaries. If structured properly, the appreciated or remaining assets in the GRAT at the end of the GRAT term will pass gift tax-free to the remainder family member beneficiaries.

2. Charitable Lead Annuity Trust

A Charitable Lead Annuity Trust, or CLAT, is similar to the GRAT except that annuity payments are made to a charity. The annuity payments must be paid out periodically and at least annually for a specific number of years. At the end of the CLAT term, the remainder interest must be distributed to one or more non-charitable beneficiaries which are usually family members.

As with a GRAT, a CLAT works best in low interest rate environments because the trust investment performances must accede the 7520 Rate. The assets left in the CLAT at the end of the term will pass to family members tax-free. A CLAT is a good choice for people who want to combine their philanthropic pursuit with family wealth transfers.

3. Intra-Family Lending

Another technique that may work well in low interest rate environments is family lending. The IRS prescribes interest rates specifically for this purpose. As of December 2008, the long-term applicable federal rate for a loan over a 9-year period is 4.4%. This is considerably lower than the average 30-year mortgage rate of approximately 6% (as of November 2008). If the family member is able to achieve a higher rate of return than the interest rate obligation, the excess will, in effect, constitute a tax-free gift to the family member.

Estate Planning Check-Up

In light of upcoming changes in tax law and for individuals who executed their estate planning documents more than 3 years ago, it may be advisable to review your estate planning documents. It may be beneficial to meet with your estate planning attorney for an estate planning "Checkup" and to take advantage of some of the planning tips as discussed above.

2008 Proposed Tax Legislation

Louis A. (Drew) LaGrande, Esq. is a contributing author to the Yesner & Boss, P.L. blog and the following is a recent article which he contributed. Drew is a partner at Akerman Senterfitt based in Tampa, FL and specializes in legal areas such as estate planning and taxation.

The following is a brief summary of the potential changes in the tax law that may become effective under President-Elect Obama's administration. As you know, we have seen significant changes this year with respect to the volatility of the stock market, government bailouts and a newly elected president. President-Elect Obama has proposed several tax changes that may become effective during his term as President. There are many changes to President-Elect Obama's proposal, but the highlights of his plan are summarized below.

Income Tax Rate Increases

One of President-Elect Obama's tax changes will increase the individual's top federal income tax bracket from 35% to 39.6%. This increase affects individuals earning more than $250,000 per year. The next highest tax bracket is currently 33% and the proposed increase would raise this bracket to 36%.

In addition, long-term capital gain and unqualified dividend rates will increase from 15% to 20% for taxpayers earning more than $250,000 per year.

Tax-free Distributions from IRAs to Charities

For 2008 and 2009, the Emergency Economic Stabilization Act of 2008 was enacted to provide relief to the financial markets. This Act added $150 Billion in tax incentives to the relief package. The Act excludes from gross income an otherwise taxable distribution from an IRA in which a distribution is made by the IRA Trustee directly to a tax-exempt organization. This technique is not available for contributions to a private foundation nor donor advised funds. In addition, the distribution will not count toward the owner's required minimum distribution and cannot exceed $100,000 per taxpayer per year. This provision has been in effect since 2006 and will be extended through 2009.

Higher Education Tuition Deduction

The Act also ends the Higher Education Tuition Deduction through 2009. The amount of the deduction depends on the adjusted gross income. For taxpayers who are married and file jointly, the maximum tuition fees deduction is $4,000 if the couple's combined gross income is less than $130,000. This deduction is reduced to $2,000 if the combined gross income is between $130,000 and $160,000 per year. If the combined adjusted gross income is in excess of $160,000, then the maximum tuition fees deduction is $0.

Gift Tax Consideration

The annual gift tax exclusion is the amount that each person can give to any number of recipients without a gift tax consequence. This amount is currently $12,000 but will increase to $13,000 per beneficiary per year beginning in 2009.

Estate Tax Consideration

Currently, the applicable exclusion amount or the amount that can pass free of estate tax to any beneficiary is $2 million. This applicable exclusion amount will be increased to $3.5 million in 2009. In 2010, the estate tax will be repealed for one year. Thereafter, in 2011, the applicable exclusion amount will be decreased to $1 million. The top taxable estate tax rates are currently 45%. In 2011, such top taxable estate tax rate will be increased to 55%.

There is uncertainty surrounding the future of the federal estate tax. We may well see revisions to the estate tax law in the coming years because of the general recognition by Congress (and everyone else) that the current laws from 2010 are problematic. President-Elect Obama's proposal would set the applicable exclusion amount at $3.5 million and the top federal estate tax rates at 45% which many commentators believe is workable.

Avoiding Probate By Title Transfers, Gifts, And Other Mechanism

When not properly planned for, appraisal costs, legal fees, executor fees, and estate taxes can exceed the cost of seventy percent of a total estate leaving less than thirty percent for distribution in a probate case. Additionally, probate is a very time consuming and bothersome process often taking several months or years. For these reasons avoiding probate as much as possible often saves much money of the estate and usually several months and much unneeded stress on the part of family members of the decedent.

Joint ownership and deeding assets into trusts are among the most common ways of owning assets in order to avoid probate upon the death of the owner. This often saves the family much frustration, time, and most importantly money leaving much more of the estate available for distribution as intended. One other common type of transfer used to avoid probate administration is gifting assets to family members before the decedent’s death. Though gift amounts are limited annually, gifting to family members is a common method used to distribute assets by deeding them to the person whom they would otherwise be left to in a will or by inheritance before the decedent’s death. Gifting assets can also offer significant tax advantages for both parties.

When property or assets are properly deeded to one or more owners, usually the decedent and a spouse or children, that property does not become part of the probate estate. Rather that property transfers directly to the remaining owners upon the decedent’s death therefore completely avoiding the otherwise burdensome probate process. In many situations additional owners can be either active or merely an owner for convenience. Often adding additional owners to property or assets is a helpful mechanism for decedent’s who have limited control over their property or assets due to age, diminished mental capacity, or health issues. Additionally, an owner who adds additional owners may still retain full sole possession of any property during their lifetime.

The Attorneys at Yesner & Boss, P.L. can assist in advising our clients regarding any methods available to them, any limitations, and also facilitate any transfer. Additionally, our firm is a full service licensed title agency which actively specializes in transferring and deeding property and other assets into other forms in order to promote our clients goals of avoiding an otherwise financially and emotionally costly probate process for their family members at an unnecessary time.

Visit our contact us now page to schedule a free consultation so we may advise you of any opportunities that are available to you and to inform you of how our specialized services may be of assistance in this area.