Fong Law Group

Biden Administration May Spell Changes to Estate Tax and Stepped-Up Basis Rule

A new administration usually means that tax code changes are coming. While it remains unclear exactly what tax changes President Biden’s administration will usher in, two possibilities are that it will propose lowering the estate tax exemption and eliminating the stepped-up basis on death. The first would affect only multi-millionaires, but the second could have an impact on more modest estates and their heirs. 

In 2017, Republicans in Congress and President Trump doubled the federal estate tax exemption and indexed it for inflation. For the 2021 tax year, the exemption is $11.7 million for individuals and $23.4 million for couples. As long as your estate is valued at under the exemption amount, it will not pay any federal estate taxes, and the vast majority of estates do not owe any tax. President Biden has expressed an interest in lowering the estate tax exemption. It could be more than halved to $5 million or even reduced to the previous exemption of $3.5 million for individuals. 

Another possible tax change is to how property is valued when it is passed on at death. "Cost basis" is the monetary value of an item for tax purposes. When determining whether a capital gains tax is owed on property, the basis is used to determine whether an asset has increased or decreased in value. For example, if you purchase a stock for $10,000, that is the cost basis. If you later sell it for $50,000, you will have to pay taxes on the $40,000 increase in value. 

Under current law, when a property owner dies, the cost basis of the property is "stepped up." This means the current value of the property becomes the basis. For example, suppose you inherit a house that was purchased years ago for $50,000 and it is now worth $250,000. You will receive a step up from the original cost basis from $50,000 to $250,000. If you sell the property right away, you will not owe any capital gains taxes.

According to an article in the New York Times, the current administration may propose to eliminate the basis step-up rule. In the past it was difficult to determine the original cost basis of some property, but in the digital age that information is more easily gathered. The change could result in tax increases for some people inheriting property that has risen significantly in value. 

Another question is whether either of these changes will be made retroactively. It is unlikely, but possible, that if Congress changes these rules later in the year, they could be made retroactive to the first of the year. 

If you are concerned about these rules changing, a trust may be a good way to protect your estate. Property in a trust passes outside of probate, and there are specific types of trusts that are designed to protect assets against estate taxes and capital gains. Talk to your attorney to determine if a trust is right for you. 

Tax experts agree that while changes to the tax code are likely, they probably won’t happen right away. The coronavirus pandemic and the recession it has triggered mean that Congress has other priorities at the moment. 

蔡天鳳命案看資產規劃的重要性 (廣東話)

Should you omit your children’s names in your trust if you don’t want to leave anything to them?

 

如果不想留財產給子女，應否在信託剔除子女的名字?

如果不想留財產給子女，應否在信託剔除子女的名字

The Myth of Prop 19

識法有方-信託Q&A (廣東)

信託 Q & A (國語)

If You Haven’t Been Regularly Reviewing Your Estate Plan, Start When You Hit 60 如果您沒有定期審查您的資產計劃，請由60歲開始 (中英對照)

How frequently you should review your estate plan depends on how old you are and whether there has been a significant change in your circumstances. If you are over age 60 and you haven't updated your estate plan in many decades, it's almost certain that you need to update your documents. After that, you should review your plan every five years or so. But if you're younger, you don't need to do so nearly as often.

Age

Here are a few age ranges and what they mean in terms of estate planning:

18-30   Everyone needs a durable power of attorney, health care proxy and HIPAA release so that they have people they choose to step in and make decisions for them in the event of incapacity.

30-40   Once you begin accumulating assets, get married, and have children, it's important to create an estate plan to care for your loved ones in the event of your death. It also can't hurt to update your durable power of attorney, health care proxy and HIPAA release, since the people you may have appointed at 18 (your parents?) may not be the people you want in these roles at 35.

40-60   Unless there's been a change in your circumstances, and assuming you've set a good plan in place during your 30s, you probably don't need to review your estate plan during your 40s and 50s.

60-70   Once you've hit your 60s, it's time to take a look. Your children are probably grown. You may have grandchildren. And, hopefully, you've accumulated some wealth. The people you appointed to step in in the event of incapacity when you were 35 may not be in a position to assist when you're 65. You may have retired or are contemplating doing so. And, unfortunately, the chances of disability or death increase with every year.

70+   Now it's time to review your plan every three years or so. Changes happen -- to your health and that of your loved ones, to the tax laws, to the programs supporting long-term care or disability care. It's important to have a plan in place and to adjust it as circumstances change.

Change in Circumstances

While the timeline above outlines when you should review and perhaps update your estate plan, it needs to be supplemented by the following potential changes in circumstances that would warrant a review of your plan to see if it still meets your goals and needs:

• Marriage. You're likely to want your assets to go to your spouse and to name him or her to be your agent in the event of incapacity.
• Divorce. Likewise, if you get divorced, you probably won't want your assets to go to your ex-spouse or to rely upon him or her to step in if you were to become incapacitated.
• Children. Once you have children, you'll want to provide for them and to name someone to step in as guardian in the event of your death or incapacity and that of their other parent, if any. Generally, once you have a plan in place you do not have to update it unless you have more children.
• Disability. If you or someone who would inherit from you becomes disabled, you will need to plan to protect and manage your assets, whether for yourself or for your beneficiaries.
• Wealth. If you accumulate sufficient assets to exceed the thresholds for state and federal estate taxes -- $11.4 million federally -- you may want to plan to reduce or eliminate such taxes.
• Moving. If you move to a new state or country, it will be important to have your estate plan reviewed to make sure it works in the new jurisdiction.

In short, until you reach age 60 or 70, reviewing your estate plan every five years probably is overkill. But do so whenever you have a change in circumstances such as those listed above. If you're over 60 and haven't updated your estate plan in many years, now's the time. Then, having a review every five years is definitely a good rule of thumb.

您應該多久審查一次您的資產計劃是取決於您的年紀以及您的狀況是否發生了重大變化。如果您年滿60歲並且幾十年來都沒有更新您的資產計劃，那幾乎可以肯定您需要更新您的文件。之後，您應該每五年左右檢查一次您的計劃。但如果你還年輕，你不需要經常這樣做。

年齡

以下是幾個年齡範圍及其在資產規劃方面的意義：

18-30每個人都需要財務授權書，醫療授權書和釋放醫療記錄同意書(HIPAA)，這樣在他們無行為能力的情況下便可由他們所選的人介入並為他們做出決定。

30-40一旦你開始積累資產，結婚生子，製定資產計劃是重要的，以便在你去世時仍能照顧你的家人。更新您的財務授權書，醫療授權書和釋放醫療記錄同意書(HIPAA)也百利而無一害，因為你在18歲時任命的人（你的父母？）到您35歲時可能不是你想要任命的人。

40-60 除非你的情況發生了變化，並假設你在30多歲時制定了一個很好的計劃，那你可能不需在40多歲和50多歲時審查你的資產計劃。

60-70  一旦你到了60歲，是時候看一看了。你的子女可能都已長大了。你可能有孫子。而且，希望你已經積累了一定的財富。在你35歲時您所指定的人在您沒有能力的情況下介入可能無法在你65歲時提供幫助。你可能已經退休或正在考慮退休。而且，遺憾的是，殘疾或死亡的可能性每年都在增加。

70+  現在是時候每三年審查一次你的計劃了。變化發生了 -- 您跟您家人的健康, 稅法，長期護理支援方案或殘疾護理計劃。制定計劃並隨著環境變化進行調整是非常重要。

環境變化

雖然上面的時間表概述了您應該何時審核並且可能更新您的資產計劃，但需要通過以下潛在的環境變化來補充，以便審核您的計劃，看它是否仍然符合您的目標和需求：

• 婚姻。您可能希望將您的資產轉給您的配偶，並在無行為能力時將其命名為您的代理人。
• 離婚。同樣，如果你離婚，你可能不希望把你的資產給你的前配偶或如果你變得無能為力時他們會成為您的代理人。
• 子女。一旦你有了子女，你便會想供應給他們，並且在你去世時或喪失工作能力時可以指定某人作為監護人。通常來說，一旦您制定了計劃，您無需更新計劃除非您有更多子女。
• 喪失能力。如果您或您的繼承人失去行為能力，您需要計劃來保護和管理您的資產，不管是為您自己還是為您的受益人。
• 財富。如果您積累足夠的資產以超過州和聯邦遺產稅的門檻 - 聯邦政府1140萬美元 - 您可能希望減少或消除此稅收。
• 遷移。如果您搬到別的州或國家，檢查您的資產計劃是重要的，以確保它在新的司法管轄區下仍然有效。

簡而言之，在您到60歲或70歲之前，每五年審查一次您的資產計劃可能就是矯枉過正。但是，只要你的環境發生了以上列出的變化，便要這樣做。如果您已年滿60歲並且多年沒有更新您的資產計劃，那麼現在是時候了。然後，每五年進行一次審查絕對是一個很好的經驗準則。

How The Ancient Ones Handled Their Estate Planning

“Upon one’s death, there is no comprehensive service that finds every asset in the individual’s name. Sometimes the executor or family partakes in what seems to be a goose-chase, trying to find out where the decedent held her monies and property.”

It’s not unusual for a family member to find an old bank account or painting, years after someone has passed and the estate has been closed. If it’s not something of great value, says Above the Law in the article “Old Money, Same Issues: Lessons from the 5^th Century in Organizing Your Estate,” it’s easy to handle. Contacting a few members of the family to see who wants a small item, can be a simple task.

However, if it’s of high value, the family may need to petition a bank, the probate court or even an unclaimed funds bureau for access to the asset, so it can be distributed to beneficiaries or heirs. The testator needs to appoint a meticulous administrator so no stone is left unturned, when the time comes for marshalling all of the assets, before the estate can be closed.

 Israeli archeologists recently unearthed deeply buried stones related to the estate of an ancient Samaritan named Adios. The stone had an inscription that read “Only God help the beautiful property of Master Adios, amen.” The estate is reported to date back 1,600 years to the 5^th century. The estate contained stone mechanisms for making wine, flour and oil, including a mill. It was fairly well organized.

We have now organized people who take care of their heirs and beneficiaries, by listing all of their assets and taking the time to have an estate plan created that includes a detailed will, among other important documents. We are centuries away from inscribed stones, but the game plan is the same: write down the assets, have a will that details what assets go to either people or charitable organizations and prepare for the future.

If there is no list of assets, there are ways to uncover them. However, it creates a lot of work for the executor and stress for the family, that could be avoided with an estate plan.

The best evidence of asset holdings are often a decedent’s tax returns. General supporting documentation can reveal useful information about a person’s financial status. A look at a decedent’s paper files can reveal bank accounts, investment accounts and insurance policies.

If the assets are not properly documented in an estate plan, the monies may end up in a state’s unclaimed funds depository. Real estate, if taxes are not paid, may be seized. Many of the concerns for unclaimed funds can be addressed, by taking the time to create a spreadsheet of information and sharing it with the executor.

Whether your assets include a stone mill or bank accounts, an estate plan that includes clear and organized information about your assets will increase the likelihood that your assets will be distributed and not disappear, until they are uncovered centuries later.

Reference: Above The Law (March 5, 2019) “Old Money, Same Issues: Lessons from the 5^th Century in Organizing Your Estate”

Beverly Hills 90210 Star Luke Perry Did Have an Estate Plan

“Fortunately, Perry's foresight to do proper estate planning, meant that the tragedy was not made worse for his family.”

Luke Perry’s death at age 52 from a condition that we think of as something that happens to older people, has made many people thinks differently about strokes. As reported in the Forbes article “Luke Perry Protected His Family With Estate Planning” Perry was savvy enough to do the proper estate planning, which made a difficult situation easier for his family.

Perry was heavily sedated following the first stroke and five days later, his family made the difficult decision to remove life support. It had become obvious that he was not going to recover, following a second stroke. He was surrounded by his children, 18-year-old Sophie, 21-year-old Jack, Perry’s fiancé, ex-wife, mother, siblings and others.

The decision to allow Luke Perry to die, when only a week earlier he had been alive and vibrant, could not have been easy. It appears that he had the correct legal documents in place, since the hospital allowed his family to make the decision to end life support. In California, those wishes are made in writing, using an Advance Directive or Power of Attorney. Without those documents, his family would have needed to obtain an order from a probate court to permit the hospital to terminate life support, especially if there was any disagreement about this decision from family members.

That would have been a public and painful experience, making things harder for his family.

Perry reportedly had a will created in 2015 leaving everything to his two children. Earlier that year, he had become a spokesperson for screening for colorectal cancer. He had undergone a colonoscopy and learned that he had precancerous growths, which led him to advise others to do the same testing. According to friends, it was after this experience that Perry had a will created to protect his children.

It is thought (but not yet verified) that Perry had a reported net worth of around $10 million, so it’s likely that he created a revocable living trust, in addition to a simple will. If he had only a will, then his estate would have to go through probate court. It’s more likely that he had a trust, and if it was properly funded, then his assets could pass onto his children without any court involvement.

The only question at this time, is whether he made any provisions for his fiancé, Wendy Madison Bauer. Since the will was done in 2015, it’s unlikely that he included her in his estate plan. If they had married, she would have received rights that would not have been automatic but would have depended upon the wording of his will or trust, as well as whether the couple had signed any prenuptial agreements. If they had married and documents did not include an intent to exclude Bauer, she would have been entitled to one-third of his estate.

Luke Perry’s tragic death provides an important lesson for all of us. No one should wait until they are old enough to do estate planning. Perry’s cancer scare, in 2015, gave him the understanding of how quickly life can change, and by having an estate plan in place, he helped his family through a difficult time.  

Reference: Forbes (March 8, 2019) “Luke Perry Protected His Family With Estate Planning”