Scam Involving Property Deeds

For the past several months, we have received several phone calls from frantic clients who have received an official-looking letter from a company called “Property Transfer Services” which contained language that indicated that some transfer of their property had taken place. The letter is not a bill – far from it, actually. It’s actually a scam. These types of solicitations crop up every few years and often scare people into sending money to get copies of their deeds, which they can get for a nominal fee from their local county registrar.

The letter reads something similar to, “Property Transfer Services recommends that all Michigan homeowners obtain a copy of their current Deed.” The cost for the service, according to the letter, is $83.00, and the letter gives a due date.

In an attempt to get the word out to seniors in our community, please let loved ones know that they should not respond and definitely should not send payment.

As you may know, you can get information about your home or other real estate through your local county register of deeds. Most deeds are available online either for free or a nominal cost of $1.00 per page.

California Widow's $27-Million Estate Goes to Alzheimer's Group

Here's a really cool story from the West Coast: A childless widow who lived privately and modestly in a small Southern California city has left her entire $27-million estate to the Alzheimer’s Association of Orange County.

The bequest from Helen Banas—who died in August at the age of 95, her wealth unknown to neighbors—is the largest ever for the charity. Ten million dollars will go to the national Alzheimer’s Association, with the rest to the Orange County chapter.

Ms. Banas inherited money from her husband, Alfons, a stockbroker who died in 1958, and built her assets through investing. Friends said she had determined to leave her money to an Alzheimer’s group 20 years ago after the death of her mother, who suffered from the disease.  For more details, see the full article as printed in the Orange County Register.

Inside Joe Paterno's Estate Planning Ploy

Joe Paterno's transfer of homeownership to his wife in July most likely was not an attempt to shield assets before a sexual-abuse scandal hit Pennsylvania State University's football program.  Instead, the move by the legendary coach more likely was made to take advantage of expiring estate tax rules, lawyers said.  Mr. Paterno switched ownership of his ranch-style home in State College, PA from joint ownership with his wife, Susan, to her full ownership on July 21 in a $1 transaction, according to documents filed in Centre County, PA.

A New York Times story suggested that the move could have been an effort to shield the home from future lawsuits that may arise from the child abuse scandal that was first revealed early this month. But attorneys familiar with Pennsylvania law said that the property already was protected from creditors because it was jointly owned and therefore couldn't be subject to creditors of only one of the spouses. The only way that the house, valued at $594,484, could be exposed to creditors is if both Mr. Paterno and his wife were targeted in a lawsuit, lawyers said.

Bank of America Says Power of Attorney Does Not Grant Access to Online Banking

When one spouse suffers from dementia, the other spouse often must take over managing the couple's finances, usually with the help of a power of attorney. But things don't always go smoothly with financial institutions. Just ask Chicago resident Eva Kripke, who has been handling money matters since her husband, Sidney, was diagnosed with Lewy body dementia four years ago.

Acting as agent for her husband under a power of attorney, for years Ms. Kripke had been going online to check her husband's Bank of America account and writing checks from it, until one day in April when the bank suddenly changed its security procedures and she was blocked from accessing his online account unless she supplied his Bank of America credit card number.

Because of her husband's dementia, Ms. Kripke had torn up the credit card several years previously, but she was able to obtain the card number from her local Bank of America branch. But that wasn't enough -- the bank also wanted the security code and the expiration date, neither of which she or the bank had. Without that, even though she had all the other information about her husband's account, not to mention his power of attorney, she could not access it online.

"[The bank employees] told me that power of attorney was not accepted for online banking," Kripke told the Chicago Tribune's "What's Your Problem?" columnist, to whom she turned for help. "It did not matter that I had been accessing my husband's account for several years. There was no way I could have access to my husband's online account any longer."

Bank of America suggested Mrs. Kripke open a joint account with her husband, something her lawyer advised her not to do, saying it was better for the couple to keep their accounts separate. The bank also said she could go to her branch and get a printout of her husband's account and even offered to have a bank employee drop one off at her house.

"That's not satisfactory at all," said Mrs. Kripke, who noted that the deposits and payments for her husband's 24-hour care often require daily oversight. "I don't want to have to rely on constantly going over there. I doubt that someone would deliver it to me and I'd feel odd asking them to do that."

The American Bar Association Journal picked up Mrs. Kripke's story and asked its readers if they had any suggestions for her. So far, the leading ones are: 1. report the credit card lost or stolen and get a new one, or 2. find another, more accommodating bank. It can also sometimes help to use the financial institution's own power of attorney form, although executing a different document for every bank one has an account with can be time-consuming, and it is likely impossible in Mrs. Kripke's case now that her husband is incompetent.

President Obama Signs Tax-Cut Bill Setting Estate Tax Exemption at $5 Million for Two Years

Congress has passed and President Obama has signed into law the deal extending the Bush tax cuts that he struck with Congressional Republicans. The legislation restores the estate tax for two years at a 35 percent tax rate, with estates up to $5 million exempt from paying any tax ($10 million for couples). If Congress does not change the law in the interim, in 2013 the estate tax will revert to what it was scheduled to be in 2011 -- a 55 percent rate and a $1 million exemption. The $801 billion tax-cut bill makes several other significant changes to wealth transfer taxes:

•The new $5 million estate tax exemption and 35 percent rate are retroactive to January 1, 2010. The heirs of those dying in 2010 will have a choice between applying the new rules or electing to be covered under the rules that have applied in 2010 -- no estate tax but only a limited step-up in the cost basis of inherited assets. This will benefit the heirs of tens of thousands who died in 2010 with relatively modest estates and who would have been subject to capital gains tax on inherited assets above a certain threshold.

•The law makes the estate tax exemption "portable" between spouses. This means that if the first spouse to die does not use all of his or her $5 million exemption, the estate of the surviving spouse could use it.

•The law unifies the estate, gift and generation-skipping transfer tax exemptions at $5 million. (For 2010 there is no generation-skipping tax, while the gift tax exemption has been $1 million for a number of years.) A 35 percent tax rate will apply to gifts or transfers over the $5 million threshold. (There is no change in the $13,000 annual exclusion amount for gifts.) These high exemption levels mean that "[t]he rich will have a two-year window in 2011 and 2012 to protect huge amounts of their estates from taxation for generations," wrote estates attorney Kevin Staker on his Estate Tax News Blog.

But that window is open even wider than was previously assumed because of an additional loophole for the wealthy in the new law. Although taxpayers have until December 31, 2010, to transfer funds outright to grandchildren and avoid the generation-skipping tax, there's the risk that the grandkids will squander the sudden influx of cash. As Forbes blogger Janet Novak explains in a recent post, "the money doesn't (as most planners had believed) have to be distributed outright to the grandkids to qualify for the 0% rate. Instead, according to the fine print in the tax deal, it can be put in a trust for them, [noted estate planning lawyer Jonathan] Blattmachr says. That means, he explains, that money can be taken from an existing multigenerational trust, declared subject to the 2010 GST tax, and deposited in a new trust for grandkids' benefit, with the GST tax now pre-paid at a 0% rate." Novak says Blattmachr has been telling his estate planning attorney peers, "Cancel your ski trip or trip to Hawaii. This is a once-in-a-lifetime opportunity."

The generous estate tax provisions were the main sticking point for progressive Democrats. A vote in the House on an amendment to increase the estate tax, including lowering the exemption to $3.5 million, was defeated by a vote of 233 to 194. After some minor changes to the bill were made, it passed the House by a 277 to 148 margin, after having been approved overwhelmingly by the Senate 81 to 19.

The site Politico quotes one senior House Republican aide as saying, "I'm trying to remember something that we passed under Bush that was this good." The new tax law presents previously unavailable planning opportunities, especially for the well-off. 

Just click on the following link to read the full legislation, titled the "Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010" as originally introduced.

Social Seurity Payments Will Remain Flat In 2011

The after-effects of the Great Recession are about to squeeze retirees where it hurts: the monthly Social Security check.

If you have not yet heard, for the second consective year, seniors won’t get a Social Security cost-of-living raise in 2011.  A recent article in explains the rationale behind the governmment's decison to keep social security payments at their present levels.

By law, Social Security passes along an annual cost of living adjustment-or COLA-to recipients. The increase is tied to a broad measure of inflation in the economy and, up until 2010, a year had not gone by since Social Security was created in the 1930s without a COLA.

The situation might look like a wash at first glance; if consumer prices are down, seniors don’t need a raise, right? But retirees are impacted disproportionately by a sub-set of prices that tend to rise more quickly than inflation in the broader economy-health care, energy and transportation. They’re also grappling with the bad timing of falling home values and investment losses at a time when many need to tap those assets.

The result is that the vanishing COLA will squeeze many retirees hard. Social Security provides, on average, about 39 percent of income for retired households, according to AARP. More than 50 million people receive benefits.

A general decline in the financial picture of seniors is well underway; a recent survey by the Pew Research Center showed that more than a third of seniors have cut their household spending in the past year; nearly 40 percent said the recession has caused stress in their families; a majority (56 percent) said the recession “probably will make it harder for them to take care of their financial needs in retirement.”


Steinbrenner Fourth Billionaire in 2010 to Escape Taxes, If Not Death

New York Yankees owner George Steinbrenner is the fourth known U.S. billionaire to die during 2010, according to Forbes magazine. Why is this significant? Because there is no estate tax in 2010, meaning that the U.S. Treasury has lost billions in tax revenues unless Congress acts between now and the end of the year to reinstate the tax retroactively.

Steinbrenner was worth an estimated $1.5 billion, meaning his heirs could save as much as $600 million in taxes because he died this year. Steinbrenner's wealth -- mostly consisting of the Yankees, a new stadium and a regional cable network -- could pass to his wife tax-free even if the estate tax were in effect, but this year she might have an incentive to disclaim (or turn down) any bequest, which would allow the assets to pass to Steinbrenner's four children free of federal tax. (But Steinbrenner's family would have to pay a huge capital gains tax if it were to sell any highly appreciated assets, since along with the disappearance of the estate tax, there is no "step-up" in the cost basis of inherited assets during 2010.)

The other billionaires to die in 2010 are Janet Morse Cargill of the family that founded Cargill Inc. (net worth: $1.6 billion), Texas pipeline magnate Dan Duncan ($9.8 billion), and California real estate mogul Walter Shorenstein ($1.1 billion). By rough calculation, their deaths in 2010 have cost the government some $6.5 billion.

Motivated by the billion-dollar estates passing to heirs tax-free, Sen. Bernard Sanders (I-VT) and four co-sponsors have introduced a bill that would return the estate tax to the 2009 exemption level of $3.5 million but add a progressive tax rate structure that would start at 45 percent, rise to a top level of 55 percent, and add a 10 percent surtax on billionaires. The proposal would be retroactive to the start of 2010.

The Responsible Estate Tax Act (S. 3533), introduced on June 24, 2010, is cosponsored by Sens. Sherrod Brown (D-OH), Al Franken (D-MN), Tom Harkin (D-IA), and Sheldon Whitehouse (D-RI). According to its sponsors, the proposal would bring in at least $264 billion over a decade while exempting 99.7 percent of Americans from paying any estate tax. The retroactivity provision would likely face a court challenge from heirs of wealthy individuals such as Steinbrenner.

"At a time when we have a record-breaking $13 trillion national debt and an unsustainable federal deficit, people who inherit multimillion- and billion-dollar estates must pay their fair share in estate taxes," three of the senators said in a letter accompanying the bill's release.

The year without an estate tax is a creature of the Bush tax cuts. Under the provisions of a tax-cut bill enacted in 2001, the value of estates exempt from the tax gradually went up over the past eight years while the tax rate on estates was reduced. During 2010, according to the 2001 law, the estate tax disappears entirely, only to be restored in 2011, potentially, at a rate of 55 percent on estates of $1 million or more, which is where things stood before the 2001 change.

Study Findings Support The Value Of Advance Healthcare Directives, Living Wills And Other Means Of Making End-Of-Life Treatment Preferences Known

According to a new study in the New England Journal of Medicine, one in four elderly Americans require someone else to make decisions about their medical care at the end of their lives.

Here's the good news: the study found that planning improved the likelihood that a patient's wishes would be followed and reduced emotional trauma among family members. "The results illustrate the value of people making their wishes known in a living will and designating someone to make treatment decisions for them, the researchers said," The Associated Press reports. "In the study, those who spelled out their preferences in living wills usually got the treatment they wanted. Only a few wanted heroic measures to prolong their lives. The researchers said it's the first accounting of how many of the elderly really end up needing medical decisions made for them."

I have long advocated that every adult should have a durable power of attorney for healthcare decisions as an integral part of a comprehensive estate plan.

Now for the bad/surprising news: according to a recent article in the Washington Post, five years after the court fight over allowing Terri Schiavo to die, most Americans still don't draft the legal documents that spell out how far caregivers should go to keep them alive artificially. End-of-life experts estimate only 20 percent to 30 percent of U.S. adults have advance directives, the same as before the Schiavo case. Even in polls of older Americans, who fill out such forms at higher rates, there is little if any change from 2005. 

Have you taken the time to clarify your end-of-life wishes, what you want out of your final years, how you want to be cared for, where you want to live and so on? You should have this important conversation with your loved ones, and you should memorialize your wishes in the appropriate legal instrument drafted by a trained attorney.


Congress Lets Estate Tax Expire, But May Act Retroactively

Happy New Year!  I hope you enjoyed the Holidays with your family and close friends. Well, despite my last post about the pending estate tax legislation, there is currently no tax on the estates of those dying during 2010! Although Congress may reinstate the tax retroactively in 2010, perhaps as part of broader tax reform, this is not a certainty. Burned by their near-universal conviction that Congress would act to preserve the tax before it expired on December 31, 2009, experts are now wary of predicting what lawmakers will do. 

If Congress fails to act, a few thousand very wealthy families will have reason to celebrate, while tens of thousands of taxpayers of more modest means will pay capital gains on inherited assets thanks to the end of the basis step-up and the start of modified carryover basis rules. In addition, executors will face confusing administrative burdens, and married couples with credit shelter trusts may want to revise their plans, at least for 2010. And if Congress does change the law retroactively, extensive litigation over inheritances is almost guaranteed.

The chief tax counsel for the House Ways and Means Committee estimates that while extending the 2009 estate tax law would have affected about 6,000 estates, 71,400 estates could face new capital gains taxes with the estate tax gone. According to the Center on Budget and Policy Priorities, "at least 62,500 of these are estates that would not owe any estate tax if the 2009 rules were continued and that thus would be adversely affected by estate tax repeal. Farm and business estates would constitute a disproportionately large share of this group." (Small farms and businesses are the groups whose interests opponents of the estate tax have claimed they are defending.)

The Perils of Going Retroactive

Senate Finance Committee Chairman Max Baucus (D-MT) has pledged to try to restore the estate tax retroactively in 2010. This would undo the capital gains increase, but it could also create fertile ground for lawsuits by those whose family members die between January 1, 2010, and the date when any retroactive law is enacted.

"I can guarantee this: if they succeed in getting retroactive in hiking the death tax from zero to 45 percent, there are going to be lawsuits," said Dick Patten, president of the American Family Business Foundation, which opposes the estate tax. "Its going to be messy, its going to be noisy." (For an excellent discussion of the mess that a lapse in the estate tax could create, see this article by "Beneficiaries will deal with uncertainty for years," warns one tax expert.)

 What to Do?

In the meantime, estate planning attorneys and their clients are trying to figure out what to do. Particularly vulnerable are married couples with credit shelter trusts that are designed to allow both spouses to take advantage of their respective estate tax exemptions. With the estate tax gone, the wording of these trusts could be interpreted as completely bypassing the surviving spouse when the first spouse dies, meaning a surviving spouse would get nothing without claiming an elective share. (For commentaries, click here and here.)

Along with the estate tax, the generation-skipping transfer tax also disappears in 2010. Some wealthy individuals may bet that Congress won't extend the law retroactively and therefore make large gifts to grandchildren.

"Ten years ago, there was a lot of gallows humor about repeal when everybody said it would never happen," said Rep. Richard Neal (D-MA), chair of the House Select Revenue Subcommittee. "Now, one of those never-happen moments has happened, and nobody's laughing."

For more on the implications of the disappearance of the estate tax, see the Future of the Estate Tax blog.



Breaking News: House Votes Yes On Estate Tax Bill

On Thursday, December 3, the House of Representatives passed the "Permanent Estate Tax Relief for Families, Farmers, and Small Businesses Act of 2009" (H.R. 4154) sponsored by Rep. Earl Pomeroy (D-ND) by a vote of 225-200. The bill makes permanent current estate tax provisions of a 45 percent estate tax rate and a $3.5 million per-person exemption. There is no provision for indexing for inflation. The bill also maintains the so-called “step-up in basis” tax rules. Similar action is not expected in the Senate, where a one year extension of current law is considered more likely. To read a record of the proceedings, visit:

As I have been advising my clients for the last few years, if Congress takes no action whatsoever, the estate tax is scheduled to enter one year of full repeal in 2010 followed by a return of the estate tax in 2011 with a much lower exemption amount ($1 million) and a much higher maximum tax rate (55%). I am optimistic, however, that logic will prevail (despite the fact that we are dealing with D.C. politics) and our current $3.5 million exemption will be extended for at least the short term.

Two important points I want to stress: (1) The federal estate tax is all-encompassing and is levied upon a deceased person's worldwide gross estate (any and all assets that the individual owned or had an interest in as of the date of death, i.e. real estate, cash, stocks, bonds, life insurance proceeds, patents, etc.); and (2) In a married couple scenario, the present $3.5 million exemption is not "automatic" for each spouse; proper planning must be implemented to take advantage of this "double exemption" opportunity.   

Our firm will continue to closely monitor these developments and will certainly alert any clients whose plans may need attention as a result thereof.