Steps for End-of-Life Planning

Most people don’t consider anything about planning for incapacity or death to be joyful. However, if you consider estate planning documents as a way to share your wishes and make your departure easier for those you love, as well as a means to express your thoughts and feelings, it could make these tasks a little easier and establish a legacy for your loved ones. A recent article from The Washington Post, “6 joyful steps for end-of-life planning,” could help reframe how you think of estate planning.

From a practical standpoint, death and incapacity are complicated for loved ones. There is always an emotional toll which renders loved ones less capable than they typically would be in dealing with post-death tasks.  Preplanning through your estate plan will help ease their burden.

They will appreciate your preparing medical powers of attorney or similar documents which should be created when a person is healthy, and not when they are in a hospital bed. The same goes for funeral arrangements, which are costly. There are so many choices and decisions to make—do your loved ones even know what you want? Leaving instructions in an appointment for the disposition of remains and maybe even prepaying services will remove the burden for loved ones to know what you wanted and dealing with the expense of paying for it.

Digging through a loved one’s credit card bills, cellphone accounts, bank accounts and internet passwords is a big challenge in today’s digital world. It was far easier when there were stacks of paper for every account. Today’s fiduciaries need to have access to more information to avoid lost assets, avoid identity theft and prevent roadblocks to wrapping up your estate.

Here’s a checklist to help get your estate plan moving forward.

1 Estate Planning Notebook. The author of the article called this a crisis planning binder.  We actually give our clients one binder with all the estate planning documents to make it easier for loved ones. You should make additional copies, but keep originals in one place—and tell your fiduciaries where the originals and binder can be found.  You can also include information in the binder to facilitate gathering assets and administering your estate, such as information on bank accounts, contact information for professionals you’ve worked with, information on assets, debts, contracts, the above-referenced final internment instructions and more.

Please see Mary’s article here for more ideas on what to include in the binder:  https://galligan-law.com/not-a-little-black-book-but-a-big-blue-estate-planning-binder/

2 Have a medical power of attorney created while you are having your estate plan made. This tells your loved ones what you want in case of incapacity and end-of-life decisions and isn’t typically what people think about in an estate plan.  Appointing a person to act for you in these situations and communicating these wishes will greatly ease their burden.

3 Have an estate plan created with an experienced estate planning attorney. Without an estate plan, the laws of your state determine how your property is distributed.  Most people mistakenly assume that the law will quickly and easily let property pass to their loved ones, but that is often not the case, or worse, they make bad assumptions about which loved ones inherit.

Estate plans are also state-specific, so a local estate planning attorney is your best resource. Be wary of online documents—if they are deemed invalid, or even worse, valid but terrible, you will have greatly increased the cost, time and energy of your estate administration, and may still not get what you wanted.

4 Make a digital estate plan. No doubt you have more than one email account, shopping accounts with more than a few retailers, credit cards, car leases or loans, home mortgage payments, social media, cloud storage, gaming accounts and more. Without a complete and comprehensive list of all accounts, your executor won’t know what needs to be closed, where your personal documents or photos live or how to retrieve them.

5 Plan your Final Internment. This isn’t always easy for a person to do, but if you find it difficult, imagine how your loved ones will feel.  Even if you don’t prearrange, many states, Texas included, provide the power to name a person to execute your wishes for final internment and to describe those wishes.  This is often called an appointment for the disposition of remains. You’ll feel better knowing your wishes will be followed, whether it’s for a “green” funeral or a cremation, with a long period of mourning following your faith’s tradition or a short memorial service.

6 Write a letter of intent and any final farewells. This is an opportunity to share your thoughts with those you love, with healthcare providers and anyone else who matters to you, about healthcare decisions at end of life, or to convey your values, hopes and dreams for those you love.  This is similar to the “ethical will” and leaves the legacy of your values to your loved ones.

When these issues are complete, you’ll be surprised at the sense of relief you feel.

Reference: The Washington Post (Jan. 5, 2023) “6 joyful steps for end-of-life planning”

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Making a Gift on your Deathbed?

A new case out of Tax Court centers on the question of when a “deathbed gift” is complete for federal estate and gift tax purposes.  Clients make gifts to reduce the federal estate tax, or reduce it to a manageable size, especially as we draw closer to 2026 when the estate tax exemption will be a far lower number.

The two tax law provisions affecting this are described in the article “Tax Court Says When Deathbed Gifts Are Complete” from accounting WEB:

Annual gift tax exclusion. A taxpayer may give gifts to recipients under the annual gift tax exclusion without incurring any federal gift taxes. The exclusion, indexed for inflation in $1,000 increments, is $16,000 per recipient in 2022. It’s doubled to $32,000 for joint gifts made by a married couple. Estates can be reduced with planned use of the annual gift tax exclusion. For instance, if a taxpayer and a spouse give the maximum $16,000 to five relatives for five years in a row, they will have transferred $800,000 ($32,000 x 5 x 5) out of their estate, free of taxes.  This is enhanced when you make gifts of different assets that can be discounted in value.

Now, every time I write an article about gifting, I always temper it.  You’ll noticed from the next paragraph that the estate tax doesn’t apply to too many people, and so may not be advantageous.  It is also true that assets not in your estate at your death do not receive a step up in basis.  This applies to things like stock, real estate and many other non-cash items, which means gifting may ultimately increase the total tax to beneficiaries instead of reducing it.  So, it is worth discussing this with a professional before starting a gifting campaign.  See our website for a much broader approach to estate tax planning.  https://galligan-law.com/practice-areas/estate-tax-planning/  

Unified estate and gift tax exemption. In addition to the annual gift exemption, gifts may be sheltered from tax by the unified estate and gift tax exemption. As of this writing, the exemption is $10 million, indexed for inflation, which brings it to $12.06 million in 2022. It is scheduled to drop to $5 million, plus inflation indexing, in 2026.

Using the exemption during the taxpayer’s lifetime reduces the available estate shelter upon death. These two provisions give even very wealthy taxpayers a great deal of flexibility regarding liquid assets.

In the new case, Estate of DeMuth v. Comm’r, TC Memo 2022-72, 7/12/22, the agent under a power of attorney for a Pennsylvania resident made gifts of the annual gift tax exclusion on an annual basis from 2007 to 2014 to his siblings and other family members, in accordance with the POA.

The father’s health began to fail in 2015 and he passed away on September 11. On September 6, five days before he died, the son wrote eleven checks, totaling $464,000 from the father’s investment account.

Some recipients deposited the checks before the decedent’s death, but others did not. Only one check was paid by the investment account before the decedent’s death.

The question before the Tax Court: are the gifts complete and removed from the decedent’s estate?

According to the IRS, any checks deposited before death should be excluded from the taxable estate, but the Tax Court looked to the state’s law to determine the outcome of the other checks. The Tax Court ruled the checks not deposited in time must be included in the decedent’s taxable estate.

As a fun aside for our Pennsylvania friends, Pennsylvania also has inheritance tax, which attaches to transfers made within a year of death with a $3,000 exemption per recipient.  So, the estate would still have to pay inheritance tax on the completed transfers, although the inheritance tax rates are nothing compared to the federal estate tax rates.

The estate planning lesson to be learned? Timing matters. If checks are written as part of the plan to minimize taxes, they must be deposited promptly to ensure they will be considered as gifts and reduce the taxable estate.  In all cases, it is better to have, and execute, a plan of action before trying to resolve taxes on your deathbed.

Reference: accounting WEB (Aug. 26,2022) “Tax Court Says When Deathbed Gifts Are Complete”

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Benefits of Pre-Planning Your Funeral

Yahoo Life’s recent article entitled “Should You Pre-Pay for Your Own Funeral as Part of Estate Planning?” says there are major benefits to pre-planning and even pre-paying for a funeral now—no matter what your age or health status.

Many professionals would agree that pre-paying your funeral has valuable benefits for people.  A major benefit to pre-planning and pre-paying is the emotional support and relief they offer family members and friends.

Maggie McMillan, vice president of the Los Angeles-based Wiefels Group and All Caring Solutions Cremation and Funeral Services, explains that “if and when the unexpected happens, you want everyone to already know what your wishes are, because that will make it easier when hard emotions inevitably come up after you are gone.”

Knowing that your family is prepared and taken care of with prepayment can also help alleviate your own stress and better your mental health.

Anecdotally, I noticed over the years that some clients are very interested in this process.  It is the main reason they call us for an estate plan.  For clients like this, it is a way to give a final expression of their creativity or a positive farewell to their loved ones.

Another plus of pre-paying  your funeral is that, depending on what method of pre-payment you get, you can often lock in a price guarantee on services and merchandise based on current pricing on the day that you plan. This can protect your family from industry inflation and price fluctuation.  Funeral costs double every decade, on average. Therefore, if you’re looking at pre-paying for a service that costs $3,000 today but didn’t pre-pay and pass away 10 years later, your fees might be upwards of $6,000 for the exact same service.  Many clients tell me they are electing cremation solely to avoid the costs of funerals.

For some people, aspects of pre-planning and paying may not seem the right option.

For instance, a plan that isn’t transferable to different states doesn’t make sense for individuals who move around frequently. In that case, talking to loved ones about what your final wishes are (including where you’d like to end up, and the disposition method) would be a relief for them, in case the unthinkable happens.

For others, they may strategically put off pre-paying a funeral so that it is available as a Medicaid spend down technique.  In other words, don’t spend money on it until they have to.

In all cases, if you pre-plan and/or pre-pay your funeral, make sure you reflect that in your Appointment for the Disposition of Remains.  The Appointment is a legal document in which you name a person to execute your final wishes and can include those instructions.  It is an often overlooked, but sometimes very critical, estate planning document.

If you are interested in learning more on how to pre-plan your funeral or other final wishes, see this article.  https://galligan-law.com/funeral-planning-not-a-festive-thought-but-a-kind-one/

Reference: Yahoo Life (Feb. 17, 2022) “Should You Pre-Pay for Your Own Funeral as Part of Estate Planning?”

 

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