CURRENT ISSUES IN THE AREAS OF ESTATE, TAX
AND PERSONAL AND BUSINESS PLANNING
The information that follows summarizes some of the current issues in the areas of estate, tax and personal and business planning which may be of interest to you. Although this information is accurate and authoritative, it is general in nature and not intended to constitute specific professional advice. For professional advice or more specific information, please contact my office.
Changes To Retirement Accounts. The Secure Act (Setting Every Community Up for Retirement Enhancement Act of 2019), was signed into law on December 20, 2019. It will supposedly make it easier for small business owners to set up “safe harbor” retirement plans that are less expensive and easier to administer. It will also allow many part-time workers to be eligible to participate in an employer retirement plan. The Act pushes back the age when plan participants are required to take required minimum distributions (RMDs) from 70½ to 72, and allows traditional IRA owners to keep making contributions if they are working irrespective of age. However, it mandates that most non-spouses who inherit IRAs must take distributions within a ten-year period. If a person turned 70½ in 2019, then that person will be required to take the first RMD by April 1, 2020. The extension to age 72 only applies to those who turn 70½ after December 31, 2019. Parents may take penalty-free withdrawals from retirement accounts upon the birth or adoption of a child. The Act does not change the rule that allows people who are 70½ or older to give money from a traditional IRA directly to one or more charities and exclude the amount donated from taxable income.
Client Competency. As attorneys we are frequently confronted with the problem of assisting a client who may appear to have some limited or marginal competence, or what we prefer to refer to now as “legal capacity.” A person may have legal capacity to perform or engage in certain acts and transactions but not others. There has been a growing recognition of the importance of individual autonomy for years. The Rules of Professional Conduct governing the practice of law require an attorney to “…as far as reasonably possible, maintain a normal client-lawyer relationship with the client…”. However, an attorney may seek the appointment of a guardian or take other protective action if the attorney reasonably believes that the client cannot adequately act in the client’s own interest. In the area of wills or trusts, “sound mind” is a central issue. In some cases it may be necessary to recommend that tests be taken, such as the Folstein Mini Mental State Exam (“MMSE”), or other types of tests designed to indicate whether or not a person may be suffering from diminished capacity. In general, an attorney should not actually conduct such a test, which should be administered by those with proper training and experience. Limited legal capacity is a conundrum that attorneys, particularly those of us who practice elder law, have to deal with on a regular and recurring basis. Even people with limited capacity are entitled to retain their autonomy and dignity and to engage in acts and transactions to the maximum extent that their legal capacity permits.
“Testacy” and “Intestacy”. When a decedent leaves a will, he or she is said to have died “testate.” If the decedent has not left a will, he or she is said to have died “intestate.” “Intestate succession” is the process by which a person’s estate passes to heirs-at-law, i.e., those as determined by the state of the decedent’s domicile who are entitled to inherit property from the person who did not leave a valid will. A spouse may receive a smaller share than was anticipated, and if there is no spouse and no children, then parents and siblings (and children of deceased siblings), as well as others, may be the heirs who inherit. Many people believe that if their assets are owned jointly with rights of survivorship, or if they have pay-on-death (“POD”), transfer-on-death (“TOD”), or beneficiary designations, a will is not required. That is a fallacy, since there are usually other assets that pass in ways that were not anticipated and which would not be covered by the applicable designation. For example, if a person is injured in an accident, and ultimately dies, that claim will survive the decedent’s death and a portion of the award for damages may be controlled by the person’s last will and testament. Also, if a joint owner of property dies before the client, then the intended survivorship will not occur. Consequently, everyone should have a last will and testament, but just as important, as many previous issues of this newsletter have addressed, people should be absolutely certain to have very specific beneficiary designations in place for assets which pass by beneficiary designation (such as retirement accounts and life insurance). A last will and testament will not control the disposition of those assets. It is very important for people in connection with their personal planning to be sure that their wills and beneficiary, POD, and TOD designations are all properly coordinated. Just as important, and sometimes even more so, is the need to have a detailed and effective power of attorney and health care advance directives in place.
Power Of Attorney Delegation. What do you do if a person signs a power of attorney that does not designate a successor other than the initially named attorney-in-fact, and the person who grants the power of attorney is no longer able to sign a new document? One thing that can be done is to have the designated attorney-in-fact sign a delegation document which will delegate the named attorney-in-fact’s authority to a successor. The delegation can be immediate, so the person can act immediately, or it can be effective only if the initially named attorney-in-fact is not able to act through death, incapacity, or another reason. Delegations can be used in other ways as well. Powers of attorney are extremely important documents, and when signed, in addition to the person initially named, there should always be a designated successor or successors.
Additional Information. Future issues of this Newsletter will address other issues of current interest. Please contact my office with any questions that you might have.