If you’re in the midst of a divorce, it’s wise to review your current estate plan (or lack thereof), to understand how you need to prepare. In South Carolina, divorce proceedings often take well over a year to complete due to the requirement that parties without grounds for divorce live separate and apart for more than 12 months. While divorce is awful, death is certainly worse and many of our clients aren’t comfortable having their estate plan in limbo pending their divorce. If you’re in this situation, here are a few tips and things you need to know:
Pre-Nuptial Agreements: Make sure your divorce attorney has a copy of your prenuptial agreement and advises you on how it could come in to play during the pendency of a divorce. In most cases a prenuptial agreement often limits (if not eliminates) an obligation to provide for the other upon death. That being said, a prenup won’t override an existing estate plan that was executed after the marriage when all was well in the relationship. As a rule of thumb, do NOT make the mistake of relying on a prenuptial agreement or South Carolina law to “auto-correct” an estate plan.
Trusts / Wills: If there is a trust/will in place it’s important to review the document to recall specifically what it provides for the soon to be ex-spouse. Many mistakenly assume that during a period of separation, any bequests to the spouse will become null and void. This simply isn’t the case. In fact, there is case law in South Carolina which only terminates rights between spouses during a divorce if they have a fully executed and approved settlement agreement in place which addresses this issue. If this is important to you, make sure your attorney includes that language as soon as possible in your proceedings.
Power of Attorney Documents: While there are laws preventing you from disinheriting someone you are still married to (called the “elective share”), there is no requirement that you keep them as your power of attorney. Most of the time, each spouse has listed the other as agent in his or her powers of attorney to make decisions on critical property and health care. If you wouldn’t want your soon to be ex making these decisions, you need to have your attorney update your documents. If you don’t have these documents in place, it’s time to get them in place to make it clear who is in charge of your decisions if you’re unable to make them on your own.
Take the time during the pendency of your divorce to recall and review all accounts that have a POD (Payable on Death) or Beneficiary designation. It’s quite common that spouses name one another for everything from insurance proceeds to annuity plans. Talk to your attorney before making any changes as certain accounts are likely still a part of the marital assets. Once you’re given approval on what accounts you can control, it’s time to decide who should replace your spouse on these documents and accounts and how that falls in line with your overall estate plan. If your divorce attorney isn’t a qualified estate planner, now would be a good time to get a referral.
Unfortunately, there are certain steps that can only be taken once the divorce is finalized. As mentioned, in South Carolina and in many other states, it’s rather difficult to disinherit your spouse entirely while still married. However, reviewing the items mentioned above and getting a head start on planning for your new life as a single individual will keep you moving in the right direction and make sure there is not an unintended windfall for a soon to be ex-spouse.
In an earlier post we discussed the basics of creditor’s claims. If you’re serving as a Personal Representative in an estate with claims, please start with that post and remember these fundamental principals:
First, one of the most common questions we are asked is “Is the Personal Representative personally responsible for these debts if there is not enough money to pay them?” The answer (luckily) to this question is “No.” Accepting the role of Personal Representative does not obligate you to pay another person’s debts. If you’ve heard otherwise, it’s most likely because the Personal Representative also had another legal obligation to that debt. For example, if the parent of a minor child accepts financial responsibility for that child’s medical care then they might be liable for that debt. The fact that they later became Personal Representative for that child’s estate after death didn’t trigger that obligation, it was the parent-child relationship that did so. Another example is a co-borrower on a loan. If you sign a document agreeing to be responsible for a debt then you may become responsible for that debt if the other person dies; however, the fact that you are named Personal Representative does not obligate you. One last warning in this area, there are a lot of very shrewd creditors out there that do a fantastic job of getting people to personally assume debt they aren’t otherwise obligated to pay – don’t do it. Take all paperwork to an attorney for review and fully understand your rights before you sign anything. Doing otherwise could be a very costly mistake.
Secondly, claims that are filed must be paid according to an established priority S.C. Code §62-3-805. If the estate does not have enough assets to pay all the claims in full, this priority will guide the Personal Representative in which claims to pay first. Costs and expenses of estate administration, including attorney’s fees and reasonable funeral expenses must be paid first. Next in line are reasonable and necessary medical and hospital expenses of the decedent’s last illness and/or medical assistance paid under Medicaid to certain individuals. Then, the Personal Representative must pay debts and taxes required to be paid under federal law, then debts and taxes required to be paid under South Carolina law, and then all other claims, in that order. A large portion of these claims fall in this bottom category of “all other claims” (such as credit card debt).
The key here is that every claim in the same category should be treated equally. For example, if two doctors submit claims for medical bills generated at the same time, they should each receive the same treatment. The Personal Representative shouldn’t refuse to pay one claim while paying the other claim in full.
Lastly, please remember that it is important where you get the assets to pay these claims. Funds for the payment of claims should always be paid from the “residue” of the estate first. If there are not sufficient liquid assets (i.e. cash, stocks, etc.) to pay all claims, then other estate assets may need to be liquidated (including real estate).
Please read our previous post on selling assets to help you know how to proceed. If there are still more creditors than there are funds available, the Personal Representative may need to pay each creditor in the same category a prorated amount based on what’s left.
If you’ve read this far then chances are that you’re dealing with a difficult estate where there is potentially more debt than assets. When that’s the case, so many Personal Representatives make the mistake of assuming they can’t afford legal counsel to help when in fact, that’s exactly what they need. An experienced estate attorney can not only guide you through this process but can often rid the estate of significant debt by understanding the process, preventing many creditors who don’t play by the rules from getting paid and negotiating down the debt to leave assets for the heirs.
If you’re getting hassled by creditors, please call us for a consult today.
Despite your position on the current President, his signing of the new tax bill (“TCJA”) provides some distinct perks in the realm of estate planning.
Here are a few of the distinct perks in the realm of estate planning:
South Carolina doesn’t have an estate tax, so our clients only have to concern themselves with the federal estate tax. Although the TCJA does not eliminate federal estate, gift, and generation-skipping transfer (GST) taxes, it almost doubled the exemption. This means that an individual can now pass $10 million (indexed for inflation) through their estate without paying federal estate taxes. Married couples get to double the exemption to $20 million+. WOW! And so you don’t have to Google “indexed for inflation” we can go ahead and report that the 2018 actual amount is $11,210,00 per individual or $22,420,000 per couple. As has been the case in prior years, the unused exemption of the first spouse to die still can be “ported” to the surviving spouse. For those with estates exceeding this amount (yes, we’re jealous), the maximum tax rate remains at 40%.
On a practical level, what does this mean for our clients? It means less than 1% of Americans will ever pay an estate tax. With the exemption set this high, the vast majority of our clients are in the clear (for now). The exemption sunsets after 2025. However, those with significant family wealth or closely held businesses that could exceed the exemption need to prepare as a 40% loss could be devastating.
As we mentioned above, the new law also doubles the lifetime gift tax exemption. Originally enacted to prevent taxpayers from gifting their entire estate before death to avoid estate taxes, it makes sense that these exemptions go hand-in-hand. This means you can give your assets away during your lifetime without fear of tax consequences as long as the cumulative value of the gifts don’t exceed the $11,210,000 exemption.
ANNUAL GIFT TAX EXCLUSION:
If you aren’t aware of the gift tax exclusion, it’s the law that allows you to give away money to as many people as you wish without those gifts counting towards the lifetime exemption we just discussed. This change isn’t dramatic but it’s still an increase. The annual exclusion for gifts increases to $15,000 this year (up from $14,000 in 2017). This amount remains subject to an inflation adjustment as well.
STEPPED UP BASIS:
In more good news, the TCJA did not change the law regarding basis step-up at death. In my opinion, this impacts more of our estates than any of the items discussed above because it helps almost everyone. If you’re not familiar with a basis step-up at death, it’s worth discussing with your CPA or Estate Planning Attorney as understanding how this works might help you decide which assets to gift or sell before death and which to pass through your estate. More on that in a later post.
If you have any questions about other aspects of TCJA, please contact your CPA. If you need more information on how this specifically impacts your estate plan, please schedule a free estate planning consult with us so we can address your unique needs.
We get calls and emails regarding lost Probate Court forms. These usually come on bank holidays or after hours when the court is closed and someone has finally decided to work on the estate but can’t find their forms. While the court is always happy to mail out new forms, the best strategy is to save this link and have them available to download 24/7. The forms are identical statewide so it’s not important which county the estate is in. This is also useful so that you don’t have to worry about writing on forms or messing up an online version by entering data.
These are the five (5) common forms people request:
300ES – This form is used to open an estate under either the formal or informal process. Called an application or petition for probate.
305ES – This is one of the first forms needed to inform heirs and devisees of the opening of an estate. Called information to heirs and devisees.
352ES – There are a lot of legitimate reasons that estates need additional time to file certain documents. the estate might have tax issues, pending litigation or other factors that require an extension of time. This is the form you file to let the court know what’s going on and get permission to file your paperwork later.
361ES – This is the accounting form. The same form is required regardless of whether this is a final accounting or an interim accounting.
410ES – Before most estates can be properly closed, you need to submit a proposal for distribution which lets the court and beneficiaries know what the plan is to close the estate. This is the required form.
South Carolina Probate Court is a form driven court and many estates can be administered without legal counsel using only these forms. However, if you have any questions about these forms or need to consult with an attorney regarding special issues in the area of probate, please contact us.
The majority of Probate Courts in South Carolina have adopted the Supreme Court’s Mediation Pilot Program which began almost eight (8) years ago. Under this program, certain cases must be mediated before they are assigned a trial date. This post provides some basic information on what to expect at mediation.
What exactly is mediation?
Mediation is when individuals (usually with their legal counsel) attempt to find a solution to a legal matter instead of having the court determine the outcome. Mediations are conducted by a mediator, a neutral third party whose sole purpose is to help both sides reach an agreement. These mediators might be chosen by the parties or assigned by the Court.
How do I choose a mediator?
Just like any profession, not all mediators are the same. Factors such as experience and training can have a substantial impact on the outcome. If you have an attorney, they will likely make a recommendation based on the issues to be mediated, the personalities of the parties and even recommendations from the Court.
What should I expect?
Mediation is all about moving forward and finding a solution all parties can agree on in order to end the dispute. Mediators aren’t there to take sides, find the truth or force the parties to do anything they don’t agree to.
While every mediation is different, they generally include the following steps:
Contrary to popular belief, mediation is a simple forum in which both sides can express their grievences in a safe environment in hopes of coming to an agreement that works for everyone. Unlike a traditional win or loose scenario in a courtroom, mediations are most successful when each party compromises. They’ve provided great outcomes for every type of dispute including probate, divorce and child custody and even complex civil litigation.
Provence Messervy has multiple mediators certified in both civil and family mediation and would love the opportunity to help you resolve your dispute outside of the traditional courtroom setting.
Baby boomers beware . . . there’s a new custody battle on the rise and it has nothing to do with family court, divorce or minor children. In fact, the newest custody battle is over YOU and it’s occurring statewide in our Probate Courts.
As many of us age, we simply hope someone will be there to help care for us in our final years.
Do you know who will manage your health and finances if you’re unable to do so?
So, how do we avoid anyone fighting over us in court? Less than one-third (1/3) of our population has executed a Health Care Power of Attorney or General Durable Power of Attorney to name an agent to act in our place. The reasons why vary from person to person but we’ve found for the most part it’s just wishful thinking that we will die peacefully in our sleep without facing the hurdles of aging including dementia and or Alzheimer’s Disease. Statistics; however, tell a different story. One in 3 seniors will die with Alzheimer’s disease or another dementia. One in 8 people over age 65 in the United States has Alzheimer’s disease now, and nearly 50% over age 85 are suffering. In 2014, an estimated 5.2 million people in the United States were living with Alzheimer’s disease. Sobering, isn’t it?
What’s worse is that as a whole, we’re completely unprepared and by the time we realize it (or our family does), it’s often too late because we’ve lost the ability to legally execute these documents. For more information on obtaining these documents, please contact our office for a completely free (no obligation or sales pitch) consultation. And if you’re reading this because you already have a parent in this situation, please make sure to read our other posts on Guardians and Conservators to better understand the Court’s role. Still have questions? Post them here or call/text our office at 843-871-9500. We’d love to hear from you.
Has a loved one recently been diagnosed with dementia or Alzheimer’s disease?
Here’s what you need to know now:
STEP ONE: If you’re concerned as to whether or not the individual in question is capable of making rational, clear-headed decisions about their health care, daily living decisions or placement decisions, you first need to determine if they’ve executed a Health Care POA (Power of Attorney). This document allows an individual to decide for his or her self who can serve as their agent in handling their medical related issues if and when they are unable to do so on their own. This document should not be confused with a General Power of Attorney which addresses banking and other transactional business (and is discussed in other posts on this blog). If your loved one has not executed a Health Care POA, proceed to STEP TWO. If they have, please congratulate them on being prepared as they’ve just saved themselves (and you) a major hassle. Only proceed to STEP TWO if the person they nominated is unable or unwilling to serve or you have reason to believe they are taking advantage of their powers.
STEP TWO: Before approaching the Probate Court or your attorney to begin the Guardianship process, it’s first wise to consult with the loved ones medical provider and personal attorney to determine whether or not it’s too late to have them execute a Health Care POA. Remember, a diagnosis doesn’t mean the person is already fully incapacitated and these professionals can help determine if costly court intervention can be avoided by having a capacity examination and simultaneously executing documents whereby the loved one makes their own choice as to who should make their decisions in the future. This can also prove useful if the loved one needs to revoke a previously executed document because the person they named (their agent) is no longer acting in their best interest.
STEP THREE: Often times referred to as and confused with a “conservatorship,” guardianship is needed when a someone who is incapacitated due to age or disability has not named a Health Care Power of Attorney to address their health care needs. If your loved one didn’t take this step or is no longer able to do so, you must petition the court for guardianship. This process often takes several months and requires that two (2) examiners find the person is no longer able to make their own decisions. Following that ruling, the court will then transfer duties such as daily medical care, living arrangements, and medical decision-making to the petitioner. This process can be timely and in some cases costly, especially if family members disagree as to whether or not a guardianship is necessary or disagree as to who should be making such decisions.
Here are a few common questions we are asked about the process:
The following is a list of possible duties of a guardian:
To the extent possible, the guardian should seek feedback from the ward when making these decisions.
If you need further information related to guardianships, please refer to our blog or contact our office to set up an office or phone consultation. We have a dedicated team of attorneys who work regularly in this area and can help guide you through this difficult process.
A Conservator is a court appointed person who handles the affairs of someone who is unable to do so on their own. In the Probate Court, a Conservator can be appointed for a minor or an adult.
Let’s look at a few examples of why someone might need a Conservator:
Before going further, if you haven’t read our post on Guardians, you might read that first as the two are often confused. While a Guardian manages health care decisions, a Conservator handles financial matters such as managing and protecting assets, paying all legitimate bills and working with the Guardian to pay for the care of the ward. A Conservatorship is established by someone (usually a family member or interested party) filing a Summons & Petition in the Probate Court to be named Conservator. The Court schedules a hearing to determine whether the person over whom the Conservatorship is sought is legally incapacitated. Medical evidence of incapacity is required and the court will provide a guardian ad litem to represent the interest of the alleged incapacitated party. If the judge decides that the person is legally incapacitated and in need of protection, the Court may appoint a Guardian (personal decision making) or Conservator (financial decision making) or both. The Court then supervises the Conservator and/or Guardian. The Conservator also reports periodically to the court about income and expenses and is often required to create a monthly budget for their ward.
Sometimes, this process can be avoided if the person has executed a General Durable Power of Attorney that names someone who can manage their affairs. Unfortunately, less than 1/3 of our population has taken the time to plan ahead and have this document in place. That being said, situations do arise where court involvement is necessary even when someone has a Power of Attorney in place. The process can also be used to remove someone who is serving as a Power of Attorney but who isn’t acting in the best interest of someone who is incapacitated.
Just like a Guardian, a Conservator is a type of fiduciary. A fiduciary is someone to whom property or power is entrusted for the benefit of another. For example, a Trustee is a fiduciary for the beneficiaries of the trust. A Personal Representative is the fiduciary for the beneficiaries of an estate. A Conservator or Guardian is a fiduciary for their ward. Being a fiduciary comes with both responsibilities and liabilities so it’s very important to understand your obligations before agreeing to become a fiduciary. If you are considering becoming a Conservator, please search our website and this blog for more information on your responsibilities and how we can help.
When people hear the term guardian, they often think of guardianship over a minor. As parents, we are the natural guardians of our own children. However, once that child turns eighteen (18), they no longer have a legal guardian.
So, what happens when an adult needs a guardian?
First, why would an adult need a guardian? Unfortunately, this need arises more often than most people realize. The most common examples are a disabled child who can’t care for themselves but has turned 18, an adult is in an accident that causes them to temporarily or permanently be unable to care for themselves or make appropriate decisions, or an older adult is suffering from dementia or Alzheimer’s Disease and can no longer handle their affairs. All of these situations require the appointment of a Court Appointed Guardian.
A Guardianship is defined as court authority to make decisions for another person (often called a “ward”). A Guardian makes decisions such as where the person will live and makes arrangements for his/her care, and handles health care decisions including end-of-life issues.
To establish a Guardianship, someone (usually a family member or interested party) petitions the Probate Court and asks to be appointed. This requires a Summons and Petition filed by the interested party through his or her legal counsel. The Court schedules a hearing to determine whether the person is legally incapacitated and to what extent the Guardian needs to make decisions on their behalf. Medical evidence of incapacity is required and the court will provide a guardian ad litem to represent the interest of the alleged incapacitated party. If the judge decides that the person is legally incapacitated and in need of protection, the Court will appoint a Guardian (personal decision making). They may also appoint a Conservator (financial decision maker) at the same time. The Court then supervises the Guardian who must make yearly reports to the Probate Court regarding the condition of the incapacitated person.
This process can often be avoided if the person has a properly drafted and executed Health Care Power of Attorney in place. If you’re reading this blog, it’s a good time to make sure YOU have that document in place should you become the adult in need of help. Unfortunately, less than 1/3 of the population prepares this document which often makes court involvement necessary. At times, it’s also necessary to use this process to remove someone who is serving as a Power of Attorney but who isn’t acting in the best interest of someone who is incapacitated.
Please search our site for other blog posts related to Guardians, Conservators and Fiduciaries for more details on Court Appointed Guardians and call or text us at 843-871-9500 if you need a consult.
The decorations are down and most of the resolutions have been forgotten. What next? Tax time! Here is some very worthwhile information for our clients age 50+ from our friends at Jarrard, Nowell And Russell:
Everyone wants to save money on their taxes, and older Americans are no exception. If you’re age 50 or older, here are seven tax tips that could help you do just that.
1. Standard Deduction for Seniors.
If you and/or your spouse are 65 years old or older and you do not itemize your deductions, you can take advantage of a higher standard deduction amount. There is an additional increase in the standard deduction if either you or your spouse is blind.
2. Credit for the Elderly or Disabled.
If you and/or your spouse are either 65 years or older–or under age 65 years old and are permanently and totally disabled–you may be able to take the Credit for Elderly or Disabled. The Credit is based on your age, filing status, and income and you must file using Form 1040 or Form 1040A to receive the Credit for the Elderly or Disabled. You cannot get the Credit for the Elderly or Disabled if you file using Form 1040EZ.
You may only take the credit if you meet the following requirements:
In 2016 your income on Form 1040 line 38 must be less than $17,500 ($20,000 if married filing jointly and only one spouse qualifies), $25,000 (married filing jointly and both qualify), or $12,500 (married filing separately and lived apart from your spouse for the entire year).
The non-taxable part of your Social Security or other nontaxable pensions, annuities or disability income is less than $5,000 (single, head of household, or qualifying widow/er with dependent child); $5,000 (married filing jointly and only one spouse qualifies); $7,500 (married filing jointly and both qualify); or $3,750 (married filing separately and lived apart from your spouse the entire year).
3. Medical and Dental Expenses Deduction.
Starting in 2013, the amount of allowable medical expenses taxpayers must exceed before claiming medical expense deductions is 10 percent of adjusted gross income (AGI).
However, for tax years 2013 to 2016, the AGI threshold is still 7.5 percent of your AGI if you or your spouse is age 65 or older. You can only claim your medical and dental expenses if you itemize deductions on your federal tax return. You can’t claim these expenses if you take the standard deduction. You can include only the expenses you paid in 2016. If you paid by check, the day you mailed or delivered the check is usually considered the date of payment.
4. Retirement account limits increase.
Once you reach age 50, you are eligible to contribute (and defer paying tax on) up to $24,000 in 2017 (same as 2016). The amount includes the additional $6,000 “catch up” contribution for employees aged 50 and over who participate in 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan.
5. Early Withdrawal penalty eliminated.
If you withdraw money from an IRA account before age 59 1/2 you generally must pay a 10 percent penalty (there are exceptions–call for details); however, once you reach age 59 1/2, there is no longer a penalty for early withdrawal. Furthermore, if you leave or are terminated from your job at age 55 or older (age 50 for public safety employees), you may withdraw money from a 401(k) without penalty–but you still have to pay tax on the additional income. To complicate matters, money withdrawn from an IRA is not exempt from the penalty.
6. Social Security Benefits.
Americans can sign up for social security benefits as early as age 62–or wait to receive full benefits at age 66 or 67 (depending on your full retirement age). For some older Americans however, social security benefits may be taxable. How much of your income is taxed depends on the amount of your benefits plus any other income you receive. Generally, the more income you have coming in, the more likely it is that a portion of your social security benefits will be taxed. Therefore, when preparing your return, it is advisable to be especially careful when calculating the taxable amount of your Social Security.
7. Higher Income Tax Filing Threshold.
Taxpayers who are 65 and older are allowed an income of $1,550 more ($1,250 married filing jointly) in 2016 before they need to file an income tax return. In other words, older taxpayers age 65 and older with income of $11,850 ($23,100 married filing jointly) or less may not need to file a tax return.
Don’t hesitate to call the office (Jarrard, Nowell and Russell at 843.723.2768) if you have any questions about these and other tax deductions and credits available for older Americans.