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.
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.
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.
As 2016 draws to a close, we find ourselves pondering what we should do differently in 2017. Live a healthier lifestyle? Lose weight? Spend less? Live life to the fullest? The truth is that less than 8% of us keep these resolutions because they require too much will power! What if you could instead resolve to give yourself and your family the gift of peace of mind by protecting your assets?
A clear and intelligent estate plan will ensure you and your heirs get the maximum benefit from your hard earned legacy. Equally important, it will also protect you should you become incapacitated and unable to make decisions for yourself.
Make an appointment now, and put these items at the top of your “to do” list for 2017:
These are just a few of the most important considerations for resolving in 2017 to protect your assets from probate. An estate planning attorney can quickly evaluate your circumstances and make recommendations based on your unique situation. Do you have young children for whom a guardian and trust might be recommended? Assets in another state? A blended family? A consult with an attorney will put you on track to a resolution you can accomplish and feel good about . . . and it will likely cost less than that unused gym membership.
**2018 UPDATE: Please note that the TCJA of 2017 changed many of the tax laws discussed above. Please see our more recent posts for updated information on the current federal estate tax exemptions, etc. **
Benjamin Franklin once said, “In this world nothing can be said to be certain, except death and taxes.”
As April 15th draws near, the law offices of Provence Messervy and the CPA firm of Jarrard, Nowell & Russell often find ourselves answering questions about death and taxes in South Carolina.
Here are three (3) common questions we receive and their answers:
1. Does South Carolina have estate taxes or inheritance taxes?
First, it’s important to understand the difference in these two types of taxes. Estate tax is a tax levied on the net value of the estate before it’s distributed to the heirs. An inheritance tax is a tax imposed on the people who inherit from an estate.
Residents of South Carolina have cause to celebrate when it comes to these taxes because South Carolina does not impose either tax. That being said, there are two areas where you need to be careful. First, if you inherit from someone who lived in an estate that DOES impose inheritance tax, you may receive a bill from that state. The states that impose this tax do not do so in the same manner, so it’s wise to consult with your tax professional in advance if you expect to receive this type of inheritance.
Second, the absence of a South Carolina estate tax doesn’t mean you are exempt from the federal tax. This leads to our second common question.
2. Do I still have to pay federal estate taxes if I live in a state with no estate taxes?
Yes. Living in a state that doesn’t impose these taxes does not exempt you from paying the federal government. However, there is good news in this regard. In 2016, an estate is not taxable at the federal level unless its value exceeds $5,000,000.00. For this reason, very few estates in South Carolina are forced to deal with any tax at all. However, if you are the Personal Representative of an estate valued in excess of $5,000,000,00, you need to contact both an accountant and probate attorney for advice. Similarly, if you believe your personal net worth exceeds this amount, it’s a wise investment to make sure your estate plan minimizes these taxes where allowable.
3. If there are no inheritance taxes in South Carolina, why do I have to pay income tax on the retirement accounts I received?
While it’s true that South Carolina residents don’t pay income tax on MOST inherited assets, there are exceptions to every rule. While inherited property is not considered “ordinary income” by the IRS, one exception is certain retirement accounts that were funded with pre-tax dollars. Income tax must be paid at the time these type of funds are distributed to the beneficiaries.
In conclusion, just remember not to let taxes sneak up on you. Talk to your estate planning attorney or a qualified CPA in advance about minimizing taxes at your death and preparing for any taxes you may pay as a result of an inheritance.
*Note: Thanks to Jarrard, Nowell & Russell for co-authoring this post with us and for always making themselves available to assist our clients.*
April 5, 2016 at 10:59 AM
Just wanted to point out that in 2011 the $5,000,000 estate tax exemption was indexed for inflation. For the year 2016, the exemption is $5,450,000.
Tiffany Provence says:
April 5, 2016 at 11:33 AM
Thanks for the comment and update!
March 26, 2017 at 11:35 AM
How is the decease’s debt handled as it will be handled first before distribution of funds? Question #2: What should be looked out for if a settlement was entered prior to Probate between would be beneficiaries?
Tiffany Provence says:
March 26, 2017 at 11:42 AM
I would encourage you to read the blog posts on this site about creditor’s claims as it helps explain how they are handled (there is a statutory priority) and how a good probate attorney will negotiate them down or do away with them completely. As for your second question, I’m not sure what you are referring to. Please provide more details and I’m happy to respond. I need to know if there is a will or this is an intestate estate, I need to know your role in the estate (beneficiary or PR or both) and I need to know what type of “settlement” we are talking about. A settlement usually refers to an agreement with an outside party resulting from a law suit as where I think you might be referring to a family settlement agreement whereby beneficiaries are agreeing to certain terms and transactions in the estate.
April 6, 2017 at 2:15 PM
My grandmother died intestate, we sold her house while in probate and 3/4 of the proceeds went to her estate. It was well over a year, the probate is closed and funds are available for distribution. My grandmother was 80+ retired and was not required to file income taxes. However, as the PR do I need to file federal income taxes for her or for the estate?
Also, what about SC state taxes? Because of the house sale the estate gained about 300K but I can not determine if I need to file taxes and what type of taxes to file. She lived in SC, but I live in VA so I am trying to navigate the SC law. thank you!
Tiffany Provence says:
April 6, 2017 at 10:00 PM
Thanks so much for reading our blog and posting your question. Unfortunately, we do not have a CPA on staff to answer your question and as lawyers we don’t give tax advice. We have all of our Personal Representatives review their tax obligations with their accountant, the Decedent’s accountant or an accountant we refer them to. I would highly recommend you have this issue reviewed by a qualified CPA before disbursing funds to protect yourself as Personal Representative. Should you need a referral, please let us know and we will gladly offer you the names given to our clients.
Let’s face it, no one looks forward to dealing with the Department of Motor Vehicles. This can be even
more stressful when coupled with the loss of a loved one. We frequently receive questions on transferring title to vehicles (this includes boats, RV’s, etc.) that are part of an estate. In some instances this may or may not include a mobile home.
Here is some information to help you along:
In August 2011, the Department of Motor Vehicles changed its procedures. Previously a form called an Affidavit of Inheritance was required to transfer title to a vehicle. Under the current procedure, you will need the original title, along with DMV Form 400, and the appropriate fee. Other documents you need to complete this transaction will depend on (a) how the vehicle is titled and (b) the value of the estate/other assets. Determining these up front will make sure you have what you need to have before you head to the DMV.
A. HOW IS THE VEHICLE TITLED? There a three (3) options for how a vehicle can be titled:
B. VALUE OF THE ESTATE?
If you have specific questions regarding how to handle a vehicle or mobile home, consultation with an experienced probate attorney may be helpful. These guidelines are also important to keep in mind when acquiring a new vehicle or creating an estate plan.
In a previous post, we discussed how illegitimacy affects the share of a child in probate. However, in some instances it’s the death of a child that raises a different issue . . . who benefits from the estate of a child? Who is entitled to serve as Personal Representative? Who can bring legal action on behalf of the child’s estate?
Determining the heirs of a young child can be a complex issue in a society of single parent homes, children being raised in foster care and blended families. First, remember that parents of a child will only inherit from the child if the child was not old enough to have a spouse or children of their own. For further information on the basics of when the parents are heirs, see our series on “Am I an Heir?” Part 1 and Part 2. In this post, we’re generally referring to the estate of a young child who has neither spouse nor children and therefore the parents are presumed to be the heirs. Many people may wonder how a young child can even have an estate (especially if they weren’t old enough to own assets) but this usually occurs when a child dies as a result of an accident and the assets in question stem from a lawsuit or insurance that pays to the estate.
South Carolina Code § 62-2-109 governs when a parent-child relationship exists for inheritance purposes. A child born out of wedlock is always the child of the mother. Absent a termination of the mother’s parental rights, the surviving mother of a deceased child is presumed to be an heir of the estate. Fathers; however, can prove more difficult.
The common law in South Carolina for many years provided that the father had no obligation to provide support of an illegitimate child. See McGlohon v. Harlan, 254 S.C. 207, 211, 174 S.E.2d 753, 755 (1970). A child is also the child of the father if: (1) the natural parents participated in a marriage ceremony, even if the attempted marriage is void; or (ii) paternity is established by adjudication. However, S.C. Code Ann. § 62-2-109(2)(ii) contains a wrinkle to paternity by adjudication. In order for the putative father to inherit from or through the child, he must have openly treated the child as his and not refused to support the child. Further, if either or both of the parents’ parental rights have been terminated, they are not eligible to inherit from or through the child.
Often in the case of children, adjudication of paternity occurs in connection with child support or child custody proceedings in family court. A birth certificate containing the signatures of the mother and putative father creates a rebuttable presumption of paternity. S.C. Code Ann. § 63-17-60(A)(6).
However, where the adjudication of paternity is occurring after the death of the child, a finding of paternity will require that the father did not refuse to support the child (this would include the payment of child support), as well as acknowledgement of paternity by the father during the child’s lifetime.
As a note for our legal readers, the burden of proof for these matters, whether the decedent is the putative father or the illegitimate child, is clear and convincing evidence. This can be a difficult standard to meet in the absence of DNA evidence. Frank discussion with clients is important before appearing at your hearing.
In conclusion, if you’re dealing with the death of a child (as a parent or legal counsel), it’s wise to understand the complex issues that can arise if there is a question of paternity, a termination of parental rights, an adoption or a failure to support the child. It’s wise to get a probate attorney involved early that can guide you through these issues.
Well-intentioned family members often add a loved one to their bank accounts. There are a variety of reasons this may occur: shared expenses, planning for final expenses, long-term care concerns, or a potential for future incapacity. In many of these instances, one individual contributes most or all of the funds to the account. After death, the question then arises among family members and heirs as to whether these funds are part of the decedent’s estate or pass directly to the other person named on the account.
Here’s the typical scenario we see: Dad passed several years ago. Mom has three children but only one of them lives nearby. Mom adds the local child (Child A) on her checking and savings account so that Child A can help make sure the bills get paid, handle the account during her absence or illness and then “do the right thing” when she dies. Child B and C are aware of the arrangement but have been told by mom and Child A that this is just for convenience. At Mom’s death, Child A goes to the bank and personally claims all of the funds and declares they are hers as joint owner of the account. The funds comprise the bulk of mom’s estate which was to be divided equally. An argument and threats of litigation begin . . .
In this scenario, it is important to remember that bank accounts are ultimately governed by the account agreement with the financial institution. They should always be your first stop when trying to determine the true ownership of your accounts (when setting up this type of arrangement) or the first stop for a Personal Representative trying to determine whether or not these funds belong to the estate.
The account agreements at many financial institutions now provide that multiple owner accounts are owned as joint tenants with rights of survivorship. You may recall we previously discussed the two types of joint property ownership in South Carolina. As a quick recap, owning property as joint tenants with right of survivorship (a mouthful but a useful tool in estate planning) gives each joint owner an equal interest in the property. At the death of the first joint owner (mom in our scenario), their share belongs equally to the surviving joint owner(s) automatically (Child A). Therefore, Child B and C would not have access to these funds nor would the Probate Court have jurisdiction over them as they are a non-probate asset.
In researching this post, we reviewed the consumer account agreements at several major banks. All provided for ownership of joint accounts as joint tenants with right of survivorship as the default (or sometimes only) option. Again, this means that these assets pass directly to the other person whose name appears on the account, and are NOT an asset of the estate. The result is that accounts are opened with rights of survivorship even when that may not be the intent of the original account holder.
In addition to the account agreement, recent amendments to the South Carolina Probate Code provide a general set of rules to apply in these situations. The Probate Code’s default rule for accounts with multiple owners is also to consider them joint ownership with right of survivorship.
So what does this mean for the estate? Unfortunately, the answer is: it depends. Most likely, the account belongs to the surviving joint owner unless the designation on the account agreement indicates a different result.
If a dispute has arisen as to ownership of a decedent’s account, consultation with an experienced probate attorney may be helpful. Despite these rules, sufficient evidence of a different intent by the Decedent may be able to reverse this outcome. More importantly, we suggest our estate planning clients be aware of these rules when deciding whether or not to create joint accounts or how much funds to place in them.
The South Carolina Bar Association has a wonderful publication that we use regularly for our clients called the South Carolina Senior Citizens Handbook. This free publication is a great resource for anyone 55+. It addresses topics ranging from Medicare to Reverse Mortgages to Age Discrimination. Parts III and IV of the publication specifically address our practice areas and include valuable information on Guardianships and Conservatorships as well as Estate Planning. We encourage our clients to review this publication to learn about valuable rights, benefits and issues that may effect them as seniors. Should you have any questions regarding these issues, please contact our firm so that we can schedule a consult.
Evan Guthrie says:
December 19, 2014 at 7:52 PMGreat resource. I know of many seniors that would benefit from sharing it.
Many of our elderly clients come in asking for a Power of Attorney. A doctor, family member or friend may have mentioned that they need one, but aren’t able to explain why or what type. This post will provide some basic information on the different types of Power of Attorney and what they allow others to do.
A Power of Attorney authorizes someone else to act on your behalf in a legal or business matter. There are different types of Power of Attorney including General, Special, Health Care and Durable.
A General Power of Attorney authorizes your chosen individual (called an “agent”) to act on your behalf in a variety of situations. These can be very broad in nature and allow the agent to perform many duties including but not limited to handling banking, buying and selling property, taking out a loan, entering into contracts, filing tax returns, applying for and handling government benefits (Social Security, Disability, etc.), making gifts and more. After consulting an attorney, these powers can be narrowed or expanded to suit the client’s needs or concerns.
A Special Power or Limited of Attorney authorizes your agent to act on your behalf only in a specific circumstance. We frequently draft these documents to authorize an agent to sell a piece of real estate, care for and authorize medical care for a child (usually when the parent is out of the country), or handle government benefits on behalf of our client.
A Health Care Power of Attorney authorizes your agent to make health care decisions on your behalf if you are not able to do so. The agent’s decisions would not supersede your own decisions and only apply if you are unconscious, incompetent, or otherwise unable to make your own decisions. This is different from a Living Will, which simply allows you to express your wishes related to life-sustaining procedures.
A Durable Power of Attorney: This is not a unique type of Power of Attorney but instead refers to a language in a General, Special, or Health Care Power of Attorney that allows them to remain in effect even if you become incompetent. With the exception of a Special Power of Attorney, we strongly recommend that you include the appropriate language in your Power of Attorney documents to ensure they remain effective during any period of incompetency. In fact, for many of our clients the fear of future incapacity is the sole reason to have these documents.
The ability to download and create a Power of Attorney online has lead to serious issues and litigation. Often, people don’t understand that the POA becomes valid as soon as you sign it unless it’s specifically drafted not to do so. This means that your agent can immediately start making decisions and exercising the powers you have granted them. This is often not the intent. Similarly, if a POA is being executed after a diagnosis of dementia, Alzheimer’s or related illnesses, it’s important to have an attorney prepare the documents so that he or she can attest to your competency to do so. Many attorneys offer consultations at reduced rates to discuss these documents and others that might be a part of your estate planning. It’s wise to share your specific situation and get advice about exactly what you need to have in place to protect yourself, your assets and your heirs.