Time is Now for New Estate Tax Legislation

The “Taxpayer Certainty and Relief Act of 2009″ has been introduced and is now being considered by the Senate Finance Committee.  The timing is critical because current law will cause the estate tax to disappear entirely in 2010 then cause it to return with a vengeance in 2011. Therefore, if you have a large estate that you want to pass on to your heirs, you should make your plans to pass away in 2010. (Lousy joke, I know.)

I suppose this interesting timing issue is why the word “certainty” is part of the name of the new law. A Democrat Congress certainly does not want wealthy people to die in 2010 without sending a chunk of their estate to Washington.

Lawyers who specialize in estate planning have a love-hate relationship with Congress on the current state of the law. They love the business created by the uncertainty. They hate the risks caused by the uncertainty.

Summary of Proposed Changes in Existing Estate Tax Law

These are the key exemption provisions of the new estate tax law:

• The estate-tax exemption of $3.5 million for an individual and $7 million for a married couple – in effect for 2009 – would be made permanent. If no changes are made, the exemption would revert in 2011 to only $1 million for an individual.
• The gift-tax exemption of $1 million and the $3.5 million generation-skipping transfer-tax exemption also would be made permanent. (A married couple would receive double these amounts in exemptions.)
• The new law would implement inflation indexing of the exemptions for the the estate, generation-skipping, and gift taxes. This indexing would be in $10,000 increments, starting in 2011. 
• The highest estate tax rate would remain at 45%. Before the Bush tax cuts, the maximum rate was 55%. This is what the rate will be (with a 5% surcharge on very large estates) if no changes in the law are made.

Also helpful:  The proposed law would make the estate tax exemption “portable.” By this I mean that it would allow a surviving spouse to take advantage of the unused portion of the estate-tax exemption of a deceased spouse. If we assume that each spouse has a $3.5 million exemption, any unused portion of the $3.5 million exemption from the first to die could be portable (by election of the surviving spouse) and later used by the surviving spouse in addition to his or her own $3.5 million exemption. This benefits the couple’s children for example.

Final Comments on Changes in the Estate Tax Laws

A logical follower of national politics and tax policy would think that the Taxpayer Certainty and Relief Act of 2009″ has an excellent chance of becoming law. I say this because the Act was introduced by Max Baucus, the Democrat Chair of the Senate Finance Committee. He has been pushing for legislative certainty in the estate tax law for a long time. I think this time he will get it.

To track the status of the new estate tax law, follow the proceedings of the Senate Finance Committee. And please don’t die in 2010 unless absolutely necessary.

Photo credit:  Ozyman

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What is a Power of Attorney for Health Care?

A power of attorney for health care is a legal document in which a first person grants to a second person the authority to make decisions about health care to be provided to that first person.  Obviously, this authority applies only under conditions in which the first person is unable due to a temporary or permanent disabling condition to make his or her own health care decisions.

Although state laws and most medical providers will allow certain relatives ( a spouse for example) to make some health care decisions for a seriously injured or sick person, those decisions may not be to your liking.  That is why my wife and I have prepared durable powers of attorney for each other that contain more specific information about how we want to be treated in case we cannot make decisions for ourselves.

The Difference Between a Health Care Power of Attorney and a Living Will

A living will – also called an Advanced Directive or Health Care Directive – is a separate document in which you give specific directions to health care providers as to how you want things to go if you are in an end-of-life threatening situation.  In other words, you take those decisions out of the hands of your relatives, even if they have a health care power of attorney from you.  The two documents can work together.  The living will provides specific instructions for specific death-bed circumstances.  The health care power of attorney extends authority to that second person for making other health care decisions that are not in conflict with your living will.  In some states, the terms in a power of attorney will take precedence over a conflicting term in a living will.

Preparing a Health Care Power of Attorney

A health care power of attorney must be a “durable” power of attorney.  This means that it is effective even if the first person is incapacitated.  The authority of a non-durable power of attorney is automatically revoked in most cases if the first person becomes incapacitated.   Obviously, that won’t work for health care decisions.

There are different ways for baby boomers to obtain or prepare a durable power of attorney for health care.  You do not need a lawyer to do this.  Many hospitals provide forms.  Some state health care agencies will provide them as well.  You can also buy forms from different legal forms vendors.

A Simple Power of Attorney for Health Care

I came across a Power of Attorney for Health Care form that is published by our state bar association.  It should be usable for a lot of people who do not need or require much detail.   I like its simplicity. 

Keep in mind that most states will require that your signature on a health care power of attorney be notarized.  That is not always the case for a living will.  The form text is reproduced below for you to cut and paste:

Durable Power of Attorney for Health Care

1.  This paper says who I want to make health care decisions for me. I want them to do this only if I am too sick to decide for myself.  I want them to try to make the same decisions that I would make if I could.

2.  I want this person to have all the legal rights to OK, refuse or stop medical care for me for a physical or mental condition. If I need it for mental illness or serious emotional disturbance, I want them to hospitalize me.

3.  I want this person to have all the rights I have under the Health Insurance Portability and Accountability Act of 1996 (HIPAA). This person can get copies of all my medical information.

I want this person to have my durable power of attorney.  I want them to have the power to do the things listed above.  This information identifies this person:

Name: __________________________________

Street Address: ___________________________

City: ________________________ State: ______

Day time phone: __________________________

Night time phone: _________________________

Backup attorney in fact:

If the person named above cannot or will not serve, I want the following person as my backup attorney in fact. I want them to have full powers and responsibilities to make health care decisions for me.

Name: __________________________________

Street Address: _________________________

City: ________________________ State: ______

Day time phone: __________________________

Night time phone: ________________________

I give my OK to use copies of this legal paper. I am signing this Durable Power of Attorney for Health Care on this _____ day of _______________, 20____.

My signature: X________________________

Person giving the Durable Power of Attorney for Health Care (Principal)

[If you have a Living Will (and you should), you can include this text in the document:]

Does my doctor think I will die no matter what they do?  Then I want this person to make sure my Living Will is followed. I want them to make sure that I die naturally. This means: (a)  Not dragging out my dying with machines or treatment that won’t help; and (b) Giving me only what I need to be comfortable and out of pain.

Does my doctor think I will die no matter what they do? Then this is what else I want.

• I may not be able to eat or drink. In that case:  I DO ____ or DO NOT ____ give this person the right to say no to or to stop having me fed through a tube or a vein.
• When I am dying, I want treatment and medicine to keep me comfortable and out of pain. In that case:  I DO ____ or DO NOT ____ give this person the right to OK any treatment or medicine to do that. I want this treatment and medicine even if it could hurry my death. I want it even if it could cause addiction. I want it even if it could cause permanent physical damage.

My signature: X_______________________

Date: ___________

Witnesses Statement

By signing this paper, each witness is saying that : “I know the person who signed this paper and asked me to be a witness. This person is an adult. This person signed the paper in front of me. I believe this person is in their right mind and knows what they are signing. I believe no one forced this person to sign the paper. I believe no one talked this person into signing this paper. This person understands what will happen because they signed this paper. I am not related to this person by blood, marriage or adoption. I will not get any of their estate when they die. I am not the person this paper makes the attorney in fact. I am not the attending doctors. I do not work for the doctor or a health facility where the person signing this paper is a patient. I do not now have a claim against any of this person’s estate when they die.

__________________________________________ ____________________________________________

Signature of Witness                                          Signature of Witness

Date: ______________                                         Date: ______________

STATE OF ________________________

COUNTY OF _______________________

Subscribed, sworn to and acknowledged before me by ____________________________________, the principal, and subscribed and sworn to before me by ____________________________________ and ____________________________________, witnesses, this _____ day of ______________, 20___.   

___________________________________________ My commission expires: ________________

Photo credit:  Brykmantra

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Also, even if you specify in your will how your retirement plan benefits are to be distributed, your will cannot override a beneficiary designation in the plan documents themselves. 

So what retirement plan documents should baby boomers be reviewing?

Primary beneficiary designations on qualified defined contribution plans.

These include 401(k), 403(b), SEP, and similar plans. (Note that a spouse must generally provide written consent if you attempt to remove him/her as primary beneficiary on a qualified defined contribution plan.)

Primary beneficiary designations in qualified defined benefit (pension) plans.

Again, you will generally have to obtain spousal consent to name someone other than your spouse.

Contingent beneficiary designations in qualified defined benefit and contribution plans.

A contingent beneficiary is named to cover circumstances where your primary beneficiary pre-deceases you or dies in a joint accident with you.   When boomers were younger, they would often designate minor children (or a trust for minor children) as a contingent beneficiary.  If the children are now grown up, you will probably want to change your contingent beneficiary, perhaps by naming your estate.  That way, your will can be used to determine where your retirement benefits will go upon your death.

Primary and contingent beneficiary designations for IRA balances.

The rules for rolling over an inherited IRA vary depending on whether the beneficiary is or is not a spouse.  The status of the beneficiary can also affect the application of required minimum distribution rules.  Thus, baby boomers should carefully consider their options when updating designations of IRA beneficiaries.  For more guidance on this issue, consult IRS Publication 590.  

Secondary/joint owners of bonds and CD’s set aside for retirement.

Most issuers of bonds and CD’s allow you to designate a secondary or joint owner of those financial instruments.  This is true for I-Bonds, for example.  If you have some of these assets in your retirement nest egg, you should review those designations to make sure they reflect your current family status.   Generally, there is no need to obtain the consent of any existing beneficiary to make these changes.

I like to review the beneficiary status for our retirement plans each year when I am working on our income tax returns.  This is a convenient reminder for me.  Perhaps that would make sense for you as well.

Image credit:  Kriss Szkurlatowski

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With the epidemic of layoffs, downsizing, and outright job terminations, age discrimination by employers in the workplace has to be on the minds of all baby boomers.

I am afraid this pattern of firing the older folks first has been and will be repeated in our current economy although on a not so obvious basis.

What is Age Discrimination? 

The primary law is found in the Age Discrimination in Employment Act (ADEA) which was enacted by Congress in 1967.  The ADEA applies to employers having at least 20 employees (including state and local governments), to employment agencies, and to unions having at least 25 members.  The ADEA prohibits workplace age discrimination against employees and job applicants who are at least 40 years old.

This is how the age discrimination laws are applied to an employer:

It shall be unlawful for an employer-

(1) to fail or refuse to hire or to discharge any individual or otherwise discriminate against any individual with respect to his compensation, terms, conditions, or privileges of employment, because of such individual’s age;

(2) to limit, segregate, or classify his employees in any way which would deprive or tend to deprive any individual of employment opportunities or otherwise adversely affect his status as an employee, because of such individual’s age; or

(3) to reduce the wage rate of any employee in order to comply with this chapter.

Thus, it is important to note that age discrimination involves more than just firing.  It can include salary reductions that are applied unfairly to older employees.

This is how the age discrimination laws are applied to an employment agency:

It shall be unlawful for an employment agency to fail or refuse to refer for employment, or other­wise to discriminate against, any individual because of such individual’s age, or to classify or refer for employment any individual on the basis of such individual’s age.

This is important because some employment agencies are quietly expected to do the dirty work of an employer who is seeking only younger employees for a position that was filled or could be filled by someone over the age of 40.

This is the text of the fundamental anti-discrimination provision as applied to a labor union:

It shall be unlawful for a labor organization-

(1) to exclude or to expel from its membership, or otherwise to discriminate against, any individual because of his age;

(2) to limit, segregate, or classify its membership, or to classify or fail or refuse to refer for employ­ment any individual, in any way which would deprive or tend to deprive any individual of employ­ment opportunities, or would limit such employment opportunities or otherwise adversely affect his status as an employee or as an applicant for employment, because of such individual’s age;

(3) to cause or attempt to cause an employer to discriminate against an individual in violation of this section.

Again, we do not want unions trying to help out younger employees at the expense of older employees in hopes that the employer will agree to more favorable terms in an union contract.

Most employers are sophisticated enough to avoid making statements that expressly constitute age discrimination. 

Here examples of age discrimination in the workplace:

1.  If you apply for a job, someone in the hiring process says something like “they are looking for someone just out of school or in their 20’s or 30’s.”

2.  If you are in a job, look for a performance appraisal system that forces managers to rank employees in certain ways, including ranking a certain percentage in the lowest category.  Too often, the employees forced into the lowest category are the older employees who otherwise have received good performance evaluations.

3.  When there are layoffs, a disproportionate number of those affected are older employees.

4.  Improper use of early retirement incentives can be age discrimination.  This occurs if, for example, you are told that if you don’t accept the early retirement incentive, you may be transferred to a less desirable job or some of your best customers will be assigned to another employee.  Thus, with most early retirement incentive plans, those over 40 will be asked to sign a waiver of claims under the ADEA.  If that happens to you, I suggest that you ask your lawyer or union representative to look it over carefully with you first.

5.  You are demoted or your boss transfers some of your more lucrative commission work to a younger employee.  Sometimes this will happen with a statement like “we need more energy applied to these customers.”

6.  You are denied access to training or promotions that are offered to younger employees in similar positions.

7.  You are harassed on the job.  Some managers may try to cut costs by forcing you to quit by making your life miserable. 

8.  Your benefits are reduced compared to younger employees.  This can happen with health insurance, life insurance, disability insurance, and retirement benefits.  Look for employers spending less on your benefits because of your age or cutting out a benefit entirely based on age.

The courts have ruled in recent years that employer actions, even though not intended to discriminate against older employees, may still violate the ADEA if those actions negatively affect older employees more than younger employees.

There are exceptions to age discrimination under the ADEA:

Employers are allowed to apply age limits to certain jobs, based on what is called a “bona fide occupational qualification” (BFOQ).  This means that there is some physical aspect of the job that cannot be adequately performed by people in certain age groups.  This is very difficult for an employer to prove.

Employers are also permitted to impose mandatory retirement ages for employees who are least 65 years old, have been in an executive position for at least two years, and are entitled to a retirement benefit of at least $44k annually.

In some cases, public safety officers and tenured faculty members may also be forced into mandatory retirement or benefit reductions based on age.

If you feel that you have been subject to age discrimination by your employer, this is what you should do:

1.  Document as many of the facts as possible so that you have a record that you can use if a claim is filed.

2.  Consider making a formal complaint with your employer.  Some employers have HR or compliance personnel specifically designated for handling and responding to complaints of workplace discrimination.  Remember:  Your employer is not permitted under the ADEA to retaliate for making a complaint.

3.  File a charge with the nearest field office of the U.S. Equal Employment Opportunity Commission (EEOC).  Generally, an EEOC charge must be filed withing 180 days of the discriminatory action.  You cannot file a lawsuit under the ADEA without first making a charge with the EEOC.  Here are the locations of EEOC offices where you can obtain more information.

4.  File a charge with your state EEOC.  Many states have their own laws, rules and offices that regulate age discrimination in the workplace.  Some of the state laws may be more liberal than the ADEA.  You can file a charge with both.  Here is a list of state EEOC offices.

5.  Contact a lawyer.  If you have been severely damaged by what you think is a valid claim of age discrimination and are unsure of what to do, contact a lawyer that specializes in employment law.  You can often get a referral through your state or local bar association.

I hope you are never subject to age discrimination in your job or workplace.  If you are, learn your rights and take action.  As baby boomers ravaged by the effects of 2008, we need all of the help we can get.

Image credit:  Rodolfo Clix

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