Probate

Estate Tax: One Less Thing to Worry About

When I started practicing in 1997, the estate tax exemption was $600,000 and the top estate tax rate was a whopping 55%. This meant that there was a considerable estate tax to pay if you died with an estate larger than $600,000. That sounds like a lot, but remember that the value of your estate includes real estate and life insurance proceeds. So it was relatively common for estates to trigger the tax back then, which prompted some fancy footwork with my clients’ estate planning prior to death in order to mitigate the tax bite.

Well, times have changed.

The federal estate tax exemption is now a jaw-dropping $11.4 million and the top tax rate is down to 40%! And even if you are in the tiny percentage of the U.S. population that actually exceeds that figure, they only tax the dollars above that $11.4 million threshold.

Additionally, if you are a married couple you can take advantage of an estate tax concept called “portability”, which allows your surviving spouse to use any unused portion of your exemption. For example, if a husband dies with a $3 million estate, then he did not use $8.4 million of his exemption. That unused exemption can be shifted over to his spouse, and now she can pass away with an estate as large as $19.8 million with no estate tax liability. Put another way, a married couple essentially enjoys a $22.8 million estate tax exemption!

Now, of course, Connecticut has its own state estate tax. The Connecticut exemption isn’t quite as generous as the federal exemption, but it still ain’t bad. The exemption is $3.6 million this year, $5.1 million in 2020, $7.1 million in 2021, $9.1 million in 2022, and then it catches up with the federal exemption in 2023.

All of this means that virtually none of my clients are doing estate tax planning anymore. Instead, they’re focused mostly on minimizing probate exposure and generally making sure things go smoothly for their loved ones if they pass away.

There are plenty of things to fret over these days, but having your estate decimated by a huge estate tax is, thankfully, no longer one of them.

DISCLAIMER: This blog does not offer legal advice, nor does it create an attorney-client relationship.  If you need legal advice, consult with a lawyer instead of a blog.

"Digital Assets" and Estate Planning

For most of us, both financial and social online accounts have played a rather significant role in our day-to-day lives for many years. However, it’s rare that clients consider them when designing their estate plan. Leaving some detailed information and directions for your Executor regarding your “digital assets” should be an agenda item for your estate planning.

Consider maintaining a list (either paper or a computer spreadsheet) which includes all of your usernames and passwords for your online accounts. This would include email (including any encryption information), bank and brokerage accounts, retirement accounts, photograph/video/data storage sites (e.g. Google Drive, Microsoft OneDrive), social networking sites (e.g. Facebook, Instagram, Twitter), business-oriented social media sites (LikedIn), blogs, your own personal website or business website, streaming services (e.g. Netflix, Amazon Prime, ESPN+), online data backup services (Carbonite), online document & spreadsheet processing accounts (Google Docs), tax preparation accounts (Turbo Tax), credit card accounts and accounts for paying your household utilities.

Some of these accounts will help your Executor figure out where your assets are and what outstanding bills need to be paid. There may also be some automatic payments scheduled from online bank accounts that will need to be shut off. You could also leave instructions about which social media sites to shut down and whether you want one or more of these sites to share information with your online social community about your demise. Some of these sites (a personal blog or an online photography account, in particular) may contain information that you want your Executor to download and pass on to children or grandchildren for sentimental reasons.

You should also put together a list of all your devices, such as your desktop computers, laptop computers, tablets and smart phones. Those devices may hold additional data on their hard drives (information that you do not keep online or in “the cloud”) that could further help your Executor wind up your financial affairs.

Keeping these lists updated is important since some of this information, particularly passwords, change relatively frequently. Perhaps you could make updating these lists part of your annual routine, maybe at the same time that you do your tax reporting each year.

I can tell you from 21+ years of probate experience that an Executor’s job is not easy. That’s probably the understatement of the day. But easy access to comprehensive information about your digital assets will make the probate process, as well as addressing all of the non-probate details, much easier.

DISCLAIMER: This blog does not offer legal advice, nor does it create an attorney-client relationship.  If you need legal advice, consult with a lawyer instead of a blog.

Terminate Conservatorship of Estate When Medicaid is Granted

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As many of my clients will readily attest to, finding out that Medicaid has been granted for a loved one is cause for celebration. The harrowing process usually takes months and the amount of information that needs to be generated, organized and sent to the State is mind-boggling.  So when the journey ends you feel like doing cartwheels.

But there's another benefit to achieving Medicaid eligibility; if you are acting as "conservator of the estate" (managing the finances for an incapacitated person with Probate Court oversight) for someone who has been granted Medicaid eligibility, the path should be clear for terminating the conservatorship.  Since the person now has less than $1,600 in assets and all of the person's income is going to the nursing home, the Probate Judge is usually happy to terminate the conservatorship of the estate since there are not enough funds left to warrant the continued Probate Court involvement in the person's finances.  That means no more preparing and filing periodic accountings, and no more hearings regarding financial issues.

So, unless there is an extraordinary situation which would require the conservatorship of the estate to continue, you can go ahead and file a final accounting and request termination.  Please note that any "conservatorship of the person" (when a person is in charge of managing personal affairs for an incapacitated person, with Probate Court oversight) will probably have to continue since health care decisions will still need to be made.

DISCLAIMER: This blog does not offer legal advice, nor does it create an attorney-client relationship.  If you need legal advice, consult with a lawyer instead of a blog.

Keeping it Simple with "Small" Probate in Connecticut

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As you take whatever steps that are necessary to avoid probate in Connecticut (which seems to be a mild passion for many of my clients) you should keep in mind that the probate process for "small" probate estates is pretty quick and straightforward.

"Small" is, of course, a relative term.  As far as the State legislature is concerned, your estate is small if your probate assets are under $40,000.  "Probate assets" are assets that are solely in the name of the decedent and do not have a designated beneficiary.  So, joint assets and things like life insurance policies, annuities, 401K's, IRA's, POD (payable-on-death) accounts, etc. are generally not probate assets.

Please note that the threshold amount for "small" probate was $20,000, but that was increased to $40,000 in 2007.

Generally speaking, if it's a small estate you only need to file the following with the probate court: (1) the original will, (2) an affidavit confirming that you are not "probating" the will, (3) an "affidavit in lieu of administration" , (4) an original death certificate, (5) a copy of the paid funeral bill, or a statement of the outstanding balance, and (4)  an estate tax return listing everything that was in the decedent's name (both probate AND non-probate assets) so that the Court can determine if any estate tax is due.

If there is no will then the remaining funds will be distributed in accordance with the laws of intestacy, which is to say that it generally goes to the next-of-kin under Connecticut law.

If there is a will and the distribution instructions are not consistent with the laws of intestacy then you can still keep it simple if all the heirs waive their right to contest the will.  The Court will then simply order distribution pursuant to the will's instructions. 

Of course, if the heirs aren't pleased with the proceedings for some reason, then things will probably get pretty complicated.  In all likelihood, the simple process is out the window and you're unfortunately looking at a full-blown probate process. 

If you have some time on your hands and you're not intimidated by judicial forms and some paper-pushing then you can probably tackle a "small" probate process on your own without legal help.  Otherwise, it probably makes financial sense to simply hire an experienced probate attorney who can wrap up the process as quickly as possible.

DISCLAIMER: This blog does not offer legal advice, nor does it create an attorney-client relationship.  If you need legal advice, consult with a lawyer instead of a blog.