One way to deal with this is to have your child sign a financial Power of Attorney, naming you as their agent to deal with financial matters for them or health care matters, as well. With this document, you should be able to receive their full tuition and room and board bills, reconcile their bank accounts, if needed, receive their grades to see that your money is going for good use, and most importantly, to get medical information about them, especially in the event of an accident or other medical need. It is important that the Power of Attorney contain the necessary HIPAA authorization language in the document so that you will be able to access their medical information.

There are times that the child does not feel comfortable naming you, the parent, as their agent. They are just beginning to live on their own and feel that their independence is threatened. In that event, it is important that they name someone, perhaps an older sibling or another family member to be there to offer assistance when needed.

Using a Power of Attorney for your child over 18, who is legally an adult, is one of those things that you don’t think about until the need arises and then it is too late to obtain the document that would protect your child. Don’t wait until it is too late! If you have questions contact an experienced Illinois Estate Planning attorney today.

Most business brokers will tell you that most business owners have only a vague notion about what may happen to the company after they leave. They have no idea how to value the company and no idea what it is worth. They also have no idea of the tax consequences of a potential sale of the business.

An exit strategy may be an outright sale of the company or it may be the sale to key employees. If you have children involved in the business, it may involve some gifting of the shares over time or allowing the children to purchase shares.

However, if you do not know where you are planning to go or how you are going to get there, you are really operating in the dark. You will have no protection in place in the event that you die or are incapacitated and there is no protection for your family members that you may leave behind either. Without a strategy, would your family know if it is appropriate to sell your business or keep it? If selling the business is appropriate, whom do they approach to offer the business to? Do they use a business broker or not? Do they seller finance the deal or not? Is there anything to sell if you are no longer here? What is the most favorable tax method to sell the business?

These are some of the questions that your family would have answered if you developed an exit strategy. An exit strategy should be in writing and needs to be prepared at least five to seven years before an owner (or his or her family) decides to sell the business. This strategy involves shaping the business into a business that will sell and allow you to maximize your return from the business. The plan usually is done with your business lawyer, CPA, estate planning attorney, financial planner and business broker. Each can give you input that is invaluable to plan ahead, especially if you are forced to sell because of unexpected health issues or problems outside of your control.

If protecting your family does not give you the impetus to develop your exit strategy, remember that if you do not have an exit strategy in place, you (or your family) will most likely get much less than they expect for the business or may not be able to sell the company at all.

One of the things that you can do is to give a conservation easement to a not for profit, such as The Nature Conservancy, who will make sure that the property is maintained in its current state. Sometimes the easement is located along the perimeter of the property where the potential development might occur. If the property is ever sold, it is sold subject to that easement so the next owner would not be able to develop that property where the easement is located. This does diminish the value of the overall property, but the owner of the property who granted the easement can get an income tax deduction for the difference between what the property was worth before the easement and what it is worth after the easement.

Sometimes the easement is more extensive. For instance, a Libertyville man had visited an area in the northern part of Wisconsin for years. His family spent many of their summer vacations near this land. He had watched for the day that he could buy the land and make sure that it was preserved. Eventually, he bought over 3,000 acres. He negotiated a conservation easement with the Gathering Waters Conservancy and Northwoods Land Trust to limit its use, which means that while the property may have cottages located on the property, it will not have a large scale development on it. Instead, the handful of cottages on it will allow skiers and nature lovers to have access to the property. In the conservation easement, he created the Winter Park Pines Nature Preserve that will be overseen by the Northwoods Land Trust. The easement also allowed for the management of the forest on the property, but no clearcutting of the trees on the property. If this is of further interest to you, feel free to read the rest of the story in the December 30, 2011 issue of the Chicago Tribune.

There is no doubt that this man will receive a tax deduction for the gift of the conservation easement, but he really did it for the love of the land. If you have questions contact the Business and Tax attorneys at the Gierach Law Firm today.

As you probably have read in the press, the federal estate tax was modified for a two year period to allow Congress to take a look at various options for the federal estate tax. Some in Congress wanted to eliminate the tax, some wanted to raise the exemption, but there was no consensus at the time. Congress enacted legislation that increased the lifetime exemption to $5.0 million. This means in general that if your estate is more than $5.0 million, your estate will be subject to tax on everything above $5.0 million, at a rate that starts in the 45% bracket.

The State of Illinois changed their estate taxes several years back, as they were receiving less tax revenue from estates of persons who died. The state had been connected to the federal system before. When the federal government raised the exemption, more estates did not have to pay federal taxes, which meant that more estates did not have to pay taxes to the State of Illinois. Consequently, the State of Illinois changed the tax to provide an exemption of $2.0 million. Everything above that amount is taxed at 17%.

How does this work in practice? Let’s do a couple of examples. For the first example, let’s assume that your estate (including life insurance, 401(k), house, mutual funds, stocks, bonds and all other assets) is $6.0 million and included in that is your 401(k) and IRA for about $1.0 million. Everything above the $5.0 million is taxed at 41%, so there is a federal estate tax of $450,000. For Illinois purposes, everything above the $2.0 million exemption is taxed at 17%, so the Illinois estate tax is about $680,000. So far, the tax on that 401(k) and IRA is 62%.

When the funds are taken out of the 401(k) or IRA, the beneficiary will pay the tax at his or her highest marginal rate. For purposes of the example, let’s assume that rate is 35% for federal purposes. Residents of Illinois do not pay Illinois income taxes on pensions and annuities, so there is no additional tax for Illinois residents.

As a result, in this simple example, the total tax rate for federal and state estate taxes and federal income taxes is a whopping 97%!

Of course, if your estate is under the $5.0 million and you are not subject to federal estate taxes, you still may have a 17% Illinois estate tax (assuming that your estate is above $2.0 million and under the $5.0 million), along with the federal income tax at the beneficiary’s highest marginal rate. The total tax rate in that circumstance would still be 52%!

At the start of this article, it stated that most people do not know this, but you do now.

Dementia is the degradation of brain function caused by various ailments such as Alzheimer’s disease, Parkinson’s disease, strokes and sometimes simply just old age. Symptoms include a decline in memory and cognitive abilities, and generally result in the lack of ability to speak or write coherently, the ability to recognize objects, and the ability to execute motor activities. While dementia can strike a person of any age, it is predominately concentrated in the elderly population. As the life expectancy of an average American grows, and the Baby Boom Generation grays over the next thirty years, our country will see a dramatic rise in the instances of dementia. According to Alzheimers’ Disease International, the instances of dementia are expected to double over the next twenty years.

Dementia is generally a progressive disease, and the severity of its symptoms fall on a sliding scale. Some individuals may have a hard time remembering specific words, while others may not recognize their own children, or will be found lost wandering the streets. While it can be alarming for family members to watch their loved one suffer from dementia, such concern is compounded if your loved one has failed to devise an adequate estate plan.

Against the good and consistent advice of estate planning attorneys, most people tend to put off creating an adequate estate plan that will distribute their property upon death. If a person starts to suffer from dementia, the priority of creating an estate plan generally falls by the wayside. At this point, some family members may be resigned that their loved one suffering from dementia has “lost their mind” and could not possibly sign a will. Fortunately, the threshold for a person’s ability to sign a will is relatively low. Even in cases of dementia, a person can be held to have the mental capacity to sign a will, as long as they are of sound mind and memory at the time they sign their will.

 Mental Capacity

Mental capacity, as it relates to the law, is the ability of a person to have the understanding and awareness to enter into legal transactions. The standard by which a person’s mental capacity to engage in legal transactions varies greatly depending upon the transaction. For instance, there are separate mental capacity standards for making a gift, entering into a contract, conveying real property, making a will, and executing powers of attorney.
The mental capacity of a person to make a will is called testamentary capacity. Fortunately, testamentary capacity is a relatively low standard. Under Illinois law, a person has testamentary capacity if she has “attained the age of 18 years and is of sound mind and memory.” 755 ILCS 5/4-1. This law has generally been interpreted to mean that a person is of “sound mind and memory,” measured at the time the person signs their will, if they:

      1) Have the ability to know the nature and extent of their property;
      2) Have the ability to know to whom they wish the property be given to;
      3) Have the ability to dispose of their property according to some sort of plan.

Testamentary Capacity of a Person With Dementia

If you are concerned that a loved one without an adequate estate plan is showing signs of dementia, it is important to contact a qualified estate planner immediately. A qualified estate planner has typically dealt with dementia situations before and can adequately assess your loved one to determine if he/she has the requisite capacity to make a will and create an estate plan.
As stated earlier, the symptoms of dementia occur on a sliding scale. Sometimes symptoms are intense and at other times they can be relatively mild. The severity of the symptoms typically fluctuates in their length of time and intensity. It is important to note that even if you believe your loved one is “too far gone” to have the capacity to sign a will, please keep the following tips in mind:

• Dementia can come and go at various times. Doctors have reported that dementia patients will have “lucid intervals,” where for a short period of time a person will have full awareness of his/her actions and reasoning. A will can be signed by a person during a lucid interval if he/she has the requisite mental capacity. Therefore, just because your loved one has appeared to have “lost his mind” the last time you saw them, this does not mean they cannot sign a will when they are in a lucid interval.

• In addition to symptoms of dementia, many elderly may also experience stress, grief and depression during this time of their lives. For instance, they may have recently lost their spouse, a number of friends have died, or maybe they are just plain sick of being old and having limited mobility. Confusion, lack of attention, and the inability to make decisions may be symptoms of their stress, grief or depression, as opposed to mental dementia. Dealing with these issues first may reduce the symptoms that most people attribute to dementia.

• Many elderly also experience the loss of their senses as they age. Losing their eyesight and hearing may make them appear as if they do not understand you, or will not pay attention to you. Your loved one may have full mental capacity; you just may have to speak slower, louder, and attempt to limit distracting noises.

If dementia begins to set in on one of your loved ones, consider contacting an estate planning attorney immediately to draft a valid will and develop an estate plan. Doing so now will give you and your family a piece of mind, and will allow you to focus on the care of you loved one.

To find out how much various types of long term care should cost, there are several websites, which can help you to compare costs for various types of care for your particular area. For instance, Genworth Financial, one of the country’s largest long term care insurance providers, shows local costs at Genworth.com/costofcare. Another big insurance carrier, MetLife, provides area specific information at MatureMarketInstitute.com. Other resources include a Medicare manual called “Medicare and Home Health Care”, which describes what home-health care benefits Medicare covers (see Medicare.gov). There is also information at United Hospital Fund’s “Next Step in Care” website for family caregivers (nextstepincare.org).

Besides the fact that your parents would generally be happier staying in their own home, the cost of in home services is roughly the same this year as last, according to the Genworth annual survey. However the charges at assisted living facilities or nursing homes have increased significantly over the same period. For instance, the national median rate for a shared nursing home room climbed by 5.7% to $193 per day from 2010 to 2011. The cost of a private room was $213 a day or a 5.1% increase from 2010.

While you may not wish to haggle about the price at a time when your parents need the extra care, if the long term care expense is way above the market rate, it may give you some negotiating strength. Having the knowledge that these websites may provide may allow you to save some real money over time, which is important when you are trying to stretch your parents’ money for as long as you can.

Most couples file joint income tax returns as a married couple. This means generally that both parties are responsible for what is on the return, as well as what income should be reflected on the return, but is not. Sometimes the division of labor between husband and wife is such that one of the parties handles the tax return. Sometimes that person places the returns in front of the non-preparing spouse and that spouse signs the returns, not knowing or checking the information in the returns for accuracy. Worse still are cases where the preparing spouse signs both names to the returns and the non-preparing spouse has no clue that the return was ever prepared, filed or what was in the return.

As a result, if the preparing spouse prepares the returns and substantially underreports the income earned, both parties are responsible for the additional tax, interest and penalties that ensue because of the action of the one spouse. Sometimes the unreported income is a result of fraud, gambling, drugs or other illicit activities. The non-preparing spouse may claim that he or she did not have any knowledge of the underreporting and they may genuinely not have any knowledge, but still may be held responsible by the IRS.

There is a procedure to request “innocent spouse” relief from the IRS, which involves filing an IRS Form 8857, which form needs to be filed within two years from the date that the IRS files a levy notice for the tax owed. A person who needs to use this form and request this relief should go to a qualified professional, as certain documents should be attached to the form. The IRS has denied about 2,000 of the 50,000 taxpayers that apply for relief each year, just for filing for this relief after the two year period has elapsed.

While the federal lawmakers are pushing for rule changes for the innocent spouse rule, it is important if the usual non-preparing spouse suspects their partner of failing to include income or making up expenses, that non-preparing spouse should file a separate return. That way that spouse will not be liable for the tax mess created by the other spouse.

Another thing that people may not know is that the IRS can legally disregard a divorce decree. Even if that decree holds you harmless or states that the other party is responsible for the IRS problems, the IRS does not have to follow that provision. That just means that if the IRS comes after you for the entire amount and your former spouse has any assets, you may go after him or her to recover the amount pursuant to that section of the decree. At that point, though, that former spouse probably has no assets to recover or even to pay the IRS their due.

Sometimes an abusive relationship keeps one spouse from taking action or filing a separate return. If this happens, it is recommended that spouse keep a diary or other record to support their fears, which may come in handy later.

Although the IRS will allow the innocent spouse rule to protect some spouses, it is always a better route not to have to trust that they will. If in doubt, file a separate return.

These are vehicles which can offer more flexible, leveraged solutions to complex problems in our society. For instance, if a private foundation wanted to operate a training program for residents in an economically depressed neighborhood, the L3C could open a laundry in that neighborhood, the private foundation could do the training. A normal for-profit company might be unwilling to take the entire risk, so a private foundation can do a joint venture with the L3C to further the charitable purposes of the private foundation.

L3C’s are intended to make it possible for both the tax-exempt private foundation and for profit entities to invest in a way that significantly furthers one or more charitable or educational purposes. Both tax-exempt and for-profit companies can invest in and be members of an L3C. As with a regular LLC, the L3C can be managed by one or more of its members or by an outside manager.

A big advantage for a private foundation is that the investment in the L3C is intended to qualify as a program related investment under the Internal Revenue Code, although the IRS has failed to either recognize the L3C entity or provide a procedure for determining if the investment in an L3C is considered program related. Once the IRS formally recognizes these vehicles, it will be easier to use the L3C. Until then, a private foundation will have to file to obtain a private letter ruling for each program related investment made by a private foundation, which can be time consuming and costly.

This new entity may offer new options for achieving a charitable purpose in the future to help solve many of the problems in our society.

My wife and I are part of very large group whom I like to call the Emerging or Newly Established Individuals. We are of a group that does not yet need the advanced estate and tax planning of our Baby Boomer parents, but we are established enough to need a basic plan. The Emerging or Newly Established Individual is someone who has recently made significant life decisions with regards to their financial stability and growth. For instance, my wife and I have begun gearing up to finally sell our condo, purchase a single family home, and start a family. Emerging or Newly Established Individuals have generally done any of the following in the past few years:

1. Bought a condo or house
2. Recently got married
3. Recently had children
4. Have a 401(k), IRA, pension, or a life insurance policy.

If you are a member of this group, you are no doubt on the slow and steady climb up the hill of financial responsibility, and are likely burdened with student loans, mortgage payments, condo assessments, the new cost of raising a child, college savings and retirement savings. As a result, developing a quality estate plan tends to be placed on the back burner at the most critical time. I have found that most estate planning by this group is either never timely completed, or is assumed that a discount document provider such as LegalZoom will be sufficient. At this juncture in your life, it has now become critical that you at least have a basic estate plan to properly direct your final wishes for you and your family. A failure to plan for your estate could have unintended consequences, such as the need to open a costly guardianship estate with the court for your minor children, or incurring unnecessary probate costs.

A basic estate plan consisting of a testamentary will, living will, power of attorney for property, and power of attorney for health care is generally sufficient for this group. These documents cover the most critical aspects of the Emerging or Newly Established Individual’s estate, including:

1. To whom your property will go upon your death
2. Who will be the guardian of your minor children
3. Who will be able to make health and property decisions upon your incapacity.

However, if you own real estate or any other large investments, a living trust may also be beneficial to help reduce any probate costs and possible future estate taxes.

While the basic estate plan will cover the needs of most Emerging and Newly Established Individuals, this does not imply that one can feel safe ordering forms from a self-service company like LegalZoom. These companies sell you preprinted fill-in forms without any customization to your specific situation. While this method may be less expensive (and sometimes not) than consulting an attorney, you are ultimately responsible for its contents and correctness. Even LegalZoom’s disclaimer says “The law is a personal matter, and no general information or legal tool like the kind LegalZoom provides can fit every circumstance.” I would not risk such an important document to a website that knows nothing about your personal circumstance. An attorney is still the only way to be confident that your estate planning documents reflect your true wishes.

As an Emerging or Newly Established Individual, you owe it to yourself and your family to develop an estate plan that addresses your wishes regarding everything you have worked so hard to achieve.

In the process of doing estate planning, wills and trusts for our clients, we noted that many clients have life insurance, but really don’t know what they have or why.  Many times the clients have small policies that were sold to them by various family members, many of whom did not even stay in the insurance business after the policy was sold to them.  As a result, many clients have questions such as:  Do I need life insurance?  How much life insurance do I need?  What are the policies that I have?  Do they provide me with any benefit?  Does the benefit run out at particular ages?  Are the policies good for investment?  Should I keep the policies or cash them in?

As you may know from having dealt with our firm, we do not push the purchase of life insurance.  There are certain circumstances that require insurance such as to provide liquidity for your family to maintain their lifestyle after you die, to provide money to pay estate taxes when you die, or to fund a buy-sell agreement, to name a few.  In those situations, we do recommend life insurance to our clients and we work actively with either your insurance professional or we give you names of several insurance brokers to facilitate the purchase of insurance.  We do feel that it is a wise move for our clients to have their insurance policies reviewed periodically to determine the answers to the above questions and to determine if the existing policies should be maintained.

To facilitate the review of your policies, we have asked Stephen Collins of Lake Michigan Benefit Associates, who we have worked with for many years in the past, to review our clients’ existing life insurance policies at no charge to you, which he is willing to do.  Stephen is a financial planner with an emphasis in life insurance and regularly evaluates existing life insurance products for many of our clients.

If you are interested in the free review of your existing life insurance, please send me an email at deniceg@gierachlawfirm.com to schedule an appointment at our offices.  

Denice A. Gierach is a lawyer and owner of The Gierach Law Firm in Naperville. She is a certified public accountant and has a master’s degree in management. Contact her at 630-756-1160 or visit her website at www.GierachLawFirm.com.