Community Property Trust

Tennessee allows Community Property Trust (“CPT”) and has since 2010 when the legislature passed the Tennessee Community Property Trust Act of 2010.  The advantages of having a CPT, especially if you are a business owner, are great.  Essentially, the CPT allows you to pass on your business on to loved ones without a significant (or sometimes any tax burden).  For example, Mom and Pop Sporting Goods Store (worth $4.5 million) has been in business for 50 years and they come to see me about their estate planning.  One of their main goals is to pass the family business on to their children with as little taxes as possible.  One option I let them business owner clients know about is a CPT for them together and both executing separate Revocable Living Trusts (“RLT”).  The purpose of the CPT is when the first spouse dies, the other spouse will receive the business on step-up basis.  That said, the icing on the cake is that when the second spouse dies, the beneficiaries also receive a step-up basis.  This is outstanding news for small and large business owners alike.  Proper estate planning should not be delayed.  Contact me, Adam M. Bullock, at Ratliff Law Firm to secure peace of mind for your loved ones.  abullock@ratlifflawfirm.com or (865) 932-3441 ext. 706.

This is not intended to be legal advice and does not form an attorney-client relationship with any reader.

The “Angel of Death” loophole

UPDATED 1-30-15

President Obama laid out his proposed agenda in last week’s State of the Union address. Among the many initiatives his administration is proposing, the most significant to estate planning are the tax increases.

The President proposed eliminating what Michael Kinsley called the “Angel of Death” loophole. Under the current tax code, if you bought stock at $10/share and when you died that stock in your estate was worth $100, no long term capital gain would be owed on the $90 gain in value over your life. If however, the President’s proposal were adopted, the $90 would be taxable at applicable long term capital gains rates.

There would of course be many exemptions and complications, but that is the main idea. For example, the President has proposed an exemption for the first $100,000 of capital gains tax per individual ($200,000 for couples), which would eliminate all but the more wealthy estates. The President is proposing many other tax increases including increasing the top rate for long term capital gains tax and taxing certain 529 plan distributions, among others.

Given that Congress is under Republican control, these proposals aren't expected to be considered. Many interpret this proposal as a way to frame the political debate for the coming elections. However, Congress will do its best to prevent a return to gridlock, and this may prod some action in the tax code. This will be an important conversation to monitor this year because of its potential to significantly affect estate plans.

Update 1/30/2015: The Obama administration has dropped the 529 Plan tax from its proposal. For more information, see David Wessel’s article in the Wall Street Journal.

This is not intended to be legal advice and does not form an attorney-client relationship with any reader.

King Could Root Out the Tax Credit Recipients

The latest hurdle for the Patient Protection and Affordable Care Act (“PPACA”) comes on the King v. Burwell decision.  The case directly challenges the tax credit both families and individuals receive to, you guessed it, make healthcare more affordable.  In a recent poll by The Robert Wood Johnson Foundation two predictions were made: (1) 9.6 million people would lose coverage if the tax credit disappears after the King decision; and (2) the total number of people who are both uninsured and nonelderly would increase to 8.2 million.  Dan Cook, King ruling would reach beyond subsidies, benfitspro.com, January 23, 2015,

http://www.benefitspro.com/2015/01/22/king-ruling-would-reach-beyond-subsidies?eNL=54c16db6160ba03b139cc3c0&utm_source=BenefitsProNewsAlert&utm_medium=eNL&utm_campaign=BenefitsPro_eNLs&_LID=174299334. 

So why is this a big deal for everyone?  Insurance premiums are generally based on the number of people in the pool.  Think of insurance like buying pens for the office.  If you call the office supply company and want order one pen it could be a $1.00.  However, if you agree to order 500 pens the cost per pen could be reduced to 50¢.  It all has to do with the number of people in the pool.  Less people in the pool means higher premiums for everyone.  Higher premiums equal more people, those beyond the cusp of receiving or needing a tax credit, simply will not be able to afford healthcare insurance.  Moreover, this equals higher premiums for people and businesses who are able to provide health insurance for themselves and their employees.  This cycle could, and may, go on forever.  Until the King decision is released, all we can do is speculate. 

This is not intended to be legal advice and does not form an attorney-client relationship with any reader.

Working Together For Clients Benefit

Financial Advisors and attorneys are the two people everyone trusts the most. Okay you win, maybe not. While this isn't always the case it not only should be, but it must be. Financial Advisors need to consider the long-term benefits of working with a trusted and knowledgeable attorney to care for their clients’ estate planning needs. Clients for both professionals have needs to mutually benefit each other. For example, Financial Advisors should not only be concerned with direct clients and their financial goals, but they need to consider their clients children, grandchildren, charitable giving, tax strategies, and asset protection. Attorneys at Ratliff Law Firm work daily with clients regarding various aspects of law, but some need financial investing advice regarding retirement, annuities, life insurance, long-term care, etc., which we refer to competent Financial Advisors. At the end of the day Financial Advisors and attorneys must work together towards the common goal of client security and happiness. Allowing a client to invest their hard-earned money with no consideration after their death is not very responsible nor client driven. When Financial Advisors and Ratliff Law Firm work together they are able to achieve excellent results for clients. Invest, estate plan, and assets the way you want to without governmental interference. 

This is not intended to be legal advice and does not form an attorney-client relationship with any reader.

Employers (including governmental employers) need more than just the Healthcare Plan

As businesses begin the new year the one thing on everyone’s mind is healthcare and the costs related to it.  It is of utmost importance not to forget the documents that go along with your healthcare plan such as your plan documents.  Failure to adhere to these rules open employers up to a $100 fine per day per employee.  Please note that this fine stems from the Department of Labor and not the IRS.  If an employee asks to see the plan document and one is not in place or if the employer is audited and the plan document is not in place hefty fines will follow. 

Of equal importance is understanding that governmental entities such as counties, cities, municipalities, etc., are not exempt from these laws.  Further, governmental entities and any business who offers a healthcare plan should contact our offices to ensure they are compliant with these laws.  The question is not whether or not you can afford to comply, but rather can you afford not to comply.  The $100 penalty spoken of is a separate penalty from the Affordable Care Act (“ACA”) and a penalty under the Employee Retirement Income Security Act (“ERISA”). 

This is not intended to be legal advice and does not form an attorney-client relationship with any reader. 

What is a living will?

A living will is an essential part of any proper estate plan. While a will or a trust deals with the distribution of the estate, a living will is a separate document and serves a completely different purpose. A living will allows you to make the decision whether to be kept alive by artificial means if you have a terminal condition and there is no hope of recovery.

According to the “Tennessee Right to Natural Death Act,”

"Every person has the fundamental and inherent right to die naturally with as much dignity as circumstances permit and to accept, refuse, withdraw from, or otherwise control decisions relating to the rendering of the person's own medical care, specifically including palliative care and the use of extraordinary procedures and treatment. The general assembly further declares that it is in the public interest to facilitate recovery of organs and/or tissues for transplantation and to provide mechanisms for individuals to express their desire to donate their organs and/or tissues.” (T.C.A. § 32-11-102)

Making these decisions through the execution of a living will let your doctor know your desires in the event you have a terminal condition and there is no hope of recovery. Having your living will in place will greatly reduce the risk of inter-family struggles and potential litigation (recall the Terri Schiavo case) because you have clearly explained your desires in a living will.

This is not intended to be legal advice and does not form an attorney-client relationship with any reader.

King v. Burwell update

The Supreme Court set March 4, 2015 as the date for arguments in King v. Burwell. At issue in this case is whether federally facilitated exchanges may grant health premium subsidies. An adverse decision would ultimately eliminate the employer mandate in the 36 states with health exchanges run by HHS. Given that 87% of 2015enrollees on exchanges have been granted subsidies, many think that the future of the PPACA (at least the employer mandate and exchanges) hinges on this case. Just yesterday, 6 states jointly filed an amicus brief arguing that federally facilitated exchanges should not have authority to grant subsidies. With penalties going into effect in a matter of days, most employers have already put compliance measures into effect.  This case casts yet another shadow of uncertainty over the implementation of PPACA. For more information, see our earlier post.