What should I do if my parent is not making good decisions?

As our parents age we sometimes notice that they make decisions that are out of character for them and perhaps are not in their own best interest. What should we do to help them? The answer depends on the existing circumstances.

Powers of Attorney

If your parent is receptive to your suggestion that they are making poor decisions and need help with making decisions then the parent should sign a durable general financial power of attorney and a health care power of attorney appointing the child as attorney-in-fact (or agent) to act on behalf of the parent. When a durable general financial power of attorney is granted to a child, the child is then authorized to make decisions for and to act on behalf of the parent. But the parent is still able to make their own decisions and to overrule the decisions of the child if the child disagrees with the parent. However, when a health care power of attorney is granted, the health care agent (child) is only authorized to make decisions for the parent when the parent’s physician decides that the parent is not able to make or communicate their own health care decisions. But if the physician decides that the parent’s ability to make and communicate health care decisions has returned, then the authority of the health care agent (child) terminates.

Guardianship

If your parent does not understand that their decision making abilities are failing and that they are making poor and sometimes dangerous decisions, then a power of attorney will not solve the problem. In this case, the child should ask the Court to appoint the child to serve as guardian for the parent. For a guardian to be appointed, the Court (Clerk of Superior Court in North Carolina) must find that the parent is incompetent and must decide who should be appointed to serve as guardian. Once a guardian is appointed, the parent no longer has the legal capacity to make decisions and is not able to overrule the decisions of the guardian (child). While the parent may not be happy with the guardianship, you as the child know that the parent is safe. ( The forms needed to petition the Court for guardianship are available at NCCourts.org.)

When is it time for a guardianship?

Unfortunately, in many cases the child will not know whether their parent’s circumstances suggest the use of a power of attorney or will require a guardianship. The path from competence to incompetence is not a straight line and there are no markers along the way to tell the child the level of competence or incompetence of the parent. How can the child determine whether the circumstances suggest that a guardianship is necessary? A good measure is whether the parent’s health or financial well being is at risk. If the parent is ignoring a doctor’s advice or not taking medications, then their health is at risk. If the parent is spending money on HSN, QVC or scams (online lotteries) or is giving it away to new “friends”, then their finances are at risk.

Even though the guardianship may cause the parent to be angry or hurt, the child will know it is necessary if the safety of the parent is at stake. That may be the cost of protecting the parent.

Christopher S. Morden Honored As Rising Star in Estate Planning and Probate

January 17, 2014

Monroe Wallace Law Group is pleased to announce that Christopher S. Morden has been named by North Carolina Super Lawyers magazine as a 2014 Rising Star in estate planning and probate law. Less than 2.5 percent of lawyers in the state are selected to the exclusive list of Rising Stars.

Super Lawyers is an independent lawyer rating service that selects attorneys using a rigorous, multi phase rating process. Through peer nominations, evaluations and third party research, exceptional attorneys are selected within the state. Rising Stars are selected by peer nominations of attorneys who are 40 years old or younger, or have 10 years or less of legal experience.

Happy New Year!

January 10, 2014
By: Christopher S. Morden

Welcome to 2014 and welcome to Monroe Wallace Law Group’s newsletter. In this year’s first post, I lay out some important estate planning numbers for 2014.

• Estate tax exclusion amount (also the generating skipping transfer tax exemption amount and the lifetime gift tax exemption amount): $5,340,000
• Estate tax rate on estates greater than exclusion amount: 40%

• Gift tax annual exclusion amount: $14,000

• Short-term capital gains tax rate – taxed at ordinary income
• Long-term capital gains tax rates (and qualified dividends)
• 0% if taxable income falls in 10% or 15% marginal tax brackets
• 15% if taxable income falls in 25%, 28%, 33%, or 35% marginal tax brackets
• 20% if taxable income falls in 39.6% marginal tax bracket

NOTE: The North Carolina General Assembly repealed the North Carolina state estate tax for individuals dying on or after January 1, 2013.

Proposed Budget Resurrects Estate Tax

April 15, 2013

On April 10, 2013, President Obama presented his proposed 2014 budget. The President’s proposed budget seeks to raise the estate tax that was “permanently” lowered earlier this year as part of the Fiscal Cliff deal.

Current estate tax:

• $5.25M estate tax exemption
• 40% tax on amounts over exemption

President Obama’s proposed estate tax:
• $3.5M estate tax exemption (beginning 2018)
• 45% tax on amounts over exemption

Our current estate tax system is estimated to impact 0.14% of taxpayers. President Obama’s proposed estate tax system is estimated to impact 0.3% of taxpayers.

It is important to note that the President’s proposed budget serves only as the starting point for Congress. We will have to wait until Congress finalizes its 2014 budget later this year to see what aspects of the President’s proposed budget find their way into Congress’ final draft.

Fiscal Cliff and Estate Taxes

December 3, 2012

As the “fiscal cliff” continues to approach, clients continue to contact our office regarding potential changes to the estate and gift tax laws. Below is a summary of the changes to the estate and gift tax laws if Congress fails to act before the end of the year and lets us go over the cliff:

1. The Individual estate tax exemption amount for 2012 was $5,120,000 and for 2013 was $1,000,000. The estate tax rate ( amounts greater than exemption increased from 35% to 55%.

2. The Generation skipping transfer tax exemption went from 35% and $5,120,000 in 2012 to 55% and $1,000,000 in 2013.

3. The Lifetime gift tax exclusion amount went from $5,120,000 in 2012 to $1,000,000 in 2013 with the annual gift tax exclusion amount going from $13,000 to $14,000.

The latest discussion out of Washington seems to be that the estate tax exemption amount will likely settle out somewhere between $3,500,000 (the 2009 amount) and $5,000,000 with an estate tax rate of 45%. We have seen no consistent discussion regarding whether the estate tax exemption amount will continue to be coupled with the lifetime gift tax exclusion amount.

It is important to note that because of the filing requirements for estate tax returns, it is possible for Congress to wait until later in the year to address changes in the estate tax (we saw this in 2010 when Congress waited until December to re-instate the estate tax at the $5,000,000 level).

Dust off Your Estate Planning Documents; It’s Election Time

November 1, 2012

When meeting with clients to review and sign estate planning documents, they often ask when they should come back to have their documents reviewed and updated. We typically respond that there is no set schedule for review of the documents and they should contact us if they: (1) desire a change be made in their documents; (2) receive a letter from our firm explaining that laws have changed that may impact their estate plan; or (3) see something in the media regarding changes to the estate tax laws and are concerned their estate plan may be impacted.

We suggest clients pull out their estate planning documents for review at least every four years. The clients need not contact our firm for review of the documents every four years, but should review the documents on their own to determine whether they are comfortable with the people they have named in the various capacities (i.e. attorneys-in-fact, health care agents, executors, trustees, and guardians) and whether they remain comfortable with the distribution scheme contained in their will and/or trust agreement. If, upon review of their documents, a change is desired, then the client should contact our firm to discuss the desired changes.

After this discussion, we suggest to clients that a good way to keep track of the recommended four year review is to time it with presidential elections. We suggest presidential elections not because of the potential for a change to the political climate in Washington and the possibility of future changes to the estate tax system, but instead because there is no escaping the constant barrage of political advertisements. This constant reminder of an upcoming election will hopefully remind clients that it is time to dust off those estate planning documents for review.

Wake Forest Office Grand Opening

May 8, 2012
Thank you to everyone who attended our ribbon cutting and open house at our Wake Forest office on Tuesday, May 8, 2012. The event had a great turn out and we are very appreciative of the support received from the Wake Forest Chamber of Commerce in co-hosting the event.

For those of you who have not yet had the opportunity to visit us in the new location, the office is located on the second floor of the North State Bank building located at 14091 New Falls of Neuse, Raleigh, North Carolina 27614.

Development in Portability of a Deceased Spousal Unused Exclusion Amount

On June 12, 2012, the IRS issued temporary regulations on how to elect to use a deceased spouse’s unused exclusion from estate taxes. The rules apply to married spouses where the death of the first spouse to die occurs on or after Jan. 1, 2011.

Under the regulations, the estate of the first deceased spouse must file an estate tax return by the due date of that return, even if the estate would not otherwise be required to file a return under Sec. 6018(a). In an effort to make the requirements to transport the deceased spouse’s unused exclusion to the surviving spouse easier, the IRS included provisions which: (1) permit the executor to estimate the gross value of the estate based on a good faith determination of the value of the estate’s assets and (2) permit any person in actual or constructive possession of any property of the decedent to make the election.

Dust off Your Estate Planning Documents; It’s Election Time

When meeting with clients to review and sign estate planning documents, they often askwhen they should come back to have their documents reviewed and updated. We typically respond that there is no set schedule for review of the documents and they should contact us if they: (1) desire a change be made in their documents; (2) receive a letter from our firm explaining that laws havechanged that may impact their estate plan; or (3) see something in the media regarding changes tothe estate tax laws and are concerned their estate plan may be impacted.

We suggest clients pull out their estate planning documents for review at least every four years. The clients need not contact our firm for review of the documents every four years, but should review the documents on their own to determine whether they are comfortable with the people they have named in the various capacities (i.e. attorneys-in-fact, health care agents, executors, trustees, and guardians) and whether they remain comfortable with the distribution scheme contained in their will and/or trust agreement. If, upon review of their documents, a change is desired, then the client should contact our firm to discuss the desired changes.

After this discussion, we suggest to clients that a good way to keep track of the recommended four year review is to time it with presidential elections. We suggest presidential elections not because of the potential for a change to the political climate in Washington and the possibility of future changes to the estate tax system, but instead because there is no escaping the constant barrage of political advertisements. This constant reminder of an upcoming election will hopefully remind clients that it is time to dust off those estate planning documents for review.

Problem Facing Midmillionaires

In 2012, the basic exclusion from the estate tax is equal to $5,120,000 with a marginal tax rate of 35% on anything over that amount. Based on current law however, the basic exclusion amount will decrease to $1,000,000 and the marginal tax rate will increase to 55% in 2013. This creates a dilemma for individuals and couples with a net worth between $2,000,000 and $10,000,000: give a portion away now, or wait and see what congress does with the estate tax.

Gifting a significant amount of wealth away this year is an option because if an individual has not previously used any of their unified credit, they can make taxable gifts of $5,120,000 without incurring any gift tax this year. However, who wants to gift away money that may be needed to live on in the furture?

In a May 2, 2012 Forbes.com article titled Beating The Possible Estate Tax Increase Without Switching To Cat Food – The Midmill Dilemma, Peter J. Reilly discussed this issue and his research into determining the feasibility of gifting in 2012. Citing a Worcester, Massachusetts, attorney, the article sets forth the following recommendation for clients with $5,000,000 to $10,000,000:

1. Draw up a “personal balance sheet” that shows your assets, and your current andprojected liabilities. The difference is your “Discretionary Equity.”

2. Based on your individual tax, financial and risk profile, break the Discretionary Equity into short term (< 1 year), intermediate (1-5 year), long (5-10 year) and secular (10+ year) investment categories.

3. Depending on your age, only consider placing those investment assets that you consider secular into a gifting program.

4. Consider using tangible assets (e.g. artwork, collections, legacy real estate) that aresecular investments, and which you are not getting any income from, for gifting.