ElderLaw Answers Blog

Many individuals, companies and institutions make their most significant gifts to charities towards the end of the calendar year when they know how much money they have to spare.  Last year was particularly tight for a lot of givers.  Hopefully, more of us can be more generous this year.

Choosing among the many charities that can make effective use of one’s generosity can be difficult.  Should you give a little bit of money to many charities, or more to a few?  If you are in business, should you choose charities that are aligned with the work you do and who may send more business?  How can you tell how well a charity uses its money?  Is it well managed?  Does it have excessive administrative or fundraising costs?

Here are a few pointers that might help:  Give more to a few charities, rather than a little to many, so that what you give can make a difference.  Also, if you are only giving larger donations, this will provide a way to tell which charities you care most about, since it won’t feel right to give such a large amount to some of the charities you may be considering.

Do give to charities related to your business.  There’s nothing wrong with getting some benefit back from what you give and you are more likely to be familiar with these organizations and know which can make best use of your donation.

Finally, check out the charities you are considering at the Charity Navigator.  It gives ratings to the thousands of charities are around the world.  But take these ratings as a starting point only.  Because it covers the whole world, it must base its ratings on easily available information which may or may not be accurate or may only tell part of the story.  For instance, a charity may be poorly rated because it mischaractarized program expenses as administrative expenses.

Finally, however you choose, be as generous as possible.  Studies find that people who are more generous are also happier.

The conviction of Anthony D. Marshall for the financial exploitation of his mother, Brooke Astor, as her physical and mental health declined in her late years puts in sharp relief what is often unclear when elder abuse is claimed against family members.  What’s a gift, what’s payment for services, what’s theft, and what’s undue influence are often difficult to determine in the murky world of family relationships.

As a result, it can be difficult for prosecutors and others to decide for certain that financial or physical elder abuse has occurred and to bring charges against the accused family members.  The result is that few cases are brought in these situations.

The Astor case demonstrates that prosecutions for elder abuse are not impossible and may encourage more prosecutors around the nation to bring similar actions.  This should serve as a warning and, we hope, a deterrent to those who may take advantage of their older family members. 

It also means that those who are caring for family members should make sure that they are not wrongly accused of elder abuse.  If they are to receive payment, gifts or an inheritance in exchange for the care they provide, this must be documented.  It is better that it be documented by an independent attorney and that all family members are aware of the arrangement so no disgruntled heirs come forward and make trouble in the future.

To read more about the Astor decision, click here.

Ever since Congress passed and President Bush signed the phase-out of the estate tax in 2001, everyone expected Congress to make a permanent change by now.  Under the current law, the threshold at which estates are taxed increased from $1 million in 2001 to $3.5 million for those dying this year.  For those dying in 2010, there is no tax no matter the size of the estate, but for those who make it to 2011, the threshold returns to $1 million.

I have long predicted that Congress would ultimately fix the threshold at $2 million, the figure in place from 2006 to 2008.  Until recently, however, the weight of opinion was that Congress would make this year’s $3.5 million figure permanent.

But, so far, Congress has not acted and it’s unlikely to act before the end of the year with health care reform and other large topics on its agenda.  The current scuttlebutt is that Congress will extend the $3.5 million threshold through 2010 and address a permanent resolution next year.

My prediction of a $2 million threshold is beginning to look more and more likely because the federal government needs the money.  With larger and larger deficits facing us for decades to come, the question is where can government cut expenses and where can it raise money with the least pain to the fewest people?  Since fewer than 1 percent of estates pay any estate tax, clearly it affects the fewest people. 

And the amount of money at stake, while a small part of the government’s entire revenue, is anything but paltry.  One estimate of the difference in revenues from 2011 to 2018 between a $1 million and a $3.5 million threshold is $200 billion.

Given the need for funds and the recent financial debacle seen as caused by many on Wall Street who do pay estate taxes, it may be hard to explain why those with estates over $2 million ($4 million for a married couple) shouldn’t pay any taxes.  This is especially so if the alternative is higher taxes or lower benefits for everyone else.

One prognosticator, John J. Scroggin, founding editor of the NAEPC Journal of Estate and Tax Planning and prior co-editor of Commerce Clearing House’s Journal of Practical Estate Planning, recently handicapped the likely outcomes as follows:  $1 million threshold - 40%; $2 million threshold - 40%; $3.5 million threshold - 10%; Congress puts off a decision beyond 2010 - 10%.  It will be interesting to see the outcome, especially for those whose estates exceed $1 million ($2 million for a married couple) — or at least for their heirs.

I’ve often commented that to call everyone over 65 a “senior” is to miss the trees for the forest.  Those in their late 60s are often the children of those in their late 80s and have very different life experiences. 

Someone born in 1924 or before will have experienced the Great Depression and may have fought in World War II.  Someone born in the late 30s or early 40s will not have been formed by either event.

Further, the older group is part of a cohort that lived longer than their parents and grandparents and contributed to a great increase in the percentage of the population over age 65, and now over age 85.  Those that followed were smaller in number relative to the greater population due to the baby drought during the 30s and World War II.  The nation’s resources in caring for seniors will not be overly strained over the next decade, but they will when the baby boomers reach age 75 and beyond.

Likewise, it is brushing with too wide a stroke to paint all baby boomers with the same brush.  Bill Clinton, George W. Bush and Barack Obama are all baby boomers, but their experiences are also quite different, with the older baby boomers being formed by the Vietnam War and its protests and the younger boomers coming of age in its aftermath.

These differences are borne out in a study commissioned by the MetLife Mature Market Institute, Boomer Bookends:Insights Into the Oldest and Youngest Boomers, starting with the moniker “baby boomer” itself.  While older boomers are comfortable with the name, the younger boomers are not.

Not surprisingly, the different groups are at different places in their lives, with the younger set much more likely to have children at home and much more likely to have two living parents. 

Despite those differences, the study also found a lot of similarities between the two groups.  Most boomers of both groups continue to work full-time.  Most are homeowners and don’t plan to move for at least five years.  Younger boomers earn more on average, with annual household income of $89,000 as opposed to $71,000 for the older group.  Surprisingly, a greater percentage of younger baby boomers – 17 percent — are providing care to an older relative than are older boomers — 14 percent.

While it appears that younger boomers identify more with the generation that followed and don’t want to be categorized as “boomers,” the two cohorts have more in common than one might expect at first.  However, this is likely to change and the differences are likely to grow as the older boomers move into retirement.  It would be interesting to revisit this study in five years.

As The New York Times describes in a recent article, the litigation over Brooke Astor’s estate and will is far from unique.  Where there’s money, there are people who will use improper means to grab it.  Where someone has dementia or is dependent on others for care and companionship, they may be induced to alter their estate plan. 

Where a family member feels scorned for  being left out of the will or left out socially, she may suspect undue influence where none exists.  It can be psychologically necessary to believe that Mom was tricked rather than accepting that Mom loved you less or that some long term resentments were reflected in the will.

All of this can lead to litigation which can be expensive both financially and emotionally.  In most cases, good lawyering can prevent such litigation, but not always. 

Our firm is involved in a case where a woman left everything equally to her seven children.  There’s no dispute over the finances.  But the mother owned antiques, jewelry and other items of financial and sentimental value.  She left a list saying who should receive what, which is what attorneys advise clients to do, and the executrix worked out a system for distributing what wasn’t on the list.  Yet one daughter is challenging both the list and the system, which has led to considerable expense and delay.

In short, the best laid plans can avoid a lot of problems, but some may be unavoidable.

The Consumer Federation of America offers a service to consumers purchasing life insurance that helps them to determine whether they are getting the right policy.  For just $75, James H. Hunt, a former Vermont insurance commissioner, will evaluate your policy, tell you its expected return on investment, and if appropriate suggest better alternatives.

You can learn more about this service by clicking here.

Our previously reported survey found that just over half of respondents wanted no estate tax and a further 19 percent favored only taxing estates larger than $3.5 million or $7 million for married couples (the threshold this year).  The remaining 30 percent of respondents would tax estates beginning at $1 million or at $2 million (the threshold last year).

Interestingly, however, our newer survey asked whether respondents would prefer an estate tax to raising income tax rates to raise the funds lost be eliminating the estate tax and almost three quarters said they’d rather keep the estate tax.

As you can see, what policy the voters want Congress to adopt depends almost entirely on how the question is phrased.  No one wants to pay taxes.  But if taxes are necessary to pay for needed government services, voters may well prefer an estate tax to higher income taxes.

The recently passed Republican majority worked hard to eliminate the estate tax, in part by calling it a “death” tax.  Their campaign neglected to discuss the trade offs between one tax and another.  An honest presentation to voters needs to put the issue in such a larger context.

I recently had a call from a prospective client in his early 60s who had been diagnosed with prostate cancer.  His doctors estimated his life expectancy at about 10 years.  Fortunately, the man feels healthy now.  But this news has changed his life choices dramatically. 

No longer does he have the the life expectancy of the average 60-year-old American male of 21 years.  As a result, he had decided to retire early and to make the most of his remaining healthy years.

Fortunately, most of us do not have this man’s death sentence.  But unfortunately, at least for estate and financial planning purposes, we don’t know how long we will live nor how long we will be healthy and able to work.  We don’t know if we will live to a ripe old age in perfect health, or suffer many years of disability and dementia.

According to the Society of Actuaries, a man who reaches age 65 has a one in two chance of living beyond age 85 and a one in four chance of living beyond age 92. Women are likely to live even longer. For a couple reaching age 65, there’s a one in two chance that one spouse will reach age 92 and a one in four chance that one will reach age 97.

That is a huge longevity risk.  These numbers indicate that a single person needs to plan to live to at least 90 and a married couple needs to plan for on spouse reaching age 100. 

But not all individuals have the same life expectancy.  They are affected by their own health — as in the case of my prospective client — their lifestyles, and their genetics.  A family history of longevity would argue for financial planning that anticipates needing resources to last to an old age.  A family history of Alzheimer’s disease would guide an individual to purchase long-term care insurance.

While we cannot know our future exactly, we can determine the likelihood of living a certain number of years, as well as the likelihood of being healthy or ill during that time.  Companies make these predictions in the context of personal injury law suits and for insurance companies.  They can do it for planning purposes as well.  Companies that provide these “Longevity Curve Reports” include 21st Services, which will provide a report for as little as $60.

Other on-line services will also provide a life expectancy estimate at no charge.  But these will be based on self-reported information as opposed to an examination of medical records and they will provide on a single number, rather than likelihood of reaching various ages.  For instance, it may say that you can expect to live until age 86, rather than saying that you have a 25 percent chance of dying by age 80, and a 25 percent chance of living beyond age 90.  One of these free calculators can be found at the web site Living to 100.

Whether you purchase a report, use a free service, or make your own estimate based on your health, lifestyle and family history, an idea of how long you will live can help guide your estate and financial planning.

Just over half (51%) of the respondents to the ElderLawAnswers survey on the whether there should be a federal estate tax and, if so, at what level should it begin, voted against there being tax at all.  Almost a fifth (19%) felt the cut off should stick at the current $3.5 million level.  Fewer than one in three felt that the smaller estates should be taxed, with 16% calling for a tax on estate of more than $1 million and 12% for a tax on estates larger than $2 million.

As the law stands now, only those estates over $3.5 million are taxed and for those dying in 2010, there’s no estate tax.  However, if Congress doesn’t act, the threshhold will revert back to $1 million for those dying in 2011 or thereafter, the figure in place before the Bush tax cuts.  Everyone expects Congress to act this year, and the current betting is for a permanent $3.5 million threshhold.

I’m in the $2 million camp.  With relatively minor planning, both members of a couple can exclude the full exempt amount, so this would mean a $4 million exemption for married couples.  While no one likes to pay taxes, this comes down to a question of fairness.  Money must be raised for the necessary expenses of government, whether that’s paving our roads, educating our children, bailing out our bankers, or protecting our borders. 

If we don’t do this by taxing the estates of the richest Americans, we’ll have to do so by raising income taxes or by borrowing, pushing the cost onto our children and grandchildren.  It is only fair that those who benefited most financially from the American system should be called upon to support that system rather than relying on others, whether now or in the future, to do so.

That said, I do feel that the estate tax rate, beginning at 45% is too high.  A lower, more graduated rate, may in fact reap more revenue since taxpayers would be less driven to avoid it.

According to a study by Harris Interactive for Martindale-Hubbell, 55 percent of adult Americans do not have wills.  So, we asked our users on ElderLawAnswers.com why not.

Most of those who responded, 35 percent, said it was because they thought their estates were too small to need a will.  The next biggest category, 26 percent, avoided creating and executing an estate plan because of the cost.  In short, more than 60 percent of our respondents do not have wills due to financial concerns — the size of their estate or the cost of preparing the plan.

Another 16 percent of respondents didn’t want to think about dying or becoming incapacitated.  And 12 and 11 percent, respectively, said they don’t have the time or don’t know who to talk to about creating an estate plan.

These results, which are consistent with other questions on the Martindale-Hubbell survey, reflect a serious shortcoming by the legal profession.  With most people having no estate plan, and most shying away from carrying out the plan due to financial concerns, many families end up paying lawyers significantly more in messy guardianship proceedings and probate contests.

Either the cost of a basic estate plan must come down or the need for such a plan must be better explained to clients and potential clients, especially as the Baby Boom generation gets older.