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Do You Need to Revisit Your Estate Plan in 2017? The Answer is Probably “Yes.”

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By Stephan A. Lipskis

Estate Planning attorneys generally advise that plans be revisited with regularity to adjust for changes in law and changes in personal circumstance. At a minimum, your estate planning documents should be reviewed every 2-5 years, but 2017 is unique in that recent legal and political changes make it more likely that your estate plan needs an update.

With Republicans soon to control the White House and Congress, we are dealing with a political circumstance not seen since 1928. The world (and the Republican Party) were much different then, and therefore it is difficult to anticipate how exactly this degree of control will be used.  From an estate planning perspective, there are several policy proposals that have been discussed for many years that may have a chance of being implemented. Of primary importance to estate planners is the possibility of repealing the estate tax and its lesser-known sibling, the generation-skipping transfer tax. While most individuals lose little sleep over the estate and generation-skipping transfer tax (because they only impact those with estates exceeding $5.4 million dollars), the changes introduced may include the elimination (or reduction) in stepped-up basis at death, which will impact many more individuals.

So what is the “step-up” in basis at death? Under current law, appreciated assets held at death are “stepped-up” to their fair market value when received by beneficiary. For example, if Grandma paid $1 for stock in 1960 that is worth $100 at her death and leaves that stock to Grandchild, then Grandchild has $100 in basis in that same stock. So if Grandchild sells the stock for $100, no taxes are owed. This is contrasted with Grandma having to pay tax on a $99 gain if she sold the stock and gave the proceeds to Grandson or Grandchild having only $1 in basis if Grandma gifted the stock to Grandchild preceding her death (the latter treatment is known as “carry-over” basis). Essentially, the investment gain passes tax-free at death.

The basis “step-up” at death has two important features. First, it essentially “forgives” poor tax recordkeeping by Grandma. So, if Grandma did not remember whether she purchased the stock for $1 or $50, it does not matter because Grandchild’s basis is determined at Grandma’s death. Second, this treatment provides an incentive for Grandma to keep significantly appreciated assets (that is assets that are worth significantly more now than when purchased) until death, while using assets that are less appreciated for her regular needs. Discussing whether that is desirable is beyond the scope of this article. However, if the step-up in basis is reduced or eliminated, it will impact what assets Grandma draws on for retirement expenses, how Grandma chooses to invest her assets, and what tax records Grandma must retain in order to minimize taxes. It is unclear how such a change would be implemented, but the general thought is that basis “step up” may be kept in place for “smaller” estates, but as no legislation has been specifically proposed, this remains undetermined. You can prepare for this change by obtaining basis information on your assets, if you have neglected to retain it. The tax proposals before Congress should be discussed with your estate planning attorney to determine if your plan needs to be revised.

While the above tax changes are speculative, there is a newly implemented law in Virginia that impacts the estate plans of married individuals or those contemplating marriage. Virginia lawmakers changed the “elective share” rules, effective January 1, 2017. Now many of our readers are wondering, “What is an ‘Elective Share?’” In short an elective share is an amount a surviving spouse may, by statute, elect to take instead of the amount left under their deceased spouse’s estate plan. This prevents a spouse from being disinherited. The “share” is calculated from the “augmented estate” of the deceased spouse,

The “augmented estate” is essentially a statutorily defined pool of assets that can be used to satisfy the elective share. The old definition of ”augmented estate” did a poor job of reaching assets outside of probate (not under court supervision), which made it difficult for the surviving spouse to have their elective share claim satisfied, which in turn lead to disputes and litigation. The new law provides clarity with regard to non-probate transfers, trusts, and other modern estate planning tools. This means that it is much easier to determine what pool the elective share is being calculated from and how the assets in that pool are valued. Importantly, this also gives estate planners clear guidance on how trusts and other documents need to be drafted in order to have assets count towards an elective share claim. .

In addition to clearing up what is included in the augmented estate, the new statute also changes how the elective share is calculated. Under the former law, the elective share was either one half or one third of the augmented estate. Furthermore, the old law did not distinguish between marriages of 30 days or 30 years in determining the size of the elective share. In contrast, the new law increases the amount of the elective share based on the length of marriage, up to half of the “augmented estate.” For some, this change may mean that you could claim more under an elective share if your spouse passes; for others, your claim could be significantly less.

As Elder Law attorneys, we try to plan around statutory rules as much as possible. Statutes change and are determined by the legislature, not our clients. Accordingly, we use tools such as premarital agreements, trusts, waivers, among others to help our clients ensure that their assets pass in the manner they choose, not the legislators in Richmond. If you are concerned that the provisions you have made for your spouse are inadequate, or if you are contemplating a new marriage, you should meet with one of our attorneys to discuss your plan.

Kit KatAsk Kit Kat – Therapy Cats

Hook Law Center:  Kit Kat, what can you tell us about using cats for therapy with dementia patients?

Kit Kat:  Well, this is not quite as it looks at first glance. We all know cats are wonderful creatures. However, what are being used for dementia patients and those with Alzheimer’s are actually robotic cats. They look, feel, and in many ways act like real cats. The people they interact with who have the aforementioned conditions don’t seem to realize they’re not completely real. And I guess that’s a good thing. No litter and no food to keep up with—it’s a win-win situation for staff and patients.

One of the places these therapy cats have been used is at the Memory Care unit of the Hebrew Home at Riverdale in the Bronx. The robotic cats come in the three colors: orange tabby, creamy white, and silver with white paws. They are made by Hasbro, the toymaker, and are called Joy for All Companion Pets. Each costs $99, not a bad price when you consider that they can blink their eyes when stroked on their heads and can roll on their backs. Residents at the Hebrew Home really enjoy them. More than that, the cats seem to have a calming effect. Sometimes when a resident is agitated over something, instead of perhaps giving them a tranquilizer as may have been done in the past, they are given a cat to interact with. Immediately, they calm down, as was the case with one resident who was in a panic over not being able to find her long-deceased parents. This woman now has her own personal robotic cat.

Kingsway Arms Nursing Center in Schenectady, NY has had a similar experience. Renee Markle, recreation director, tells about an anxious resident. ‘We provided her with the cat, and for a good 45 minutes she sat and petted the cat and spoke to it in French, which is her native language. It was a beautiful sight.’ One after another, the residents love interacting with them. Another resident at Hebrew Home, Justina LaCanfora, 97, talks to her robotic cat. ‘You’re my pussycat—do you love me?’ It blinked to answer. ‘See that? Do you love me?’ The cat blinked in response, and she was ecstatic.

Research may not yet have validated the therapeutic cats’ benefits, but staff attest to their efficacy. Hebrew Home started with a few cats, but they are planning on purchasing at least 25 more. It’s a small price to pay for the improved well-being of their residents. (Andy Newman, “Therapy Cats for Dementia Patients, Batteries Included,” The New York Times, NY Region, December 15, 2016)

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Posted on Tuesday, January 10th, 2017. Filed under Newsletter.