Effect of Presidential Budget on Estate Planning

Nothing about the law is ever entirely static. Obviously legal rules and principles change over time. However, some practice areas are far more stable than others. For example, the general process to recover for personal injuries in a car accident is roughly the same now as in the past. At the other end of the spectrum, certain estate planning processes can change virtually every year. This is because much of this type of planning is centered on tax savings. In this way, it mirrors applicable tax rules, and any change in these rules requires changes in estate planning details.

Possible Changes
For example, consider the estate planning changes that may need to be made if the latest presidential budget proposals are enacted.  Advisor One recently shared information on those possible alterations. The President's proposed 2013 budget includes some so-called "tax loophole" closings which may alter what planners do for future clients. For one thing, "grantor annuity trusts" (GRATs) would be curtailed under the latest proposals. GRATs are often helpful in eliminating the gift tax costs of transferring assets to others. This works by creating a trust that is funded with an asset that will appreciate in value. The grantor retains the right to the annuity interest for a set number of years with the remaining assets being transferred to beneficiaries as long as the grantor is still alive. As it now stands grantors can set up GRATs while collecting interest for as little as two years. However, the latest proposals would add risk into the mix by having a minimum of a ten year term with maximum life expectancy of annuitant plus ten years.

In addition, dynasty trusts may be affected by the President's proposed budget. The story explains how these trusts are often used to transfer assets throughout generations without gift or estate tax penalties. However, the latest proposals would cap those benefits at 90 years, potentially limiting the value of the trust.
It is important to note that these possible changes are not guaranteed. As with so many of these issues in recent years, everything ultimately depends on how the executive and legislative branches are able to hammer out any sort of compromise. At this point it is mostly a guessing game as to what will or will not make it into law.

Of course there is little that the individual community members can do to influence these decisions.  At the very least it is important to be aware of potential changes and work with an estate planning attorney to understand what decisions are smart now in anticipation of possible changes in the future.

Not All Funeral Homes Are Created Equal

You thought you had taken care of everything. Your family would not be troubled with a cremation decision at the time of your death.  After all, you completely paid for and signed a pre-need cremation contract with a reputable funeral home.

Think again.  Local funeral homes often add a post-death extra requirement.  Spouses won't have a problem, but if another family member is trying to set up the paid-for cremation at the time of death, many funeral homes insist that a multi-page Authorization for Cremation be signed.  The Authorization has the signer indemnify, defend, and hold harmless the funeral home and crematory (paying their legal fees) if they are caught up in a lawsuit over the disposition.

Sometimes the next of kin does not approve of cremation, which may be why you signed the contract beforehand.  What happens in the case where some kin won't sign the Authorization for Cremation?  One funeral establishment said a single relative's signing won't work if others object and suggested that the matter go to court.  Who is going to pay for that?  Also, some kin cannot be located.  One decedent's body had to remain chilled for 13 days while five adult children, who lived all across the country, were located and persuaded to sign.  Another family was pressured into securing notarized signatures from two elderly siblings who are afflicted with Parkinson's and Alzheimer's.  These elderly siblings were forced to go out in a snowstorm to sign.  Why aren't your wishes simply being honored? You paid the funeral home and signed a contract with explicit details regarding your wishes.

What does the law say?  Everyone agrees that your agent, under a power of attorney, does not control your remains since a power of attorney expires upon death.  An Executor under your Will does not control your remains. They only control your estate property.  Who controls your remains?  There is a form in a Texas statute which allows an Appointment of Agent to Control Disposition of Remains.  Of course this agent also assumes financial responsibility for the handling, to the extent it is not already paid for, in addition to other duties.

This same Texas law also provides that neither permission of next of kin nor an agent under the Appointment of Agent form is needed if you have already provided written directions for the disposition.  This includes cremation in a will, a prepaid funeral contract, or a written instrument signed and acknowledged by you.  In 2005, the Texas Attorney General wrote that a funeral establishment need not obtain "a cremation authorization form" signed by an "authorizing agent" when a purchaser of a prepaid funeral contract has previously specified disposition of the purchaser's remains by cremation ..." The decedent had already "authorized."

Question settled?  No. The 2009 Texas Legislature was persuaded to add a new section stating that the cremation authorization form is not required if (1) the decedent left proper written cremation directions and (2) the authorizing agent refuses to sign the form.  An attorney for a local funeral home interprets this to mean that there has to be both a prepaid cremation plan and a cremation authorization form signed by kin or an agent after death. The words arguably do not say this, but the attorney claims that almost all crematories require the forms.  Oddly enough, the added law allows a crematory to cremate without the form if (1) cremation costs are paid and (2) the authorizing agent provides a positive written identification of the human remains.

Why do funeral establishments add requirements which the law does not?  The friends and/or family are in a weak bargaining position; burdened by grief, pressured by time, reluctant to argue in court while the funeral home has the body.  A suit on the contract could be considered or a transfer could be made to a cooperative funeral home, but these are very inconvenient options. Some funeral homes and crematories are concerned about being involved in a lawsuit, but the law provides that a funeral home or related entity shall not be liable for carrying out the written directions of a decedent or the directions of any person who represents that the person is entitled to control the disposition of the decedent's remains.  If they cannot be liable for carrying out your wishes then they have no reason to require your agent or kin to sign their form and agree to indemnify them.

Should you find yourself in such a predicament and persuasion does not work, the consumer has the recourse of filing a complaint with the Texas Department of Banking at http://www.dob.texas.gov/forms/com-form.pdf.  Also, before you buy a prepaid cremation plan, or even if you already have one, consider talking with your lawyer about how to handle this situation.

IRS Improving Art Appraisal Services

An appraisal is an expert assessment of the value of a particular asset at a given time. Many factors involved in the appraisal of a property can easily distort its value--overvaluing or undervaluing it. The IRS uses appraisals in the process of assessing property taxes, which requires the appeal of experts in the subject. As such, the IRS's Art Appraisal Services' (AAS) job consists of assessing the value of works of art for tax purposes.

A recent article in Accounting Today discusses the IRS' need to improve its appraisal of the value of art and the Government Accountability Office (GAO) report on the matter. The GAO report set the spotlight on the lack of comprehensive quality review and continuing education requirement for the IRS' appraisers, which consistently result in a misstated and most times unfavorable appraisal for the taxpayer.

The report examined not only the appraised values of artwork but also other categories of property such as real estate, automobile and businesses, reaching the conclusion that the burden on taxpayers could be reduced and selected practices improved.

Concerning art appraisals, the report found that the valuation of the property has a huge impact on the tax liabilities of individuals who make non-cash charitable donations or who receive inheritances or gifts of property. Appraisers' task requires them to be familiar with the subject matter and be able to note any factors that may affect the value of the property (e.g., location, surrounding area and condition of the property). But, some properties such as art, real estate, businesses and easements have very unique characteristics, making an independent appraisal essential to determine exactly how much the taxpayer should report to the IRS.

The GAO recommended that the IRS offer a continuing education program to its appraisers, along with a comprehensive quality review program, specifically for the AAS staff. They also suggested that Congress should consider raising the dollar threshold at which qualified appraisals are required for noncash contributions to reflect inflation.