Elder Law and Guardianship Update

Elder Law? No, but its pretty
As lawyers, the bar makes us take "Continuing Legal Education" or CLE every year so, in theory, we stay up to date on changes in the law. One of classes I try to take every year is the Advanced Elder Law and Guardianship seminar, and this year didn't disappoint. 

Here were the highlights and some important take-aways:

  1. The Probate Code is gone, so you better check and make sure the new Estates Code says what you think it says. It probably does, but just check. It  is also SLIGHTLY better organized, with most relevant sections clumped together so you don’t have to jump around as much.
a.       Lady Bird Deeds still work, but record them early, and don’t include a bunch of flowery language.
b.      Disclaimed amounts are countable resources: Government’s position is “if you don’t need them, well you don’t need our help either.”
c.       Have substantial assets and just one spouse that needs Medicaid? The “community” or other spouse can keep upwards of $100k if you do it right.
d.      Estate recovery/MERP: There are a ton of exemptions. Use them. Also, they are (generally) not filing probates, so take that as you will.
  1. VA Benefits
a.       Are not the same as Medicaid: you can make all the transfers you want with no penalty periods to qualify.
  1. Trusts
a.       Special Needs and other Trusts: Transfer to a Trustee, not a “Trust”, and if anticipating the need for government benefits one day, make sure distributions are completely discretionary. It is tough to decant a trust with mandatory distributions.
b.      Concerned about remainder beneficiaries causing issues? Non-testamentary powers of appointment are a good solution.
  1. Elder Abuse, Adult and Child Protective Services
a.       Depending on the circumstances, it can be a felony (and at least a misdemeanor) not to report abuse. Don’t wait!
  1. Real Estate Transfers
a.       All Title Companies and underwriters are not created equal: if one won’t accept your deed or affidavit of heirship, just try another.  You might be surprised at the results.
  1. Special Needs Children
a.       If getting a divorce, you can request “spousal support” that is essentially care for a special needs child that will remain in the home, even past his/her 18th birthday.
  1. Contested Guardianships

a.       § 1155.054 of the Estates Code has adopted a “loser pays” rule if it can be shown that a contest was in bad faith or without just cause: fees, the ad litem, costs, EVERYTHING. It must be specifically plead though. 

Special thanks to the Honorable Steve King (Tarrant Co. Probate Court #1) for running a good program, and it was good to finally meet the Honorable Guy Herman (Travis Co. Probate Court #1), who put on a solid presentation as well. Both of these judges put out great articles and their websites are more than helpful. 

Estate Planning in 2014: Taxes are still Taxes

Background: Most (if not all) of the legal talking heads and CLE's (continuing legal education, for those of you who hate acronyms) which I have taken in lately all have come to the same conclusion: in a "high" estate tax exclusion environment, estate planning is no longer a one-size-fits all game.

What that means in English is not too long ago (say 1997), if you had over $600k and you died, you were potentially on the hook for estate or DEATH taxes, amongst others. Most of the planning revolved around beating this. The easy fix was you could leave up to that amount into a "credit shelter" or "bypass" or "family" trust, an then unlimited amount to your spouse, sometimes in a trust as well, and this would usually get the job done.

Now, we have over $5 million per individual in estate tax exemption dollars. A lot of people have $600k total assets: not many have over $5 million. Have over $5 million? You can double it with your spouse, and even the second to die spouse can use "portability" (carry over from the first to die) of exemption dollars should they need them. No spouse? There are still many options to reduce your taxable estate, and a million ways to reduce it by tax favorable gifts. No big deal as long as you plan for it.

Strategy in 2014:  The new strategy is you have to look at folks on a case by case and asset by asset basis. Instead of estate taxes, income taxes are the new rage in minimizing client's liability. For example, the big remaining tax favor the government gives us is the "adjusted cost basis at death," also referred to as the "Step up basis", but I don't use this term as it can also go down, even if it is a rarity. The point is, most folks biggest asset is their family home, or a family business, and instead of giving this away during life (and possibly generating transfer taxes) the better strategy can often be to hold onto it until death, when any appreciation and potential gains that would be taxed upon a sale will be wiped clean. In Texas, we have no state income tax, but we still have capital gains, which is why this makes sense here. In a state with high income tax (like California), a different asset class might cause a different set of planning, and so on.

Takeaways: The game has changed, so planning needs to change too. Income taxes are high (sorta) and estate taxes are the lowest they have been in a long time (not counting the 2010 fluke year). In this, planning needs have changed, and taking advantage of taxes for one client is very different from the next. If you have not reviewed your estate plan in a while, do. Check if your estate is forced into the 2 trust system, you might not need it. Check if you are paying more income taxes than you think you should or your business is such a plan needs to be made before the next generation takes the keys. The game may have changed, but the key players remain the same: don't sit back and end up paying more taxes than you have to. 


According to the ATF/DOJ, the rule changes we have previously discussed are coming, but not until June. 

So, if you want to get a National Firearms Act listed item (silencer/sound suppressor, short barreled rifle or shotgun, etc.) do it before June. 

Also, the ATF has started using an online filing or E-Forms system that accepts FFL's 4473 gun transfer applications and the Form 4 required for NFA items. Check out the website here.  This is "allegedly" going to speed up the wait process to by a couple months from the currently absurd 9 month wait time. 

I haven't explored the new ATF website too extensively, as its frequently "down for daily maintenance" as seen here: 

The other sections of the website seem mostly for gov/law enforcement use, and come with strict warnings, but at least they have fun pictures (from the bomb-arson tracking system logon):

Who knows what this all means in the long run. I would have hoped that an electronic submission system would eliminate the need for the new proposed regulations (requiring CLEO to sign off, fingerprints, and photos to be submitted for NFA items) but it seems they are pushing ahead with those as well. 

Stay tuned. 

Rules for Inherited IRA's

IRA's have many fans, including this young lady
IRA's are still a pretty good deal (see HERE if you need an explanation of what an IRA is). If you have not started one, do. Granted, they are not as good as many pensions or employer sponsored plans, but even if you have those, an IRA can be a great way to achieve tax savings or deferral. Remember, if you plan on making more later or think tax rates will go up, pick Roth. If you think you will make less or taxes will be less, go with traditional.

Enough investing, lets talk about death.  Often times the bulk of someone's estate can be in the form of an IRA, which they call, appropriately, and inherited IRA.

General Rules for Traditional Inherited IRAs

Spouses have the flexibility to roll it over into their own plan. This is usually the way to go, unless you are a young widow(er): you get popped with penalties for early withdrawal if you need money before age 59.5, so its best to wait to make the rollover. Else, you can delay distributions until your spouse would have been 70.5. Remember, they general key with IRA's is delay as long as possible.

If a non-spouse inherits an IRA, then all movement of money must be from one IRA custodian to another. Be sure to specify a "trustee-to-trustee" transfer if changing brokerage firms! You can get in trouble on this one if you screw it up.

You must re-title the IRA, including the original owner's name and indicating it is inherited, e.g., "Sally Smith, deceased, inherited IRA for the benefit of Bob Brown, beneficiary." Just do it. Don't ask why.

Distribution rules:

Must take distributions before Dec. 31 in year following death of decedent.

The Required Minimum Distribution (RMD) is calculated differently than for your own IRA. You take the balance on Dec. 31 of the previous year and divide it by your life expectancy listed in the IRS' "single life expectancy" table, rather than the table used by IRA owners. The next year you use the same life expectancy, minus a year, and so on.

Exception, "5 year rule" : If the original IRA owner died before reaching age 70½ (before required minimum distributions would be required) you also have the option to distribute your inherited IRA under the five-year rule. This allows you to take distributions however you like without penalty, as long as all assets are completely distributed from your inherited IRA by December 31 of the fifth year following the IRA owner's death: just remember these are taxed as ordinary income, so plan accordingly (however, if there was any estate tax pain, you might be able to take a deduction here, but I digress).

General Rules for a Roth Inherited IRA

If you inherit a Roth IRA and transfer the assets to an Inherited Roth IRA, unlike the original owner, you must take RMDs. As long as the assets have been in the Roth IRA for five or more years, these RMDs can be withdrawn federally tax-free.

Otherwise, see above.

Take Aways:

Ira's are good. If you don't have one, set one up.

Make sure you name your beneficiaries, and name backups. There are harsh rules with it ends up in an "estate" and you will likely not have the flexible tax options.

If you inherit one, ask for professional help. Play by the rules, transfer them correctly, and you can achieve maximum tax savings and deferral. 

Comment period open on ATF 41P/Proposed Gun Trust Rules

As I have previously discussed, the public comment period for the proposed rules that affect "Gun Trusts" is currently open, but only until December 9th. If you have not done so already, please take the time to comment on the proposed rule.

If you are too lazy to scroll down or click to read my previous post, here is a recap:

Current system:

"Gun Trusts" are a special trust used to own and purchase National Firearms Act ("NFA") items. These include silencers/sound suppression devices, short barrel shotguns and rifles, and machine guns.

The current system requires you to apply to the ATF, pay $200, and wait 9 months. What they do is a mystery, but if you use a trust or LLC, you can name multiple authorized users, and you can bypass getting fingerprinted and having your sheriff/chief of police sign off on the form. The real benefit is if you borrow someone's NFA item outside of their presence, it is a felony. The trust fixes that. It does not, and should not, bypass the background check.

New Proposed Rules:

The new rules would require every "responsible person" in a trust or LLC (settlor, trustees, even beneficiaries) to have to get fingerprinted and have their chief law enforcement officer sign off on the application. This costs roughly $15 per set of fingerprints (more or less) and will require time with the law enforcement officer, if you can get it. The fear is the added cost and time on local officials will result in a blanket "no" that will be a defacto ban on all NFA items.


This is an attempt at gun control that misses the mark. It just will make it harder, more expensive, if not outright impossible, for legal citizens to posses legal items.  The fix is requiring the ATF to run background checks on all "Responsible persons" if they do not already do so (which baffles me), and require the vendor who sells the items to run the NICS background check as well. This is easy, simple, and would accomplish the same goal without the additional time and expenses to both citizens and local governments.

Should you wish to comment, a full text of the rules and the comment page are available here.