Will the U.S. Supreme Court Embrace Love Again?
On May 30, Lambda Legal and the ACLU filed lawsuits against the Illinois Cook County Clerk’s office alleging that the Clerk’s office discriminated against same-sex couples who wanted to get married in Cook County. The Clerk’s office has consistently turned away LGBT couples who requested marriage licenses because though Illinois passed the Illinois Religious Freedom and Civil Union Act (Civil Union Act), the Illinois Marriage and Dissolution of Marriage Act (IMDMA) still states that same-sex marriage is against the state’s public policy. Additionally, the Illinois legislature failed to pass the bill proposing same-sex marriage legalization for Illinois. Illinois, similar to the U.S., has a conflicting legal perspective on same-sex marriage. The Civil Union Act states that LGBT couples who enter into Civil Unions have the same obligations, benefits, rights and burdens as married straight couples in Illinois. Yet, the IMDMA states that Illinois citizens are against same-sex marriage. Ironically, high-ranking government and judicial authorities across the nation are not in conflict: President Obama has denounced the so-called Defense of Marriage act (DOMA) as unconstitutional; The First Circuit Court has recently ruled Section 3 of DOMA as unconstitutional; The Ninth Circuit rejected an appeal for an en banc hearing on its decision that Prop 8, the California law banning same-sex marriage in California, was unconstitutional as applied to California citizens; Illinois Governor Pat Quinn supports same-sex marriage; And more than a dozen states also have laws that either allow same-sex marriage or provide a process where LGBT couples can receive substantially similar legal treatment to heterosexual married couples. However, that is the point – substantially similar is not equal – and all of the United States of America, including Illinois, should provide more. As I explained in an earlier post, the government providing rights to one group and denying those same rights to another group, simply because of an immutable characteristic that certain citizens don\’t like is unconstitutional; it is blatant discrimination. Accordingly, DOMA, which defines marriage as a union between one man and one woman as husband and wife, violates the United States Constitution because it validates harmful and irrational discrimination. Furthermore, DOMA places states that allow for same-sex marriages and civil unions in a legislative quagmire, where the states can provide benefits to LGBT couples as long as those benefits aren’t derived through federal programs. Because of the inherent discord between the individual states, the Legislative Branch, the Executive branch, and the Judicial Branch, increasing speculation is that the issue will reach the U.S. Supreme Court. That may be a good thing or it may be a not-so-good thing. The composition of the Court is conservative, so if it decides to take the case, it may use historical analysis and side with DOMA’s proponents. A number of members of the Court believe that the Constitution should be interpreted using the values and perceptions of the time in which it was written – the 18th century. I care not to argue the ridiculousness of that rationale. The next scenario is that the Court could decide not to hear the case, reasoning that “Congress has spoken” by passing DOMA. So then, Congress would need to speak again to invalidate the law. Given the tumult in Congress and the blockade against getting anything done, it is unlikely that Congress would even put repealing DOMA on its “to get to” list, let alone its “to do” list. The last scenario is that the Court would take the case and rule in favor of DOMA’s opponents and rule Section 3 or all of DOMA is unconstitutional. Hmmm…. Given that 2 out of 3 scenarios point to a no-win situation for LGBT couples, taking the fight to this Supreme Court is an eyebrow-raiser, at the very least. Still, one can hope that the Court would respect the more than 40 years of precedent, ala Loving v. Virginia, and progression, ala Romer v. Evans, and Lawrence v. Texas. But then, there’s that Citizens United decision, which overturned about 100 years of precedent.
Blood or Money? Making Fiduciary Designations that Maintain Family Harmony
Tons of articles have been published advising individuals and couples about what to bring to or how to prepare for a meeting with your estate planning attorney. Most of these articles provide the typical list: financial statements, copies of tax returns, mortgage statements, retirement information, and so forth. Not surprisingly, few articles discuss the “hard list”: names of successor guardians for the children, names of successor trustees – particularly if the children have trusts, how special gifts will be distributed, and who should hold title to the home for asset protection purposes. A previous post discussed guardians but another issue that couples may want to consider is how to maintain family accord for the children’s benefit when a member from one spouse’s side of the family may be emotionally closer to the children than a member from the other spouse’s side, but both families want to be involved in the event of an emergency. Under those circumstances, the harmonious decision to name Uncle Louie Guardian and Uncle Gus as Trustee, for example, may be not-so-harmonious. Baby Gina’s and Big Brother Brett’s Uncle Louie on Mama’s side and Uncle Gus on Papa’s side may in fact have a great relationship. However, designating one guardian and the other trustee may place a strain on the relationship that would cause Robin to reconsider his relationship with Batman. Consequently, designating one person as both guardian and trustee would probably be more prudent. Plus, Uncle Gus might even appreciate it once you shared with him the critical and long list of duties a trustee must agree to undertake. Still, what if Uncle Gus is a control freak and would wreak havoc on the rest of you and your spouse’s living days if some authority wasn’t given to him? In that case, you could make Uncle Gus the Executor of the estate. But what if that wasn’t enough? Perhaps he would be satisfied with being the successor trustee of the family trust funds that remained after the children’s trust was fully funded. And if Uncle Gus wasn’t satisfied with that and Uncle Louie refused to switch places? Then consider the following 2 options: Creating a solid co-trustee agreement between the 2 uncles; or Designate a corporate trustee to manage the children’s trust. Sometimes to maintain family accord, retaining a reasonable corporate trustee is the only option. Yes, money leaves the estate but at least it\’s money and not blood.
Debunking Estate Planning Myths & Developing Wealth, Pt 3
In Part 2 of this series, I continued discussing the basic estate planning tools, and addressed life insurance. Another basic tool and necessity that should be in place for loved ones upon your transition is a will. The Shark Free Zone talked about this topic before, but it is so critical that it bears repeating. Having a will in place if you are an unmarried parent or a guardian of a disabled individual – minor or adult – is vital. If you do not have a will in place that designates a guardian for your child and you die, the state, not your brother or your cousin who you told to take care of your child, will decide on the custody of your dependent. The judge will not care about what you said to your brother, all that will matter is what was in the will. If a will is nonexistent, then what will matter is biological parentage. By having a valid will in place with a guardianship provision, you can make a bona fide argument to the court about who should care for your child or dependent when you pass, not the other way around. Let’s look at an example: Bobbi Tina is the minor child of Wilma Dallas and Bobby Black who have been divorced let’s say since before Bobbi Tina’s first birthday. For the sake of this example, let’s say that Bobby Black has substance abuse problems and hasn’t developed any type of relationship, father-daughter bond with Bobbi Tina. Let’s also say that Wilma lived in Illinois and did not designate a guardian for Bobbi Tina.Wilma dies in a swimming pool accident, leaving her fortune to Bobbi, who is only 16 years old. Guess who the courts will likely deem appropriate as a guardian for Bobbi Tina, as long as he’s not a felon? Yep, the hypothetical, substance-abusing, absent father, Bobby Black will be designated guardian and have liberal access to Bobbi Tina’s million dollar money jar. It’s happened before where a mother died intestate and she and the child had been estranged for years from the biological father, but just because there was no will and then no guidance in the will, the child was given to the estranged biological father. Consequently, a will is critical for parents or individuals taking care of the disabled. So answer this question: Who will take care of my child/children/disabled sibling/ if something happened to me tomorrow? A will is also important for individuals in high-risk professions who are more likely to become parties to law suits than other professionals. Why? Because the creditor claim period is only 6 months. Therefore, after the probate estate is open, individuals or entities with a claim against the estate only have 6 months to make that claim. Once the 6 months is over, creditors cannot bring a claim against the estate, despite how large or how valid the claim may be. Their hands just won’t fit the money jar. Finally, like life insurance, another advantage of a will is the peace of mind it brings knowing your loved ones are protected. Part 1 | 2 | 3 | 4 | 5
Debunking Estate Planning Myths & Developing Wealth, Pt 2
As mentioned in Part 1 of this series, powers of attorney last until death, so they protect you and your loved ones now. The other tool that can protect your loved ones immediately upon death is life insurance. From a very basic perspective, life insurance is used to replace the income of a loved one. If you’re a single parent, I need not tell you how absolutely critical it is to have life insurance, because for single parents, life insurance can provide a lot more, which involves the intermediate techniques I will discuss in Part 3. However, before I continue, another myth needs debunking: Life insurance IS considered part of your estate for estate tax purposes. Most people think it is not but that is because typically life insurance proceeds aren’t considered taxable for income tax purposes. However, income taxes and estate taxes are two separate issues. So what does this mean? If you currently have or are close to having a taxable estate when considering the value of your home, retirement accounts, investment accounts, and other assets, then if you include a sizable life insurance policy with those assets, you will likely pass the taxable estate threshold. Right now, few individuals come close to having a taxable estate because the federal tax exemption is high right now – $5.12M, and the marginal tax rate is relatively low – 35%.* Additionally, Illinois, which is not linked (or “coupled”) with the federal tax system is also relatively high – $3.5M and our marginal tax rate is 16%.* Now, I’m going to save the bulk of what this means in terms of planning for the next blog entry, but know that if Congress doesn’t do anything by December 31 of this year, the federal exemption is going to be reduced to $1M and the tax rate increased to 55%. That means that if someone dies in 2013 with $1.8M or more in assets, their beneficiaries may likely face a federal tax bill on the $800,000 excess! Let’s look at this example: Single Parent Sheila owns a 6 flat that’s worth about $700,000, has about $250,000 in retirement benefits, and then has $500,000 worth of life insurance and, unfortunately dies next year, those life insurance proceeds and part of those retirement benefits will be needed to pay taxes if Congress or Sheila doesn’t do anything. Lesson: Parents should be careful when purchasing life insurance because life insurance is necessary but it is not always ignored by Uncle Sam. * 2013 update: The federal estate tax exemption is $5.25M indexed for inflation with a marginal rate of 40%; and the Illinois estate tax exemption is $4M. Part 1 | 2 | 3 | 4 | 5
Debunking Estate Planning Myths & Developing Wealth, Pt 1
Recently, I spoke at Chicago State University and this is the first of 3 key points I made during our lively and enjoyable discussion. Let\’s start with some MYTH BUSTING! Estate planning isn\’t just about planning for death; it is also about planning for today and retirement. Estate planning isn’t just for the uber rich; it’s about protecting your personal and financial interests, whatever it is you value personally above money and however much money you have. So how exactly does basic estate planning protect you and your loved ones today and in the future? Basic estate planning tools are powers of attorney, wills, and life insurance. A power of attorney is a legal document that authorizes you (the \”agent\”) to step into the shoes of someone else (the \”principal\”) and make decisions on their behalf. These authorizations typically last until the principal\’s death, but can be used temporarily, for example, if the principal is going on a lengthy sabbatical. Illinois provides two types of statutory powers of attorney: property power of attorney and healthcare power of attorney. A property power of attorney provides the agent with the necessary authority to make financial decisions on the principal\’s behalf and, similarly, a healthcare power of attorney provides the agent with the necessary authority to make healthcare decisions on the principal\’s behalf. You should also know that the principal can design these powers to be as broad or as narrow as possible. For example, an agent with a property power of attorney may have authority to pay the mortgage but not to sell the house. Powers of attorney are critical documents for single and retiring individuals, especially healthcare powers of attorney because normally doctors assume the spouse has a power of attorney. However, if you have no spouse and you have not delegated anyone with the authority to make healthcare decisions for you whether the decisions involve the need for life-threatening or routine procedures, you will have to make the decision while in the medical treatment facility or hospital or, if you are incapacitated, a family member or hospital staff member will make the decision for you, and that’s not the time for one to be making such decisions! We’ve all heard the stories about fights between family members at the bank or in the intensive care unit when their loved one hasn’t made arrangements for illnesses and hospital stays, however temporary or long-term. By simply by taking the time to think of a few trusted people, you can create a sense of family accord in your family and allow you and them to focus on well-being and not who’s in charge of what. And remember, powers of attorney only last until death, which means they protect you and yours today. Question: My wife and I are legally separated. Should I wait until the divorce is finalized before I change my healthcare power of attorney? Answer: Do you want your soon to be ex-spouse making healthcare decisions on your behalf before your divorce is final? Part 1 | 2 | 3 | 4 | 5
Constitutional Discrimination against Love & Marriage
I recently participated in a discussion about Judge Parker, a lesbian judge in Texas who is refusing to marry straight couples because of her allegiance to the belief in marriage equality. The following is my commentary: This discussion is indicative of why [the subject of gay marriage] is so contentious. First, I agree, the judge is not doing her job and others are paying for it. Moreover, because as a judge she is held to a much higher standard of responsibility than most, I am sure she is going to suffer the consequences of her conviction. However, staying true to one’s convictions even when technically “wrong” is one of the historical methods individuals have used to fight discrimination, which brings me to my second point. Gay marriage is a constitutional issue on 2 and possibly 3 separate premises. Marriage in the United States is a religious, financial, and social status. Those who believe in the religious doctrine that marriage should only occur between one man and one woman (or man and woman) have the support of the Constitution with respect to religious freedom in that no one is being or will be forced to participate in the religious ceremony of a gay or lesbian couple. Yet, like a soldier cannot wear his Yarmulke while in uniform and Catholic agencies can\’t sustain contracts with the State of Illinois when they refuse to allow gay couples into their foster care registries, this judge cannot continue refusing to marry heterosexual couples without penalty because our freedoms are not boundless. Those who believe that marriage should occur between sober, consenting adults irrespective of their sexual orientation have the support of the Constitution with respect to the Fifth Amendment because there are approximately 1100 federal benefits given to spouses, which are not given to unmarried individuals despite their gender, e.g., the marital deduction in the federal estate tax system. However, because of DOMA, marriage is now conclusively defined by the federal government as a union between “one man and one woman” and those benefits are absolutely proscribed from gay and lesbian couples, be they married or Civil Union partners. Before Loving v. Virginia, African Americans and white individuals could not marry in Virginia or many other southern states. The issue of gay marriage is no different, unless one believes that individuals choose to be lesbian or gay and that’s another matter entirely. Like it or not, the fact is that DOMA has created a platform by which the federal government is discriminating. Finally, marriage is a social status. When a man and a woman enter a B&B and tell the desk clerk, “We’re married and would like a room for the weekend,\” no one questions them. When they show up at PTA meetings, no one questions them. When they show up in the intensive care unit, no one questions them. Their expressions of their union go without question. Yet, couples who marry in Massachusetts, if they happen to be the same gender, often cannot express the fact of their marriage verbally or on paper without question, without fear of discrimination, or without fear of worse. Consequently, being unable to express the fact that you are in a loving relationship with another consenting adult possibly implicates the other cornerstone of the First Amendment, freedom of speech. As an African American, female, how can I not, irrespective of my liberal ideology, recognize and acknowledge the fact that DOMA is a discriminating piece of legislation that should be repealed, just like that Virginia law was, more than 30 years ago.
5 Tips for Parents Young, Old, or Otherwise
One thing I love about my practice is serving new parents who GET IT. They understand how critical it is to ensure their children are provided for if something happens to one or both of them. They realize that children are vulnerable and depend on Mom & Dad, Mom & Mom, Dad & Dad, Mom, Dad, or Nana to keep them safe, healthy, sheltered, and learned. New parents know that just because they don’t have a lot of material wealth doesn’t mean that they can’t protect their young ones somehow. So hats off to all you parents out there who GET IT. For those of you who are contemplating parenthood, or who just started the voyage of sleepless nights and stinky diapers, or just witnessed the most glorious sparkle that can only be found in your child’s eye when he or she “DID IT!” whatever “IT!” was, I offer 5 tips, particularly from the Land of Lincoln: If you have minor child you need a will. Someone is going to have to step into your shoes and take care of your child if you and/or your spouse or partner dies. With a will, you can designate a person who will be recognized by the State of Illinois as a legal guardian, as long as they meet the criteria. Illinois has 2 types of guardianship because the state recognizes that caring for children requires more than one skill set (validating what mothers have been trying to point out for decades). A guardian of the person makes the value-driven decisions that affect the child, e.g., education, healthcare, and shelter. A guardian of the estate makes the financial decisions for the child and is critical when a minor inherits a rather large sum of money, such as life insurance. Speaking of life insurance, let’s separate fact from fiction. The notion that life insurance isn’t taxed isn’t accurate. Life insurance isn’t typically taxed as income. BUT life insurance is included within your estate for estate tax purposes. So make sure you have good counsel when staring at the twinkle in the broker’s eye as you think about buying that million-dollar policy. Also, while we’re on the topic of life, you don’t have to die to begin protecting your family. I wrote about this in an earlier piece and I speak about it often. Powers of attorney allow individuals you trust to step into your shoes and manage your financial affairs and make healthcare decisions for you when you are temporarily unable to. These powers are typically shared between spouses and understood to be held by each spouse in a reciprocal manner, but what if you are Civil Union partners or a single parent? What if your spouse is on sabbatical at Machu Picchu? Special needs requires special considerations. If you have a child who is disabled or requires special assistance, you must take care to ensure that the income you provide via your will or trust doesn’t result in your child becoming ineligible for needed government benefits. So, again, seek prudent and experienced counsel. As I said earlier, I adore new parents who GET IT. However, whether you’re a new parent, old parent, grandparent, aunt, uncle, or you just love kids, be sure the ones you care about are protected. For LSSG
Estate Planning that Keeps the Caregiver Out of Jail
Recent news stories abound about individuals who were caregivers for aging loved ones, and found themselves in court because they cared too much…about the loved ones’ bank accounts. But we really don’t need to go online or read the papers to hear about Aunt Abby’s favorite nephew, Jonathan, who changed the beneficiary designations on all of his aunt\’s retirement accounts and life insurance policies, naming Jonathan as the single beneficiary. Sometimes family members who spend significant time as the sole or primary caregiver are resentful and feel entitled to the funds because they sacrificed their careers or lifestyles to ensure the dearly departed’s final years or months were comfortable. On other occasions, family members are just plain old everyday crooks. Then on rare occasions, we have the family murderer. To prevent family members who were or will be primary caregivers from feeling resentful and taking nefarious steps toward their “fair share,” perhaps a family meeting should be held once the loved one at issue passes a golden or silver milestone. The meeting should cover 3 primary stages: (1) current living, (2) future living, and (3) postmortem needs. The agenda should also review needed resources and arrangements and pre-existing arrangements: money, physical assistance, companionship, time, estate planning documents, government benefits, and insurance, for example. Once the family determines the relevant needs for the appropriate stages, family could decide together who among its members is willing, able, and competent to manage the tasks and which resources could make tasks more manageable. Furthermore, if one person becomes a primary caregiver, the family should also determine how much that person should expect as compensation from the family and/or the loved one for his or her efforts. Maybe the loved one is disabled too, requiring even more assistance from the family caregiver. Individuals hear this and often say, “But this is family. You shouldn’t have to be paid to take care of your elders. After all…” Well, that is typically said before those individuals have helped elders out of bed, into the bathtub, driven them to and from, prepared their meals, and cleaned their homes. Example: Uncle Teddy is 78 years old. He lives in a 2 bedroom apartment he adores. The building has all of the amenities one really needs – cleaners, laundry, small supermarket, parking, doorman, and even a “wellness checker.” Uncle Frank has 2 children: a daughter who is a single parent with a high school teenager and another child in college, and a son who’s married, without children, and lives in a nearby state. Uncle Teddy’s siblings and parents are dead. However, he has a favorite niece, Martha, who visits him monthly and phones weekly. Uncle Teddy is fiercely independent but his health is declining. Currently, he performs most of his errands, cooks, and drives himself to the doctor. A cleaning person comes in once weekly. He also has life insurance, a will, and Martha as an authorized user on his primary checking account. In a year or 2, Uncle Frank’s mobility will dramatically decrease. However, will still need bills paid, meals prepared, personal grooming, and doctor visits. When he passes away, memorial services will need planning and implementing, his estate will need administering, and before that, his apartment will need cleaning and inventorying. There’s something for every family member to do to help Uncle Teddy now and then. Powers of attorney could also help currently and in the near future. Now, for family members who want to skip stage 2 and help the loved one to the post-mortem stage, like many states, Illinois has a “slayer statute” where family murderers can’t inherit the family home.
Can a TODI Keep You Out of Probate…Good Question
I’ve been asked a few times recently about the simplest way a person can transfer property, when they pass away, to loved ones. Undoubtedly, the probate horror stories reached a few ears. My response has generally been, “Glad you asked and good timing!” Then I start sharing the following information. On January 1, 2012, the Illinois Transfer on Death Instrument Act became public law. Under this law, the Illinois Transfer on Death Instrument (TODI) became available for Illinois residents who want to transfer property in a relatively efficient and inexpensive manner. The TODI only applies to residential property, primarily defined as 1-4 units or 40 acres or less of a single tract of land on which a family home was built. The TODI cannot be cast in stone, meaning, its creator can change it; and it is only effective when the owner dies. Furthermore, only a natural person, not a corporation or similar entity, may create a TODI. However, a corporation, trust, or other legal entity may be a designated beneficiary of a TODI. Another important point is although the TODI owner must have the same mental faculties to create a TODI that are required to create a will and a TODI allows for beneficiary designations, it is not a will. A valid TODI must Contain the identical aspects of a recordable deed; Expressly state that the property will transfer to the designated beneficiary when the owner dies; Be recorded before the owner’s death in the appropriate county; and Be prepared by a lawyer. Admittedly, I like that part. A few other items should also be noted about the TODI: It’s not a deed, even though it must be recorded. Beneficiaries have no legal interests in the TODI until death. A TODI beneficiary will not lose his or her needs assistance eligibility just because he or she is a beneficiary. Finally, because this instrument is based on new law, it hasn’t been tested. And no, I don’t like that part. As a result, the outcome of the “right to challenge,” which is provided by the law and the ineffective acceptance of beneficiaries is unknown. Thus, a TODI may be very beneficial for individuals of modest means with a small piece of property they want to keep in the family. However, the unanswered questions about challenges and invalid acceptance might create a Pandora\’s box for some. Do you have questions or comments? Feel free to drop me a line here or by e-mail.
JD, CPA, CFP – What\’s with the Estate Planning Alphabet Soup
When designing an estate plan for a new client, I usually ask if the client has a financial “team.” “A team?” you may wonder or say to yourself, “I don’t need a team because I don’t even have an estate! I just need a will, if that.” On the contrary, as mentioned in a previous post, you probably do have an estate and it’s likely larger than you think. So yes, you probably need a team. Consider this analogy: To maintain overall good physical health, you need a primary doctor, a dentist, and, if you’re female, a gynecologist. Now these providers may only consult with each other once, if then, but they are certainly aware of the other\’s existence because your good health requires it. An estate planning team works in a similar way, albeit a little closer, and is essential, especially if you have loved ones you want to protect. So here\’s the line-up: Estate planning attorney: Does more than draw up a will or a trust, and while online DIY services offer estate planning, if you use one, be sure there\’s a review by an attorney who understands the probate, trust, and tax laws in your state. In addition to the many laws, an estate planning attorney must also have a good command of the various, related documents needed to protect you and your family now and in the future. He or she should also possess, at least, a basic understanding of the federal and state tax implications of the distributions and powers designated within the documents, near-term financial planning, and retirement planning. Certified Public Accountant (CPA): Must take a licensing exam, work for as an accountant for about 5 years, and take continuing education courses to retain certification. Accordingly, a CPA’s knowledge base is deeper than a non-certified accountant. A CPA whose specialty is estate and income taxation typically consults with your estate planning attorney to ensure that the tax implications for you and your beneficiaries are minimized. Certified Financial Planner (CFP): While not required for CFAs, a CFP must take extensive exams in financial planning, taxes, insurance, estate planning, and retirement. He or she must also take continual financial planning courses to maintain their certification. A CFP performs the research needed to help determine how best to allocate funds to reach your personal goals and the goals of your family and consults with the estate planning attorney to ensure beneficiary designations are accurate and that allocations and distributions are aligned with your goals and unique investment style. In a nutshell, your estate planning team is a group of capable and highly qualified individuals who, together, help to ensure that: The intentions underlying your financial and personal interests are legal and accomplished during and after your lifetime; The tax implications of those interests are minimized; and The financial interests are secured and grown if possible. *Note: Different states have different rules on fee-splitting arrangements, but typically attorneys cannot accept fees from non-attorneys, at least in Illinois, which is a healthy check-and-balance on your team.