Pennsylvania Trusts and Estates Blog

Check out Turkey, Football, and End-of-Life Desires at Wills,Trusts and Estates Prof Blog which discusses Engage with Grace and the one slide project to make sure your loved ones express their wishes about terminal care:

See Greg Herman-Giddens' post on the North Carolina Estate Planning Blog:

Deductibility of Estate Planning Legal Fees which sets forth the general rule that all legal fees for estate planning are not deductible for income tax purposes. They are only deducible to the extent that they represent tax advice (that is fess in connection with the determination, collection, or refund of any tax).

                                                                                                                    Johnny Carson

In Pennsylvania, there is no such thing as legal separation for spouses. People are either married or single. Rights created by marriage can only be changed by divorce. This is not to say, of course, that spouses do not live separately. In fact, sometimes spouses live separately for many years. There can be religious or financial reasons for not dissolving the marriage even though the spouses live apart.

Separation simply means that two spouses no longer live together. Separation may occur by mutual consent or by one spouse leaving or being forced to leave the home. Under some circumstances, spouses may be considered separated even though they are still living together in the same residence. There is no legal requirement that a husband and wife be separated for a period of time in order to file for a divorce, and there is no legal requirement that a divorce be filed upon separation. In Pennsylvania, once parties have lived separate and apart for a period of two years, one party may seek a divorce without having to obtain the consent of the other party.

Living separately has no effect on the validity of your will, power of attorney or medical directive. After divorce, provisions in a will for a spouse are void. Also, upon filing for divorce, any power of attorney naming the spouse is revoked. Neither of these provisions applies to separation.

Some spouses change their wills when they separate and eliminate provisions in the will for the spouse. If you disinherit your spouse, the spouse has a right to elect against the will to claim a one-third (1/3) share. The surviving spouse is entitled to a one-third (1/3) share even if divorce proceedings are pending.

There are two exceptions to this right of election. A spouse who for one year or more before the death of the deceased spouse has "willfully neglected or refused to perform the duty to support the other spouse," or who for one year or more has "willfully and maliciously deserted the other spouse" shall have no right of election, or even of receiving an intestate share. Another exception has been in the law since January of 2005: the right of election does not apply if the death of the spouse occurs during the divorce proceedings, a final decree of divorce has not been entered and grounds have been established. Grounds can be established, depending on the type of divorce action that is proceeding (1) if the court adopts a report of a master or makes its own findings that grounds for divorce exist, (2) if both parties have filed affidavits of consent, or (3) if an affidavit has been filed and no counter-affidavit has been filed or, if a counter-affidavit has been filed denying the affidavit's averments, the court determines that the marriage is irretrievably broken and the parties have lived separate and apart for at least two years at the time of the filing of the affidavit.

Sometimes when a husband and wife separate, they sign a Separation Agreement which is a legally binding contract. Typically, these agreements cover division of property, child support payments and spousal support payments during the period of separation. Custody arrangements can also be made in such an agreement.

Although spouses are separated, they still both remain fully liable on joint debts. Both may be responsible for 100% of the debt, not just one-half. A separated spouse may also be responsible for the necessities provided to the other spouse. For example, a husband or wife may be responsible for medical expenses for the other spouse even though they have lived apart for years.

If you file a joint return with your separated spouse, be aware that you are jointly liable for the tax. If your separated spouse doesn't pay or under reports income and gets interest and penalties, you are liable. Unless you are very sure your separated spouse is filing a correct joint return with you, refuse and file separately. You cannot be required to file a joint return. If you file a joint return there is no such thing as "my" refund. The refund is joint, just like the return.

Often as part of estate planning, spouses will execute general powers of attorney naming each other as agent. Usually, these powers of attorney grant the other spouse complete control over the assets of the individual granting the power. If a wife gives a husband a general power of attorney, the husband can use this power to close or make withdrawals from the wife's individual bank accounts, brokerage accounts, and other assets. Obviously, this can be ruinous. The only way to revoke a power of attorney is to locate all of the originals and destroy them and/or notify the agent that the power is revoked. Notifying the spouse that his power of attorney is revoked will do little good it the spouse is bent on taking your assets. Your only recourse is to give written notice to all the institutions which hold your assets to inform them that the power of attorney has been revoked. No doubt the wrong-doing of a spouse improperly using a power of attorney will be exposed during the divorce. The Court will try to remedy the situation and even impose sanctions. But if the money is gone, it's gone.

Property held jointly is not affected by separation - it automatically passes to the surviving joint owner. Separation has no effect on beneficiary designations on life insurance, annuities retirement plans or IRA's. Review the beneficiary designations that you have made. If you are not happy with the designations, make new ones. Remember that as long as you are married, your spouse is entitled to be the beneficiary of qualified retirement plans like 401(k)'s and other ERISA plans unless he or she consents to be removed. The spouse does not have a right to be named as the beneficiary of an IRA.

From the Divorce Blog:

County makes Mistake in Child Support Case but Man still Pays

 A safe deposit box is a metal box, usually housed in a private area in a bank. There are two locks on each box. When you rent a safe deposit box, you receive one or two keys to one of the locks The bank keeps the key to the second. The keys to both locks are required for the box to be opened. Safe deposit boxes are available in a variety of sizes. The rental is payable annually, and is usually around $40 - $70. Larger boxes, of course, have higher rent.

A safe deposit box is a convenient place to store important items that would be difficult or impossible to replace. The safe deposit box, also, offers privacy and security. Although many people keep valuables close by in a closet, safe or file cabinet at home or in the office (or under the mattress), these places are not as resistant to fire, water or theft as a safe deposit box. In addition, some insurance companies charge lower insurance premiums on valuables kept in a bank's safe deposit box instead of at home.

Who Has Access?

Who could or should have access to a safe deposit box - especially in an emergency? You can jointly rent your safe deposit box with a spouse, child or other person. Any joint owner can have unrestricted access to the box. (Merely giving someone else a key will not be enough to grant access. He or she, also, must sign the bank's rental contract as a joint-renter.) An alternative is to appoint a "deputy" or "agent" who will have access to your safe deposit box. A deputy/agent is appointed in the presence of the box renters and a bank employee, which gives the bank greater assurance about the validity of the authorization. Many banks will not permit access to someone who has only a power of attorney. It is always best to have the person you wish to have access sign the card at the bank as a deputy/agent.

What should you keep in your safe deposit box?

In general, consider putting anything that would be difficult or impossible to replace in your safe deposit box. Here are some examples:

Your Will

Power of Attorney (but please keep at least one original in a safe place outside of the box. An agent can't use a power of attorney if it is locked in a box to which he has no access.)

Originals of your insurance policies

Birth, marriage and death certificates

Military records

Citizenship Papers

Court Decrees

Social Security Card

Deeds, vehicle titles, mortgages, leases and other contracts

Stock certificates, bonds and certificates of deposit (CDs)

Jewelry, medals, stamps, coins, collections

Negatives for irreplaceable photos

Videos or pictures of your home's contents for insurance purposes (in case of theft or damage).

Copy of your passport (don't put anything in the box that you may need to get while the bank is closed)

Can you deduct the rent?

If you itemize deductions, you may be able to get some tax benefit from the rent for your box. The rent is deductible as a miscellaneous itemized deduction. However, miscellaneous itemized deductions have to exceed 2% of adjusted gross income before they have a tax benefit.

Can law enforcement authorities open your safe deposit box?

If the authorities convince the appropriate court that there is "reasonable cause" to suspect you're hiding something illegal in your safe deposit box (for example, guns, drugs, explosives, stolen cash), they can obtain a court order, force the box open and seize the contents.

What about the IRS? The IRS, following proper procedures, can "freeze" your assets by placing a hold on your bank accounts and safe deposit box until the tax dispute is settled. Any person who brings a civil suit against you can also get a court order to freeze your assets if the petitioner/plaintiff can prove to the judge that there is a legitimate dispute over a debt and a risk of moving or hiding the money or box contents.

Can safe deposit box contents escheat to the state?

Escheat is the process whereby states and federal agencies acquire custody of unclaimed property and abandoned assets. Under Pennsylvania law, property that is "dormant" for a period of time, usually five years, must be reported to the Commonwealth as unclaimed property and given to the Commonwealth for safekeeping. (Most os us don't consider no activity in five years as abandoned - but there you have it.) The escheat law applies to all kinds of property including abandoned bank accounts, forgotten stocks, checks that have not been cashed, certificates of deposit, life insurance policies, safe deposit boxes, etc.

How does a safe deposit box escheat? If you don't pay your rental fee and attempts to notify and locate you prove unsuccessful, your safe deposit box will be reported as abandoned, and the contents will be turned over to the Commonwealth's unclaimed property office. Often this happens because the renter dies and the heirs have no knowledge of the box or its contents. (It's always a good idea to have the decedent's mail forwarded to the executor.) For more information about Pennsylvania's unclaimed property law see www.patreasury.org/aboutUP.htm. If you think you may have abandoned a safe deposit box in the past, or you are the heir of someone who may have done so, there are free databases with information from most states. Check out Unclaimed.org and MissingMoney.com.

Make sure this doesn't happen to you. Call your bank to confirm that your rent has been paid and they have your correct address. It's a good idea to have the fee automatically deducted from an account. It's a good idea to visit your box at least once a year. Make sure your family or other beneficiaries know where you have a box.

Here is a new one on me: 

 A new choice - not just interment or cremation.  Do you want to wear your loved one in a ring on your finger?  A diamond can be made from the cremains.

Check this out:  click here   1 carat for $19,999

Or for the lower budget option:

Cremation jewelry.

Here are some other ideas for disposing of the body.

And how could I forget?  There's always alkaline hydrolysis.

Lots of people have old life insurance policies that get lost.  Who gets the money?  No one.  The insurance company keeps it.  (Actually I think they are supposed to escheat but how do they know the insured is dead if no claim is made?  And wouldn't it be kind of scurvy to know the insured was dead and not do anything about it?)

I am reminded of what an agent told me when I bought my first policy.  I asked him a question about mortality and claims.   He said  "mortality is not the same as claims experience.  Lots of insured people die and no one ever claims the death benefit on their policy."

Here is a great resource for executors and estate attorneys:  Policy Locator Service.

MIB Solutions, Inc. maintains a database aimed at fraud detection services for North American carriers to use in underwriting life insurance applications.  The Policy Locator Service matches the name to applications.  You can then check the companies applied to and determine whether or not a policy was issued and is still in force.  Unfortunately, MIB only has 13 years worth of data, but this is still valuable information and will become more valuable as time goes on.

Click here for their downloadable brochure and application.  The cost is $75 per search.

http://www.policylocator.com/estate/

Here is an Important post about keeping copies of your tax returns from The Wandering Tax Pro :

click here

In view of the precipitous decline in the stock market, there are some tax strategies for owners of traditional or Roth IRAs to consider.

Converting a traditional IRA to a Roth IRA

A traditional IRA can be converted to a Roth IRA if, for the conversion year, (1) the taxpayer's modified AGI (not counting the taxable amount of the conversion) does not exceed $100,000, and (2) the taxpayer's not a married individual filing a separate return (unless he lived apart from his spouse during the entire withdrawal year). The amount withdrawn from the traditional IRA and put in the Roth IRA is 100% taxable as ordinary income in the year of the conversion. The 10% penalty for premature withdrawals before age 59-1/2 does not apply.

If your traditional IRA has declined in value because of the current stock market debacle, and you otherwise qualify; now would be a great time to do a Roth conversion while its value is low and, thus, the amount subject to income tax would be low.

The advantage of a Roth IRA is that, if you qualify, the entire value of the account plus its earnings are income tax free when you or your beneficiary withdraw them. Plus there are no requirements to take minimum distributions beginning at age 70-1/2. The Roth IRA can continue to grow tax-free.

Recharacterizing an Underwater Roth Conversion

If you converted a traditional IRA to a Roth IRA ealier this year when the market was much higher, you can treat the conversion as if it never happend by recharacterizing it. Transfer the amount converted to the Roth IRA (plus earnings or minus losses) back to a traditional IRA by a trustee-to-trustee transfer.

Here's an example: You converted a traditional IRA to a Roth IRA in February 2008 when it was worth $40,000. Currently, the Roth IRA is worth only $25,000 due to market decline. To avoid paying tax on $15,000 ($40,000-$25,000) of evaporated or phantom income, you can recharacterize the Roth IRA back to a traditional IRA.

How do you recharacterize? You must do two things: (1) Contact the financial institution that administers your IRA and have them make a direct transfer from the Roth back to a traditional IRA. The transfer to the traditional IRA is treated as if it were the original recipient of the rollover, so the tax consequences of the initial conversion to the Roth IRA are avoided (i.e., the taxpayer does not recognize the income that would have been recognized with the initial Roth conversion). Note that the transfer must include the earnings (or losses) allocable to the converted amount. You cannot withdraw funds from a ROTH and redeposit them to a traditional IRA - that won't work. The transfer has to be trustee-to-trustee. (2) The easiest way to make a recharacterization of a 2008 conversion is to reflect it on your 2008 Form 1040 due on or before April 15, 2009 (or Oct. 15, 2009, if the taxpayer gets an automatic extension of six months to file his 2008 return). However, a taxpayer who timely files his 2008 return without having recharacterized a 2008 conversion may do so as late as six months after the original due date for filing the 2008 return, i.e., by Oct. 15, 2009. If a 2008 conversion is recharacterized after the taxpayer timely files his 2008 return, he should file an amended return for 2008 reflecting the recharacterization (the notation "Filed pursuant to section 301.9100-2" should be made on the return).

Going back to a Roth Again

Since you wanted a Roth IRA in the first place and only recharacterized back to a traditional IRA becuase of the market decline and the evaporated taxable income, when can you go back to a Roth again? The reconversion cannot be made before the later of (1) the beginning of the tax year following the tax year in which the amount was converted to a Roth IRA (January 1, 2009 for 2008 conversions) or (2) the end of the 30-day period beginning on the day on which the IRA owner transfers the amount from the Roth IRA back to a traditional IRA by way of a recharacterization. It is best to go back to Roth when the market is low to minimize the tax impact.

Remember, PA treats IRAs completely differently than the feds. There is no PA deduction for contributions to a traditional IRA. Earnings in an IRA account are not subject to tax if withdrawals are taken from the IRA as retirement benefits. If premature withdrawals are taken from an IRA, PA taxes the withdrawals to the extent they were not previously taxed (e.g. on account earnings since contributions were previously taxed). No PA tax is due on a Roth recharacterization.