North Carolina Estate Planning Blog : North Carolina Estate Planning Lawyer & Attorney : Trust Counsel, PA : Trust Administration : Serving Chapel Hill, Durham, Raleigh, Pittsboro, Orange County, Chatham County

My last post was about an article about 529 Plans in the February 24-25 2007 issue of The Wall Street Journal.  That issue also contained an article on postnuptial agreements.  Unlike prenuptial agreements, which are fairly common and addressed in the case law, postnuptial agreements, also called antenuptial agreements, are used relatively infrequently.

Like prenups, postnups can be used to determine the distribution of property upon death or divorce, payment or waiver of spousal support after a separation or divorce, or sharing of expenses during the marriage.  Full disclosure of assets and income by both spouses is generally required, and the agreements must be in writing and signed by both parties.  Each spouse should have his or her own attorney.

Postnups can be used to update a prenup, memorialize an agreement on property distribution at death in a second marriage, or protect women who plan to take time off from their careers to stay home with their children.

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An article in the February 24-25 issue of The Wall Street Journal describes how 529 College Savings plans can be used to reduce estate taxes.  Earnings on the funds invested in such plans are tax-free if used for qualified college educational expenses.  North Carolina residents also get a small tax deduction for contributions to North Carolina sponsored plans (Click "Continue Reading" for more information).

The plans allow the owner to maintain control over how the funds are used, and even change the beneficiary to another relative or the owner himself.  If the funds are not used for educational expenses, taxes are due on the gains, along with a 10% penalty.

Gift tax rules allow using up to five years of the $12,000 annual gift tax exclusion at once, so that one person can put $60,000 into a plan in one year.  For wealthy grandparents with multiple granchildren, this can add up to substantial estate tax savings.  The current estate tax exemption is $2 million, so persons with estates over this amount may want to consider this technique.  Before establishing the accounts, however, be sure to check with a qualified tax and investment advisor.  There are fees associated with 529 Plans, and investment performance in many types of plans have been lackluster of the last several years.

Check out www.savingforcollege.com for a plethora of information on 529 Plans.

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The recent highly publicized disputes over of the disposition of the bodies of James Brown and Anna Nicole Smith has lead me make an extra effort to ask clients about their wishes for cremation and/or burial.  The wishes should not only be communicated to family members, but reduced to writing to provide evidence should family members later disagree.  Besides including the instructions in a Will, it may make sense to include them in a Health Care Power of Attorney.

In North Carolina, a person can only authorize his or her own cremation in a Will, Health Care Power of Attorney, Preneed funeral contract, offical cremation authorization form, or a written statement witnessed by two people.  In other words, a simple note in one's own handwriting, with no witnesses, is not valid.  Click "Continue Reading" to view the NC law on cremation authorization.

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On February 15, 2007, bill H235 was introduced in the North Carolina General Assembly to reform the North Carolina gift tax so that it would be based on the federal gift tax.  Under the proposed legislation, NC gift tax would only be due if federal gift tax is due.  The change would be effective January 1, 2007.  Click "Continue Reading" to see the text of the bill.

Under current law, North Carolina allows the same $12,000 annual exclusions as the federal system, but rather than a $1 million lifetime exemption, there is only a $100,000 lifetime exemption, which applies only to ancestors and descendants.

The NC gift tax catches many residents (and even professional advisors) unaware, and many gifts are never reported, mainly because of ignorance of law, so the reform is probably a good idea.  I'm not sure how much tax revenue would be lost.

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Jeffrey Pennell, a professor at Emory Law School, was one of the featured speakers today at the Mid-South Forum ( meeting of estate planning attorneys) in Atlanta.  In January I reported on his comments on the future of the estate tax at the Heckerling Estate Planning Institute in Orlando.

Professor Pennell believes that Congress will not act until late in 2009, and then will extend the $3.5 million estate tax exemption and reduce the rate to about 35%.  He pointed out that for the country's extremely wealthy families - the ones that can influence Congress - the rate is much more important than a difference of a million dollars or two in the exemption amount.

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The February 9, 2007 issue of USA Today contained an article on Living Trusts.  I found the article to provide a good overview of living trusts and their advantages and disadvantages.  However, a few things deserve comment:

• The article contains a statement from Mary Randolph, author of The Executor's Guide, that a lawyer will need about 10 hours to draft a living trust, so that at $150 an hour, the cost will be $1,500 for the trust and accompanying will. 

 Many estate planning attorneys charge a flat fee for preparing an estate plan, and the author neglected to mention the other documents that should be included in a complete estate plan - Durble General Power of Attorney, Health Care Power of Attorney, Living Will, and HIPAA Authorization.  In addition, most qualified estate planning attorneys probably charge significantly more than $150 an hour.  While all of my estate plans are done on a flat fee basis, my own hourly rate is $295.

•  The article quotes North Carolina's attorney general, Roy Cooper - "We've received numerous complaints about the pushy sales tactics of scam artists selling living trusts.  They offer a free seminar or a free lunch, and then scare them about high probate costs and the frustration of settling an estate."

What the article fails to say is that very rarely are these "scam artists" attorneys.  Usually they are fly-by-night companies that sell generic fill-in-the blank forms, or annuity salespeople.  See my post Living Trust Scammers Booted out of NC.

•  While the author does encourage people who think they need a living trust to go see a trustworthy lawyer, he also says that those who have modest estates and think probate costs will not be onerous probably don't need a living trust.  He then goes on to advise people to consider "transfer on death" (TOD) accounts. 

My view is that no one should decide for themselves whether a will or living trust is most appropriate, and should not use TOD accounts without being fully informed about their advantages and disadvantages.  A qualified estate planning attorney should be consulted in both cases.

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In 2003 the U.S. Department of Health and Human Services finalized regulations under the Health Insurance Portability and Accountability Act of 1996 (“HIPAA”). Under HIPAA, medical providers can face sanctions and monetary fines for unauthorized release of “Protected Health Information”. As a result, medical providers are very reluctant to release records to anyone other than the patient.

What Information is Protected? 

Under HIPAA, protected health information includes anything created or received by a “covered entity” relating to an individual’s physical or mental conditions or health care, and that could be used to identify the individual. Covered entities include health care providers, pharmacies, nursing facilities, and insurance companies, as well as other health care-related entities. 

Since the definitions under HIPAA are so broad and, as a result, medical providers will not release information to anyone other than a patient, a complete estate plan should always include a HIPAA authorization.     

How to Authorize Release of Protected Information

A traditional Health Care Power of Attorney (HCPOA) allows an individual to name an agent to make health care decisions when and if the individual is incapacitated and cannot make such decisions. Even if the document was prepared during or after 2004 and HIPAA release language is included, the authorization arguably does not become effective until the HCPOA becomes effective, thus limiting its utility. In addition, a stand-alone HIPAA authorization is now viewed as the preferred method per the regulations. Without a signed HIPPA authorization, even a spouse or adult child of an incapacitated patient will not be able to receive information on the patient’s condition.

HIPAA authorizations allow individuals to name specific people to whom medical providers may release records. An authorization should, at the very least, allow medical providers to release records to an individual’s agent under a HCPOA. An authorization may also include an agent under a Durable Power of Attorney, a trustee of a trust or an individual’s attorney for the purpose of determining incapacity.           

Conclusion

If you would like to make sure that your family members will be able to access your medical records so that they make informed decisions on your behalf in the event of your incapacity, it is imperative to have both a valid HCPOA and HIPAA authorization. Have an estate planning attorney prepare the documents for you ensure that they are properly drafted and signed.

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In North Carolina, anyone can call himself or herself an accountant (as opposed to a Certified Public Accountant).  No special training or education is required.  If your taxes are very simple, you may be okay going to an non-certified accountant or tax preparation firm such as H&R Block. 

However, if your return is at all complex, or you are looking for tax advice and planning assistance, your bet bet is to hire a CPA, Enrolled Agent, or Tax Attorney.  Also, keep in mind that only these three professionals will be able to represent you in the event of an audit.

CPAs must pass an exam and  have meet certain edcuational and experience requirements.  Enrolled Agents have passed an exam administered by the IRS.  Tax attorneys often have a masters degree in tax (LL.M..) in addition to a law degree.  Some tax attorneys do not prepare returns, but those that do can often offer a different perspective from CPAs, who may tend to be more conservative.

This article on the Fox News website provides some additional information.

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An article by Robert Frank in yesterday's Wall Street Journal describes the recent  dramatic drop in taxable estate tax returns.  The rising estate tax exemption (currently $2 million), decreases in the tax rate, effective tax planning, increasing charitable giving by the super-wealthy and the advent of young dot.com millionaires all seem to be contributing to the reduction in returns and revenues. 

In 2005 only 18,431 taxable estate tax returns were filed, one-third less than the year before, despite the fact that the number of millionaire households in the U.S. has increased more than twofold between 1995 and 2004.

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