Legal Ease: Death and taxes together again

Editor’s note: Legal information listed here is intended to be general preventative measures and legal first aid to help readers avoid problems before engaging legal counsel. These are not a substitute for hiring an attorney and should not be considered to be legal advice specific to any situation.

When President Bush took office eight years ago, he began changing the estate tax system with an eye toward phasing out the “death tax,” which is taxation on an excessive estate. During the Bush presidency, only people with million-dollar estates had to pay taxes. This was not always the case before he took office.

Over the years, the federal government had increased the gate or the level by which the government would start to tax. For instance, there was a time when, if a husband and wife had a combined estate of $1.2 million or less, they would not be taxed federally. But any estate above $1.2 million was taxed between 33 percent and 45 percent, depending upon the size of the estate.

Before his inauguration, President Obama’s administration signaled its displeasure with the elimination of the estate tax. Suggestions from the Obama administration indicate that the threshold figure would be substantially reduced from the levels set during the Bush administration. A recent Wall Street Journal report suggests the Obama administration may be focusing as low as $100,000 on an estate.

At the present time, the largest amount of money possessed in the United States is held by the Baby Boomers, who are gradually retiring, and also dying. If the average citizen has a house of $150,000 and savings of approximately $50,000, under the $100,000 cap the first $100,000 would not be taxed, but any amount over that could be taxed as much as 35 percent. So there would be a $35,000 tax on the $200,000 estate, more than one-third of the estate after the cap is met.

Generally, people think about a will when they die. A will is a good start but if the estate tax gate amount changes, a trust may become a viable option. A trust, for lack of a better comparison, is a sort of company you and your spouse control until one or both of you die. Then, a designated person takes over the management. It allows for a disabled person — child or spouse — to receive care from the trust as long as there is money and a need for it.

New probate laws will be needed, and this brings with it several other problems. For instance, many estates are never “probated,” or taken to court. The estates are moved by transfer through deed by adding a son or daughter. Moving the property by deed would bring its own set of red flags. The Internal Revenue Service monitors such things and capital gains taxes are required. Additionally, one family member may get on the deed and the other kids get nothing.

A trust would be a worthwhile vehicle provided that people put most of their substantial assets that are over the government cap into the trust. All the family is protected and there are no real IRS consequences, depending on the amount of the trust and the estate.

People who are thinking about estates ought to consider a trust before federal legislation changes. There was a time, not long ago, that a trust had to be approved by the Internal Revenue Service (called a Q-Tip trust) thus ensuring regulation of what was happening with unreported trusts. I expect those days to return, too.

A trust document is worth its value and meeting with an estate attorney to go over estate plans is worth the money. A little bit of planning now can save your family a substantial amount of taxes in the future.

Remember, the government has to make up for its budget shortfalls, and taking the money from the deceased meets little resistance for the government. After all, dead people only vote in Chicago — or so I’ve been told.

Mark Osterman is a lawyer in Kenai and has practiced in Alaska, Michigan and federal courts for 19 years doing family, commercial, divorce and criminal law.

Legal Ease: Hazards ahead — buying automobile insurance

Editor’s note: Legal information listed here is intended to be general preventative measures and legal first aid to help readers avoid problems in legal situations before engaging legal counsel. These are not a substitute for hiring an attorney and should not be considered to be legal advice specific to any situation.

Nearly every adult in Alaska needs to drive and thus needs automobile insurance. Public transportation is minimal and distances are often too great to walk or bicycle, even if the weather is dry and 50 degrees above zero, rather than 50 below.

Every driver is legally required to have automobile insurance whenever they are driving. If you don’t have insurance and get a ticket or are in an accident, you will probably lose your driver’s license for some time and could be legally prosecuted.

However, all automobile insurance is not the same. Your insurance should protect not only others, but you and your passengers. Buying automobile insurance can be very confusing and it’s been my experience that people are often surprised, after being injured in an accident, to find that their insurance coverage is not always what they assumed. Here are some suggestions when buying or renewing your auto insurance.

• Check with your insurance agent to be sure that all of your vehicles are properly insured. In Alaska, each individual vehicle is usually insured separately for all permissive drivers, rather than a driver being insured for any and all vehicles.
• Deal only with reputable insurance companies that have a long track record insuring drivers in Alaska and that have a good reputation for reasonable and fair dealing both with their own insureds and third parties. If you cause an accident that results in damage or injury to someone else, you don’t want to be insured by a company that forces every case to court. Life is too short.
• It’s usually best to buy your insurance from a company with a local agent with whom you can review your needs and your insurance policy and who can help you immediately in the event of an accident.
• Do not drive an uninsured vehicle even if you have insured your other vehicles.
• The bare minimum third-party liability insurance required by law only provides coverage for anyone that you might injure as a result of an accident that is your own fault. If you cause an accident that results in injuries to your own passengers, pedestrians or third parties in other vehicles, then those persons would ordinarily be covered by your third-party liability insurance, but you would not be covered.
• The minimum third-party liability insurance required by law does not provide any payments or protection for you in the event that you are injured in an accident. In order to adequately protect yourself, you would need to purchase optional supplemental medical payments and uninsured/underinsured motorist insurance coverage. Check with your insurance agent.
• The minimum third-party liability insurance required by law does not provide any payment for damage to your own vehicle. In order to cover your own vehicle against damage, you must purchase some form of collision coverage.
• Read any insurance policy language carefully. Be sure that you understand what is covered and what is not covered. If you are not sure, ask your agent or company and confirm your understanding in writing.
• Most insurance policies include a standard sheet showing the coverages and amounts of coverage that you have purchased, which is usually called a declaration page, and also a standard handout that describes the policy provisions. Read the definitions — they are often the source of many misunderstandings and are usually binding.
• Insurance policies are contracts and are generally interpreted as contracts by the courts, although the courts usually require insurance policies to be written clearly, more so than ordinary contracts.
• By statute, the current minimum legal amount of third-party liability insurance in Alaska is $50,000 per person and $100,000 total per accident. However, this legally required minimum amount was enacted many years ago and is usually inadequate today due to rising medical costs.
• Just because you have purchased the legally required minimum amount of insurance does not mean that you are adequately insured against personal financial liability if you cause an accident that injures other people. You probably are underinsured in today’s world. Again, check with your insurance agent.
• Increasing the amount of your liability insurance coverage beyond the bare legal minimum is often reasonably priced and provides more protection for you and others you may injure. If you cause serious injuries because of an accident that is your fault, buying only the legal minimum amount of insurance may put you and your assets at financial risk for any portion of a court judgment that exceeds the amount of your insurance coverage.
• Check your auto insurance policy to see whether you have purchased separate medical payments coverage, which pays medical bills for you and your passengers, even if you are at fault. This separate coverage is not very expensive and is really worth the extra premium.
• Check your auto insurance policy to see whether you have purchased separate Uninsured-Underinsured Motorist (UIM) coverage. UIM coverage protects you if the other party is at fault for a serious accident and is not insured or does not have enough insurance to cover the full amount of your claim. This separate coverage is not very expensive and is really worth the extra premium.
• Be sure that your automobile third-party liability insurance is always in force and current. This is required by state law and you can be prosecuted if you do not have the mandatory minimum insurance in force in the event of a traffic stop or accident.
• In addition to receiving a citation, if you are driving without current insurance, you will probably lose your driver’s license for several months even if the other party is completely at fault for an accident. You will also likely be required to purchase very expensive, high-risk SR-22 insurance. A second offense is punished more severely and leads to a longer time when your driving license is suspended. If you knowingly drive with a suspended license, you will likely be jailed.
• If you do not have third-party liability insurance in at least the statutory minimum amount, then Alaska Statutes prevent you from recovering any losses from an automobile accident except medical expenses and lost income, even if the other party is completely at fault for the accident.

Joseph Kashi received his law degree from Georgetown Law School and has practiced law on the Kenai Peninsula for the past 32 years. He is admitted to legal practice before the U.S. Supreme Court, the Alaska Supreme Court and all lower state and federal trial courts for Alaska. His Web site, www.kashilaw.com, contains more information, including legal tips and links to legal, government and community resources.

Legal ease: Don’t let precious paper pile up

The dark days of winter are leaving, but the long days of winter are yet to come as we crowd into the end of February. If you want something important to do that will be helpful for you and for your family, then it is time to dust off several important papers in your house and get them in a single, safe place.

For many years, my wife and I kept a briefcase by the front door. In the briefcase were our passports, birth certificates, insurance policies, estate plans and other valuables that could be taken out of the house in a moment’s notice in the event of fire. As time went on, we purchased a fireproof safe. Too heavy to carry, but fire safe.

A really great project for this time of year is to gather up all of those papers and get them into a fireproof box or safe. These documents, while not impossible to replace most of the time, are very difficult to replace. Birth certificates and baptismal certificates are still necessary items when you hire for a new job or need a passport.

With passport requirements changing at borders, these documents are more necessary than ever. Having them safe is also important. I can spend $20 and get my birth certificate, and it may just take three weeks to get. But more than likely when I need it, I need it today, not in three weeks.

Your insurance policies also are important. This tells you what your house and its contents are worth. Since you bought that couch back in 1965, it has gone up in value and its replacement will require a lot more money. Simultaneously, you and your spouse may have accumulated jewelry, guns, coin collections, rare stamps, stocks and bonds, children’s birth certificates and the pedigree of your dog.

All of these documents are important enough that they should be kept safe and they also should be checked again for value.

The single biggest difficulty I hear about after a house fire is not that there was no insurance (which happens far too often) but rather that the dwelling and its contents were greatly undervalued.

People who are the victims of a house fire or severe damage suddenly discover that the house they paid for will now require a new mortgage to be rebuilt because its value to the insurance company wasn’t updated.

People like to rent a safety deposit box at the bank, but there are a couple of things to know first. If you put the box in your name only and something happens to you, there is a list of problems if someone has to get in it.

First, somebody has to know that you have a safety deposit box. They have to know where the key to the box is or the box has to be drilled out and the lock replaced, which costs money. Third, because the box is an important item, you have to have a court order to get in if someone is incapacitated or dies.

When the court order gets issued to open the safety deposit box, some tax authority has to be standing by when you open it to be sure there isn’t an excessive amount of cash or property on which you may be obligated to pay taxes.

If you’re renting a safety deposit box to keep your insurance policies in, you’re paying for awfully expensive storage. A good floor safe will keep an honest person honest.

You may not be interested in keeping grandpa’s gold watch there, but keeping a document safe in the closet of your bedroom means you can access these important documents and they are safe from fire and hazard. And this may cost you less than a couple of months of safety deposit box rent. A couple of screws in the floor or a cable around the back stud of the closet will keep anybody from running off with the safe.

A safety deposit box will certainly keep thieves away from the expensive valuables. But a good safe or fireproof box in the floor of your closet will certainly give you substantial peace of mind concerning your policies, important documents, and the valuables you will find time-consuming and difficult to replace in the future.

So get those policies updated and your important documents safe.

Mark Osterman is a lawyer in Kenai and has practiced in Alaska, Michigan and federal courts for 19 years doing family, commercial, divorce and criminal law. The information in this column is not intended to be used as legal advice. Please contact a legal professional for specific questions.