Is it good to think about any Legal Issues for the New Year?

Without specifics about yourself I’ll make this answer

generic in a personal and in a business sense.

I presume you looked at your financial estate

planning (401k, mutual funds, stocks and bonds, life insurance, etc) which

is important as there may be some changes such as to an inherited IRA. Ask

your investment professional. You should also think about your legal estate

planning. After all you are a year older; you may have gotten married, had a

new child, had a child reach the age of majority (19 years), gotten divorced or

suffered the death of a spouse or even a child. You may have a child graduate,

enter the workforce and be off your payroll. Even if the child is off your payroll

you may keep them on your health insurance until they reach age twenty-six

(26) as a buffer or necessity if you still have a family plan but it may be that

you decide not to continue to carry the young adult child if the plan has changed

and the cost can drop significantly. Your financial estate planning goes hand in

hand with your legal estate planning and you should discuss that with your

lawyer, not that he or she will try to advise you on whether your investment

advisor is steering you correctly but rather the impact of your financial worth

on your legal estate.

For 2024 the gift tax exclusion moves up one thousand dollar from last

year to $18,000.00 a person, as a gift (child, grandchild, etc.) not requiring the

filing of a Gift Tax return or up to $36,000 to a person if both you and your

spouse gift to the same person once per year. There is a unified lifetime basic

exclusion and generation skipping tax (GST) limit of $13.61 million in 2024

per individual. There may be a tax advantage for the wealthy in that and if this

seems to be something that might be helpful to your financial planning you

should seek the advice of an accountant or other tax/ financial professional

(may include a tax attorney). For 2023, there was a $12.92 million total unified

estate tax exemption per individual; 2024 will provide a $13.61 million unified

tax exemption as stated above. The total GST and total estate tax exemption

are unified in total in that they cannot exceed $13.61 million The portable portion

mentioned above may be available to a surviving spouse who may be able

to combine through election their unused estate credit amounts up to a total of

$27.22 million. See your tax professional after the death of the first spouse if

your assets are in the millions. Remember that life insurance is considered for

estate tax purposes if you have control over the policy (i.e. ability to change

the beneficiaries, cancel the policy, etc). Some individuals have large insurance

policies and in the past not inconceivable for high middle class people to have

an estate over prior limits but the possibility could even exist with some wealthier

individuals. If you die in 2024 with an estate of greater than $13.61 million

(or $27.22 million for a second to die spouse if entirely portable) then that

amount over $13.61million will be taxed at 40%.

With President Biden and the Democrats in control of the Senate and Executive

branches, the estate tax increases will sunset on 31 December 2025 and the

limit will be cut in half adjusted for inflation. Rather than the annually successive

increase from $13.61 million this year, set to be rolled back in 2026 to

around $7 million per individual, it is a distinct possibility that things may roll

back earlier; but when and how much is anyone’s guess. The midterm changes

were not the expected bang and of course there is another Presidential election

in just under a year.

With that said you need to pull out your Last Will and Testament and

review it. If you have had any life changes (marriage, divorce, death, large

inheritance, new child, etc.) a new Will may be in order. If you don’t have a

Last Will and Testament you need to have a lawyer prepare one as soon as

possible. Why do you need one? Because if you don’t then the State of Alabama

has one for you. Some of the spousal examples under the rules of intestacy

(dying without a Will); (1) first $100,000 to spouse and then 1/2 of the remaining

estate to the living parent(s) when there are no children, (2) if children then

the spouse gets $50,000 and 1/2 of the rest, (3) if one or more of the children

are not yours then the surviving spouse only gets half of everything, period.

This is probably not the estate plan you have in mind. There are internet sites

and software programs that can also assist with a Last Will and Testament but

there is no guarantee that it will pass muster regarding state rules on probate

nor a guarantee that it will do what you want upon your death. The best chance

of meeting estate goals is through a lawyer and if you are of moderate means,

you may be surprised that it is less expensive than you think. In the long run a

Will may save money since an intestate estate when probated requires the bonding

of the Personal Representative and an inventory of the decedent’s estate. I

run into too many old or non-attorney prepared defective Wills when it really

counts and there is an attempt to probate the estate. Obviously such probate is

not without issue. If you have an out of state prepared Will it should be acceptable

for probate since under the Full Faith and Credit Clause (Section 1, Article

4) of the United States Constitution a valid Will prepared in one state is valid

in Alabama. There can be issues so a review with an Alabama attorney is always

a good thing to do.

Aside from the Last Will and Testament you may want to have a Power of

Attorney prepared, both one for financial reasons and health. Most prepared

these days are durable which require wording that the power of attorney is

effective even in your disability or incapacity. Financial Powers of Attorney

became a statutory form as of 1 January 2012. Most attorneys have concerns

about the filling in the blank and initialing choices format and most now insert

tried and true language used in their practices for their many years. A financial

Power of Attorney is now by default a Durable power; however I insert the

needed language anyway to make sure that there are no questions about it’s

durability. A Power of Attorney (POA) can be very powerful and placed in the

wrong hands can be damaging such as a daughter that is named AGENT and

decides to sell your lake house and push you towards moving to an assisted living

facility. On the other hand, naming a trusted AGENT and retaining the POA

for future needs can be extremely beneficial. The POA can be used so that

someone can write your bills for you during incapacity, file your taxes and with

health/ Health Insurance Portability and Privacy Act (HIPAA) provisions

monitor your care with the doctors and hospital as well as handle medical

insurance billing. The POA may also be used to nominate whom you would

want as a conservator or guardian should one need to be named for you through

a Court proceeding. A health care power of attorney can be used to coincide

with the Advance Directive mentioned below should you have need to name

another or others to help with health care decisions.

The final personal document would be an Advance Directive for

Health Care, which is composed of a Living Will and Health Care Proxy

nomination. It will allow you to make certain decisions about end of life issues

should you later become unable to speak for yourself and two doctors have determined

that you will likely die in the near future. This is the document that

Terri Schiavo DID NOT have and for that reason the court found the testimony

of the “husband” who was then living with another woman to be credible as to

Terri’s final wishes. Hmmmmm. Naming a Health Care Proxy is the same as

naming a health care power-of-attorney such

as under a POA. The proxy is given limited rights under which situations that

they can make decisions. And by the way, the ex-spouse automatically loses

that job as proxy upon divorce. That’s dodging a bullet!

If retirement is nearing and you will also receive Social Security consider that

the 2023 Medicare Part B will move from the 2023, $164.90 to $174.70

per month dependent on whether the senior is subject to the statutory “hold

harmless” provision. With higher income brackets so does the cost for Part B

increase. If you need nursing home (skilled nursing) care under Part A, days

1-20 are fully covered provided you continue to meet Medicare’s requirements

for those days; the co-payment for days 21-100 (if you qualify) will be $204.00

per day ($200.00 per day in 2023. After day 100 you are 100% on your own

unless you have some other means of long term care payment. If you have not

already checked on long term health care insurance you should do so now. It

not only will cover nursing home care but can also cover assisted living or in

home care. If you consider this insurance also look carefully at the options since

they may be equally as important as the policy itself. This includes inflation

increases which are very important or even the option of continued coverage

for a certain amount of time when one with “forgetfulness” forgets to pay the

premium.

With the exception of a few states and the District of Columbia, the individual

mandate under the Affordable Care Act (Obamacare) was changed in 2019

to zero. That of course continues to be contentious in that without the mandate

it is argues that the ACA is null. Four states and the District of Columbia have

state mandate penalties though Vermont has no penalty attached to their mandate.

The time to make health care changes under the ACA open enrollment

ended 07 December 2023 and unless you have a qualifying event or become

eligible under Medicaid/ CHIP after the open enrollment period passes this will

be the last opportunity until the 2024 period begins in October. Older Americans

may be eligible both for Medicare and Medicaid and impoverished Americans

may be Medicaid eligible when they cannot afford premiums under Obamacare

and some Americans are eligible for insurance from the market place with

subsidized premiums.

If you are currently in business or considering a business what about entity? A

sole proprietorship offers pass through taxation but no limited liability. Your

personal and business assets are at risk in a lawsuit. A Limited Liability

Company (LLC) or a Registered Limited Liability Partnership

(RLLP or LLP) offers the same pass through tax advantages as well as

limited liability. A “C” Çorporation offers the same limited liability but there

is taxation on the corporation and taxation on the shareholders. If you are in

one of these entities and about $80,000.00 plus salary talk to your accountant

about the possibility of an “S” corporation election. Current tax considerations

suggest that pass through entities not involved as professional service businesses

(accountants, attorneys, etc) such as sole proprietorships, LLC’s, LLP’s

and S Corporations may take an additional significant percentage off their

income. Because pass through entities are taxed at the owners tax

rate this will give an additional percentage decrease in taxable

income.

In addition to the advantages of pass through taxation and limited liability there

may also be some self-employment tax advantages since some of the income

can be paid to a shareholder- employee as a profit distribution. The Internal

Revenue Service however looks for Shareholder- Employees that pay themselves

substandard salaries for their position in order that they can take more

from the company as a distribution and save more on Self Employment taxes.

The IRS will consider a reasonable income based on IRS summarized factors

considered by a Court case from the Eighth Circuit, which advised shareholders

to give them careful consideration in establishing their compensation. The

factors are:

(1) Employee qualifications;

(2) The nature, extent, and scope of the employee’s work;

(3) The size and complexity of the business;

(4) Prevailing general economic conditions;

(5) The employee’s compensation as a percentage of gross and net income;

(6) The employee-shareholder’s compensation compared with distributions

to shareholders;

(7) The employee-shareholder’s compensation compared with that to nonshareholder

employees or paid in prior years;

(8) Prevailing rates of compensation for comparable positions in comparable

concerns; and

(9) Comparison of compensation paid to a particular shareholder-employee

in previous years where the corporation has a limited number of officers.

An “S” Corporation election only exists through the IRS and has specific

requirements. So you can be an existing LLC, C Corporation, etc. but elect via

the IRS as an “S” Corporation. Ask your accountant about whether it is right

for your business.

Additionally, the Corporate Transparency Act takes effect 1 January

2024. There are twenty-three exceptions to inclusion in the

Corporate Transparency Act. It seems that the exclusions relate to businesses

that are already for one reason or another highly regulated. Many of the

exclusions deal with companies that deal with money in the sense of banking,

investment and insurance. As well there is a large corporate exclusion. There

are items not yet in place that are needed for compliance so it’s difficult to

follow the regulated time frames.Most lawyers that assist in business are trying

to navigate the rules without everything being in place.

I hope that this has helped with your question. If you need a lawyer you can

contact the Alabama State Bar Lawyer Referral service or ask a trusted friend

about a lawyer that they might recommend.

This article is informative only and not meant to be all inclusive. Additionally this article

does not serve as legal advice to the reader and does not constitute an attorneyclient

relationship. The reader should seek counsel from their attorney should any questions

exist.

"No representation is made that the quality of legal services performed is greater than

the quality of legal services performed by other lawyers."