Under the new American Taxpayer Relief Act ("ATRA"), taxpayers whose ordinary income is generally taxed at a rate below 25%, capital gains and dividends will permanently be subject to a 0% rate.  Taxpayers who are subject to a 25%-or-greater rate on ordinary income, but whose income levels fall below the $400,000/$450,000 thresholds, will continue to be subject to a 15% rate on capital gains and dividends.

Income Tax Rates    

Capital Gains

¹Plus an additional 3.8% investment income surtax for Health Care Reform Act funding, for a total effective rate of 23.8%.

An Inherited IRA is one which has passed from the original owner to a non-spouse beneficiary (usually a child, etc.).  When a spouse is the beneficiary of an IRA, the account is said to 'roll over' to the spouse-beneficiary, who then takes ownership of the account in their own right and title.  A non-spouse beneficiary is said to 'inherit' the retirement account with the title to the account being changed to "[Original owner] IRA fbo (for the benefit of) [non-spouse beneficiary]".  The difference in these two types of accounts affects how Required Minimum Distributions (RMDs) are calculated and, now, also affects the previously assumed asset protection value of retirement accounts.

Use of a Standalone Retirement Trust ("SRT") can remove the risk and uncertainty of whether assets in an inherited IRA will be subject to the claims of creditors.  Such a trust is crafted to either accumulate and protect IRA distributions for the beneficiary or to allow all distributions to pass through a 'conduit' to the beneficiary; they are known as either Accumulation SRTs or Conduit SRTs.  In fact, a Conduit SRT can also be drafted to include a trigger which, upon the appearance of creditors, converts to an Accumulation SRT.  In both types of SRTs, it is important for the owner of the retirement account to establish the trust early on so that all of the necessary beneficiary designations can be put in place and the independent trustees identified.

An SRT is yet one more means of constructing a family's asset protection framework for the next generation's inheritance.  Creating a legacy isn't impossible, but it does take time.

If the gift-donor gives away their assets too soon, then they may find themselves without sufficient resources to continue the lifestyle they desire.  If the gift-recipient receives gifts of money or other assets outright, their creditors (either known or unanticipated) or predators (individuals who have the bad habit of sniffing out unprotected assets and opportunities to grab those assets) may enjoy a windfall.  Unfortunately, the recipient then ends up with far less inheritance than they expected.  One straightforward means of addressing such concerns is to minimize the Maryland estate tax by reducing the donor's assets to less than one million dollars while gifting the balance of the inheritance, in trust, to the next generation.

A Gift Trust with the proper provisions and beneficiary designations can prove to be a three-fold gift to the subsequent generation.  First is the gift of hard-won assets accumulated and passed down to the recipient generation.  Second, the assets are protected from both creditors and predators of the recipient generation.  While the recipients enjoy the benefits of the assets in trust, their demand rights to control those assets can be limited, or safeguarded, so as to cut off the ability of any creditors or predators to reach the assets in trust.  A Gift Trust's third gift is the savings of estate taxation on the gifts transferred in trust.  (Maryland's estate tax has a rate of sixteen percent (16%) and the calculations begin at the first dollar in excess of one million dollars in the ownership, possession, or control of an individual at the time of death.)

Of course, the intersection of estate and trust tax law and the transfer of property to the next generation in your family will benefit from an in-depth analysis as to the selection of assets, as well as the structure and timing of a tax-efficient transfer.

The old saying that "The two things which are certain in life are death and taxes" may be true, but at least one of the two can be minimized by advanced planning.

The Maryland Department of Health & Mental Hygiene rolls out the new Medical Orders for Life-Sustaining Treatment form on October 1, 2011. 

Benefits

This form provides benefits to patients by causing their preferences for life-sustaining treatment to follow them throughout their treatment: "Every time a physician or nurse practitioner completes a MOLST order form, you will receive a copy for your records. If you do not have a Do Not Resuscitate (DNR) order on your MOLST form, medics in Maryland must attempt resuscitation. This form does not expire and it goes where you go – to the hospital, rehab, assisted living, and back home."

Risks

We regularly prepare Advance Directives (Medical Powers of Attorney) for clients and sometimes those Advance Directives are very specific in directing a particular course of treatment in certain circumstances.  Some clients with diabetes express preferences where profound amputation is at issue.  Other clients have addressed issues of advanced cancer treatments or treatments in the event of serious work-related injury where they have ultra-hazardous vocations.  The concern I have is this:

1. A patient executes a specific directive for their care;
2. Later, whether because of infirmity or oversight, they either fail to outline the same course in their MOLST or, worse yet, create a contradictory MOLST form;
3. Then, it appears the MOLST will control the action of the medical providers.  At the risk of stating the obvious, the result will be that their earlier well-considered decisions will likely be MOLeSTed.

Conclusion

For the time being, we address this issue with the use of a wallet card provided to our estate planning clients which provides immediate access of medical providers to your health care documents.  Be aware, however, that decisions for a particular course of treatment are no longer 'once and done' in light of Maryland's new MOLST.