Thanksgiving and Estate Planning

Thanksgiving is one of America’s most beloved holidays–the cranberry sauce, the turkey, the pies, the rare reunion with family members you love and miss. One of the things that makes Thanksgiving so enjoyable is the planning. Thanksgiving gatherings generally don’t come together on their own. It takes family members deciding in advance who will roast the turkey, who will prepare the desserts, who will bring the beverages, etc.

Thanksgiving is just one example of how important it is to plan ahead in order to ensure success. Estate planning is no different. Planning your estate is important to make sure your assets are handled the way you would want them to be handled in any situation.

Coincidentally, Thanksgiving dinner provides a perfect opportunity for families to discuss their estate planning goals while everyone is together under the same roof. Many adults unfortunately delay having a conversation about estate planning with their families for many reasons. However, there are many benefits of having a conversation on estate planning with your family during holidays such as Thanksgiving.

Having the conversation provides an opportunity to form an understanding between you and your family on your goals and wishes for your assets and affairs. It also helps to reduce any confusion that there may be between you and your family, which may reduce the chances of disputes forming later down the road. Decisions don’t necessarily have to be made in the meeting. Sometimes it enough to simply achieve an understanding between you and your family on certain matters.

Many business owners and wealthy families, for example, use major holidays such as Thanksgiving to discuss business and philanthropy.  If there’s a family business, family members may want to use that meeting to update the rest of the family on business performance or the succession plan for that business.

Having a conversation on estate planning during the Thanksgiving holiday is a great start to ensure a successful estate plan. That conversation should, however, transition to the office of a trusted adviser who can answer any questions or concerns you may have about your estate, as well as assist you with preparing a secure estate plan.

Contact our office today to discuss your estate planning goals. 

What to Do With an Inherited IRA

What to Do With an Inherited IRA

Inheriting an IRA may seem like a good thing, but there can be tax consequences if you aren’t careful. If you inherit an IRA, you should check with an attorney or financial advisor as soon as possible to find out your options.

IRAs are personal savings plans that allow you to set aside money for retirement and get a tax deduction for doing so. Earnings in a traditional IRA generally are not taxed until distributed to you. At age 70 1/2 you have to start taking distributions from a traditional IRA. Earnings in a Roth IRA are not taxed, nor do you have to start taking distributions at any point, but contributions to a Roth IRA are not tax deductible. Any amount remaining in an IRA upon death can be paid to a beneficiary or beneficiaries.

Spouse as beneficiary

If you inherit your spouse’s IRA, you can treat the IRA as your own. You can either put the IRA in your name or roll it over into a new IRA. The Internal Revenue Service will treat the IRA as if you have always owned it. If you are not yet 70 ½ years old, you can wait until you reach that age to begin taking minimum withdrawals. If you are over 70 ½ and were 10 or more years younger than your spouse, you can use a longer joint-life expectancy table to calculate withdrawals, which means lower minimum withdrawal amounts. If you inherit a Roth IRA, you do not need to take any distributions.

You can leave the account in your spouse’s name, but in that case you will need to begin taking withdrawals when your spouse would have turned 70 ½ or, if your spouse was already 70 ½, then a year after his or her death. If you want to drain the account, you can use the “five-year rule.” This allows you to do whatever you want with the account, but you must completely empty the account (and pay the taxes) by the end of the fifth year after your spouse’s death.

Non-spouse as beneficiary

The rules for a child or grandchild (or other non-spouse) who inherits an IRA are somewhat different than those for a spouse. You can choose to take distributions over your lifetime and to pass what is left onto future generations (called the “stretch” option). The required minimum distributions will be calculated based on your life expectancy. This allows the money to grow tax-deferred over the course of your life and to be passed on to your beneficiaries, if you wish. If you want to do this, you must retitle the IRA into an inherited IRA and take your first distribution by December 31 of the calendar year following the year the decedent died.

If you choose not to stretch the IRA, you will have to withdraw it all within five years of the original IRA owner’s death. This can lead to a large tax bill–unless the IRA is a Roth, in which case the distributions are tax-free.

Trust as beneficiary

If the IRA names a trust as the beneficiary, the trust may not be able to take advantage of the opportunity to stretch withdrawals across decades. Stretching an IRA may still be an option, however, if the trust is considered a “see-through” or conduit trust. If you have inherited an IRA in a trust, contact your attorney to find out your options.

Estate tax

If the decedent’s estate was subject to an estate tax, the IRA beneficiary may be able to get an income tax deduction for the estate taxes paid on the IRA.

For information on how to include an IRA in your estate plan, click here.

Be Careful About Putting Only One Spouse’s Name on a Reverse Mortgage

Be Careful About Putting Only One Spouse’s Name on a Reverse Mortgage

A recent case involving basketball star Caldwell Jones demonstrates the danger in having only one spouse’s name on a reverse mortgage. A federal appeals court has ruled that an insurance company may foreclose on a reverse mortgage after the death of the borrower, Mr. Jones, even though Mr. Jones’ widow is still living in the house. While there are protections in place for non-borrowing spouses, many spouses are still facing foreclosure and eviction.

A reverse mortgage allows homeowners to use the equity in their home to take out a loan, but borrowers must be 62 years or older to qualify for this type of mortgage. If one spouse is under age 62, the younger spouse has to be left off the loan in order for the couple to qualify for a reverse mortgage. Some lenders have actually encouraged couples to put only the older spouse on the mortgage because the couple could borrow more money that way. But couples often did this without realizing the potentially catastrophic implications. If only one spouse’s name was on the mortgage and that spouse died, the surviving spouse would be required to either repay the loan in full or face eviction.

In order to protect non-borrowing spouses, the federal government revised its guidelines for reverse mortgages taken out after August 4, 2014 to allow spouses to stay in the house as long as they meet certain criteria, including proving ownership within 90 days of the borrowers death. In 2015, the federal government allowed lenders to defer foreclosure on a widow or widower and assign the mortgage to the federal government. Advocacy groups looking at reverse mortgage foreclosures have found that despite these new regulations, lenders are still foreclosing on non-borrowing spouses. Of the 591 non-borrowing spouses who have sought help to avoid foreclosure, only 317 received assistance.

These regulations did not help Mr. Jones’ wife, Vanessa. Mr. Jones, who blocked more than 2,200 shots during his 17-year professional basketball career, obtained a reverse mortgage in 2014 on the Georgia home he lived in with his wife. The contract defined the “borrower” to be “Caldwell Jones, Jr., a married man.” Ms. Jones did not put her name on the reverse mortgage because she was under age 62 at the time of the mortgage. Mr. Jones died later that year, and when Ms. Jones did not repay the loan, the insurer began foreclosure proceedings.

Ms. Jones sued the insurer in federal court to prevent the foreclosure, arguing that federal law prohibited the insurer from foreclosing on the house while she lived in it. Under a provision in federal law, the federal government “may not insure” a reverse mortgage unless the “homeowner” does not have to repay the loan until the homeowner either dies or sells the mortgaged property and defines “homeowner” to include the borrower’s spouse.

On appeal, the 11th Circuit Court of Appeals (Estate of Caldwell Jones, Jr. v. Live Well Financial (U.S. Ct. App., 11th Cir., No. 17-14677, Sept. 5, 2018)) ruled that the federal law in question only covers what the federal government can insure and does not govern the insurer’s right to foreclose. The court agrees with Ms. Jones that the law is intended to safeguard widows and implies that the federal government should not have insured the loan in the first place, but finds that federal law does not cover the insurer’s private right to demand immediate payment and pursue foreclosure.

When purchasing a reverse mortgage, it is always safer to put both spouse’s names on the mortgage. If one spouse is underage when the mortgage is originally taken out, that spouse can be added to the mortgage when he or she reaches age 65. If you have a reverse mortgage with only one spouse on it, contact an elder law attorney to find out the best way to protect the non-borrowing spouse. 

Estate Planning in the New Year

The New Year is all about a fresh start. Along with losing a few pounds and joining the gym, why not consider starting 2018 off with an estate plan that works for you and your family? This does not simply mean assessing whether or not you have estate planning in place. It also means ensuring the planning you do have is up to date and actually accomplishes your estate planning goals. Only about half of all Americans have planned for their disability and death. Of the fifty percent of people who have created estate plans most estate plans are only updated every 20 or so years. We believe your best practice is to review your estate planning every year and update your estate plan every 2-3 years so it remains consistent with changes in your life (personal and financial), changes in the law, changes in your attorney’s experience, and changes in your legacy. Make 2018 the year you adopt this philosophy as well!

In addition to reviewing your physical estate planning documents, the New Year is also a good time to assess what you own and determine if assets have been bought or sold which might impact your planning. Proper asset ownership is a critical piece to ensuring your estate planning works. Consider this relatively common scenario: you have a checking account, a savings account a retirement account and a house. All of the accounts and the house are owned jointly with your oldest child and your oldest child is the beneficiary of your retirement account. You also have a Last Will and Testament that says when you die everything you own is to be split equally between your three children. In this situation, when you do die, what do you think is going to happen? If you believe your oldest child gets everything and you have disinherited your other two children, you would be correct. Because your oldest child is the joint owner and beneficiary of all of your assets, she gets everything! This is true even though you have a Will that say something else and your intent is for all of your children to be equal beneficiaries of your estate. This is a perfect example of why reviewing what you own and how you own it is essential to the success of your estate planning.

Contact us today for more information on how you can start off the new year with a comprehensible estate plan.

Estate Planning Considerations When Sending Your Kid to College

Each year, hundreds of thousands of incoming freshman leave their parents’ nest and get their first taste of independent life as an adult. For most students, the experience is nothing short of a dream come true while for others weekend trips home may be the only way to keep their sanity. Regardless of how long it takes a new college student to get comfortable in his or her new way of life, one thing is certain- and it is something that many parents do not fully grasp: When a child moves away from home to begin this exciting chapter of life, he or she is not only leaving the comforts of home but also the protections that parents offer until the age of 18. By “comforts” and “protections” I mean much more than having someone who does your cooking or laundry. Under the law, when your child turns 18 he or she is an adult under the law,  which means that a parent’s right’s in controlling some affairs of that child become significantly diminished. Among these diminished rights are the (1) the right to make healthcare decisions on behalf of the child, and (2) the right to act on the child’s behalf in financial transactions.

In the event the child is hospitalized, medical personnel have no obligation to follow anyone’s wishes regarding treatment or consent except for the patient’s, and medical records are going to remain sealed from view absent a court order directing otherwise. In the event of a serious accident or illness that leaves the child unable to determine his or her own course of treatment or who can make those decisions on his or her behalf, a doctor’s hands are going to be tied, which will lead to a court’s intervention in order to make important decisions.

Further, institutions such as banks, utility providers or even landlords typically will not permit an individual that is not named on an account to access its funds or information. This means that if a child is in the hospital for an extended period of time unable to act on his own behalf, the financial repercussions of failing to do things such as pay bills in a timely fashion can be long-lasting in the form of bad credit and collections.

So how do parents prepare and plan for these unthinkable situations in which decisions regarding the child’s healthcare and financial transactions must be handled? The answer is PROPER ESTATE PLANNING. Below are a few documents that your college-bound child should not leave the nest without.

Advanced Directive for Health Care

 A living will is a directive that instructs family members and medical professionals on which end-of-life procedures you want done (for example,  instructions on when you want to be kept on or removed from life support). A medical power of attorney (also known as a health care power of attorney) is a legal document in which you are able to appoint someone to make decisions regarding your health care in the event that you become incapacitated. Advanced directives for healthcare are often useful to designate a medical power of attorney in conjunction with a living will to form this document in order to ensure that you will have someone advocating for the directives you have spelled out in writing. In addition to those directives spelled out in writing, an advanced directive for health care can also allow you to appoint someone to make decisions regarding your health care that isn’t spelled out in writing.

HIPPA Release Form

The Health Insurance Portability and Accountability Act of 1996 (HIPAA) is a federal law that sets rules for health care providers and health plans about who can look at and receive your health information, including family members and friends. You know those forms every health care provider makes us sign when we receive any type of medical care? The one that typically allows the doctor to release information to our health insurer? That is a HIPAA form.

A signed HIPAA authorization is like a permission slip. It permits healthcare providers to disclose your health information to anyone you specify. A stand-alone HIPAA authorization (not incorporated into a broader legal document) does not have to be notarized or witnessed. Young people who want parents to be involved in a medical emergency, but fear disclosure of sensitive information, need not worry; HIPAA authorization does not have to be all-encompassing. The young adults can stipulate not to disclose information about sex, drugs, mental health, or other details they might want to keep private.

A Durable Power of Attorney for Finances and Property

The durable power of attorney for finances and property functions the same as the durable power of attorney for healthcare; but it addresses powers related to non-medical actions such as those related to finances and property management and transactions. With a valid durable power of attorney for finances and property an agent should be able to access the principal’s bank accounts and financial records, pay rent, utilities and credit card bills, manage investments and loans and so on.

Important to note as well is the ability to structure the powers of attorney to limit the agent’s ability to take action until the principal is deemed incapacitated so the principal is the only party able to act on his behalf unless or until something happens.

To learn more about these estate planning tools please contact us today!

 

Standalone Retirement Trusts

Nowadays, most Americans hold their wealth in retirement accounts. When it comes to
inheritance and estate planning, special considerations are necessary to ensure that these assets are protected and distributed according to the account holder’s wishes. 

Retirement assets, such as IRAs, are typically passed via beneficiary designation. For example, for a married couple with children, it would be common to designate the spouse as primary beneficiary and children as secondary. However, in almost all occasions it is advantageous to name a trust—rather than a particular individual—as the designated beneficiary. Once the retirement account becomes inherited by a non-spouse beneficiary (i.e. children), it is important to understand that IRS regulations
treat this inherited retirement account differently. Specifically, once inherited, the beneficiary is obligated to begin taking required minimum distributions from such funds within a more immediate time horizon of either five years or over the beneficiary’s life expectancy.  An IRA administrator will also offer the option of receiving the proceeds as a lump sum payment, which is very often discouraged, especially in the case of minor or financially irresponsible children. The preferred goal in planning for inheriting retirement assets is to maximize this window of time so that the tax-sheltered, long-term growth benefits of retirement accounts are maximized.

IRAs and other retirement instruments were designed precisely for a specific purpose: retirement. They were not intended as a savings mechanism for future generations. Tax laws work according to this assumption, and so foresight and planning are necessary when including such holdings in an estate to be passed on to beneficiaries. Trusts can serve as an appropriate conduit to protect and preserve these assets.

Some will consider a standard revocable living trust by default when structuring a retirement trust.  This could cause unfavorable consequences, however, including a more fixed distribution schedule and the lack of creditor protection. Further, the IRS may a not consider the revocable living trust as a designated third party beneficiary, resulting in the assets becoming immediately, taxable income.

A Standalone Retirement Trust is a trust that is created for the sole purpose of serving as the beneficiary of the remainder of your IRA funds (and other qualified funds, e.g. 401(k)). Thus, the trust will be funded after you pass with whatever is left of your retirement assets. Then, the trustee of the Standalone Retirement Trust will oversee the distribution of the funds to your heir(s) in a manner you see fit.

A Standalone Retirement Trust will provide you with significantly greater control over the manner in which your remaining retirement funds are distributed to your loved ones, rather than just control who will receive the funds after you die—as is the case with leaving your IRA through a simple beneficiary designation.

Other potential benefits of Standalone Retirement Trusts include 

  • Asset protection in the event of a divorce;
  • Creditor protection;
  • Generation-skipping tax benefits;
  • Special Needs/Supplemental Trust benefits;
  • Alerts the beneficiary of any tax consequences of an immediate payout;
  • Allows beneficiary’s to thinly stretch tax obligations over time;
  • Alleviates the need for a court appointed guardian for minor beneficiaries
  • Provides a beneficiary with asset protection in the event the beneficiary becomes disabled; and 
  • Allows for successor beneficiaries. 

For more information on Standalone Retirement Trusts contact our office today. 

Avoiding Family Disputes In Estate Planning

Family discord is not uncommon. In fact, avoiding family disputes is one reason to plan an estate carefully. Unfortunately, merely planning an estate alone is not sufficient to avoid a family dispute. It must be planned in the right way to avoid disputes.

There are many elements which enter into a family dispute about estate planning. Here are a few:

  • Bad Dynamics

Often, there is little that can be done about bad family dynamics due to extenuating circumstances such as a long history of bad blood between two brothers. When there are deep rifts in a family, many times there is little that can be done, except to plan for the possibility of a dispute. For example, a no contest or “in terrorem” clause should be considered. Such a clause disinherits anyone who contests the estate plan. This works especially well when coupled with a substantial bequest.

  • Unfair Disposition

When there is a disposition which is likely to be viewed as unfair, it increases the likelihood of a contest. But, fair is not always equal. For example, if one child has special needs, it may be fair for that child to receive a greater portion of the estate. Also, if one child has been the parents’ caretaker, it may be fair for the caretaker child to receive a greater portion of the estate.

  • Lack of Communication

Often the biggest factors in a family dispute is lack of communication. There may be bad dynamics and what is perceived as an unfair disposition. But, when that disposition is a surprise, then the dispute escalates. The client should be encouraged to communicate their wishes to their family. This will increase the likelihood of their wishes actually being carried out and decrease the likelihood of a contest.

For more information on avoiding and handling family disputes surrounding your estate plan, contact us today.

Preparing Heirs for Successful Wealth Stewardship

There are numerous research tools that are available detailing the difficulty of maintaining wealth through multiple generations. This simple fact highlights the importance of teaching children to be competent financial stewards. Claudia Sangster, Northern Trust’s director of Family Education and Governance, encourages families to introduce children to monetary concepts at an early age. Sangster promotes using day-to-day activities, like grocery shopping, to teach the value of money to children. Parents explaining their reasoning behind certain product choices may help children in understanding the differences between price and quality and how these characteristics affect decisions. As children get older, implementing an allowance opens up an avenue for independent spending. Sangster suggests structuring the allowance by placing it in three jars: one for spending, another for saving, and the final for giving. Whatever your personal or family philosophy regarding money, bring your children into that discussion so they are aware of the expectations and can plan more strategically for their own future.

See the article, Preparing Heirs for Successful Wealth Stewardship

Charitable Gifting Strategies for Your Estate Plan

Charitable giving is a great option to consider for your estate plan. Charitable estate planning helps you combine your desire to give to charity with your overall financial, tax, and estate planning goals. Many of you are likely familiar with a bequest, the most common form of charitable giving (where you indicate a specific amount or a percentage of your estate/trust to go to charity). However, there are many different options to consider based on your personal and financial goals.

Charitable Remainder Trust

A Charitable Remainder Unitrust (CRUT) is a gift where property is transferred into a trust and pays annual distributions from its principal until the trust terminates, at which point the remainder amount transfers to the charity. The property transferred into the trust is invested during the life of the trust.

This option provides an immediate tax deduction to the donor for the charitable gift, as well as annual distributions from the trust. A CRUT is a great option to consider for those who have highly appreciated assets that might be subject to capital gains tax (stocks, real estate, etc.), as a CRUT will help you avoid these taxes.

Benefits of a CRUT:

  • Receive income for life or a term of years in return for your gift
  • Receive an immediate income tax deduction for a portion of your contribution
  • Pay no upfront capital gains tax on appreciated assets you donate
  • You can make additional gifts to the trust as your circumstances allow, for additional income and tax benefits

Things to consider:

  • A CRUT is an irrevocable gift to the charity
  • The level of investment for a CRUT.

Charitable Gift Annuity

Another gift option is a Charitable Gift Annuity (CGA), where you transfer cash or securities to the charity, which in return pays a fixed income to you or a selected beneficiary for life. The remaining balance passes to the charity when the contract ends at the death of the last beneficiary. This option is good for those who might be interested in supplemental income at a higher return than a low-earning security or CD. CGAs can also be done at a lower investment, with many charities requiring a minimum of $5,000 to $10,000 (ex. American Cancer Society has a $5,000 minimum). Many charities have a CGA program, and you can connect with them to learn more about their program and request a rate illustration.

Benefits of a CGA:

  • Receive dependable, fixed income for life in return for your gift
  • In many cases, increase the yield you are currently receiving from stocks or CDs
  • Receive an immediate income tax deduction for a portion of your gift
  • A portion of your annuity payment will be tax-free

Things to consider:

  • Beneficiaries must be at least 60 years of age at the time of the gift
  • Gift annuity rates are partly determined by the age of the beneficiary
  • Charities often have minimum donation requirements for a CGA
  • Younger donors may find planning benefits in a deferred gift annuity

Other Creative Gifting Options

There are many other creative ways to do charitable giving with your assets, including gifts of appreciated securities, a retained life estate, a donor advised fund, or gifts of personal property. I will quickly outline each of these gifts below.

Gifts of Appreciated Securities

You transfer appreciated stocks, bonds or mutual fund shares you have owned for one year or more to the charity and receive an immediate income-tax deduction.

Retained Life Estate

This is a popular type of gift; you transfer your property to charity and continue to live in the property for life or a specified term of years, and continue to be responsible for all taxes and upkeep. The property then passes to the charity when your life estate ends. You get immediate income tax deduction for a portion of the appraised property value and get to use the property for the rest of your life.

Donor Advised Fund

An increasingly popular option in recent years, a donor advised fund (DAF) is an irrevocable gift to a public charity sponsoring your account of cash, securities, or other property. You invest your fund and distributions to charities of your choice are made at your recommendation. This option allows donors to make a charitable contribution, receive an immediate tax benefit and then recommend specific charitable donations to be made from the DAF.

Gifts of personal property

You transfer valuable paintings, antiques, or other personal property to the charity for the charity to use or sell and in return receive an income tax deduction on the appraised value and pay no capital gains tax.

There are numerous creative ways to incorporate charitable giving as part of your estate plans. Some of these options have benefits to you or your beneficiaries during your lifetime, and ultimately can help you with your financial goals. Its recommended taking time to consider your ultimate goals for your estate plan, as well as the goals for your legacy. It is also recommended that if you have a charity in mind to include in your estate plans, reach out to them to find out the options they have available to you.

Your legacy is important and can have meaningful and lasting impact in your community, so take the time to understand all of the charitable giving possibilities available to you.

For more information, contact us today.

Charitable Giving In Your Estate Plan

For many, charitable giving is a way of life. Whether it is to support an organization that has touched your life in a meaningful way, a school or university that put you on the road to success, or simply a cause that you feel passionate about, charitable giving not only offers emotional benefits, but practical ones as well.

For motivated donors, one question is how much to give throughout your lifetime and what to leave as charitable gifts in your will or trust.

For those who are not concerned about the use of the assets during their lifetime – for care, or enjoyment – a charitable gift may be a regular occurrence. Others may choose to pass on assets after their death, in addition to, or sometimes in place of, passing on assets to family members.

The options for charitable giving within an estate plan are varied. One option is to make a gift at death through a will or trust, which would then reduce the amount of the donor’s estate, and thus any estate taxes that would need to be paid.

Gift Annuity

Another popular option is a Charitable Gift Annuity. The basic structure of such an annuity is that the donor makes a lump sum gift to the charity, with the gift being used to purchase an annuity. The annuity would pay the donor a fixed percentage of the gift each year during their lifetime, with the remaining value of the annuity paid to the charity after the donor’s death. This offers a way for the donor to give away cash or assets while still receiving an income stream.

Gifting Assets

Another beneficial strategy that a donor can use is gifting appreciated assets. For donors who own real estate or a stock portfolio with a large appreciation, the assets can be passed on to the charity so that the donor receives a tax deduction for the fair market value of the gift. The charity can then sell those assets without having to pay the capital gains tax on the appreciated value.

Charitable Trusts

Yet another alternative is that the gift is left in a trust, giving a family member or a corporate trustee control over the trust. The terms of the trust would then direct how and when the assets of the trust are to be distributed to the charity or how the assets are used for charitable purposes.

Family Foundations

For larger donations or donations to be made over time, creating a family foundation is an option. A family foundation can be useful for those who wish to devote some part of their assets to charitable causes during their lives and have the work of the foundation and its charitable efforts continue after death.

Do Your Research

As with any donation, it is highly recommended to fully investigate the reputation of the charity you wish to make your contribution to. By doing a little research, you can be sure that the charity you wish to donate to uses their assets wisely, and that your donation is actually applied to charitable purposes instead of administration costs.

If you are inclined to make a charitable donation in your Estate Plan, it is always smart to discuss your intentions with an Estate Planning Attorney to ensure your wishes are fully thought-out, appropriately documented, and to ensure that the gift is mutually beneficial from a tax perspective.

For more information on charitable giving, contact us today.