King & Wood, P.A.

Should I Use a Trust to Protect My Children’s Inheritance?

“We have approximately $1.5 million in cash and investments, mostly in Certificates of Deposit (CDs). Our mortgage is paid and we have no debt. We have three adult children. Should we put out assets into a trust to better protect them for the future?”

Parents with savings have several options for their children’s future inheritances.

nj.com’s recent article answers this question: “We have $1.5 million. Should we get a trust for our children’s inheritance?” According to the article, parents could create lifetime trusts or trusts in their wills for the benefit of the surviving spouse during the spouse’s lifetime.

After that, they can have the remainder of the assets pass in trusts for each of the children, until they reach a certain age or ages.

A lifetime trust is a type of trust that’s created during an individual's lifetime. This is different from a testamentary trust, which is a trust created after a person's lifetime through the operation of that person's will.

Usually the individual who settles the trust (the "Grantor") will retain control over the assets in the trust, including the right to revoke the assets during his or her lifetime. These forms of lifetime trusts are known as grantor trusts.

Another option is to have these types of trusts continue for the benefit of the grandchildren.

The children’s trusts can have instructions that the assets and income are to be used for the health, maintenance, education and support of the child.

The parents would need to name a trustee or co-trustee. This is the person who’s responsible for investing the assets, filing tax returns and paying taxes (if necessary). He or she will also distribute the assets, according to the terms of the trust.

Trusts are complicated business, so meet with an experienced estate planning attorney to determine the best strategies based on your circumstances and goals.

Reference: nj.com (October 16, 2019) “We have $1.5 million. Should we get a trust for our children’s inheritance?”

What Do I Need in My Estate Plan in Addition to a Will?

“This time of year, families gather to celebrate the season, offering an opportunity to air your plans for the inevitable.”

American Legion’s recent article, “Planning beyond the will” says that it’s important that your estate planning papers are synced with your wishes and the current law, but you should also look at some items outside of the fundamental documents:

Beneficiary designations. This includes life insurance policies, IRAs, current and former employer retirement plans and annuities. A beneficiary designation supersedes any instructions in a will or trust. As a result, it’s important that your designations reflect your current wishes and are synched with the rest of your estate plan.

Property title. Be sure that you know how your property is titled. If the family home is titled as joint tenants with rights of survivorship, then it will pass seamlessly to the surviving owner. There are also potential income-tax implications. Ask your estate planning attorney about this and the best way to address title concerns.

Personal property plans. This could be as simple as giving your trustee or executor the authority to make decisions, designating instructions with respect to specific property in your will or trust, or incorporating a personal property memo into your plan. The guidance you give can alleviate major problems, when you’re no longer around to settle disputes.

A continuity book. In the military, it’s common that just as you’re getting used to your responsibilities, it’s time to PCS (Permanent Change of Station) or switch jobs. Many leaders require a continuity book that helps bridge that knowledge gap, so your successor has an idea of what to do. You can adopt this practice in your personal affairs. This can include an inventory of your assets, liabilities and insurance policies. This “continuity book” should also include your social media account passwords, key contacts, funeral wishes and the location of your key estate planning documents. This is an important resource for trustees and executors, as they assume their duties.

Enjoy the holidays, and this year, work on making sure that your family spends many more happy holidays together.

Reference: American Legion (October 18, 2019) “Planning beyond the will”

What Was in Comedian Rip Taylor’s Will?

“Rip Taylor, known as the “King of Confetti” and “The Crying Comedian,” who became an icon of 1970s game shows with his outrageous, flamboyant style and fondness for confetti, has died at the age of 84.”

Comedian Rip Taylor’s publicist, Harlan Boll, confirmed that Taylor died on Sunday in Beverly Hills.

Taylor was known for dousing his audience with buckets of confetti. Anyone attending a Rip Taylor performance expected to be wearing confetti by the end of it.

Born Charles Elmer Taylor on January 13, 1935, in Washington, D.C., Taylor became a regular on game shows like Hollywood Squares, late-night TV shows and sitcoms. He launched his own show, The $1.98 Beauty Show, designed to be a parody of beauty pageants, in the 1970s.

Wealth Advisor’s recent article asks pointedly: “Rip Taylor net worth: How much was he worth when he died?” The article notes that Taylor’s career spanned more than 40 years, first trying comedy after serving in the Korean War. When he enlisted in the U.S. Army, he was sent to the Signal Corps but wound up in special services, where he entertained the troops in Tokyo and Korea.

His first role was as a voice actor for The Jetsons TV series in 1962. In 1963, he made his first national television appearance on The Ed Sullivan Show, where he earned the nickname the crying comedian, as he pretended to cry on stage imploring the studio audience to laugh at his jokes.

“I sat on a stool telling jokes, and nobody was laughing,” he said during an interview with UPI in 1992. “In desperation, I pretended to cry as I begged them to laugh. That killed ’em.”

Throughout his career, Taylor made as many as 2,000 guest appearances on shows like Match Game, The Gong Show and Super Password.

Taylor also appeared in Tom and Jerry: The Movie, Scooby Goes Hollywood, The Brady Bunch Hour and To Tell The Truth.

With his long and successful career, the actor and comedian managed to earn a good amount of money doing what he loved.

According to CelebrityNetWorth, at the time of his death, Taylor’s net worth was believed to be approximately $3 million.

Reference: Wealth Advisor (October 14, 2019) “Rip Taylor net worth: How much was he worth when he died?”

What Will New Acts of Congress Mean for Stretch IRAs?

“I am concerned about the SECURE and RESA acts currently being considered in Congress. If either of them passes, my children will lose the inherited stretch IRA ability and face a much higher tax bill upon my demise.”

The SECURE and RESA acts are currently being considered in Congress. These acts may impact stretch IRAs. A stretch IRA is an estate planning strategy that extends the tax-deferred condition of an inherited IRA, when it is passed to a non-spouse beneficiary. This strategy lets the account continue tax-deferred growth over a long period of time.

If a parent doesn’t need her Required Minimum Distributions, does it make sense to do a gradual Roth IRA conversion and use the RMDs to pay taxes on the conversion? Or should the parent invest the RMDs in a brokerage account?

There are several options in this situation, according to nj.com’s recent article, “With Stretch IRAs on the way out, how can I plan for my children’s inheritance?”

Congress is considering legislation with the SECURE and RESA Acts, that would eliminate the ability of children to create a stretch IRA, one that would let them to stretch distributions from the inherited IRA over their lifetimes.

Under the proposed SECURE and RESA Acts under consideration, the maximum deferral period will be 10 years. If the beneficiary is a minor, the period would be 10 years or age 21.

The best planning strategy for a parent would depend on her overall finances and what she wants for her children’s inheritance.

The conversion to a Roth may be a good planning move, depending on her tax bracket. Putting the money in a brokerage account is also an option.

A parent may also want to think about using the RMD proceeds to purchase a life insurance policy held by an irrevocable trust for the benefit of her children.

It’s best to contact an experienced estate planning attorney, so he or she can review the details of the parent’s finances and help her choose the best options for her situation.

Reference: nj.com (October 15, 2019) “With Stretch IRAs on the way out, how can I plan for my children’s inheritance?”

Does Your Retirement Plan Include Long Term Care Insurance?

“No one likes to think about needing long-term care. Yet the reality is that many people will, at some point in their life.”

Roughly 60% of those turning 65 can anticipate using some form of long-term care in their lives, according to the U.S. Health and Human Services Department. It may be a nursing home, assisted living, or in-home care.

CNBC’s recent article, “Not having long-term care insurance can be ‘the single biggest devastator’ of your financial plan,” reports that over 8 million Americans have long-term care insurance. However, the cost of that insurance is rising. This increase is because of several factors, including the fact that companies underpriced their policies for years and misjudged how many would drop coverage.

Because of those rising premiums, some individuals may choose self-insurance. That means saving a pool of money to earmark for long-term care. Coverage is also available through Medicaid, which has eligibility requirements.

Even with these increases, you should purchase some form of coverage. This is because not being insured can be the biggest devastator of a financial plan.

The rule of thumb has been to buy LTC coverage at age 55. However, it really depends on your situation. The big unknown is health, and the odds of being able to qualify for coverage at age 60, compared to age 30 or 40 is vastly different.

A traditional LTC policy will cover the costs of care for a certain period of time, generally up to six years. The amount of coverage is based on the average cost of care for your location. Most insurers offer it in the form of a monthly benefit, and possibly with some inflation protection.

There’s also a hybrid policy that covers long-term care costs but becomes life insurance paid to heirs, if it’s not used. Of the 350,000 Americans who purchased long-term care protection in 2018, 85% chose the hybrid coverage. It’s also called combo or linked-benefit. The big difference is price: you’ll pay more for the hybrid policy.

Medicaid is another option, particularly if you don’t have a way to save. To be eligible, you must deplete your assets. You can also work with an attorney to find out how you can shield your assets, before you need care. Medicaid also looks back five years into your finances, so if you have given away any money during that period of time, it will be subject to penalty.

Reference: CNBC (October 14, 2019) “Not having long-term care insurance can be ‘the single biggest devastator’ of your financial plan”

What Do I Need to Know about Medicare Advantage?

“Medicare Advantage, also known as Medicare Part C, is a private insurance alternative to original Medicare.”

Monthly premiums for Medicare Advantage (MA) plans are anticipated to decrease by an average of $3.87 to an estimated $23 in 2020. That’s a 14% drop, according to the Centers for Medicare and Medicare Services (CMS). Roughly one-third of Medicare's 60 million beneficiaries belong to these private insurance plans.

AARP’s recent article, “Medicare Advantage Premiums to Decrease in 2020,” explains that these plans include Medicare Part A. That covers hospital care, hospice, and some nursing home and rehabilitative services. These plans also include Part B, which helps pay for physician visits and other outpatient services, including lab testing, scans and other diagnostic services. Most Medicare Advantage plans also include prescription drug coverage.

The recently announced premiums represent a nationwide average. Actual monthly charges for Medicare Advantage plans will vary, depending on what the plan covers and where beneficiaries reside. CMS announced that premiums for Part D prescription drug coverage were also trending down by about 13.5% to a projected $30 a month.

Many Medicare Advantage plans also cover some dental, vision and hearing care. Over the past two years, CMS has also added other benefits that will hopefully improve the health of seniors. These services include in-home meals, transportation, adult day care services and improvements to beneficiaries’ homes. That may look like wheelchair ramps and shower grips. However, not all Medicare Advantage plans have these extra benefits.

The Centers for Medicare and Medicare Services projects that about 250 plans in 2020 will offer access to these supplemental services, impacting about 1.2 million enrollees.

Enrollment in MA plans has been steadily climbing. The Centers for Medicare and Medicare Services projects that more than 24 million people will be in an MA plan in 2020.

The agency says that 1,200 more Medicare Advantage plans will be available in 2020, than were being sold last year.

Reference: AARP (September 24, 2019) “Medicare Advantage Premiums to Decrease in 2020”

How Do I Change My Will?

“You don’t want to cause a fight over these items, after your dad is gone.”

Many parents have wills that were drafted years ago. Now they want to leave some specific items to people. Those are items not specifically mentioned in the will.

How can he change his will? Can he just write this list and sign it in front of a notary, or does he need to have his will changed?

If you’re the executor and don’t want your father to have to spend more money to add these items to the will, how is it done?

Dad can keep it simple, says nj.com’s recent article, “Does my dad need to pay money to get a new will?” However, doing so will likely cause more trouble for the executor.

The father can create a written list that disposes of tangible personal property, not otherwise identified and disposed of by the will.

The list must either be in the testator’s handwriting or be signed by the testator. This list also must describe the item and the recipient clearly. This list can be created before or after the will is signed.

This list can be amended or revoked. It should be kept with the will or given to the executor, so he or she knows about it and can ensure it is followed.

This list isn’t legally enforceable. The executor may elect to honor such a distribution, assuming the beneficiaries of the other tangible personal property and/or residuary estate agree. That’s so, even if the will doesn’t reference the written list but the testator nevertheless leaves the list.

However, it would not be in the interest of the executor and may be perceived as a breach of fiduciary duty to honor such a list and make such a distribution, if the beneficiaries named in the will object. No one wants to cause a fight over the items on the list, after the parent is gone.

As a result, it would be wiser to invest in having the items added to a revised will to protect the father’s wishes. If some of the beneficiaries got into a quarrel over the items on the list, it could result in a family fight that a properly drafted and executed revision or amendment could prevent.

Reference: nj.com (October 14, 2019) “Does my dad need to pay money to get a new will?”

What Do I Need to Know About an Irrevocable Life Insurance Trust?

“An irrevocable life insurance trust (ILIT) is a structure that cannot in any way be rescinded, amended, or modified, after its initial creation.”

An irrevocable life insurance trust (ILIT) is a trust that can’t be rescinded, amended, or modified after it’s created. ILITs are made with a life insurance policy as the asset owned by the trust. Once the grantor places property or life insurance death benefits into the trust, she can’t alter the terms of the trust or reclaim any of the properties held by it.

As an alternative to designating an individual beneficiary, ILITs offer several legal and financial advantages to heirs. This includes favorable tax treatment, asset protection, and the assurance that the benefits will be used in a manner concurrent with the benefactor's wishes.

Investopedia’s recent article, “When Is It a Good Idea to Use ILIT Trust?” says that there are several advantages to ILITs, including state tax considerations, the protection of fiscally-careless beneficiaries from squandering their payouts and the prevention of courts and creditors from accessing the assets.

An ILIT is often used to set aside assets for certain purposes, like paying estate taxes, because these assets themselves aren’t taxable. To do this, the selected assets must be moved into the life insurance trust at least three years before they’re used. If you use a qualified estate planning attorney to create this, the death benefits paid to the ILIT won’t be included in the gross estate of the insured. This is different than when life insurance death benefits are paid to an individual, because the proceeds are included in the taxable estate of the decedent.

The ILIT also has asset protection for the beneficiaries, if they are involved in a lawsuit. That’s because ILITs aren’t considered to be owned by the beneficiaries. This makes it hard for courts to connect the assets to the beneficiary, making them nearly impossible for creditors to access.

There are some drawbacks to using an ILIT, so carefully consider the pros and cons of creating one. Changes to an ILIT can only be made by the beneficiaries. As a result, the benefactor loses control of the assets prior to death.  ILIT assets also are not taxed as part of the estate, but they are taxed as part of the beneficiaries' estates, leaving a bigger tax burden to their descendants.

Preparing an ILIT is a sophisticated matter, with strict guidelines that must be followed to ensure that it conforms with IRS guidelines. Talk with an experienced estate planning attorney to be sure that it is prepared properly, and that it aligns with your overall estate plan.

Reference: Investopedia (August 5, 2019) “When Is It a Good Idea to Use ILIT Trust?”

How Do I Calculate My Executor’s Fee?

“My parents died five months apart. I am the executor. How is the executor fee calculated fairly?”

An executor's fee is the amount of money that’s charged by the individual who’s been named or appointed as the executor of the probate estate for handling all of the necessary tasks in the probate administration.

If you’ve been appointed an executor of someone’s estate, you may be entitled to a fee for your services.

The executor or personal representative fee could be based upon a variety of factors. Some of these factors may be dependent upon the law in your state, says nj.com’s recent article, “Both of my parents died. How do I calculate the executor fee?”

In most states, the executor fee is set by statute. For example, in New Jersey, it is 5% of the first $200,000 of assets taken in by the executor, 3.5% of the next $800,000 of assets, and 2% on anything in excess of $1 million. Likewise, California has a sliding scale based on the amount of the estate.

However, in Minnesota and Nebraska, the law states that the fee should be “reasonable.”

The amount of work involved is determined by the specific estate. The executor is generally responsible for collecting the estate assets, paying the debts and taxes (if any) and then giving what’s remaining to the heirs.

If you elect to take the commission, it’s taxable income which must be shown on your personal income tax return.

In New Jersey, if there are co-executors, the statute says that an additional 1% can be included to the commission. However, any one executor cannot receive more than the amount to which a sole executor is entitled.

Note that the executor only receives a commission on what he or she takes control of as executor.

This means that the executor doesn’t get a commission on assets that have beneficiary designations on death or that are jointly owned with right of survivorship. These assets pass outside of the will and the executor doesn’t take possession of these assets.

In many instances, the probate estate of the first spouse to die is less than the second. That’s because many of the assets were held jointly with right of survivorship. As a result, they aren’t probate assets and are not subject to the commission.

If that’s the case, the commission on the first spouse’s estate would be much less than the commission on the second estate.

Reference: nj.com (October 10, 2019) “Both of my parents died. How do I calculate the executor fee?”

What Can You Tell Me About a Special Needs Trust?

“If you have a loved one who deals with chronic illness or a disability of some kind, you want to be able to keep supporting them after you’re gone. However, you don’t want to disrupt their ability to collect funds from programs like Medicaid or disability payments. In these situations, you can use a special needs trust.”

A special needs trust is a specific type of trust fund that’s created to help a beneficiary with special needs but not jeopardize their eligibility for programs, like Supplemental Security Income (SSI), Social Security Disability Insurance (SSDI) and Medicaid. KAKE’s recent article, “How a Special Needs Trust Works,” says that programs like SSDI and Medicaid can be vital supports for those dealing with disabilities or chronic illnesses.

These programs have income limits to ensure they’re serving those who need them the most. If you were to just give money to your beneficiary when you pass away, it could come in above this income limit.

A special needs trust works around this. That’s because the owner of the funds is technically the trust, not the beneficiary. You also name a trustee to be in charge of disbursing the funds in the trust. Therefore, while the beneficiary benefits from the trust, she doesn’t have control of its assets.

If you are creating a special needs trust for a beneficiary, you must do this before the beneficiary turns 65. And funds from the trust typically can’t be used to pay for food or shelter.

If a person could benefit from a special needs trust, but they themselves own the funds, you can create a first-party special needs trust in which you serve as both the beneficiary and the grantor. These can be complicated to draw up, and states have varying rules determining their validity. A first-party special needs trust has the money that belongs to its beneficiary.

With a third-party special needs trust, the trust holds funds that a beneficiary doesn’t directly own. These are generally used by grantors to allow the beneficiary to start getting money from the trust, even before their death. The funds never technically belong to the beneficiary, so they can’t be used for Medicaid payments. The trust can be used to save money for the beneficiary and future beneficiaries.

The third type of these trusts is the pooled special needs trust. Nonprofit organizations manage assets for a fee, and these organizations pool the funds of multiple trusts together and invest them. When it comes to payments, beneficiaries get an amount equal to their percentage of the pooled trust’s balance.

A special needs trust lets you write down what you wish your funds’ purpose to be, making it legally binding. Special needs trusts are irrevocable, so you can also protect your funds from creditors and lawsuits against the trust’s beneficiary. It lets you help your beneficiary deal with the expenses that come with illness or disability, without hampering their ability to get other assistance.

Reference: KAKE (September 30, 2019) “How a Special Needs Trust Works”