King & Wood, P.A.

Make Sure the Kids Don't Blow Their Inheritance

 

"Is there a way we can restrict the [children's] use of the inheritance to health/education/necessities?"

A couple with four children may want to split their estate four ways when they pass away. However, what do they do if two of their children never grew up and would spend their legacy on extravagances and questionably needy friends?

A recent New Jersey 101.5 article, "How to plan for spendthrift children," recommends the use of a trust. Trusts are used in estate planning to restrict the use of assets by the beneficiaries and/or to protect the inherited assets from the creditors of the beneficiaries.

A trust for children can be established in the parent's will or other testamentary documents—like a revocable trust—which will be effective upon his or her death. Another way to do this is to create a trust in a separate trust document during the parent's lifetime. This is then funded during his or her lifetime and/or by a direction in the will at death.

The parent will have to designate a trustee to administer the trust. This can be an individual or a financial institution or a combination of both. This should be a trusted individual who will make distributions to the child in his or her best interest and in accordance with the terms of the trust.

Trustees are typically entitled to be compensated, but that compensation can be waived or set in a separate agreement.

For example, the trust can set forth the terms of distribution. This language can be very broad—such as "in my trustee's discretion"—or more defined—such as "in my trustee's discretion for the benefit of my child's health, education and welfare after taking into consideration all other income and assets available to my child."

In addition, the distribution of funds can be directed to be made at specific ages (e.g., 21, 30, or 40) or for specific purposes like education or a first home. A spendthrift provision in the trust, which may not be necessary, shows the parent's intention that the beneficiary was not to have the voluntary or involuntary right to assign rights or assets in the trust to third parties, especially his or her creditors.

Whatever you decide to do, be sure you get it done through a qualified estate planning attorney.

Reference: New Jersey 101.5 (May 5, 2016) "How to plan for spendthrift children"

Hedge Your Bets with Long-Term Health Care Planning

 

"Nothing can wipe out a retirement like a health problem."

Long-term care planning is something most Americans fail to do for themselves or for their loved ones. This can put adult children in a position of feeling helpless and lost when the time comes to make arrangements for their parents' care.

WIVB's recent article, "The cost of caring for aging parents: How to plan for long-term care," also notes that saving for retirement isn't a big priority for many Americans, let alone saving for long-term care.

Statistics show that almost 50% of all Americans don't have a retirement savings account. Of those who do, the average amount in the account of a person between 50-55 years old is only $124,831. That hardly covers many years in a nursing home.

Statistics show that 70% of people over 65 will need some type of long-term care. However, it's difficult to do something about it because most people don't want to think about their health deteriorating.

Options for elderly people who need constant medical care include nursing homes and assisted living facilities. These can cost several thousand dollars a month. Another option is a home health aide, which costs about $20/hour. That can add up quickly if your loved one needs eight to twelve hours of care every day and there's no insurance to cover it.

In most instances, Medicare will not cover long-term health care costs. While it might cover up to five or six weeks of home health care after a surgery or hospitalization, further costs would have to go under Medicaid. That program has very low income/asset threshold qualifications.

The other option is purchasing long-term care insurance. Because of the fact that this is a type of care 70% of people will use, the premiums are high. Life insurance is another way you can help cover the cost.

Some insurance companies have a rider to their life insurance contracts for long-term care that allows individuals to use some of the death benefit to help pay for long-term care expenses. There still will be a benefit inside the life insurance contract that could be paid to a beneficiary. But "self-insuring" isn't the best way to go since it's risky, and it can end up costing more in the long run.

Always a great option: talking to an elder law attorney to learn about protecting your loved ones and assets from the costs associated with long-term care.

Reference: WIVB (May 4, 2016) "The cost of caring for aging parents: How to plan for long-term care"

The 411 on Health Savings Account Rollovers

 

"You can roll over an IRA into an HSA once in your lifetime. You may save on taxes, but the rules are tricky."

Kiplinger's recent article, "Rolling over Retirement Savings to a Health Savings Account," advises that you can make a tax-free rollover into an HSA (health savings account) from an IRA—but not from a 401(k), 457, or other retirement plan.

But if you have a 401(k) from a former employer, you may be able to make the move by rolling it over into an IRA first and then making a tax-free direct transfer from the IRA into your HSA. At that point, you can use the money in the HSA tax-free for medical expenses in any year.

Remember that if you withdraw funds from a traditional IRA to pay medical expenses or anything else, there will be taxes to pay, and you may have to pay a 10% penalty if you're under 59½. You can make penalty-free IRA withdrawals for medical expenses that are more than 10% of your adjusted gross income for the year, or more than 7.5% if you're 65 or older.

Here's the big point to keep in mind: you can make a tax-free rollover from an IRA to an HSA only once in your lifetime. And you must qualify to make new HSA contributions that year. This year you need to have a health insurance policy with a deductible of at least $1,300 for individual coverage or $2,600 for family coverage.

The size of the rollover is restricted to the annual HSA contribution limit, minus any money you've already contributed for the year. For this year, you're allowed to contribute up to $3,350 to an HSA if you have individual coverage or $6,750 for family coverage, plus an extra $1,000 if you're 55 or older anytime during the year.

If you have the extra cash, typically you're better off using the new money for HSA contributions so that you can keep more money growing tax-deferred in your IRA and also take a tax deduction for new HSA contributions.

Reference: Kiplinger's (April 20, 2016) "Rolling over Retirement Savings to a Health Savings Account"

How to Prepare for the Unexpected Loss of a Spouse

 

"…there is good that comes out of being pushed to get your financial ducks in a row: you'll feel empowered even in the midst of your grief. You'll still mourn deeply, but this empowerment will remind you that you can and will persevere."

The Huffington Post notes in a recent article, "The Business of Surviving a Spouse," that when a spouse dies suddenly at a fairly young age, it's hard to understand that the business of life moves on whether or not you're ready.

While some decisions may be put off because they're too personal, there are decisions that need to be made that are simple and straightforward. These are usually issues that concern getting the affairs of the deceased in order. It may seem daunting and overwhelming, but the right guidance and preparation can be a big help.

Consult with an estate planning attorney to help you submit claims for benefits due as the surviving spouse and assess your spouse's debts and assets. However, in order to do this, you need to collect the following documents:

• At least 10 original death certificates (from the funeral home or the Vital Statistics office where the death occurred);
• Estate planning documents, such as the will and trusts;
• Insurance policies;
• The most recent credit card and mortgage statements;
• Investment account statements;
• The past three years of tax returns;
• Marriage, birth, and (if applicable) divorce certificates of the spouse and children of the deceased;
• Checking and savings account statements;
• Any other loan documents;
• Car registrations; and
• Social Security information.

With these documents and information at the ready, notify these institutions of the death to close out accounts and submit claims:

• The spouse's employer;
• Social Security;
• Veterans Affairs (if applicable);
• S. Postal Service;
• The Department of Motor Vehicles;
• Insurance companies;
• Credit bureaus;
• Financial institutions;
• Service providers; and
• Any charities that automatically withdraw a donation from a checking account.

Deal with the black-and-white matters first, which will encourage you to address more difficult decisions.

Reference: Huffington Post (April 2, 2016) "The Business of Surviving a Spouse"

How Do You and Your Spouse Hold Title to Your Property?

 

"What is the difference between 'joint tenancy' and 'joint ownership'?"

MoneySense's article, "Joint tenancy vs. tenants in common," explains that most property can be owned either personally or jointly. Whether you should own property jointly with a spouse or other person is based upon your intention.

Jointly held property can be held either as joint tenants or as tenants in common. Joint tenancy has what is called the right of survivorship. This means that upon the death of one of the owners, the ownership of the asset—for example, the house that you and your spouse own—passes in equal shares to the surviving owner.

Tenants in common, by contrast, have their shares of an asset become part of their estate. This results in the asset being distributed after their death based on their will.

Owning property jointly may be a bit unclear because joint ownership could mean either joint tenancy or tenancy in common.

Most spouses own property as joint tenants. Their share goes directly to their surviving spouse on their death. However, in some scenarios, such as a second marriage, tenancy in common may be a better choice so that the asset can be willed to the children of the deceased spouse. This situation can be complicated, so speak with an estate planning attorney.

Remember that there are tax issues related to joint ownership. Just adding a spouse's name to an account doesn't make the account joint for tax purposes. Adding a spouse as a joint owner on most assets—like bank accounts, investment accounts or real estate—won't generally create any immediate tax issues, but adding them to other assets—like a private corporation—might.

Reference: MoneySense (May 10, 2016) "Joint tenancy vs. tenants in common"

Tips on Creating a "Life After Me" Document

"A 'Life After Me' document is not legally binding in any way. Instead, the goal is to help the executor of your estate – and your loved ones – find what they need easily and quickly."

Once they have their estate planning in place, many baby boomers are creating a "Life After Me" document that lets them say goodbye to their family in a heartfelt letter that discusses the things that may have been too difficult to say in person.

A Place for Mom's article, "How to Prepare a 'Life After Me' Document," says that a touching goodbye isn't the only purpose of this document. It also provides you with the opportunity to leave critical information that you might not want to share until you're gone.

Make sure to add these types of pieces of information:

• A list of people to contact in the event of your death and the location of your contacts info;
• Burial arrangements, especially if prepaid, including cemetery deeds and detailed funeral arrangements;
• Proof of loans and debts owed;
• Receipts;
• Family history, including the location of your family tree (if you have one);
• Medical history;
• Keys or codes to deposit boxes and safes;
• The location of your personal identification, including birth certificate or proof of citizenship, driver's license, passport, veteran's identification;
• The physical location of the documents that your executor of your will and your loved ones will need, such as a completed authorization to release any medical information, divorce papers, and escrow mortgage accounts;
• Individual and group retirement accounts, including 401(k) accounts, pension documents, annuity contracts, life insurance policies, marriage license, property deeds, stock certificates, savings bonds, and brokerage information;
• Vehicle titles;
• Estate planning documents; and
• Usernames and websites for your online accounts.

Keep a copy on your computer and label it "Open Upon My Death." You could also have a video file for your loved ones where you can say your goodbye in a video. In addition, place a hard copy in a sealed envelope labeled "Open Upon My Death" with your name on the front, stashed in your bureau or in your desk at home. And remember to tell your loved one(s) that this "Life After Me" document exists and where to find it. Tell them to open it only upon your death.

A "Life After Me" document can be a great testament to your family. It shows them how much you care, lets you have one final goodbye, and—most importantly—makes the aftermath of your death less stressful for those you love by ensuring your estate and related details are organized and easy to find.

Reference: A Place for Mom (April 28, 2016) "How to Prepare a 'Life After Me' Document"

The Three Top Fears in Retirement

"If you're wringing your hands a bit about retirement, you're not alone."

Baby boomers have begun to think about several concerns as they prepare for retirement. A recent survey found that of the top fears of workers nearing retirement, these three were the ones keeping people up at night. The Motley Fool's article, "3 Biggest Fears Facing Would-Be Retirees," examines each of them.

No. 3: Social Security's dim outlook. The Social Security Administration says that 53% of married couples and 74% of unmarried Americans count on Social Security for at least half of their retirement income, and about half of unmarried persons rely on Social Security checks for at least 90% of their retirement income. That's scary.

Social Security's difference between income and outgo isn't expected to run dry until 2029. Even when that does happen, the Congressional Budget Office estimates that the system can still support 70% of projected benefits in 2030.

No. 2: Declining health results in long-term care. The average cost of a semi-private room in a nursing home is about $6,200 per month, while assisted living facilities can cost an average of $3,300 per month. Those costs are far more than the average Social Security check and will erode most retirees' savings fast—long-term care isn't covered by typical health insurance programs like Medicare. It will pay for a short stay in a skilled nursing facility after a hospitalization, but it won't pay for most long-term care expenses, like custodial care.

Medicaid offers more help with long-term care expenses, but it's only for those who have low incomes and few assets. More than 40% of men and 50% of women age 65 are expected to live into their mid-80s, which means that there's a good chance most Americans will have to pay long-term care expenses. Folks should consider long-term care insurance. Although it isn't cheap, it can help protect income and savings in retirement. Talk to an experienced elder law attorney about your options, such as a Medicaid Trust.

No. 1: Outliving retirement savings. The median retirement savings of American workers is about $63,000 and most advisors recommend withdrawing no more than 4% of those savings per year in retirement. With that, the nest egg isn't going to do much for day-to-day living. If you're in your 50s, you can still save more money.

Getting your finances in order prior to retirement may seem daunting. Nonetheless, preparation is the key to designing the kind of financial plan necessary to allow you to live a financially secure retirement.

Reference: Motley Fool (April 27, 2016) "3 Biggest Fears Facing Would-Be Retirees"

Come on, Seniors, Blaze a Trail!

"Health care needs and legal/financial situations are often intertwined for older adults."

May is here, and in addition to celebrating the arrival of spring, this month has been designated as Older American's Month and National Elder Law Month.

The theme for Older Americans Month is "Blaze a Trail," which is exactly what advocates for older adults and their families are doing. The (Carlisle, PA) Sentinel's article, "Elder Care: Elder law vs. elder care," says that if you open any telephone book or do a search online, a number of attorneys will advertise the practice of elder law—often thought of as estate planning (wills and powers of attorney) and estate administration (the execution of a will and management of the financial affairs of a person who has passed away).

Many times we hear about difficult situations, resolved into neat packages that are each tied with a bow. These are the result of a plan that implements care coordination services in addition to traditional legal services. In many situations, creative thinking and planning by qualified elder law attorneys who are familiar with healthcare and support providers achieves these best possible outcomes. Flexibility and cooperation by service providers is an essential element in achieving success.

When obtaining appropriate care is combined with legal and health system knowledge, most family situations involving seniors that don't fit neatly into a category can be sorted through and resolved by an experienced legal professional. Stress is reduced, and everyone will be as comfortable as possible with the result.

Call it elder law or elder care, it often takes both to help seniors blaze a trail in their senior years.

Reference: The (Carlisle, PA) Sentinel (April 27, 2016) "Elder Care: Elder law vs. elder care"

The Long List of Famous People Who Didn't Have Wills

"Prince's fusion of rock and funk was sui generis. But his apparent lack of a will isn't."

The Wall Street Journal reports in the April 27 article, "What Prince and Abraham Lincoln Have in Common," that the purple rock royal joins a pantheon of famous people who left the world without instructions on how to distribute their property. Here are a few notable will-less people throughout history:

Abraham Lincoln: "So great a man as Abraham Lincoln left no will, though he had a considerable estate," wrote St. Louis law professor Virgil M. Harris a century ago in his often-cited history of wills. More recently, a 2012 Forbes article looked into the Great Emancipator's less-than-great estate planning. By noon on the day he died—April 15, 1865—Lincoln's oldest son, Robert, sent a telegram to Justice David Davis of the U.S. Supreme Court, a close friend of Lincoln. The telegram said, "Please come at once to Washington to take charge of my father's affairs. Answer." Davis went to Washington, and Mrs. Lincoln and Robert wrote a letter to the judge in Illinois asking that he appoint Davis as the administrator of Lincoln's Estate. Davis reported that the estate was believed to be worth $85,000 and would be divided between Mary and Lincoln's two living children at the time, Robert and Thomas. The sum would be worth at least a few million dollars today—a lot of money to pass without a will.

Pablo Picasso: "One of Picasso's lawyers told me he urged the artist many times to make a will but that 'he never did because of superstition. A way of avoiding death, one might say,'" wrote an estate planning attorney.

Howard Hughes: "People claiming to be Hughes' children or beneficiaries of his will are legion and have been a cottage industry since he died in 1976," Hughes biographer James B. Steele told the Sandusky Register in 2012. After the billionaire's death, there was speculation as to the whereabouts of his last will and testament. Hughes had most likely left a holographic will, a handwritten will. In his 1972 press conference, Hughes announced that he planned to leave his money to the Howard Hughes Medical Institute in Miami. After an intense search for the will, there was no proof of its existence. The evidence was overwhelming that after the 1920s Hughes refused to execute a will.

Jimi Hendrix: The battle over Hendrix's estate went on for more time than the rock legend was alive. In 2015, The Seattle Times reported that the latest family feud between Hendrix's adopted sister and his brother over Jimi's estate had been resolved. Experience Hendrix, L.L.C., which owns the rights to the Hendrix estate and is controlled by Janie Hendrix, settled out of court with HendrixLicensing.com—operated by Leon Hendrix—for damages associated with the sale of merchandise that capitalized on Hendrix's fame.

Many men of wealth and distinction die without a will. Don't you be one of them.

Reference: Wall Street Journal (April 27, 2006) "What Prince and Abraham Lincoln Have in Common"

 

Hold Off Erasing All Memories of Tax Season!

"Here are three specific things to consider when thinking about how you're managing your wealth for the long term before you put tax season behind you."

If there's one time of year we're apt to have money and finances at the top of our minds, it's tax season. In fact, a recent survey found that about 50% of respondents use tax season to be more proactive about managing their broader wealth and financial situations.

The Business Journal reports in "Taxes done? Not so fast… Here are 3 things to think about" that there are several things to think about in terms of how you're managing your wealth for the long term before you blot taxes from your consciousness. Active engagement with your money can make a real difference when it comes to achieving your financial goals. Rather than selective amnesia with tax season, try some financial awareness throughout the year because tax season provides a great opportunity for people to think more holistically about wealth management and financial planning.

With the return freshly filed, all your financial information is right in front of you. It's a great time to review and update financial goals, as well as your plan on how to achieve them.

• Retirement Savings Plan. Review your retirement savings plan to be certain you're on track for your goals and to check that you're contributing enough to get the maximum benefit if you have an IRA or 401(k).
• Charitable Giving. Examine your charitable giving plan to determine whether you should up your donations to ease tax burdens.
• Estate Planning. Look at your estate plan and make sure it's current. According to a recent survey, just 19% of investors take the opportunity to develop or assess their estate plans when reviewing tax documents—even though this is a vital part of a holistic financial plan.

While many people are on the right track when it comes to their financial plan, there's always room for improvement. Before you put everything back in the file cabinet, take time to think about your financial situation, goals, and a strategy to get there.

Reference: The Business Journal (April 18, 2016) "Taxes done? Not so fast… Here are 3 things to think about"