Estate Planning Blog Articles

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Should I have a Charitable Trust in My Estate Plan?

Charitable trusts can be created to provide a reliable income stream to you and your beneficiaries for a set period of time, says Bankrate’s recent article entitled “What is a charitable trust?”

Establishing a charitable trust can be a critical component of your estate plan and a rewarding way to make an impact for a cause you care deeply about. There are a few kinds of charitable trusts to consider based on your situation and what you may be looking to accomplish.

Charitable lead trust. This is an irrevocable trust that is created to distribute an income stream to a designated charity or nonprofit organization for a set number of years. It can be established with a gift of cash or securities made to the trust. Depending on the structure, the donor can benefit from a stream of income during the life of the trust, deductions for gift and estate taxes, as well as current year income tax deductions when the assets are donated to the trust.

If the charitable lead trust is funded with a donation of cash, the donor can claim a deduction of up to 60% of their adjusted gross income (AGI), and any unused deductions can generally be carried over into subsequent tax years. The deduction limit for appreciated securities or other assets is limited to no more than 30% of AGI in the year of the donation.

At the expiration of the charitable lead trust, the assets that remain in the trust revert back to the donor, their heirs, or designated beneficiaries—not the charity.

Charitable remainder trust. This trust is different from a charitable lead trust. It’s an irrevocable trust that’s funded with cash or securities. A CRT gives the donor or other beneficiaries an income stream with the remaining assets in the trust reverting to the charity upon death or the expiration of the trust period. There are two types of CRTs:

  1. A charitable remainder annuity trust or CRAT distributes a fixed amount as an annuity each year, and there are no additional contributions can be made to a CRAT.
  2. A charitable remainder unitrust or CRUT distributes a fixed percentage of the value of the trust, which is recalculated every year. Additional contributions can be made to a CRUT.

Here are the steps when using a CRT:

  1. Make a partially tax-deductible donation of cash, stocks, ETFs, mutual funds or non-publicly traded assets, such as real estate, to the trust. The amount of the tax deduction is a function of the type of CRT, the term of the trust, the projected annual payments (usually stated as a percentage) and the IRS interest rates that determine the projected growth in the asset that’s in effect at the time.
  2. Receive an income stream for you or your beneficiaries based on how the trust is created. The minimum percentage is 5% based on current IRS rules. Payments can be made monthly, quarterly or annually.
  3. After a designated time or after the death of the last remaining income beneficiary, the remaining assets in the CRT revert to the designated charity or charities.

There are a number of benefits of a charitable trust that make them attractive for estate planning and other purposes. It’s a tax-efficient way to donate to the charities or nonprofit organizations of your choosing. The charitable trust provides benefits to the charity and the donor. The trust also provides upfront income tax benefits to the donor, when the contribution to the trust is made.

Donating highly appreciated assets, such as stocks, ETFs, and mutual funds, to the charitable trust can help avoid paying capital gains taxes that would be due if these assets were sold outright.  Donations to a charitable trust can also help to reduce the value of your estate and reduce estate taxes on larger estates.

However, charitable trusts do have some disadvantages. First, they’re irrevocable, so you can’t undo the trust if your situation changes, and you were to need the money or assets donated to the trust. When you establish and fund the trust, the money’s no longer under your control and the trust can’t be revoked.

A charitable trust may be a good option if you have a desire to create a legacy with some of your assets. Talk with an experienced estate planning attorney about your specific situation.

Reference: Bankrate (Dec. 14, 2021) “What is a charitable trust?”

What Did I Hear about Over-the-Counter Hearing Aids?

The proposed rule comes four years after Congress passed a law mandating that the FDA to establish a category of over-the-counter hearing aids. The agency ran through its August 2020 deadline for doing so, but now has finalized it after a 90-day public commentary period. The FDA’s updated guidelines will create a new category of devices requiring neither a prescription nor a fitting by an audiologist. These will be sold online and at retail stores for adults with mild to moderate hearing loss.

AARP’s recent article entitled “FDA Clears Way for Over-the-Counter Hearing Aids” reports that right now those seeking hearing aids usually must see a health care professional for testing and fitting — a process that can be both costly and lengthy.

“Hearing loss has a profound impact on daily communication, social interaction and the overall health and quality of life for millions of Americans,” Acting FDA Commissioner Janet Woodcock, M.D., said in a statement. “The FDA’s proposed rule represents a significant step toward helping ensure that adults with mild to moderate hearing loss have improved access to more affordable and innovative product options.”

About 15% of U.S. adults (37.5 million) report trouble hearing, according to the National Institute on Deafness and Other Communication Disorders, and fewer than 1 in 3 adults aged 70 and older with hearing loss who could benefit from hearing aids have ever used them. The reason most often cited is the cost. Hearing aids currently cost between $2,000 and $6,000 a pair and are not covered by Medicare or most insurance. The proposed rule is expected to lead to lower prices for consumers, by lowering barriers to entry for hearing aid makers.

The only over-the-counter options now available have been personal sound-amplification products (PSAPs), which increase the volume of all the sounds in a given environment, and which typically cost a hundred dollars a pair.

“Reducing health care costs for everyone in America is a top priority,” Health and Human Services Secretary Xavier Becerra said in a statement. “Today’s move by FDA takes us one step closer to the goal of making hearing aids more accessible and affordable for the tens of millions of people who experience mild to moderate hearing loss.”

Reference: AARP (Oct. 19, 2021) “FDA Clears Way for Over-the-Counter Hearing Aids”

What If an Estate Owes Back Taxes?

If grandma did not finish up all of her duties as the executor of her husband’s estate before she passed away, it would be wise to speak with an experienced estate planning attorney.

An estate planning attorney can help with the issues with estate administration, says nj.com’s recent article entitled “My grandmother’s estate owes back taxes. What next?”

The fiduciary appointed to administer an estate—called an executor or personal representative—is responsible to make certain that all creditors are paid before making distribution of estate assets.

An executor of an estate is the person designated to administer the last will and testament of the decedent. His or her primary duty is to carry out the instructions to manage the affairs and wishes of the decedent.

An executor is appointed either by the testator of the will (the one who makes the will) or by a court, in situations where there is no will (also known as intestacy).

If there is a probate proceeding, the executor is required to officially notify creditors of it pursuant to the state probate statutes.

If there are not enough assets to pay all creditors, state statutes give a priority regarding how creditors are paid.

Funeral expenses and taxes are typically paid first.

Note that if the creditors are not paid, and money is distributed to beneficiaries, the creditors may seek the return of those distributions from the beneficiaries.

However, the executor’s individual assets would not be responsible for payment of estate debts. It is just the assets that are received from the decedent.

As far as taxes, the IRS is still legally entitled to the money owed by the decedent. The federal government will usually go to great lengths to collect it, even if the will instructs the remaining assets to be distributed elsewhere.

Reference: nj.com (Feb. 3, 2022) “My grandmother’s estate owes back taxes. What next?”

What Does New VA Budget Include for Veterans?

Even with many years of significant budget increases, the Department of Veterans Affairs will need billions more in funding in fiscal 2023 to keep pace with the health care and support services needs of veterans and their families, according to a new report released by advocacy groups.

Military Times’ recent article entitled “VA needs more money to keep pace with veterans’ needs, advisory group warns” reports that The Independent Budget—an advisory spending plan compiled by Disabled American Veterans, Paralyzed Veterans of America, and the Veterans of Foreign Wars — calls for a 23% increase in VA program spending over the latest White House request to add funds for priorities like mental health services, caregiver support and homeless veterans assistance.

Advocates say the administration’s plan for fiscal 2021 falls about $4 billion short of the needs of America’s veterans. In fiscal 2001, the entire VA budget totaled about $45 billion. By fiscal 2011, it was about $125 billion, almost triple that total. Ten years later, in 2021, the department’s budget was nearly double that again, at $245 billion.

The White House budget request for fiscal 2022 — which began last October — was $270 billion. Lawmakers have not yet approved a full-year budget for the VA, but are expected to advance discussion on that issue in coming weeks. The administration’s fiscal 2023 budget plan for VA is also expected to be released sometime next month.

Authors of the Independent Budget said their requests for more VA money next year are not wishful thinking but a real assessment of the challenges ahead for the department.

“As we enter into 2022, COVID’s impact remains a challenge for VA, with the spread of the virus and disruptions to health care systems continuing,” said Randy Reese, executive director of DAV’s Washington Headquarters. “In this environment, we made cautious recommendations based on historical trends to ensure the needs of our nation’s ill and injured veterans are met.”

Under the Independent Budget plan, VA officials would see a $1.8 billion uptick to health programs to “close the gap in clinical care” at department medical centers.

“The lack of adequate health care staffing has been a major driver of longer waiting times for veterans seeking VA care, and ultimately has the effect of suppressing the true level of veterans’ demand for care,” the report states. “It also forces many veterans who would prefer to receive their care from VA providers into community care providers.”

The organizations have also called for $490 million above the pending White House request for caregiver support programs, $395 million more for homeless veterans’ programs and $288 million more for mental health services and suicide prevention efforts.

Reference: Military Times (Feb. 7, 2022) “VA needs more money to keep pace with veterans’ needs, advisory group warns”

Can a Teddy Bear Help Elderly with Dementia to Communicate?

This cuddly bear engages with individuals with memory disorders.

WGAL’s article entitled “Talking teddy bear gives patients with dementia a new way to connect” reports that Cue Teddy is the brainchild of Dr. Roger Nelson.

Dr. Nelson is a retired physical therapist whose family dealt with dementia. He saw a need that was not being met.

“They lacked this ability of being able to talk and to think and then to connect with other people,” he said.

Dr. Nelson, therefore, teamed up with Rod Tosten, the vice president of IT at Gettysburg College, to bring the bear to life.

“Cue Teddy cues the individual to move and to stay active,” Tosten said.

The bear goes through a series of questions and commands, tapping into three areas of the brain: thought, motion and touch.

“One of the things we’re testing is what colors work well and what kind of fabric works well,” Tosten said.

But why a teddy bear?

“Everybody kind of remembers their first teddy bear they ever got and the name of the teddy bear,” Nelson said.

In addition, making people remember is part of the goal.

“I hope that a lot of people adopt it and use it because it’s a valuable tool,” Nelson said.

“To be able to help other people is just amazing. I just love working on this,” Tosten said.

Cue Teddy is currently in the early stages of development. When it is ready, the two creators will be looking for a partner to mass produce it.

Reference: WGAL (Feb. 14, 2022) “Talking teddy bear gives patients with dementia a new way to connect

Why Is Estate Planning Review Important?

Maybe your estate plan was created when you were single, and there have been some significant changes in your life. Perhaps you got married or divorced.

You also may now be on better terms with children with whom you were once estranged.

Tax and estate laws can also change over time, requiring further updates to your planning documents.

WMUR’s recent article entitled “The ‘final’ estate-planning step” reminds us that change is a constant thing. With that in mind, here are some key indicators that a review is in order.

  • The value of your estate has changed dramatically
  • You or your spouse changed jobs
  • Changes to your income level or income needs
  • You are retiring and no longer working
  • There is a divorce or marriage in your family
  • There is a new child or grandchild
  • There is a death in the family
  • You (or a close family member) have become ill or incapacitated
  • Your parents have become dependent on you
  • You have formed, purchased, or sold a business;
  • You make significant financial transactions, such as substantial gifts, borrowing or lending money, or purchasing, leasing, or selling assets or investments
  • You have moved
  • You have purchased a vacation home or other property in another state
  • A designated trustee, executor, or guardian dies or changes his or her mind about serving; and
  • You are making changes in your insurance coverage.

Reference: WMUR (Feb. 3, 2022) “The ‘final’ estate-planning step”

Does Marriage have an Impact on a Will?

It is very difficult to challenge a marriage once it has occurred, since the capacity needed to marry is relatively low. Even a person who is under conservatorship because they are severely incapacitated may marry, unless there is a court order stating otherwise, says the article “Estate Planning: On Being Married, estate planning and administration” from Lake Country News. This unfortunate fact allows scammers to woo and wed their victims.

What about individuals who think they are married when they are not? A “putative” spouse is someone who genuinely believed they were married, although the marriage is invalid, void, or voidable because of a legal defect. An example of a legal defect is bigamy, if the person is already married when they marry another person.

Once a couple is married, they owe each other a duty to treat each other fairly. In certain states, they are prohibited from taking unfair advantage of each other. Depending on the state of residence, property is also owned in different ways. In a community property state, such as California, marital earnings and anything acquired while married is presumed to be community property.

In a community property state, debts incurred before or during the marriage are also shared. In a number of states, marriage is sufficient reason for a creditor to come after the assets of a spouse, if they married someone with pre-marital debts.

There are exceptions. If a married person puts their earnings during marriage into a separate bank account their spouse is not able to access, then those deposited earnings are not available for debtor spouse’s debts incurred before the marriage took place.

If a married person dies without a will, also known as “intestate,” the surviving spouse is the next of kin.  In most cases, they will inherit the assets of the decedent. If the decedent had children from a prior marriage, they may end up with nothing.

These are all reasons why couples should have frank discussions about finances, including assets and debts, before marrying. Coming into the marriage with debt may not be a problem for some people, but they should be advised beforehand.

A pre-nuptial agreement can state the terms of the couple’s financial health as individuals and declare their intentions. An experienced estate planning attorney can create a pre-nuptial to align with the couple’s estate plan, so the estate plan and the pre-nuptial work together.

Marriage brings rights and responsibilities which impact life and death for a couple. Starting a marriage based on full disclosure and proper planning clears the way for a focus on togetherness, and not solely the business side of marriage.

Reference: Lake Country News (Feb. 12, 2022) “Estate Planning: On Being Married, estate planning and administration”

Am I Getting All the Social Security Benefits I Can?

Money Talks News’ recent article entitled “7 Social Security Benefits You May Be Overlooking” says that the Social Security Administration provides payments to spouses, children and those with disabilities, among others. Let’s look at this in detail.

  1. Spousal benefits via a husband or wife. Spouses can get up to half of their husband’s or wife’s monthly benefit. Even stay-at-home spouses without their own work history can claim benefits with this method. You can start claiming spousal benefits as early as age 62. However, benefits are reduced if payments begin before your full retirement age. If you are entitled to your own benefits, as well as spousal benefits, you will get an amount equal to whichever benefit level is greater.
  2. Spousal benefits via an ex-spouse. Even if you are divorced, you may be entitled to get spousal benefits. However, all of the following must apply to your situation:
  • Your ex-spouse is entitled to receive Social Security benefits;
  • You were married at least 10 years to your ex-spouse;
  • You are currently unmarried; and
  • You are at least 62 years old.

The benefit that you are entitled to get based on your own work is less than the benefit you would receive based on your ex-spouse’s work. Claiming spousal benefits as a divorced person does not impact your ex’s benefit amount. It also does not affect any benefits their current spouse can receive, if they have remarried.

  1. Survivor’s benefits for widows and widowers. If your spouse dies, you may still be able to receive up to 100% of their Social Security retirement benefits. Divorced spouses may also be able to get survivor’s benefits, if they were married for at least 10 years and are now unmarried. Most widows and widowers can begin claiming survivor’s benefits as early as age 60. Those who have a disability and became disabled prior to or within seven years of their spouse’s death can start benefits as early as age 50. In addition, widows and widowers of any age can get survivor’s benefits, if they are caring for a deceased worker’s child who’s younger than age 16 or disabled.
  2. Survivor’s benefits for children. Children can get payments from a deceased parent’s record as well. Survivor’s benefits are available to children up to age 18 (or 19 for if attending elementary or secondary school full-time) These benefits may extend beyond that, if a child becomes disabled and remains disabled before age 22. Depending on the circumstances, grandchildren and stepchildren may also be eligible for these benefits.
  3. Parent’s benefits. Parents who depended on their children for financial support may be eligible to get benefits from Social Security if that child dies. To be eligible , you have to meet a number of criteria, including the following:
  • The deceased worker must have sufficient work credits to qualify for Social Security benefits;
  • You must be at least age 62 and, in most cases, cannot be married after the worker’s death;
  • You must have received at least half of your support from the deceased worker at certain points in time;
  • You were the natural parent or became the legal adoptive parent or stepparent prior to the worker turning 16 years old; and
  • You are not eligible for a retirement benefit from Social Security that exceeds the parent’s benefit.
  1. Disability benefits. To get monthly benefits through the Social Security Disability Insurance program you must have a work history that makes you eligible for Social Security and be unable to work now because of a medical condition that is expected to last at least a year or end in death.
  2. Supplemental Security Income. These benefits do not come from Social Security taxes, but rather the program uses general tax dollars to provide benefits to adults and children with disabilities, blindness, or limited income and resources. The SSI program is designed to provide cash assistance for basic needs, such as food, clothing and housing. Because it is funded by general tax revenue, there is no work history requirement to receive these benefits.

Reference: Money Talks News (Feb. 8, 2022) “7 Social Security Benefits You May Be Overlooking”

What Can’t I Forget in My Will Now that I’m 50?

Yahoo News’ recent article entitled “If You’re Over 50, Don’t Leave This Out of Your Will, Expert Says” fills us in on what we can’t forget in a will after the big 5-0.

Incapacity. A 2021 survey from Caring.com says that almost two-thirds of adults do not have a will. Even those thinking about estate planning do not consider a plan for addressing the possibility of incapacity.

Ask an experienced estate planning attorney to create a power of attorney, so in the event you are incapable of making decisions because of your mental state or disability, you have someone you trust doing it for you.

More than a will. A will should be one component of a comprehensive estate plan that addresses who gets what when you die, but also who can take care of business, if you are not able to care for yourself. Naming a person in advance lets you to avoid having court involvement and lets you take control of your future.

The law has many ways for you to select who will have authority and care for you, if you become incapacitated. This is something that you can and should discuss with an experienced estate planning attorney.

Will backups. Designating loved ones you trust should be the rule in all facets of estate planning. However, it is critical to be certain that you have backups (“successors” or “alternates”), in the event that a person you’ve selected can’t fulfill their role.

Many people around age 50 who see their thriving, productive children making their way in the world fail to consider the thought that their children may not be available or able to serve a role. Designating more than one backup might not seem like it is a big deal, but you should consider the possibility that a loved one might be incapacitated, predecease you, or be unavailable.

Keep your will current. As your life changes, so do your needs. Therefore, it is vital to be sure that your will is up-to-date. You should review your will regularly (at least every few years) to make sure that it still reflects your current thinking.

You should also be sure you know where an original copy of the will is located. It is important to keep track of it. You can leave it locked away with your attorney or some other secure place, but you need to know where it is.

Reference: Yahoo News (Feb. 6, 2022) “If You’re Over 50, Don’t Leave This Out of Your Will, Expert Says”

What are States Doing to Help Pay Long-Term Care Costs in Future?

Starting this year, workers in Washington state must pay 58 cents of every $100 they earn into the Washington Cares Fund. That money will help pay their long-term care costs in the future. Those with qualifying long-term care insurance can be eligible for an exemption.

Next Avenue’s recent article entitled “How Medicaid and Medicare Fit Into Planning for Long-Term Care” says that starting in 2025, those Washington residents who’ve paid in for at least three out of the prior six years, or for 10 years in total, will be able to withdraw up to $36,500 to pay for their costs of care. It is an effort by the state to fill in a major gap in our long-term care system. California has also enacted a law to bring down the eligibility threshold for Medicaid to totally eliminate it by the end of 2023. New York state is considering similar legislation.

Any senior may need assistance as they age, whether due to dementia, illness, loss of eyesight, or simple frailty. The level of assistance and how long it will last can vary greatly. However, few retirees have enough saved to pay for their care for very long out-of-pocket. According to research from Boston College, more than half of today’s 65-year-olds will need a medium to high level of assistance for more than a year. Almost two thirds of that care will be provided by family members – mostly children and spouses – for no cost, but more than a third will be provided by paid caregivers.

According to the Congressional Research Service, 43% of long-term care services are paid for by the Medicaid program, 20% by Medicare, 15% out-of-pocket and 9% by private insurance. The rest comes from a combination of private and public sources that includes charitable payments and VA benefits.

Medicare Coverage. This is the federal health insurance program for people beginning at age 65. Note that Medicare only covers so-called “skilled” needs following a hospitalization. It pays for up to 100 days of care in a skilled nursing facility following a hospitalization and longer term for home health services.However, the home health coverage is not comprehensive.

Medicaid Coverage. The financial rules for Medicaid coverage are complicated and state-specific. However, generally people must spend down to about $2,000 in savings and investments. Planning to use Medicaid to pay for long-term care is also complicated by the fact that while its coverage of nursing home care is comprehensive, its payment for home care and assisted living facility fees is only partial and differs both from state to state. Even if you may be able to leverage Medicaid to help pay home and assisted living care, you must also rely on your own savings.

Out-of-Pocket Costs. The low percentage of long-term care costs paid for out-of-pocket is surprising, in light of the vast growth of both assisted living and private home care agencies over the last several decades. However, this demonstrates the fact that most older adults have limited resources to pay for anything beyond their basic living expenses. When the need for care arises, they must rely on family members or Medicaid.

Insurance. A large component of insurance coverage of long-term care consists of Medicare supplemental insurance payments for skilled nursing facility copayments. While Medicare will pay for up to 100 days of skilled care following a hospitalization, it actually pays entirely for only the first 20 days. For days 21 through 100, there is a copayment which for most is paid by their MediGap insurance. As such, long-term care insurance pays for a very small share of long-term care costs. For those who have coverage, it can be terrific. However, due to its high cost, those who have it often also have the resources to pay for their care out-of-pocket, at least for some period of time.

Veterans Benefits. More vets are taking advantage of a Veterans Administration benefit known as Aid & Assistance that will provide veterans who qualify financially with up to $2,431 a month (in 2022) to help pay for their care.

Reference: Next Avenue (Feb. 2, 2022) `“How Medicaid and Medicare Fit Into Planning for Long-Term Care”