Estate Planning Blog Articles

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early retirement

Should I Take the Early Retirement Package Offered at My Job?

As tempting as an early retirement package sounds, it’s a decision that should be made only after analyzing it carefully. What the early retirement decision boils down to is: “Can I afford to do it?”

AARP’s recent article entitled “What to Consider When You’re Offered an Early Retirement Package” explains that many early retirement packages include salary severance (such as receiving one or two weeks’ pay for each year of service); extended health insurance coverage and a pension-related payout.

However, just because you’re offered an early retirement package, it doesn’t mean you have to retire if you take it.

The first question is whether you’d consider working after taking your company’s early retirement offer. Taking a voluntary buyout when you plan to keep working is a different decision, than if you’re considering retirement. If you have a new job and will still be collecting a paycheck after the buyout, you might save some of that cash.

The analysis is more difficult when your future job prospects are poor, or you’re planning on using the voluntary buyout as retirement funds.

The older you are — and the nearer that the offer is to your planned retirement date — the better. If you are 63½ when you get a buyout offer, if you have enough savings, a well-stocked 401(k) or IRA retirement plan and no large debts, you’d be “within the window” to take the buyout. The reason is that you’re only 18 months from being eligible for Medicare health insurance at age 65. The Consolidated Omnibus Budget Reconciliation Act (COBRA) allows workers to continue their employer-based health coverage for up to 18 months. This applies even if the termination is involuntary. Most early retirement packages offer COBRA benefits. You’ll have to pay for COBRA, but it will be a bridge to age 65 when your Medicare coverage begins. See if you can get coverage by joining your spouse’s plan, if he or she is employed and has a plan at work. You can also shop for your own private plan through the federal government-run Health Insurance Marketplace. However, don’t attempt to go without health care because you’ll need it.

You’ll need money in retirement to pay your monthly bills. Therefore, you should do an expense audit and figure out what your monthly costs are now and what they’ll be in the future. Based on the expense audit, see if you’ve got enough income or assets to cover your budget.

Look at whether the buyout terms are attractive enough to let you to leave your job and bridge the income gap, until retirement age of 65 or you get a new job. If it doesn’t, you might be better off not taking it. A severance payment of six months to a year might give you enough time to find a new job, but for most, a month or two of severance won’t be enough.

Reference: AARP (Aug. 28, 2020) “What to Consider When You’re Offered an Early Retirement Package”

grandchild's college tuition

How Can I Help with My Grandchild’s College Tuition?

To assist with college tuition for younger children or grandchildren, you may want to defer the receipt of funds, until the child or grandchild needs to pay for tuition down the road. You can make a gift into a custody account or into a trust that qualifies as a current gift under the Uniform Gifts to Minor’s Act, or you can fund a Qualified Tuition Plan under IRC Section 529.

Forbes’ recent article entitled “Estate Planning Primer: Qualified Tuition Plans” explains that there are two kinds of 529 programs: prepaid plans and savings plans. The advantage of a 529 plan over a Unified Gift to Minors Act plan is that the earnings on the assets in the 529 plan aren’t taxed, until the funds are distributed. The distributions are also tax-free up to the amount of the student’s “qualified higher education expenses.”

Prepaid Programs: Some colleges let you buy tuition credits or certificates at the current tuition rates, even though your grandchild won’t be starting college for several years. This allows you to lock in today’s rates for her enrollment some years later. This move can resultant in substantial savings, since tuition continues to rise at most institutions.

Savings Programs: Similar to a Traditional IRA or a Roth IRA, tuition amounts covered by a savings plan are dependent on the investment performance of the money you have in the plan. If it grows, more cost can be covered. But if it declines, less will be covered. Therefore, it is good to be conservative, if the need for distributions is nearing soon.

Qualified Higher Education Expenses: Tuition (including up to $10,000 in tuition for an elementary or secondary public, private, or religious school), fees, books, supplies, and required equipment, as well as reasonable room and board are qualified expenses, if the student is enrolled at least half-time. Distributions in excess of qualified expenses are taxed to the student, if they represent earnings on the account. A 10% penalty tax is also imposed.

Beneficiary: The beneficiary of the program is specified when you start the funding. However, you are able to change the beneficiary or roll over the funds in the program to another plan for the same or a different beneficiary without income tax liability.

Eligible Schools: Any college, university, vocational school, or other post-secondary school eligible to participate in a student aid program of the Department of Education will be eligible schools for these programs.

The contributions made to the qualified tuition program are treated as gifts to the student. They qualify for the annual gift tax exclusion ($15,000 per person per year for 2020) adjusted annually for inflation. If your contributions in a year exceed the exclusion amount, you can elect to take the contributions into account over a five-year period starting with the year of the contributions.

Note that you may not be able to make the distributions from the program when a very young (or unborn) beneficiary goes to college, so name an alternative custodian, perhaps a parent of a grandchild, to make distributions for you.

Reference: Forbes (Aug. 5, 2020) “Estate Planning Primer: Qualified Tuition Plans”

estate plan goals

Gifting Can Help Estate Plans and Heirs Reach Goals

The applicable exclusion amount for gift/estate tax purposes is $11.58 million in 2020, a level that makes incorporating gifting into estate plans very attractive for high net-worth families. If a donor’s taxable gift—one that does not qualify for the annual, medical or education exclusion—is in excess of this amount, or if the value of the donor’s aggregate taxable gifts is higher than this amount, the federal gift tax will be due by April 15 of the following year. The current gift tax rate is 40%.

This presents an opportunity, as described in detail in the article “The Case for Gifting Now (or At Least Planning for the Possibility” from The National Law Review.

If the exclusion is used during one’s lifetime, it reduces the amount of the exemption available at death to shelter property from the estate tax. With proper planning, spouses may currently gift or die with assets totally as much as $23.16 million, with no gift or federal estate tax.

To gain perspective on how high this exclusion is, in 2000-2001, the applicable exclusion amount was $675,000.

The exclusion amount will automatically decrease to approximately $6.5 million on January 1, 2026, unless changes are made by Congress before that time to continue the current exclusion amount. Now is a good time to have a conversation with your estate planning attorney about making gifts in advance of the scheduled decrease and/or any changes that may occur in the future. The following are reasons why this exemption may be lowered:

  • Trillions of dollars in federal stimulus spending necessitated by the COVID-19 pandemic and the severe economic downturn in the U.S.
  • Past precedent of passing tax legislation mid-year and applying it retroactively to January 1.
  • A possible change in party control for the presidency and/or the Senate
  • The use of the budget reconciliation process to pass changes to taxes.

In the 100-plus year history of the estate tax, the exemption has never gone down. However, the exemption has also never been this high. The possibility of a compressed timeframe for family business owners and wealthy individuals to implement lifetime gifts before any legislative change may make a tidal wave of gifting transactions challenging between now and December 31, 2020. Now is the time to start planning and take action to utilize the exclusion amount.

Reference: The National Review (Aug. 20, 2020) “The Case for Gifting Now (or At Least Planning for the Possibility”

elder law attorney

How Do I Find a Great Elder Law Attorney?

Elder law attorneys specialize in legal affairs that uniquely concern seniors and their adult children, says Explosion’s recent article entitled “The Complete Guide on How to Find an Elder Law Attorney.”

Finding the right elder law attorney can be a big task. However, with the right tips, you can find an experienced elder law attorney who is knowledgeable, has the right connections and fits your budget.

While, technically, a general practice attorney will be able to handle your retirement, Medicaid and even your estate planning, an elder law lawyer is deeply entrenched in elder law. This means he or she will have extensive knowledge and experience to handle any case within the scope of elder law, like the following:

  • Retirement planning
  • Long-term care planning and insurance
  • Medicaid
  • Estate planning
  • Social Security
  • Veterans’ benefits; and
  • Other related areas of law.

While a general practice lawyer may be able to help you with one or two of these areas, a competent elder law lawyer knows that there’s no single formula in elder law that applies across the board. That’s why you’ll need a lawyer with a high level of specialization and understanding to handle your specific circumstances. An elder law attorney is best suited for your specific needs.

A referral from someone you trust is a great place to start. When conducting your elder law lawyer search, stay away from attorneys who charge for their services by the hour. For example, if you need an elder law attorney to work on a Medicaid issue, they should be able to give you an estimate of the charges after reviewing your case. That one-time flat fee will cover everything, including any legal costs, phone calls, meetings and court fees.

When it comes to elder law attorneys, nothing says more than experience. An experienced elder law lawyer has handled many cases similar to yours and understands how to proceed. Reviewing the lawyer’s credentials at the state bar website is a great place to start to make sure the lawyer in question is licensed. The website also has information on any previous ethical violations.

In your search for an elder law attorney, look for a good fit and a high level of comfort. Elder law is a complex area of law that requires knowledge and experience.

Reference: Explosion (Aug. 19, 2020) “The Complete Guide on How to Find an Elder Law Attorney”

estate planning

How Do I Keep My Spendthrift Son-in-Law from Getting the Money I Give my Daughter in My Estate?

Say that you were to name your daughter as the beneficiary on your Roth IRA and 401(k) accounts, as well as your house and other investments. Her husband would not be a beneficiary.

His only source of income is a monthly stipend that he receives from a trust and earned income from being a rideshare driver. He has at least $5,000 in credit card debt.

Can Mom use a “bloodline trusts” to prevent her son-in-law from inheriting or getting her money when she dies?

Nj.com’s recent article entitled “Can I protect my daughter’s inheritance from her husband?” explains that “bloodline trusts” were created for this very reason.

Note first that retirement assets can’t be re-titled to a trust. However, a home can be, and investments can be, if they’re not tax deferred.

For assets that can’t be re-titled to the bloodline trust during your lifetime, you can name the trust as the payable-on-death (POD) beneficiary of those assets.

You also should take care in deciding on who you choose as a trustee.

In the situation above, depending on applicable law for your state of residence, the daughter may not be the sole trustee and the sole beneficiary under this form of trust arrangement. However, in all instances, a bank or attorney can be a co-trustee.

This trust arrangement ensures that assets distributed to the daughter aren’t commingled with the assets of her husband with extravagant tastes and an open checkbook. In addition, those assets would not be subject to equitable distribution in the event of a divorce.

If the daughter is the sole trustee over a bloodline trust, then all the planning will be out the window, if the daughter does not agree to this set-up.

For example, if she takes distributions from the trust and deposits them in a joint account with her husband, the money is available for equitable distribution.

This means the daughter arguably has indicated that she does not think of her inheritance as a non-marital asset.

A divorce court would see it the same way and award a portion to the husband in a break-up.

Reference: nj.com (July 21, 2020) “Can I protect my daughter’s inheritance from her husband?”

state laws and estate planning

State Laws Have an Impact on Your Estate

Nj.com’s recent article entitled “Will N.J. or Florida’s tax laws affect this inheritance?” notes that first, the fact that the individual from Florida isn’t legally married is important.

However, if she’s a Florida resident, Florida rules will matter in this scenario about the vacation condo.

Florida doesn’t have an inheritance tax, and it doesn’t matter where the beneficiary lives. For example, the state of New Jersey won’t tax a Florida inheritance.

Although New Jersey does have an inheritance tax, the state can’t tax inheritances for New Jersey residents, if the assets come from an out-of-state estate.

If she did live in New Jersey, there is no inheritance tax on “Class A” beneficiaries, which include spouses, children, grandchildren and stepchildren.

However, the issue in this case is the fact that her “daughter” isn’t legally her daughter. Her friend’s daughter would be treated by the tax rules as a friend.

You can call it what you want. However, legally, if she’s not married to her friend, she doesn’t have a legal relationship with her daughter.

As a result, the courts and taxing authorities will treat both persons as non-family.

The smart thing to do with this type of issue is to talk with an experienced estate planning attorney who is well-versed in both states’ laws to determine whether there are any protections available.

Reference: nj.com (July 23, 2020) “Will N.J. or Florida’s tax laws affect this inheritance?”

estate planning

Trusts: The Swiss Army Knife of Estate Planning

Trusts serve many different purposes in estate planning. They all have the intent to protect the assets placed within the trust. The type of trust determines what the protection is, and from whom it is protected, says the article “Trusts are powerful tools which can come in many forms,” from The News Enterprise. To understand how trusts protect, start with the roles involved in a trust.

The person who creates the trust is called a “grantor” or “settlor.” The individuals or organizations receiving the benefit of the property or assets in the trust are the “beneficiaries.” There are two basic types of beneficiaries: present interest beneficiaries and “future interest” beneficiaries. The beneficiary, by the way, can be the same person as the grantor, for their lifetime, or it can be other people or entities.

The person who is responsible for the property within the trust is the “trustee.” This person is responsible for caring for the assets in the trust and following the instructions of the trust. The trustee can be the same person as the grantor, as long as a successor is in place when the grantor/initial trustee dies or becomes incapacitated. However, a grantor cannot gain asset protection through a trust, where the grantor controls the trust and is the principal recipient of the trust.

One way to establish asset protection during the lifetime of the grantor is with an irrevocable trust. Someone other than the grantor must be the trustee, and the grantor should not have any control over the trust. The less power a grantor retains, the greater the asset protection.

One additional example is if a grantor seeks lifetime asset protection but also wishes to retain the right to income from the trust property and provide a protected home for an adult child upon the grantor’s death. Very specific provisions within the trust document can be drafted to accomplish this particular task.

There are many other options that can be created to accomplish the specific goals of the grantor.

Some trusts are used to protect assets from taxes, while others ensure that an individual with special needs will be able to continue to receive needs-tested government benefits and still have access to funds for costs not covered by government benefits.

An estate planning attorney will have a thorough understanding of the many different types of trusts and which one would best suit each individual situation and goal.

Reference: The News Enterprise (July 25, 2020) “Trusts are powerful tools which can come in many forms”

green burial

What Should I Know about a ‘Green’ Burial?

Right now, only about 5% of today’s burials are green. However, roughly 72% of cemeteries are reporting an increased demand for the practice, according to a survey from the National Funeral Directors Association (NFDA).

Considerable’s article entitled “More Americans are skipping traditional funerals in favor of green burials” says that in the same survey, about 54% of Americans said they’d consider green burial options.

A green burial doesn’t put anything into the ground that doesn’t decompose. As a result, there’s no steel, concrete, copper, and bronze used for coffins and vaults. Instead of a traditional coffin, a biodegradable option, such as a shroud or plain pine or cardboard box is used.

Most green burials also don’t do embalming, which is done mainly for cosmetic reasons. Embalming puts gallons of toxic chemicals into the earth each year with each burial.

Green burials also are now an alternative to cremation, which totals 50% of the funeral business. However, cremation has its own environmental hazards. They include using an outsized amount of energy and potentially releasing toxins when ashes are spread.

Green burials have an advantage over traditional ones as far as cost. The price is significantly less for a natural burial than the $8,500 median cost of a funeral. That’s because there’s no vaults and coffins, or embalming, viewing and other funeral service fees. However, the one exception is the cemetery plot itself. Real estate is real estate.

Because green burials are still a small part of the business, it’s important to search for providers and cemeteries yourself, instead of leaving the job to loved ones during a difficult time.

With this growing interest, an increasing number of conventional cemeteries are offering green burial areas within their parameters. They charge the same or lower fees for individual plots, as they do for traditional burials.

For more information about green burials and a list of certified providers in your area, look at the Green Burial Council’s website.

A natural burial can also be an opportunity for your loved ones to create new, meaningful rituals around death.

Reference: Considerable (July 25, 2020) “More Americans are skipping traditional funerals in favor of green burials”

social security scam

A Four-Decades Long Social Security Scam Finally Ends

In one of the largest fraud cases of its kind, a 76-year-old small business owner in Oregon has been collecting his deceased aunt’s Social Security checks and even her stimulus payment from the Treasury Department issued in May, as reported by AARP in the article “Nephew Allegedly Cashed Dead Aunt’s Social Security Checks for More Than 40 Years.” The nephew, George William Doumar, also collected his own Social Security benefits, telling authorities, “it was nice to have the extra money coming in every month.”

Both Doumar and his aunt, who is not named, lived in Brooklyn. She never married and had no children. Before she died, back in 1971, she named her nephew her sole beneficiary of her life insurance policy. Until July 14, he was getting both his and his aunt’s monthly checks. When interviewed at his home by federal agents, he slumped and said, “that’s a long story … what happened was, well, she’s passed and yes, I’ve been collecting her Social Security.”

Here is what has emerged in this bizarre story:

At age 65, the aunt applied for Social Security, but her wages in 1970 made her ineligible to receive benefits. By August 1977, the Social Security Administration initiated retirement benefits, using her initial benefit application. The first retirement check went out to her in September 1977—after she’d been dead for more than six years.

She had lived in a nursing facility in Brooklyn from about 1969 until her death in 1971. Doumar also lived in Brooklyn and says he doesn’t recall how he obtained regular possession of the checks. He also said that at one point, he reported her death to the SSA, but there are no records of her death being reported.

At first, he cashed her checks at a New York business he owned, but he moved to Oregon in 1989. He forged her signature to add her name to a joint checking account he had with his wife in Oregon. The Social Security checks were mailed to the business he owned.

In February, when government staffers deemed that the aunt would have been 114 years old, they became suspicious. No updates had been made to her account in more than 30 years, except for the address change.

Doumar is facing felony charges, and authorities plan to seek restitution for the amount he stole: $460,192.30. Minus the stimulus check, that’s about $912.50 a month, for nearly 42 years.

It might have been nice to have the extra money, but not to be facing the possibility of 10 years in prison and a $25,000 fine, in addition to paying back the money owed to the Social Security Administration.

Reference: AARP (Aug. 14, 2020) “Nephew Allegedly Cashed Dead Aunt’s Social Security Checks for More Than 40 Years.”

estate planning basics

Estate Planning Basics You Need to Know

The key reason for estate planning is to create a plan directing where your assets will go after you die. The ultimate goal is for wealth and real property to be given to the people or organizations you wish, while minimizing taxes, so beneficiaries can keep more of your wealth. However, good estate planning also reduces family arguments, protects minor children and provides a roadmap for end-of-life decisions, says the article “What is estate planning?” from Bankrate.

Whenever you’ve opened a checking and savings account, retirement account or purchased life insurance, you’ve been asked to provide the name of a beneficiary for the account. This person (or persons) will receive these assets directly upon your passing. You can have multiple beneficiaries, but you should always have contingent beneficiaries, in case something happens to your primary beneficiaries. Named beneficiaries always supersede any declarations in your will, so you want to make sure any account that permits a beneficiary has at least one and update them as you go through the inevitable changes of life.

A last will and testament is a key document in your estate plan. It directs the distribution of assets that are not distributed through otherwise designated beneficiaries. Property you own jointly, typically but not always with a spouse, passes to the surviving owner(s). An executor you name in your will is appointed by the court to take care of carrying out your instructions in the will. Choose the executor carefully—he or she will have a lot to take care of, including the probate of your will.

Probate is the process of having a court review your estate plan and approve it. It can be challenging and depending upon where you live and how complicated your estate is, could take six months to two years to complete. It can also be expensive, with court fees determined by the size of the estate.

Many people use trusts to minimize how much of their estate goes through probate and to minimize estate taxes. Assets that are distributed through trusts are also private, unlike probate documents, which become public documents and can be seen by anyone from nosy relatives to salespeople to thieves and scammers.

Trusts can be complex, but they don’t have to be. Trusts can also offer a much greater level of control over how assets are distributed. For instance, a spendthrift trust is used when an heir is not good with handling money. A trustee distributes assets, and a timeframe or specific requirements can be set before any funds are distributed.

Living wills are also part of an estate plan. These are documents used to give another person the ability to make decisions on your behalf, if you become incapacitated or if decisions need to be made concerning end-of-life care.

An estate plan can help prevent family fights over who gets what. Arguments over sentimental items, or someone wanting to make a grab for cash can create fractures that last for generations. A properly prepared estate plan makes your wishes clear, lessening the reasons for squabbles during a difficult period.

Protecting minor children and heirs is another important reason to have a well thought out estate plan. Your last will and testament is used to nominate a guardian for minor children and can also be used to direct who will be in charge of any assets left for the children’s care.

Reference: Bankrate (Aug. 3, 2020) “What is estate planning?”