How Can I Move On after a Loved One Dies?

Kiplinger’s recent article entitled “Moving Forward Financially After the Loss of a Loved One” says that there really are no rules about how you should feel or how long it will take you to regain your energy and ability to move forward. Grief is difficult to avoid, but there are many financial and legal tasks that will require your immediate attention. Here are some of the actions that can ease this process and help you to get back on track financially.

Here’s a breakdown of what you will need to address in the near future:

  • Gather important information, such as the deceased’s Social Security number, birth certificate, marriage certificate and military discharge papers.
  • Obtain at least 10 copies of the death certificates, because each claim will need to have an original copy of the death certificate attached.
  • Inform the Social Security office about the death and file a Social Security benefits claim form to qualify for the death benefit.
  • Find the title to any automobiles
  • Print out up-to-date statements for bank, brokerage and retirement accounts.
  • The executor should file the deceased’s will (if there is one) with the Probate Court.
  • The executor should obtain letters testamentary from the court.
  • File a death claim with the deceased’s life insurance company, if applicable.
  • Contact the Employer’s Benefits department about survivorship pension, health insurance, unpaid salary and life insurance benefits, if applicable.
  • Prepare a preliminary monthly budget and income summary.

You should seek the advice of an experienced estate planning or probate attorney. You should also retitle any joint accounts into your name and transfer any inherited IRA into your name and take out a required minimum distribution (RMD), if applicable. New beneficiaries should also be named and deeds for any real estate jointly held with rights of survivorship updated.

You need to file a federal estate tax return within nine months.

Don’t face these challenges alone. Contact an experienced estate planning lawyer for help.

Reference: Kiplinger (Jan. 8, 2020) “Moving Forward Financially After the Loss of a Loved One”

How is a Guardianship Determined?

Because the courts call guardianship “a massive curtailment of liberty,” it’s important that guardianship be used only when necessary.

The Pauls Valley Democrat’s recent article asks, “Guardianship – What is sufficient incapacity?” As the article explains, courts must be certain that an individual is truly “incapacitated.”

For example, Oklahoma law defines an incapacitated person as a person 18 years or older, who is impaired by reason of:

  1. Mental illness;
  2. Intellectual or developmental disability;
  3. Physical illness or disability; or
  4. Drug or alcohol dependency.

In addition, an incapacitated person’s ability to receive and evaluate information or to communicate decisions is impaired to such a level that the person (i) lacks capacity to maintain health and safety; or (ii) is unable to manage financial resources.

A person who is requesting to be appointed guardian by the court must show evidence to prove the person’s incapacity. This evidence is typically presented with the professional opinion of medical, psychological, or administrative bodies.

In some instances, a court may initiate its own investigation with known medical experts. In these cases, the type of professional chosen to provide an opinion should match the needs of the person (the “ward”), who will be subject to guardianship.

The court will receive this evidence and if it’s acceptable, in many cases, require that the experts provide a plan for the care and administration of the ward and his assets. This plan will become a control measure, as well as guidance for the guardian who’s appointed.

These controls will include regular monitoring and reports of performance back to the court.

Reference: Pauls Valley Democrat (Jan. 23, 2020) “Guardianship – What is sufficient incapacity?”

Unintended Kiddie Tax Change Fixed in the SECURE Act

Families were hurt by a change in the kiddie tax that took effect after 2017, but they’ll be able to undo the damage from 2018 and 2019 now that a fix has become law. The SECURE Act contains a provision that fixed this unintended change, as reported in the San Francisco Chronicle’s recent article, “Congress reversed kiddie-tax change that accidentally hurt some families.”

The kiddie tax was created many years ago to prevent wealthy families from transferring large amounts of investments to dependent children, who would then be taxed at a much lower rate than their parents. It taxed a child’s unearned income above a certain amount at the parent’s rate, instead of at the lower child’s rate. Unearned income includes investments, Social Security benefits, pensions, annuities, taxable scholarships and fellowships. Earned income, which is money earned from working, is always taxed at the lower rate.

The Tax Cuts and Jobs Act of 2017 changed the kiddie tax in a way that had severe consequences for military families receiving survivor benefits. Instead of taxing unearned income above a certain level—$2,100 in 2018 and $2,200 in 2019—at the parent’s tax rate, it taxed it at the federal rate for trusts and estates starting in 2018.

Hitting military families with a 37% tax rate that starts at $12,750 in taxable income is unthinkable, but that’s what happened. Low and middle-income families whose dependent children were receiving unearned income, including retirement benefits received by dependent children of service members who died on active duty and scholarships used for expenses other than tuition and books, were effectively penalized by the change.

Under pressure from groups representing military families and scholarship providers, Congress finally added a measure repealing the kiddie tax change to the SECURE Act, which seemed as if it was going to be passed quickly in May. The bill was stalled until it was attached to the appropriations bill and was not passed until December 20, 2019.

There is a specific provision in the bill: “Tax Relief for Certain Children” that completely reverses the change starting in 2020. It also says that subject to the Treasury Department issuing guidance, taxpayers may be able to apply the repeal to their 2018 and 2019 tax years, or both.

The IRS has not yet issued guidance, but the expectation is that amended returns will be required, if a taxpayer elects to use the parents’ tax rate for that year.

Some parents whose children have investment income may be better off using the estate-tax rate for the two years that it is in place. In 2019, those trust brackets may actually allow more capital gains and dividends be taxed at the 0% and 15% rates than by using the parents’ rates.

Reference: San Francisco Chronicle (Jan. 20, 2020) “Congress reversed kiddie-tax change that accidentally hurt some families”

Estate Planning for Unmarried Couples

For some couples, getting married just doesn’t feel necessary. However, they don’t enjoy the automatic legal rights and protections that legally wed spouses do, especially when it comes to death. There are many spousal rights that come with a marriage certificate, reports CNBC in the article “Here’s what happens to your partner if you’re not married and you die.” Without the benefit of marriage, extra planning is necessary to protect each other.

Taxes are a non-starter. There’s no federal or state income tax form that will permit a non-married couple to file jointly. If one of the couple’s employers is the source of health insurance for both, the amount that the company contributes is taxable to the employee. A spouse doesn’t have to pay taxes on health insurance.

More important, however, is what happens when one of the partners dies or becomes incapacitated. A number of documents need to be created, so should one become incapacitated, the other is able to act on their behalf. Preparations also need to be made, so the surviving partner is protected and can manage the deceased’s estate.

In order to be prepared, an estate plan is necessary. Creating a plan for what happens to you and your estate is critical for unmarried couples who want their commitment to each other to be protected at death. The general default for a married couple is that everything goes to the surviving spouse. However, for unmarried couples, the default may be a sibling, children, parents or other relatives. It won’t be the unmarried partner.

This is especially true, if a person dies with no will. The courts in the state of residence will decide who gets what, depending upon the law of that state. If there are multiple heirs who have conflicting interests, it could become nasty—and expensive.

However, a will isn’t all that is needed.

Most tax-advantaged accounts—Roth IRAs, traditional IRAs, 401(k) plans, etc.—have beneficiaries named. That person receives the assets upon death of the owner. The same is true for investment accounts, annuities, life insurance and any financial product that has a beneficiary named. The beneficiary receives the asset, regardless of what is in the will. Therefore, checking beneficiaries need to be part of the estate plan.

Checking, savings and investment accounts that are in both partner’s names will become the property of the surviving person, but accounts with only one person’s name on them will not. A Transfer on Death (TOD) or Payable on Death (POD) designation should be added to any single-name accounts.

Unmarried couples who own a home together need to check how the deed is titled, regardless who is on the mortgage. The legal owner is the person whose name is on the deed. If the house is only in one person’s name, it won’t become part of the estate. Change the deed so both names are on the deed with rights of survivorship, so both are entitled to assume full ownership upon the death of the other.

To prepare for incapacity, an estate planning attorney can help create a durable power of attorney for health care, so partners will be able to make medical decisions on each other’s behalf. A living will should also be created for both people, which states wishes for end of life decisions. For financial matters, a durable power of attorney will allow each partner to have control over each other’s financial affairs.

It takes a little extra planning for unmarried couples, but the peace of mind that comes from knowing that you have prepared to care for each other, until death do you part, is priceless.

Reference: CNBC (Dec. 16, 2019) “Here’s what happens to your partner if you’re not married and you die”

The Need for Long-Term Care Insurance

More than 70% of seniors 65 and over will need some type of long-term care in their lifetime. This could be a few months of home health aide assistance or years in an assisted living facility or nursing home. Unfortunately, Medicare won’t pay for long-term care, which means the majority of seniors could have some very big bills.

Motley Fool’s recent article entitled “Only 16% of Older Americans Have Made This Smart Retirement Move” says that’s the reason why it’s critical to secure long-term care insurance. Your 50s are generally when it’s considered to be the best time to apply. At that point, you’re not signing up to pay premiums for too long, but you’re also more likely to get approved for a policy and get a discount on its cost based on your health. However, research from TD Ameritrade found that just 16% of Americans in their 50s have a long-term care policy.

Many seniors don’t know just how expensive long-term care is, until they actually need it. Medicare generally doesn’t cover this because its’ considered custodial care, another term for non-medical assistance. Medicare will pay for seniors to recuperate from injury or illness, but often, the need for long-term care isn’t a result of that situation.

A long-term care insurance policy isn’t cheap. Your premium costs will depend on a number of factors, such as your age at the time of your application, the state of your health and the specific amount of coverage you want.

For example, a 55-year-old man in New Jersey applying today could receive a benefit of $150 per day for up to two years. Let’s say that he ends up spending two years in an assisted living facility that costs $150 per day.

That’s going to total $109,500. Assume you also pay an annual premium of $1,195.43 for 20 years to obtain that benefit, for a total of $23,908.60. Even with the large amount of money you’ll end up paying in premiums, it’s nothing when compared to the $109,500 you might otherwise be required to shell out for your care.

It’s impossible to predict whether you’ll need long-term care, but if you’d rather not risk bankrupting your estate and yourself, look at a policy. Even though it’s ideal to apply while you’re in your 50s, you may qualify for affordable coverage in your 60s. Therefore, despite the preferred application window being closed, it may be beneficial to see what options are available to you now.

Reference:  Motley Fool (Jan. 25, 2020) “Only 16% of Older Americans Have Made This Smart Retirement Move”

What Should I Know about Beneficiary Designations?

A designated beneficiary is named on a life insurance policy or some type of investment account as the individual(s) who will receive those assets, in the event of the account holder’s death. The beneficiary designation doesn’t replace a signed will but takes precedence over any instructions about these accounts in a will. If the decedent doesn’t have a will, the beneficiary may see a long delay in the probate court.

If you’ve done your estate planning, most likely you’ve spent a fair amount of time on the creation of your will. You’ve discussed the terms with an established estate planning attorney and reviewed the document before signing it.

FEDweek’s recent article entitled “Customizing Your Beneficiary Designations” points out, however, that with your IRA, you probably spent far less time planning for its ultimate disposition.

The bank, brokerage firm, or mutual fund company that acts as custodian undoubtedly has a standard beneficiary designation form. It is likely that you took only a moment or two to write in the name of your spouse or the names of your children.

A beneficiary designation on account, like an IRA, gives instructions on how your assets will be distributed upon your death.

If you have only a tiny sum in your IRA, a cursory treatment might make sense. Therefore, you could consider preparing the customized beneficiary designation form from the bank or company.

For more customization, you can have a form prepared by an estate planning attorney familiar with retirement plans.

You can address various possibilities with this form, such as the scenario where your beneficiary predeceases you, or she becomes incompetent. Another circumstance to address, is if you and your beneficiary die in the same accident.

These situations aren’t fun to think about but they’re the issues usually covered in a will. Therefore, they should be addressed, if a sizeable IRA is at stake.

After this form has been drafted to your liking, deliver at least two copies to your custodian. Request that one be signed and dated by an official at the firm and returned to you. The other copy can be kept by the custodian.

Reference: FEDweek (Dec. 26, 2019) “Customizing Your Beneficiary Designations”

Fixing an Estate Plan Mistake

When an issue arises, you need to seek the assistance of a qualified and experienced estate planning attorney, who knows to fix the problems or find the strategy moving forward.

For example, an irrevocable trust can’t be revoked. However, in some circumstances it can be modified. The trust may have been drafted to allow its trustees and beneficiaries the authority to make certain changes in specific circumstances, like a change in the tax law.

Those kinds of changes usually require the signatures from all trustees and beneficiaries, explains The Wilmington Business Journal’s recent article entitled “Repairing Estate Planning Mistakes: There Are Ways To Clean Up A Mess.”

Another change to an irrevocable trust may be contemplated, if the trust’s purpose may have become outdated or its administration is too expensive. An estate planning attorney can petition a judge to modify the trust in these circumstances when the trust’s purposes can’t be achieved without the requested change. Remember that trusts are complex, and you really need the advice of an experienced trust attorney.

Another option is to create the trust to allow for a “trust protector.” This is a third party who’s appointed by the trustees, the beneficiaries, or a judge. The trust protector can decide if the proposed change to the trust is warranted. However, this is only available if the original trust was written to specify the trust protector.

A term can also be added to the trust to provide “power of appointment” to trustees or beneficiaries. This makes it easier to change the trust for the benefit of current or future beneficiaries.

There’s also decanting, in which the assets of an existing trust are “poured” into a new trust with different terms. This can include extending the trust’s life, changing trustees, fixing errors or ambiguities in the original language, and changing the legal jurisdiction. State trust laws vary, and some allow much more flexibility in how trusts are structured and administered.

The most drastic option is to end the trust. The assets would be distributed to the beneficiaries, and the trust would be dissolved. Approval must be obtained from all trustees and all beneficiaries. A frequent reason for “premature termination” is that a trust’s assets have diminished in value to the extent that administering it isn’t feasible or economical.

Again, be sure your estate plan is in solid shape from the start. Anticipating problems with the help of your lawyer, instead of trying to solve issues later is the best plan.

Reference: Wilmington Business Journal (Jan. 3, 2020) “Repairing Estate Planning Mistakes: There Are Ways To Clean Up A Mess”

When Do I Need an Elder Law Attorney?

Elder law is different from estate law, but they frequently address many of the same issues. Estate planning contemplates your finances and property to best provide for you and your family while you’re still alive but incapacitated. It also concerns itself with the estate you leave to your loved ones when you die, minimizing probate complications and potential estate tax bills. Elder law contemplates these same issues but also the scenario when you may need some form of long-term care, even your eligibility for Medicaid should you need it.

A recent article from The Balance’s asks “Do You or a Family Member Need to Hire an Elder Law Attorney?” According to the article there are a variety of options to adjust as economically and efficiently as possible to plan for all eventualities. An elder law attorney can discuss these options with you.

Medicaid is a complicated subject, and really requires the assistance of an expert. The program has rigid eligibility guidelines in the event you require long-term care. The program’s benefits are income- and asset-based. However, you can’t simply give everything away to qualify, if you think you might need this type of care in the near future. There are strategies that should be implemented because the “spend down” rules and five-year “look back” period reverts assets or money to your ownership for qualifying purposes, if you try to transfer them to others. An elder law attorney will know these rules well and can guide you.

You’ll need the help and advice of an experienced elder law attorney to assist with your future plans, if one or more of these situations apply to you:

  • You’re in a second (or later) marriage;
  • You’re recently divorced;
  • You’ve recently lost a spouse or another family member;
  • Your spouse is incapacitated and requires long-term care;
  • You own one or more businesses;
  • You have real estate in more than one state;
  • You have a disabled family member;
  • You’re disabled;
  • You have minor children or an adult “problem” child;
  • You don’t have children;
  • You’d like to give a portion of your estate to charity;
  • You have significant assets in 401(k)s and/or IRAs; or
  • You have a taxable estate for estate tax purposes.

If you have any of these situations, you should seek the help of an elder law attorney.

If you fail to do so, you’ll most likely give a sizeable percentage of your estate to the state, an ex-spouse, or the IRS.

State probate laws are very detailed as to what can and can’t be included in a will, trust, advance medical directive, or financial power of attorney. These laws control who can and can’t serve as a personal representative, trustee, health care surrogate, or attorney-in-fact under a power of attorney.

Hiring an experienced elder law attorney can help you and your family avoid simple but expensive mistakes, if you or your family attempt this on your own.

Reference: The Balance (Jan. 21, 2020) “Do You or a Family Member Need to Hire an Elder Law Attorney?”

Should I Purchase Long-Term Care Insurance?

According to Covering Katy’s recent article entitled “How to Protect Yourself From Long-term Care Cost,” to answer the question of long-term care, think about two variables: your likelihood of needing long-term care and the cost of the care.

Government statistics show that a person who’s 65 today has nearly a 70% chance of eventually needing some kind of long-term care. The average cost for a private room in a nursing home is about $100,000 per year, and a home health aide costs about $50,000 per year. When you do the math, your chances of needing long-term care are good and it’s expensive. If you needed several years of long-term care, it could seriously deplete your savings.

Since Medicare typically pays only a small part of long-term care costs, you should consider the following options for meeting these expenses:

You could “self-insure” against long-term care expenses, by setting aside some of your investment portfolio for this. However, it looks like you’d have to save a lot of money before you felt you were truly protected. This could be especially tough with the need to save and invest for the other expenses associated with retirement.

When you buy long-term care insurance, you’re moving the risk of paying for long-term care from yourself to an insurance carrier. Some LTC policies pay costs for a set number of years, while others cover you for life. Shop around for a policy that offers the combination of features you think best meet your needs. Long-term care gets more expensive as you get older. Therefore, if you’re interested in this type of coverage, don’t delay in your search.

A “hybrid” policy, like life insurance with a long-term care/chronic illness rider, combines long-term care benefits with those offered by a traditional life insurance policy. As a result, if you were to purchase a hybrid policy, and you never needed long-term care, your policy would pay a death benefit to your beneficiary. Conversely, if you ever do require long-term care, your policy will pay benefits for those expenses. The amount of money available for LTC can exceed the death benefit dramatically. There are quite a few different types of hybrid policies, so do your research before choosing a policy.

While you may decide you’re willing to take the chance of never requiring any type of long-term care, if you think that’s a risk you’d rather not take, look into all your coverage options thoroughly.

Reference: Covering Katy (Jan. 13, 2020) “How to Protect Yourself From Long-term Care Costs”

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