Salt Lake City Estate Planning

Retirement Mistakes You Can Avoid

Most of the time, routines are a good thing. They help simplify our days by eliminating decisions on little things. That saves the creative parts of our brains for the more difficult decisions we must make, says The (Spartanburg NC) Herald-Journal in its article, “Don’t make these retirement mistakes.”

However, there are times when routine can be a negative. That’s especially true when it comes to retirement. There are several perennial mistakes retirees make. Most are a continuation of doing things the way we have always done them—instead of making changes to the routine after retirement.

1. Making Too Many Withdrawals. Spending too much money early on in retirement could result in your running out of cash later. Why? Individuals aren’t knowledgeable about health care costs, life expectancy, income needs and investment risk.
2. Lack of a Plan. Retirees often don’t put together a financial plan that includes estate planning, a reasonable budget and other items for the short and long term.
3. Failing to Accurately Judge for Inflation. If a nest egg isn’t earning enough to stay ahead of inflation and taxes, a retiree’s retirement lifestyle is likely to get troublesome well ahead of its time. It’s important to establish the appropriate blend of risk and return needed to maintain short-term purchasing power, in addition to working toward long-term goals.
4. Staying on Autopilot. Some retirees fail to adjust the asset allocation of investment vehicles in their portfolio given their “stage of retirement” relative to life expectancy. They’ll have an inappropriate mix of investments for their lifestyle goals, timeframes and risk tolerance.
5. Getting Scammed. One out of five Americans over 65 has been a victim of a financial scam. More than 7.3 million seniors are taken advantage of financially through inappropriate investments, high fees, or fraud—a cost of more than $2.6 billion a year. Many of the cases aren’t reported, so these numbers may be low!
6. Taking Advice from the Wrong People. Many retirees heed financial advice from friends, family, and financial product salespeople, rather than going to an experienced estate planning attorney and other credentialed professionals. These critical decisions can impact the rest of a retiree’s life.

Reference: Herald-Journal (January 9, 2018) “Don’t make these retirement mistakes”

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Questions to Ask Your Attorney About the New Tax Law

Forbes’ recent article, “5 Questions To Ask Your Estate Planner After The New Tax Law,” gives you some ammunition for your next meeting with your estate planning attorney.

First, be sure your estate plan is up-to-date. Even if it won’t be affected by the new tax law, you should talk with your attorney to be certain your current wishes are reflected in your estate planning documents.

When you meet with your attorney, you might ask some questions to be sure that your plan still fully supports your interests and those of your heirs. Here are a few:

Will the new federal law affect my estate tax picture? The federal government exempts a certain amount of an estate’s value from this tax. Congress just doubled this exemption to more than $11 million per person.

Will the new law impact my state estate tax? There are 15 states that still have some form of estate tax: Minnesota, Iowa, Nebraska, Washington, Oregon, Kentucky, Tennessee, Pennsylvania, New Jersey, Massachusetts, Rhode Island, Connecticut, Delaware, Maryland, and DC. Some of these states’ exemption limits mirror the federal limits, so the federal increase will automatically trigger the same increase in those states. However, others don’t, and their exemption limits will remain the same.

Are my estate documents tailored to fulfill my wishes and avoid unintended consequences? Results that conflict with your intentions can occur when documents aren’t specific enough. This isn’t uncommon with financial powers of attorney (POA), which instructs your agent(s) on how your finances are to be managed, if you’re incapacitated and unable to make decisions. Without specific provisions to assure your wishes are executed, vague or overly general POAs could permit the agent managing these finances (often, a spouse) to do as they wish, rather than abiding by your instructions.

To prevent negative outcomes, ask your estate planning attorney to be certain that your POA is sufficiently specific.

Reference: Forbes (January 9, 2018) “5 Questions To Ask Your Estate Planner After The New Tax Law”

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Whitney Houston’s Estate and IRS Settle Estate Tax Issues

The estate for the late musical icon Whitney Houston, who passed away in 2012 after drowning in her bathtub at a Beverly Hills hotel, was initially ordered to pay $11 million to the IRS after it was claimed they had underreported the singer’s royalties, residuals, and value of her image by $22.6 million after her death.

The Daily Mail’s recent article, “Whitney Houston's estate reaches $2million settlement with IRS” reports that court documents filed last week show that the estate reached a settlement with the IRS where it agreed to pay the agency a total of $2,275,366.

This settlement comes after the singer’s estate claimed the IRS was incorrect in their value determination, and alleged that her music royalties, digital performance royalties, motion picture and TV residuals, and publicity rights—which they valued at $11.7 million—had been overvalued.

The parties were scheduled for a court trial to argue about the details of their lawsuit in February. However, that’s been cancelled with the news of the out-of-court settlement.

There’s now no need for the hearing.

Meanwhile, the royalties from the I Will Always Love You hitmaker’s extensive collection of hits are set to keep soaring. In November, some previously unreleased tracks from Houston were made public to mark the 25th anniversary of The Bodyguard.

The collection, Whitney Houston - I Wish You Love: More From The Bodyguard, features several unheard pieces from the late singer's legendary career. The release marks the 25^th anniversary of The Bodyguard: Original Soundtrack Album, which she co-executive produced with Clive Davis.

That Grammy Award-winning album was the first record to sell more than one million copies in a single week. It has since sold more than 45 million across the world. It's the top-selling soundtrack of all time. The movie, The Bodyguard, was Houston’s big screen debut.

Reference: Daily Mail (January 4, 2018) “Whitney Houston's estate reaches $2million settlement with IRS”

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Easy Estate Planning Mistakes You Can Avoid

WMUR provides some of the most common things to review within your own planning in its recent article, “Estate planning mistakes.”

Delay. The easiest mistake to avoid, and probably the biggest, is procrastination. Just doing nothing at all in your estate planning is a common mistake. If you fail to create a plan for yourself, the state may apply the intestacy laws and determine who will receive your assets and how they’ll acquire them. This might not be the plan you wanted.

Review. You should conduct a periodic review of your estate planning documents to be certain they still match your current wishes. There are changes that occur over time, like life circumstances and the estate tax laws. Be sure your chosen executor is still able to take on the responsibility.

Titles and Beneficiary Designations. The correct titling of your assets and up-to-date beneficiary designations are also areas where people commonly make mistakes. Update your retirement plan and life insurance policy beneficiaries, so these proceeds pass to the correct beneficiaries. An asset owned in joint tenancy with rights of survivorship will pass directly to the surviving joint tenant.

Trust Funding. Another common mistake is not funding your revocable trust. Perhaps you have a trust that accomplishes all that you wish. If you don’t fund the trust with assets, it’s of no use to you or your beneficiaries. Trusts are helpful when dealing with younger heirs, because a trust can control when the income can be received and for what purposes, until the beneficiary reaches a certain age or other milestone.

The Barry Manilow Records. Think about the disposition of family heirlooms, collectibles, and other items of sentimental value. You’d be surprised what siblings fight over, and sometimes the squabbles grow into all out fractures for families.

Passwords. Create a master document that has all your social media, online accounts, and passwords, allowing your heirs ready access to them to close them.

Location. Make sure that a family member knows where the documents are located at your passing. If your estate planning documents can’t be found, or no one knows that they exist, your plans probably won’t be executed.

Reference: WMUR (December 28, 2017) “Estate planning mistakes”

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Big Changes Proposed for Medicaid

The head of the Centers for Medicare and Medicaid Services, Seema Verma, recently issued new guidance that’s designed to help states create programs to encourage "able-bodied, working-age Medicaid beneficiaries" to participate in skills training, education, job search, volunteering or care giving.

The USA Today reports in a recent article, “Trump administration opens the way for a Medicaid work requirement” that the orders would be a major paradigm shift in the manner in which the Medicaid program is administered. Medicaid is the government health care program for low-income people.

“Medicaid needs to be more flexible, so that states can best address the needs of this population," Verma said in a statement announcing an initiative that could affect millions. "Our fundamental goal is to make a positive and lasting difference in the health and wellness of our beneficiaries," she said.

Where there’s high unemployment, CMS said that beneficiaries could satisfy the requirements by caring for young children or elderly family members. States would be required to create ways to help beneficiaries meet the requirements and to help them find job training, provided they use non-Medicaid funds to do this. CMS is anticipated to begin approving state waivers promoting "community engagement activities" in coming weeks.

People are not legally required to hold a job to be on Medicaid. However, states traditionally can seek federal waivers to test new ideas for the program. CMS says 10 states have applied for waivers involving work requirements or community involvement: Arizona, Arkansas, Indiana, Kansas, Kentucky, Maine, New Hampshire, North Carolina, Utah, and Wisconsin.

The new order may see some legal challenges. Health groups and advocates for the poor claim that the Centers for Medicare and Medicaid Services doesn’t have the power to grant such requests.

The new guidance states that pregnant women, disabled people, and the elderly should be excluded from the new requirements and that factors, including child care or elder care burdens should be considered. Undergoing substance abuse treatment should also be considered "community engagement" for people seeking to recover from addiction.

Reference: USA Today (January 11, 2018) “Trump administration opens the way for a Medicaid work requirement”

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Physicians Should Check Their Powers of Attorney

A financial power of attorney document allows you to state how your financial affairs should be handled, if you were to become physically or mentally incapacitated and were no longer able to competently make important decisions yourself

MD Mag explains, in “Five Questions to Ask About Your Financial POA,” that many doctors believe their financial POAs assure that their financial affairs would be handled precisely according to their wishes. However, these documents may not achieve this goal because they frequently contain boilerplate and generic language that’s supposed to cover the needs of everyone in general (and no one in particular). Those with substantial assets, like many physicians, should have POAs with more specificity.

One area of vulnerability that’s created by a lack of specificity is with agents. These are the individuals you choose to carry out the POA’s provisions. General terms may result in that person going astray of your actual intent, even when they think they’re doing what they thought you’d want.

To avoid problems that can’t be corrected, consider ask a qualified estate planning attorney about your financial POA, including the following:

• As the POA is presently written, is the agent you appointed permitted to legally give your money to anyone (including themselves)? If it does, this emphasizes the need for a trusted agent. It’s not uncommon for a spouse/agent to give money to their grown children from a previous marriage or even to themselves.
• Your Dependents. How does the POA work for those you’re currently taking care of financially, like an elderly parent? Review the POA with your attorney to be certain that the agent must send money to support your mom or dad for you.
• Beneficiary Designations. See if it’s possible that your agent could legally change your beneficiary designations in your 401(k) plans, IRAs, annuities, and life insurance policies. Ask your attorney to place some limits on the agents’ discretion to avoid this.
• POA Works with Your Overall Financial Strategy. See that your POA allows your assets to be managed as you really want and be sure the management is consistent with your long-term financial plan. If you have an investment policy statement—a document that states your investing goals, how to reach them (broadly), the degree of risk that your investments should have and your personal risk tolerance—it should be referenced in and/or appended to your POA.
• Is it Current? With people getting married, divorced, having kids, getting seriously ill or becoming disabled, and passing away, you need to be sure your financial POA is current.

Reference: MD Mag (December 27, 2017) “Five Questions to Ask About Your Financial POA”

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The Details on Medicaid Annuities

Consider a scenario when your spouse has made a permanent move to a nursing home, you don’t have long-term-care insurance, Medicare won’t cover the cost and you have too much money to qualify for Medicaid.

However, you also do not have nearly enough money to cover the expense of the nursing home, which is anywhere from $5,000 to $8,000 monthly for a semi-private room.

That’s going to rapidly deplete your nest egg.

In case you missed it, Kiplinger’s article from last fall, “Medicaid Annuities Help Protect Savings,” explains that a Medicaid-compliant annuity might rescue your retirement.

If you purchase an immediate annuity owned by and payable to you that meets several requirements, it will transform cash that would otherwise prevent your ill spouse from qualifying for Medicaid into an income stream that helps you to preserve your quality of life. With the annuity, Medicaid starts covering the nursing home expenses and your monthly bills are manageable.

If you have the time to plan ahead, you can address these long-term-care costs, such as with long-term-care insurance or aggressively saving with the aim of self-insuring any long-term-care costs. However, for couples in crisis, who’re watching their life savings evaporate as they pay nursing-home bills, a Medicaid-compliant annuity may be the only way to preserve a livable income for the spouse who remains at home.

Medicaid recipients typically can’t have more than $2,000 in cash. When one spouse goes into a nursing home, and the other stays at home, there are some special rules that apply. The healthy spouse can keep a certain amount of assets, which varies by state.  However, it can be as much as roughly $120,000. The healthy spouse’s income isn’t counted when determining Medicaid eligibility. The Medicaid recipient must use his available income to pay for his care costs, but the healthy spouse can keep some or all of that income, if she otherwise would not have enough to live on.

Those trying to meet Medicaid’s asset limits can spend down their life savings, which gives the healthy spouse very little on which to live. They could also give away the money, which will mean there’s a period of Medicaid ineligibility, if the gift is made less than five years before applying for Medicaid.  However, a properly structured Medicaid-compliant annuity can reduce the need for these drastic actions.

It’s important to note that some states want to limit their use. A bill introduced in Congress last year would count half of the income from a healthy spouse’s annuity, when determining the Medicaid eligibility of the institutionalized spouse. However, the bill didn’t get much traction.

You might consider a Medicaid-compliant annuity if you have moderate savings—perhaps $500,000 or less—and must pay for nursing home bills out-of-pocket. For those who are not in a crisis situation, these may not be the wisest investments. This is because they’re designed for people in dire straits. They generally offer minimal returns, such as 1%. Those with more wealth are much better off earning a market rate of return on their money and paying the nursing-home bills themselves.

 Since you don’t want to tie up money that could be needed for other expenses, you should only purchase a Medicaid-compliant annuity when you know your spouse has moved to a facility permanently. The amount you should invest in the annuity is determined in part by your finances on the “snapshot date”—the date your spouse has spent 30 consecutive days in the facility.

Talk with an elder law attorney, if you are considering a Medicaid annuity. There are many legal issues to address when you put your spouse in a facility. Your elder law attorney will update your estate plan and powers of attorney.  They will also help you to determine whether a Medicaid annuity might be a sound strategy.

Reference: Kiplinger (October 2017) “Medicaid Annuities Help Protect Savings”

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Hawaii Governor Signs Kupuna Caregivers Assistance Act

Hawaii Governor David Ige signed the Kupuna Caregivers Assistance Act, which provides those who care for an elderly family member, while also working at least 30 hours a week, with a stipend of up to $70 per day.

The Hawaiian word "kupuna" roughly translates to elder, grandparent, or an esteemed older person, says Benefits Pro in its recent article, “New Hawaii law provides daily caregiver stipend.”

Caregivers in the Aloha State can now use the money for anything that allows them to avoid missing work due to their caregiving duties. This includes things like hiring a part-time health aide, paying for meal deliveries, or cleaning services. The stipend can also replace caregiver income that’s lost to carrying out those duties themselves and the resulting lost time at work.

The state’s general fund provides the cash from the existing balance, which is funded primarily by income and corporate taxes. The law is aimed at assisting caregivers to stay in the workplace as long as possible and still be able to provide care to loved ones, so that they can be as healthy and independent as possible.

Hawaii is the first state in the U.S. to put this type of system into practice. Nationally, there’s an estimated 44 million Americans who are caring for elderly relatives, with about 60% also employed. Not only does that make it difficult to keep up with caregiving responsibilities, but it takes a toll on their work performance. Here are some statistics among female caregivers:

• 33% have decreased their working hours;
• 29% have declined promotions;
• 20% have switched to part time;
• 16% have quit a job; and
• 13% have retired early
  

… all to provide elder care.

That lost time hurts employees and adversely impacts the economy. An AARP survey found that the cost of leaving the workforce early to care for a senior, costs an employee about $304,000 in lost wages and benefits. Businesses also lose an estimated $33.6 billion annually in productivity from caregiving employees.

Reference: Benefits Pro (December 20, 2017) “New Hawaii law provides daily caregiver stipend”

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Which States Will Tax Your Estate the Most in 2018?

The big numbers are because many states have linked their state estate taxes to the federal amount. Since the GOP tax bill doubles the base federal estate tax exemption amount to a little over $11 million, indexed for inflation for tax years 2018 through 2025, those states will also increase their thresholds.

Forbes notes in its recent article, “Where Not To Die In 2018,” that along with this news, there are two states that are eliminating estate taxes in 2018: New Jersey and Delaware. New York is set to match the current federal exemption amount—a base of just over $5 million indexed for inflation—in 2019. Massachusetts and Oregon now tie for the lowest estate tax exemptions at $1 million per person.

The federal estate tax is 40% on assets above $11.2 million. This tax affects just 1,800 estates in the US next year. However, many more taxpayers pay state estate taxes. The number of state taxable estate tax returns in the state of Oregon alone was 1,563 in 2015. That state’s exemption is just $1 million.

The amount of money you can leave to your heirs without any state death tax depends on where you live and own property, to whom you’re leaving the money and whether your estate planning is current. The highest rates are about 16%, and for inheritance tax states, the tax can apply to the first dollar of assets, meaning there’s no credit like there is on federal estate taxes.

Seventeen states and Washington, D.C. will impose an estate tax or inheritance tax (Maryland has both) in 2018. Eight of these states and DC are making changes for 2018.

New Jersey has repealed its estate tax, but there’s a separate state inheritance tax that hits non-lineal heirs like siblings, nieces, and nephews. The Garden State now is in the group of other inheritance-tax only states: Nebraska, Iowa, Kentucky, and Pennsylvania.

Minnesota and Maryland have scheduled increases to their exemption amounts, and Connecticut just made scheduled changes to its exemption in its 2018 state budget. Washington and Rhode Island made minor upward adjustments in their exemption amounts, due to inflation indexing.

You should not believe that you don’t need to do estate planning because of these larger exemptions. There are plenty of non-tax reasons to plan, including designating a guardian for your minor children and naming someone to act on your behalf with a financial power of attorney, if you become incapacitated.

Speak with a qualified estate planning attorney to be sure your estate plan is up-to-date and addresses any tax law changes in your state.

Reference: Forbes (December 21, 2017) “Where Not To Die In 2018”

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Late Sportscaster’s Family in Estate Dispute

 

Craig Sager II recently tweeted about the fact that he and his sisters were cut out of his father’s will. That began a thread that alluded to a strained relationship with his stepmother and left many unanswered questions.

Yahoo Sports recently published an article, “Kacy Sager slams stepmom, sheds light on ugly Craig Sager estate drama,” that says the former sports reporter, best known for covering the NBA for TNT, died on December 15, 2016 at age 65, after battling leukemia.

Sager had five children in two marriages, and there were no reports of family estrangement. The younger Sager even wrote a loving recollection of his father for Sports Illustrated after his father’s death. They also wrote a book together, while the elder Sager was suffering with his terminal diagnosis.

However, daughter Kacy Sager released a statement that shed some light on the family dynamic and left no doubt how she feels about her stepmother, Stacy.

Kacy described an ugly situation surrounding the death of her late father, detailing how her father and stepmother started an affair while Craig was still married to her mother. She accused her stepmother of preventing her from seeing her dying father during his last days, and accused her of excluding her brother from being involved in family matters—despite his twice donating bone marrow to his father.

Kacy derided a story that Stacy wrote for The Players’ Tribune about her love affair with Craig for ignoring the fact that they began their relationship, while Craig was still married.

She also came to her brother’s defense for a moment of public honesty about the estate.

Kacy reiterated that she and her siblings weren’t contesting the will or seeking money. She is, however, describing the pain in her family and anger at her stepmother’s role in excluding her and her siblings from family matters, while also professing her love for her late father.

Reference: Yahoo Sports (January 3, 2018) “Kacy Sager slams stepmom, sheds light on ugly Craig Sager estate drama”

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