Salt Lake City Estate Planning

What’s Really in The Tax Cuts and Jobs Act of 2017?

With the new Tax Cuts and Jobs Act, most of us won’t have to pay a federal estate tax. However, with the expanded exemption, there are still several reasons to engage in estate planning, according to an article published in Think Advisor, “9 Ways New Tax Law Could Affect Clients’ Estate Plans.”

The new tax legislation increases the federal estate, gift and generation-skipping transfer (GST) tax exemptions to $10 million (indexed for inflation) per person beginning on January 1, 2018. The exemptions are scheduled to sunset (expire) on January 1, 2026. Things then revert to the current federal law. Of course, there’s always a chance of a repeal of the tax law in a subsequent Congress, so it’s critical to stay informed. However, right now, high-net-worth individuals should pay close attention to these areas:

• Estate planning. A trust can provide protection from creditors and divorcing spouses, along with control over how beneficiaries inherit wealth. A trust can also help preserve wealth for generations.
• Portability election. This allows a surviving spouse to use the deceased spouse’s unused federal estate and gift tax exemption. It’s unchanged and means a married couple can use the full $20 million exemption (indexed for inflation).
• Estate tax liability. For those with a high net-worth who will still have federal estate tax exposure and those who live or own property in states that have their own estate tax, the traditional wealth transfer strategies will still be sound. Talk to your estate planning attorney about your federal estate tax exposure under the new rules.
• Basis step-up at death. This lets a decedent’s assets get a step-up in tax cost to their fair market value at the date of death. It’s unchanged. Therefore, with a much higher federal estate tax exemption, income tax planning is a crucial component of estate planning and estate administration.
• Annual exclusion gifts. Making gifts during your lifetime may be a wise tax planning strategy. The gift tax annual exclusion amount is $15,000 and the gift tax annual exclusion amount is still subject to an adjustment for inflation.
• Basis carryover for gifts. Gifts made during the donor's lifetime will continue to pass to the donee with the donor’s tax cost. Perhaps a donor might wait in making gifts of assets that have significant unrealized gain until his or her death, to give the beneficiary the asset and the step-up in tax cost. There are other considerations in gift tax planning, so talk to your estate planning attorney.
• GRATs. Short-term grantor-retained annuity trusts (GRATs) or qualified personal residence trusts (QPRTs) whose terms end before the Act’s sunset provisions in 2026, will still be a good planning tool for very high net-worth clients.
• Irrevocable trusts. Existing irrevocable trusts that hold low-basis assets should be examined to see if there’s an upside to (and the possibility of) rendering them subject to estate tax in the estate of a beneficiary who might die before the increased exemptions sunset. This could result in a step-up in tax cost (thus reducing capital gains tax for the next set of beneficiaries) without payment of estate tax.
• Closely held businesses. With the exemption amounts scheduled to revert to $5 million (indexed for inflation) in 2026, planning is still vital for families with large closely held businesses and a net worth significantly greater than the exemption amounts. If it looks like reversion to the current law is possible as we get closer to 2026, individuals should determine if an aggressive gifting plan makes sense.

Reference: Think Advisor (January 10, 2018) “9 Ways New Tax Law Could Affect Clients’ Estate Plans”

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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”

If you would like more information, give our office a call for a FREE consultation, 801.438.7120!

Here's a New Year’s Resolution You Must Keep

Many of us will set resolutions of general wellness, such as eating more healthily, exercising more or getting out of debt.  However, the most impactful resolution you can make—and keep—for 2018 is completing your estate plan.

Birmingham Business Journal’s recent article, titled “Why an estate plan should be a resolution for 2018,” says that planning for your family’s future once you’re no longer living, or unable to make choices for yourself, will have a serious impact on your entire family.

Once you sign your last will and testament and living will, you immediately eliminate a lot of stress for your family because no one will need to guess about your final health care wishes or where you wanted your assets to go.

As we move into 2018, make the resolution to remove the guess work from these extremely important decisions and plan for your and your family’s future. Preparation now can avoid unnecessary expenses and family squabbles.

When you create an estate plan, you can achieve your long-term goals and preserve your legacy for your children and grandchildren. You can also give to the charity of your choice.

If you don’t have a plan for your estate, the state’s plan may not align with what you would have wanted. If you die without a last will and testament—known as “intestate”—the laws of the state will dictate how your assets will be distributed.

Your estate doesn’t need to be large and taxable to necessitate an estate plan.

Take care of your estate planning, and your family will thank you.

Reference: Birmingham Business Journal (December 14, 2017) “Why an estate plan should be a resolution for 2018”

If you would like to set up your Estate Plan, give our office a call for your free consultation 801.438.7120!

Have You Conducted Your “Dostadning?”

“Death cleaning” is the literal translation of the Swedish word dostadning, which means an uncluttering process that begins as people age. There’s even a new book called “The Gentle Art of Swedish Death Cleaning,” by Margareta Magnusson.

Santa Fe New Mexican’s recent article, “How to ‘death clean’ your finances,” says the focus should be on jettisoning junk. However, most senior’s finances could also use a good death cleaning. Simplifying and organizing our financial lives can make things easier for us while we’re alive and for our family after we’re gone.

This task becomes more pressing when we’re in our 50s. Our financial decision-making abilities generally peak around age 53, researchers say, while rates of cognitive decline and dementia start to increase at age 60. As we get older, we may become more vulnerable to fraud, scams, unethical advisers and bad judgment. Here are some steps you can take:

Consolidate financial accounts. Fewer accounts are easier to watch for suspicious transactions and overlapping investments. You also may save on account fees. See if your employer will let you transfer old 401(k) and IRA accounts into its plan or consolidate them into one IRA. Think about exchanging individual stocks and bonds for professionally managed mutual funds or exchange-traded funds (investigate prior to selling any investments held outside of retirement funds). Move scattered bank accounts into one account, but note that FDIC insurance is generally limited to $250,000 per depositor per institution.

Automate payments. Memory lapses can cause missed payments, late fees, and credit score damage. This can drive up the cost of borrowing and insurance. Set up regular recurring payments in your bank’s bill payment system, have bills charged to a credit card and set up an automatic payment, so the card balance is paid in full each month.

Scale back on credit cards. Keep just two credit cards: one for everyday purchases and another for automatic bill payments. Closing accounts may hurt credit scores, so wait until you’re sure you won’t need to apply for a loan before you start cutting down on the plastic.

Assign a watchdog. Identify the person you want to make decisions for you, if you’re incapacitated. Ask your attorney to create two durable powers of attorney — one for finances and another for health care. You don’t have to designate the same person for both, but name backups if your first choice can’t serve. Consider naming someone younger, because someone your age or older could become impaired at the same time you do. Discuss where your agent can find the information and access.

Your emergency file. Create “in case of emergency” files that your trusted agent or heirs will need. The file can include the following:

• Estate planning documents, such as your will, trust, healthcare directives, powers of attorney, and living will;
• Birth, death and marriage certificates;
• Military records;
• Social Security cards;
• Car titles, property deeds and other ownership documents;
• Insurance policies;
• A list of your financial accounts;
• Contact info for your attorney, CPA, financial adviser, and insurance agent; and
• Photocopies of passports, driver’s licenses, and credit cards.

A safe deposit box isn’t the best spot because your agent may need access outside of bank hours. A fireproof safe or a locked file cabinet may be better, but share the combination or key (or its location) with your trusted person. Scan important papers and retain an encrypted copy in the cloud to help you or someone else recreate your financial life, if the originals are lost or destroyed.

Reference: Santa Fe New Mexican (December 18, 2017) “How to ‘death clean’ your finances”

If you would like more information, please call our office for a FREE consultation 801.438.7120!

Picking the Right Retirement Community

Lancaster Online’s recent article, “It's never too early to start retirement planning,” says that before you make the move to a retirement community, look at these tips for selecting the best option:

Give yourself plenty of time. It is never too early to start looking for a retirement community. Begin looking long before you need to move. That will give you ample time to research all of the many options for retirement living.

Evaluate the types of services offered. Some offer only independent living. Therefore, if someone needs additional care in the future, they’d have to relocate again. Other homes offer a full range of care from independent living to skilled nursing.

Look at the cost. Calculate all the fees, such as those associated with assistance with activities of daily living or nursing care, as well as any entrance fees. Ask to review a standard community contract.

Plan ahead. Take the time to do estate planning long before you plan to move. If you do some estate planning at least five years before you may need to enter a nursing home, you may be able to protect more of your assets from having to be spent on your care. Talk to an elder law attorney about specific strategies.

Look at the community’s location. Figure out transportation issues and whether you want to live in an apartment or a separate home. Look at how far it is to stores, medical care and other off-site places.

Thoroughly evaluate the community. Before meeting with people from different communities, create a checklist to complete for each one. Get your answers in writing to aid with accountability.

Plan a surprise visit. Show up unannounced, when you want to visit a community. The staff will be on its best behavior, if they know when you're coming. See how well they can adapt to accommodate you,  when you aren’t expected.

Speak with other residents. When you take a tour, talk to the residents and ask their opinions of the place.

Inquire about current occupancy. If you know how full the home is, you may have negotiating room on the cost.

Check the reviews. Research any online reviews of the retirement community, along with inspection reports.

Trust your gut. And your nose. If things don't smell right,  and it smells like urine, that's a bad sign.

Reference: Lancaster Online (November 29, 2017) “It's never too early to start retirement planning”

If you would like more information please give our office a call for a FREE consultation 801.438.7120!

Link Found Between Premature Death and Premature Retirement

The Daily Mail reports in its recent article, "Retiring early could kill you – especially if you're a man,” that US Census figures show a strong correlation between premature death and premature retirement. The analysis was conducted by Cornell University.

The link between premature death and premature retirement is stronger among men. They have a 20% higher mortality risk. They have a 20% higher mortality risk if they start claiming Social Security benefits at 62, which is three years premature. Researchers believe it could be due to workers forced to take early retirement, due to underlying health issues.

However, there’s no data to show that people who retire early die sooner than those who keep working past 65.

The research was conducted by economists Maria Fitzpatrick and Timothy Moore and entailed analysis of birth and death records for the entire US population. This was compared to data on claims for pensions, looking at each claimant's gender and age, and subsequent mortality.

The researchers found that a third of Americans start taking Social Security benefits at 62, which is thought to be early retirement for most employees. For those whose retirement technically started at 62 or earlier, retiring at 62 didn’t have an effect on their health.

 However, the study found that those who retired early at 62, had a significantly higher mortality rate than workers who retired on time.

Fitzpatrick and Moore concluded that early retirement “may have an immediate, negative impact” on health.

This isn’t the first study to find this connection. In 2016, researchers at Oregon State University found that those who work past age 65 could add more years to their life. That group of individuals was 11% in the study. But those termed unhealthy who also worked another year longer had a 9% lower mortality risk.

Reference: Daily Mail (December 19, 2017)”Retiring early could kill you – especially if you're a man”

If you would like more information, please give our office for a free consultation 801.438.7120!

Income Requirements for Medicaid

Is it possible for a married couple to separate their assets so, if one of them winds up in a nursing home, the other's assets won’t be used up

nj.com’s recent article, “Married and protecting assets from Medicaid,” explains that when a single person applies for Medicaid, he or she must have no more than $2,000 in assets to meet Medicaid's eligibility requirements.  However, the rules for married couples are different.

Medicaid deems the married couple to be one unit. Therefore, it doesn’t matter which spouse owns the assets. If you need Medicaid, you can’t just transfer your assets to your spouse in order to qualify. There are certain assets that are exempt from Medicaid rules. These include the primary home (if at least one of the spouses lives in it), a car and term life insurance that doesn't have cash value. The healthy spouse can keep those. Anything else is countable.

Medicaid totals the countable assets and divides them in half. The healthy spouse (called “the community spouse”) gets to keep one half of those assets, but only up to a maximum of just under $121,000. Everything else must be spent down to become Medicaid eligible.

But what if I divorce my spouse and keep all the assets? Provided there’s a valid prenuptial agreement in place that establishes what you can keep, this may be a solution. However, if you just want to shift all the assets to the community spouse by a divorce, the state probably will challenge that when it comes time to apply for Medicaid.

Remember, there’s also a five-year look back rule, if you transfer assets that are gifts and not purchases or other legitimate expenses. These transfers don’t stop a person from applying and receiving Medicaid benefits. However, the transfers penalize the recipient by delaying the amount of time until he or she can be eligible for benefits.

Speak with an experienced elder law attorney who knows how to file Medicaid applications and understands the Medicaid laws and regulations. Your elder law attorney can help you find better strategies to protect assets for the community spouse.

Reference: nj.com (December 13, 2017) “Married and protecting assets from Medicaid”

If you would like more information, give our office a call for a FREE consultation 801.438.7120!

Estate Planning for Your Pets

 

Don’t just say offhand, “Pops, can you take Fluffy, if something happens?” and hope that Fluffy will have a nice long life with dad.

As MarketWatch reports in its recent article, “How to provide for your pet in your estate plan,” many  people do just that: ask a relative and hope for the best. But others set up a formal estate plan for pets to ensure that they get continuing quality care, if their owner dies before they do. Most importantly, a pet estate plan could keep them from the shelter, which happens to many pets after their owners die. These items should be considered when pondering the best future for your pets.

1. Designate a caregiver. When considering a caregiver for your pets, evaluate whether that person is willing, capable and responsible enough to have the pet long-term. In addition, to be safe, name a contingent caregiver.
2. Earmark funds. Pet owners should list all their pet-care costs, and consider the pet’s expected lifespan. One pet owner added up the annual expenses for veterinary care for her two dogs, as well as their medications, monthly grooming, food, toys and a contingency for unanticipated expenses. She multiplied the annual total by what she thought to be the average life expectancy for the dogs and arrived at a budget of $25,000 for lifetime care. Determine how the funds should be set aside. You could create a trust, a bank account controlled by an executor (or by the guardian) or life insurance. Note that the beneficiary of a life-insurance policy can’t be a pet, but it can be a trust that includes provisions for a pet’s care or a trust specifically created for the benefit of the pet.
3. Draft a care plan. Set out clear, detailed instructions on how to care for your pet. That will make it easier for future caregivers to comply with your wishes. Your list may include the food your pet eats, how often he’s fed and his veterinarian.
4. Formalize your agreement. After you have made the basic decisions about your pet’s care, legally document them to help ensure that your wishes are executed. In fact, you can create a pet trust. This legal arrangement is available in all 50 states, but the specifics can vary. A pet trust can stipulate very specific directions for the care and funding of such care for your pet, after you pass away. Talk to an experienced estate planning attorney about creating this arrangement. You can also provide for your pets in your will. If you go this route, make sure that someone can step in immediately to care for your pet, because executing a will takes time. After the administration of an estate is completed, the will’s executor doesn’t have any continuing obligation to ensure the pet’s well-being.

Formalizing and funding a plan are critical, if you want to be certain that your wishes will be executed and that your beloved pet will have a comfortable life, if you die before your pet.

Reference: MarketWatch (November 30, 2017) “How to provide for your pet in your estate plan”

If you would like more information, give our office a call for a free consultation 801.438.7120!

Be Honest with Your Doctor and Your Heirs

 

Vanguard advised in a recent article, “The final keys to successful wealth transfer,” that you should communicate honestly with your health care provider for the sake of maintaining your health, and you have to speak honestly with your heirs to preserve your wealth.

It’s hard for many of us to easily disclose personal details about our finances. That’s because money can represent a variety of complex feelings and concepts, like security, control, comfort, selfishness and power. However, it’s imperative to have this important conversation.

You can start by relaying stories about your successes and losses (financial and otherwise). That way, your heirs can learn from your experiences. In addition, even if you detail specific conditions regarding when and how heirs can use their inheritance, you should look at the wealth transfer process with trust and an open mind. You should educate your heirs to make smart financial decisions after you’re gone, by showing them materials to prepare them for the future now.

Have the talk with your heirs when it’s right. If information about a future inheritance might distract them from making wise decisions about their future, you don’t have to disclose specific dollar amounts. Every family is unique, so there’s no one-size-fits-all solution to the question of when you should have “the talk.”

You should also use the counsel of an experienced estate planning attorney who doesn’t have a stake in your legacy and can facilitate the wealth transfer discussion. That will take some pressure off and ensure that all topics are discussed.

A final key to a successful wealth transfer is philanthropy. All family members should be able to participate in the giving process. Finding a charity that matches up well with your family’s values can help your heirs learn how to make decisions, motivate others and develop confidence. These are attributes that will help them be respected stewards of your wealth, when the time arrives.

In summary, to enjoy a successful wealth transfer: (i) identify what’s important to you and your family; (ii) communicate honestly; (iii) stay organized; (iv) get your heirs prepared; and (v) explore philanthropy.

Reference: Vanguard (September 26, 2017) “The final keys to successful wealth transfer”

If you would like more information, give our office a call for a free consultation, 801.438.7120!

Giorgio Armani Has His Business Succession Plan in Order…Do You?

 

The Wealth Adviser reported in its recent article, “Giorgio Armani Outlines Succession Plan To Keep House Intact,” that Armani said after he dies, three people he designates will be placed in charge of the foundation he created in 2016 as a succession tool and a vehicle for charitable investments.

Armani said the foundation will be the tie-breaker, if the evenly-numbered board of directors for his business reaches an impasse.

"What we have created stimulates my heirs to remain in harmony and prevents the group from being bought or from breaking up," he said.

The interview didn’t cover who will take over the creative direction of the fashion empire he founded in 1975. The Armani collection now includes the ready-to-wear lines Giorgio Armani, Emporio Armani and Armani Exchange, in addition to the couture line Armani Prive and Armani Casa home decor and furnishings.

His heirs include his nieces, Roberta and Silvana, who both work at the group, and a nephew, Andrea Camerana, who is a board member. Long-time assistant Leo Dell'Orco is in charge of the men's line and also is a member of the board.

"Believe me, it is horrendous to decide what to leave to whom, if it is right or not right. Every five minutes, you are placed in front of a reality of a man to whom something could suddenly happen. This is true of everyone, but more so at 83," Armani said.

Giorgio Armani SpA saw its revenues drop 5% in 2016. Armani remarked that this was because of a long-term strategy to relaunch Armani Exchange and simplify its portfolio. The company plans to return to growth in 2019. He’s never been tempted to follow the path of other Italian brands, which have been purchased by French conglomerates or other foreign investors.

"I don't think it is necessary," he said. "If then you start a discussion of the power that Louis Vuitton has regarding the media or investments, then it's clear that some doubts arise. But I want to be in charge in my house."

Reference: The Wealth Adviser (October 23, 2017) “Giorgio Armani Outlines Succession Plan To Keep House Intact”

If you would like help setting up your estate plan, give our office a call for a free consultation, 801.438.7120!