Salt Lake City Estate Planning

Help Me with the Rules for an Inherited Roth IRA

The rules for an inherited Roth IRA are based on who the beneficiary is. That's because there are different rules for distributions, when the beneficiary is a spouse or a child or a charity.

You need to understand the rules to avoid the getting hit with a severe penalty for failing to make a required distribution, advises nj.com in its recent article, “The rules for Inherited Roth IRAs.”

One of the attractive features of a Roth IRA is that while the original owner is alive, there are no Required Minimum Distributions (RMDs). As a result, the Roth IRA can continue to grow tax-free for a very long time.

However, when the beneficiary dies, the rules change. If a spouse is the beneficiary of an inherited Roth IRA, the spouse can roll over the Roth into the spouse's name and continue to allow the funds to grow tax-free with no RMDs during the inheriting spouse's lifetime. 

If the spouse doesn’t rollover the Roth IRA, but rather treats it as an inherited Roth IRA, he or she must make required distributions as soon as the spouse reaches age 70½.

If a child or grandchild is the beneficiary, he or she must withdraw the funds over his or her lifetime.

With a younger beneficiary, such as a grandchild, he or she will enjoy more time before he or she must withdraw the money, increasing the value of the Roth.

Unlike a traditional IRA, a distribution from a Roth IRA doesn’t trigger an income tax.

If the beneficiary is a charity or the owner's estate, or if the owner fails to name a beneficiary, the entire Roth IRA is subject to the five-year rule. That means that the entire Roth IRA must be distributed over the five years, following the death of the owner.

There's one more issue to look at: if, at the death of the Roth IRA owner, the funds haven’t been held in the Roth IRA for at least five years, the earnings on the funds will be taxable to the beneficiary.  However, there’s no penalty for an early withdrawal.

Reference: nj.com (February 2, 2018) “The rules for Inherited Roth IRAs.”

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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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Estate Planning for Art Collectors

Affluent art collectors hope that their acquisitions will appreciate in value, but they will also purchase pieces for personal and aesthetic reasons. These collectors may be extremely focused on acquiring art—and not very interested in disposing of it.

This frequently means that at death they’ve amassed sizeable collections. However, it’s also surprisingly common that many affluent art collectors do a poor job of addressing their artwork in their estate plans, says Forbes in the recent article, “Estate Planning And Affluent Art Collectors.”

Failing to plan for the disposition of collections upon death can mean a lot of expense for your family. This is because they may have to pay higher estate taxes. It can also result in the unfair division of the art, creating family conflict and legal battles.

Unfortunately, wealthy collectors often adopt the default option of not properly planning. If the collector isn’t certain to whom to leave pieces, he or she will procrastinate until it’s too late.

 However, smart planning can often resolve these issues. One option is to have corporate entities to own the art. This addresses many ownership issues and can simplify probate, because there’d be no need to retitle the art.

With a meaningful and valuable collection, proper planning means more than constructing an estate plan.  It means building files of ownership to make certain there are no questions concerning provenance. The files should include certificates of authenticity, bills of sale and insurance records.

Work with an experienced estate planning attorney to ensure that your wealth is passed on to whom you select and done in a way that mitigates taxes.

Reference: Forbes (January 8, 2018) “Estate Planning And Affluent Art Collectors”

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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!

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!

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!

Learn About Wills in Kansas

A will is a legal document that provides instructions regarding how your property is to be distributed after your death. To be valid in the State of Kansas, a valid will must comply with these requirements: 

• The maker or “testator” must be at least 18 years old;
• The testator must be of sound mind at the time the will is drafted;
• The will must be properly prepared and signed by the testator; and
• The will must be witnessed by at least two people who will not receive any assets in the will.

In addition, a notary public can sign the will. This is known as a “self-proving” will. Nevertheless, witnesses are still required, and the notary public must make a special certification, if the will is to meet state requirements.

A will should designate an executor to administer and settle the estate. This means paying all debts and taxes out of the estate, and distributing the estate according to the testator’s wishes. An alternate executor should be named to serve as a back-up, in case the first choice can’t serve.

McPherson Sentinel’s recent article, “Estate planning: wills and trusts,” explains that generally Kansas law allows you to distribute property however you like.  However, the one major exception is that a spouse has an absolute right to at least half of the estate. If the will is written to give a spouse less than half, that spouse must have agreed to the smaller share of the estate pursuant to state law for the will to be valid as written. This may be accomplished by writing a new will or by writing an amendment to the current will. The document must be signed with all the requirements of the original will.

A will may be revoked by burning, tearing, destroying, or marking through it with the intent of revoking it.

It is important to remember that life events like marriage, divorce, and birth or adoption of a child all have an impact on your will. You should review your will every few years with an experienced estate planning attorney to be certain that it reflects your current wishes.

If you die without a valid will (“intestate”), your property, other than property held jointly, will be divided into various portions depending on whether a spouse, child(ren), parents or other relatives survive. 

There’s also an estate tax imposed by the federal government on the value of all property owned at death over a certain amount. It is currently $5.49 million in 2017 and in 2018, the estate and gift tax exemption will increase to $5.6 million per individual. Kansas does not impose a state estate tax and has no independent inheritance tax.

Reference: McPherson Sentinel (October 18, 2017) “Estate planning: wills and trusts”

If you would like more information, give our office a call for a free consultation, 80.438.7120!

Buffalo Gets New Smartphone App to Help Stop Elder Abuse

Dozens of providers and advocates recently spent a day learning how to use the new Legal Risk Detector App.

WIVB recently posted an article, “New App Aims to Prevent Elder Abuse,” that explains how the Center for Elder Law & Justice teamed up with the Erie County District Attorney’s Office and the Erie County Office of Senior Services in the Buffalo, NY metro area to introduce the app to those who work closely with elderly members of the community.

“This app is designed for Meals on Wheels people, home health aides, senior services workers and people who would be kind of the front line staff,” explained Karen Nicolson, Chief Executive Officer of the Center for Elder Law & Justice.

Those providers are sometimes the only individuals with whom home-bound seniors interact on a regular basis. Therefore, they can be the only people who recognize potential housing, consumer, financial exploitation or healthcare issues, provided they know the right questions to ask. That’s where the new app can help. The app is a comprehensive list of questions to ask elderly clients to help identify potential abuse. The questions are about everything from whether someone has been pressuring a senior to make changes to their power of attorney, to whether someone has been stopping them from accessing their money or health services.

The app also lets providers upload photos and documents, which are added to the report generated by the seniors’ responses. A report will give the referrals that the provider may need to help the senior.  It is automatically sent to the Center for Elder Law & Justice, when any legal risk red flags are identified.

The Erie County District Attorney said his office has seen a number of cases of financial and physical elder abuse this year, which he attributes to the fact that many seniors don’t have their children living nearby to monitor them. He hopes that awareness spreads about the app and its ability to help identify problems, so would-be abusers will reconsider taking advantage of elderly victims.

The app that was unveiled is only intended for use by providers and advocates who work with the elderly in the community. However, with a national grant, another risk detector app is in development that will be available to the public.

Reference: WIVB (October 30, 2017) “New App Aims to Prevent Elder Abuse”

If you want more information, please give our office a call for a free consultation, 801-438-7120. 

Will of Linkin Park Frontman Shows He Wanted Family Visits

Linkin Park frontman Chester Bennington, who committed suicide in July, is survived by six children from three relationships—21-year-old son Jaime and adopted son Isaiah, 19, with Elka Brand; 15-year-old son Draven with first wife Samantha; and son Tyler, 11, and twin six-year-old girls Lilly and Lila, with his widow Talinda.

Bennington was found on July 20 in his Palos Verdes Estates, California home—one week before his rock group Linkin Park was planned to begin a 29-date North American tour. The singer was on vacation in Arizona with his wife Talinda and his family, but came home alone, citing work commitments.

Wealth Advisor notes in its recent article, “Linkin Park Singer Left Cash For Kids To Visit Each Other,” that Bennington’s will was filed in a probate court in Los Angeles County and obtained by several news outlets.

In his will, Bennington wrote: "I request that my children's mothers or Guardians encourage and allow my children to visit with one another and with my extended family and the extended family of my Spouse on a regular and ongoing basis, so that my children know that they have a large and loving family."

Bennington made certain the children wouldn't need to pay for these trips out of their own pockets. He directed the trustee of the family trust to provide money to cover their travel expenses.

There’s been no report as to how much Chester left to his family.

In August, Samantha, who was married to Bennington between 1996 and 2005, blasted Talinda online for not including her and Draven in his funeral service.

"My son & I have not had an opportunity to speak, not even at his funeral (that only represented his life that he was married to his new wife) no photos but one of him anywhere," she wrote.

"Dra was never treated equally by T & never wanted to go there because of that. Thanks for not honoring the one wish my son had by sharing his prayer with his siblings & throwing the rose quarts (sic) into the ocean with him.”

Talinda serves as the executor of Bennington’s will, while the alternate executor is Chester's former business manager Jonathan Schwartz. It may be difficult for Schwartz to serve, however. He is currently in jail on charges of wire fraud.

Reference: Wealth Advisor (October 23, 2017) “Linkin Park Singer Left Cash For Kids To Visit Each Other”

If you would like help preparing your will, give our office a call for a free consultation, 801-438-7120!

Millennials Set Kid’s Education above Their Own Retirement

The idealism of the millennial generation is readily apparent in Personal Capital’s latest survey of affluent families. The online survey of about 1,000 affluent investors, 18 or older with assets of $500,000 or more, discovered that millennials with children plan to spend more on their children’s college education and housing (including home purchases) than older generations.

Millennials are three times more likely to commit to defraying the entire cost of their child’s home purchase and two times as likely to contribute a full down payment compared with parents overall, the survey says. In addition, 70% say they’d place saving for their child’s education above saving for their own retirement. That’s a strategy that many experts don’t like because college can be partially financed with loans. Retirement can’t. In comparison, about half of all parents said they would adopt that strategy.

ThinkAdvisor’s recent article, “Here’s How Financially Naive Millennial Parents Are,” narrowed down PayScale’s starting salary rankings of 336 majors. Science and math are at the top.

In addition, roughly 56% of affluent millennial parents anticipate paying $100,000 or more for their children’s college education, compared with 42% of Gen X parents and 23% of baby boomer parents. A full 95% of millennial parents expect to help pay for their child’s graduate school education, with 60% providing $100,000 or more.  However, the generous plans among millennial parents—who are yet to reach age 35 years of age—may change in the future.

The survey also found that 40% of millennials don’t have a retirement account, but plan to retire in 15 years with $450,000 worth of investable assets. This is a view that’s even more idealistic than the findings of the survey. The latest survey said that among affluent parents overall, about 20% plan to support their children into their 30s, with 12% ready to continue that into their children’s 40s. Almost all (97%) plan to leave an inheritance to their children, with approximately 90% planning on leaving $100,000 or more to their heirs.

It’s apparent that affluent parents, across generations, are feeling more pressure from their children to provide longer-term support, with mothers experiencing that pressure more than fathers. For example, 64% say their children expect or will expect them to pay for college compared with 44% of fathers, according to the survey.

Reference: Think Advisor (September 26, 2017) “Here’s How Financially Naive Millennial Parents Are”

Suggested Key Terms: Estate Planning, Asset Protection, Inheritance

If you would like more information, please give our office a call for a free consult 801-438-7120!

 

“According to Personal Capital, 70% say they favor saving for their kid’s college over saving for retirement, a strategy advisors usually oppose.”

The idealism of the millennial generation is readily apparent in Personal Capital’s latest survey of affluent families. The online survey of about 1,000 affluent investors, 18 or older with assets of $500,000 or more, discovered that millennials with children plan to spend more on their children’s college education and housing (including home purchases) than older generations.

Millennials are three times more likely to commit to defraying the entire cost of their child’s home purchase and two times as likely to contribute a full down payment compared with parents overall, the survey says. In addition, 70% say they’d place saving for their child’s education above saving for their own retirement. That’s a strategy that many experts don’t like because college can be partially financed with loans. Retirement can’t. In comparison, about half of all parents said they would adopt that strategy.

ThinkAdvisor’s recent article, “Here’s How Financially Naive Millennial Parents Are,” narrowed down PayScale’s starting salary rankings of 336 majors. Science and math are at the top.

In addition, roughly 56% of affluent millennial parents anticipate paying $100,000 or more for their children’s college education, compared with 42% of Gen X parents and 23% of baby boomer parents. A full 95% of millennial parents expect to help pay for their child’s graduate school education, with 60% providing $100,000 or more.  However, the generous plans among millennial parents—who are yet to reach age 35 years of age—may change in the future.

The survey also found that 40% of millennials don’t have a retirement account, but plan to retire in 15 years with $450,000 worth of investable assets. This is a view that’s even more idealistic than the findings of the survey. The latest survey said that among affluent parents overall, about 20% plan to support their children into their 30s, with 12% ready to continue that into their children’s 40s. Almost all (97%) plan to leave an inheritance to their children, with approximately 90% planning on leaving $100,000 or more to their heirs.

It’s apparent that affluent parents, across generations, are feeling more pressure from their children to provide longer-term support, with mothers experiencing that pressure more than fathers. For example, 64% say their children expect or will expect them to pay for college compared with 44% of fathers, according to the survey.

Reference: Think Advisor (September 26, 2017) “Here’s How Financially Naive Millennial Parents Are”