We are proud to sponsor the SLCO’s Aging Mastery Program.

We are proud to continue supporting the Salt Lake County Aging Mastery Program. We want to thank Judith Madsen for inviting us to present at the River’s Bend and Tenth East Senior Centers for another year.

Each year, we have the pleasure of meeting the wonderful people that have signed up for and attend the program. The program covers many subjects to help seniors learn how to manage their finances, health, scams, and the legal challenges they may face in the future.

Calvin presented on Advanced Planning. The presentation included wills, trusts, power of attorney, and medical directives. We often present at county and city senior centers and you may find upcoming events on our events page or by signing up for the newsletter or blog. Click here to join the newsletter and the blog.

If you are interested in learning more about the Aging Mastery Program or to sign up for it, please reach out to us or contact Judith Madsen at jhmadsen@slco.org. Click here to read more about the Aging Mastery Program.

Estate Planning with Loved Survivors In Mind

There is a strong need for clarity regarding the rules about what happens when a spouse from a second marriage, who is not an owner of the home, wants to remain in the home after the death of the owner. A kind-hearted practice is to allow the surviving spouse to remain in the home and enjoy the memories the couple shared, says The Union in the article “Estate planning from the heart.”

Giving the surviving spouse the ability to remain in the home, honors the relationship of the spouse with the decedent. It is an act of kindness. However, it does need to be made legally enforceable, in case there are any challenges. Several considerations need to be evaluated in the estate plan:

Can the surviving spouse manage the cost of the home? This may include a monthly mortgage payment, property taxes, homeowner’s dues, insurance, yard upkeep, interior and exterior maintenance and any repairs that are needed to keep the home working.

Another concern is whether the surviving spouse will continue to be able to maintain the home in the immediate and distant future.

The surviving spouse’s health, including physical and mental abilities, needs to be considered. Will the survivor be able to manage if dementia strikes, or if they are afflicted by a serious illness and left in poor health? All of these challenges need to be considered, when drafting language regarding the rights of a person to remain in the decedent’s home. For instance, if a person is not mentally competent to live on their own, health problems or the declining condition of the property may arise.

A standard of care needs to be made regarding home maintenance and update. It may get very specific, including details like pet care and clean-up, internal cleanliness, the presence of roommates or boarders and an annual or semi-annual inspection to be sure that the home remains in good condition.

The most common problem for a surviving spouse is the financial ability to remain in the home and pay the bills. One solution may be to permit the survivor to stay in the house for two years, creating a trust that can support the cost of maintaining the home during the hardest period of mourning. This gives the surviving spouse time to recover and adjust to the loss.

If the surviving spouse does not have the mental capacity to remain in the house, the choices are difficult. Ideally, both spouses are involved in planning for this possibility, long before the owner of the property dies. There is nothing pleasant or easy about this. However, it must be done. Ignoring it, makes a bad situation worse. Will the person need care, how will that care be paid for, etc.? Don’t leave it for the family to manage.

In the case of a second marriage, leaving the house to an individual who does not have the ability to manage it, creates a difficult situation, unless the decedent is able to leave enough assets in trust for the surviving spouse to maintain the home. There should be no assumption of the ability of the surviving spouse to care for the home, as an unexpected illness or accident could make a person who is healthy at the time of the signing of the agreement, change to one who needs a great deal of help.

The key to a surviving non-owner spouse is to address the “what-if’s” early on, in the context of the estate plan. A plan should be put in place, which may involve trusts or other estate planning tools, to allow the surviving spouse to remain in the home, if that is the couple’s wish, and a plan “A,” “B,” and “C” for the unexpected events that occur in the course of aging.

An estate planning attorney will be able to create a plan that makes sense for the spouse, the surviving spouse and the heirs. A family meeting will be helpful to ensure that everyone involved knows what the plan is, so there are no misunderstandings, and all can act from a place of kindness.

Reference: The Union (April 7, 2019) “Estate planning from the heart”

Having a Generous Spirit is a Good Thing for Many Reasons

Many people give generously throughout the year, for birthdays, to help children or grandchildren with college costs or just because they want to help family or friends. However, according to the New Hampshire Union Leader’s article “Lifetime (noncharitable) giving has many advantages—and not just for tax purposes.”

Lifetime giving means that you are more involved with giving, than if your giving occurs after you have died. Perhaps the best part of gifting with warm hands, is that you are able to enjoy seeing the recipient (donee) benefit from your gift. It’s a good feeling to see a person have his life enriched by your generosity.

It should also be noted that sometimes, giving away something can be a way of liberating yourself. With less property, there’s less for you to manage, insure or provide upkeep.

If you die with no will, the intestacy laws of your state will determine who gets what. With a will, you have the opportunity to make your intentions known clearly. However, since you will not be alive, you won’t be able to see the actual transfer of property. A beneficiary might decide that they don’t want an asset. It is also possible that someone who always told you that he loved the painting in the foyer of your home, may decide to sell it, instead of keeping it.

Lifetime giving lets you react to changing circumstances and provides some control over how your assets are distributed.

After your death, your property and your estate may go through probate, which in some states can be a lengthy process. Lifetime giving also reduces the costs associated with probate and estate administration, because they won’t be included in your estate at the time of death. Assets that come out of the probate estate, reduces the likelihood of estate creditors or dissatisfied heirs. Lifetime gifts are private, while probate is public.

However, there are also tax advantages. If your gifting program is structured correctly by an experienced estate planning attorney, income and estate taxes can be decreased. Generally, a gift is not taxable income to the donee. However, any income earned by the gift property or capital gain subsequent to the gift, is usually taxable. The donor holds the responsibility of paying state or federal transfer taxes imposed on the gift. There are four taxes to be aware of: the state gift tax, the state generation-skipping transfer tax, federal gift and estate taxes and the federal generation-skipping transfer tax.

Many people give, because they want to support charitable causes or help friends and family enjoy a higher quality of life. The need to reduce the size of an estate to lower estate taxes is now less prominent, since the federal estate tax exemption is so high. It should be kept in mind that the new tax laws regarding federal estate taxes end in 2025. That may seem far away, but it will be here soon enough.

Another way to give, is to help with college expenses. Any gift must be made directly to a qualified institution. Similarly, if you’d like to help a friend or family member with medical expenses, a gift needs to be made directly to the healthcare provider. Not only are these types of transfers exempt from federal gift and estate taxes, but they are outside of the $15,000 annual gift exclusion gift you can make to an individual in any given calendar year.

This is a simple overview of gifting. An estate planning attorney should be consulted to create a plan for giving, that aligns with your overall estate plan and tax management plan.

Reference: New Hampshire Union Leader (April 7, 2019) “Lifetime (noncharitable) giving has many advantages—and not just for tax purposes”

What You Need to Know, If the Next Generation Is Inheriting the Family Farm

Understanding the tax liabilities for inheriting, buying or being gifted the family farm, is critical to avoid a costly financial misstep, says Capital Press in the article “The family farm is coming to you: What’s next?” You’ll need to work closely with your estate planning attorney and CPA to make sure you understand the basis in the real estate, especially if the property is sold and taxes will need to be paid. How you inherit the property, makes a big difference in the tax bill.

If you receive the property as a gift from parents while they are alive, then you retain their income tax basis in the property. If they inherited it also, they likely have a low tax basis. Farms with a basis of $50,000 that are now worth $2 million are not unusual. If the farm is sold, there will be a capital gains tax on the difference between the basis and the present value, which could be more than $600,000.

If you inherit the farm from a parent and then sell it for $2 million, its value at the time of their death, you would not have to pay a capital gains tax. That saves $600,000.

The estate tax may not be so bad, depending upon your state’s estate tax, which is probably lower than the highest capital gains rate. If you live in Oregon, you may be eligible for the Oregon National Resource Credit, which was created to reduce Oregon estate taxes on family farms. Your estate planning attorney will be able to help you plan for and manage these taxes.

If you bought the farm from a parent’s trust or estate for $2 million, then you have a $2 million basis in the property and will probably not owe any property gains tax, if you eventually sell it for $2 million.

Just be sure that you comply with all reporting requirements. If you are in Oregon and took the Oregon National Resource Credit, then for five out of eight years after the death, the recipient of the inherited property is required to file an annual certification to keep the credit that was used to lower the estate tax. Failure to comply, means that a portion of the estate tax will have to be repaid.

If you own the farm without other family members, you should start planning your next steps. To whom do you want to pass the farm? If you want to keep the farm in the family, work with an attorney who is familiar with farm families, so that you can keep working the land and reduce any disputes.

Farmers often separate business operations from the land, with the operations held by one business and the land held by another entity. This allows the estate planning attorney to plan for succession in how operations and land are transferred to the next generation. It also provides asset protection, while you are alive.

Make sure that your farm succession plan and your estate plan are aligned. A common issue is finding that buy-sell documents don’t align with the will or trust. Some farmers use a revocable living trust as a will, so they can incorporate estate tax planning and transition the farm privately upon death.

Reference: Capital Press (March 24, 2019) “The family farm is coming to you: What’s next?”

 

Social Security Scams Keep Going

It seems like scammers have become more aggressive and a frightening tone has gotten more than one otherwise sensible person embroiled in them. Crooks are calling and telling people that their Social Security numbers have been suspended, and that they need the number and the person’s bank account information to issue a refund, says KKTV’s report “Social Security officials hope to combat scam.”

In addition to the aggressive angry voice, is the fact that the caller ID has been “spoofed” or made to appear that the person is actually calling from the Social Security Administration or another government agency.

Nancy Berryhill, Acting Commissioner of the Social Security Administration, advises people to be very cautious and not to provide anyone with information like their Social Security number or bank account information to unknown people, either on the phone or over the Internet.

The SSA has launched a public service campaign warning about these calls, in the hope that consumers will realize that the SSA never makes threatening phone calls and never asks for gift cards in payment. The campaign is being run in conjunction with the Office of the Inspector General.

The scamming calls are nationwide. The message is clear: if you get this kind of a phone call, hang up.

While the SSA does occasionally call people, it’s usually someone who is working with the agency on an on-going matter, so that the call and the agent making the call is not a stranger.

Berryhill advises people that if they are contacted by someone claiming to be from the Social Security Administration or the Office of the Inspector General, they should get the person’s name, their phone number and then hang up. If the same person calls again, hang up. It is more than likely to be a thief.

Contact the local Social Security office and find out if a call has been made to you. Never provide a caller with your Social Security number.

Some of the crooks are able to get information about people, including part of their Social Security numbers, and they call stating that they are asking only to verify the entire Social Security number. Again, if someone from Social Security was really calling, they would have that information and would not need it to be verified.

Reference: KKTV (March 22, 2019) “Social Security officials hope to combat scam”

Photo Reference: 37664183_s

How Do I Cash in My Life Insurance Policy?

There are some drawbacks to using life insurance to meet immediate cash needs, especially if you’re compromising your long-term goals or your family’s financial future. Investopedia’s recent article “Cashing in Your Life Insurance Policy” says that if other options are not available, life insurance—especially cash-value life insurance—can be a source of needed income.

Cash-value life insurance, like whole life and universal life, builds reserves through excess premiums plus earnings. These deposits are held in a cash-accumulation account within the policy. You can access cash accumulations within the policy through withdrawals, policy loans, or partial or full surrender of the policy. Another alternative is selling your policy for cash, known as a life settlement. Note that although cash from the policy might be useful during stressful financial times, you could face unwanted consequences, depending on the method you use to access the funds.

You can usually withdraw limited cash from a life insurance policy, based on the type of policy you own and the insurance company. The big advantage is that the withdrawals aren’t taxable up to your policy basis, as long as your policy isn’t classified as a modified endowment contract (MEC). However, these can have unexpected or unrealized consequences. Withdrawals that decrease your cash value, could cause a reduction in your death benefits. This is a potential source of funds you or your family might need for income replacement, business purposes or wealth preservation. Cash-value withdrawals also aren’t always tax-free. If you take a withdrawal during the first 15 years of the policy, and the withdrawal causes a reduction in the policy’s death benefit, some or all of the withdrawn cash could be subject to tax. Withdrawals are treated as taxable, to the extent that they exceed your basis in the policy.

Withdrawals that reduce your cash surrender value could mean higher premiums to maintain the same death benefit, or the policy could lapse.

If your policy is determined to be an MEC, withdrawals are taxed, according to the rules applicable to annuities–cash disbursements are considered to be made from interest first and are subject to income tax and possibly a 10% early-withdrawal penalty, if you’re under age 59½ at the time of the withdrawal. Policy loans are treated as distributions, so the amount of the loan up to the earnings in the policy will be taxable and could also be subject to the pre-59½ early-withdrawal penalty.

Surrendering the policy can provide the cash you need, but you’re relinquishing the right to the death-benefit protection. You can sell your life insurance policy to a life settlement company in exchange for cash. The new owner will keep the policy in force (by paying the premiums) and get a return on the investment, by receiving the death benefit when you die.

To qualify for a life settlement, the insured must be at least 65 years old, have a life expectancy of 10 to 15 years or less, and usually have a policy death benefit of at least $100,000. However, the taxation of life settlements is complicated. The gain in excess of your basis in the policy is taxed to you as ordinary income. In addition to the tax liability, life settlements usually include up to a 30% in commissions and fees, which reduces the net amount you receive.

If you are interested in learning more about tax planning or how your life insurance policy can affect your estate plan, speak with your local estate planning or elder law attorney.

Reference: Investopedia (January 9, 2019) “Cashing in Your Life Insurance Policy”

How to Be Smart about an Inheritance

While there’s no one way that is right for everyone, there are some basic considerations about receiving a large inheritance that apply to almost anyone. According to the article “What should you do with an inheritance?” from The Rogersville Review, the size of the inheritance could make it possible for you to move up your retirement date. Just be mindful that it is very easy to spend large amounts of money very quickly, especially if this is a new experience.

Here are some ways to consider using an inheritance:

Get rid of your debt load. Car loans, credit cards and most school loans are at higher rates than you can get from any investments. Therefore, it makes sense to use at least some of your inheritance to get rid of this expensive debt. Some people believe that it’s best to not have a mortgage, since now there are limits to deductions. You may not want to pay off a mortgage, since you’ll have less flexibility if you need cash.

Contribute more to retirement accounts. If the inheritance gives you a little breathing room in your regular budget, it’s a good idea to increase your contributions to an employer-sponsored 401(k) or another plan, as well as to your personal IRA. Remember that this money grows tax-free and it is possible you’ll need it.

Start college funding. If your financial plan includes helping children or even grandchildren attend college, you could use an inheritance to open a 529 account. This gives you tax benefits and considerable flexibility in distributing the money. Every state has a 529 account program and it’s easy to open an account.

Create or reinforce an emergency fund. A recent survey found that most Americans don’t have emergency funds. Therefore, a bill for more than $400 would be difficult for them to pay. Use your inheritance to create an emergency fund, which should have six to 12 months’ worth of living expenses. Put the money into a liquid, low-risk account, so that you can access it easily if necessary. This way you don’t tap into long-term funds.

Review your estate plan. Anytime you have a large life event, like the death of a parent or an inheritance, it’s time to review your estate plan. Depending upon the size of the estate, there may be some tax liabilities you’ll need to deal with. You may also want to set some of the assets aside in trust for children or grandchildren. Your estate planning attorney will be able to provide you with experienced counsel on the use of the inheritance for you and future generations.

Reference: The Rogersville Review (March 21, 2019) “What should you do with an inheritance?”

Will Helps Avoid Problems and Expenses for Family

Having a will and an estate plan makes passing along assets much easier for the family. Having necessary documents like a power of attorney and a health care power of attorney lets the family make decisions for a loved one, who has become incapacitated. These are estate planning basics, as reported by WKBN 27 in the article “Attorney recommends everyone have a will in place to prevent avoidable issues.”

Think of the will as a way to speak for yourself, when you have passed away. It’s the instructions for what you want to happen to your property, when you die. If there’s a will, the executor is responsible for carrying out your requests. With no will, a court will have to make these decisions.

Many people believe that if they don’t have a will, their spouse will simply inherit everything, automatically. This is not true. There are some states where the surviving spouse receives 50% of a decedent’s assets and the children receive the rest. However, the children could be offspring from outside the marriage. Not having a will, makes your estate and your family vulnerable to unexpected claims.

A will must contain certain elements, which are determined by your state’s laws and must be signed in the presence of two witnesses. Without the correct formalities, the will could be deemed invalid.

Lawyers recommend that everyone have a will and an estate plan, regardless of the size of your estate.

Young parents, in particular, need to have a will, so they can name a person to be guardian of their child or children, if they should both die.

Details matter. In some states, if you make a list and neglect to name specifically who gets what, using the term “children” instead of someone’s name, your stepchildren may not be included. State laws vary, so a local estate planning attorney is your best resource.

You should also be sure to talk with your spouse and your children about what your intentions are, before putting your wishes in writing. You may not feel totally comfortable having the discussion. However, if your intention is to preserve the family, especially if it is a blended family, then everyone should have a chance to learn what to expect.

Wills do become binding, but they are not a one-time event. Just as your life changes, your estate plan and your will should change.

Don’t neglect to update your beneficiary designations. Those are the people you named to receive retirement accounts, bank accounts or other assets that can be transferred by beneficiary designations. The instructions in your will do not control the beneficiary designation. This is a big mistake that many people make. If your will says your current spouse should receive the balance of your IRA when you die but your IRA lists your first wife, your ex will receive everything.

Here are the four estate planning documents needed:

  • A will;
  • A living will, if you need to be placed on life support and decisions need to be made;
  • A healthcare power of attorney, if you cannot speak for yourself, when it comes to medical decisions;
  • A durable power of attorney to make financial decisions, if you are incapacitated.

A local estate planning attorney can help you create all of these documents and will also help you clarify your wishes. If you have an estate plan but have not reviewed it in years, you’ll want to do that soon. Laws and lives change, and you may need to make some changes.

Reference: WKBN 27 (March 14, 2019) “Attorney recommends everyone have a will in place to prevent avoidable issues.”

Estate Taxes, Death and a Other Certainties

As the old saying goes, “Nothing is certain but death and taxes.” Many people don’t have the faintest idea of just how extensive those taxes can be, says Pittsburgh Post-Gazette in the article “Death and taxes—and taxes and taxes.” For all the headlines and noise about federal estate taxes, those are the last ones most of us have to think about.

The federal estate tax is a non-event, unless you belong to the upper one percent of wealthy Americans. The federal tax is paid, based on the value of the assets owned by the decedent at the time of death. It also includes any assets that are controlled by the decedent at the time of death. The first $11.4 million is now excluded from any taxes due for an individual, and $22.8 million for a couple.

Before the Tax Cuts and Jobs Act of 2017, this exemption was roughly $5 million, so many more people had to pay it. The levels are expected to go back to the pre-2018 amount at the end of 2025, unless the law changes before that time.

This is an important point to remember: the tax laws change, and anytime tax laws change, your estate plan should be reviewed to ensure that it is still going to work the way you intend.

In some states, like Pennsylvania, there are still inheritance taxes. Only six states have inheritance taxes, and only 12 states still have an estate tax. Your estate planning attorney will know what your state’s inheritance and estate taxes are and can help you plan, so that your family is not overly burdened when it comes time to pay these taxes.

Inheritance taxes are generally based on the value of the assets owned or controlled by the decedent. It is independent of the obligation to file an income tax return for the estate.

The decedent’s representative, usually the executor, is responsible for filling all state, local and federal income tax returns for the portion of the year, in which the decedent was still living.

When a person passes and their last will and testament is admitted to probate, the executor receives an employer identification number (EIN) from the IRS. If the decedent died owning a trust, the trustee must obtain an EIN. Once the EIN is obtained, the IRS sends a letter notifying you of the due date for the income tax return for the estate or the trust. These are known as “fiduciary income tax returns.” They must be filed every year for the year that the estate or trust exists.

Note that the tax returns involve federal capital gains tax and how assets purchased before death will be treated for tax purposes, when they are sold after death. Usually these are real estate and investments. There are a LOT of taxes to consider, each has a unique due date and there may be ways to pay some taxes that will have an impact on other taxes, depending upon the situation.

The key, and an estate planning attorney can help with this, is to create a plan that takes all the taxes into consideration and plans out a strategy to minimize taxes, ensure that everything is paid on time, and prepare for the taxes to be paid.

Ideally, all this planning takes place before someone dies, as part of their estate plan, so that their loved ones are not left figuring out all of the different tax liabilities and how to pay them.

Reference: Pittsburgh Post-Gazette (March 25, 2019) “Death and taxes—and taxes and taxes”

How Do I Make the Right Estate Planning Moves When I Divorce?

The Journal Enterprise explains in its recent article, “5 Estate Planning Moves If You Are Getting Divorced,” that the following tips will help you get your plans in order, so your final wishes will be carried out later.

Medical Power of Attorney. This is also called a healthcare proxy. This person is named to make decisions on your medical care, if you’re ill or injured and can’t state your medical care decisions. Unless you make the change, your ex-spouse will have this right.

Financial Power of Attorney. Like a healthcare proxy, this is someone you select to take charge, if you become incapacitated. This person has authority over your financial decisions, and it means they have the authority to pay your bills, access your bank and investment accounts, collect and cash your paychecks and make financial decisions for you. You want to be certain that your assets are protected, and your financial obligations are met, while you’re unable to act on your own behalf. Most people name a spouse, but if you get divorced and don’t switch this designation, your spouse will still be your financial power of attorney and will retain access to your finances.

Create a List of Things to Change After Your Divorce. A divorce can freeze some assets and accounts, which remains in effect until it’s finalized. Therefore, you won’t be able to change the beneficiary on life insurance policies, pensions and other types of accounts. Ask your estate planning attorney to find out exactly what accounts will be affected. Once you know which ones are frozen, you should make a list to ensure you won’t neglect to change them, when the divorce is finalized.

Modify Your Will. In some states, you may not be permitted to create a new will, but your attorney should still be able to help you make the necessary changes. You’ll want to review your heirs. If you do have minor children and you have sole custody, you may want to designate another person as their guardian. If you named your spouse as executor of your will, you may want to consider changing that.

Modify Your Trust. You may have a revocable living trust, in addition to a will. One of the advantages of a revocable trust is that it doesn’t go through probate, so your heirs get a bigger inheritance more quickly. If you have a revocable trust, talk to your attorney about changing it after your divorce.

If you don’t make these changes at the time of your divorce, your assets may not go to the right beneficiaries, or your ex-spouse may end up with rights you didn’t intend.

Reference: Journal Enterprise (March 20, 2019) “5 Estate Planning Moves If You Are Getting Divorced”