Orlando Florida Estate Planning Attorney Linda Solash-Reed P.L writes about issues related to Estate Planning, Elder Law, Florida Medicaid, Special Needs Planning, Long-term Care Planning, Estate Taxes and Inheritance, Guardianship, and Probate Administration.
People who inherit IRAs are often confused about the different rules and options concerning those inheritances. There are a few things that they should know.
The rules concerning IRAs are different for people who inherit the accounts than they are for people who initiate the accounts. This is often a source of confusion for those who inherit, especially when it comes to required minimum distributions.
People who create their own Roth IRAs are not required to take minimum distributions. However, those who inherit them are required to do so.
All of the money in an IRA does not need to be taken out at once. Those who inherit can elect to take required minimum distributions based on their own life expectancy. This option must be initiated by December 31 of the year following the death of the original account holder.
People who choose not to take out required minimum distributions must withdraw the full amount of the IRA within five years of the account owner's death. This option is available when the account originator passed away before reaching the age of 70½.
Spouses can choose to treat the IRA as their own or as an inherited IRA. The rules must then be followed for whichever option the surviving spouse elects.
Transferring an inherited IRA can only be done by moving it directly from one custodian to another. The funds cannot be withdrawn by the inheritor and later moved into a new IRA.
The terms of a settlement between the daughter of late actor Paul Walker and the estate of the driver of the vehicle that Walker was riding in when the car crashed, killing the actor, went unnoticed for a year and a half.
Paul Walker was a passenger in a Porsche driven by Roger Rodas at high speed in 2013. The car went out of control and crashed into trees and utility poles. Both Walker and Rodas were killed in the accident.
Walker's sole heir is his 17-year-old daughter Meadow Walker. She initiated a wrongful death suit against Rodas' estate and, only recently, the terms of the settlement were revealed. Interestingly, the settlement was reached in November of 2014, but because it was filed as "Meadow W." it eluded public attention until now.
Under the settlement the estate paid $10.1 million, which was placed in trust for Meadow Walker.
Rodas was determined to only be partially responsible for the crash that led to Walker's death. It is still possible, though improbable, that Meadow Walker could receive more money from Porsche AG.
She claims the car company failed to put safety measures in the vehicle that could have prevented the crash or at least kept the occupants alive. However, investigators at the time concluded that speed was the sole cause of the crash and a similar suit by Rodas' estate against Porsche AG recently failed in federal court.
That judge found no evidence of liability against the company.
The 1983 law that started taxing Social Security benefits on the wealthiest seniors has never been updated. That means that it now taxes far more people than originally intended and if not changed, will tax more and more people in the future.
What to do about the anticipated revenue shortage for Social Security that will reach its breaking point in 2035 is a big issue in Washington D.C. and in the current Presidential election. This is not the first time politicians have been concerned about the long term prospects of Social Security. In the early 1980s the system was also in need of saving.
One idea floated back then, and sometimes mentioned now, some form of "means testing" for benefits. In other words, that means giving reduced or no benefits to taxpayers defined as wealthy. However, that has never been a politically popular option with seniors.
For example, instead of doing that in 1983, lawmakers decided that some Social Security benefits would be taxed for wealthy people. At the time it was anticipated that only about 10% of beneficiaries would be taxed on any portion of their benefits. Nevertheless, the law included no mechanism to adjust for inflation.
New Jersey has some of the highest tax rates in the nation. News that the state's wealthiest resident has moved to a state with much lower tax rates has caused some lawmakers to call for changes to New Jersey's tax structure.
It is not known for certain why hedge fund manager David Tepper decided to move his residence and business operations from New Jersey to Florida recently. Tepper was believed to be New Jersey's richest resident with an estimated net worth of $10.4 billion.
Many New Jersey lawmakers, however, have placed the blame of their state's tax structure.
New Jersey has the lowest state estate tax exemption in the nation at only $675,000. It has the highest property tax rates in the U.S. It has a top income tax rate of 8.97%. Additionally, New Jersey is one of only two states in the country to have not only an estate tax but also an inheritance tax.
Florida, on the other hand, has neither an estate tax nor an income tax.
While Tepper's move has many state lawmakers concerned about the state's high taxes and the loss of revenue from wealthy citizens moving to states with lower tax burdens, it is not certain that any changes to the state's taxes will be forthcoming. To date, the Republican governor and Democratic controlled legislature have been unable to reach agreements about changing the state's tax code.
Also, it is also not clear how much revenue the state is losing overall.
In the past few years the percentage of New Jersey residents with incomes exceeding $1 million has increased. However, the ability of wealthy residents to move to avoid state estate taxes has many state legislatures concerned about their own respective state tax rates.
IRA growth after retirement has previously been limited by required mandatory distributions. A new deferment option now allows seniors the opportunity for more retirement account growth.
Required minimum distributions from retirement accounts such as IRAs and 401Ks have been problematic for many seniors who do not necessarily need to take money out of their accounts to meet their expenses. The rules have required seniors to withdraw minimum amounts from their retirement accounts beginning at age 70½ based on their life expectancies as determined each year by complicated IRS charts.
The new policy allows account holders to defer up to $125,000 or 25% of the total amount in their accounts, whichever is lower. The amount deferred does not factor into the required minimum distribution calculation.
The deferment can be taken until age 85, but the money must be placed in a qualified longevity annuity contract as the only premium payment of that annuity. The money placed into the annuity will continue to grow and payments will be made on the annuity when the deferment age is reached.
For seniors who do not need to take money out of their retirement accounts, this new option allows them to continue to increase their income if they wish to preserve those accounts as part of their estates or if they anticipate living longer and might need the money later.
Law enforcement agents in the U.S. are not the only people who would like Apple to create a way to bypass the iPhone's security features.
The dispute between the FBI and Apple over the iPhone of the San Bernadino shooter appears to have been resolved. The FBI wanted Apple to create a way to bypass the security on the shooter's device so that the agency could try to determine if any information about the shooting or future terrorist acts was stored on the phone. Apple refused citing customer privacy. However, before a judge could decide the dispute, the FBI created its own way to bypass the iPhone's security and access the information on the device. As ABC 17 News reports in "Grieving father pleads with Apple to unlock his dead son's iPhone" that does not solve the problem that Apple's policy creates for everyone.
An Italian man, Leonardo Fabbretti, has been trying to get Apple to unlock his son Dama's iPhone for months. Dama passed away in 2015 from bone cancer. Fabbretti was able to unlock the phone by using his fingerprint. However, after the phone did a complete restart that option was no longer available. To access the information on the device a password is now needed and Fabbretti does not have it. Because of this he is unable to view the photographs of his son stored on the phone.
This is another in a long list of examples of how the policies of tech companies have an impact on estate law and grieving families. Allowing families to access digital information after a loved one passes away will continue to be an important legal battle for the foreseeable future.
Gun trusts are a great way to keep firearms in a family. They have offered a cheaper and easier way to pass certain firearms between generations. However, new rules will make them somewhat less beneficial.
Certain firearms, such as machine guns and silencers, can be very difficult to transfer. A person-to-person transfer requires notice to the federal Bureau of Alcohol, Tobacco, Firearms and Explosives. Local law enforcement has to sign off on the transfer and a $200 transfer fee must be paid. Fingerprints and background checks must also be obtained. Gun trusts have offered a way around many of those burdens and allowed families to pass on their firearms without having to cut through too much red tape. However, as Private Wealth reports in "It Will Soon Get Tougher To Create A Firearms Trust" that is about to change.
As of July 13, 2016, new rules will be in place that will make transferring firearms into a gun trust more difficult. Every "responsible person" in the trust will need to go through fingerprinting and background checks. This includes the trust grantor, trustee and some beneficiaries. Notice will also need to be given to local law enforcement, however they will not need to sign off on the transfer.
Fortunately, gun trust applications received prior to July 13, 2016 will be grandfather into the existing rules. That means that if you are considering a trust as a way to pass on your firearms, now is the time to discuss it with a wills and trusts attorney. Please let me know if I can assist.
One of the toughest decisions that seniors face is when they should start taking Social Security benefits. Thinking about a few possibilities makes the decision easier for most people.
It is common knowledge that monthly Social Security benefits increase if you do not begin taking them as soon as you are eligible. That leads many people to believe that the best option is to delay as long as possible to receive the maximum monthly amount. For many people that is the best option. However, it is not the best option for everyone. The Wills, Trusts & Estates Prof Blog recently posted some things to consider when deciding when to start Social Security benefits in "Considerations To Chew Over When Choosing When To Take Social Security" including:
Monthly benefits are determined based on actuarial data and average life expectancy. While you can receive more money per month by delaying benefits, your expected total lifetime amount will be the same on average whenever you start benefits.
Your health and your family's health history can play a key role in the decision. If you are in poor health or you have a family history of serious health problems in retirement, then it might be better to take benefits sooner rather than later.
Your current financial situation is also very important. If you need money now, then taking benefits as soon as you are eligible is a good idea. However, if you do not need the money or plan to continue working for a few years, then delaying benefits is often a better idea.
Reverse mortgages have always been controversial for elder law advocates, but most agree that for some consumers they are a good option. If you are considering a reverse mortgage, then it is important to know what needs to be considered to determine if it really is a good option for you.
Reverse mortgages have had a bad name among elder law advocates almost from the moment of their introduction. Advocates have pointed out that reverse mortgage terms are often confusing and often make it likely that seniors will be forced out of their homes. However, after the mortgage crisis of 2008 the government took some steps to reform the reverse mortgage industry. These reforms have alleviated some of the problems with the industry. This makes reverse mortgages an option for seniors who are properly informed about the terms of any mortgage they sign. Recently, Consumer Reports articulated some considerations for seniors who are thinking about a reverse mortgage in "Reforms Come to Reverse Mortgages."
These considerations include:
If you are not planning on staying in your home for very long, then a reverse mortgage is probably not a good idea. The fees associated with the mortgages make them less desirable the shorter amount of time that you will stay in the home.
If you can meet your financial needs in a different way, then consider doing so. For instance, instead of getting a reverse mortgage it might be a better idea to downsize into a cheaper or smaller home.
Consider whether your home will still be appropriate as you get older. Houses with lots of stairs may not be the best place for many seniors.
If a spouse passes away, consider whether the surviving spouse will be able to afford to keep the home and pay the bills on time.
Medicare has always been plagued by fraud that investigators have had to sort out. A new report suggests that hospices are now a large source of that suspected fraud.
A new study conducted by the Department of Health and Human Services has revealed that overbilling by hospices is costing Medicare an estimated $260 million a year. The biggest source of the problem is that patients are being given costly inpatient care when it is not necessary instead of less expensive in-home care. Some hospices are also charging twice for prescription medications by charging Medicare and Medicare Part D. The Tampa Bay Times reported on this study in "Report: Medicare often overbilled by hospices and pays twice for some drugs."
The results of this study are of natural concern for all taxpayers, but they are of particular concern for seniors for a couple of reasons. First, seniors who may need hospice care should receive the proper care. When in-home care is the appropriate treatment, then they should not be given inpatient care because that is better financially for the hospice. Secondly, many seniors have co-pays for Medicare Part D prescriptions. If the drugs are already being paid for by Medicare, seniors lose money when Medicare Part D is charged as well.
Another issue for seniors is that many politicians would like to save the government money by cutting Medicare benefits. Eliminating $260 million per year of unnecessary charges would make it much less likely that benefits would need to be reduced.
My personal issue is that seniors and others who could benefit from hospice care might be turned off by the bad apples. If you would like help sorting through end-of-life care concerns or other issues affecting your family, please contact my office for a consultation.