Orlando Estate & Elder Law

Women Need to Plan

        In this article, Forbes’s Deborah L. Jacobs offers an expansive look into women and estate law, especially given current developments as of last December, and the unique necessity for women to practice proper estate planning.

        Among Americans 65 and older, 42 percent of women, but just 14 percent of men are widowed. Women’s longer life expectancy, combined with their tendency to marry older mates and their lower lifetime earnings means they are far more likely to see their living standards compromised in retirement if proper estate planning isn’t done. The article includes a gallery of the “Nine Things Women Should Know About Estate Planning.” 

 

What the Self-Employed Need - Higher Taxes

            This article examines the unfortunate burden that Social Security taxes pose on the self-employed, who have to pay both side of the tax as they are, effectively, both employer and employee. The article runs some hard numbers to find the actual costs in various cases and then to predict future costs with the projected increases to the Social Security taxes ceiling. 

            While I don't necessarily agree with the author's conclusions, the article gives this self-employed taxpayer some things to think about.

 

Another Roth to Consider

In today’s tax environment – namely, a relatively low tax rate today with the perhaps-inevitable prospect of higher tax rates in the future – many people are looking to the Roth IRA as a way to hedge their tax bets. With the Roth IRA, you pay your tax upfront on contributions to the account, and withdraw them tax-free during retirement.

via lsrlawyer.typepad.com

Another Roth to Consider

In today’s tax environment – namely, a relatively low tax rate today with the perhaps-inevitable prospect of higher tax rates in the future – many people are looking to the Roth IRA as a way to hedge their tax bets. With the Roth IRA, you pay your tax upfront on contributions to the account, and withdraw them tax-free during retirement.

You may want to investigate another lesser-known option available in many 401(k) plans called the Roth 401(k). Stuart Robertson of Forbes describes the Roth 401(k) as a Big Brother to the Roth IRA, saying the 401(k) version of the Roth is bigger and stronger in many ways than the IRA version. You can choose to put some, none or all of your contributions after-tax into your Roth 401(k) savings up to $16,500 a year in 2011, or $22,000 if you are 50 years of age or older. The Roth IRA maximum amounts are much lower: $5,000 and $6,000 if 50 or over respectively.

Additionally, the Roth 401(k) has no income limits. Unlike the Roth IRA, anyone can have a Roth 401(k), if their employer offers it. To invest in a Roth IRA and make the maximum contribution, your modified adjusted gross income must be below $107,000 if you are single, $169,000 if you are married filing jointly.

If your company does not offer a Roth option in your 401(k) plan, Robertson says you should request it. Typically, this requires an amendment to the plan, and only a minor cost to the business owner.

It’s anyone’s guess what tax rates will look like in the future, but if you believe they are only headed upward, then a Roth 401(k) may be a good way to hedge your tax bet.

Tips for Caregiving

Caring for an aging loved one can be emotionally and financially difficult.  Unfortunately, the ordeal is frequently exacerbated by healthcare problems ranging from issues with the physician to end-of-life or funeral decisions. Having recently dealt with the loss of her father, writer Jennifer Openshaw of The Wall Street Journal offers five tips on caring for elderly loved ones  

• Fire Your Doctor. Well, you may not have to fire your doctor, but realize that you can – and maybe you should. Many people don’t realize they can just fire a doctor who is not providing the care and attention their loved one needs.
• Likewise you can fire your home-care provider. Doctors often recommend a home-care provider, and even if you respect the doctor that doesn’t mean that you have to follow their advice or stick with a provider that isn’t working out for you.
• Make End-of-Life Plans Now. It’s very important – for the sake of those around you – to discuss the many details that you’d typically never think about, from life support to feeding tubes. For help thinking through these important decisions now, Florida-based Aging with Dignity has a document titled “Five Wishes” that covers related concerns, issues and questions.
• Shop Funeral Costs. Yes, this is a difficult thing to do, but companies know there are profits to be made amid your grief, and prices (for very similar services) can vary widely from one provider to another. All the more reason to talk these matters through in advance, when your judgment is not clouded by grief.
• Review Long-Term Care Insurance. Review your policy’s stipulations for waiting periods, maximum benefit amounts, etc. A 90-day waiting period is fairly standard, but can be quite traumatic when you’re struggling through it. Knowing in advance what will and will not be covered can make these transitions less traumatic on the family.

 

Keep Plans Current - Or Else

Proper planning can set your estate, your assets, and your family in line for a smooth transition but improper or incomplete planning can bring untold hardship, especially if the matter ends up in court. Courtesy of Bill Singer’s blog through Forbes, here’s another sad story to add to the file of otherwise avoidable legal woes. The entire story and Singer’s commentary are worth reading, but in essence it is the story of Financial Industry Regulatory Authority (“FINRA”) Arbitration 10-02435 (May 9, 2011), or the shortsightedness of one Newman Trowbridge, Jr, Esq..

Mr. Trowbridge opened an IRA in 1994 and named his then wife as beneficiary of the account. Then two things happened: (1) his IRA was taken over by Capital One and his account was reassigned to a new broker (Rick Schenck, Sr.) and (2) he and his then wife underwent what was apparently a terrible and protracted divorce. Mr. Trowbridge later re-married, put his life back together, and continued with his IRA with gusto (he quadrupled the balance) until he suddenly and tragically passed in 2009. At that time, Trowbridge’s estate went to his wife along with all the various accounts for which he named her as beneficiary, but the IRA went to his ex-wife. The story is familiar and you probably saw it coming, but Trowbridge had failed to reassign the beneficiary of his IRA and it has remained under his first wife.

Unfortunately, the story doesn’t end there since the recent widow had attempted to reclaim the IRA. She went so far as to present the broker with a court order stating that all accounts that make up the decedent’s estate must be transferred to the heirs of the decedent, but that didn’t work since the IRA isn’t a part of the estate to begin with. The broker defaulted to the named beneficiary, or the ex-wife. In response the widow tried suing on counts of negligence, amongst other things, since the broker had not carried out his duty by advising the late Mr. Trowbridge to rename his beneficiary. The suit is why this is the story of FINRA Arbitration 10-02435, and why it is all the more bitter since the widow lost the suit and it was held that the broker did his job (the case was even removed from his record.) Instead, the FINRA arbitration placed the blame squarely on Mr. Trowbridge, adding insult to injury since, we can presume and the court admitted, he probably didn’t intend to hand the IRA over to his ex-wife.

The lesson is three-fold. Firstly, you must adapt your plans whenever you undergo a life-change, like renaming beneficiaries after divorces and marriages. Secondly, planning is about making sure your affairs are in order before those plans are needed, that is, fully fleshing out your plans early so an unexpected death doesn’t keep you from finishing the most important details. Finally, it’s a pretty tricky world when you try to undo the damages of incomplete or poor planning, and often an unforgiving one for your surviving family members and loved ones.

Time for a Business Vehicle?

You might be surprised to learn that the new tax law actually rewards business owners for purchasing large, gas-guzzling vehicles for business use. Surprised? Me, too. But, according to a recent article in the Wall Street Journal, that is the case. If you are a small business owner who uses a vehicle in your business – especially a large one – you should take note of this new tax break.

The new rules apply to vehicles purchased after Sept. 8, 2010 and before January 1, 2012. So, if you’re in the market to purchase a vehicle for your business, you’ll want to crunch some tax numbers first.

Here are some tips to consider:

• Business Use. Remember, unless the vehicle is used 100% for business, expenses are not fully deductible. The IRS is quick to question claims of 100% business use of a car.
• Depreciation deductions. This year Congress is running a large “bonus depreciation” on cars weighing more than 6,000 pounds, such as the Cadillac Escalade and Nissan Armada. Taxpayers may deduct 100% of the car’s cost in the first year – subject to the personal use disallowance, of course. Additionally, if this deduction creates a loss, the loss may be carried back to generate a refund. The new law also gives greater depreciation deductions in years two through six for cars costing more than $30,625.
• Tax Breaks for Fuel-Efficient Cars. There are still substantial tax breaks for purchasing a fuel-efficient car. Let’s not forget that all taxpayers (not just business owners) are eligible for a dollar-for-dollar tax credit up to $7,500 for “plug-in electric motor vehicles” like the Chevy Volt. If you are a business owner planning to purchase one of these vehicles, experts say you should take this credit first, and then figure depreciation based on the remaining purchase price.

 

As always, don’t let the “tax tail wag the dog,” when it comes to purchasing a car for your business. Consider your true business needs, costs, and then consult with qualified counsel to help you crunch the tax numbers. If a small, inexpensive, fuel-efficient car is what you really need, then purchasing something larger and more expensive just for the tax advantage probably will not make sense. However, if you need a heavier, more expensive vehicle to accomplish your business goals, then you won’t want to miss out on the tax breaks.

Real Estate - Now What?

If you were counting on tapping the equity in your home to help finance your retirement, you may have reason to worry.  A recent issue of SmartMoney points out, “With home prices falling for nearly five years, many American must consider what to do with their homes should prices continue to collapse and the equity in their homes, if they are still lucky enough to have any, disappears completely.”

If you are a Baby Boomer with an eye toward retirement, your plans may be taking quite a beating right now. Warnings about shortfalls in social security and Medicare, rising health care costs, and the prospect of higher taxes now combine with disappearing home equity. No wonder so many Boomers say they plan to work through their “retirement.”

So, what do the experts say you should do with your home? Should you stay put and wait it out, hoping that home prices will eventually recover? Or should you bail out now, before you lose even more, and downsize?

“The answer is that it depends on the individual situation,” says Nicholas Paleveda, an adjunct professor at the graduate tax program at Northeastern University. “If you have plenty of assets for retirement, there may be no reason to downsize. If you do not have sufficient assets for retirement, then selling your home to live in a smaller home may be appropriate.”

Some options to consider include:

• Multi-Generational Living. Think of The Waltons, with three generations living in one house. Multi-generational living was commonplace years ago, and is growing in popularity now. In fact the number of household comprising multiple generations jumped to 7.1 million, or 6.1% of all US households in 2010. Of course, things worked out well for The Waltons, but remember that was television … and even John Boy eventually moved out!
• Pay Down the Mortgage. Depending upon your circumstances, it may be wise to pay down, or pay off, your mortgage before retirement to reduce your monthly expenses.
• Downsize. In today’s market, it may actually make sense to sell your house, even if it is underwater, if you can purchase a smaller home at a particularly good price and low interest rate. The cost of paying off your current mortgage would effectively be added to the purchase price of your new, smaller home. In some instances, after the dust settles, you could still be money ahead in the long run.
• Buy a Second Home Now. That may seem counter-intuitive, but if you have the means and can find a good price on a second or vacation home that will mesh well with your retirement needs, then you could basically lock in that price (and interest rate) now, and sell your primary home when the market recovers.

 

Retirement planning has never been simple, and is even more complex in today’s economy. You are well-advised to seek qualified counsel before making any major moves involving your home.

Still a Need for Estate Plans

There is an unfortunate myth that some people still believe about estate planning. Some people think that with the federal estate tax exemption at $5 million for a single person and $10 million for a married couple, they are “out of the woods” in terms of federal estate taxes and so do not need an estate plan.

That is a myth. Even if you don’t have estate taxes to worry about (now), you could have plenty of estate issues to deal with – especially if you are part of a Blended Family. The Chicago Tribune recently highlighted just a few of the “wrinkles” that could complicate estate planning for those in second marriages.

Consider a few of the potential complications:

• Non-Citizen Spouse – Let’s say you have children from a previous marriage, and you marry someone who isn’t a U.S. citizen. Beyond the “traditional” hurdles regarding estate taxes and non-citizens, you may have to deal with another complication. What if your non-citizen spouse leaves the country? What will happen to the estate assets you had intended to leave to your children? Consider a qualified domestic trust with an independent trustee overseeing the assets.
• Much Younger Spouse – Another type of trust often used in second-marriage situations is a qualified terminable interest trust (also known as a QTIP), which allows a spouse to receive income and distributions from a trust until their death, when the remainder goes to other heirs. But, if your spouse is much younger than you, that could be a very long time, and the underlying assets of the trust could be exhausted – leaving nothing for your children. In these situations, you may want to consider properly owned life insurance with your children as beneficiaries.

 

These are just two of the many ways that life can complicate your estate planning needs, regardless the state of the estate tax. To learn more about basic estate planning, visit our website and be sure to subscribe to our free monthly newsletter.

Doing Well by Doing Good

The idea of giving to charity would seem to be a simple, but the simple methods aren’t always the best ones. Sometimes a bit of financial finesse can go a long way, helping both your charity of choice and your own finances. I refer to that as “doing well by doing good.”

If you want to be a tax-savvy philanthropist, consider using a time-honored strategy known as a “charitable remainder trust” (CRT). The Times-Herald Record recently offered a crash course in their article, “Protecting Your Future: Trust option for leaving assets to charity.”

A CRT allows you to give assets to charity in a tax-savvy manner that may even provide an income stream that helps both you and your charity. When the CRT is established, the assets you’ve chosen to donate are transferred to the trust. The charity you’ve chosen is typically the trustee, and manages the assets. They may pay you and/or your beneficiaries a portion of the income generated by the trust either for a certain number of years, or your entire life. At the end of the term, depending on the type of payout you’ve chosen, the charity receives the remainder of the principal in the trust.

This strategy works best when the underlying assets are highly appreciated, and by donating them to charity you can avoid a significant capital gains tax.

Of course, your family members may not be too happy to see those assets going to charity – so you may want to consider replacing their value for your heirs with life insurance.

I spent fifteen wonderful years working in-house for charities helping tax-savvy givers.  If you would like more information about tax-wise giving options, it would be my pleasure to assist.