Orlando Estate & Elder Law

7 Steps to Take When Inheriting a Retirement Account

Inheriting something is not the same as knowing what to do with it, and that may be especially true with retirement accounts. As a bit of guidance I found a recent article from Forbes offering seven steps to take if you have recently received an inheritance, or if you know that you will receive an account. Likewise, if you are planning on leaving a retirement account or if you want to keep your beneficiary in the know, these are some of the things to discuss with them. Without further ado then, a slightly re-tooled list of ideas:

1. Find out if a required minimum distribution (RMD) needs to be taken for the year you receive it. If the account is tax-deferred (like a traditional IRA or 401k) and the owner was at least 70½  then you need to contact the account custodian to be sure that it has been taken and to take it yourself if needed.
2. If there are multiple beneficiaries, then consider splitting the account into separate IRAs for each, thus avoiding investment disputes and allowing the younger beneficiaries greater leverage in stretching out RMD’s.
3. If there are secondary beneficiaries you can choose to disclaim the IRA, especially if it’s not something that you need or even a tax burden, and in that way pass it on to the next.
4. You need to figure out when to begin taking RMD’s. If you’re not the spouse of the deceased, this means re-titling the account to reflect that it is yours by way of a beneficiary inheritance. If you are the spouse this either means waiting until your spouse would have begun taking them (when they would have turned 70½) or rolling it into your own IRA and taking it as your own.
5. Determine if you want to keep the account in the original institution. Some institutions don’t allow you to take distributions across your own lifetime and you may just want to shift it over. In that case it is often best to open an account at another institution and ask them to retrieve the account (rather than backing it out yourself, as that can be risky.)
6. Name your own beneficiaries and secondary beneficiaries, ensuring the protection of the account and giving flexibility to your heirs.

Reference: Forbes (August 23, 2011) “7 Steps to Take When Inheriting a Retirement Account”

 

Senior Living Choices Curtailed by Real Estate Slump

In the fourth year of a depressed real estate market, experts say thousands of seniors remain unable to move into senior housing because they can’t sell their homes quickly enough or for the price they need. 

After four years or so the housing market is still idling at terribly low levels, but even if we’re all feeling it, it’s our nation’s seniors that seem to be uniquely hurt. The problem has been growing over those years, and I’ve written about it here, but the Kaiser Health News recently put out an article taking stock of the situation and new reactions from assisted-living and nursing home facilities.

With housing prices and market demand so low, seniors simply can’t get up and enter into a facility, even if they need it. For many seniors, the plan had always been to use the equity in their home as the investment to keep them afloat in retirement but the value in those homes simply dropped in 2008. Even if you can forget how much the house was worth in 2007, before the crash, it’s simply not easy to sell a house these days and they tend to just sit on the market for years, or fetch too little money to make the sale possible. It’s causing seniors to wait that much longer before they can enter into a facility, and that’s time on top of however long it took them to finally make the decision to give up the home in the first place. It isn’t good for finances, and it is especially bad for health.

The facilities themselves aren’t happy with the trend and some are working to help ease the transition. In certain facilities across the parts of the country that were hit hardest by the housing bubble the occupancy rate has dropped as much as 10%, with nursing homes and continuing care facilities hit the hardest and assisted-living only slightly better. In response, some of those facilities have begun incentive programs from simple real estate education classes to more fluid contracts that allow the entrance costs of the facility (usually something like the cost of a home itself)  to be paid whenever the house is sold. One management company, Brookdale Senior Living, has even begun offering to buy seniors’ houses at pre-determined prices if they do not sell within a set amount of time on the market.

For you or a loved one it means that there are a number of possibilities to plan for. Those that can’t quite get out of their homes might consider bringing the care to them through in-home care services or perhaps living with loved ones. Still, if a facility is necessary then there may be options out there, depending on the facility and your part of the country, and it might be possible to work with the administration; chances are you’re not the only one with the problem and they may offer a solution.  

Reference:  Kaiser Health News (August 21, 2011) “Housing Bust Derails Some Seniors’ Assisted-Living Care”

 

 

 

Good News About Market Volatility?

Market volatility may be tough on the nerves, but it could be a boon for wealthy families looking to shelter assets from taxes while helping their children.

Watching the market nowadays is hardly a soothing pastime. It seems that once again we’re watching our futures in ticking numbers and advancing line graphs. There is, at least, some solace to be found in volatile markets for the careful estate planner.

Indeed, there are a number of ways that the present woes of the marketplace can create a useful estate planning environment, and a few of them can be found in this recent article from the Wall Street Journal. In large part the advice divides between whether you have holdings in private or public stock, but there are three ideas.

If you have holdings in private stock, then volatility raises the possibility of greater discounts when gifting. In general, private stock can have discounts up to 30% or 35% applied when they are gifted simply because, without public trade, it would have been harder to find a buyer and the IRS takes note of that fact. The IRS, thankfully, can also be persuaded to take note of market volatility and its affect on the sale of private stock. With volatility too high (hovering around 40 by the Chicago Board Options Exchange Volatility Index) discounts might range as high as 40% to 50%. 

If you have public stock, then consider a Grantor Retained Annuity Trust (GRAT). As many readers will know, a GRAT works like a trust turned annuity, since you put assets in a trust and thereafter receive payments for a set period. The principle benefit is the ability to give away assets without paying tax on the appreciation. With markets as they are, and with interest rates at such lows, timing could be perfect to form a GRAT around depressed assets and lock out the tax-man when those assets bounce back. (The GRAT just has to rise above the IRS’s “hurdle rate” presently 2.2% a year.) 

Finally, even simple options can work wonders: with low interest and low stock prices, it may also be the time to make an interfamily loan to fund an investment. Using the loan to purchase depressed stock (or depressed real estate if you have faith in that market) can secure that appreciation for your family member.

These are a few of the WSJ’s ideas to get started. You’ll find some more out there (like Deborah Jacobs’s recent advice on gifting), but in general it’s a good time to look over your assets and your plans with your counsel. You need to weather the present storm, yes, but there’s more work to be done too.

Reference:  The Wall Street Journal (August 20, 2011) “How Volatility Eases Estate Planning”

 

Income Protection Insurance For Self-Employeds?

The point of long-term disability insurance is to replace your income if you’re disabled and unable to work for an extended period of time — maybe a few years or maybe until you qualify for retirement benefits at age 65. 

If you’re self-employed, then likely you know just how much the flu or even a short-term injury can set you back. If you are out of the “game” for even a short period of time, then there is a direct impact on your bottom line. There is no sick leave to fall back on, is there?

What if an illness or injury were to take you out of the game for an extended period of time? You might just lose your business and, with it, your home and the rest of your assets. That is not a pretty picture, is it? Maybe it would be worth taking a look into the possibility of long-term disability insurance, but according to a recent Reuters article, long-term disability insurance is far more difficult to underwrite for the self-employed.

The purpose of long-term disability insurance is to replace income that might be lost if you are incapacitated for a long period of time, or for some, at least until age 65 (when social security kicks in instead). However, the self-employed have the problem of either “being” their business, or being unable to prove the full extent of their business.

If you own an actual business, rather than operate as a freelancer or individual agent, then the first case is your problem. The insurance will pay out in accordance with what it thinks you actually live on, your gross minus your business expenses (roughly what you pay income taxes on), but that just might mean cutting out necessary business costs (like licenses). While extra protection can be purchased, there is the extra expense to consider.

If you are a freelancer or just work on a case to case basis, then you’ll also have to work to prove your income to the insurance underwriter. If they have trouble pinning down your actual income, then it makes it difficult for them to properly assess how much your policy would cost and how much it might offer in protection. In the end, the insurance company simply may elect not to offer coverage.

At any rate, the original article is worth a look. It is, after all, an important issue to bear in mind. If you are your own boss, then plan accordingly.

Reference: Reuters (August 16, 2011) “Self-employed? How to find disability insurance”

 

Uncovering Dementia/Alzheimer’s Cover-ups

Here’s what’s important: it doesn’t matter if you have a diagnosis for your aging parent or not. It matters how your aging parent functions. It matters how you deal with what you see.

Dementia and Alzheimer’s are becoming increasingly common. Even if we are beginning to become more and more aware of how to spot them, it doesn’t make it any easier. Many a reader will be familiar with the terrible uncertainty and concern over their elderly parent’s thinking. Fortunately, Carolyn Rosenblatt of Forbes has more advice to give in her recent article.

Among the many dangers to keep in mind when an elderly loved one starts “slipping” it that they may begin “hiding” it. For one thing, it is not something with which any senior looks forward to acknowledging, even if they are aware of some telltale symptoms. It is human nature.

We all compensate or distract when there is something to hide, both from ourselves and from others. But when something like Alzheimer’s is at stake, it can be all the more difficult to get past and harmful to hide. Indeed, since there is no actual test for dementia or Alzheimer’s, it is possible that a doctor will be unable to diagnose those conditions.

It is important, therefore, to observe how your loved one functions. Keep a keen eye on them and know what you are seeing, for their own sake. The original article has more advice and anecdotes to offer, but Ms. Rosenblatt sums up the steps in four points. As soon as you begin to worry you must, first, persuade your loved one to visit a doctor, and a specialist if possible, to detect it early. Second, you must secure their estate planning documents while they have legal capacity to know and understand what they are doing. Third, you must secure proper care for them. Fourth and last, you have to discuss the circumstances openly with all family members, so all may be aware of the circumstances and can work together to protect your loved one. 

Reference: Forbes (August 11, 2011) “The Danger of Your Aging Parent Covering Up Dementia”

 

Potential Portability Problems

Wealthy individuals in the U.S. will find it easier to cut their estate-tax bill as a result of a provision for using their deceased spouses’ exemption credit.

Much ado has been made about the new power in estate planning known as “portability,” and for good reason. Nevertheless, it’s also prudent never to put all your eggs in one basket. So it is with the matter of estate tax exemption portabilility.

There has been much written regarding some of those issues, like when the Journal of Financial Planning upheld the credit-shelter trust over “portability”, but a recent Bloomberg article gives renewed emphasis and food for thought.

As you may know, “portability” is the new ability for a deceased spouse to transfer their unused gift and estate tax exemption amount to their surviving spouse. Provided all the required paperwork is timely filed with the IRS, that effectively allows a married couple to exempt an astounding $10 million from federal taxes for their loved ones without the use of trusts or legal devices.

Bloomberg suggests that it is better to think of portability as a “safety valve” for married couples, especially those whose assets would be entirely covered by the doubled exemption, but not something to be relied upon. The biggest limitation, for one, is that portability exists at the whim of lawmakers. After the budget showdown last December, existence of portability is only guaranteed until the end of 2012 (if that, Congress being the politically fickle animal that it is).

But there is another important caveat Bloomberg touches upon that is worth mentioning. Portability is a power that exists between spouses, but in a world of shifting marriages, divorces, and remarriages that also creates strange limitations. Portability only applies to the last deceased spouse. Accordingly, if a widow remarries, then they could potentially lose that massive exemption (even after their own estate has doubled, creating an estate tax liability). Indeed, if portability isn’t lost and if the widow’s new spouse predeceases after using their own exemption by gifting, then the widow’s estate is in the same tricky situation. 

Portability is a wonderful tool to consider, but clearly, too, it is a difficult one with which to make long-term estate tax plans. More information and ideas about trusts can be found in those articles, and of course the best resource is your own legal counsel.

Reference: Bloomberg (August 16, 2011) “Wealthy Take Estate-Tax Exemptions Beyond Grave Until 2013”

 

Government Cuts Affect Nursing Homes

Nursing home residents may soon face higher costs and reduced services, as planned Medicare spending cuts take effect this fall. 

The last few months have been a wild ride on multiple levels, to include concerns over Medicare and the “debt crisis.” While many more challenges lie ahead in terms of budget cuts, some cuts already have been made under the radar screen. Several you should know about actually go into effect this fall, as reported in a recent SmartMoney article.

According to SmartMoney, nursing home residents could face higher costs or reduced care once these cuts kick in.

Background

On July 29, The Centers for Medicare and Medicaid Services (CMS) decided and announced that they would be compensating for last year’s $4 billion shortfall by cutting reimbursement rates to nursing homes by 11.1%. In real terms, the shortfall is going to reduce government reimbursements to nursing homes. In 2010, nursing homes increased charges on residents by an average of 5%. Bad news: These reduced government reimbursements likely will trigger even higher nursing home costs for residents beginning this fall. Alternatively, it might trigger a reduction in services to nursing home residents. Either way, the forecast is not pleasant.

Perhaps I am wrong. Perhaps nursing home residents won’t see increases in costs or decreases in services. After all, the CMS actually justifies the 11.1% cut by pointing out that it is simply a more accurate reimbursement amount based on a government report indicating that Medicare has been overpaying. In fact, a spokesperson for the CMS maintains, “We do not believe that nursing homes will respond to the payment changes by decreasing the quality of care furnished to patients. However, we intend to carefully monitor changes in utilization and staffing patterns to ensure that patients continue to receive high quality care.”

Still, the nursing home industry appears to be monitoring the situation with caution. Bottom line: If you have a loved one in a nursing home, then you, too, should take notice.

Reference: SmartMoney (August 18, 2011) “Medicare Cuts Could Up Nursing Home Costs”

 

Long-Term Care Insurance Comes Of Age

With long-term care insurance policies, the costs of assisted living facilities, in-home care and private nursing homes are covered. And, in many cases, these policies offer inflation protection, too. But since not many eligible consumers are signing up for policies, the companies that offer them are trying to make them more palatable.

It is an unfortunate fact that healthcare costs are steadily rising and will only continue to rise in the foreseeable future. Accordingly, healthcare inflation must be considered when planning to protect your health, your family, and your financial well-being. One of the greatest threats is long-term care, especially as we age. For many, long-term care insurance is the best protection against long-term care poverty. Thankfully, as reported in a recent Reuters article, the long-term care insurance market is growing to accommodate the growing need and several new options are becoming available.

Granted, we don’t like thinking about growing old and frail, perhaps with dementia or Alzheimer’s to boot. It is easy to procrastinate. Besides, who wants to pay policy premiums. As a result, people who will need long-term care insurance protection later, unfortunately have not purchased policy protection now.

According to Matthew Sharpe of Genworth, “Long-term care is definitely under-penetrated, there’s no doubt about it. About 4 percent of the population that is eligible actually has a policy.” Because of this, Genworth and other companies are developing newer and easier tools for consumers to use, and that just might translate into newer and better policies for you to consider.

Whether any policy option is the right option for you depends on your unique circumstances. As pointed out in the original article, the strongest reason to secure a policy may be the possibility of dementia or Alzheimer’s. While there are many ideas presented in the Reuters article for your consideration, nothing can replace the advice and counsel of an experienced long-term care insurance agent to help you navigate your options.

Reference: Reuters (August 16, 2011) “Long-Term Care Insurance Gets a Makeover”

 

Attention All Women: Get Estate Planning Savvy Now

Still, for all [women] have achieved — with our careers, managing our finances, sharing child rearing and other household responsibilities — we’re not as savvy about estate planning as we ought to be.

Estate planning is the personal responsibility of every adult American. Of course, that doesn’t mean that certain groups don’t have special concerns, especially women. Not surprisingly, Deborah L. Jacobs has written in Forbes about the case for women to come to grips with estate planning.

Estate planning tends to have a disproportionate effect on women. They tend to live longer* than their mates, tend to marry older men and tend to have lower lifetime earnings. As a result, women are more likely to be alive when the estate plans of their spouses go into effect.

As the surviving spouse, typically all of the marital assets owned by a couple are transferred to the wife. This forces many women to take on new responsibilities for their own finances and estates. Ms. Jacobs has some practical estate planning advice for women, to include encouraging them to talk about estate planning. Whether that conversation is with a spouse, an adult child, or a parent, she offers suggestions in all three cases.

* Among Americans 65 and older, 42% of women are widowed compared to just 14% of men.

Reference: Forbes (August 9, 2011) “Nice Girls Talk About Estate Planning”

 

Tax-Smart Giving

The bottom line, however, is that the IRS is watching, and you should be very careful and get good tax and legal advice before you make that gift.

As many have written, 2011 and 2012 just might be great years for gifting, but that doesn’t mean there aren’t fundamentals worth considering, as Benny Kass points out in a recent piece for the Chicago Tribune about gifting property.

You likely know that property transfers can be made as outright gifts while you are living or post-mortem after your death. One of the key considerations is the tax consequences.

Lifetime gifting raises the issue of “tax basis,” since "the tax basis of the giver of the property (the giftor) becomes the tax basis of the recipient of the gift (the giftee)." If the property has significantly appreciated in value (and, yes, even in this economy some real estate has appreciated greatly), the recipient receives the same tax basis as the giver. For example, a $100,000 home that has appreciated to $500,000 at the time of its gift still has only a $100,000 tax basis. Further, if the recipient doesn’t own and live in that home for two of the following five years before selling it, then this tax basis will make the ensuing profit from sale a prime target for capital gains upon and other taxes (i.e., the difference between the tax basis and sale price in this example).

It’s a tricky arithmetic.

If the recipient is going to turn around and sell appreciated property, then simply gifting a capital gains tax bill might not be efficient. Perhaps other transfer options might make more sense.

Regardless, if you decide to gift, remember to file a gift tax return. Should you wish to take a “belt and suspenders approach,” you may want to file a gift tax return even if you aren’t likely to incur gift taxes upon the transfer. As the Chicago Tribune article points out, the IRS is in the middle of a campaign to uncover unreported but taxable gifts… by looking specifically at real estate transfers.