Orlando Estate & Elder Law

The Sandwich Generation Gets Squeezed

Clients who care for aging parents need more than financial and tax help from advisors. 

As our population ages, more Americans find themselves in the role of caregiver for their elderly parents – often before they have completely graduated from the parenting role for their own children. A recent issue of Financial Advisor Magazine addresses the question of what trusted financial advisors can do to help their clients with caretaker challenges. Advice includes helping ensure all necessary legal documents are in order – for both the caretakers and their charges; finding financial assistance to hire help; and investigating the role of long term care insurance. 

Reference: Financial Advisor Magazine (October 2011) “Caretaker Challenges.

 

Planning for an IRA Inheritance

If you needed a reminder of just how byzantine the rules are that govern inherited IRAs—and the importance of preparing your family for receiving such an account—the IRS just handed you one.

Parents who have substantial assets in an IRA should plan ahead for how their children may inherit those assets. The laws governing IRA assets, their transfers, taxation and inheritance, are complex. A single misstep can be unnecessarily costly. A recent article in the Wall Street Journal outlines some of the specific perils, and offers a few salient tips. Above all, this is one aspect of financial and estate planning that truly requires professional advice. A good place to start learning more is in the Journal’s article, “Pitfalls of Inherited IRAs.”

Reference: The Wall Street Journal (December 10, 2011) “Pitfalls of Inherited IRAs”

 

Employee Retirement Plans May Be Easier Than You Think

Business owners should rethink what they "know" about sponsoring retirement plans, says the founder of a firm that administers 401(k)s for small companies.

It’s the last week of the year, and if your small business does not already have an employee retirement plan in place chances are good you’re thinking about it. Chances are also pretty good that you think it’s more difficult, and more expensive, to get started than it really is.

Bloomberg Businessweek ran an article earlier this month outlining some of the options, with hopeful advice. Nearly three-quarters of small employers do not sponsor retirement plans for their employees, perhaps because of outdated negative notions about their costs and complexity. If you are a small business owner, now may be the right time to revisit the concept of employee retirement plans. The options may be more attractive than you think.

Reference: Bloomberg Businessweek (December 6, 2011) “Establishing an Employee Retirement Plan”

 

Protecting Your Precious Two-Legged Treasures

Naming a guardian for a young child in a will can be one of the most important things a parent does. It can also be one of the hardest—in fact, many people don't make a will because they can't face the job.

 

The Wall Street Journal typically focuses their editorial slant on financial assets, but an article last week actually touches on a much more important aspect of estate planning: Who will take care of your child(ren) if you die? It’s a tough question to face, but if ignored, it leaves the fate of an orphaned child entirely up to someone who usually is a stranger – a judge.

If you are the parent – or grandparent – of a minor child, here are some tips that might get you (or your adult child) motivated to complete proper planning:

Choose a guardian for now. Remember, you can change your mind and modify your will in the future.

Think outside the box. The guardian you name does not have to be a blood relative.

Remember that nobody’s perfect. You probably are not a “perfect” (i.e., flawless)  parent to your own children – neither is anyone else.

Consider a mixed approach. You may want to name a guardian for your children, someone who is great with the kids; and a different person (or institution) for the estate to handle the finances.

 The most important thing is to act!

Reference: The Wall Street Journal (December 12, 2011), “The Hard Question.”

 

Tips from the IRS about Charitable Contributions

As individuals and businesses rush to make charitable contributions at this busy time of year, the IRS has issued several tips as reminders of tax law provisions that have taken effect in recent years.

 

If you’re considering making last-minute charitable contributions before the end of the year, consider these tips from the IRS:

 

Charitable Contributions for Certain IRA Owners. If you are over age 70-1/2 and own an IRA, remember you can make a direct transfer tax-free of up to $100,000 per year to an eligible charity. Created in 2006, this provision expires at the end of this year.

 

Clothing and Household Items. Remember to get a qualified appraisal of clothing and household items if you plan to claim a deduction of more than $500. Household items include furniture, furnishings, electronics, appliances and linens.

 

Monetary Donations. Be sure you have a bank record or a written communication from the nonprofit that shows the name of the charity, the date and the amount of your contribution. If you want to deduct your donation of $250 or more, you must receive acknowledgment from the charity.

 

Go online to AdvisorOne for more tips and reminders.

 

Reference: AdvisorOne (December 19, 2011): Year-End Giving Tips, Compliments of the IRS.

 

Estate Planning New Year’s Resolutions

Make estate planning part of your New Year’s resolutions.

Time has almost expired for 2011. So, with the exception of a few last minute gifts and end-of-year financial transactions, that usually means relaxing with eggnog and, a bit later, champagne. Of course, it also means that 2012 is about to start ticking and that’s big news.

2012 is going to be a big year for planning. Why? Because the end of 2012 also means the end of the foreseeable future regarding a huge swath of estate planning issues.

Everything we know now about the estate tax, the gift tax, and the other wealth transfer taxes is only set in the tax code until the end of 2012… at least until Congress finishes battling it out and makes a decision about what to do going forward.

In the end, proper planning these days is about taking advantage of what we know about 2012, and hedging our bets about the future thereafter. So what do we know? Smart Money recently provided a brief run-down here:

The estate tax is still set at a $5 million exemption with a 35% rate thereafter but, barring action, it will revert back to a $1 million exemption and a 55% rate! To be precise, the estate tax is actually indexed for inflation and that means it is effectively set at $5.12 million for 2012

The exemption amount for the gift tax is the same as it is for the lifetime gift-tax exemption at the inflation indexed $5.12 million, and in like fashion will snap back in 2013 without any action. This means that it may be the last year ever to take advantage of that unprecedented gifting amount.

Finally, a new and very progressive provision will still be in place for 2012: “portability.” Portability means that a spouse may pass along their unused estate/gift tax exemption to their surviving spouse. That makes the effective total a married couple can pass on without tax a whopping $10 million, or $10.24 once indexed for inflation.

These at least are the basic facts. It may well be that we will see a situation not unlike what occurred in 2010, when the Bush-era laws expired at congressional inaction. Remember that? Taxpayers tried to hold out until 2010 and then tried to hold onto 2010 laws (or lack thereof) until the first moments of 2011.

Will we be holding onto these laws currently in play through 2012 and their generous exemptions, or is 2013 going to be even more advantageous… or treacherous for taxpayers?  Stayed tuned, we'll keep you posted.

Reference: Smart Money (December 13, 2011) “Estate Planning for 2012”

 

Tax Breaks for Caregivers Worth A Look

If you’ve arranged for a caregiver to provide care for an aging, ailing relative, you might be overlooking tax breaks that could help cut costs.

If you have had to arrange for a caregiver for an aging loved one, then you have some appreciation of the enormity of the costs often involved. It’s important, then, not to overlook tax breaks that just might help reduce the economic pain.

A recent article from Forbes offers a helpful reminder. The costs of a caregiver, under certain circumstances, can be partially tax deductible as medical expenses. After all, they are, in fact, very important and very costly medical expenses. However, conditions for taking the deduction essentially amount to proving that fact to the IRS.

So, what are some of these key conditions?

For one, you must document a care regimen for someone who is chronically ill. This means a licensed health care practitioner has to prescribe it. Unfortunately, it can’t be up to your own discretion, but such prescriptions and suggestions are common for aging persons, especially when they suffer from dementia.

Next, there is an expense threshold. Medical expenses are deductible only to folks who itemize, and then only to the extent that the expenses exceed 7.5% of adjusted gross income. Itemizing taxes can be a little more of a burden, but with the associated medical costs involved it is generally easy to qualify. Caregiving expenses are generally rather expensive and include the wages, employment taxes, and actual medical costs along with the associated living costs from meals to even costs of rent, if live-in care is needed.

Finally, this deduction is not without caveats and the IRS watches those who try to abuse it. For example, if the cost of the caregiver is covered by insurance (e.g., long-term care or medical insurance) then you can’t double-dip and claim both costs.

This is a complicated issue. There are many moving pieces.

Fortunately, the Forbes article shares some anecdotes from some illustrative cases and tax court challenges. Nevertheless, if you’re using a caregiver now (or will in the future), don’t overlook this potentially valuable deduction. 

Reference: Forbes (December 8, 2011) “Tax Breaks For Caregiving Expenses Help Sandwich Generation”

 

Inheritance Planning – “How” You Leave the Inheritance Defines Your Legacy

If you're a parent with multiple heirs, here is a bit of advice from estate-planning professionals: Before making any decisions about who gets what, think carefully about the emotional legacy you want to leave behind.

The inheritance you leave isn’t, in itself, your legacy. This is true even if you’re passing on the business you worked your entire life to create. That said, how you leave your inheritance just might become your legacy, so take great care.

The decisions you make regarding what to leave behind and to whom, and how to divide your assets between your family members, are crucial. The Wall Street Journal recently tackled this subject.  

Do you split your assets evenly? Do you divide them based on merit? Or on need? Do you think about the immediate generation or the grandchildren? How do you create the proper balance?

These are very real questions that only you can answer. Well… that’s not quite right. In reality, there will be many people in your family with opinions and answers to offer. The challenge is to plan as you see fit, and in keeping with your values. But in doing so, you may also want to make these considerations and reasons clear to your family.

When it comes to communicating your reasons for the how of your estate plan, you may consider capturing your wishes on video. On the other hand, and this is usually more helpful, consider having an open and ongoing dialogue with your family.

The choices you make and the inheritances you leave are very important, but what is often just as important is the meaning that is understood in how you leave them.

Reference: The Wall Street Journal (December 12, 2011) “Heiring Grievances”

 

Estate Planning Challenges Await Unmarried Co-Habitants

Although several states allow same-sex couples to marry, they still face unique planning challenges

Heads up, if you are an unmarried co-habitant (same-sex or opposite-sex)! Regardless whether you share a home, children, and assets you can be no more than well-acquainted strangers in the eyes of the legislature, the broker, and the tax-man.

It’s a very real problem to be faced by an increasing amount of the population, given the rise of same-sex marriage and the decline of marriage (or re-marriage) in heterosexual couples. Indeed, from a federal point of view, same-sex marriage isn’t marriage at all.

I happened upon an article I had missed out of the September issue of Financial Advisor Magazine and I thought it was worth sharing on this topic. It gives a general outline of the sorts of issues that unmarried cohabitants face when it comes to estate planning.

In essence, the problem is that there are very basic laws on the books, laws that have organized our family finances for generations, but unmarried persons don’t benefit from them. In fact, until it is too late, they might not realize the extent to which they won’t benefit from them.

Insurance problems abound, as well. And, when it comes to taking care of each other later in life or after death, it likely will be too late to find ways around the problem. Proper planning is always about charting a path for the future, and without certain legal designations you may be bushwhacking it.

Better to clear the path for the future today.

Reference: Financial Advisor Magazine (September 1, 2011) “Commingled Finances”

 

Study Shows Inherited Wealth Is Squandered

70% of intergenerational wealth transfers fail, according to research conducted on over 3,250 families who transferred wealth. That is, inherited wealth is dissipated by the heirs at this stunningly high rate.  It’s an international phenomenon.

A new and unfortunate statistic confirms what we all intuitively suspected. According to research out of The Williams Group, 70% of all wealth transfers fail.

As reported by Forbes here, the failure is not that the money doesn’t get passed down; it is that the family inheritance quickly dissolves in a flash of poor planning, bickering, and waste.

How can that be?

The research found that the successful 30% had all actively engaged in transition planning, in addition to simple inheritance planning. In a very real sense, all proper estate planning is about both planning for the inheritance and planning for the inheritors. After all, the inheritors are why you want to pass on your assets in the first place. Naturally, then, transition planning is all about bringing the inheritors into the fold and allowing them to learn how to run it.

If you have a family business, then this is of the utmost importance. Why? Because for it to remain a “family business” the family has to know about the business, how to run it, and how to think about it. To be successful, hands-on training is required.

But then again, aside from a family business asset, there is still a great deal of work to be done to help inheritors properly understand wealth and investments. Likewise, hands-on training in the family wealth, perhaps beginning in philanthropy, can make all the difference.

In the end, to overcome the odds against the successful transfer of your family wealth, work together to form a plan, to understand it, and to put it into action.

Reference: Forbes (December 9, 2011) “Wealth Transfers: How To Reverse the 70% Failure Rate”