Orlando Estate & Elder Law

Top Retirement Threats

“Four types of expenses can wreak havoc with your retirement.”

Retirement is a balance between enjoying your golden years, taking good care of your health and balancing your finances, so you don’t run out of income too early. However, as reported by MD Magazine in the recent article “Four Big Retirement Threats and How to Protect Yourself,” there are challenges ahead, some of which you can control, others requiring preparation.

Threat One: Premature death of a spouse and loss of Social Security or pension income. The loss of one Social Security check can have a significant impact on the household’s income. This is also true with the loss of a private pension. Both spouses need to be aware of how their retirement income will be generated and what will happen, when one spouse passes away.

Life insurance can be used to make up for the lost income. If you are young enough, buy term insurance. If you are older, consider cash-value policies, like whole life. Make sure that both spouses are familiar with household finances. Put together a list of your checking, savings, investment and credit card accounts.

Threat Two: Healthcare Costs. Medicare simply does not cover everything. Even a Medicare Advantage plan doesn’t cover everything. That includes long-term care, dentistry, vision care, hearing aids, eyeglasses or private nursing. There’s a “donut hole” in prescription coverage, so if you need pricy drugs you’ll need to budget at least $5,000 annually. If you underestimate the cost of healthcare, you could go through your medical budget fast.

Perfect health at 55 is no guarantee for what’s to come.

One solution is making the most of a Health Savings Account (HSA). You can save for future medical expenses and get a tax deduction for contributions. Even better—there’s no income tax on withdrawals for qualified medical expenses. Check with your employer, since HSAs are usually part of an employee benefits plan. You must have a high-deductible heath plan and can’t be on Medicare to qualify for an HSA.

Threat Number Three: Inflation According to the U.S. Bureau of Labor Statistics, inflation has averaged about 4% annually over the last 50 years. In 20 years, today’s $1 will be worth only 46 cents. Make sure your investment portfolio is diversified. Remember that your retirement could last several decades, so it may not be wise to abandon equities during retirement.

Threat Number Four: Outliving Your Savings. This sounds like a good problem, but it is still a problem. The longer you live, the longer you are expected to live. According to the IRS life expectancy tables, a 30-year-old can expect to live to age 83.  However, if you are 65 years old now, you can expect to live until age 86. The solution is to do periodic planning to make sure your retirement accounts and investments are keeping up with your living expenses. Give yourself a cushion, in case you live far past your expectations.

For more information about estate planning in Orlando, FL (and throughout the rest of Central Florida), visit our estate planning website and be sure to subscribe to our complimentary estate planning e-newsletter while you are there.

Reference: MD Magazine (Aug. 2, 2018) “Four Big Retirement Threats and How to Protect Yourself”

Cheater is Dead - Life Insurance Issue Lives On

One of the primary benefits of life insurance is that it is supposed to pay out immediately after the insured passes away. However, that cannot be done, if it is not clear who the beneficiary should be.

Life insurance can be used in estate planning for several reasons. One of the primary reasons it is often suggested is to provide beneficiaries with much needed cash while the rest of an estate gets settled. However, that does not always go smoothly, as a recent case involving MetLife illustrates.

In that case, a policy holder passed away and the insurance company filed a case in court requesting that the court determine to whom it should pay.

The deceased had originally named his wife as the beneficiary. However, he later switched beneficiaries and named his girlfriend.

The company was not sure what to do, since there was evidence that the deceased had been impaired by a stroke when he changed beneficiaries.

This case is reported in a BNA - Pension & Benefits Daily article titled "MetLife Stuck Between Wife and Girlfriend in Benefit Battle."

MetLife requested to be allowed to exit the lawsuit it filed, since it had deposited the policy funds with the court and had no stake in whether the proceeds were awarded to the wife or the girlfriend.

The court refused to allow MetLife out of the case, because they did not follow their own policies.

The company policy is to only allow beneficiaries to be designated in writing.

However, when naming both the wife and later the girlfriend as beneficiaries, MetLife had allowed the deceased to do so by phone.

That means both the wife and the girlfriend, whichever one loses, has a potential counterclaim to make against MetLife for negligence.

For more information about estate planning in Orlando, FL (and throughout the rest of Central Florida), visit our estate planning website and be sure to subscribe to our complimentary estate planning e-newsletter while you are there.

Reference: BNA - Pension and Benefits Daily (Sep. 11, 2017) "MetLife Stuck Between Wife and Girlfriend in Benefit Battle."

Don't Fool With Life Insurance

Life insurance can be an important estate planning tool. If you use it, you need to make sure that you are being honest with the insurance company, or you and your family could possibly be charged with fraud.

Life insurance can be extremely convenient. If you are in good health, it is not difficult to get.

Since policies pay out immediately upon death, life insurance is a good way to make sure that families have disposable income after a breadwinner passes away. It can also be used for other purposes in estate planning, such as equalizing inheritances between children when other assets are difficult to divide.

When you sign up for life insurance, you will normally need to fill out some forms about your medical history and lifestyle. You might also need to undergo a medical examination.

You might be tempted to fudge your answers on the paperwork a little.  However, you should never do that because you can be charged with fraud.

Recently, Cincinnati.com reported on one extreme case of alleged fraud in "Feds: Mason family faked life insurance policies, collected $2.9 million and bought Bentley convertible."

In this case, three members of a family purchased life insurance for another family member, who was overweight and who had an extensive history of medical problems.

The family lied on the policy application about all of that and had another family member go to a medical exam and pretend to be the applicant. The insurance was approved and paid, when the family member passed away.

The family then tried to hide the proceeds by purchasing expensive items.

They are being charged with criminal fraud.

While this is obviously an extreme case, it illustrates that you can be caught, if you defraud a life insurance company. If life insurance is a part of your estate plan, make sure that you are honest on the application.

For more information about estate planning in Orlando, FL (and throughout the rest of Central Florida), visit our estate planning website and be sure to subscribe to our complimentary estate planning e-newsletter while you are there.

Reference: Cincinnati.com (August 10, 2017) "Feds: Mason family faked life insurance policies, collected $2.9 million and bought Bentley convertible."

No Need to Be Wealthy To Leave a Legacy

You do not need to be wealthy to leave a lasting legacy and be remembered fondly after you pass away.

For some people, one of the things that terrifies them most about passing away is that they might be forgotten. This is especially true for people who are not married or who do not have children.

They fear that not too long after they pass away, no one will remember them very much, if at all.

One way people get around this is by intentionally leaving a legacy with their estate plans. They give things to people who will remember them fondly as a result.

However, not everyone is wealthy enough to do that in any meaningful way.

The non-wealthy can still leave a legacy though, as Market Watch points out in "5 ways to make a great impression after you're dead."

Even if you do not have very much now, you really only need enough to pay life insurance premiums to leave a legacy.

Life insurance policies are very flexible. In fact, you can make almost anyone or anything a beneficiary.

You can make a favorite niece a beneficiary. You can make your alma mater a beneficiary to have a scholarship created in your name. A charity or church can be the beneficiary. You can even leave the money to the town you live in to have a park named after you.

If you want to leave a legacy and are not wealthy, then consider life insurance. However, do not neglect your estate plan either.

You might not have a lot now, but you can still get a professional estate plan that considers your legacy goals. You might just find that you have a lot more money later in life to fulfill those goals even further.

For more information about legacies and estate planning in Orlando, FL (and throughout the rest of Central Florida), visit our estate planning website and be sure to subscribe to our complimentary estate planning e-newsletter while you are there.

Reference: Market Watch (May 8, 2017) "5 ways to make a great impression after you're dead."

Does Largest Insurance Policy in History Have the Force?

The death of actress Carrie Fisher has sparked much fan discussion about what will happen to the role of Princess Leia in the Star Wars franchise. However, Disney appears to have been prepared for the contingency.

When Disney originally announced plans to continue the Star Wars story with three new movies  utilizing the older films' storyline, many fans wondered not only if the original actors would be able to adequately reprise their original roles but if they would live long enough to do so. Much of the speculation centered around Carrie Fisher reprising her role as Princess Leia, since the actress had long and public battles with alcoholism and depression.

Fisher did complete filming on two of the anticipated three movies, but her recent death has caused speculation about what will become of the character in the third and final film.

Disney, which owns the rights to the franchise, will have to decide whether to rewrite the script, cast a different actress or use a CGI likeness of Fisher. All is not lost for Disney, however, as they took out the largest life insurance policy in history to protect themselves in case Fisher could not finish filming the movies.

The story was reported in a Daily Mail article titled "Carrie Fisher's death will trigger biggest EVER personal accident claim after Disney took out $50MILLION policy in case she couldn't finish Star Wars films."

The $50 million that Disney will receive from insurers, should go a long way to making them whole and easing their pain from not being able to use Fisher as a live actress in the final Star Wars film. At the same time, however, details of the Fisher estate plan are not known at this time.

She might have left instructions about how and if her digital likeness could be used, which could have an impact on Disney's plans for the film. Fisher allowed a digital likeness of her younger self in another recent Star Wars film. Her contract with Disney might also contain provisions giving Disney the right to use her digital likeness, in case she was not able to complete filming.

For more information about estate planning in Orlando, FL (and throughout the rest of Central Florida), visit our estate planning website and be sure to subscribe to our complimentary estate planning e-newsletter while you are there.

Reference: Daily Mail (Dec. 30, 2016) "Carrie Fisher's death will trigger biggest EVER personal accident claim after Disney took out $50MILLION policy in case she couldn't finish Star Wars films."

The State of Your Estate In A Community Property State

If you are considering retiring to a state with community property laws, you should consider how your estate plan could be affected.

Chances are you do not live in a community property state (you do not if Florida is your legal residence). Only a handful of states have community property marriage laws. However, some of the states that do have them are popular destinations for people to move to. For example, Arizona is a popular retirement destination with community property laws.

The main difference between community property states and other states is in how marital assets are considered to be legally owned. In a community property state everything acquired during a marriage is considered to be equally owned by the husband and wife except for any inheritances solely made to one of them. Property acquired before the marriage is not community property.

This is different from other states where spouses can continue to acquire separate property after marriage.

As Barron's Penta Daily discussed in "How Community Property States Are Different," this has implications for estate plans, such as:

• Capital Gains – Community property states have a benefit for surviving spouses because the spouse receives a step-up basis on an entire home, for example, instead of only half the value of the home in other states.
• Gifts – If one spouse gives a gift of community property without the permission of the other, the spouse who did not make the gift can revoke it later.
• Life Insurance Trusts – Funding a life insurance trust for the benefit of a spouse needs to be done from non-community property or the entire purpose of the trust will be defeated.

If you live in a community property state, or are considering retiring to one, then contact estate planning attorney to learn the legal implications.  If you are considering a move, contact my office to see of your existing documents or plans might change.

Reference: Barron's Penta Daily (June 28, 2016) "How Community Property States Are Different"

MN Sues Life Insurance Companies For Not Paying

Lawsuits from the Minnesota Attorney General should serve as an important reminder to anyone who has a life insurance policy as part of their estate plan.

Life insurance policies play a pivotal role in many estate plans. They are often used to provide needed cash to family members to bridge the gap between when the policy holder passes away and when the estate is settled. They can also be used to help equalize estate distributions between heirs when other assets are difficult to divide.

What if the life insurance company does not pay beneficiaries? In that case the goals of the estate plan are not met. It happens more than most people think.

In fact, this happens so often that the state of Minnesota has sued several life insurance companies and recovered approximately $200 million as CBS Minnesota reports in "State Suing Life Insurance Companies For Not Paying Beneficiaries."

The biggest source of the problem? Beneficiaries of the life insurance policies do not know that they are life insurance beneficiaries. As a result, they do not file a claim.

Even if the companies know that the policy holder has passed away, they do not seek out the beneficiary and pay on the policy. In most cases they are not legally required to do so. They can keep the money and use it for their own purposes until a claim is filed.

The lesson to be learned from this is that when life insurance is a part of your estate plan, then you need to ensure that the beneficiaries are aware of the policy and know to file a claim when you pass away. You do not have to tell them before you pass away, but someone reliable should know at least where to find your policy documents at the appropriate time.

For more information on the basics of estate planning, please visit my website.

Reference: CBS Minnesota (May 18, 2016) "State Suing Life Insurance Companies For Not Paying Beneficiaries."

Estate Planning Versus a Divorce Decree

Sometimes when people are upset about specific terms of their divorce they will attempt to use estate planning to possibly get around those terms. That is usually not a good idea.

When you think of all the possible things that could be ordered in a decree of divorce, requiring one of the parties to maintain life insurance for a specific beneficiary is probably not one of the first things that come to mind. However, that order is made all the time and it is often the cause of lingering resentment for the ex-spouse who is ordered to pay it.

For example, what if one spouse is ordered to pay the other spouse periodic payments? This order may not be for ongoing support but as the best way to make an equitable division of property. Sometimes the spouse who is ordered to pay might also be ordered to take out a life insurance policy and designate the other spouse as a beneficiary. That way if the paying spouse passes away before all of the payments are made, then the life insurance can be used to make the non-paying spouse whole.

A problem with this is that people often try to get around these orders. How? By designating someone else the beneficiary of the life insurance policies and not making any offsetting changes to their estate plans.

Recently, Market Watch answered what happens in those situations in "Can I leave my stepchildren nothing if my husband dies?"

A reader asked Market Watch a question about her husband's life insurance. It seems that as part of the divorce decree from a previous wife he was ordered to maintain a life insurance policy with his children as beneficiaries until those children reached the age of 23. The policy however listed only the new spouse as a beneficiary.

He had no will and the new spouse wondered if she could keep the insurance money or must she give it to the stepchildren if her husband did pass away.

The answer to the woman's question and other similar questions is simple.

The terms of the divorce can be enforced. The children could ask to have the man held in contempt of court and file a claim against the estate for the amount of the life insurance.

Solution? If her husband is insurable, then he should take out a new policy and designate her as the beneficiary.

To discuss possible ramifications of a divorce settlement on your estate plans, please contact my office.

Reference: Market Watch (Jan. 12, 2016) "Can I leave my stepchildren nothing if my husband dies?"

 

Your Wanted Information on QTIP Trusts, Didn't You?

The facts of life include remarriage. Almost 42 million adults in the U.S. have been married more than once, up from 22 million in 1980, according to the Pew Research Center. For older Americans, remarriage can pose estate planning problems. Even for couples who share children, potential remarriage might be a concern. And even if remarriage isn't a concern, your surviving spouse may need help protecting assets from scam artists. So how can you provide for a surviving spouse yet still leave your wealth to children from a prior marriage?

Let’s say that Betty and Bob have kids and grandkids. Bob is worried that he'll die first and pass on his wealth to Betty, who might remarry and his kids would get nothing. Investor’s Business Daily explores this issue in “Cut Taxes, Send Assets To Loved Ones After Your Death.” One solution is to create a Qualified Terminable Interest Property, or QTIP trust, so that when the first spouse passes away, the assets pass to the trust.

A QTIP typically doesn’t have estate taxes. The surviving spouse must be a U.S. citizen and must be entitled to all of the trust income, which has to be paid out at least once a year during the survivor's lifetime. No one else can receive trust distributions during that time. At the same time, the trust creator can give the trustee some flexibility: the distributions of principal to the survivor might be allowed to pay living expenses and essential medical bills. However, the surviving spouse may not control the QTIP assets.

Here’s another example: What if Carl marries Ella and each has children from a prior marriage. Carl passes and leaves most of his wealth to a QTIP trust for Ella, so that she will have cash flow for life. She’s not allowed to name new beneficiaries who'll get the QTIP assets after she dies. The QTIP assets will pass to the beneficiaries that Carl named, and those assets will be taxed in Ella's estate. Both spouses can create QTIP trusts.

The trust creator has to authorize his or her personal representative to finalize your QTIP election after your death, and federal and state elections may have to be made to get full estate tax deferral. An estate planning attorney knows all about this. It’s important that your family understands the QTIP’s goals to alleviate conflict after your death. The QTIP allows your spouse to have lifetime distributions to maintain his or her lifestyle, and your children will inherit your wealth without having to worry that a stepparent will spend it all after your death.

But a QTIP trust may be a source of conflict, as the surviving spouse may want the trust fund to be invested for income, and the survivor can actually demand that the trustee sell assets that don't produce revenue. The children will likely want the QTIP assets invested for growth. You need to select a trustee who can negotiate peace among beneficiaries. Tax deferral may also mean inheritance deferral, because if your spouse lives a long time after your death, your children will have to wait for a QTIP payout. Consider making some assets available for immediate bequests to descendants, or to provide for them with life insurance that will pay at your death.

If you would like some guidance in navigating these choices and putting  your own plan in place, please visit my website or schedule an initial consultation.

Reference: Investor’s Business Daily (September 4, 2015) “Cut Taxes, Send Assets To Loved Ones After Your Death”

Was Gift to Snowflake a Mistake?

What would you do if 10 years after receiving a life insurance bequest, the insurance company asked for the money back claiming it had made a mistake? The town of Snowflake, Arizona is currently facing that dilemma.

In 2005, Snowflake, Arizona received a life insurance payout of approximately $73,000. The holder of the policy had been a former employee of the town and it was probably presumed at the time that he wished to give something back to it.

Recently, however, First Colony Life Insurance asked the town to return the money.

It seems the insurance company claims that a mistake was made and the town never should have been listed as a beneficiary on the policy. Before making a decision about what to do, the town is looking into the matter.

Naturally, the council would like to know why the company believes a mistake was made and whether the town has a legal obligation to return the money.

The Arizona Journal reported the story in an article titled "Bequest To Town Was Made In Error, Says Insurer."

This is an unusual case and it is impossible to speculate on what might happen. To date, the insurance company has not released details about what happened and why it believes a mistake was made.

Nevertheless, when you are creating an estate plan it is very important that any life insurance policies you have state clearly who the beneficiaries are.

The clearer your policy is, the less likely it is that mistakes will happen.

It would be disastrous if you use life insurance to balance your estate between relatives and the money does not go to the proper beneficiary.

Part of our planning process is ensuring that your wishes are crystal clear.  If you would like more information on planning, please visit my website.

Reference: Arizona Journal (May 20, 2015) "Bequest To Town Was Made In Error, Says Insurer."