The Wiewel Law Firm

What If Only One Parent Is Willing to Plan?

“My parents are in their 70s and they don’t have anything planned. I’ve spoken with them about the importance of planning.”

Making matters much worse for one family, is the fact that while the mother is willing to speak with an estate planning attorney and make a plan for the future, the father won’t even discuss it. What should this family do, asks the article from nwi.com titled “Estate Planning: Can one spouse plan?”

Planning for your eventual demise and distribution of your worldly goods isn’t as much fun as planning a vacation or buying a new car. For some people, it’s too painful, even when they know that it needs to be done. There’s nothing pleasant about the idea that one day you won’t be with your loved ones.

 Although contemplating the reality is unpleasant, this is a task that creates all kinds of problems for those who are left behind, if it is not done.

Unfortunately, it is not unusual for one parent to recognize the importance of having an estate plan and the other parent does not consider it to be an important task or simply refuses. In that case, the estate planning attorney can work with the spouse who is willing to go forward.

Some attorneys prefer to represent only one of the spouses, especially in a case like this. Spouses’ interests aren’t always identical, and there are situations where conflicts can arise. When a couple goes to the estate planning attorney’s office and wishes the attorney to represent both of them, sometimes the lawyer will ask for an acknowledgment that the lawyer is representing both of them as a couple. In the event that a disagreement arises or if their interests are very different, some attorneys will withdraw their representation. This is not common, but it does happen.

The estate planning lawyer usually prefers, however, to represent both spouses. Married couple’s estates tend to be intertwined, with real property jointly owned as husband and wife, or husband and husband or wife and wife. Spouses are usually named beneficiaries of life insurance and retirement accounts. Even in blended family situations, this holds true.

If the father in the situation above won’t budge, the mother should meet with the attorney and create an estate plan. The problem is, she may not be able to plan effectively for the two most common and usually the most valuable assets: their jointly owned home and retirement accounts.

If the home is owned by the spouses as “entireties property,” that is, by the couple, she can’t make changes to the title, without her spouse’s consent. One spouse cannot sever entireties property, without both spouses agreeing. Some retirement plans are also subject to the federal law ERISA, which requires a spouse’s consent to change beneficiaries to someone other than the spouse.

Even with these issues, having a plan for one spouse is better than not having any plan at all.

The only last argument that may be made to the father, is that if he does not make a plan, the laws of the state will be used, and few people actually like the idea of the state taking care of their estate.

Reference: nwi.com (Nov. 17, 2019) “Estate Planning: Can one spouse plan?”

How Blended Families Can Address Finances and Inheritance Issues

“When you remarry, you’re not only combining residences with your new spouse, you’re also merging your finances. If you have children, it may involve some financial-related stress”

The holiday season is a popular time for people to get engaged, including people who have been married before. If that’s you, understand that blending families means you’ll need to deal with inheritance and finance issues, says U.S. News & World Report’s article “6 Financial Considerations for Remarriage.” The best time to have these conversations is before you walk down the aisle, not afterwards.

Look at your budget and talk about how things will work. That includes day-to-day expenses, monthly expenses and large purchases, like houses, vacations and cars. Talk about a game plan for going forward. Will you merge your credit card accounts or bank accounts? What about investment accounts?

Financial obligations outside of the marriage. Two things to check before you wed: your divorce papers and the state’s laws. Does anything change regarding your spousal support (alimony) or child support, if you remarry? It’s unlikely that you would lose child support, but the court may determine it can be reduced. The person who is paying child support or alimony also needs to be transparent about their financial obligations.

Review insurance and beneficiaries. One of the biggest mistakes people make, is failing to update beneficiaries on numerous accounts. If your divorce papers do not require life insurance to be left for your spouse on behalf of your children (and some do), then you probably want to make your new spouse the beneficiary of life insurance policies. Investment accounts, bank account, and any other assets where a beneficiary can be named should be reviewed and updated. It’s a simple task, but overlooking it creates all kinds of havoc and frustration for survivors.

What will remarriage do to college financing options? A second marriage may increase a parent’s income for college purposes and make children ineligible for college loans or needs-based scholarships. Even if the newly married couple has not blended their finances, FAFSA looks at total household income. Talk about how each member of the couple plans on managing college expenses.

A new estate plan should be addressed, even before the wedding takes place. Remember, an estate plan is for more than distributing assets. It includes planning for incapacity, including Do Not Resuscitate Orders (DNR), powers of attorney for finances and for health care, designations of guardianship or consent to adoption, various trusts and if needed, Special Needs planning.

Create a plan for inheritance. If either spouse has children from a prior marriage, an estate plan is critical to protect the children’s inheritance. If one spouse dies and the surviving spouse inherits everything, there is no legal requirement for the surviving spouse to pass any of the deceased’s assets to their children. Even if you are in mid-life and death seems far away, you need to take care of this.

Speak with an estate planning attorney who can help you create the necessary documents. You should also talk with your children, at the age appropriate level, about your plans, so they understand that they are being planned for and will be taken care of in the new family.

Reference: U.S. News & World Report (Nov. 18, 2019) “6 Financial Considerations for Remarriage”

What Estate Planning Documents Do You Need?

“This year for the holidays, why not give yourself and your loved ones a little peace of mind?”

Wouldn’t your children be relieved to learn that you’ve done all the necessary advance planning so that if you should become incapacitated, someone has been properly appointed to help with health care and financial decisions? The Tennessean suggests that you “Give your loved ones peace of mind with legal documents” so that your spouse and your family will be able to take the necessary steps to give you the care and dignity you (and they) deserve.

Here’s a checklist of the documents that everyone should have in place:

Power of Attorney for Health Care. When you have mental capacity, you can make your own decisions. When you do not, you need someone to be appointed who knows your beliefs and wishes and has the ability to advocate for you. Ideally, you should name one person to be your agent to minimize arguments. Talk with your family to explain who has been named your power of attorney for health care, and if need be, explain why that person was chosen.

Power of Attorney for Finances. There are different kinds of POA for finances. The goal of the POA for finances is so they can make decisions on your behalf, when you become incapacitated. Some states use “springing” POA—but that may mean your family has to go through a process to prove you are incapacitated. Check with an estate planning elder law attorney in your state to see what the laws are.

Advance Directive. This describes what kind of life sustaining treatment you do or do not want if you are in a coma, are terminally ill or have dementia. You can direct whether you want CPR, tube feeding, and other life-sustaining procedures to be withheld, if your quality of life is diminished and there is no hope of improvement. This will help your family to know what you want in a time when emotions are running high.

Last Will and Testament. Have a will created, if you don’t already have one. This directs distribution of your assets to your wishes and does not leave them to the laws of your state. Not having a will means your family will have to go through many more court proceedings and people you may not want to receive your worldly possessions may get them.

Trusts. Talk with your estate planning attorney about placing assets in trust, so they are not subject to the public process of probate. Your wishes will be followed, and they will remain private.

Reference: Tennessean (Nov. 16, 2019) “Give your loved ones peace of mind with legal documents”

Costly Mistakes with 401(k)s and How to Avoid Them

“This is a big one. The IRS would love for you to take every penny out of your 401(k) when you change jobs for one very good reason: more tax revenue.”

Making sure that you handle your 401(k)s correctly, is not as easy as letting payments be automatically deducted from your wages. Here’s a look at commonly made mistakes, detailed in the article aptly named “More common 401(k) mistakes—and their consequences” from tucson.com.

Investing after-tax dollars before maxing out pretax opportunities. Some plans let you choose to contribute to your 401(k) on a pretax or after-tax basis, or both. The problem happens when the forms provide these choices, without giving an explanation of the different choices. Generally speaking, you always want to lower your W-2 earnings, by contributing pretax dollars first. Your W-2 won’t include the money you put in a 401(k) or other retirement savings vehicle.

Cashing out a 401(k) when you change jobs. This is a big and bad one. The IRS loves when you do this, because the withdrawal is taxable income that would otherwise sit in a 401(k) for years, possibly decades. One survey showed that as many as 28% of people between the ages of 35-65 did not know that some of their retirement distribution choices would trigger tax liabilities and penalties.

A better option: leave the 401(k) with your old employer, move it to your new employer’s plan if that is an option, or set up a rollover IRA with a bank or investment firm to transfer the 401(k). Do this very carefully: you are rolling over the money, not cashing it out. Don’t use the money when you move it—this is your best savings option for retirement.

Borrowing from the plan to pay for a big-ticket purchase. Yes, there may be a loan feature in your 401(k) plan. However, while this may be a blessing in an emergency, it is likely to be one of the most expensive loans you ever take. There are strict rules about paying back 401(k) loans and running afoul of them could create more problems. Read the fine print, before borrowing against your retirement fund. Remember, you are borrowing against your future.

Defaulting on a 401(k) loan. Don’t give yourself a loan from your 401(k), unless you understand all of the rules and penalties. Most 401(k) loans must be paid back within five years, unless the loan is used to purchase a primary residence. However, this is supposed to be a retirement savings account, not a house fund. You should also find out what happens if you quit or lose your job, while the loan is outstanding. The balance of your 401(k) account is often used to pay for the outstanding loan and you’ll be responsible for paying taxes on the withdrawal, PLUS a tax penalty for early withdrawal from the 401(k).

Thinking you’ve got plenty of time before retirement. The sooner you start saving for retirement, like when you receive your first paycheck, the better. Pay your future self, first. You can always get a loan for a home, a car or your children’s college education, but there’s no such thing as a retirement loan.

Reference: tucson.com (Nov. 15, 2019) “More common 401(k) mistakes—and their consequences”

What Is Probate and How to Prepare for It?

“We have all heard the term ‘probate.’ However, we may not be exactly sure what this means. It may sound daunting, but don’t be intimidated by the phrase.”

The word probate is from the Latin word, meaning “to prove.” It is the court-supervised process of authenticating the last will and testament of a person who has died and then taking a series of steps to administer their estate. The typical situation, according to the article “Some helpful hints to aid in navigating the probate process” from The Westerly Sun, is that someone passes away and their heirs must go to the Probate Court to obtain the authority to handle their final business and settle their affairs.

Many families work with an estate planning attorney to help them go through the probate process.

Regardless of whether there is a will, someone, usually a spouse or adult child, asks the court to be appointed as the executor of the estate. This person must accomplish a number of tasks to make sure the decedent’s wishes are followed, as documented by their will.

People often think that just being the legally married spouse or child of the deceased person is all anyone needs to be empowered to handle their estate, but that’s not how it works. There must be an appointment by the court to manage the assets and deal with the IRS, the state, creditors and all of the person’s outstanding personal affairs.

If there is a will, once it is validated by the court, the executor begins the process of identifying and valuing the assets, which must be reported to the court. The last bills and funeral costs must be paid, the IRS must be contacted to obtain an estate taxpayer identification number and other financial matters will need to be addressed. Estate taxes may need to be paid, at the state or federal level. Final tax returns, from the last year the person was alive, must be paid.

It takes several months and sometimes more than a year to settle an estate. That includes distributing the assets and making gifts of tangible personal property to the heirs. Once this task is completed, the executor (or their legal representative) contacts the court. When everything has been done and the judge is satisfied that all business on behalf of the decedent has been completed, the executor is released from their duty and the estate is officially closed.

When there is no will, the process is different. The laws of the state where the deceased lived will be used to guide the distribution of assets. Kinship, or how people are related, will be used, regardless of the relationship between the decedent and family members. This can often lead to fractures within a family, or to people receiving inheritances that were intended for other people.

Reference: The Westerly Sun (Nov. 16, 2019) “Some helpful hints to aid in navigating the probate process”

Many Different Ways to Age: What’s in Your Future?

“No longer staid and boring, retirement homes offer dynamic options for seniors. Retirement communities are continually improving, by keeping seniors active with mental and physical exercises, while intertwining independent living and hands-on care.”

At some point in life, many people face the decision of moving into a retirement home or welcoming in-home care. Living in these communities can be a step up to aging in a place, where there is actually more independence. This is because you are not busy caring for a house or being confined to a solitary life in a private home. In fact, according to the article “The Many Faces of Aging” from Harrisburg Magazine, it can be a very dynamic option.

Deciding to buy or rent a home in an age-restricted community is a major step toward achieving a new lifestyle. It’s important to consider a number of factors, so you can make the right choice. Here are some questions and answers to consider.

What’s your budget? Make sure that you have the numbers right. Consider additional expenses, like yearly or monthly resident fees. Some luxury communities have equity memberships, which require extra financial investment. Don’t forget taxes.

What are the rules and covenants? Every community will have some kind of homeowner’s association that governs what residents can and cannot do. If you want to have grandchildren stay with you for an extended period of time, make sure that this is permitted in the communities you are considering. The homeowner’s association will implement and enforce restrictions, so know what they are beforehand.

What are the neighbors like? Your future social life is key to your enjoyment of the new community. If you are seeking like-minded people, be sure you’ll know what kind of people live there. Get a sense of the general vibe and personalities. Will you feel included and accepted?

What will a different climate feel like year-round? If you are thinking about moving far from your current home, be sure the new climate suits you. Rent before you buy, if at all possible. A southern home is great during the winter, but if you’re too uncomfortable with summer heat, or living most of your summer in air-conditioned spaces, it may not be for you.

Are there activities you’d enjoy? Make sure the activities you like are offered. If you are a reader, you’ll prefer a community with an active lending library and book groups. A golfer will, of course, want a high-quality golf course (although there will likely be additional fees).

Is good medical care nearby? Every community is different. In large communities, there may be on-site health care services. Some may rely on local ambulance companies and hospitals for all medical care. Medical services that are five minutes away may be a better choice, than those that require a one-hour transport to a hospital.

One of the biggest questions is, can you imagine yourself being happy in the community? If it represents a chance to thrive and grow safely as you age, then it just may be the right place for you.

Reference: Harrisburg Magazine (Nov. 8, 2019) “The Many Faces of Aging”

Protect the Family Farm with Advance Planning

“Planning for your farm’s future has never been more urgent. With one-third of United States farmers older than age 65, it’s estimated that 70% of farmland will change hands in the next 15 years.”

Have you figured out who will take over the family farm? Are you or your parents prepared to transition the farm or ranch to the next generation? How will family members be part of the transitions? Do you have a plan to minimize tax exposure?

These are just a few of the questions that must be addressed about the future of the family farm or ranch, reports the article “Don’t be a failed family-business statistic: Plan for your farm’s future” from High Plains Drifter. It’s one of the hardest parts of the agriculture business. Decades of hard work and assets are at stake, and the statistics are not great. Only 30% of any kind of family businesses survive to the second generation.

You need a long-term strategy and planning that needs to be started long before any member of the family begins thinking about retirement. You’ll also need good advisors, including an estate planning attorney, accountant and possibly a banker.

What is a succession plan? A succession plan is a forward-looking strategy that prepares the individual and their family for the change in ownership, including development of leadership to avoid family disputes, manage tax consequences and ensure that the farm or ranch smoothly transitions to the next generation of owners.

The estate plan provides the mechanics to implement the succession plan. It can be complicated, so an experienced estate planning attorney who has worked with farm or ranch owners will be invaluable.

Here are three key areas where guidance is critical:

On-farm and off-farm heirs. How do you balance the inheritance of children who remain on the farm and those who chose to pursue other occupations? An objective viewpoint is needed, and a calm head. There are different ownership structures that can be used to define the roles and expectations for both on-farm and off- farm heirs.

Smooth financial transition. It is important to lessen tax liability and maximize benefits. Cash will be needed to pay estate taxes. This is where many family businesses are lost: a key asset must be sold to pay the tax bill, and it dampens the chances of success for the future.

Address financial needs of current and future generations. Can the business support multiple generations? What does everyone need to continue living on the farm, and how will the income be generated?

Family farms and ranches that survive to the second or third generations don’t happen by accident. Succession plans need to be created and then they need to be reviewed every few years. If you have a will or an estate plan, if you haven’t updated it in five years, it’s time to review it or create one.

Reference: High Plains Journal (Nov. 8, 2019) “Don’t be a failed family-business statistic: Plan for your farm’s future”

Holiday Season Ushers in Thoughts of Family and Sharing

For many families, the holiday season is a time to reflect on the joy of family and the fun of getting everyone together, even if these gatherings can only take place a few times a year. It’s also the time when families often consider sharing their good fortune, according to the article “Share your financial bounty with family” from The Independent. Following are some suggestions for families that can be used for all ages and stages of life.

• Make the gifts age appropriate. For little ones, the start of a savings account is a good way to teach them about the power of savings and time. You could even add a Thanksgiving tradition of checking the accounts to see how they have grown. Opening a 529 college account is a wonderful gift for the child’s future and permits you to retain control of the money, until the children are ready for the next step in their lives. There are also other accounts that can be opened, including a custodial account like a UGMA or UTMA. Check with your estate planning attorney to see if these make sense for you and the beneficiaries.
• Review your estate plan. While your first instinct may be to give all your assets to family members, you may also want to leave something to a charitable organization that has meaning to you. That means you’ll need an estate plan.
• Talk with an estate planning attorney. An estate planning attorney helps families create comprehensive plans that include planning for incapacity, creating a legacy and distributing assets before and after death. That will include a last will and testament, living power of attorney, health care directive and more.
• Talk with your family about your legacy. How do you want to be remembered? Does the family have the ability or desire to create a family legacy that will extend beyond one generation? This teaches your children and grandchildren about the value of money to do more than buy things but to make a contribution to the local or global community.

If you don’t yet have an estate plan, now is the time to make an appointment to meet with an estate planning attorney and discuss your plans for the future and your legacy.

Reference: The Independent (Nov. 9, 2019) “Share your financial bounty with family”

Death Is Very Taxing — What you Need to Know

“The personal representative (formerly executor) of the deceased’s estate may be responsible for filing a number of tax returns.”

When a person dies, their assets are gathered, their debts are paid, business affairs are settled and assets are distributed, as directed by their will. If there is no will, the intestate laws of their state will be used to determine how to distribute their assets. A big part of the process of settling an estate is dealing with taxes. A recent article from Wicked Local Westwood, titled “Five things to know about taxes after death,” explains the key things an executor or personal representative needs to know.

The Deceased Final Income Tax Returns. Yes, the dead pay taxes. The personal representative is responsible for filing the deceased final income tax return for both the year of death and prior year, if those returns have not been filed. The final income tax return includes any income earned or received by the decedent from January 1 of the year of death through the date of death. It’s common for a deceased person who is ill during the last months or year of their life to fail to file tax returns, so the executor needs to find out about the decedent’s tax status. Failure to do so, could lead to the representative being personally liable for paying those taxes.

Filing a Federal Estate Tax Return. The personal representative must file a federal estate tax return, if the value of the estate assets exceeds the federal estate tax exemption, which is $11.4 million in 2019. Even if the value of the estate does not exceed the federal estate tax exemption amount, a federal estate tax return should be filed if the decedent is survived by a spouse. This way, the deceased’s unused exemption can be used by the spouse at their death. Note that the filing deadline for the federal estate tax return is nine months after the date of death. An estate planning attorney can help with this.

Fiduciary income tax returns. A personal representative and trustee may have to file fiduciary income tax returns for an estate or a trust. The estate is a taxpayer and the representative must get a tax identification number and file a fiduciary income tax return for the estate, if income is earned on estate assets or received during the administration of the estate. A revocable trust becomes irrevocable after the death of the trust creator. A tax identification number must be obtained, and a fiduciary income tax return must be filed for any income earned by trust assets.

Estate taxes and trust taxes can become complex and confusing for people who don’t do this on a regular basis. An estate planning attorney can be a valuable resource, so that taxes are properly paid and to make the most of any tax planning opportunities for estates, trusts and their beneficiaries.

Reference: Wicked Local Westwood (Nov. 5, 2019) “Five things to know about taxes after death”

How an HSA Could Be the Best Account to Fund for Retirement

“It’s been a big year for 50^th birthdays. From Jennifer Aniston and JLo to Matthew McConaughey and Sean Coombs, it seems like everyone is having a milestone birthday in 2019. However, this isn’t really a big surprise, when you consider that in the Generation X (1965-1980) cohort, 1969 was one of the largest birth years.”

Generation X is hitting midlife. They are finding out that it’s not such a bad place to be. At the same time, they are starting to consider how they are going to manage a retirement that may stretch out longer than many other generations. Right now, many Gen Xers are helping their own parents navigate longevity, but they need to start addressing this for themselves, says Forbes in the article “Why Those in Their 40s and 50s Need to Factor Longevity Risk Into Their Retirement Planning.”

The 2019 Transamerica Study on Retirement Savings reflects this focus, since 51% of Gen Xers surveyed said they were concerned about outliving their savings. This is at the same time that they are struggling to manage the complexity that comes with midlife financial planning. However, there is a tool that is often overlooked: the Health Savings Account (HSA).

Not only is the HSA triple tax exempt, but it’s a great way to save for future medical costs in retirement. The generation that is most likely to embrace these accounts and make them part of their retirement account is Gen X.

There’s a new phrase in retirement planning: longevity planning. As more Americans are living into their 90s and even 100s, it has become necessary to plan for retirements that can span three or four decades. It’s different from the lifespans when Gen Xers were being born. The average male life expectancy in 1965, according to the Social Security Administration, was 66.8 years for men and 73.8 years for women. By 1980, the average male life expectancy was 69.9 and 77.3 for women. For those born in 2019, life expectancy has grown to 76.6 years for men and 81.3 for women.

For married couple in their 50s today, the man has an 18% chance of living to age 90 and the woman has a 30% chance of living to 90. The chance that one of them will live to age 90 is 42%. Those are good odds. But with these longer lifespans, comes a higher likelihood of medical expenses. How do you plan for that?

HSAs are available to individuals and families who are enrolled in High Deductible Health Care Plans (HDHCP) that are HSA compatible. They can be funded with $3,500 for an individual plan and $7,000 for a family plan in 2019. Those numbers will go up in 2020 to $3,550 and $7,100 respectively. This deposit provides a tax deduction, the funds are tax deferred and if they are used for qualified medical expenses, the distributions are tax free.

How will that work for Gen Xers? Instead of using the HSA for current year medical costs, they need to shift to thinking of the HSA as another retirement account. Investing these funds and letting the money compound will grow a new kind of nest egg that is solely reserved for healthcare costs.

Most people don’t understand how the HSA accounts work and are not maximizing their benefits. Only 7% of all HSA users are investing these funds, says the Employee Benefit Research Institute (EBRI). The average 65-year-old couple today needs about $300,000 to pay for medical expenses during retirement. Therefore, if the Gen Xers start saving this way now, they are likely to get very close to that amount.

Reference: Forbes (Nov. 9, 2019) “Why Those in Their 40s and 50s Need to Factor Longevity Risk Into Their Retirement Planning”