The Wiewel Law Firm

How to Keep Giving After We Are Gone

“Chances are you have one or more charitable causes that you support on an annual basis. It is also likely that you have failed to make any provision for charity whatsoever on your death.”

Americans are a generous people, giving of our time and resources, through donations and volunteering. However, according to the article “Charitable conundrum: Why do we give up on giving at death?” from the Austin Business Journal, less than one out of nine individuals include a charitable donation as part of their estate plan.

Why do we stop giving at death? We know that the causes we care about continue to work after we are gone. There are many reasons for this, but perhaps the biggest reason behind his omission is that we tend to avoid estate planning. It’s an emotional challenge, preparing in a very real way to leave the world we enjoy with our loved ones. It’s not as much fun as going fly fishing or playing with the grandchildren.

Here are a few ways to include charitable giving in your estate plan, even when you aren’t having your estate plan created or reviewed.

Charitable beneficiaries. You can make a charity a partial beneficiary of a retirement account. They can be added as a primary beneficiary or as a contingent beneficiary. These changes can be made simply by contacting the custodian of the account and following their instructions for changing beneficiaries. Note that in certain states, spousal approval is required for any beneficiary changes. You can use this opportunity to also update your beneficiaries.

There’s a tax benefit in doing this. Charitable beneficiaries do not have to pay income tax on retirement distributions, although individuals do. Depending on the income level of an individual beneficiary, an heir could lose more than 40% of the inherited retirement account to state and local taxes.

The addition of a charitable beneficiary may restrict the ability for family members to stretch the receipt of retirement assets over time. Check with your estate planning attorney to make sure your good deed does not cause a hardship for family members.

Create a charitable IRA of your own. Another way to use retirement funds for a donation, is to roll some assets out of a main retirement account into a smaller retirement account with only charitable beneficiaries. Instead of consolidating accounts, you are doing the opposite, but for a good reason. This will allow you to manage the amount of money being left to the charity and take required or discretionary distributions from whichever account you choose.

Life insurance and annuities. Both of these vehicles use beneficiary designations, so the same strategy can be used for these accounts. Typically, the annuity must still be in the deferral state—not annuitized—and the life insurance contract must allow for changes to be made to the beneficiaries, which is true for most accounts. Note that life insurance proceeds are non-taxable to individuals and charities, and annuity proceeds are generally partially tax-free to individual heirs (amount of basis in the contract).

Talk with your estate planning attorney about the optimal strategies for making charitable giving part of your estate plan. Your situation may differ, and there may be other ways to maximize the wealth that is shared with charities and with your family.

Reference: Austin Business Journal (October 2, 2019) “Charitable conundrum: Why do we give up on giving at death?”

Estate Plan Is Done but Is the Job Finished?

As life progresses, an estate plan often becomes even more important to you and your family.

As a person’s life progresses and the difficulties that can arise do, they are often motivated into creating an estate plan but that isn’t necessarily the end of the story, according to the Brentwood Home Page in “The will and estate plan are done, what now?”

 However, once the will and the estate plan are done, the process doesn’t stop, even in the face of an urgent situation. There are still tasks that must be done, and perhaps the most important one of all is talking with family members about the plan, where it is and what your wishes are.

Many families get started on their estate plan in the attorney’s office, discussing what they want to happen to their assets, who their executor should be and how they want their end-of-life decisions to be made. However, they find it difficult to discuss with their children, and as a result, when the first parent passes, the only one who knows what the plan is (and where it is) is the surviving spouse.

Will the adult children know where to find the documents, if the surviving spouse is so bereft that he or she is not functioning well? Will the surviving spouse or the children know what the next steps should be?

Will the person who was designated the executor know that this is their role? That’s never a good thing to learn about at the last minute.

Once you’ve completed your estate plan and other related documents, don’t leave out this critical next step. The executor and those left when you (or your spouse) have passed have a big job ahead of them, and you don’t want to make it harder.

It can take months or sometimes years to settle an estate. Here are a few facts to be aware of:

• Wills and estate plans are not filed with the court before death. The estate planning attorney may have a copy, but the court will want the original documents.
• The executor will need original death certificates.
• An attorney, possibly the same one who created the estate plan, will be able to guide you through the settlement of the estate.
• Once the will is probated and the executor is appointed, beneficiaries will need to be named and creditors notified.
• The decedent’s property will need to be managed. This can be tricky if he or she owned a business, rental properties or other assets that require on-going management.
• Final tax returns must be filed.

This is not a simple process and you may try to handle it yourself. However, is that a good idea? Probably not, but an estate planning attorney can advise you in creating an estate plan that fits your unique circumstances.

Reference: Brentwood Home Page (Oct. 31, 2018) “The will and estate plan are done, what now?”

The Annuities Industry and Kickbacks

U.S. Sen. Elizabeth Warren is charging that kickbacks for sales agents are common in the annuities industry and should be considered before making a purchase.

The purchase of an annuity is a common approach to offsetting the expense of retirement as it becomes more difficult to save sufficiently for later years.

An annuity can help offset that shortfall and while these are normally very complex financial instruments, they are basically a way to pay money now and receive guaranteed regular payments at a later date. Annuities are even popular with people who are able to save enough for retirement as they often worry that retirement and end-of-life expenses will deplete their estate and leave nothing for future generations of their families.

However, as Next Avenue reports in “The Seamy Side of Annuity Sales,” U.S. Sen. Elizabeth Warren’s report details that 13 out of the top 15 annuity companies in the United States offer sales agents kickbacks either directly or indirectly through other companies.

The total cost of the kickbacks amounts to $17 billion a year.

One problem with a sales agent receiving a kickback for selling you an annuity is that he or she potentially then has an incentive to sell you something that you do not need or that may not be the best thing for you. The agent does not have an incentive to understand your unique situation and come up with the best solution for you.

Another problem is that the $17 billion going to kickbacks is $17 billion that is not going into American’s retirement funds.

It may be best to seek the advice of independent professionals about retirement and estate planning rather than just listening to a sales agent.

Reference: Next Avenue (Nov. 12, 2015) “The Seamy Side of Annuity Sales”

Can I Survive Financially if I Live to be 100?

How long will you live? It’s a key question in retirement planning. If you’re healthy and your family tree has branches with staying power, you may figure that you have decades ahead. If your parents died early of natural causes, you may assume a shorter life. Yet research shows that behavior is more crucial than genes in determining longevity. If you are eating better, smoking less, and exercising more than your parents did, there’s a good chance you’ll live longer than they did. You’ll also need to consider how much money to live on. With low expenses, you may be able to get by with as little as 55 percent of your preretirement income. But based on a survey of recently retired readers, Consumer Reports estimates that 85 percent of income from your last year of work is about right.

How can you ensure your nest egg’s longevity? The Boston Globe asks “Can you afford to live to 100?” and provides some helpful strategies.

Delay claiming Social Security. This is the least costly way to add to your income later in life. For example, those born in 1949 are now reaching “full retirement age.” They are able to earn a benefit that’s 8% higher each year they delay, up to age 70. At the minimum, you should wait to claim until your full retirement age, which ranges from 66 (for people born from 1943 to 1954) to 67 (for people born in 1960 and later).

Buy an Annuity. Consumer Reports’ surveys of retired readers show that having a pension as a guaranteed income correlates with satisfaction in retirement. With these becoming less available, insurers are providing annuities, which have pension-like, lifetime income. If you have a small nest egg, the less you’ll want to devote to an annuity, as this effectively locks up your savings. A 65-year-old could cover all spending after age 85 by earmarking 10-15% of his or her current assets toward purchasing a longevity annuity.

What about Long-Term Care Insurance? The average cost of nursing home care in a semiprivate room is about $80,300 per year. Although 44% of men and 58% of women currently age 65 will need nursing home care at some point, those stays will average less than a year for men and less than 18 months for women. Most of the care is provided at home or another community setting. Half of nursing home and retirement care expenses are typically covered by either Medicare or Medicaid. Nonetheless, in assisted living facilities, where stays are around 22 months and the cost is about $43,200 annually, they might not accept Medicaid. You’ll need long-term-care insurance to fill the gap.

Don’t Forget Medicaid. If you believe you may require long-term care, either in your home or in a care facility, you should see where you stand as far as Medicaid. An experienced elder law attorney may be able to help you legally transfer certain assets before you submit your application.

Reference:  Boston Globe (September 11, 2015) “Can you afford to live to 100?”

Wealth Transfer Tips For Parents (And Grandparents)

People who take good care of their children take good care of their money, and people who take good care of their money take good care of their children.

It has been said that money is at once the root of all potential and also the root of all evil. What is a concerned parent or grandparent to do for their young heirs when so much is at stake, especially when it comes to gifts and inheritances? For some timely insights, a recent Forbes article titled “What Can We Do With Money For Our Kids?” may be a good place to start.

As an alternative to gifting money outright to your children or grandchildren, the article explores Roth IRAs, 529 plans, annuitized gifts, and even UTMA/UGMA accounts. While there are many wealth transfer tools and methods, the key is asking yourself a few important questions upfront.

For starters, what is the purpose of your wealth transfer? Is it education? How involved do you want to be? Do you have specific educational purposes in mind and, perhaps, even limitations? After all, who wants to facilitate a perpetual student?

On the other hand, would you prefer flexibility beyond education alone? What about providing some assistance should your younger loved one ever need a home loan, capital to start a business, or other opportunity to get a leg up? However, could “bailing” a younger loved one out of a bad situation deprive him or her of some valuable life lessons? There is something to be said about the school of hard knocks.

Oftentimes a trust arrangement is an excellent solution for wealth transfers to a younger generation, whether funded now with gifting or later on through inheritance. With a trust you can, with far more particularity and power, articulate both your concrete hopes and goals as well as spell out the specific limitations behind the gift or inheritance. In addition, you may appoint a trustee to stand by and oversee the whole process in your stead.

If you want to ensure that your transfers are a blessing and not a curse, then it will take some legal work to get it right. You will need competent counsel to help you sort through the many legal options available and to chart a course to get there. Ultimately, however, before engaging such counsel, take time to consider your heirs, review your assets and consider your wealth transfer goals for both.

Reference: Forbes (December 23, 2013) “What Can We Do With Money For Our Kids?”

Life Insurance and Annuities - Tax Savvy Financial Products?

LIFE insurance and annuities are supposed to accomplish straightforward goals: life insurance provides for your family if you die unexpectedly and annuities guarantee a steady stream of income in retirement. But right now, both are being promoted for their tax benefits.

Insurance and financial savings products exist to put you at ease, for the care of your loved ones and your own retirement. It should come as no surprise that two of the hottest financial products on the market today are life insurance and annuities.

Turns out these products may be tax savvy, too. But are they right for you?

Regardless, you really need to do your due diligence when it comes to life insurance and annuities. A recent article in The New York Times titled “Getting the Full Picture on Annuities and Insurance” points out the obvious – both of these products are heavily marketed. Beyond the hype, much of the marketing focuses on their tax savings characteristics.

Can these tools be tax savings devices? Indeed, if placed within a solid overall plan. Nevertheless, it is important not to lose sight of the true purpose behind these products and the cost-benefits of any particular policy.

At the very least, it would be worth your time to read the original article. It will help you understand how powerful these products can be, how you can use them, and where they might fit into an overall plan.

Reference: The New York Times (May 10, 2013) “Getting the Full Picture on Annuities and Insurance”

Are Will and Beneficiary Designations In Conflict?

Show your beneficiaries that you love them. Do a beneficiary review and ensure that they get the assets you want them to receive.

Your will is one of your most powerful legal documents and, for many, the primary means to ensure your plans are carried out for your loved ones. Nevertheless, don’t overlook any of your assets for which you have designated beneficiaries! Why? Because your beneficiary designations and your overall estate plan must be coordinated so they work together instead of being at odds with one another.

Beneficiary forms seem simple and they generally are. Just to be on the safe side, however, you may want to read a recent article in The Slott Report titled “Beneficiary Form Review: The Gift That Keeps on Giving.”

Essentially, designating a beneficiary or beneficiaries on a beneficiary form can allow you to exempt a given account or policy entirely out of your “probate” estate. However, when you avoid probate your will has no control over who inherits such account or policy. Accordingly, by not reviewing and updating your beneficiary forms you risk giving your assets to the wrong beneficiary (e.g., an ex-spouse on your 401k plan).

Solution? Perform a beneficiary form audit of your accounts to ensure they are consistent with your wishes.

Reference: The Slott Report (February 18, 2013) “Beneficiary Form Review: The Gift That Keeps on Giving”

Gift Annuities – Giving and Receiving

More people are seeking investment income from an unlikely source: their favorite nonprofits. Why "gift annuities" are on the rise.

In charity, as in all matters, the greatest gifts are the ones that keep on giving. This is especially true when the gift actually gives back to you after you make the gift. It comes as no surprise then that “gift annuities” are rather popular right now.

That noted, gift annuities are not perfect for everyone and there are some risks.

A recent article in SmartMoney titled Charitable Gifts That Give Back addressed both sides of the gift annuity coin. The essential idea behind any annuity is to transfer a large sum of money in exchange for regular and equal payments over a specified period of time (to include over the remainder of your life). As such, annuities can be a powerful source of predictable income late in life under the right circumstances.

Commonly, you establish an annuity with a large financial institution because it can make enough money off of your money (and the money of other annuitants) to honor its commitment to make the current and future payments back to you.

On the other hand, should you establish your annuity with a charity, the annuity works the same way with a few twists. First, at the end of the annuity, any remaining funds will pass to the charity. Second, because the charity ultimately will benefit, your initial lump sum funding counts as a charitable gift and is deductible as such in the year made. [Note: There is a rather sophisticated calculation that determines the actual amount of the deduction.]

As with most financial decisions, caveat emptor (i.e., “let the buyer beware”).

Not all charities offer gift annuities and, if they do, you should be sure to evaluate their ability to make good on the payment stream. Note: Large financial institutions are able to offer annuities because they intend to make a profit, but a nonprofit only intends to break even or, at best, use the money elsewhere.

While the gift annuity process can be uniquely satisfying, and is therefore worth consideration, be sure to look carefully before you leap.

Reference: SmartMoney (April 6, 2012) “Charitable Gifts That Give Back”