The Wiewel Law Firm

SECURE Act Means It’s Time for an Estate Plan Review

“Congress passed an important retirement-savings law called Setting Every Community Up for Retirement Enhancement, or the SECURE Act of 2019.”

The most significant legislation affecting retirement was signed into law on Friday, Dec. 20, 2019. After stalling for months, Congress suddenly passed several bills, as attachments to budget appropriations, as reported by Advisor News’ article “SECURE Act, Signed by Trump, A Game-Changer For Retirement Plans.”

Here are some of the key points that retirees and those planning their retirements need to know:

Changes to Age Limits for IRA and 401(k) Accounts. The age for taking Required Minimum Distributions (RMDs) has increased from 70½ to 72 years. Adding a year and a half for investors to put away money for retirement gives a little more time to prepare for longer lifespans. The change recognizes the prior limits were arbitrary, and that Americans need to save more.

However, the SECURE Act also brought about the demise of the “stretch” IRA. Americans who inherit an IRA must now withdraw the money within 10 years of the account owner’s death, along with paying taxes. Surviving spouses and minor children are still exempt. The exempt heirs can still spend down inherited IRA accounts over their lifetime, which is an estate planning strategy known as the “stretch.”

Small Business 401(k)s. The SECURE Act expands access to Multiple Employer Plans, known as MEPs, so that employers can pool resources and share the costs of retirement plans for employees. This will cut administration and management costs and ideally, will allow more small businesses to offer higher-quality plans available to their employees.

The law also enhances automatic enrollment and auto-escalation, letting companies automatically enroll employees into a retirement plan at a rate of 6%, instead of 3%. Employers can now raise employee contributions to a maximum of 15% of their annual pay, although workers can opt out of these plans at any time.

Annuities Options. The SECURE Act now allows 401(k) plans to offer annuities as a retirement plan option. Experts have mixed opinions on this. Annuities are a type of life insurance that convert retirement savings into lifetime income. However, fees are often high, and if the insurance company closes its doors, those lifetime income payments may vanish. Under the new law, employers also have what’s called a “safe harbor” from being sued, if annuity providers go out of business or stop making payments to annuity purchasers. Being freed from liability may make employers more likely to offer annuities, but that may put 401(k) investors at more risk, say consumer advocates.

529 Plans and Saving for Children. The new law expands 529 accounts to cover many more types of education, from registered apprenticeships, homeschooling, private elementary, secondary or religious schools. Up to $10,000 can be used for qualified student loan repayments, including for siblings.

Reference: Advisor News (December 23, 2019) “SECURE Act, Signed by Trump, A Game-Changer For Retirement Plans”

Tips for Choosing a Fiduciary

“Being a fiduciary is a time-intensive and intellectually challenging task to put upon an individual.”

One of the important tasks in creating a complete estate plan is selecting people (or financial institutions) to represent you, in case of incapacity or death. Most people think of naming an executor, but there are many more roles, advises the article “What to consider when appointing a fiduciary?” from The Ledger.

Here are the most common roles that an estate planning attorney will ask you to select:

• Executor or personal representative, who is named in your will and appointed by the court to administer your estate.
• Agent-in-fact (under a durable power of attorney) who manages your financial affairs while you are living, if you are unable to do so.
• Health care surrogate who makes health care decisions on your behalf while you are living, if you are incapacitated.
• Trustee of a trust document; administers the trust that you have created.
• Guardian: a person who makes health care and financial decisions on your behalf, if the court determines that other roles, like health care surrogate or agent-in-fact, are not sufficient.
• Guardian for minor children: person(s) who make decisions for your children, if you are not able to because of death or a loss of capacity before the children reach adulthood.

The individuals or financial institutions who take on financial roles are considered fiduciaries; that is, they have a legal duty to put your well-being first. Their responsibilities may include applying for government benefits, managing and invest your assets and income, deciding where you will live and working with your attorneys, financial advisors and accountants.

Many people name their spouse or eldest child to take on these roles. However, that’s not the only option. A few questions to consider before making this important decision include:

• Does this person have the experience, skill and maturity to manage my financial affairs?
• Does this person have the time to serve as a fiduciary?
• Would this person make the same health care decisions that I would make?
• Can this person make a difficult decision for my health care?
• Does this person live near enough to arrive quickly, if necessary?
• How old is this person, and will they be living when I may need them?
• What kind of response will my family have to this person being named?
• Are my assets substantial enough to require a financial institution or accountant to manage?

These are just a few of the questions to consider when choosing fiduciaries or health care agents in your estate plan. Speak with your estate planning attorney to help determine the best decision for you and your family.

Reference: The Ledger (Oct. 16, 2019) “What to consider when appointing a fiduciary?”

A Fiduciary Has Considerable Responsibilities

It sounds financial but it isn’t. It is all about the person’s behavior in the relationship.

A fiduciary relationship is a legal relationship that includes responsibilities that can be enforced and it is important to look closely at it, according to the Denton Record-Chronicle in “What is the “F” word?”

In a fiduciary relationship, whether between a lawyer and a client, a CPA and a client or two non-professionals, one person has a duty to act only in ways that will benefit the other person or group of people. The fiduciary is required to be loyal, act in good faith, be completely honest and refrain from doing anything that would benefit the fiduciary, instead of the person they are responsible for. This is required, even if the people are not aware of being in a fiduciary relationship.

The fiduciary may not use their position, as trustee or financial advisor or executor, to “self-deal,” or take actions that benefit the fiduciary and not the other person or people. The fiduciary must also share all relevant information with the beneficiary.

So, who are these fiduciaries? They could be business partners, someone who has power of attorney for another person, trustees or estate representatives, attorneys or employees. These formal relationships are created by a relationship; in these instances, they are usually around legal agreements in the shape of partnership agreements, estate planning documents, retainers (for attorneys) and employment contracts for employees.

Some fiduciary relationships come with more responsibilities than others. Trustees and personal estate representatives, like executors, are charged with tasks in addition to general fiduciary duties. They are usually given the responsibilities of handling money, property and investments. They have a duty to properly manage those assets and report on those assets to the beneficiaries and heirs.

For attorneys, client-attorney privilege, that is, not sharing information that the client tells the attorney in confidence, is a fiduciary duty. It is also an ethical duty for the attorney.

For employees, the duty to act in an employer’s best interest may not be as limiting. Unless there is a non-compete contract, the employee may seek employment from a competitor or create a competing business while working for the employer. However, the employee may not steal customers or other employees, before resigning from a position.

If a fiduciary does not follow through on their duties, it is called a breach of fiduciary duties. In estate planning, the executor is expected not to self-deal, and to put the interest of the estate and its beneficiaries first. The executor may charge a fee. However, the amount is determined by the laws of the state.

Reference: Denton Record-Chronicle (Jan. 16, 2019) “What is the “F” word?”

Estate Executor? Don’t Go It Alone!

If you have been named the executor of a deceased person’s estate, you may find yourself with a job that few people are prepared for. You will likely find the assistance of a qualified estate planning attorney helpful, especially if the decedent was wealthy or has a particularly complicated estate.

Being named as executor in a loved one’s will is certainly an honor, but it’s also far more than that. To take on the role of executor is to take on several important duties, and sometimes liabilities as well. Accordingly, whether you are a newly named executor or are selecting an executor as part of your estate planning, the role of executor deserves your thorough understanding.

None other than Forbes recently took up this important issue with an article titled “Understanding the Role and Responsibilities of an Executor.” In effect, the executor (also known as the “personal representative”) is the named agent of the deceased, tasked with carrying out their will and tying up all of the legal and fiscal loose ends of life. Even a simple estate typically requires filing the will in probate and distributing assets appropriately to creditors and beneficiaries alike.

As you might imagine, when there is an inheritance in play a messy trifecta of courts, creditors, and family drama isn’t far behind. Depending on the nature and number of creditors, the family dynamics, and even the kinds of assets involved, things can get complicated fast.

While no encountered challenge need be insurmountable, it certainly helps to have the assistance and counsel of a professional who navigates these rapids repeatedly. Not surprisingly, the executor should secure the services of competent legal counsel sooner rather than later.

Reference: Forbes (February 14, 2013) “Understanding the Role and Responsibilities of an Executor”

Avoiding Trustee Tripwires

If you have been appointed the trustee of a trust, this is a strong vote of confidence in your judgment and probity. Unfortunately, it is also a major responsibility.

A trustee should be, first and foremost, a “trustworthy” person. A trustworthy trustee acknowledges the challenges and responsibilities of holding this position. Accordingly, if you are establishing a trust or being asked to engage as trustee under one, then you should give thorough consideration to the attending responsibilities and potential liabilities.

A recent article titled “A Brief Overview of a Trustee's Duties” is worth a look. The article offers eight crucial elements you need to understand and address, specifically: fiduciary responsibility, the trust’s terms, investment standards, distributions, accounting, taxes, delegation and fees. Essentially, you must fully appreciate that the role of a trustee is jointly moral, legal, and fiduciary.

You have a duty to the beneficiaries, a duty to the language of the trust (the express intent of the trust maker), and a duty to the assets themselves. This duty can be a treacherous tightrope to walk. If you are establishing a trust, understanding this means finding someone who would do as you would do, or better. And if you are a would-be trustee, understanding this means understanding your role and its rewards.

Reference: ElderLawAnswers.com (May 2012) “A Brief Overview of a Trustee's Duties” 

 

Seniors and Singles Without Family – Consider A Care Committee

People without much family simply plan the best they can, setting up advance directives and crossing their fingers, hoping they can afford paid care when they need it. Ms. Cotter has taken her preparations a step further, however. When she consulted [with her elder law attorney] for help with estate planning, he made a suggestion: She could set up a Care Committee.

Unfortunately for many elderly and single persons the legal system and, perhaps to an even greater extent the healthcare system, are designed around family-based persons. The primary caregiver and decision-maker for so many of our elderly is an unpaid family member, usually an adult child. So, to whom can the single elderly person turn when they have no children?

This is a question that comes up often, but the answers tend to be sparse and inadequate. Enter a relatively new development: the Care Committee. The New Old Age Blog on the New York Times recently addressed this concept in an article titled Care by Consensus.

More likely than not, an elderly person without children already turns to other people in his or her life for advice and counsel. These other people serve as surrogate family members. In a sense, that is all a Care Committee is, with the added benefit of legal organization.

Here’s how it works: You ask and appoint members of your Care Committee and task them with carrying out your intentions when you are not able to articulate them yourself. Accordingly, they assume these powers only when you are incapacitated. Think of it as establishing an extended type of living will, or advanced directive. You can even spell out your intentions and simply ask your committee to follow them, or else appoint a guardian or care manager to follow them instead.

It is at least one possible solution for a fairly intractable problem. Nevertheless, committees always have their drawbacks, especially when there are disagreements. Of course, your family members also can (and likely will) disagree at times.

Another practical problem concerns the very friends you would appoint to your Care Committee. Unless they are significantly younger, they may have their own medical care emergencies and concerns, causing you to constantly revise and refine your committee choices.

Nevertheless, forming a Care Committee may be a solid option for an elderly person in the right situation. Certainly, this is an option worth considering. I would commend the original article for your reading. At any rate, if you are considering a Care Committee, be sure to engage competent elder law counsel to help evaluate this option and prepare the proper legal instruments.

Reference: The New York Times (March 21, 2012) “Care by Consensus”

 

Trust “Protector” Power – Potential Pitfalls

It used to be that you would write out your will, name some trustees and hope for the best for all of eternity. But, increasingly, folks aren't leaving it to luck. They're appointing a "trust protector," someone given broad power to reshape your trust over time. 

Trustees are a special kind of hero to the trusts and the families they oversee, and that’s a tough gig as many will know. Nevertheless, some problems call for superheroes. In the context of some trusts, some problems call for “trust protectors.”

The idea got some recent limelight from Barrons, and this article there, but essentially the difference between a trustee and a trust protector is the level of power they have over the trust itself. A trustee has the power to uphold the document as it was written and getting something dramatic done might involve petitioning for a court order; it can mean being stuck between a rock and a hard place but valiantly working with what you were given. A trust protector, on the other hand, has broad powers to change the trust as they see fit but always in the name of the greater good that is the intentions of the drafter.

That might mean overriding debate among parties to the trusts, moving the trust from state to state, terminating the trusts, and a host of other possible superpowers. This gives a definite malleability to your trust arrangement, especially if you are creating an irrevocable trust or something as long lasting as an actual dynasty trust. The benefits are obvious.

On the other hand, as the “maker” of the trust, it can be a difficult thing because it means entrusting all of your own powers to someone else. In essence, you literally are choosing someone to do as you would do and maybe even with the hope that they would do it better.

It may make for a powerful meditation on the role of the person who sets up the trust, since they create their own heroes and superheroes.

The trust protector is not a recognized role in every state – only about half of them, in one form or another – and so that is something investigate, as with any trust arrangement.

In the end, the drafting of any advanced trust will require a skilled hand and tempered judgment, and so too with a trust that empowers a so-called “trust protector,” if not evn more so.

Reference: Barron’s (March 3, 2012) “Why You May Need A ‘Trust Protector’”

 

ESTATE TAX FILING FOR 2010 – DEADLINE EXTENDED

If you’re an executor for someone who died in 2010, mark your calendar for January 17, 2012. That’s the new date by which you must now file a key federal tax form.

If your last name is “Steinbrenner,” or you are the heir to the estate of a decedent who passed in 2010, then you likely know that your inheritance stand at a crossroads and that the estate executor has a huge choice: should I file to opt in to 2010 estate tax regime on behalf of the estate or not? 

Formerly, the deadline for such a filing was November 15, 2011, only a couple weeks out. Good news: Now, the deadline has been extended out to January 17, 2012.

So, why is there even a choice to file an estate tax return anyway and why might it be a difficult choice? It exists, as you may know, because last December’s budget compromise created an estate tax for the year in which there wasn’t any estate tax. The move was to offer a “retroactive” estate tax to cover up the hole Congress had previously left open by allowing the 2010 tax to lapse.

Of course, practically speaking anyway, it still doesn’t sound like a choice was created because, well, who would choose the estate tax? Indeed, there is a reason to choose the estate tax, but it depends entirely on the nature of the assets in the estate because of the “carryover basis” versus the “stepped-up basis” dilemma.

If you choose not to pay the estate tax, then it catches up to you in the form of capital gains taxes upon the eventual sale of those assets. This is because the IRS will use the “carryover basis” or the original cost of the assets when determining capital gains. Assets that have significantly appreciated, or assets for which you cannot prove an original value, can become liabilities if you also plan to sell them. On the other hand, if you chose to pay the tax (35% on assets in excess of $5 million) then the IRS will use the “stepped-up basis” or current market value when determining the capital gains tax owed.

More advice and information can be found in Deborah Jacobs’s recent article (as well as in an earlier New York Times piece), but so much depends on the particular assets and record-keeping abilities of the estate.

Bottom line: As with any estate tax planning, make sure you consult with competent legal counsel, especially well before the clock runs out on January 17, 2012. In such instances, it may be prudent to file the estate tax return since you won’t pay taxes, but the rest involve a difficult calculation.

You can learn more about estate taxes on the Estate Tax Planning area of our website.

 

Reference: Forbes (September 13, 2011) “IRS Extends Key Deadline for 2010 Heirs”

 

Choosing Trustees and Executors

In the case of choosing a trustee or executor, who should get the job, what are the fees and what should you expect? There are a few things to consider when answering these questions. 

There are a number of decisions to be reached when planning for your estate; not least among them is the choice of your financial decision makers for the time when you will no longer be able to manage your property (whether due to incapacity or death). A poor choice of a trustee or executor can topple even the best laid of estate plans. Indeed, Reuters offers one unfortunate beneficiary’s troubles in a recent article on the topic and offers some solid suggestions to consider.

The beneficiary was Stephanie Stephens, who, in the end, was surprised to find that the estate she received had shrunk by $129,000, something she angrily blames on the executor of her relative’s will. Apparently, the estate had incurred a $104,000 loss when the executor failed to pull the assets from the flames of the 2008 financial meltdown and, adding insult to injury, the executor was then entitled to an executor’s fee of another $25,000. Needless to say, Stephanie wasn’t happy. Whether or not the executor was to blame for such a dramatic decrease in the size of the estate may be debatable, (it was the beginning of the recession, after all) but the problems were compounded in Stephanie’s situation. She had not met the executor of the estate until after her relative passed away and had no reason to trust the executor’s judgment. Further, she was surprised to learn of the executor’s fees and felt they were excessive.

In this case, the beneficiary was, at best surprised (and at worst, victimized) by a situation she did not understand due to lack of communication. Her case offers an example of a disconnect that can all-too-easily arise between executor, estate, and beneficiary.

Reuter’s offers three general principles to bear in mind when choosing trustees and executors:

Know the estate. Choosing the right trustee or executor has a lot to do with the nature of your estate. Is it complex or simple? Are there a lot of moving parts and assets that may be at risk? A family member can likely carry out a simple estate but a professional might be necessary for those more difficult ones.

Know the person. Just because someone is a “good person” does not mean they should be doing business for you. You need to know that they are well-intentioned and interested in carrying out the tasks, but above and beyond that you must also know that they have the proper skills and business mindset to carry out your plans and take care of your assets in your absence.

Let your family know - communicate. It is a difficult conversation to have but it is important to relate your plans directly so that your family members know your decisions. Further, you want to be sure they are aware of the cost of the trustee or executor, if any, so it isn’t the surprise for your family members that it was in Stephanie’s case (in fact, you yourself may want to be sure you are aware of the costs, too).

You can learn more about Probate and Estate Administration on the Probate and Trust Administration section of our website.

Reference: Reuters (June 16, 2011) “Help! Our executor cost us $129,000”