Michigan Estate Planning Blog

ESTATE PLANNING / BENEFICIARY DESIGNATIONS

What is the quickest way to un-do an otherwise carefully planned estate? Open a bank account, brokerage or retirement account. Why? Because the beneficiary designations on these accounts override your will. Yes, it’s true – the beneficiary designation is the estate planning trump card. And many an estate plan has come undone because of carelessly named beneficiaries. The Wall Street Journal last week issued a warning in an article entitled Beware the Beneficiary Form. “People don’t realize the importance of this,” says Martin Shenkman, an estate planning lawyer in Paramus, NJ. A carelessly named beneficiary on a financial account can cause a loved one to be disinherited, a disabled child to lose government benefits, and heirs to be slapped with a big tax bill. The Journal also offers a few tips to protect you from this type of estate plan destruction, to include: Know what kinds of accounts have beneficiary designations. Did you know that U.S. Savings bonds have a beneficiary form? Other accounts for which you may have named a beneficiary include retirement accounts, life insurance policies, bank accounts, certificates of deposit, stocks, bonds and mutual funds. Review your beneficiary designations regularly and certainly after any life-changing event such as a marriage, divorce, birth or death of a loved one. Also, job-changers and retirees take note: Beneficiary designations on retirement plans don’t carry over when you roll a 401(k) to a new employer’s plan or to an IRA, or when you convert a regular IRA to a Roth IRA. Learn more about beneficiary designations in the August 2010 issue of our newsletter, aptly titled Beneficiary Designations.

Reference:  The Wall Street Journal (July 6, 2011) “Beware the Beneficiary Form”

CHARITABLE GIVING / QCD’S

You may have read about Qualified Charitable Distributions (QCDs) that can be made directly from your IRA. QCDs have gotten a lot of press this year as a tax-savvy strategy to support your favorite charity -- an opportunity that will expire at the end of this year unless Congress acts (and we’ve all seen how swiftly they act) to lock in the benefit. If you have reached age 70-½ you have to begin taking required minimum distributions from your qualified retirement accounts. Some people don’t really want – or need – these taxable distributions. Well, you can’t get around taking them (thus the name “required minimum distributions”), but if you are charitably-inclined, you can get around paying the tax. Your QCD can satisfy your distribution requirement, but there is no tax if the distribution is made directly to an IRS-approved charity. The gift also works to help reduce the size of your taxable estate. There are a few important caveats. As outlined in a recent Smart Money article, your QCD must meet all of the following tax-law requirements: 1. It must be distributed from your retirement account, and you must be at least age 70-1/2 to use this strategy. 2. The distribution must be made directly by the IRA trustee to the IRS-approved charity. If the distribution check is made out to you personally, it will not qualify. 3. You cannot receive any benefits that would be subtracted from the donation – it must meet the normal tax-law requirements for a 100 percent deductible donation. This means you can’t receive anything in return for your donation, such as tickets to events, etc. 4. Your distribution must be otherwise taxable. 5. There is a $100,000 limit on total QCDs for any individual. If you are married and both you and your spouse have IRAs, then each of you is entitled to a separate $100,000 limit, for a combined total of $200,000. Once again, the current tax laws that allow for QCD’s are only guaranteed until the end of this year. If this is a strategy that appeals to you, be sure to get qualified professional advice before making any gift of retirement assets.

Reference: SmartMoney (July 20, 2011) “Making Charitable Donations from Your IRA”

ESTATE PLANNING / SMALL BUSINESS

The new estate tax law, in effect this year and next, offers a unique opportunity to family business owners who want to pass their business on to the next generation. As a recent Wall Street Journal Article points out, taking advantage of the low gift tax levels (while you still can) could save your family business a hefty amount in potential estate taxes. But transferring ownership can raise complicated succession and estate planning issues that you should consider carefully before giving away any stock. The recent tax law changes brought the gift tax threshold up to $5 million for an individual and to $10 million for couples in 2011 and 2012. Yes, that means you can give away that much now, without incurring a penny in gift tax. But, since this law is in effect for only two years, you’ll have a narrow window of opportunity and thorny decisions to make quickly. While you can transfer ownership without necessarily giving up control, you will have to make some difficult decisions, including: who will eventually lead the business, how to treat non-business family members fairly, and how to fund your own retirement. The answers to those questions will help determine which estate planning techniques make the most sense for your family, and your family business. Whatever your ultimate goals, now is the time to start exploring your options. There are large sums of money at stake, and only a short time to seize this opportunity. You can learn more about business succession issues on the Business Succession Practice Center on our website. While you’re there, be sure to download our Free Report: Business Owners Beware.

Link: http://online.wsj.com/article/SB10001424052748703312904576146370031656768.html

 

From The Wall Street Journal Online (Feb 19, 2011) “Family Businesses Catch a Big Break

ESTATE PLANNING / BENEFICIARY DESIGNATIONS

What is the quickest way to un-do an otherwise carefully planned estate? Open a bank account, brokerage or retirement account. Why? Because the beneficiary designations on these accounts override your will. Yes, it’s true – the beneficiary designation is the estate planning trump card. And many an estate plan has come undone because of carelessly named beneficiaries. The Wall Street Journal last week issued a warning in an article entitled Beware the Beneficiary Form. “People don’t realize the importance of this,” says Martin Shenkman, an estate planning lawyer in Paramus, NJ. A carelessly named beneficiary on a financial account can cause a loved one to be disinherited, a disabled child to lose government benefits, and heirs to be slapped with a big tax bill. The Journal also offers a few tips to protect you from this type of estate plan destruction, to include: Know what kinds of accounts have beneficiary designations. Did you know that U.S. Savings bonds have a beneficiary form? Other accounts for which you may have named a beneficiary include retirement accounts, life insurance policies, bank accounts, certificates of deposit, stocks, bonds and mutual funds. Review your beneficiary designations regularly and certainly after any life-changing event such as a marriage, divorce, birth or death of a loved one. Also, job-changers and retirees take note: Beneficiary designations on retirement plans don’t carry over when you roll a 401(k) to a new employer’s plan or to an IRA, or when you convert a regular IRA to a Roth IRA. Learn more about beneficiary designations in our website archives for past newsletters, aptly titled Beneficiary Designations. Reference: The Wall Street Journal (July 6, 2011) “Beware the Beneficiary Form".

ELDER LAW / ELDER CARE

If you, your parent, or an elderly loved one is reaching the point where living alone is no longer an option – for medical reasons or otherwise – it may be time to consider some time of assisted living, whether nursing home or retirement community Increasingly, many families are looking at the “Continuing Care Retirement Community” or CCRC option. Even though the CCRC may be the pricier option, a little-known tax strategy recently explained in Smart Money could make it more financially attractive.. What is a CCRC? As SmartMoney explains: As opposed to a traditional nursing home where you simply pay a monthly fee, residents enter into a long-term contract with a CCRC. In exchange for a one-time entry fee and ongoing monthly charges, the CCRC provides housing and a range of on-site services. When a resident's health and personal care needs become more acute, the level of service can be increased to include assisted living, long-term care and skilled nursing care. The big advantage is that the resident doesn't have to move as his or her needs change. Interestingly, there is another advantage: a potential tax savings. Because part of the upfront and ongoing fees is to provide medical services – whether the resident uses them or not – a medical tax deduction may be available. This strategy was upheld in the 2004 Tax Court case, Delbert L. Baker v. Commissioner (122 TC 143, 2004). Of course, medical expenses must exceed 7.5% of adjusted gross income in order to claim the deduction. However, if you are considering a CCRC, it’s quite possible that your applicable expenses will exceed this threshold, since their fees, including the upfront buy-in, are usually quite high. Remember, too, that the percentage of costs that qualify as medical is determined by the aggregated spending of the facility itself, rather than the individual and their level of received care. The CCRC management should be able to give you estimates of the percentages, though you may have to ask for them. Also of note, remember that if you will pay some or all of your parent’s CCRC fees, you can claim the applicable percentage of the charges as a medical expense on your return – if you provide more than half of your parent’s support. Also, the IRS says these tax breaks apply only if the person enters into a CCRC-like contractual lifetime care arrangement, not just any retirement facility or nursing home. You can learn more about long-term care planning on our website. Also, be sure to sign up for our free monthly e-newsletter for regular updates

Reference: SmartMoney (June 15, 2011) “A Tax Break for Retirement Community Costs”

ELDER LAW / RETIREMENT CAREERS

If you are a Baby Boomer nearing retirement, you probably have a different concept of retirement than your parents. Retirement for you may not mean an extended vacation on some sunny shore, but rather a new phase of your working career. A phase that may, perhaps, bring more than just another paycheck, but a new sense of meaning to your life. Morningstar recently referred to this career transformation as the “encore career.” Of course, it’s not just the search for meaning that motivates Baby Boomers to pursue an encore career. As Morningstar points out, tough new economic realities have transformed career reinvention from a virtue into a necessity for millions of older Americans who aren’t ready to retire or simply can’t afford to quit working. Interestingly, though the job market looks fairly bleak today, some economists predict labor shortages in key social sector jobs. Barry Bluestone, an economist at Northeastern University in Boston, predicts that within the next eight years, there could be at least five million job vacancies in the U.S., nearly half of them in social sector jobs in education, health care, government and non-profit organization. Bluestone also predicts that Baby Boomers are going to be filling those jobs, "We're going to see a remarkable reshaping of our labor force. The rate of labor force participation by the 55-plus population is going to be much higher, and older workers will represent a much higher percentage of the overall workforce." The Morningstar article includes a table ranking Projected Encore Career Growth 2008-2018. You might want to check it out. I note that job growth is predicted to be particularly strong for teachers, nurses and other health care providers … and not so much for lawyers. Reference: Morningstar Advisors (June 6, 2011): Making Working Longer Worth It

ELDER LAW / ELDER CARE

Caring for an aging loved one can be emotionally and financially difficult. Unfortunately, the ordeal is frequently exacerbated by healthcare problems ranging from issues with the physician to end-of-life or funeral decisions. Having recently dealt with the loss of her father, writer Jennifer Openshaw of The Wall Street Journal offers five tips on caring for elderly loved ones • Fire Your Doctor. Well, you may not have to fire your doctor, but realize that you can – and maybe you should. Many people don’t realize they can just fire a doctor who is not providing the care and attention their loved one needs. • Likewise you can fire your home-care provider. Doctors often recommend a home-care provider, and even if you respect the doctor that doesn’t mean that you have to follow their advice or stick with a provider that isn’t working out for you. • Make End-of-Life Plans Now. It’s very important – for the sake of those around you – to discuss the many details that you’d typically never think about, from life support to feeding tubes. For help thinking through these important decisions now, Florida-based Aging with Dignity has a document titled “Five Wishes” that covers related concerns, issues and questions. • Shop Funeral Costs. Yes, this is a difficult thing to do, but companies know there are profits to be made amid your grief, and prices (for very similar services) can vary widely from one provider to another. All the more reason to talk these matters through in advance, when your judgment is not clouded by grief. • Review Long-Term Care Insurance. Review your policy’s stipulations for waiting periods, maximum benefit amounts, etc. A 90-day waiting period is fairly standard, but can be quite traumatic when you’re struggling through it. Knowing in advance what will and will not be covered can make these transitions less traumatic on the family. To learn more about long-term care, visit the Long Term Care Practice Center on our website. While you’re there, be sure to sign up for our free monthly e-newsletter to stay informed on important topics like these. Link: http://www.marketwatch.com/story/five-tips-on-caring-for-elderly-loved-ones-2011-05-12?pagenumber=1 From MarketWatch (May 12, 2011) “Five tips on caring for elderly loved ones”

ESTATE PLANNING / BENEFICIARY DESIGNATIONS

Proper planning can set your estate, your assets, and your family in line for a smooth transition but improper or incomplete planning can bring untold hardship, especially if the matter ends up in court. Courtesy of Bill Singer’s blog through Forbes, here’s another sad story to add to the file of otherwise avoidable legal woes. The entire story and Singer’s commentary are worth reading, but in essence it is the story of Financial Industry Regulatory Authority (“FINRA”) Arbitration 10-02435 (May 9, 2011), or the shortsightedness of one Newman Trowbridge, Jr, Esq.. Mr. Trowbridge opened an IRA in 1994 and named his then wife as beneficiary of the account. Then two things happened: (1) his IRA was taken over by Capital One and his account was reassigned to a new broker (Rick Schenck, Sr.) and (2) he and his then wife underwent what was apparently a terrible and protracted divorce. Mr. Trowbridge later re-married, put his life back together, and continued with his IRA with gusto (he quadrupled the balance) until he suddenly and tragically passed in 2009. At that time, Trowbridge’s estate went to his wife along with all the various accounts for which he named her as beneficiary, but the IRA went to his ex-wife. The story is familiar and you probably saw it coming, but Trowbridge had failed to reassign the beneficiary of his IRA and it has remained under his first wife. Unfortunately, the story doesn’t end there since the recent widow had attempted to reclaim the IRA. She went so far as to present the broker with a court order stating that all accounts that make up the decedent’s estate must be transferred to the heirs of the decedent, but that didn’t work since the IRA isn’t a part of the estate to begin with. The broker defaulted to the named beneficiary, or the ex-wife. In response the widow tried suing on counts of negligence, amongst other things, since the broker had not carried out his duty by advising the late Mr. Trowbridge to rename his beneficiary. The suit is why this is the story of FINRA Arbitration 10-02435, and why it is all the more bitter since the widow lost the suit and it was held that the broker did his job (the case was even removed from his record.) Instead, the FINRA arbitration placed the blame squarely on Mr. Trowbridge, adding insult to injury since, we can presume and the court admitted, he probably didn’t intend to hand the IRA over to his ex-wife. The lesson is three-fold. Firstly, you must adapt your plans whenever you undergo a life-change, like renaming beneficiaries after divorces and marriages. Secondly, planning is about making sure your affairs are in order before those plans are needed, that is, fully fleshing out your plans early so an unexpected death doesn’t keep you from finishing the most important details. Finally, it’s a pretty tricky world when you try to undo the damages of incomplete or poor planning, and often an unforgiving one for your surviving family members and loved ones.

 

From Forbes.com (May 17, 2011) “Estate Sues Over Lawyer’s Designation of Ex-Wife as IRA Beneficiary