The Securities and Exchange Commission (SEC) released a statement last week announcing a multi-year targeted review of investment advisors and broker dealers' retirement planning sales practices. This review serves to fulfill the promise that the SEC made to protect retirement savers and protect them against predatory sales practices that could do more harm than good to workers that have been saving up for retirement for decades.
Purpose of the Review
Now more than ever, many people saving for retirement are dependent on their investments for retirement income. Because this industry is incredibly complex and ever-changing, it is important to have an advisor explain and manage your retirement accounts. However, the complexity of the industry also allows for some advisors to take advantage of the system and invest retirees' money for their own best interests, and not their clients'. This is where the SEC plans to step in.
The review will be performed by the SEC's Office of Compliance Inspections and Examinations Retirement-Targeted Industry Reviews and Examinations (ReTIRE) Initiative. The purpose of ReTIRE is to focus on high risk areas of investment advisors and broker dealers' sales, investment, and oversight processes. In particular, the ReTIRE initiative will be looking at areas where the retiree might be harmed by the risky practices.
The ReTIRE program will review whether advisors and dealers have a reasonable basis for recommending certain investments and strategies, whether they are disclosing any conflicts of interest, if proper supervision is taking place, and if they have the correct compliance controls. Marketing and disclosure of investment products are also targets of the review. In addition, SEC exams will focus on the activities of investment advisors, broker dealers, and branch office practices in order to instill these ideas with everyone entering the industry.
How the Review Works
Those selected from the SEC to take part in the ReTIRE initiative will be looking at advisor and dealer consistency when selecting each type of accounts, performing due diligence on investment options offered, the initial investment recommendations, and ongoing account management as priorities this year. In addition, plans are being made to review advisors and dealers' sales, account selection practices, fees charged for practices, services provided, and the expenses associated with these services to ensure that investors are not being overcharged.
For reviewing supervisory and compliance controls, the ReTIRE task force will review control procedures, oversight, and supervisory policies. Particular attention will be paid to branch offices and representatives that have other business activities outside of the office. Marketing and disclosure materials will also be reviewed to ensure that investors are not misled or deceived by the advisors.
In order to check all of these various aspects of advisors and broker dealers' business practices, the SEC plans on using data analytics, information from prior forms and exams, and examiner due diligence on all investment advisors identified in the ReTIRE probe. The SEC hopes that the ReTIRE initiative will encourage advisors and dealers to reflect upon their investment practices, policies, and procedures in order to improve them as needed.
Results tagged “new york estate planning” from New York Estate Planning Lawyer Blog
The Securities and Exchange Commission (SEC) released a statement last week announcing a multi-year targeted review of investment advisors and broker dealers' retirement planning sales practices. This review serves to fulfill the promise that the SEC made to protect retirement savers and protect them against predatory sales practices that could do more harm than good to workers that have been saving up for retirement for decades.
The responsibilities of being named as the executor of an estate can be overwhelming, especially when you are still grieving over the loss of a loved one. Becoming the executor of an estate comes with a multitude of administrative tasks, and getting something wrong could make you liable for damages. One software executive saw the need for some help and has designed online tools to make the executor's role in estate planning easier.
Role as Executor
Executors are required to perform many tasks when settling the estate of someone that they know. The executor is in charge of paying the taxes on the estate in addition to any unpaid creditors. The executor must find and document all assets of the estate as well as settling all of the deceased's affairs. Finally, executors must distribute assets and personal items to the heirs of the estate.
Unfortunately, there are not a lot of resources available to help an executor handle an estate outside of turning to an estate planning attorney. Most of the information that currently exists online refers to the estate planning steps that a person should take for their own estate and not how to handle the estate of another.
Online Tools for Executors
Daniel Stickel created a program that has been developed into EstateExec.com, an online tool to help executors handle the estate of their loved one. The program helps executors document and complete the tasks required of them for the estate. Mr. Stickel has likened the program to other programs like TurboTax; EstateExec.com does not provide any legal advice but tries to simplify the process.
Other products already exist online to help executors with their estate responsibilities, but they come in the forms of lengthy books or complicated software systems. These options are usually overkill for the basic, non-attorney executor trying to handle an estate. Mr. Stickel's program focuses on guiding executors through the process.
Features of EstateExec.com
EstateExec.com creates an interactive way for executors to track the list of responsibilities that they have in managing the estate. An executor can list all assets and accounts, individual personal items, and larger pieces of real estate. In addition, this program allows the executor to share the information with other family members and heirs for the sake of transparency. This allows heirs to contribute the information that they might have regarding the estate and alleviates any mistrust that family might have about the executor handling the estate.
In addition, EstateExec.com gives the executor a timeline along with when certain tasks should be completed. It also gives the executor tips about the smaller responsibilities that come with the position, such as getting copies of the death certificate. However, the one thing that this program does not do is give legal advice to the executors of the estate.
Estate law varies from state to state, so as an executor it is important to have an estate planning attorney on hand in addition to use of software like EstateExec.com. The website for the program even states that "You almost certainly need a lawyer if the estate is very large, the will is particularly complex or there will likely be litigation."
Known and beloved as "Mr. Cub," Ernie Banks began his career in baseball earning only seven dollars per day in the Negro Leagues, before coming to the Chicago Cubs and becoming one of the team's all-time favorite players. After baseball, Ernie Banks continued a career in business and philanthropy, Mr. Banks earned the Congressional Medal of Honor in 2013. He passed away on January 23, 2015 from a heart condition, but the death certificate also listed dementia as a "significant condition contributing" to his death. This statement has become incredibly important because his caretaker is now claiming to be his sole heir.
Ernie Banks' Estate Plan
Three months before he passed away, Mr. Banks signed a new will and estate planning documents that included a power of attorney, healthcare directive, will, and trust. The new estate plan gave control of his entire estate to his caretaker and talent agent, Regina Rice. The will and trust also excluded his family members and named her as the sole beneficiary. In fact, the new documents expressly stated that nothing should go to his estranged wife or three children from a prior marriage. The new plan gives Ms. Rice all assets from Mr. Banks' estate, and it also allows her to profit off of his name, image, and likeness.
Banks' Family Contesting Estate
The Banks children have already stated that they plan to contest the new estate plan. They claim that Ms. Rice used Mr. Banks' dementia as a way to manipulate him into signing the new will. They also claim that in the months leading up to his death, Ms. Rice refused to let them speak to their father over the phone. Ms. Rice has refuted the allegations and has stated that "the record and those closest to Ernie will dispel any iota of concern regarding my relationship with Ernie and his trust in me to [carry] out his wishes."
Illinois Undue Influence Law
A new law was passed on January 1, 2015 in Illinois that makes it easier for families to challenge wills that favor a caregiver. However, it does not apply in this case because Mr. Banks signed his new documents a couple of months before the new law went into effect. That being said, the burden of proof to prove that there was no undue influence with Mr. Banks will lie with Ms. Rice.
The concept of undue influence means that a person was of sound mind and free from pressure or manipulation of another person when the estate planning documents were signed. The fact that Mr. Banks had dementia and completed the changes to his estate only three months before he died is questionable. And because Ms. Rice was in a position of trust over Mr. Banks at the time of the changes, as caregiver and talent agent, the law will automatically assume that she did use some level of undue influence when the documents were signed.
The sales of firearms in the United States is rising, and for people who want to pass on their collection of guns to the next generation, estate planning has been particularly difficult. However, with the advent of the "gun trust" there is now a way to ensure that your collection is passed safely and to the correct beneficiaries. The gun trust has become the go-to vehicle for bequeathing firearms in an estate for owners who do not wish to have their collections sold after their death.
Increased Demand for Gun Trusts
The FBI's National Instant Criminal Background Check System ran 21.1 million background checks for firearm purchases in 2013, a significant increase from the 19.6 million checks performed in 2012. The number of background checks also jumped in December of last year, with the FBI's system running more than 2.3 million checks in that month alone, compared to only two million checks the December prior. This system runs a background check every time that a person walks into a licensed gun dealer and wishes to purchase a firearm.
For clients that have now amassing a collection of guns, many are now considering who will inherit them in their estate plan. This is where the gun trust comes into play. "You want a mechanism where, if the person [owning the guns] loses capacity, someone can secure the assets, make sure they're safe and make sure they go where people would want them to go."
Benefits of the Gun Trust
There are two primary uses for a gun trust: easing the process of obtaining federally regulated firearms and easing the burden of possessing and transferring firearms between people in an estate plan. In regards to obtaining federally regulated guns, these are known mostly as Title II weapons. Title II weapons include such things as machine guns, silencers, and other firearms listed in the Gun Control Act of 1968.
The typical process to acquire a Title II weapon is to go through a fingerprinting and photo ID process, paying a tax stamp fee to the ATF, and getting the signature of a chief law enforcement officer that states that you should be allowed to possess such a firearm. With a gun trust, the trust itself can act as the purchasing agent for Title II firearms, easing the process for people who wish to make more than one purchase of these weapons.
Gun trusts also help with the transfer and possession of single firearms or weapons within an estate plan. A gun trust is particularly helpful when a gun-enthusiast passes away and the spouse has no knowledge about how to properly transfer the firearms to another person. If done incorrectly, you can be charged with a felony for improper transfer, even if you are passing it along to the person that it was intended for.
Legal Ramifications of Gun Trusts
The main benefit of a gun trust within an estate plan is that the trustee has knowledge of the proper state and federal procedures for transferring firearms from the estate to the intended beneficiaries. This includes notifying the proper authorities if Title II guns are crossing state lines as well as filing the proper forms with the ATF when possession of a gun transfers to an heir.
In addition, beneficiaries can also use a gun trust for income made off of the sale of the guns. The gun owner can control, through the details of the trust, where and how the profits of the sale of the gun collection should be used. The proceeds of the sale can go directly to the beneficiaries of the trust, or it can be set up as a charitable remainder trust to pass some of the proceeds to a worthwhile organization.
The Supreme Court of Montana recently ruled on a case that decided whether the Workers' Compensation Court properly held that it lacked jurisdiction to consider an estate's petition because the personal representative of the estate lacked standing. The court reversed and remanded the lower court's decision to dismiss the representative's petition.
Facts of the Case
Cristita Moreau's husband Erwin worked at the W.R. Grace mine from 1963 until 1992. He passed away in 2009 from asbestos-related lung cancer, and in 2010 Ms. Moreau filed a claim for occupational disease benefits with her husband's workers' compensation insurance carrier as a personal representative of his estate. The insurance company, Transportation Insurance, denied the claim.
In 2012, Ms. Moreau filed a petition in Workers' Compensation Court to seek a determination of Transportation's liability for the costs of her husband's medical care. The next year, Transportation accepted liability and entered into a settlement agreement. The insurance company reimbursed Medicaid, other providers, and Mr. Moreau's estate individually for medical expenses that they had paid for his care.
The Libby Medical Plan paid over $95,000 of Mr. Moreau's medical expenses, which is an entity established and funded by the W.R. Grace mine to pay for the medical care of employees who were injured by asbestos exposure. The Libby Medical Plan refused reimbursement from Transportation for the medical expenses paid on Mr. Moreau's behalf. Cristita Moreau then demanded that the amount of reimbursement declined be paid either to her husband's estate or to a charity selected by the estate. Transportation refused and Ms. Moreau filed a second petition in Workers' Compensation Court.
The Workers' Compensation Court denied the second petition, claiming that it lacked jurisdiction to hear the matter. It concluded that since Mr. Moreau received medical care that was paid by the plan, any further recovery would be seen as double payment. It also stated that as a personal representative of the estate Ms. Moreau lacked standing.
Mr. Moreau appealed to the Montana Supreme Court on the issue. The Court held that the Worker's Compensation Court has the jurisdiction to hear disputes concerning workers' compensation benefits. In regards to the question of standing, the determining factor is whether a party is entitled to have the court decide the merits of the dispute. A party's lack of standing does not deprive a court of underlying subject matter jurisdiction.
In this case, Mr. Moreau was appearing in court through his personal representative Ms. Moreau. The Workers' Compensation Act is binding on employers and employees, as well as their representative. Mr. Moreau was already established as an employee when Transportation and Ms. Moreau litigated her first claim in Workers' Compensation Court.
The plain language of the act entitles Ms. Moreau, as a personal representative of the estate of an employee, to bring the matter before the Workers' Compensation Court in that state. Therefore, the Supreme Court of Montana reversed the lower court's ruling and remanded the case back to the Workers' Compensation Court.
Making the move from working to retiring requires smart planning and decades of preparation. You may have married, bought a home, raised children, and enjoyed a successful career - all of which you are ready to fully enjoy. As you make the transition to retirement, here are some key steps to take first as explored in a recent Forbes article:
Prepare a Retirement Budget
Create a budget that takes into account your typical monthly costs of living in addition to any plans for big expenses. These can include travel plans, home renovations, moving, gifts, and the like.
Check that You are Financially Ready
Meet with a financial planner and your estate planning attorney to make sure that you are financially ready to retire. A second opinion from the experts can give you peace of mind that you have set aside enough to live comfortably.
Assess Your Emergency Fund
Most experts agree that for a couple where one spouse is retired and the other is still working, you should have an emergency fund that could cover twelve to eighteen months in cash assets, just in case. If both spouses are retired, the recommendation is increased to two years to fully fund all living expenses. It will help you avoid needing to sell assets to raise cash in a downturned market.
Figure out Healthcare Insurance
Know before you retire what you will do for healthcare insurance once you leave your job. Private insurance and Medicare are two popular options for retirees. Keep in mind that Medicare does not provide for dental or vision coverage, so if you choose that option you must find that coverage elsewhere.
Consider Downsizing Your Home
Once you have retired and all of your children are out of the home, you may want to consider downsizing your current living situation. Consider moving into a smaller home, or a home that is a single floor in order to avoid arthritis-inducing stairs in your later years.
Update all Estate Planning Documents and Beneficiary Forms
Before retiring, double check all of your estate planning documents and beneficiary forms. Make sure that this major life event will not shift your inheritance plans or trust instructions. Because accounts with beneficiaries attached do not fall under the instructions in a will, it is especially important to double check all beneficiary designations.
Examine Risk Management Policies
Risk management policies refer to insurance plans, weighing needs and costs of items in your life, and deciding whether you should take up a part time job or do consulting work in order to make a little extra money in your retirement.
Discuss with an Estate Planning Attorney any Tax Implications
Retiring can have some major tax implications on your life, some good and others not so good. Consult with your estate planning attorney to see how your retirement may affect your tax filings for the coming years.
Double Check Your Retirement Benefits
Before you leave your job, double check that you know exactly what retirement benefits that you should be expecting from your employer. Meet with your HR representative to know what all of your options are, and make sure that you are maximizing your benefits as you retire.
Create a Social Security Strategy
The final thing to do before retiring is to create a Social Security strategy. Technically, you can start receiving reduced benefits at age 62, but you can receive more if you wait until you are 66 and the most if you wait until you are 70. Look into your current retirement situation and figure out when would be the best time to start collecting your Social Security benefits.
Knowledge of estate planning is not simply for those creating an estate plan, but is important for anyone named as an heir or beneficiary, as well. One of the most devastating, confusing, and stressful times in your life comes when you lose a loved one, and in those moments you must also take on the responsibility of becoming a beneficiary. Having a knowledge of estate planning can ensure that you are fulfilling your loved one's final wishes and minimize the stress that comes with being a beneficiary.
It can be difficult to know where to start or who to contact after you have lost a loved one. Here are seven steps that you can use as a roadmap to make certain that you are fulfilling your obligations as a beneficiary:
Collect critical documents
There are several documents that you will have to collect and organize after losing someone close to you. These can include multiple certified death certificates, insurance policies, and will or trust forms, beneficiary forms, tax returns, bank statements, social security number, and other important documents. Consider discussing with the testator where all of these documents can be found in order to make the collection easier later on.
Contact an attorney and other professionals
An estate planning attorney will be able to help guide you through the intricacies of fulfilling your responsibilities as a beneficiary. Be sure to get an attorney who specialized in the area and not a "jack of all trades."
Forward mail and email
After the testator has passed away, set up the mail and email to forward to your address. It will make sure that you know about any accounts or subscriptions that the testator had, as well as generally keep you in the know.
Apply for benefits
You should also discuss with an estate planning attorney about applying for any benefits you may receive as a beneficiary. This applies to retirement accounts, life insurance plans, veteran's benefits, employee benefits, and social security.
Rollover and update plans
Once the investment companies and retirement plans rollover the testator's accounts to you as the beneficiary, you need to update the plan's beneficiary listing to one of your heirs. You should also discuss transferring the title of any vehicles, boats, or real estate.
Review your plan
After the beneficiary accounts have been rolled over into yours, you need to reevaluate your own estate plan. It is important to look at the risk and exposure involved in the influx of wealth, and discuss with an attorney the best way to structure your assets. Reviewing tax strategies and investment strategies are also encouraged at this time.
File tax returns
One of the final responsibilities of a beneficiary is to file a final tax return for the deceased. If you are filing for your deceased spouse it is important to remember that this is the last year that you file a joint return. Because the tax rate is typically lower for joint returns, it is again important to discuss tax and investment strategies with an estate planning attorney in order to best protect your interests and inheritance.
There are a lot of benefits to establishing a trust in your estate plan. It can eliminate the need for probate, keep your affairs private, and reduce the chances of issues arising among your heirs regarding their inherited share. However, creating a trust is a big investment that involves a considerable amount of time and legal fees that should not be taken lightly. Here are some factors to consider when deciding whether or not to establish a trust in your estate plan.
Factors in Establishing a Trust
· How much of your estate can you shield from probate?
One of the main advantages of a trust is being able to bypass the process of probate, which can be expensive and time consuming. However, not all assets are subject to probate. Jointly owned assets with a right of survivorship and beneficiary designated assets do not go through the probate process.
· Will you qualify for simplified probate?
If your entire estate is going to a spouse or the estate is small enough it may qualify for simplified probate. You can find out what the requirements are for your state's simplified probate here, or you can consult with an experienced estate planning attorney.
· How expensive is probate in your state?
The cost of probate varies wildly depending on the state. For example, California has one of the highest costs of probate, with attorneys' fees starting at four percent of the entire estate. Because the legal fees can be so high, it may make more sense to establish a trust.
· Do you own property out-of-state?
If you own property out-of-state you should consider establishing a trust. The property that is located out-of-state must go through that state's probate process or ancillary probate in addition to the probate process in your home state. Placing all of the property in a trust is a much easier and cheaper option.
· How private do you want your affairs to be?
Another downside of probate is how public the process can be. All details of your finances and final wishes are on the public record and accessible to anyone. Establishing a trust can protect your privacy and avoid public disclosure of your estate.
· Do you have a child with special needs?
You should definitely consider creating a special needs trust if you have a child that will need help physically and financially after you are gone. If you do not establish a trust for your child with special needs, the inheritance could disqualify them from receiving government support or programs.
· Do you wish to do something original with your estate plan?
If you want to add specific instructions for inheritance or do something creative with your estate, establishing a trust is the best way to accomplish it. If the estate goes through the probate process your heirs do not have to comply with your final wishes before gaining access to their portion of the estate.
· Do you have a taxable estate?
Currently, the federal estate tax limit is set at $5.34 million, and estates worth less than that are not subject to the tax. If your estate is worth more you should consider placing assets in a trust to shield them from state and federal estate taxes.
· What are the chances of issues arising within your family regarding inheritance?
If you are dividing your estate unequally, or if there is a possibility of infighting amongst your heirs after you are gone, you should consider creating a trust to reduce the chances of that occurring. You can stipulate that any heir fighting their portion is eliminated from the estate, and keeping your estate out of probate eliminates the chances of an heir using the public information to sue for a larger part of the estate.
Estate planning is not many couples' idea of fun, but it is necessary to ensure that your loved ones are cared for after you are gone. An experienced estate planning attorney can handle drafting the proper documents and explaining the law behind estate planning; however, there are three important questions that you should address with your spouse or significant other regarding an estate plan.
How well does my spouse know my estate planning attorney?
If you are the one in charge of the estate planning process and the finances of the family, it is possible that your spouse has never met, or only met once, your estate planning attorney. Perhaps they met to briefly sign some papers, but the client/advisor relationship is not very strong.
If you are the first to pass away, your spouse would be relying on a person that they barely know during the most difficult time in their life. Since your estate planning attorney will know about every asset, final wish, and plan for the estate it is important that your spouse form a strong relationship with your estate planning attorney.
Does my significant other know where all of the accounts are located and how to access them?
The surviving spouse or significant other will need to access money immediately in order to pay for funeral expenses. Even if an insurance policy covers funeral expenses the reimbursement does not come until weeks or months later. Hospital bills and the daily expenditures of everyday life also need to be taken care of. Your spouse will not have time to search everywhere trying to figure out what accounts exist and how to access them.
You need to ensure that your significant other is aware of all financial accounts and how to access them after you pass away. It is helpful to make a list (or two) and leave them for your spouse that includes:
· Password lists for all online accounts and memberships
· Names of all accounts and memberships, online and offline, along with any necessary instructions
· Location of all estate planning documents
· Names, addresses, and phone numbers of all lawyers, financial planners, accountants, and others who helped create the estate plan
Are all of our estate planning documents and beneficiary designations up to date?
Life events such as births, deaths, marriages, divorces, and job changes can all necessitate an update to your estate plan. This applies to the will, estate planning documents, and any beneficiary designations. Be sure to check:
· Retirement plans (401K plans and IRAs)
· Life insurance
· Taxable investment accounts
...and other assets that require a beneficiary designation.
By talking with your spouse or significant other about these important aspects of your estate plan you can minimize the stress and confusion of the entire process. If your spouse has a good relationship with your estate planning attorney, is knowledgeable about your accounts, and has worked with you to update the estate plan and beneficiaries you can be assured that your loved ones will be properly cared after you are gone.
People entering retirement age are now facing an unexpected hurdle - dealing with the pitfalls from their parents' reverse mortgage. The same loans that were supposed to be helping their elderly parents stay in their homes are now pushing the children out of them. In fact, the same situation is playing out all across the United States, where the retirement age children of elderly borrowers are discovering that their parents' reverse mortgages are now threatening their own inheritances.
Reverse Mortgage Schemes
A reverse mortgage is a financial tool that allows people age 62 and older to borrow money against the value of their homes. This money does not need to be paid back until they move out of the home or die. Unfortunately, many children of parents who invested in reverse mortgages are discovering the issues that arise with them.
Under federal law, survivors of a reverse mortgage are supposed to be given the option to settle the loan for a percentage of the full amount. Instead, reverse mortgage companies are now threatening the heirs with foreclosure on the homes unless they pay in full. In fact, some reverse mortgage lenders are foreclosing in a matter of weeks after the borrower dies, and it has led to a rash of lawsuits in state and federal courts against reverse mortgage lenders.
In other cases, the reverse mortgage lenders do not move to foreclose but instead plunge the heirs into a bureaucratic quagmire if they want details about how to save their family home. The lenders make it nearly impossible to figure out what the rules are in order to pay back the loan, and they wait for the heirs to either give up or run out of time. Another tactic is where lenders do offer the heirs a chance to pay a percentage of the value of the house, but since the time that the reverse mortgage was taken out the overall value of the house has increased.
An Increasing Problem
According to various elder care and estate planning leaders, reverse mortgage lending issues are on the rise in the United States. Tens of thousands of survivors of reverse mortgages are now attempting to beat the ploys of these lenders. Unfortunately, this problem will only increase over time as more Americans are reaching their elder years and are turning to their homes for money. The combined debt of those ages 64-73 is now higher than any other age group, and right now 13% of all reverse mortgages are underwater.
For heirs, the main issue is that few know about the set of reverse mortgage rules set forth in the Department of Housing and Urban Development. While the department vets reverse mortgage lenders, it does not provide a list of firms in violation of the rules or that have been penalized.
What Heirs Need to Know
According to the rules set forth by the Department of Housing and Urban Development the lenders of reverse mortgages must offer heirs up to thirty days to decide what they want to do with the property. Additionally, they must give up to six months to arrange financing. Most importantly, the rule states that heirs are allowed to pay only 95% of the current fair market value of the property. Hopefully, by making the rules and pitfalls of reverse mortgage lending public more parents and heirs can avoid the problems that come with them.
Planning for retirement can be difficult; however, if you also plan on leaving money to heirs in your estate plan the process can be even more complex. Deciding which financial accounts should be tapped first for retirement funds and which should be left for inheritance purposes is a tricky question. The answer is often determined by your own financial needs for retirement as well as the needs of your heirs, but you can expect the following to occur with your heirs with each of these retirement accounts.
As a general rule, a Roth IRA account is a great asset to leave for inheritance. When inherited, Roth distributions are tax-free for your heirs. If planned properly, your heirs can take distributions from the account over the course of their lifetimes and simultaneously leave the bulk of the principal from the account to continue to grow in interest. Additionally, the federal estate tax exemption is now at $10.6 million for a married couple. That means that most Roth IRA accounts that are inherited will be both income and estate tax free.
However, there is one issue that was recently decided by the courts regarding retirement accounts and inheritance. If your heir inherits your Roth IRA and then goes bankrupt your bequeathed Roth IRA is subject to their creditors. You should take the time to explain to your heirs that your retirement accounts are not shielded from their bankruptcy.
Stocks, Bonds, and Mutual Funds
Other types of retirement assets such as stocks, bonds, and mutual funds are good accounts to leave for inheritance if they have greatly increased in value over time. The reason for this is called the "step up" in cost basis. Cost basis is the price of an asset (like a stock or bond) when it was first purchased. This is the price that all increases or decreases in value are measured by. When you sell an asset, the capital gains taxes are determined by the amount of value that your stock or bond has increased. However, if you pass along those assets to your heirs, they get to "step up" the cost basis to the value of the asset on the day of your death. Therefore, when your heirs decide to sell the stock or bond, the tax break on capital gains will be significant.
One common idea for funding retirement, while still leaving assets for heirs, is to focus on selling stocks, bonds, and mutual fund assets that have seen the smallest gain or loss. That way the assets that will have the largest tax breaks are reserved for your heirs. Also, keep in mind when determining which assets will go to heirs that annuities inherited by non-spouses and U.S. savings bonds do not get the "step up" in cost basis.
IRA or 401(k?)
In terms of value, the costliest assets to leave to heirs are tax-deferred retirement accounts such as an IRA or a 401(k). These accounts get no step up in cost basis like stocks, bonds, and mutual funds. Additionally, they are distributed at ordinary tax rates for your heirs, unlike the Roth IRAs.
If you are planning on leaving money to your heirs as well as to charitable causes, consider leaving the tax-deferred assets to charity. Charitable organizations are not taxed on those types of assets, and the tax-free or stepped up assets can then be left for your heirs.
The loss of a parent is a heartbreaking experience, and discovering that your parent had a large amount of debt can add even more stress to the situation. Usually, creditors have a certain period of time in which to make claims against your parent's estate. In most cases, you are not responsible for the debts of your deceased parent and if there are not enough assets the debt dies with them; however, in certain circumstances you can be on the hook to pay for what your parent left behind. Responsibility for debts is typically determined by the type of debt, the assets available, and where your parent resided.
Assets can be protected from creditors even if your parent passed on with debt. If you are listed as the beneficiary of a retirement account or life insurance policy that money cannot be touched by creditors. However, other assets in the estate may have to be sold in order to pay off the debts of creditors. This can greatly reduce or eliminate your inheritance from your parent's estate.
Credit Card Debt
In most cases, you are not responsible for the credit card debt of your parent. However, if you are a co-signor for your parent's credit cards then you can be held liable for the debt. Credit card companies are considered low priority creditors. That means that they fall behind other lenders, funeral care costs, and tax agencies. If you are responsible for paying off your parent's credit card debt, typically the credit card companies will agree to negotiate a lower payment because of their low priority.
Medical Care Debt
Deciding who is responsible for unpaid medical bills is separated into two categories: those who were on Medicaid and those who were not. If your parent was on Medicaid then you are not responsible for the debt. Under Medicaid rules, the only major asset that a person can possess and qualify for Medicaid is a home. The state can place a lien on the home to recover payments, but that money will come from the estate.
If your parent was not on Medicaid and had unpaid medical bills, state law determines whether or not you are responsible for the debt. The estate must first try to pay off all outstanding medical bills from estate assets. If the debt remains, "filial responsibility" may mandate that you pay off the remainder. Almost thirty states have filial responsibility statutes that require adult children to pay off the remaining debt if the estate cannot.
If you inherit your parent's home and it comes with a mortgage you may be responsible for the underlying debt. If the mortgage exceeds the value of the home you can consider foreclosing in order to pay off the mortgage on the property. After the foreclosure sale if mortgage debt still remains the bank can go after the estate for the difference. If you wish to keep the inherited home then you are responsible for making all mortgage payments on the home going forward.
You are not responsible for paying off the taxes of your parent. Government agencies are usually top priority creditors and they can take from the estate to pay off outstanding taxes, but they cannot go after you for any remaining balance if the estate is unable to pay it off in its entirety.
The current generation of older Americans make up the wealthiest generation this country has ever seen. As the number Baby Boomers (people born between 1946 and 1964) retire or pass on, the United States is expected to see an "inheritance boom" unlike any other in history. At the same time, the generation that stands to inherit this money generally lacks the money management skills to handle these inheritances. But there are some things that the older generation can do to help the younger generation "grow into" its money.
Provide Children And Grandchildren With A Financial Education
Young adults often are launched into adulthood with little or no financial education. In the United States, only four states require students to take a personal finance class in high school. Worse yet, a 2009 study by the University of Arizona and the National Endowment for Financial Education gave students an "F" grade for money management skills. When the study was repeated two and a half years later, students' money management had declined by an additional 7 percent.
Five money management skills that members of the older generation can help to teach their children and grandchildren include--
1. You sometimes have to wait to buy something you want. Although this is a hard concept to learn, the ability to delay gratification can determine how successful one will be as an adult.
2. You need to make choices about how to spend the money you have. Financial decision-making is a key factor in successful money management as an adult. It is important that children and grandchildren be taught that money is finite and that when money is spent on one thing, it is not available for other another thing.
3. The sooner you start saving, the faster your money can grow. The concept of compounding interest is critical for children and grandchildren who will be inheriting or otherwise receiving family money because they need to learn that saving accrue on the initially received money plus on past interest received from the initial savings.
4. You should pay with credit card (or cards) only if you can pay off the balance in full each month. The average American household has over $15,000 in credit card debt. This, along with average student loan debt which is almost $34,000, threatens to choke most young people. To counter this debt trend, it is important that the older generation help children and grandchildren understand that it is important to budget and use credit cards wisely.
5. You need to know how to budget. Learning to create a budget is a main key to learning to live within one's means and budgeting techniques are critical for a successful adulthood.
Establish A Trust
One option to slowly ease children or grandchildren into the adult world of personal financial management is through a trust. One form of trust which is sometimes used in the case of inheritance is a "spendthrift trust." A spendthrift trust can be created for a child or grandchild to limit access to the trust funds. An independent trustee is given full authority to make decisions about how trust funds can be spent for the benefit of the child or grandchild and funds are not under the child's or grandchild's control. An additional benefit of the spendthrift trust is that the child or grandchild cannot assign any of his or her present or future income to creditors, or sell his or her rights to the trust principal.
A spendthrift trust can be tailored to the maker's specific wishes and particular family circumstances. For example, a spendthrift trust can be established for the child's or grandchild's lifetime or until he or she reaches an age designated by the maker of the trust. To ensure that family wealth is responsibility passed on to the next generation, it is important to discuss trust specifics with an experienced NY estate planning law firm.
Each day seemingly brings news of additional states that are joining New York in allowing same sex couples the right to marry. Although the new laws and court decisions represent a monumental victory for residents seeking to take advantage of the protections and benefits afforded by same-sex marriage, same-sex couples will still face several unique legal challenges. .
Though the US Constitution requires states to give full faith and credit to judicial decrees, a marriage license does not fall under this category. Rather, a marriage license is an administrative license issued by the state or county and historically has not been subject to full faith and credit. This means that other states do not have to recognize the legal status of a same-sex marriage that was entered into in New York.
The majority of states do not recognize same-sex marriage, and 36 states currently have "defense of marriage" statutes that expressly provide that the state's government will not recognize a same-sex marriage. This presents a problem for same-sex couples looking to travel out of state. If same-sex couples travel or move to another state or country, their marriage may not be recognized.
Power of Attorney
One consequence of a state's refusal to recognize a same-sex marriage entered into in New York is that same-sex couples may not be allowed to be involved in the decision-making process should something happen to one of their loved ones while traveling. For example, a recent article explains that a hospital in a state lacking public accommodation procedures based on sexual orientation may refuse to allow visitation rights to a same-sex partner. Furthermore, a same-sex spouse may be prohibited from making end-of-life decisions for their spouse or loved one. As a result, same-sex couples should consider taking certain precautions before traveling, such as executing health care and financial powers of attorney and carrying those with them while out of state. These documents will ensure that proper procedures are in place should an accident occur while in another state or abroad.
Another legal issue that arises for same-sex couples is whether a state will recognize a legal relationship between same-sex parents and their children. A New York Times article notes that a concern among same-sex couples is that without their adoption papers, their parental rights may be questioned while traveling. Another concern is that the nonbiological parent will lose rights if the couple divorces or the family moves to a different state.
Some states may not recognize a child's relationship to a same-sex couple. Therefore, it is important for same-sex couples to adopt their children in legal proceedings. If a same-sex couple does not have a biological relationship with their child, then their relationship would rest only on a marriage certificate, which may not be recognized in all states. Since states are required to give full faith and credit to an adoption certificate, as it is approved by a judge, a same-sex couple will have clear legal rights and a recognition of their relationship with their child while out of state.
Contact an New York Estate Planning Attorney
It is important to speak to an attorney that can help you make sure that you and your loved ones are have plans in place whatever the future holds. Contact our estate planning attorneys today to see how we can help.
For sports fans, all eyes this weekend are planted squarely on New York City with the Super Bowl set to kick off early Sunday evening. Beyond the usual chatter about who will win and lose, many commentators are discussing how this single game will impact the long-term legacy of many players in it.
Of course, at the end of the day, this game represents just a single game in a career. And for many players, that career is relatively short-lived. Football is a demanding sport, and it is not uncommon for players to retire in their late twenties or early thirties. It is only a rare few who play successfully into their late thirties.
This presents an unique dilemma for players who must then find other careers and/or properly manage their affairs early in life ensure financial stability for what is hopefully a many-decades long retirement. As you might imagine, many players are clumsy in this regard, making a plethora of estate planning mistakes that cause harm to themselves and their families down the road.
Professional Athletes Estate Planning Mistakes
In honor of football's biggest night, this week Life Health Pro discusses a list they dubbed the "Six Biggest Estate Planning Mistakes NFL Players Make." Most of the list centers on the basic idea of failing to think long term.
First, estate planning professionals who work with athletes explain that athletes often do not get out of the present. No matter how big one's check in any given month, the entire purpose of planning is to stretch today's earnings to an uncertain tomorrow. That need is especially acute for those in unique positions, like professional football players, who earn the vast majority of their lifetime earnings within a specific window that is often no more than a decade.
Along the same lines, a common NFL player planning mistake is spending outside their means. It is easy to mistake a large paycheck now for a license to make luxury purchases. And perhaps those purchases are feasible. But without an actual idea of the funds needed to sustain a decades-long retirement, in too many cases that high living comes at the cost of financial struggles down the road.
Be sure to take a look at the full article for the entire list of common planning errors.
Get Legal Help
The specific estate planning needs of most New York residents will be quite distinct from professional football players. High net worth individuals who are likely to have uneven earnings over the years present very unique planning challenges. But the underlying principles of prudent foresight and seeking out tailored advice to ensure your own actions fit your actual needs is important for all of us, regardless of our age, career, or particular challenges.
For help with estate planning for you and your family be sure that you contact an attorney as soon as feasible and secure the peace of mind that it brings.
According to a survey by legal services website RocketLawyer, 70% of American parents with minor children do not have a Will. The survey revealed that 76% of respondents believe that a Will is not an "urgent" matter. Parents of young children certainly must have many urgent claims on their attention. Many of them, it seems, are not inclined to give any consideration at all to the horrible possibility that they may not be around to raise their children themselves.
What would happen to your children if the unthinkable did happen and you were no longer there to care for them? If your children have two parents in their lives, then you might think that the chances of both parents dying in a common accident are too remote to merit serious consideration. Still, remote as the chances may be, we know that it does happen. Every day, couples face deadly risks together. How many times have you and your spouse found yourselves in a place where some quite plausible accident might befall you both? A car accident? A plane crash? A house fire? Upon reflection, you might discover that you face the risk of common accident almost every day.
Protect Your Child's Future
In New York, if both parents die, the fate of a minor child will be influenced heavily by the parents' Will, or the absence of a Will. If the parents leave a Will that designates a guardian for their child, the prospective guardian may petition the Surrogate's Court for appointment as guardian of the child's person or property (or both). The court is obliged to act in the best interest of the child, but within this broad parameter, New York courts will show great deference to the parents' wishes. The court will confirm that the prospective guardian (and other adults in the guardian's household) are not named in the New York State Registry of Child Abuse and Maltreatment. If there is no evidence of past abuse, the court will likely grant the petition for guardianship.
If there is no Will, the court will have to devise its own plan for the child. If you have ever given the guardianship question much thought with respect to your own family, you know how complicated this decision can be. Suppose a child has two loving adult relatives, both of whom wish to act as guardian. One is the child's favorite uncle, but he has four kids and a wife who is overwhelmed by the idea of adding another to their brood. Would it be best to have this child live with a more distant relative, if it meant that the addition of the child to the new household would cause less strife?
Although there is no perfect solution, in most cases, parents will be in a better position to find the best alternative. Think now about the unthinkable, and going forward, you can be assured that you have provided the best possible future for your child. Contact our estate planning attorneys today to learn more.
In the emotional tumult following a passing it is common for disagreement to arise regarding property and other matters between friends and family members. Jealousy and greed can cause bitter family feuds for years to come. It is for this reason that, at the very least, all New York residents need a will to ensure that loved ones are taken care of in the manner you see fit.
It is critical not to think that just any document will suffice as a will. There are very specific legal rules regarding what documents will be used by the court to settle these matters, and will contests are startlingly common. In order to have a valid will in New York, the documents must be signed in front of a minimum of two witnesses; the witnesses must sign the document in front of each other; the person whose will it is must be of sound mind; and the person cannot be under any undue influence or duress.
Will contests are not isolated only for those in dire financial straits, disputes can arise even among those who do not have any financial need at all.
For example. a high-profile inheritance lawsuit taking place in New Jersey's Hackensack Civil Court, Revlon billionaire Ron Perelman's daughter, Samantha Perelman, is suing her uncle, Jamie Cohen, for almost $600 million from her grandfather, Robert Cohen's, estate. Despite being the daughter of a one of the richest men in the world, Samantha wanted anywhere from one-third to half of her grandfather's estate. A thirty carat jewel, lavish real estate and life insurance worth $30 million dollars that Robert Cohen left Samantha were not enough for the 23 year old.
Samantha and her lawyers argued that she is entitled to a larger piece of her grandfather's estate as a matter of right. A Superior Court previously ruled that it was unreasonable to say that Robert Cohen was obligated to leave Samantha with one-third to half of his entire state. Additionally, Samantha and her expensive legal team tried to get her grandfather's will voided by arguing that he was not legally competent when he made the will. This line of argument was also rejected by past courts.
It will be interesting to see how this case turns out. Samantha Perelman has lost all 18 court decisions so far, between three states and five different courts, all before her grandfather passed away. Additionally, Samantha also lost an appeal in October of this year.
Protect Your Estate With A Will
As this case illustrates, wills can be a source of contention in families and cause years of feuding between family members and loved ones. Estate disputes are not exclusive to the rich; people from all walks of life can be affected. In order to avoid (or mitigate) such a result, you should incorporate a properly drafted will and perhaps use of trusts into your estate planning. This can also cut down on future legal disputes.
The Times Standard reported on another high-profile estate battle brewing that touches on many common themes, including a divided family and conflicting claims about last wishes.
Legendary R&B singer Teddy Pendergrass is probably best known for his smash hit "If You Don't Know Me By Now." Pendergrass dealt with various challenges throughout his life, including a serious car accident in 1982 that left him a quadriplegic. The accident required him to have around-the-clock care, but he survived and thrived until his death in early 2010.
Unfortunately, there was much discord in the family regarding the distribution of his assets and control of his legacy. The main dispute--as is so often the case--seems to be between Pendergrass's second wife (whom he married in 2008) and the adult children from his first marriage. From the available reports, it seems that only very basic planning was complete, without use of trusts, leaving the situation open for dispute.
According to court records, the singer's adult son claims that a 2009 Will names the son as executor and beneficiary of his father's estate. The singer's wife contests the validity of the Will. At one point the wife argued that she had possession of a "codocil" or addition to the Will which revealed different terms than those in the 2009 original. It is unclear if she is still making that claim.
Regardless, a civil trial in the matter is underway now, and it seems that the wife is contesting the validity of the 2009 Will entirely. One interesting claim suggests that the singer was physically not able to sign the legal document as claimed. A long-time nurse of the man explained last week at trial that the singer could not hold anything himself after the accident and required aid for even the most basic tasks. She testified that she did not believe his motor skills allowed him to sign his name or make initials on paper. In addition, there was confusion about how the singer could have left the home at the time that the Will was supposedly signed without caregivers knowing about it.
Both sides concede that they are concerned about the long-term legacy of the singer. Beyond the physical assets and bank accounts, control of an estate also includes the ability to dictate how the singer's legacy is handled, including future use and licensing of the famous name.
It is impossible to predict how a court will rule in this case. Any time an estate battle goes to trial, there are unknowns which can sway the matter either way. That is why everything should be done ahead of time to avoid legal disputes, dispensing with the matter efficiently and quickly. An estate planning attorney can help ensure you have details in place to avoid conflict.
Understanding the specifics of the law is just one aspect of successful estate planning. Obviously it is critical that a will is created in a such a way that it will be upheld or that a trust will have legal effect (or that you take advantage of all available trust options to begin with).
But that legal knowledge is not enough to best prepare for the future. In addition, it is critical to understand the social, emotional, and practical considerations that affect these issues. Are certain family members more likely to feel jilted by a specific arrangement? Is there a financial danger that should be guarded against? These and hundreds of other questions must be considered when planning. Memorizing statutes and legal books will only provide so much guidance--experience on these issues fills in the gaps.
Advice for Executor Selection
For example, when creating a will it is important to name an executor. The executor is charged with ensuring that the provisions of the will are carried out. But what considerations should one make when deciding who to name? Choosing the wrong executor can lead to a myriad of inheritance problems and often spurs feuding.
A recent Advisor to Client article touched on a few important considerations. Even a quick perusal of the list of considerations makes clear that the choice must be guided by practical considerations (and not legal nuance).
For example, often the two most basic qualifiers are not considered: Is the executor capable of doing the job and does he or she even want the job? When it comes to capacity, it is important to select someone who is of proper age and in good health. Additionally, the task involves understanding many administrative matters, taxes, and more. If the executor is uncomfortable with these topics, mistakes are far more likely to be made. Similarly, forcing someone into the position is a recipe for disaster. Individuals may have very different reasons about why they do or do not want to play this role, but it is important to lay it all on the table at the beginning so an executor is not chosen who truly does not want the responsibility.
No one has better appreciates how an estate plan can go well (or poorly), then attorneys working on these matters. When choosing an estate planning lawyer be careful to select a team that has years (or even better, decades) of experiences to provide the practical advice you need to best position your family to deal with these matters in a timely, efficient, conflict-free manner.
Most estate planning advice stories include one theme over and over--plan early and update consistently. Because no one know what the future holds and life changes occur frequently, it is critical to ensure your legal planning will work as you want it to when you need it.
However, that does not mean that there is ever a point when it is too late and not worth crafting a plan. Taking the time to put affairs in order even in the midst of serious illness or terminal conditions can make a world of difference for a family. A recent article provides a helpful discussion that touches on some of the key issues with regard to "deathbed planning."
Late Estate Planning
Is the individual competent to make legal decisions? One initial hurdle is identifying whether or not the ill party is still in a condition to assent to the crafting of a plan or updating of legal documents. It is important to have witnesses, verification from medical professionals, audio recordings, or other proof of competency just in case the issue is challenged down the road. If the individual is not legally competent, then the only other option is for one was previously given authority (via durable powers of attorney) to act on their behalf.
Assuming that the individual is competent or an agent exists, what are the main issues to consider during deathbed planning?
The general goal is to update an older plan or craft new one that covers all of the most fundamental issues. That includes ensuring that executors and trustees are properly named, the provisions of a will or trust documents still reflect the clients wishes, and similar matters. In addition, all beneficiary designations need to be considered. Is the beneficiary on a life insurance policy still correct?
If a plan was created years ago, there is a good chance some things have changed. For example, it is not uncommon for certain children, nieces/nephews, or grandchildren, to be named with others left out. Those not mentioned may simply not have been born at the time the original planning was conducted. Obviously, these oversights need to be corrected near the end.
Administratively, it is also helpful at this time to locate all necessary paperwork, records, and important information that will be needed for estate administration. Similarly, funeral and burial requests should be spelled out clearly. In the heart of grief, it is common for family members to disagree over even the most minor details. Preventing that possible feuding by making these wishes explicit is vital.
Of course there are many other potential issues to consider at this time. But, In short, most deathbed planning involves getting all of the "basics" correct so that assets will be transferred in the desired manner as efficiently as possible.