Estate Planning and Trusts Blog

The Funeral Rule

Funeral
Funeral shopping? There are federal laws funeral homes must follow.

Did you know that the federal government regulates funeral homes? I don’t remember seeing that power mentioned in the Constitution, but…

Yes, the Federal Trade Commission (FTC) mandates that people shopping for burial and cremation services must be provided certain information and must be provided itemized price lists for services and caskets so they can compare apples to apples as they shop. For example, prices must be provided over the phone as well as in person, and the funeral home must explain that embalming isn’t always required (no state laws requires routine embalming for every death).

But the FTC isn’t sure how well its rules are actually working, and is asking for your input as to whether the Rule is still needed and what your shopping experience was like.

You can learn more about the FTC’s Funeral Rule and give your input by clicking here.

Other articles you may find interesting:

What Are the Rules About an Inheritance Received During Marriage?

Timeshares: The Inheritance No One Wants

What’s the Difference Between Whole Life and Universal Life Insurance?

Life insurance
Life insurance is a great way to protect your family. Whole life and universal life offer some benefits term life doesn’t.

Whole life insurance helps with long-term goals, since it provides individuals with consistent premiums and guaranteed cash value accumulation. Universal life insurance gives consumers flexibility in premium payments, death benefits, and the savings component of their policy.

Investopedia’s article, Whole Life vs. Universal Life Insurance, explains that these two types of life insurance fall in the category of permanent life insurance. In contrast to term insurance, which guarantees a death benefit payout during a specified period, permanent policies provide lifetime coverage. If you want to cancel your permanent life policy, you’ll get the policy’s cash value. These policies are typically made up of two parts: a savings or investment part and an insurance part. Their premiums are higher than term policies, and insureds can also take out a loan by borrowing against the cash value. Thus, permanent life insurance is also called cash-value insurance.

Whole life insurance covers you as long as you’re alive. You must pay the same premium for a specific period to get the death benefit. This policy usually stays intact for the rest of your life, no matter how long you may live. This policy is good for long-term responsibilities, such as a surviving spouse’s income needs and post-death expenses.

One of its features is that it combines life insurance coverage with savings. Therefore, you may have to pay higher premiums at the start, when compared to a term insurance policy.

The insurance company deposits some of your money into a high-interest bank account. With every premium payment, your cash value increases. This savings part of your policy grows your cash value on a tax-deferred basis. You can receive the dividends in cash or allow them to accumulate with interest. You can also use your dividends to reduce your policy’s premiums or buy more coverage.

Universal life insurance is also called “adjustable life insurance,” because it has more flexibility compared to whole life insurance. You can decrease or increase your death benefit and pay your premiums at any time in any amount (with certain limits) after your first premium payment has been made. With this type of policy, you may be able to increase the face value of your insurance coverage. You can also decrease your coverage to a minimum amount, without surrendering your policy. Surrender charges may be applied against the cash value of your policy.

As far as the death benefit, there are two options: a fixed amount of death benefit or an increasing death benefit that is equal to the face value of your policy plus your cash value amount.

You also can change the amount and frequency of your premium payments. Therefore, you can increase your premiums or pay a lump sum, according to the specified limit in the policy. Some of your premium minus the cost of insurance is again deposited into an investment account, and any interest accrued is credited to your account. The interest grows on a tax-deferred basis, which increases your cash value. You can decrease or stop your premiums to use your cash value to pay premiums in a financial hardship. You can also partially withdraw funds with universal life insurance.

The downside of universal life insurance is the fluctuation of the return; if the policy does well, there could be growth in a savings fund. However, a bad performance means the estimated returns are not earned. Surrender charges may also be imposed when you terminate your policy or withdraw money from the account.

All in all, universal life insurance can be great protection for your family because of its security, flexibility, and variety of investment options.

Reference: Investopedia (April 18, 2019) Whole Life vs. Universal Life Insurance

Other articles you may find interesting: 

How Will The 2020 SECURE Act Affect You?

Roth IRA Tips and Tricks

Timeshares: The Inheritance No One Wants

timeshares vacations
Your heirs may not want the burden of  owning your vacation timeshare.

It seems like you can’t throw a rock in Florida without hitting someone who owns a timeshare, or who considered buying a timeshare. In general, the lucky ones are those who walked away from the sales pitch.

Don’t get me wrong – I’m sure there are millions of Floridians who actually use their week or two for getaways or family vacations. At least for a while. But, as an estate planning, elder law, and probate attorney, I frequently see families dealing with the downside of timeshare ownership. And as a financial professional, I can tell you they are NOT an investment – they’re an ongoing expense for an illiquid asset that will not appreciate, much like a swimming pool. People buy such things because they want them, not because they make any financial sense.

A timeshare is a form of fractional ownership in a property, typically in a resort or vacation destination. For example, if you purchase one week at a timeshare condominium each year, you own a 1/52 portion of that unit. Timeshares may be evidenced by a deed (you purchased an ownership interest in the property) or just a contract (you leased the right to use the property).

So, what are some of the downsides? Well, first of all, the fees never end. On top of the loan payment (if you financed your timeshare), there are annual fees, unexpected assessments, and miscellaneous fees to change weeks, trade locations, etc. And unlike a house, land, or even a car, you’ll never know what your timeshare is worth. While there are exceptions for the most desirable locations/weeks in places like Disney or highly desirable beach resorts, most “used” timeshares are NOT repurchased by the timeshare company, and end up being sold for next to nothing. In fact, sometimes it’s hard to even give them away!

Here’s a true story: Jack had a timeshare he no longer wanted. He gave it to a family member, Bill, as a gift. Bill used it for several years, but then had a financial setback and couldn’t afford the fees. He fell behind. He tried to sell it, but to no avail. So then he offered to give it back to Jack. Jack wanted no part of the timeshare and associated fees, and said “Thanks, but no thanks.” Then one day Jack received a recorded deed in the mail; Bill had quitclaimed the timeshare back to Jack! (In Florida, only the seller has to sign the deed). So, Jack then quitclaimed the timeshare back to Bill. I don’t know what happened after that – maybe they’re still tossing the hot potato back and forth.

Timeshares also cause problems at the owner’s death when:

  • The owner never transferred it into his living trust, thus triggering probate for an illiquid asset.
  • The owner became ill before death and stopped paying the annual fees or assessments, and at death she owes thousands of dollars to the timeshare company, for a property no one will buy.
  • The timeshare was properly transferred to a living trust, but no heirs want it and they can’t find a buyer.
  • The post-death transfer of the timeshare was done incorrectly, and eventually the timeshare company tells the heir that they can’t use the week until they re-probate the property and have the transfer done properly. Oh, but they still need to pay the fees and assessments!

Sometimes, abandonment is the only option children have when Mom and Dad leave them an unwanted timeshare, but it has to be done properly to prevent problems.

So, if you own a timeshare, find out whether anyone actually wants it when you die, AND whether they can afford to pay the fees and assessments year after year, even if they lose their job. If not, consider getting rid of it while you’re still alive. If you can.

Other articles you may find interesting:

Can I Protect My Daughter’s Inheritance from Her Loser Husband?

What Happens When Real Estate Is Inherited?

Hearing Aids May Save Your Brain

Hearing loss
There may be a link between hearing loss and cognitive decline.

If it seems like every day brings something new to worry about. Take heart—this is one thing that you can do something about.

People with moderate hearing loss were twice as likely to experience cognitive decline as their peers, while those with severe hearing loss faced five times the risk, according to a study from Johns Hopkins University School of Medicine says Next Avenue’s article “A Delay In Getting Hearing Aids Can Mean More than Hearing Trouble.”

Another study, from the University of Colorado at Boulder, found that the brain’s ability to process sound declines as the person’s ability to hear decreases. The study looked at adults between the ages of 37 to 68 who had their hearing tested and their brains examined. None were being treated for hearing loss, although some felt their hearing was not as good as it once was.

The subjects underwent hearing tests and other tests using visual stimuli to see how they were processing information. They also underwent electroencephalograms (EEGs) that showed that not only were their brains’ visual centers firing when seeing the stimuli, but the hearing center was also active in those who had suffered some hearing loss.

In other words, parts of the brain that used to process sounds were now processing visual signals, as the hearing part of the brain was being repurposed to process images.

The brain’s ability to repurpose different areas for different functions is known as “cross-modal recruitment.” Several areas of the brain can be affected by hearing loss, including the pre-frontal cortex, which is in charge of higher-level thinking and executive functions.

If this part of the brain is needed to help overcome hearing loss, then there’s less capacity for putting new information into long-term memory, and for comprehending and responding to sounds and conversation.

The researchers also found that people in the study regained some of their cognitive losses after being fitted with very high-quality hearing aids.

Unfortunately, many adults delay having their hearing tested and getting hearing aids. The stigma associated with hearing aids as a marker of aging is one reason. Another reason is that hearing loss is a very gradual process and people get used to not being able to hear.

Get a hearing test now, and save your brain.

Reference: Next Avenue (October 21, 2019) “A Delay In Getting Hearing Aids Can Mean More than Hearing Trouble”

Other articles you may find interesting:

Is Medicare Available When You Travel Abroad?

Causes of Insomnia in Seniors

Should I Use a Bank as My Executor Instead of a Family Member?

executor of a will
Choose your executor (personal representative) carefully.

You can choose anybody you like to be the executor of your Will, but consider who will do the best job.

Executors, or personal representatives (as they’re called in Florida), are legally responsible for several tasks, including identifying everything in the estate, collecting all the assets, and paying all the debts and liabilities. When all of that is done, then the personal representative is allowed to make distributions to beneficiaries, in accordance with the terms of the Will.

nj.com’s article on this topic asks “Should I choose a bank to be the executor of my will?” The article explains that there are some advantages in designating a bank as a personal representative.

  • The trust departments of a bank are in the business of managing money and are experienced in administering estates. This typically means they may be able to settle the estate more quickly and efficiently than a family member could.
  • Banks have policies and procedures in place to make certain that the assets are protected from mismanagement and theft.
  • Banks are impartial parties that cannot be influenced by beneficiaries. Impatient beneficiaries can be a big headache for a family member who is asked to be executor. Relationships can deteriorate over the enforcement of the terms of a Will, especially when one sibling is named executor and has the authority over the administration of the estate—perhaps to the detriment of her brothers and sisters.

What are some of the disadvantages? While any executor is entitled to compensation under state laws, family members frequently waive this – especially if they’re also a beneficiary. However, banks do charge fees for serving as executors, and these fees may be higher than you’d expect. Also, many banks won’t serve as executor unless the estate is substantial enough to meet the minimum fees charged by the bank.

But, if you’d prefer not to burden your loved ones with months of time-consuming and aggravating work settling your estate, and family harmony is important to you, consider naming a bank as your executor.

Reference: nj.com (November 5, 2019) “Should I choose a bank to be the executor of my will?”

Other articles you may find interesting: 

What Does an Executor Actually Do?

How Will Jeffrey Epstein’s Estate Be Settled?

State Taxes on Retirees Differ by Type of Retirement Income

Retirement income taxes due
Every state has its own method of taxing certain types of retirement income.

Did you know that based on the state in which you decide to retire, your state income tax bill could vary by several thousands of dollars? However, it’s not only a state’s tax rate that’s important. In addition, the type of income you get in retirement, frequently has a greater effect on your state tax liability than the tax rate you pay.

That’s because each state has its own method of taxing certain types of retirement income, explains Kiplinger’s article “State Taxes on Retirees Differ by Types of Retirement Income.” The article examines the way in which states tax two common forms of retirement income: Social Security benefits and retirement plan payouts.

First, let’s look at the taxes on Social Security benefits. While the federal government taxes up to 85% of Social Security benefits, most states don’t tax Social Security benefits at all. Alaska, Florida, Nevada, South Dakota, Texas, Washington, and Wyoming don’t tax these benefits because they simply don’t have an income tax. New Hampshire and Tennessee only tax interest and dividends.

Social Security benefits are exempt from tax in the District of Columbia and 28 states (AL, AZ, AR, CA, DE, GA, HI, ID, IL, IN, IA, KY, LA, ME, MD, MA, MI, MS, NJ, NY, NC, OH, OK, OR PA, SC, VA, and WI). The remaining 13 states may tax some of Social Security benefits. New Mexico, Utah, and West Virginia currently tax Social Security benefits to the same extent they are taxed on the federal return. However, West Virginia will begin phasing out its tax on Social Security benefits in 2020. Taxation of Social Security benefits in the remaining states (CO, CT, KS, MN, MO, MT, NE, ND, RI and VT) depends on a person’s income and on your filing status in many instances.

There are also some states that totally exempt Social Security for taxpayers under specific income thresholds. For example, Kansas says that Social Security benefits are completely exempt from state tax, if your federal adjusted gross income (AGI) is $75,000 or less, regardless of your filing status.  Beginning this year in North Dakota, single residents can fully exclude Social Security benefits from state taxable income, if their federal AGI is $50,000 or less. Married North Dakota residents filing a joint return can claim the exclusion with a federal AGI of $100,000 or less. Missouri has partial exemptions for joint filers with federal AGI above $100,000 and all other filers with AGI over $85,000. Missouri taxpayers with income below these thresholds can get a full state tax exemption. The rest of the states have specific formulas for deciding whose Social Security benefits are taxed and to what extent.

State taxation of payouts from retirement plans, such as pensions, IRAs and 401(k)s, can be more complex. The states without an income tax (FL, AK, NV, SD, TX, WA, WY) or that just tax interest and dividends do not tax retirement plan payouts. However, in other states, there are a wide variety of rules. Mississippi and Pennsylvania generally don’t tax any retirement income. However, California, Washington, D.C., Nebraska, and Vermont have slight or no tax breaks for retirement plan payouts. Many of the states in between offer credits or deductions that can run from a few hundred dollars to tens of thousands of dollars. Georgia has the largest tax break with a $65,000 retirement-income exclusion for anyone age 65 and older (couples can shelter up to $130,000).

To make it more complicated, some states differentiate based on the type of retirement plan. Take Kansas, for example. It exempts income from government pensions but taxes private pension payouts. Alabama taxes defined-contribution plan distributions but not private pension payouts.  Beginning this year, North Dakota exempts military retirement pay but not other retirement plan payouts.

But keep in mind that a state’s or city’s property and sales taxes could outweigh any benefit you receive by paying lower or no income taxes. And some states will tax your estate and/or your beneficiaries when you die. If you’re considering moving to another state due to taxes, meet with an experienced tax professional in that state to get a clearer picture of your particular situation.

Reference: Kiplinger (October 28, 2019) “State Taxes on Retirees Differ by Types of Retirement Income”

Other articles you may find interesting: 

Why are Seniors So Vulnerable to Scammers?

IRS Scams: What You Need to Know

What Are the Rules About an Inheritance Received During Marriage?

A big inheritance
When an inheritance or any other exempt asset (like a premarital asset) is “commingled” with marital assets, it can lose its exempt status.

A good add-on to that sentence is something like, “provided that it is kept separate from marital assets.” To say it another way, when an inheritance or any other exempt asset (like a premarital asset) is “commingled” with marital assets, it can lose its exempt status.

Trust Advisor’s article asks, “Do I Have To Divide The Inheritance I Received During My Marriage?” As the article explains, this is the basic rule, but it’s not iron-clad.

A few courts have said that an inheritance was exempt even when it was left for a short time in a joint bank account. This might happen after a parent’s death when the proceeds of a life insurance policy were put into the family account to save time during a stressful situation. In another case, the wife took the insurance check her husband had received and opened a joint investment account with the money. That money was never touched, but the wife still wanted half of it when the couple divorced a few years later. However, in that case, the judge ruled that the proceeds from the insurance policy were the husband’s separate property.

The law generally says that assets exempt from equitable distribution (like insurance proceeds) may become subject to equitable distribution if the recipient intends them to become marital assets. The commingling (mixing) of these assets with marital assets may make them subject to a division in a divorce. However, if there’s no intent for the assets to become martial property, the assets may remain the recipient spouse’s property.

Courts will look at “donative intent,” which asks if the spouse had the intent to gift the inheritance to the marriage, making it a marital asset. Courts may look at a commingled inheritance for donative intent, but also examine other factors. This can include the proximity in time between the inheritance and the divorce. Therefore, if a spouse deposited an inheritance into a joint account a year before the divorce, she could argue that there should be a disproportionate distribution in her favor or that she should get back the whole amount. Of course, the longer amount of time between the inheritance and the divorce, the more difficult this argument becomes.

Be sure to speak with a divorce attorney or your estate planning attorney about the specific laws in your state. If there is a hint of trouble in the marriage, it might be wiser to simply open a new account for the inheritance.

Reference: Trust Advisor (October 29, 2019) “Do I Have To Divide The Inheritance I Received During My Marriage?”

Other articles you may find interesting: 

Change Your Life Insurance Beneficiary After Divorce

Smart Second Marriage Planning Tips

Can I Deduct Long-Term Care Expenses on My Tax Return?

Long-term care expenses may be tax deductible
You can deduct unreimbursed costs for long-term care as a medical expense, including eligible expenses for in-home, assisted living and nursing-home services. But certain requirements must be met.

If you need long-term care, you may be able to deduct some of your long-term care expenses on your tax return. If you purchased a long-term-care insurance policy to cover the costs, you may also be able to deduct some of that. Retirement planning entails long-term care, so it’s critical to know how these tax deductions can help offset overall costs.

Kiplinger’s article, “Deduct Expenses for Long-Term Care on Your Tax Return,” explains that you can deduct unreimbursed costs for long-term care as a medical expense, including eligible expenses for in-home, assisted living and nursing-home services. However, certain requirements must be met. The long-term care must be medically necessary and can include preventive, therapeutic, treating, rehabilitative, personal care, or other services. The cost of meals and lodging at an assisted-living facility or nursing home is also included, IF the main reason for being there is to get qualified medical care.

The care must also be for a chronically ill person and given under a care plan prescribed by a licensed health care practitioner. A person is “chronically ill,” if he or she can’t perform at least two activities of daily living—like eating, bathing or dressing—without help for at least 90 days. This condition must be certified in writing within the past year. A person with a severe cognitive impairment is also deemed to be chronically ill, if supervision is needed to protect his or her health and safety.

To claim the deduction, you must itemize deductions on your tax return. Itemized deductions for medical expenses are only allowed to the extent they exceed 10% of your adjusted gross income in 2019. An adult child can claim a medical expense deduction on his own tax return for the cost of a parent’s care, if he can claim the parent as a dependent.

The IRS also permits a limited deduction for certain long-term-care insurance premiums. You must submit an itemized deduction for medical expenses, and only premiums exceeding the 10% of AGI threshold are deductible in 2019. Further, the insurance policy itself must satisfy certain requirements for the premiums to be deductible. For instance, it can only cover long-term-care services. This limitation means the deduction only applies to traditional long-term-care policies, rather than hybrid policies that combine life insurance with long-term-care benefits. The deduction has an age-related cap.

These deductions are typically not useful for people in their fifties or sixties but can be valuable for people in their seventies and older. That’s because income tends to drop in retirement, so the deductions can have a greater overall impact on tax liability. As you age, you’re also more likely to have medical expenses exceeding 10% of AGI. Those deductions could move your total itemized deductions past the standard deduction amount. The chances of satisfying the medical necessity requirements for the care costs deduction also increase with age, and the cap for the premium deduction levels off after age 70.

Reference: Kiplinger (September 4, 2019) “Deduct Expenses for Long-Term Care on Your Tax Return”

Other articles you may find interesting: 

Know Your Rights as LGBT Residents in Nursing Homes

How Does the IRS Know if I Gift My Grandchildren Money?

Is a Will Contest Worth It?

A Will contest can be expensive and ugly.
Is contesting a Will worth the effort, money, and time? Are you willing to destroy your relationships with those you bring to court?

Is contesting a Will worth the effort, money, and time? This question comes up more frequently than you’d think. The desire to sue an estate sometimes is the result of an unpleasant shock, and at other times, it’s due to anger. However, according to this article from Forbes, “5 Things You Should Know About Contesting A Will,” before you start making revenge plans or hiring the most tenacious attorney in town, take a deep breath. You need to consider some cold hard facts:

  1. Litigation is expensive. I’m going to repeat that again: Litigation is expensive!! Many people will ask if an attorney will take the case on a contingency fee basis—typically a third of what you receive, and he or she only gets paid if you do. Most probate litigation attorneys won’t take a Will contest case on a contingency fee basis because there’s a pretty good risk they won’t get paid. If they do take the case, make sure you have a litigation attorney with experience in estate battles.
  2. Have lots of Rolaids on hand. You’re gonna need them. A Will Contest lawsuit is a rough journey; one that can be full of lies, misrepresentations, and accusations. There may also be a counter lawsuit against you. You’ll probably be interrogated in a deposition, where the opposing lawyer will ask you questions about your relationship with the deceased person and with the other beneficiaries. You will likely be portrayed as greedy, and you may have to testify in court.
  3. Snap decisions are required. Once you hire your attorney, he or she will work with you to develop a strategy for the case. Your attorney may recommend that you file suit immediately and be the first one to the courthouse. Or your counsel may think it best to send a letter to the attorney representing the person you’re suing with a request for information. Then, depending the response, you may decide to file suit. In most cases, you’ll have a limited time to contest the Will. If you don’t do so within that time period, you can’t ever bring a lawsuit. Talk to an experienced attorney shortly after the death.
  4. You’ll probably reach a settlement. Once the Will Contest litigation has begun and the attorneys have had time to exchange information and do some fact finding (in what is known as the discovery process), your attorney will talk to you about the strengths and weaknesses of your case. It may be appropriate at that juncture for one side to present the other with a settlement offer. This would end the litigation without the time and expense of trial. This may be a wise option if you’re tired of fighting and willing to consider a settlement instead of going to trial. Your attorney may also point out weaknesses in your case and advise you to be happy with getting a settlement. That way you can move on with your life. You should approach the settlement like a business decision, and try to keep emotion out of it.
  5. Expect emotional pain. While you may get some satisfaction if you win, you will destroy your relationships with the people you bring to court. If you lose, well, that’s a lose-lose proposition. No matter how big the win, all the underlying emotional issues will still be with you.

Reference: Forbes (May 21, 2018) “5 Things You Should Know About Contesting A Will”

Other articles you may find interesting: 

‘Bye Bye Love’ Rocker Ric Ocasek Cuts Wife Out of Will

Demystifying Probate

Can I Protect My Daughter’s Inheritance from Her Loser Husband?

Loser husband shouldn't get daughter's inheritance
Do you want to keep your child’s inheritance out of the hands of his or her spouse? It can be done.

It’s not unusual for a parent not to fall in love with their child’s choice for a spouse. They may even go as far as to try to make certain that their daughter- or son-in-law doesn’t get their inheritance.

You can shield your money from your new son-in-law, says nj.com’s recent article “My daughter is getting married. How can I protect her inheritance?”

A good strategy is to create a trust, either as part of a Will or a living trust, that would receive the estate assets for the benefit of the child and the child’s children.

A trust is a fiduciary arrangement that lets the trustee maintain trust assets on behalf of a beneficiary or beneficiaries.

Trusts can be created in many ways and can specify precisely how and when the inheritance can be allowed to pass to the beneficiaries.

The trustee is a person or company that holds and administers the trust assets for the benefit of a third party. A trustee can be given a wide range of authority in the trust agreement. The trustee makes decisions in the beneficiary’s best interests, and they have a fiduciary responsibility to the trust beneficiaries. For the most protection, the child should not be the trustee of her own trust.

Trust assets can be used for the health, education, maintenance and support of a child. The inheritance assets that are left over (if any) at the death of the child and any remainder are directed to go to the grandchildren outright or in trust.

Provided the assets distributed to the daughter aren’t commingled with the assets of her husband, those assets wouldn’t be subject to equitable distribution, if they couple were to one day get divorced.

The daughter can also enter into a prenuptial or postnuptial agreement. With this type of agreement, her spouse waives the right to any assets owned or inherited by the daughter.

Talk these types of situations over with a qualified estate planning attorney.

Reference: nj.com (September 27, 2019) “My daughter is getting married. How can I protect her inheritance?”

Other articles you may find interesting: 

Feeling Squeezed in the Middle of a Generational Sandwich?

Are No-Contest Clauses Valid In Florida?