However, the tax authorities may discover this if you or the recipient are audited, if they match transactions reported for certain assets, or when banks report cash transfers in excess of $10,000. Since it’s pretty simple to avoid paying gift tax, it doesn’t seem worth the risk of getting caught trying to skirt the rules. Understanding the gift tax is the best way to avoid issues.
The IRS stipulates that a gift is “the transfer of property by one individual to another, while receiving nothing, or less than full value, in return.” A gift is never taxable to the recipient, so only the person making the gift has to consider the gift tax.
The amount you can give will not be subject to gift tax if the gift amounts are less than the annual and lifetime exemptions. The annual gift exemption is currently $15,000 per recipient, which means that you can give up to $15,000 each year to an unlimited number of people with no reporting requirement at all.
You’re supposed to complete a U.S. Gift Tax Return (IRS Form 709) if you exceed the exemption, but don’t panic. Although you are required to file a gift tax return, it is highly unlikely any gift tax will be due.
That’s because gifts in excess of the annual exemption offset your lifetime exemption ($11,400,000 per person in 2019), before any gift tax is due.
The IRS can impose penalties if you they discover that you failed to file a gift tax return, even if no gift tax was due. Also note that the gift tax is integrated with the estate tax, which applies to amounts transferred upon your death in excess of your remaining lifetime exemption.
If you’re planning on making a gift to help pay another’s college costs or medical expenses, make the payment directly to the educational or healthcare institution because that payment isn’t considered a gift.
Ask your estate planning lawyer about any state gift, estate and inheritance taxes.
Do you or a loved one own savings bonds? If so, you might want to read this article because you may not know about some of the problems they can create.
For younger people who might not know what a savings bond is, it’s a debt instrument secured by the U.S. government. A debt instrument, also known as a bond, is evidence that you loaned the bond issuer money and are entitled to receive interest and, eventually, the return of the money you loaned. These particular bonds are issued in small amounts, from $25 to $10,000 to individuals.
They were first issued in 1941. At that time, they were called “war bonds” and patriotic advertising was used to induce people to buy them. War bonds – bonds issued by the federal government to help pay for wars, have actually been around since the beginning of our country. But, unlike previous wars, after WWII the bonds never went away; they just got a new name. For a long time, they were very popular gifts for birthdays and weddings, and many large employers offered employees the option to buy savings bonds with part of their paychecks. But their popularity has declined over the years.
Savings bonds used to be issued as small paper certificates (actually, they were printed on card stock) which made them easy to give as gifts or to collect in a safe deposit box. But now they are only issued electronically. Savings bonds are very safe because the payment of interest is guaranteed by our federal government. Of course, because they are so safe, the interest rate on them is very low. When a paper savings bond matures, the holder can cash them in at a local bank (called “redeeming”). Taxes on the interest are due in the year the bond is redeemed.
So, many people over the age of 60 have these paper savings bonds lying around – in desk drawers, in safe deposit boxes, under mattresses, or even stuck in books and in other hidey-holes around their homes. They may be registered in the name of one individual, joint with one or more co-owners, or in the name of an individual with a named beneficiary. If a joint owner or beneficiary is alive when an owner dies, there’s no problem. Just submit some paperwork to get the bond re-issued (electronically) in the correct name. But if the bond is only in the deceased person’s name, or everyone named on the bond is deceased, things get a bit trickier.
Treasurydirect.com has all the rules and forms needed, but the bottom line is that the bonds are subject to your state’s probate laws. If no probate for the rest of the estate is needed under state law and the total redemption value of all the bonds is less than $100,000, you can likely work directly with the Treasury Dept. Otherwise, the bonds will go through your state’s probate process.
Most people try to avoid probate, if they can, to make things easier on their loved ones. So, is there a way to avoid a potential probate if someone owns paper savings bonds? Perhaps. But every change to a paper savings bond now requires that the owner open an online account. Many older people aren’t comfortable with this.
To add a beneficiary, paper bonds can be converted to electronic bonds, and a beneficiary can be named once the bond shows up in the online account. To add a joint owner or change the owner to a revocable living trust – same process, except the Treasury Dept. considers that a change of ownership, and the current owner will owe taxes that year on all the interest accrued to the date of the ownership change. The same goes for ownership changes due to divorce.
And here’s the fun part – the IRS requires YOU, the owner, to keep track of all of that because when you do eventually redeem paper bonds where ownership was changed (maybe years ago), the 1099 you receive from the Treasury will show all of the interest from the original issue date to the final redemption date – and the IRS will be looking for the tax due on the entire amount! And do-it-yourself tax preparation programs, such as TurboTax, don’t have the capability to deal with explanations to the IRS about taxes already paid (as I found out the hard way when I did my Mom’s taxes).
The treasurydirect.com website has a ton of useful information and all the forms you’ll need. Savings bonds certainly serve a purpose for risk-averse investors, but just be aware that the paper form of these bonds can create some headaches. Ask your parents now whether they own any savings bonds – and where they are and whose name is on them – so you don’t have a potentially nasty surprise later on.
A frequently used strategy to save for retirement is an IRA. This money is saved to fund retirement, but there’s always the possibility that you’ll die before all the money is withdrawn. That means you must plan for what happens to that money after you are gone. Designating a trust as your IRA beneficiary is one option. It provides you with maximum control over the distribution of your assets after you die.
KTVA.com’s recent article, “How to Name a Trust as Beneficiary of an IRA,” discusses some of the important elements of naming a trust as an IRA beneficiary. Naming a trust as a beneficiary requires careful planning, so work with an experienced estate planning attorney.
Naming a trust as the beneficiary of your IRA gives you much more control over the funds because trusts use written instructions for how and when the money should be paid out. Designating a trust as the beneficiary of an IRA also lets you enjoy the tax benefits of an IRA while still maintaining maximum control of funds.
This is also a good move for a person who wants to leave her IRA to a beneficiary who may need some additional direction, like a minor child, a spendthrift child or spouse, or a person with special needs. Naming a trust as your beneficiary also shields the funds from creditors—a great estate planning strategy if your state doesn’t protect inherited IRAs.
However, naming a trust as a beneficiary of your IRA probably isn’t the best choice if you want your retirement savings to go to your spouse. Spouses who inherit IRAs are able to roll the deceased’s IRA into their own IRA account, tax-free. If you want your spouse to inherit your IRA with no strings attached, designate your spouse as the primary beneficiary of your IRA.
There are several requirements that must be met when designating a trust as the beneficiary of your IRA. They include the following:
It must be a valid trust under state law;
The trust must be irrevocable (or become so upon your death);
The trust’s beneficiaries must be individuals; and
The trustee must provide a trust document or certified list of beneficiaries to the IRA’s custodian or trustee by October 31st of the year after your death.
However, there are some drawbacks to doing this: the expense of structuring and maintaining the trust and designating a trust as the beneficiary of your IRA are much more complicated than simply naming a beneficiary of your IRA.
You also forfeit the ability for your spouse to roll over the IRA into his own IRA tax-free. This cancels out some of the tax benefits, because if you didn’t designate a trust as the beneficiary—and the IRA funds just rolled over—the tax-advantaged account would grow more quickly. But it also prevents your spouse from naming his new spouse or lover as the beneficiary on what used to be your IRA.
Keep in mind that just because a trust is named as the beneficiary of an IRA doesn’t mean the assets are transferred to the trust—they shouldn’t be. Instead, they should remain in the IRA to take advantage of the account’s tax benefits until distribution of the assets begins.
To set up a trust as the beneficiary of your IRA, you’ll need the help of a qualified estate planning attorney. Mistakes can be costly.
Officials at the Department of Veterans Affairs said they reviewed 130,000 cases over the summer to look for errors. Many of these were simple clerical mistakes or disability ratings changes, after veterans settled on their loans.
The Military Times’ recent article entitled “VA refunds $400 million in mistaken home loan fees” explains that with the current regulations, veterans and service members must pay a VA funding fee when they apply for a VA home loan. This charge can be between 0.5 and 3.3% of the total loan. The money is supposed to pay some administration costs for the department. Disabled veterans are exempt from this fee.
However, an inspector general report released earlier in 2019 found that roughly 53,000 disabled veterans were charged these fees in recent years.
VA officials announced in May that they would review current and past loans, and contact veterans eligible for refunds.
In a statement, Veterans Affairs Secretary Robert Wilkie explained that the effort stretched back as far as 20 years. “Our administration prioritized fixing the problems and paid veterans what they were owed.”
The total amount of the payouts was significantly higher than the nearly $290 million total investigators estimated earlier this year.
The refunds ranged from a few thousand dollars to more than $20,000 for some vets.
Veterans Affairs officials also announced a new policy guidance for lenders to make certain that they’re asking veterans applying for the loans about their disability status. The VA also has created new internal processes for oversight over future loan applications which may be eligible for waived fees.
The Department of Veterans Affairs has also planned new outreach efforts to help get the word out to veterans about the waivers they’re eligible to receive.
VA officials said they believe that their review of the issue is now complete. However, any veterans who think they may be entitled to a refund for mistaken fees can contact the department’s regional loan center office at (877) 827-3702 or visit the VA’s website for more information.
Getting enough good sleep is vastly undervalued in today’s society. Younger working people like to brag about being able to function on only a few hours of sleep at night. But researchers have discovered that sleep deprivation can lead to cognitive decline, diabetes, obesity, depression and other problems. If you’re a senior and have trouble sleeping, you need to find the root cause. Here are some of the things that can cause insomnia in seniors:
If you experience severe insomnia despite your best efforts, talk to your doctor. Sometimes insomnia is a sign of a medical problem, such as sleep apnea. Treating the underlying cause may reduce or eliminate your sleep issues.
Your prescription and over-the-counter medications could be sabotaging your sleep and making you unhealthy. Ask your doctor if any of your medications – or the combination of them – could be causing or contributing to your inability to sleep well. Find out if there are other drugs you could take that won’t interfere with your nighttime rest.
Many people count the days until they can throw away the alarm clock when they retire. But one of the side effects of “late to bed, late to rise” is that your body clock can lose its way. If you don’t keep a regular schedule, your body might release melatonin in the afternoon, making you groggy in the afternoon and making sleep elusive at night.
Taking a nap too late in the day or for too long can interfere with your ability to get a good night’s sleep. The ideal time for napping is between 1:00 and 3:00 p.m. You should also set an alarm so you don’t nap too long. The optimal nap length will vary from one person to the next, but the most effective range to avoid insomnia is between 20 minutes and one hour.
Hot flashes and night sweats can cause menopausal women to wake up multiple times during the night. Wear pajamas that wick away moisture. Avoid bedding material, such as memory foam mattresses, that can hold heat. Make sure your sheets, pillows, and pillowcases have cooling technology.
The blue light in cell phones, tablets, and computers can interfere with the body’s ability to produce melatonin. Without the appropriate amount of melatonin, you could have difficulty falling or staying asleep. The standard recommendation is to “unplug” by turning off these devices about an hour before you want to go to sleep. For some people, however, blue light exposure during the three or four hours before bedtime can cause insomnia. Sleep researchers say you can still watch television and use your devices in the evening if you wear special glasses that block blue light. And some electronic devices, such as the Kindle Fire, will allow you to block blue light, as desired (I personally set my Kindle Fire to Blue Shade for reading and jigsaw puzzles before bedtime and sleep very well).
Some people can drink a nightcap shortly before bed and fall asleep without any difficulty. A glass of wine or a cocktail can help you relax and de-stress, but for some people, an alcoholic drink too close to bedtime can mess up your sleep cycle, causing you to wake up during the night. To avoid insomnia, experts recommend you have that drink several hours before you want to go to sleep.
Florida is one of the early states permitting residents to have Wills, along with some other types of estate planning documents, signed and completed electronically and online. This will require remote notarizations and witnesses to appear via certain approved secure video chat services, reports News Chief in the article “Electronic wills are coming, but are they a good idea?”
A movement to pass a similar law failed in 2017, as the result of a veto by then Governor Scott. However, a revised and approved version of the bill passed this summer and was signed into law by Governor DeSantis.
Under the new law, notaries who wish to be able to conduct executions of electronic Wills will be required to undergo additional training. Certain qualified and “state-approved” custodians will oversee safeguarding the completed electronic Wills for safekeeping until the creator of the Will dies, at which time the electronic Wills will be electronically filed with the appropriate probate court.
Florida is only the fourth state to implement laws related to the execution and storage requirements for electronic Wills. One concern is whether other states will honor these documents.
If other states won’t accept the electronic Wills, then a deceased person’s assets that are subject to probate administration in other states may not go to the person’s intended beneficiaries. Traditional, hard copy Will executions typically occur in an attorney’s office, with proper procedures and safeguards put into place by a licensed attorney who practices in this area of the law. Many of these same procedures and safeguards won’t be in place for electronic execution of electronic Wills.
There is concern that these Wills present an enticing target and that many family members will argue that the Will is not valid, because of undue influence or a lack of capacity.
The 2019 version of the law has some safeguards that attempt to protect vulnerable adults. However, until these electronic Wills go through probate contests, there won’t be much clarity for estate planning attorneys. A big concern is that if the documents can be executed electronically, there could be greater opportunities for criminals or people with bad intentions to more easily take advantage of vulnerable seniors.
Other concerns include: what fees will be charged by the state-approved custodians to lawyers who wish to create such documents; how much will the recurring custodial fees cost the person who signs the Will; what happens to the Will if the custodial fees aren’t paid; and how will the electronic custodians know someone died if they don’t die in Florida?
Whether you agree that electronic Wills are the future, this is still a very new process that has yet to be tried and tested. There will likely be more questions raised in the next few years about their safety and cases will be taken to court to resolve issues and challenges.
For most people, this is the time to wait and see how the electronic Will scenario works out. It may take a few years before the bumps are ironed out. In the meantime, meet with an estate planning attorney to create an estate plan that is on paper and follows a traditional process.
When Aretha Franklin died in August 2018, her family thought she didn’t have a Will. However, then they discovered two handwritten Wills – one in a locked cabinet and the other under a couch cushion – that gave conflicting instructions on how her estate should be handled. One of those Wills is now being examined by a handwriting expert to see if it’s the most recent valid Will. That determination will help decide who controls most of her finances and how her songs and likeness can be used in the future.
Fortune’s recent article, “How a Forensic Handwriting Expert Will Examine Aretha Franklin’s Will,” reports that in the Will thought to have been written in 2014, Franklin named her youngest son, Kecalf, as the executor of the estate. It looks like she first wanted another son, Teddy, to be in charge. However, his name is crossed out, with Kecalf written on the same line, followed by the name of Franklin’s niece, Sabrina Owens, whose name is also crossed out.
Now, in the middle of the dispute over the estate’s control, Kecalf has hired a forensic document specialist, Erich Speckin, to affirm to the court that the Will was, in fact, written by Franklin in 2014 and hasn’t been altered since. The other parties—Owens, who’s the current executor as decided before the discovery of the Wills; Teddy; and another son, Clarence—can also enlist their own handwriting experts, if they wish.
There are several steps an expert will take in making this determination. What Aretha Franklin left behind is known as a “holographic” Will, meaning that she wrote it entirely by herself, then signed and dated it. Holographic Wills are not valid in all states (such as Florida), but are valid in Michigan, provided that “material portions are in the testator’s handwriting.”
Because handwriting can change as a person ages and declines in health, the expert will try to compare the writing in the Will to as many contemporaneous sources as he can find. This may include Franklin’s lyrics, handwritten notes, birthday cards, or any other writing she might have done. The expert will use these to compare and look for anomalies. In most cases of fraudulent Wills, a forger will type out the text and forge a signature because writing out a full page in someone else’s handwriting is nearly impossible.
Once Speckin’s findings are revealed, the next skirmish in the estate battle will be based on his findings and the parties’ ability to come to an agreement. Kecalf now has only the support of his brother, Edward, in his bid to become the executor.
This is just one more reminder that everyone should have a valid Will at all times. Work with a qualified estate planning attorney to be sure make your Will is much clearer than the Queen of Soul’s.
The interstates get busy in September, when retirees take to the highways to leave the north behind and head to their southern or southwestern homes, reports Next Avenue in “7 Tips for Being a Successful Snowbird.” Some snowbirds have a more enjoyable experience than others, in part because of their preparation.
Here are a few lessons from the experienced snowbirds:
Choose a location that suits you. Don’t confuse a cold-weather home with a vacation spot. You’ll be living your daily life here. Therefore, you want to find the activities that you enjoy on a regular basis. If your regular life at home is busy and you like it that way, moving to a laid-back beach town or an isolated cabin in the woods may not be a good fit for more than a few days.
Look before you leap. Rent a place for a month or two, before committing to spending an entire winter there. You can’t know if you love a place before you live there for an extended period of time. If you’re not happy, you can try someplace else. Once you find the right spot, book the whole winter. Book the whole next winter as well. Good spots go fast.
Switch bills to be paid online. Before everything was online, it was tricky to take care of your home bills while living somewhere else. Make all your bills payable online or put them on autopay. If your bank doesn’t have a branch nearby, open an account in a nearby bank and link with your home bank, so you can easily move money between accounts.
Make new friends and new connections. One of the adjustments of snowbird life is leaving family and friends back up north. If you are in a community with lots of snowbirds, they are likely to be in the same position as you. Introduce yourself, join clubs and get active.
Don’t overbook your time with guests. You may love having friends come down, but being a frequent host takes a lot of time and energy. Don’t turn your winter residence into a bed and breakfast. Don’t be afraid to limit the number of nights for your houseguests. This is your home, not a hotel.
Make it a second home if you own it. If you buy rather than rent, it’s easier to keep some things there. Therefore, you are not lugging quite as much back and forth. However, even in a rental, you may be able to store some items, or rent a small storage unit nearby. Doing so will make traveling easier, and your snowbird nest will feel more like home.
Enjoy the ride back and forth. There’s no need to rush, if you’re going to be staying for a few months. If you’ve always travelled by interstate, maybe a side trip along local roads will break up the monotony and create some new memories. Stop by to visit with relatives along the way, or the national park that you’ve been meaning to experience. Make the ride an enjoyable part of your journey.
Probate is an estate administration process that works within a probate court with a probate judge presiding over the proceedings. Usually, surviving families and other interested parties initiate the process to address issues relating to the deceased individual’s estate settlement. These include:
The handling of the deceased’s valid will;
Properly citing and categorizing the deceased’s assets;
Appraising the deceased’s estate and property;
Paying off any of the deceased’s existing debts; and
Distributing the deceased’s property to those directed by the will (or, if there’s no will, the probate court will direct the distribution of estate assets, according to the laws of intestacy).
The personal representative (also known as an executor) handling the deceased’s estate will typically start the process with the help of a probate attorney. Here are the basic steps:
File a Petition. The estate’s personal representative will file a request for probate where the deceased resided. Once all the required paperwork is in order, the probate judge will officially open the case.
Notice. The personal representative must send a legal notice to all applicable beneficiaries, heirs, debtors, and creditors that the deceased’s estate is officially in probate.
Inventory Assets. The personal representative will then collect, list, and provide a value for all of the deceased’s assets and supply this to the court.
Pay the Bills. The personal representative will need to pay all outstanding debts owed by the estate.
Complete Any Tax Returns. The estate may also have existing tax returns that need to be filed. An accountant can be hired by the personal representative to work on this, or the personal representative may choose to file the taxes on his or her own.
Pay the Heirs. The personal representative can now distribute the remainder of the estate to any heirs, according to the will’s instructions.
Close the Estate. Finally, the personal representative will file paperwork with the court and file to close the estate.
An experienced estate planning attorney licensed to practice in your state will be able to explain what strategies are used to avoid probate, how to remove certain assets from the process, or whether it needs to be avoided at all. In some regions, probate is swift, while in others it is long and tiresome. A local estate planning attorney is your best resource.
Roth IRA contributions can be used for emergencies. In a perfect world, no one would ever need to use retirement money for anything but retirement, but because Roth contributions are not deductible, they can be withdrawn at any time, for any reason, without taxes or penalties. A Roth IRA can serve as an emergency fund. However, it needs to be noted that the funds you can withdraw do not include amounts that were converted to a Roth IRA or investment gains. Therefore, if you put $5,000 into a Roth IRA that grew to $6,000, you may only withdraw the $5,000 without taxes and penalties.
You might be able to use a non-deductible IRA to fund a Roth. If you make over a certain limit, you can’t contribute to a Roth IRA—or can you? Some people who keep other retirement money inside qualified retirement accounts are permitted to make a non-deductible IRA contribution every year and then convert that into a Roth. This is sometimes called the “backdoor Roth.” However, you’ll need to be careful, and you may need help. In some cases, you can even roll a self-directed IRA back into a company plan, so in future years you could use the backdoor Roth strategy without having to pay taxes on the converted amount. Get a professional to help you with this: mistakes can be expensive!
You may roll after-tax 401(k) contributions into a Roth IRA. Many employer plans let you make after-tax contributions and then, at retirement, these after-tax contributions can be rolled into a Roth IRA. Any investment gain on the after-tax contributions can’t go into the Roth, but the contributions can.
Roth IRAs have no RMDs (Required Minimum Distributions). There aren’t any age requirements for when you take money out, so there are no delayed tax bombs lurking. However, non-spouse heirs will have to take required distributions from an inherited Roth. The nice thing: they will be tax free.
You can contribute to both a SIMPLE IRA and a Roth IRA. As long as your income is within the Roth IRA limits, then you can contribute to both the SIMPLE and the Roth. The contributions to the SIMPLE IRA will be deductible, the Roth contributions will not be. This dual funding strategy lets you reduce taxable income now and have funds in the Roth accumulate for tax-free benefits in retirement. For the self-employed person, who is diligent about saving for retirement, this is a good plan.
Your employer plan may allow Roth contributions. Many 401(k) plans let you make Roth contributions. They are called “designated Roth accounts.” Check with your HR department to see if their plan let you choose which type of contribution to make. Some may be all or nothing, while others let you do some of each.
Age is not the key factor in determining whether or not to use a Roth IRA. The primary deciding factor here is your income bracket, your tax rate now and your expected tax rate during retirement. If your expected tax rate during retirement will be lower, the deductible contributions may be better. If your tax rate during retirement is going to be the same or higher in retirement, which is often the case for people with large IRAs or 401(k)s, then a Roth IRA may make a lot of sense, regardless of your age.
You might be able to make a spousal Roth contribution. Even if your spouse has no earned income, as long as you have an earned income, you can make an IRA contribution on their behalf. Many couples can double their tax favored retirement account savings by doing this.
Be careful about Roth conversions. As stated previously, mistakes here can become expensive, so don’t rely on online Roth calculators to manage conversions. Talk with an experienced professional who can help make sure that your numbers and your strategy fits with your personal retirement scenario. Every person and every situation is different, so planning needs to be specific to your needs.