“I don’t believe in inheriting money,” CNN host recently told Howard Stern on Stern’s radio show, a son of designer and heiress Gloria Vanderbilt: “I think it’s an initiative sucker. I think it’s a curse.” Cooper acknowledges that it’s easy for him to say so, given his multimillion-dollar TV salary. But his attitude toward inheritances is not unique.
Only 46% of boomers believe it’s important to leave an inheritance to loved ones, according to a new survey by the Insured Retirement Institute, a retirement-income industry group. In the past, that figure was closer to two-thirds. While many in midlife expect to spend everything they have before they die, others are planning diligently to ensure their heirs are taken care of appropriately and that Uncle Sam won't take too large a share of their estate.
To Bequest or Not to Bequest…
How about you?
Do you endorse Cooper’s attitude that inheriting money is a curse? Or do you want to preserve all you can and provide for your kids, grandkids or perhaps to a cause you believe in? If so, have you taken steps to make sure that happens in an efficient and effective way?
Alice Anselmo, a financial adviser with UBS in Red Bank, N.J. frequently poses questions like these to her clients and says there’s no right answer.
“I have some clients who feel adamant that they made their money and don’t want to give it to anyone,” says Anselmo. Other clients “come with the attitude that they’re going to live forever.” Says Anselmo: “It’s not that they don’t care about leaving a legacy, it’s just that they don’t want to face their mortality.”
Planning Is Key for Inheritances
But financial planners, eldercare attorneys and accountants are quick to point out that if you want to leave an inheritance but don’t make the proper plans for it, you’re setting up yourself and your heirs for multiple problems.
Without having everything in place, there’s no guarantee that whatever wealth is there will be distributed as you wish. On top of that, the federal and state government might wind up taking more out of your estate in taxes than necessary.
Some people, Anselmo adds, don’t make inheritance plans because they have no heirs or strong attachments to anyone or anything — or think they don’t. She mentions one client who has significant wealth but no children or close family. “When I pointed out that she does indeed have some strong feelings about her dog, whom she adopted from a shelter, and to the library system from which she has borrowed literally hundreds of books, it was an eye opening moment for her,” Anselmo says.
Eventually, Anselmo, her client and an attorney cobbled together the documents needed to ensure that some of the woman’s estate would go to needy animal shelters and libraries.
Beyond Leaving Money: Leaving a Legacy
Financial advisers also say that it’s important to view your inheritance beyond money or assets. Ask yourself: How do I want to pass down my legacy?
Over the course of our lifetimes, we’ve all made an impact in one way or another — on people and on the world around us. To continue having an impact after your death, you can take steps now to help advance your legacy. Alternatively, you can contribute to a charitable cause that reflects your values, perhaps including in your will or trust specific bequests that the group will receive after you die.
An Adviser Can Be a Big Help
If you’re inclined to provide some sort of inheritance for your children or grandchildren, you need to make plans for it. Working with a reputable financial adviser is one way to accomplish that. In fact, working with an adviser is likely to increase the amount you’ll be able to leave your heirs. In the Insured Retirement Institute survey, 53% of boomers who work with advisers said they’re confident about their retirement planning, while only 21% of those without advisers felt that way.
Article republished from Forbes.
Under IRS Notice 2014-19, qualified retirement plan administrators must recognize same-sex spouses of legally married participants as of June 26, 2013. The retroactive date coincides with the date of the Supreme Court issued its decision in Windsor. Between June 26 and Sept. 16, 2013 (the date of Rev. Rul. 2013-17), plans are allowed to recognize only same-sex marriages of participants who are domiciled in a state that recognizes same-sex marriage.
In Windsor, the Supreme Court held that Section 3 of the Defense of Marriage Act (DOMA), P.L. 104-199, was unconstitutional. In August 2013, the IRS announced that same-sex couples who are legally married in jurisdictions that recognize their marriages will thus be treated as married for federal tax purposes, regardless of whether the jurisdiction they live in recognizes same-sex marriages.
Last minute retirement benefits that you should utilize:
Contribute For Your Spouse:
If you’re married and at least one
spouse is employed (and you’re not earning above the IRS income thresholds),
the working spouse can contribute to an IRA and one for their spouse.
Last Years Contribution: If you missed making an IRA contribution last year you have until April 15 to make a contribution for that year. You can effectively make 2 years worth of IRA contributions (both for the previous year and the current year) at the same time.
Tax-Free Required IRA Distributions:
A tax code provision allows an individual to “gift” from their IRA (up to $100,000) to a non-profit and have it satisfies their Required Minimum Distribution (RMD) for that year. They will also receive the added bonus that the distribution is tax-free to them.
Catch-Up: Individuals over age 50 can contribute more money to their IRA (and other retirement accounts), which is known as “catch-up” contributions. This allows for an additional contribution up to $1,000 more every year.
The IRS has provided relief for individuals who missed the opportunity to make a "portability election." Each individual may pass during their lifetime or at death the sum of $5,340,000 (in 2014) without incurring federal estate taxes. Before 2011, individuals created estate plans to utilize the tax-free amounts of both spouses, through a trust for the surviving spouse. However, beginning on January 1, 2011, the estate tax law included a concept referred to in the planning community as "portability."
Portability is simply the process by which a surviving spouse can add the unused portion of his or her deceased spouse's tax-free amount to his or her own tax-free amount to offset or completely eliminate estate taxes which would otherwise be due and payable upon the surviving spouse' death. Unfortunately, the surviving spouse does not automatically receive his or her deceased spouse's unused estate-tax-free amount. In order to accomplish transfer of the deceased spouse's unused tax-free amount over to the surviving spouse, a "portability election" must be made on a timely filed federal estate tax return for the deceased spouse. This return requirement exists even though the deceased spouse's estate would not otherwise be required to file a return because his or her assets were valued at less than the filing threshold.
The law provides that a portability election must be made on a timely filed federal estate tax return (within 9 months after the deceased spouse's date of death). Until recently, if the deadline to make a portability election was inadvertently missed, the surviving spouse lost the election.
To correct this problem, the IRS has issued IRS Rev. Proc. 2014-18 to provide limited relief for those wishing to take advantage of the portability election at a deceased spouse's death and missed the filing deadline. To claim the relief individuals must satisfy the following requirements: (i)The deceased spouse must have died after December 31, 2010 and before 2014; (ii) The value of the deceased spouse's estate must have been less than the estate-tax-free amount for the year of death (i.e., $5,000,000 in 2011, $5,120,000 in 2012, and $5,250,000 in 2013); and (iii) A Form 706 – Federal Estate Tax return must be filed for the deceased spouse's estate on or before December 31, 2014.
The Internal Revenue Service (IRS)
has issued new guidance in accordance with a recent tax court decision
interpreting an Internal Revenue Code requirement allowing taxpayers to
complete only one rollover per year from an Individual Retirement Account (IRA)
into another IRA. Practitioners and the IRS
previously interpreted this rule to apply separately to each IRA an individual
owns. In Babraw v. Commissioner the tax court rejected this view and held that the one-rollover-per-year
limit applies across all of a taxpayer’s IRA accounts.
The IRS announcement states that the agency will not apply its interpretation of Bobrow until January 1, 2015, and it expects to issue proposed regulations by that time. The once-per-year restriction does not apply to direct transfers from one IRA to another and applies only to distributions that are reinvested in an IRA within 60 days in accordance with rollover rules.
The American Taxpayer Relief Act of 2012 (ATRA) extended
and made permanent a number of important tax code provisions that impact estate planning. The two biggest tax provisions made permanent were the federal estate tax exemption (with inflation indexing) and portability of a deceased spouse's
unused exclusion amount. As a result of these changes, married couples can
shelter up to $10.6M of net worth from the federal estate tax system. The exemptions not only reduce the number of
individuals subject to the estate tax in the future, but portability will render
most uses for the bypass trusts irrelevant.
Prior to ATRA, the federal estate tax exemption (“Federal
Exemption”) amount had risen from $600,000 in 1997 to $5.0M in 2011, with many
bumps in the road. Tax experts predicted
that the Federal Exemption would be lowered, an easy way to raise federal tax
revenue by taxing the wealthy. To combat the uncertainty with the Federal
Exemption, wealthy couples utilized bypass trusts to set aside the deceased
spouse’s federal exemption amount to ensure it was fully utilized. This provided
the surviving spouse with only an entitlement to an income stream and
discretionary principal for their lifetimes from the trusts. But the Federal
Exemption was preserved in case Congress decided to subsequently lower the
After ATRA, the
use of a Bypass Trust became an adverse tax strategy for many couples as a
result of compressed trust income tax brackets and the loss of any step-up in
basis at death. Today they are predominantly utilized to (i) shelter future
growth from taxation for very high net worth couples; (ii) preserve the Generation Skipping Tax Exemption (“GST”), (iii) protect assets in the case of divorce or
remarriage, and (iv) spendthrift protection of the surviving spouse.
If your estate planning documents contain an involuntary Bypass Trust provision and your net worth is less than $10M, you may want to revisit your estate plan with your attorney. Many estate planning practitioners today use a modified disclaimer, at the surviving spouse’s election, to achieve the same benefit.
The selection of the PersonalRepresentative (Administrator or Executor) for your estate can be critical to how easily it is administered after
your death. It is not uncommon to
nominate a family member, friend, trusted attorney or financial institution for
the job. Ultimately it is their relationship with the beneficiaries that will
matter in the end.
While it may seem like a good idea to nominate your children to jointly serve as your Personal Representative it may ultimately fail if they do not get along. The selection a family member, who does not maintain a relationship with the ultimate beneficiaries, is also bound for failure. While the selection of a financial institution, in hopes of avoiding family discord, may result in a fight over Personal Representative and legal fees. Unfortunately, none of these scenarios can insure a peaceful administration or avoiding fighting over administration fees and money.
The best advice is to discuss the subject with your beneficiaries and get their input on the matter. Being aware of a family dispute or conflict can avoid a probate battle at your death. It is important to understand that Florida law requires the Florida Probate Court to appoint the individual you have nominated, barring unforseen circumstances.
It is common knowledge that over 60% of U.S. adults will die without a basic estate plan. However, what is not discussed is the fact that millions of Wills, Trusts and other end-of-life documents (Powerof Attorney, Health Care Surrogates, Living Wills and Pre-Need Guardianship Designations) go missing each year. Many of these documents are intentionally discarded or hidden by a disinherited family member or second marriage spouse unhappy with the inheritance they may be receiving, while some are merely accidently discarded.
To prevent this from occurring it is recommended that you not only create a list of all the estate planning documents you have executed but provide the nominated individuals (agent(s) under the power of attorney and health care surrogate) with both a copy of the documents and the name of the attorney holding the originals. This can protect you and your estate from the documents being lost or a disgruntled family member from destroying them.
To that end, it is equally as important to create a list of your assets and a copy of an account statement. This can prevent a bank account (pay-on-death account) or life insurance policy beneficiary from failing to collect the funds at your death. Statistics reflect that $4.9 billion in unclaimed assets are turned over to the government annually with only $1.7 billion in assets ever reclaimed. In addition, more than $1 billion in life insurance is unclaimed annually.
Every client should review his or her Florida Revocable Trusts at least every five (5) years. This will ensure it is up-to-date with current Florida the law, Federal Estate tax exemption amounts, and meet your goals.
Do you have the right successor trustees? Typically you will be the trustee of your own revocable trust with your spouse as co-trustee (if you're married). Trusts should name one or more successors in the event the original trustee or trustees are unable to serve. Make sure that you still want the successors you originally named. Also, do you want them to come on and begin acting as trustee now? And if you and your spouse are co-trustees, do you want the successor or successors to step in when the first of you becomes incapacitated or passes away, or not until neither of you can serve.
Who can remove trustees? While you are alive you can always change the current and successor trustees of your Florida Revocable Trust. However, do you want anyone else to have this authority after you are incapacitated or deceased.
Can the surviving spouse change the beneficiaries and ultimate distribution of trust assets after you have passed away? Many trusts give surviving spouses a power to redirect trust assets at their death. This can be important to provide for flexibility to respond to changes in family circumstances. However, this typically doesn't make sense in second marriage situations.
Does your trust protect your children and grandchildren from lawsuits and divorce? You have the ability of drafting your trust to continue for your children's lives to provide creditor and divorce protection.
Have you funded your trust? Most Florida trust documents don't accomplish all that was intended because the decedent died with their assets still titled in their names. Avoid probate, protect your assets from guardianship reach, and make sure that the estate tax protections in your trust operate as planned through retitling assets in the name of the trust.
Who is named as beneficiary of your retirement plans and other investments? Often clients spend hours with their attorneys crafting an estate plan to match their goals and then circumvent it through naming individuals as beneficiaries of retirement plans and investment accounts. Make sure these are all coordinated to accomplish your objectives.
At what age will children and grandchildren receive their inheritance? Most trusts provide that funds will remain in trust until those inheriting reach a certain age, often 21. However, your Florida Trust can be drafted to establish any age you choose and even permit them to withdraw a portion of the trust at set ages (one-half at 25 and the balance at 30, or a third each at 25, 30 and 35). This doesn't mean that they can't benefit from the trust assets in the meantime, but that distribution decisions are made by the trustees until children and grandchildren have more financial experience.
Does your trust have provisions providing for maximum tax deferral if it is named the beneficiary of a retirement plan? While you may choose to have your retirement plans go directly to your heirs, the simplest approach, or your trust. However, if it is going to your Florida Revocable Trust it must have special provisions to stretch out the annual required distributions for as long as possible.
Is your trust up-to-date for estate tax purposes? Congress and many states have changed the estate tax laws several times in recent years. If your trust is more than five years old, or if you lived in a state other than Florida when it was drafted, it should be reviewed by an estate planning attorney to make certain it is still current.
The elderly widow wasn’t asking for much. Just a little protection so she could live out her life as she’d planned. So that she could go out to lunch with friends or buy a new hat or new teeth. Instead, Marie Long was protected right into the poorhouse. In just four years, the woman who came into Probate Court with $1.3 million in assets was left penniless, her life savings sucked up by the very people appointed to watch over her — all as the judge looked on. Or away, more likely.
As a result of what happened to Marie Long, laws were changed and reforms were enacted in the hope of better protecting the most vulnerable among us. All that is, except for Marie.
Now, at long last — and with no thanks to the courts —Marie Long, at 92, has a little of her own back. “She should have enough to live a decent life,” her longtime attorney, Jon Kitchel, told me. I first met Marie in October 2009, not long after she was moved into a Phoenix nursing home that accepts welfare clients. She was soft-spoken and at a loss for words as to how she had come to such a fate.
Marie had no children to look after her in her old age. Her daughter died of cancer long ago at age 16. The following year, her 20-year-old son was killed in Vietnam. When her husband, Cliff, died in 2003, Marie was in good financial shape. But a stroke in 2005 and a family dispute over where and how she would live landed Marie under the “protection” of Maricopa County’s Probate Court.
By 2009, her $1.3 million estate was gone, much of it sucked up by attorneys and fiduciaries under the not-so-watchful eye of then-Commissioner Lindsay Ellis. Ellis ruled that those attorneys and fiduciaries were justified in helping themselves to more than $1 million of Marie’s money. She lambasted Marie’s lawyers — Kitchel, Pat Gitre and Marie’s nephew Dan Raynak, people who for years volunteered their services to help Marie as her accounts dwindled.
Ellis wrote that their “venomous” attacks challenging the six-figure bills forced the fiduciaries and lawyers on the other side to defend themselves. With Marie’s money, naturally. Later, we learned that Ellis, through her judicial assistant, sent advance copies of her ruling to select attorneys — the ones who wound up with Marie’s money. Two courts found that Ellis acted unethically, but that, they wrote, didn’t mean she was biased. The Arizona Court of Appeals called what happened to Marie “inexcusable.” Then, it did nothing to fix it.
Instead, the courts left the bulk of Ellis’ ruling intact, approving $840,000 of the fees and ordering a retrial on the remaining bills. The biggest remaining question: Was the law firm justified in collecting $230,000 from Marie in 2009? In recent weeks, awaiting court approval of their fees the parties reached a confidential settlement with Marie. It’s believed to be the second such settlement in the case, the first involving the now-defunct Sun Valley Group, which collected $430,000 from Marie.
Kitchel said he couldn’t tell me how much of Marie’s money has been refunded. But it will be enough, he says, to get her off welfare and give her financial independence. “She’s going to be just fine,” he told me. Not only will she be just fine, but others should be, as well. As a result of public attention to Marie’s experiences, vulnerable people are better protected when they go to Probate Court. It’s now easier for wards to get rid of fiduciaries they don’t like. For years, fiduciaries basically ran Probate Court, and if you tried to fire them, they got to spend a good chunk of your money fending you off.
In addition, Kitchel says, court accountants are no longer rubber-stamping the accounts but looking for padded billings. Judges are now looking out for the long-term sustainability of estates. “The attitude has changed, and I think that the courts are pretty sensitive to the light being shined on them,” Kitchel said. “I think that they’re doing things differently now and people are more sensitive than they were in the past, sensitive to how much is being charged to the cases.” Sensitive, finally, to little old ladies like Marie. A one-time millionaire who can now, after four years of probate-induced poverty, buy herself lunch.
If you don't think this can happen to you in Sarasota or Manatee County Florida you are sadly mistaken. This case further emphasizes the need to have your assets titled in the name of a Revocable Trust to avoid anyone, except the Trustee, from gaining access to the funds.
Article republished from the Arizona Republic newspaper