Perlin Estate Planning

Do You Believe These Life Insurance Myths?

“Life insurance can be tricky to figure out, with all its technicalities and rules.”

Investopedia’s recent article entitled “Top 10 Life Insurance Myths” looks at the top 10 misconceptions about life insurance. Hopefully, this information will answer some questions, dispel some incorrect notions and make the process of getting coverage a little easily.

1. “I'm single with no dependents, so I don't need coverage.” Well, even single people need at least enough life insurance to cover the costs of personal debts, medical expenses and funeral bills. If you’re uninsured, you may leave a rash of unpaid expenses for your family or executor to deal with. It can also be a terrific way for low-income singles to leave a legacy to a favorite charity.
2. “My coverage just needs to be twice my annual salary.” The amount of life insurance you need is based on your specific situation, due to the myriad factors to consider. You may need to pay off debts, like a mortgage, and provide for your family for several years.
3. “I have term life insurance coverage at work, so I’m good.” That depends. If you’re single with modest means, your employer-paid or -provided term coverage may do it. However, if you have a spouse and/or children or you’re confident you’ll need coverage when you pass away to pay estate taxes, more coverage may be required.
4. “I heard that the cost of my premiums is deductible.” In most cases, that is not true. The cost of personal life insurance is never deductible, unless the policyholder is self-employed, and the coverage is used as asset protection for the business owner. In that case, the premiums are deductible on Schedule C of Form 1040.
5. “I gotta have life insurance at any cost.” That’s probably accurate for most of us. However, those who have sizable assets and no debt or dependents may be better off self-insuring. If you have your medical and funeral costs covered, life insurance coverage may be optional.
6. “I should buy term and invest the difference.” Not necessarily. There are some distinct differences between term life and permanent life insurance—and the cost of term life coverage can become prohibitively high in later years. Therefore, if you know for certain that you have to be covered at death, look at permanent coverage. The total premium cost for a more expensive permanent policy may be less than the ongoing premiums that could last for years longer with a less expensive term policy. There’s also the risk of non-insurability. That could be disastrous for those who may have estate tax issues and need life insurance to pay them. This can be avoided with permanent coverage, because this policy becomes paid up after a certain amount of premium has been paid and remains in force until death.
7. “Variable universal life policies are always better than straight universal life policies over the long haul.” Many universal policies pay competitive interest rates, and variable universal life (VUL) policies have several layers of fees for both the insurance and securities parts of the policy. Therefore, if the variable sub-accounts within the policy don’t perform well, a variable policyholder may realize a lower cash value than a person with a straight universal life policy. Poor market performance can generate substantial cash calls inside variable policies that mean additional premiums must be paid to keep the policy in effect.
8. “It’s just the primary breadwinners who need life insurance coverage.” Not so. Think of the cost of replacing the services that have been provided by a deceased homemaker. They’re higher than you think. Insuring against the loss of a homemaker may make sense, especially when it comes to the expenses of cleaning and daycare.
9. “I always should buy the Return-of-Premium (ROP) rider on any term policy.” Well, there are typically various levels of return-of-premium (ROP) riders available for policies that offer this. Many financial experts say that it’s not cost-effective and should be avoided. The decision will depend on your risk tolerance and other possible investment objectives. A cash flow analysis will tell, if you might come out ahead by investing the additional amount of the rider elsewhere, instead of including it in the policy.
10. “I'm better off investing my money than buying any kind of life insurance.” Until you reach the breakeven point of asset accumulation, you need life insurance coverage of some sort (except for those who can self-insure). When you have $1 million of liquid assets, you can think about discontinuing or decreasing your million-dollar policy. However, you take a big risk when you depend solely on your investments in the early years of your life, particularly if you have dependents. If you die without coverage for them, there may be no other way to provide for them after the depletion of your current assets.

 This hopefully clears up some of the common misunderstandings about life insurance. Don’t leave life insurance out of your budget, unless you have enough assets to cover your expenses after you're gone.

Reference: Investopedia (July 2, 2018) “Top 10 Life Insurance Myths”

When It’s Time to Have the Talk with Aging Parents

“An important part of caring for your aging parents is understanding their situation and knowing what they want. If you don’t know, then it is up to you to figure it out.”

It’s a good idea to talk with your parents on a regular basis about their wishes for the future, so that everyone can get comfortable with the conversation and the topics, says Next Avenue in the article “How to Have Difficult Conversations With Your Aging Parents.” You’ll all avoid a fair amount of stress and guesswork, if you can have these open and frank conversations.

Here are the conversations you need to have:

The Money Talk. What’s their financial situation? Do they have enough to pay their bills right now? What if they live another ten or twenty years? Do they have a will? Do you know where the will is, and the name of the estate planning attorney who created it? Do they have powers of attorney for finances in place?

The Health Talk. Medical issues that you’ve heard about but aren’t fully informed about need to be clarified. What medications do they take, and is there a list posted on the refrigerator, or located somewhere you can get to it, in the event of an emergency? Have they properly documented a power of attorney for healthcare?

The Aging Talk. Do they plan on aging at home, or are they considering moving to a continuing care facility? What senior living options should they consider, if and when they can’t live on their own anymore?

The End of Life Talk. This is the hardest one, but it is hard for everyone. If they should have a terminal illness, what do they want to happen? Do they have a medical directive, or a living will? How do they feel about extreme measures being taken to sustain life, if they are incapacitated?

The Family Legacy Talk. This is a warmer, happier conversation. What do they want the family to remember about them, and how can you work together to assemble the things that will help accomplish this? Are there family recipes, photo books, treasured heirlooms, videos or jewelry they want to pass along? Are there stories they want to share?

Note that these are not one-time conversations, but processes. Everyone will respond differently, and some parents may need more time to reflect and consider their answers than others. Your parents will need to be ready to have these conversations with you. Some conversations may touch on a raw memory and have to stop, to resume at a later point.

Depending on your parents’ personalities, you may want to speak with them together, if they are both living, or individually. One might be more comfortable discussing certain matters without the other present.

Take notes of the conversation. You’ll be able to review the notes with them if need be and share that information with siblings and family members. You can also see what’s left out. Your notes are not a legally binding document, but they can help when their wills are created or revised.

Speak with an estate planning attorney as part of this process. Estate planning attorneys are fluent in the issues of aging and will be able to discuss sensitive matters with your parents and you, bringing up issues you may not have considered.

Reference: Next Avenue (September 21, 2018) “How to Have Difficult Conversations With Your Aging Parents”

Which Half of the Country Are You In? The Part With a Will or the Part Without One?

“According to a caring.com survey, only 42 percent of U.S. adults have estate planning documents, including a will.”

Like many Americans, Aretha Franklin failed to draft a will. More than 58% of us are in the same boat: no will or estate planning documents, leaving our families and heirs in peril. The Chicago Tribune’s recent article, “Don't leave a mess for your heirs” reports that, what’s even more troubling, is the fact that for those with children under the age of 18, just 36% have an end-of-life plan in place.

Many of those who haven’t done any estate planning, say they just haven't gotten around to it. That’s understandable, but it’s important that you conquer your anxieties associated with this emotional subject and take control.

For Aretha Franklin's estate, Michigan (her state of residence) will decide who will get what. The local probate court will oversee everything from property, retirement accounts and the residuals that flow from her music catalog. It’s possible that her assets will be split among her four children. However, as many parents know, some kids are more prepared to manage financial distributions than others—a big reason why estate planning is so important.

If you have property you want to go to specific individuals, you should create a document with instructions as to who gets what.

Some people think that because they don't have a high net worth, they don’t need to worry about such things. However, estate planning isn’t just about money—anyone with young children should have a will, because a will names the guardians of minor children. You want to be certain that you, and not the courts, designate your children’s guardians.

When you’re ready to start or revisit the planning process, talk to a qualified estate attorney (yes, pay for a lawyer and don’t do it yourself), here are the basic documents to consider:

• Will: A document that makes certain your assets are passed to designated beneficiaries in accordance with your instructions. The will designates an executor, who will oversee the distribution of your assets. If you have minor children, you must name a guardian for them.
• Letter of Instruction: This may include the appointment of someone who will ensure the proper disposition of your remains. That can be important, if you’re choosing a method that’s contrary to your family's traditions.
• Power of Attorney: This gives a person you select the authority to act as your agent, in certain circumstances.
• Health Care Proxy: This gives a person you select, the power to make health care decisions on your behalf, if you lose the ability to do so.
• Trusts: Revocable (changeable) or irrevocable (not-changeable) trusts may be useful, depending on family and tax situations. You need an experienced trust attorney to help you decide, if this is a sound strategy and to properly prepare the documents.

Reference: Chicago Tribune (August 30, 2018) “Don't leave a mess for your heirs”

If You Have Young Kids, You Better Have a Will

“Rich people aren’t the only ones who need a will. Without this legal document, your state’s laws will govern how your assets are distributed.”

Families with young children should add a clause to their wills that names a guardian, in the event the both parents are unable to provide care, according to CNBC’s recent article, “You don’t have to be wealthy to put this estate plan into place.”

If you die without a will, you won’t have the opportunity to designate the guardian you want to care for your minor children. Instead, a judge will decide this. It may be someone you really never considered for that essential responsibility.

That’s why a will is so critical for families with young children. You can also avoid or at least lessen conflicts between relatives by adding a guardianship clause in your will.

Without a will, the state’s intestacy laws will dictate how your cash and assets will be distributed when you die. Typically, the intestacy laws say that your estate will pass to your closest living relative—your spouse, your kids, your parents and your siblings.

These laws also stipulate how assets are divided among your family members. For example, in New York, your surviving spouse gets 50% of the balance, and your children get everything else.

But what if that's not what you want? Then you better have a will.

It’s also important to know that your will won't override your beneficiary designations for your retirement accounts and life insurance.

While you’re at it, a couple of other documents you'll need to get your basic estate plan together, are your financial power of attorney and medical directives. Power of attorney grants a person that you name to oversee your finances, if you're incapacitated. Medical directives allow you to state how you want to receive health care, if you’re unable to communicate your wishes.

These two documents keep your loved ones from having to make tough decisions during a stressful time. They also make certain your wishes are followed.

Reference: CNBC (August 8, 2018) “You don’t have to be wealthy to put this estate plan into place”

New Regulations Coming on 529 and ABLE Accounts

“The regulations will reflect tax law changes affecting 529 plans as they relate to tuition refunds, K-12 education and rollovers to an ABLE account for disability-related expenses.”

The Internal Revenue Service (IRS) and Treasury Department recently announced that they plan to issue regulations on tax law changes that will impact 529 plans related to tuition refunds, K-12 education and rollovers to an ABLE account for disability-related expenses.

Think Advisor’s article, “IRS, Treasury to Issue 529 Plan Regs,” explains that Notice 2018-58 talks about a change included in the 2015 Protecting Americans From Tax Hikes (PATH) Act, and two changes included in the 2017 tax overhaul.

Taxpayers, beneficiaries, and administrators of 529 and Achieving a Better Life Experience (ABLE) programs can rely on the rules detailed in the Notice, until the U.S. Treasury Department and IRS issue regulations that clarify the three changes.

The new regulations will simplify the tax treatment of a special rule added under the PATH Act for a beneficiary of a 529 plan. This is typically a student who gets a refund of tuition or other qualified education expenses. It can happen when a student drops a class mid-semester, according to the IRS and the Treasury. If the beneficiary recontributes the refund to any of his or her 529 plans within 60 days, the refund is tax-free.

The Treasury Department and IRS regulation will stipulate that re-contributions wouldn’t count against the plan’s contribution limit.

The 2017 tax law allows distributions from 529 plans to be used to pay up to a total of $10,000 of tuition per beneficiary (regardless of the number of contributing plans) each year. These can be for an elementary or secondary (K-12) public, private or religious school of the beneficiary’s choosing.

Another change in that law lets funds be rolled over from a designated beneficiary’s 529 plan to an ABLE account. That type of account is created to pay for disability-related expenses for those who become disabled before age 26 for the same beneficiary or a family member. The new IRS and Treasury regulations would say that rollovers from 529 plans, along with any contributions made to the designated beneficiary’s ABLE account—other than specific permitted contributions of the designated beneficiary’s compensation—can’t exceed the annual ABLE contribution limit. That limit is $15,000 for 2018.

Reference: Think Advisor (July 30, 2018) “IRS, Treasury to Issue 529 Plan Regs”

Do You Have a Ticking Time Bomb in Your Estate Plan?

“There’s a time bomb ticking in many estate plans.”

Forbes’ recent article, “Defusing The Time Bombs In Your Estate Plan,” explains that the “bomb” that may be ticking and ready to explode is the person, or people, you name to act for you.

Whether they act during your lifetime or after you pass away, these individuals frequently can make or break your estate plan. They have the ability to determine the fates of family relationships and financial security.  However, most people don’t realize the potential consequences of their surrogates’ actions. As a result, they don’t give sufficient thought to whom they appoint to these important roles.

Let’s examine some of the major potential surrogates:

Agent: This is the person who acts for you under a power of attorney or advance medical directive.

Trustee: If you create a trust, you’ll create some limits in the trust agreement, and the trustee has the authority to make the final decisions about managing the investments, making distributions, paying taxes and other aspects of managing the trust.

Executor: This person manages and distributes your estate, after you pass away. Also known as a personal representative, the executor is charged with carrying out the wishes expressed in your will and other estate planning documents.

Social Security representative payee: Social Security will appoint someone to manage the benefits of someone who is unable to do so; usually it’s a family member or friend. The beneficiary can contact Social Security and ask that a particular individual be appointed, and they will consider the request.

Long-term care insurance lapse designee: Most insurers now allow the insured to choose an individual who’ll get a notice, if the LTC premiums aren’t paid. You also can name an alternate payee who’ll receive and manage benefit payments, when you can’t.

Agent for funeral decisions: States have varying regulations about who can make funeral decisions, and some have laws recognizing the appointment of an agent.

Financial account designees: When opening a financial account, some people like to select the transfer on death (TOD) option, or they open joint accounts with a relative or friend. This allows someone else to manage the account, when he or she isn’t able and who will inherit it without going through probate.

One issue with many of these surrogate designations is that different people frequently are named for tasks and responsibilities which overlap. Another issue is that people often are appointed without being asked or even told until they have to act. Finally, the person named to handle these responsibilities must be qualified.

Speak with your estate planning attorney to be sure you have consistency and avoid conflicts between the different surrogates.

Reference: Forbes (July 23, 2018) “Defusing The Time Bombs In Your Estate Plan”

How Does the IRS Treat My Out-of-State Vacation Home, When I Pass it to my Kids at Death?

“The basis of property is primarily an income tax term and is important for determining gain or loss on the sale of property, or, for example, the amount of depreciation that can be taken.”

It’s not uncommon for a family to have a cabin or vacation home in another state. It’s also not uncommon for the parent and owner of that vacation home to ask if the out-of-state vacation home receives a step-up in basis, when his or her children inherit it.

The IRS says that to determine if the sale of inherited property is taxable, you must first determine your basis in the property. The basis of property inherited from a decedent is generally one of the following:

• The fair market value (FMV) of the property on the date of the decedent's death.
• The FMV of the property on the alternate valuation date, if the executor of the estate chooses to use the alternate valuation.

They refer to the Instructions for Form 706, United States Estate (and Generation-Skipping Transfer) Tax Return. The IRS suggests that for information on the FMV of inherited property on the date of the decedent’s death, you should contact the executor of the decedent’s estate. The agency also notes that in 2015 Congress passed a new law that, under certain circumstances, requires an executor to provide a statement identifying the FMV of certain inherited property to the individual receiving that property.

When a person passes away, the property he or she owns or controls, like what’s included in their taxable estate, will be valued as of the date of death. Children who inherit the property will take the property or asset with the date of death value as his or her basis.

The step-up in basis doesn’t depend on whether or not you pay state or federal estate or inheritance tax on the property.  However, if you file a federal estate tax return, the value of the property reported on the return must be the same as the value reported by the children for the property as their basis in reportable transactions.

If a person only owns part of the real property at his or her death, it’s possible only that portion will get a step-up in basis.

With the owner living out-of-state, it’s important that the owner and the heirs understand the so-called "exit tax." For example, when New Jersey residents sell their homes and prepare to move out of state, they must pay a standard tax rate on the profit from the sale. This tax must be paid when you move, not when you’d usually file a state income tax return.

Reference: nj.com (July 24, 2018) “Cost Basis for and Inherited Vacation Home”

What’s JTWROS?

“It's a common practice for couples and business partners to take title to each other's bank accounts, brokerage accounts, real estate and/or personal property as joint tenants with rights of survivorship (JTWROS).”

JTWROS, or Joint Tenants with Rights of Survivorship, is a form of asset ownership, whereby an asset is owned by at least two people, all owners have an equal right to the account's assets and are afforded survivorship rights, if one account holder dies. In other words, if one partner or spouse dies, the other receives all the money or property. This is why many married couples and business partners go with this option.  However, there are some things you should think about before entering joint tenancy.

Investopedia’s recent article, “The Benefits And Pitfalls Of Joint Tenancy,” examines the advantages and disadvantages of this arrangement.

ADVANTAGES

Avoiding Probate. When an individual dies his or her will is reviewed by a probate court. The court decides if the will is valid and legally binding and determines what liabilities and assets the deceased may have left. Any remaining assets after all debts are settled, are then distributed to heirs. If the individual dies without a will, the laws of intestacy apply. The probate process can take weeks, months, or even years, to sort through the deceased's estate. It will take even longer for beneficiaries to receive their inheritance.  However, with JTWROS, ownership automatically transfers to the other spouse or business partner upon the death of the first partner. There’s no probate.

Equal Responsibility. When a married couple or two business partners own an asset that is titled JTRWOS, both individuals are responsible for that asset. They both enjoy its benefits and share in the liabilities equally. It also means that neither party can incur a debt on the asset, without indebting themselves.

Continuity. When someone dies, his or her assets are often frozen, until the probate court determines whether the assets are encumbered, or until a determination is made about how to distribute them to heirs. This can be a problem for a surviving spouse who has outstanding debt or expenses.  However, by owning an asset as a joint tenant, the surviving spouse or business partner may use the property in any way he or she sees fit. The law also states that immediately upon the death of one tenant, ownership is transferred to the survivor.

DISADVANTAGES

Deteriorating Relations. Two people who own the entire asset together can be a disadvantage in an unstable relationship. Neither party can sell or encumber the asset, without the other party's consent.

Frozen Bank Accounts. If the deceased is heavily in debt, and the probate court is concerned that the surviving spouse or business partner may liquidate the funds to avoid paying the obligations, the court could freeze the account. An account may also be frozen, if there is a question as to whether the surviving spouse or business partner actually contributed to the account, or if the ownership was merely for convenience. In some cases, the asset may still be frozen upon the death of either partner or spouse.

Partner Asset Control. When the surviving spouse or business partner assumes control over the joint asset upon the death of the co-tenant, he or she may then sell it, or bequeath it to someone else: the deceased loses control over the ultimate disposition of the asset entirely.

Another Option. The alternative to joint tenancy is tenancy in common. Some of the benefits to this account are that the asset is divvied up, and each owner may own one half of the asset (or a percentage or fractional ownership can be created). Each party can also legally sell his or her share, without the other party's approval or consent. In addition, the asset will pass to heirs. Unlike with JTWROS, ownership of the asset will not automatically transfer to the surviving account owner upon the first owner's death. The asset will instead pass, according to provisions made in the deceased's will. The assets can also be accessed. If one owner becomes disabled or dies, the other owner should still be able to access his or her portion of the assets. Consequently, he or she can sell a portion of the asset or dispose of it, without needing to wait on a judgment from a probate court.

Reference: Investopedia (March 20, 2018) “The Benefits And Pitfalls Of Joint Tenancy”

Are You in the “Sandwich Generation”?

“Have you ever wondered if you are part of the sandwich generation?”

The “sandwich generation” is a generation of people, who are usually in their 30s and 40s. They are caring for their aging parents, while supporting their own children. If this sounds like you, then this means you’ve got a lot to worry about. Even if you are not taking financial responsibility for your parents, you are dedicating time and energy, usually willingly.  However, that means there’s less of both for you, your family and your career.

The Press-Enterprise’s article, “3 tips for anyone in the sandwich generation,” offers the following tips to make the “sandwiching” easier on you and your family:

1.     Talk About Money Issues. Discuss finances with your children and parents. Perhaps you could go with them to meet with their estate planning attorney. He or she can make sure your parents have all the proper estate planning documents, such as a will, trust, living wills and powers of attorney.

This legal professional will create a plan to lessen or avoid estate taxes and work to ensure that your life's savings and assets are protected from your beneficiaries' creditors after your death, and that your legacy is assured.

Estate planning attorneys are accustomed to working with families and navigating the issues between adult children and their aging parents. There is little chance that yours is a unique situation.  It does not mean it is easy, but a skilled attorney will be able to help you and your family deal with whatever situation you face, with dignity and compassion.

2.    Get (More) Help. You may get support or assistance to help your parents, your kids, or even yourself. Odds are good that your parents will be reluctant to accept help, so start the process yourself. This could involve hiring a housekeeper for yourself to free up some of your time for things that are more important.

This will give you more time, and your parents won’t feel you are using your finances to assist them. If you have friends and relatives that offer help, take them up on it. Don’t try to do everything yourself.

If your children are old enough, you can also get them involved. Children are surprisingly capable, and sometimes grandparents are more comfortable having grandchildren help with minor chores around the house, where their children’s own actions may seem intrusive.

3.    Don’t Feel Guilty. It’s impossible to get to everything. Be sure to take it one day at a time and to take care of yourself.

Reference: (Riverside CA) Press-Enterprise (June 28, 2018) “3 tips for anyone in the sandwich generation”

Apollo Astronaut Suing Kids Who Say He Has Dementia

“Apollo 11 moonwalker Buzz Aldrin is suing two of his children and a former business manager, accusing them of misusing his credit cards, transferring money from an account and slandering him by saying he has dementia.”

Buzz Aldrin, the second man to step on the moon, filed a lawsuit in June in Florida, a week after his children Andrew and Janice filed a petition claiming their father was suffering from memory loss, delusions, paranoia and confusion.

Stuff says in a recent article, “Buzz Aldrin sues children, alleging misuse of his finances,” that the two children requested that the judge name them his legal guardians. They said Buzz was associating with new friends who were trying to alienate him from his family and that he had been spending his assets at "an alarming rate.''

The 88-year-old Aldrin underwent his own mental evaluation that was conducted by a geriatric psychiatrist at UCLA last April. The doctor said Aldrin scored "superior to normal'' for his age on tests.

"I also believe that he is perfectly capable of providing for his physical health needs, food, clothing and shelter, and is substantially able to manage his finances and resist fraud and undue influence,'' said Dr. James Spar in a letter to Aldrin's attorney.

Aldrin asked a judge to remove Andrew from control of his financial affairs, social media accounts and several nonprofit and business enterprises. Andrew was a trustee of his father's trust. Buzz said in the complaint that despite revoking the power of attorney he had given his son, Andrew continued making financial decisions for him.

"Specifically, defendant Andrew Aldrin, as trustee, does not inform plaintiff of pending or future business transactions, removes large sums of monies from plaintiff’s accounts and continues to represent plaintiff in business and social capacities, despite plaintiff's repeated requests for such representations to be terminated,'' the lawsuit said.

In his complaint, Aldrin accused Janice of not acting in his financial interests and conspiracy. Buzz also accused his former manager, Christina Korp, of fraud, exploitation of the elderly and unjust enrichment. Several businesses and foundations operated by the family are also named in the lawsuit.

Buzz Aldrin was a member of the Apollo 11 crew that landed the first two people on the moon. Aldrin joined Neil Armstrong on the lunar surface in July 1969.

Reference: Stuff (June 26, 2018) “Buzz Aldrin sues children, alleging misuse of his finances”