With both social distancing and some work and personal travel last week, we didn’t get to wish a proper Happy Birthday to Whitney HendrixWhitney Hendrix, our director of client services, last week. If you’ve interacted with us over the last 9 years or more, you’ve certainly talked to Whitney. Again and again, I hear from clients and colleagues about how much they enjoy working with Whitney. In fact, some don’t want to talk to me at all…they just want Whitney. I’m truly blessed to work with such a fine and dedicated team. If you happen to call in this week, join in wishing Whitney a happy (if belated) birthday!
Not knowing when you will be eligible to receive all of the benefits earned through your work history can hurt a retirement plan, says a recent article from CNBC.com titled “Here’s what to you need to know about claiming Social Security retirement benefits.” Timing is everything. Equally problematic? It is letting fears of the program running out of money before you can get your fair share influence your decision.
If you get the timing right and use a combination of your retirement savings and Social Security benefits in the right time and the right order, your money may last as much as seven years longer. However, remember that there are many rules about Social Security and retirement fund withdrawals. Here are three big blind spots to avoid:
Not knowing when to take full benefits.
Age 62 is when you are first eligible to take Social Security benefits. Many people start taking them at this age because they don’t know better or because they have no alternative. If you start taking benefits at age 62, your monthly benefits will be reduced.
There is a difference between eligibility and Full Retirement Age, or FRA. When you reach FRA, which is usually 66 or 67, depending upon your birth year, then you are entitled to 100% of the benefits based on your work record. If you can manage without taking Social Security benefits a few more years after your FRA, those benefits will continue to grow—about 8% a year.
Most Americans simply don’t know this fact. If you can wait it out, it’s worth doing so. If you can’t, you can’t. However, the longer you can wait until when you reach your full amount, the bigger the monthly check.
How many ways can you claim benefits?
This is where people make the biggest number of mistakes. There are many different ways to take Social Security benefits. People just don’t always know which one to choose. First, once you start receiving benefits, you have up to a year to withdraw your application. Let’s say you need to start benefits but then you find a job. You can stop taking benefits, but you have to repay all the benefits you and your family members received. This option is a one-time only event.
Another way to increase benefits if you start taking them early, is to suspend them from the time you reach your FRA until age 70. However, you have to live without the Social Security income for those years.
Expecting the worst scenarios for Social Security.
Social Security headlines come in waves, and they can be disconcerting. However, a knee-jerk reaction is to take benefits early because of fear is not a good move for the long term. There are a number of proposals now on Capitol Hill to strengthen the program. Benefits may be reduced, but they will not go away entirely.
Reference: CNBC.com (Aug. 24, 2020) “Here’s what to you need to know about claiming Social Security retirement benefits”
It is frustrating when your bank or other financial institution refuses to honor your Power of Attorney. The bank may say the form is too old, or that it wants their own form to be used. They may have a question about the validity of the form. A recent article titled “What to know if your bank refuses your power of attorney” from Pennsylvania’s The Mercury newspaper discusses the best way to prevent this situation, and if it occurs, how to fix it.
The most important thing to know is just downloading a form from the internet and hoping it works is always a bad idea. There are detailed rules and requirements about notices and acknowledgments and other requirements. Specific language is required. It is different from state to state. It’s not a big deal if the person who is giving the power of attorney is alive, well and mentally competent to get another POA created, but if they are physically or legally unable to sign a document, this becomes a problem.
There have been many laws and court cases that defined the specific language that must be used, how the document must be witnessed before it can be executed, etc. (Virginia doesn’t require witnesses per se. We typically use a notary to attest to its proper execution.) But whatever your state requires, be aware:
In one case, a state employee was given a power of attorney to sign by her husband. She was incapacitated at the time after a car accident and a stroke. He used the POA to change her retirement options and then filed for divorce.
At issue was whether she could present evidence that the POA was void when she signed it, invalidating her estranged husband’s option and his filing for her benefits.
The Pennsylvania Supreme Court found that a third party (the bank) could not rely on a void power of attorney submitted by an agent, even when the institution did not know that it was void at the time it was accepted. For banks, this was a clear sign that any POAs had to be vetted very carefully to avoid liability. There was a subsequent fix to the law that provided immunity to a bank or anyone who accepts a POA in good faith and without actual knowledge that it may be invalid. However, it includes the ability for a bank or other institution or person to request an agent’s certification or get an affidavit to ensure that the agent is acting with proper authority.
Virginia has a similar statute.
Some people like to have both a POA from a person and one that uses the bank or financial institution’s own form. It’s not required by law, but the person from the bank may be far more comfortable accepting both forms, because they know one has been through their legal department and won’t create a problem for the bank or for them as an employee. (Just be sure that one POA doesn’t revoke the other!)
There are occasions when it is necessary to fight the bank or financial institution’s decision. This is especially the case, if the person is incapacitated and your POA is valid. A court in Virginia can order a bank to honor a valid power of attorney — and make them pay your legal bills!
If there is any doubt about whether the POA would be accepted by the bank or your IRA custodian, now is the time to check and review the language and formatting with your estate planning or elder law attorney to be sure that the form is valid and will be acceptable.
It may be unpleasant to think about, but it all part of “adultin.” At any age. Without an end of life plan, a doctor you’ve never even met might decide how you spend your last moments, and your loved ones may live with the burden of not knowing what you would have wished. These are just a few reasons why “End-Of-Life Planning is a ‘Lifetime Gift’ To Your Loved Ones,” as discussed in a recent article from npr.org.
It’s important to recognize that planning for the end of your life is actually not all about you. It’s about the ones you love: your parents, spouse or your children. They are the ones who will benefit from the decisions you make to prepare for the end of your life, and life after you are gone. It is a gift to those you love.
So, what should you do?
Start by preparing to have an estate plan created. If you have an estate plan but haven’t reviewed it in the last three or four years, find it and review it. If you can’t find it, then you definitely need a new one. An estate planning attorney can help you create an estate plan, including a will and other documents.
In the will, you name an executor, someone who you trust completely to carry out your directions. Some people choose a spouse or adult child to be their executor. It’s a lot of work, so pick someone who is smart, organized and trustworthy. They’ll be in charge of all of your financial assets and communicating how the estate is distributed to everyone in your will.
Create an inventory. This includes things that are of financial and sentimental value. People fight over sentimental things, so giving your family specific directions may avoid squabbles.
If you have children under age 18, name a guardian for them. This should be a person who knows your children and will raise them with same values as you would.
Pets are often overlooked in estate planning. If you want to protect your pet, in many states including Virginia, you can create a pet trust. It includes funds that are to be used specifically for care for your pet, and a trustee who will be responsible for ensuring that the funds are used as you intended.
Digital accounts are also part of your property, including social media, online photos, everything in your online cloud storage, credit card rewards, email, frequent flyer miles and digital assets.
Make sure your will is executed and in compliance with the laws of your state. If your will is found to be invalid, then it is as if you never made a will, and all your planning will be undone.
You also need an advance directive, a legal document that covers health care and protects your wishes at the end of life. One part of an advance directive gives a person medical power of attorney, so they can make decisions for you if you cannot. The other part is a living will, where you share how you want to be cared for and what interventions you do or don’t want if you are near death.
Reference: npr.org (June 30, 2020) “End-Of-Life Planning is a ‘Lifetime Gift’ To Your Loved Ones”
A year later, and the estate of Chanel creative director Karl Lagerfeld is not yet finalized. However, some details have emerged that, while Lagerfeld’s cat Choupette is an heir, she isn’t the only one who will inherit a share of Lagerfeld’s grand fortune.
Let’s hope curiosity doesn’tkill the cat. Probate can drag on.
The seven beneficiaries are trying to access Lagerfeld’s assets that include real estate in Paris and Monaco, a bookstore and designer furniture.
Choupette is a blue-cream tortie Birman cat who was owned by German fashion designer Karl Lagerfeld from around December 2011 until Lagerfeld’s death in February 2019 at the age of 85.
The designer’s feline has her own agent and, according to The New York Times, at the height of her fame she had two minders, a bodyguard, a concierge veterinarian and a personal chef.
Wealth Advisor’s article entitled “Karl Lagerfeld’s cat is locked in inheritance battle” says that Lagerfeld’s “trusted” accountant for many decades, 87-year-old Lucien Frydlender has been named to manage the creative director’s finances. In addition, Frydlender is responsible for distributing the estate, according to Lagerfeld’s will.
However, an investigation by French publication Le Parisienfeatured in Voici magazine found that Frydlender hasn’t been taking calls from the beneficiaries. The magazine also says that “after closing his office in September 2019, the former collaborator of Karl Lagerfeld has simply disappeared from the radar,” raising questions for those involved.
Frydlender’s wife has defended her husband and assured the public that there’s nothing suspicious going on. She says he’s not “on an island paradise with a hidden treasure.” Instead, she tells reporters that he’s “very sick”.
When Choupette the cat will get her inheritance and what that will look like is unknown. It’s been more that a year since the death of her owner, Lagerfeld. Choupette fans have been concerned for the pet, but the cat isn’t scrounging in garbage cans: she made over $4 million in 2015.
“People came by the store and said how sad they were, and half of it was about Choupette,” Caroline Lebar, head of communications for the Karl Lagerfeld brand, admits. “They’d say, ‘If she’s alone, I’ll take her home.'”
However, Lebar promises Choupette is in safe hands, living in Paris with Lagerfeld’s former housekeeper Françoise Caçote. “She is in good shape, and is surrounded by love.”
Be aware that, in Virginia, you can leave funds to someone to take care of your pets who survive you, but you can’t leave money directly to your cat! Ask an experienced estate lawyer how to provide for your pets, such as in a pet trust.
Reference: Wealth Advisor (June 9, 2020) “Karl Lagerfeld’s cat is locked in inheritance battle”
Funding a Special Needs Trust is just the start of the planning process for families with a family member who has special needs. Strategically planning how to fund the trust, so the parents and child’s needs are met, is as important as the creation of the SNT, says the article “Funding Strategies for Special Needs Trusts” from Advisor Perspectives. Parents need to be mindful of the stability and security of their own financial planning, which is usually challenging.
Parents should keep careful records of their expenses for their child now and project those expenses into the future. Consider what expenses may not be covered by government programs. You should also evaluate the child’s overall health, medical conditions that may require special treatment and the possibility that government resources may not be available. This will provide a clear picture of the child’s needs and how much money will be needed for the SNT.
Ultimately, how much money can be put into the SNT, depends upon the parent’s ability to fund it.
In some cases, it may not be realistic to count on a remaining portion of the parent’s estate to fund the SNT. The parents may need the funds for their own retirement or long-term care. It is possible to fund the trust during the parent’s lifetime, but many SNTs are funded after the parents pass away. Most families care for their child with special needs while they are living. The trust is for when they are gone.
The asset mix to fund the SNT for most families is a combination of retirement assets, non-retirement assets and the family home. The parents need to understand the tax implications of the assets at the time of distribution. An estate planning attorney with experience in SNTs can help with this. The SECURE Act tax law changes no longer allow inherited IRAs to be stretched based on the child’s life expectancy, but a person with a disability may be able to stretch an inherited retirement asset.
Whole or permanent life insurance that insures the parents, allows the creation of an asset on a leveraged basis that provides tax-free death proceeds.
Since the person with a disability will typically have their assets in an SNT, a trust with the correct language—“see-through”—will be able to stretch the assets, which may be more tax efficient, depending on the individual’s income needs.
Revocable SNTs become irrevocable upon the death of both parents. Irrevocable trusts are tax-paying entities and are taxed at a higher rate. Investing assets must be managed very carefully in an irrevocable trust to achieve the maximum tax efficiency.
It takes a village to plan for the secure future of a person with a disability. An experienced elder law attorney will work closely with the parents, their financial advisor and their accountant.
Reference: Advisor Perspectives (April 29, 2020) “Funding Strategies for Special Needs Trusts”
This year, more families than usual are finding themselves grappling with the challenge of managing the affairs of a loved one who has died. Handling these tasks while mourning is hard, and often families do not have time to prepare, says the article “How to manage a loved one’s finances after they die” from Business Insider. The following are some tips to help get through the death of a loved one.
Someone has to be in charge. If there is a will, there should be a person named who is responsible for administering the estate, usually called the executor or personal representative. If there is no will, it may be best if one person has the necessary skills to take the lead. In Virginia, that person will have to post a bond as security for his or her faithful managment of the estate.
When one member of a married couple dies, the surviving spouse is the usual choice. Otherwise, a family member who lives closest to the deceased is the next best choice. That person will need to get documents from the local court and take care of the residence until it is sold. Being physically nearby can make many tasks easier.
It is always better if these decisions are made before the person dies. Wills should be kept up to date, as should power of attorney documents, trusts and advance directives. When naming an executor or trustee, let them know what you are asking of them. For instance, don’t name someone who hates pets and children to be your children’s guardian or be responsible for your beloved dogs when you die.
Don’t delay. Grief is a powerful emotion, especially if the death was unexpected. It may be hard to get through the regular tasks of your day, never mind the additional work of managing an estate. However, there are risks to delaying, including becoming a target of scammers.
Get more death certificates than seems necessary. Make your life easier by getting at least a dozen certified copies, so you don’t have to keep going back to the source. Banks, brokerage houses, phone companies, utilities, credit card companies, etc., will all want to see the death certificate. While there are instances where a copy will be accepted, in many cases you will need an original, with a raised seal. In fact, in some states it is a crime to photocopy a death certificate.
Who to notify? The first call needs to be to the Social Security Administration. You may also want to send an email. If Social Security benefits continue to be paid, returning the money can turn into a time-consuming ordeal. If there are any other recurring payments, like VA benefits or a pension, those institutions need to be notified. The same is true when it comes to insurance companies, banks and credit card companies. Fraud on the credit cards of the deceased is quite common. When a notice of death is published, criminals look for the person’s credit card and Social Security numbers on the dark web. Act fast to prevent fraud.
Protect the physical property. Secure the home right away. Are there plants to be watered or pets that need care? Take pictures, create an inventory and consider changing locks. Take any valuables out of the house and place in a secure location. If the house is going to be empty, make sure to take care of the property to avoid any deterioration.
Paying the bills. Depending on the person’s level of organization, you’ll have to identify where the money is and if anything is being paid automatically. Old tax returns can be helpful to identify income sources. Figure out what accounts need payment, like utilities.
Some accounts are distributed directly to beneficiaries, like transfer-on-death accounts like 401(k)s, IRAs and life insurance policies. Joint bank accounts and real property held in joint tenancy will pass directly to the joint owner. The executor’s role is to inform the institutions of the death, but not to distribute funds.
File tax returns. You’ll have to do the final taxes, due on April 15 of the year after death. If taxes weren’t filed for any prior years, the executor has to do those as well.
Consider getting help. An estate planning lawyer can help with the administration of an estate, if it becomes overwhelming. Regardless of who handles this process, expect the tasks to take anywhere from six months to two years, depending on the complexity of the estate.
Reference: Business Insider (May 2, 2020) “How to manage a loved one’s finances after they die”
There are many account types that are governed by beneficiary designation, such as life insurance, 401(k)s, IRAs and annuities. These are the most common investment accounts people have with contractual provisions to designate who receives the asset upon the death of the owner. With a beneficiary designation, what looks like routine paperwork can be a real minefield.
Kiplinger’s recent article entitled “Beneficiary Designations – The Overlooked Minefield of Estate Planning” provides several of the mistakes that people make with beneficiary designations and some ideas to avoid problems for you or family members.
Believing that Your Will is More Power Than It Really Is. Many people mistakenly think that their will takes precedent over any beneficiary designation form. This is not true. Your will controls the disposition of assets in your “probate” estate. However, the accounts with contractual beneficiary designations aren’t governed by your will, because they pass outside of probate. That is why you need to review your beneficiary designations, when you review your will.
Allowing Accounts to Fall Through the Cracks. Inattention is another thing that can lead to unintended outcomes. A prior employer 401(k) account can be what is known as “orphaned,” which means that the account stays with the former employer and isn’t updated to reflect the account holder’s current situation. It’s not unusual to forget about an account you started at your first job and fail to update the primary beneficiary, which is your ex-wife.
Not Having a Contingency Plan. Another thing people don’t think about, is that a beneficiary may predecease them. This can present a problem with the family, if the beneficiary form does not indicate whether it is a per stirpes or per capita election. This is the difference between a deceased beneficiary’s family getting the share or it going to the other living beneficiaries.
It’s smart to retain copies of all communications when updating beneficiary designations in hard copy or electronically. These copies of correspondence, website submissions and received confirmations from account administrators should be kept with your estate planning documents in a safe location.
Remember that you should review your estate plan and beneficiary designations every few years. Sound estate planning goes well beyond a will but requires periodic review. If this is overlooked, something as simple as a beneficiary designation could create major issues in your family after you pass away.
Reference: Kiplinger (March 4, 2020) “Beneficiary Designations – The Overlooked Minefield of Estate Planning”
If the warming Spring weather, the approach of Memorial Day Weekend, and the pandemic have left you wondering about how to get started on passing the river house or family vacation home to the family — or preparing to sell it in the future — you’ll need to understand how property is transferred. The details are shared in a useful article titled “Exit strategy for keeping the cabin in the family” from The Spokesman Review.
Here are two options to consider: an outright sale to the adult children or placing the cabin in a qualified personal residence trust. Selling the vacation home and renting it back from the children, is one way that parents can keep it in the family, enjoy it without owning it, and help the children out with rental income.
One thing to bear in mind: the sale of the vacation home will not escape a capital gains tax. It’s likely that the vacation home has appreciated in value, especially if you’ve owned it for a long time. If you have made capital improvements over that time period, you may be able to offset the capital gains.
The actual gain is the difference between the adjusted sales price (that is, the selling price minus selling expenses) and their adjusted basis. What is the adjusted basis? That is the original cost, plus capital improvements. These are the improvements to the property with a useful life of more than one year and that increase the value of the property or extend its life. A new roof, a new deck, a remodeled kitchen or basement or finished basement are examples of what are considered capital improvements. New curtains or furniture are not.
Distinguishing the difference between a capital improvement and a maintenance cost is not always easy. An estate planning attorney can help you clarify this, as you plan for the transfer of the property.
Another way to transfer the property is with the use of a qualified personal residence trust (QPRT). In this situation, the vacation home is considered a second residence, and is placed within the trust for a specific time period. You decide what the amount of time would be and continue to enjoy the vacation home during that time. Typical time periods are ten or fifteen years. If you live beyond the time of the trust, then the vacation home passes to the children and your estate is reduced by the value of the vacation home. If you should die during the term of the trust, the family vacation home reverts back to your estate, as if no trust had been set up.
A QPRT works for families who want to reduce the size of their estate and have a property they pass along to the next generation, but the hard part is determining the parent’s life expectancy. The longer the terms of the trust, the more estate taxes are saved. However, if the parents die earlier than anticipated, benefits are minimized.
The question for families considering the sale of their family vacation home to the children, is whether the children can afford to maintain the property. One option for the children might be to rent out the property, until they are able to carry it on their own. However, that opens a lot of different issues. They should do so for period of one year at a time, so they receive the tax benefits of rental property, including depreciation.
Talk with a qualified estate planning attorney about what solution works best for your estate plan and your family’s future, including the family vacation home. There are other means of conveying the property, in addition to the two mentioned above, and every situation is different. To learn more about planning for your family, sign up to watch our Master Class.
Reference: The Spokesman Review (April 19, 2020) “Exit strategy for keeping the cabin in the family”
There have been a few hiccups in the distribution of stimulus checks, and some people may have to wait months before their check is delivered. Most of us are able to monitor the status of our check by using the IRS’s Get My Payment tool. However, for many Social Security beneficiaries, they’ll see a message that says “Payment Status Not Available.” That’s because a lot of Social Security recipients don’t earn enough to file tax returns.
Motley Fool’s ’s recent article entitled “Social Security Beneficiaries: Here’s When You’ll Get Your Stimulus Check” advises that if you are unable to track your payment, here’s when you can expect to receive your stimulus check if you’re collecting Social Security benefits.
Those first to see their stimulus checks will be the ones who have their direct deposit information on file with the IRS. The agency will deposit the stimulus check straight to their bank account.
However, if you receive your benefits in the mail via paper check, or if you’re not certain if your bank account information is on file, you can provide your information through the Get My Payment tool. This will help you get your check faster.
While using direct deposit will ensure you get your check the quickest, you can get your check in the mail instead if your bank account info isn’t on file. The IRS started sending stimulus checks the week of April 20, and it expects to mail out about five million checks per week. At that rate, it could take 20 weeks for all checks to be delivered.
Whether you receive your check in days or months will depend on your income. The IRS is sending checks in a particular order, and those with the lowest-income individuals will get their checks first. If your income is nearer to the $99,000 per year income limit (or $198,000 per year for married couples), you might not receive your check until late August or early September.
If your income is somewhere in the middle, it’s estimated that you’ll get your check sometime this summer.
If you’re receiving Supplemental Security Income (SSI), you’ll see your stimulus payment in May, according to the IRS. Whether you receive that money via direct deposit or paper check will be based on whether the IRS has your bank account information on file.
The COVID-19 pandemic has caused a real financial hardship for millions of Americans, and waiting for your stimulus check can be stressful for you (or your parent), especially if money is tight and you need the extra money. However, it’s a little easier when you can at least calculate when your cash is expected to be delivered.
Reference: Motley Fool (April 27, 2020) “Social Security Beneficiaries: Here’s When You’ll Get Your Stimulus Check”