Couples need discussion and advice about an inheritance

Can an Inheritance Lead to Trouble for Marriages?

An inheritance is a blessing, but can it be a mixed blessing, or even a curse? That’s the question from the recent article “When One Spouse Gets an Inheritance It Can Be Hard on a Marriage” posed by The Wall Street Journal. The emotional high of receiving an inheritance is often paired with legal issues and stress. Emotional and life changing decisions can take a toll on the best of partnerships. Spouses may disagree with how assets should be used, or if an inheritance should be set aside for children from a prior marriage. The question of what happens to the inheritance in the case of death or divorce also needs to be addressed.

Couples are advised to start exploring these issues, with the help of an experienced estate planning attorney as soon as they know an inheritance is in their future. For starters, couples should learn about the legal issues surrounding an inheritance. Most states recognize inheritances as separate property. However, if funds are co-mingled in a joint account, or the deed for an inherited house is in both names, it becomes more complicated to separate out, if necessary.

Couples who decide to use an inheritance for a large purchase need to be mindful of how the purchase is structured and recorded. Writing a check directly from an account dedicated to the inherited funds and keeping records to show the withdrawal is recommended. If a check needs to be drawn from a joint or single account, the inherited funds should only be placed in the account for a short period, preferably close to the time of purchase, so it is clear the funds were transferred solely for the purpose of the particular transaction.

It might be wise to obtain a written agreement between spouses, making it clear the money was contributed with the understanding if there is a sale of the property or a divorce, inherited funds and any appreciation would be credited back to the contributing spouse.

For one couple, a $100,000 inheritance received by a man in his mid-50s with adult children and a second spouse created friction. A mixed blessing, for sure. The man wanted to set the funds aside for his children from a prior marriage, and his wife felt hurt, because she had every intention of giving the money to his children in the event of her husband’s death. She didn’t see the need to keep things separate. However, when advisors ran a series of projections showing the wife would be well cared for in the event of his death, since most of his own $1 million estate was earmarked for her, she relented. They also helped her understand if she racked up big medical bills later in her own life or creditors went after the estate, the money would be better protected by keeping it separate.

Risks come with co-mingling inheritances. It is important for couples understand how this works. Another example: a couple who expected to receive a sizable inheritance and did not save for their own retirement. Instead, they used up the wife’s inheritance for their children’s college educations. When the husband filed for divorce, the wife was left with no access to her ex-husband’s expected large inheritance and had no retirement savings.

These are not easy conversations to have. However, couples need to look past the emotions and make business-like decisions about how to preserve and protect inheritances. It’s far easier to do so while the marriage is intact, then when a divorce or other unexpected life event shifts the financial event horizon.

Reference: The Wall Street Journal (Sep. 13, 2020) “When One Spouse Gets an Inheritance It Can Be Hard on a Marriage”

 

Signing estate plan documents

Can You Distribute Unequal Amounts in an Estate Plan?

Overcoming an emotional response to planning your estate gets complicated, if you want to leave uneven distributions of your property to loved ones, including children and spouses. There are a lot of reasons for this, but the reasons don’t make it easier, explains the article “Distribution of estate can become a tricky matter,” from the Kentucky newspaper, The News-Enterprise.

Every family has its dynamics. Children may be estranged from parents, or one adult child may have given up her own career to care for her parents. There may be one child who received a large amount of support throughout his lifetime and a parent wants to give other children more of their estate. Whatever the reason, whenever there is an unequal distribution, there is a strong possibility of an estate being challenged. Plan wisely when leaving substantially different amounts of property between beneficiaries. (And that includes by beneficiary designation!)

Some people make the mistake of trying to simplify matters, by adding a codicil or an amendment to an existing will. This could open the door to a will challenge, since it raises a red flag to heirs, declaring that at one point they were going to receive one amount, but a change was made. Even in the absence of a contested action in court, a red-flagged change could lead to quarrels between heirs and the executor of the estate. For siblings, the change could cost the family more than their inheritance: it could lead to a family fracture.

If new documents are created, it is important that they be as specific as possible with regard to property bequests and the distribution of the assets in the estate. If the goal is to bypass a particular child, but there is no wish to disinherit future generations, the will must contain language stating that there is no wish to disinherit the descendants of the individual.

For some families, discussing the intentions with the heirs beforehand can avoid surprises and misunderstandings after you have passed. However, not every family enjoys healthy relationships. In those cases, a letter of explanation may be helpful to show intent, explain that there was consideration given to the unequal distribution and that it did not happen as the result of an oversight. (But make sure that note isn’t construed to be your will!)

Lifetime advances, where you gift an inheritance before you die, can get tricky. The same is true with creating a will that gives beneficiaries certain percentages in an effort to even things out, especially if a loan has been made. Unless you plan on updating your will every time a beneficiary makes a repayment on a loan, it’ll be hard to be sure that your wishes will be fulfilled when you pass.

A better plan may be to leave each beneficiary the amount you want and include a provision for repayment of any loans based on their inheritance. This can be done with a promissory note and by keeping meticulous records of payments made, so there is no need to update your bequest every time the loan amount changes.
Whatever your family’s situation, chances are good that your estate planning attorney has seen the situation before and will be able to discuss different options to achieve your ultimate goal. Don’t be tempted to take a short-cut—it could lead to larger problems that erode your estate’s value, defeating your intentions and impacting your legacy.

Reference:  (Kentucky’s) The News-Enterprise (Sep. 8, 2020) “Distribution of estate can become a tricky matter”

 

COVID worries older Americans

New Survey Conducted on Keeping the Elderly Safe in the Pandemic

Older Americans are more distrustful of senior living and care operators than younger generations, according to a new survey. They just don’t believe institutionalized settings will keep them safe from COVID-19.  And who can blame them?  Richmond nursing homes and senior living facilities have all battled the virus.

Nearly half (49.5%) of baby boomers said they don’t trust senior living and care providers to keep residents safe, while 43.9% of the Silent Generation reported the same distrust.

Younger people are more trusting: 42.3% of Generation X reported distrust, 31.8% of millennials and 38.2% of Generation Z.

McKnight Senior Living’s recent article entitled “41% don’t trust assisted living, nursing homes to keep residents safe during pandemic: survey” notes that 43.1% of baby boomers responded that they trust facilities “somewhat,” as did 51.4% of the Silent Generation respondents.

Some of this mistrust may come from the extensive media coverage of coronavirus deaths in nursing homes because senior residents are especially vulnerable to the illness. We’ve certainly seen our share in Virginia homes.

Some say that it goes further than that: the quarantine and social distancing has added to families’ stress and anxiety over the safety and mental well-being of seniors who live in these facilities because they aren’t able to visit as often as they want.

An online survey from ValuePenguin.com and LendingTree of more than 1,100 Americans recently found that COVID-19 has generated a rush of loneliness and worry among older adults.

According to the results, 36% of older adults feel lonelier than ever. In addition, more than 70% of seniors said that they have worries about the virus’ effects on their younger relatives. Those concerns were equally expressed by younger generations for their older relatives. Almost 50% of both age groups are worried that their relatives will catch the virus.

However, the pandemic looks to have a silver lining for family communications. An overriding sense of concern for the mental and physical health of elderly loved ones has led to more contact since the pandemic began.

Nearly 44% of the younger survey-takers stated they’ve spoken to their older relatives more frequently during the pandemic, about 25% of young people reported visiting their older relatives in person more frequently.

The top request from respondents aged 75 and older to their loved ones, is to call more frequently.

Reference: McKnight Senior Living (Sep. 11, 2020) “41% don’t trust assisted living, nursing homes to keep residents safe during pandemic: survey”

 

elder law

Social Security Benefits: Timing Is Everything

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”

Moving more adds years to your life.

Is Alzheimer Preventable?

Yes, roughly a third of Alzheimer’s cases are preventable, according to promising recent research. Instead of new medicines, lifestyle changes may give you the best chance of avoiding these illnesses. In addition, there may be some moves that may surprise you, says Considerable’s article from December entitled “6 steps you can take to cut your dementia risk.”

“There are many things we can specifically address quite effectively through lifestyle changes and practice,” says James E. Galvin, the director of the Comprehensive Center for Brain Health at Florida Atlantic University and author of a 2017 paper in the Journal of the American Geriatrics Society on the science of Alzheimer’s prevention.

“It doesn’t necessarily require medications. There is nutrition, exercise, diabetes, cholesterol, sleep, mindfulness and attitude.”

Know your numbers. Talk with your doctor about whether you have known risk factors, like being overweight, having high blood sugar or cholesterol, getting too little exercise or sleep, or eating a poor diet.  Your genes can also play a part in determining whether you will get Alzheimer’s, but even that risk factor many not produce an inevitable result.

Exercise. Exercising regularly is probably the most important move we can make, followed by treating metabolic illnesses, like hypertension or diabetes, and getting high-quality sleep every night.

Better diet. You can follow the so-called MIND diet, an acronym for the Mediterranean Intervention for Neurodegenerative Delay, which combines two popular diets that both recommend eating more leafy greens, olive oil, berries, nuts and fish, and reducing your intake of butter, red meat and cheese. You should also look at your Vitamin D level, because very low levels have recently been linked to increased risk of dementia.

Good sleep. Too little sleep is a risk factor for dementia. While many people sleep less as they get older, watch your sleep hygiene. Keep your bedroom cool and dark, don’t use electronics in the hour before bed and avoid caffeine late in the day. All of these tips can help you rest for longer. However, research shows that too much sleep is also connected to a higher risk of cognitive decline and early death.

Sudoku is great but… Many say that doing crossword puzzles can help stave off dementia. There is some evidence that puzzles, computer use, arts and crafts, music and continuing education may help protect against Alzheimer’s. Deeper social connections may also decrease your risk of cognitive decline. However, this evidence isn’t as indicative as the case for eating well and exercising, losing weight, treating your high blood pressure and lowering your cholesterol.

Jump in the sauna. A 2016 research paper by Tanjanina Laukkanen of the Institute of Public Health and Nutrition at the University of Eastern Finland reported that sauna use is inversely associated with dementia and Alzheimer’s. In a study of 2,315 men, the study found that the more saunas taken per week, the lower the risk.

“I think the important explanation is that there are quite similar risk factors for memory diseases and cardiac diseases,” says Laukkanen. “It’s been shown that sauna use may decrease blood pressure and have a positive effect on vascular functions.”

Saunas are a national pastime in Finland, so there may be other factors at play. Laukkanen also warns that people with heart disease or low blood pressure should avoid saunas. However, it’s nice to know that a regular steam is another lifestyle change that helps to lower your risk of getting Alzheimer’s disease. Who knew?

Reference: Considerable (Dec. 26, 2019) “6 steps you can take to cut your dementia risk”

 

Dementia Risks

What Common Prescription Drugs Might Increase Dementia Risk?

The Mayo Clinic tells us that habits and traits familiar to many Americans appear to contribute to occurrences of dementia or Alzheimer’s Disease: smoking, vascular risk factors, including high blood pressure, high cholesterol and diabetes. The typical American diet. But there is some evidence that some common medications may also boost the risk of dementia and Alzheimer’s. Consider anticholinergics. They are a type of medication that blocks the action of acetylcholine, a chemical messenger in the brain that help drive breathing, digestion, urination and other functions, explains Considerable’s recent article entitled “These common prescription drugs might boost your dementia risk.”

These include drugs for depression (like Paxil), psychosis (like Thorazine), Parkinson’s disease (such as Cogentin) and bladder disorders (such as Ditropan).

The study found a nearly 50% increase in chances of dementia among people who received more than 1,095 daily doses of these drugs within a 10-year period— equivalent to a senior taking a strong anticholinergic medication daily for at least three years.

The research, which was published in JAMA Internal Medicine, the University of Nottingham study tracked 284,343 patients age 55 and older between 2004 and 2016.

The researchers analyzed total standardized daily doses (TSDDs) of anticholinergic drugs during that time period.

The University of Nottingham researchers identified each adult’s anticholinergic exposure and saw that the most frequently prescribed anticholinergic drugs were antidepressants, drugs to treat vertigo, motion sickness or vomiting and an overactive bladder.

However, there were some other anticholinergic antihistamines, and gastrointestinal drugs that did not show a connection to a higher incidence of dementia, the researchers said.

While the study shows a correlation between these specific anticholinergic drugs and increased dementia odds, the researchers cautioned that seniors should not discontinue taking any medications without talking with their physician.

Reference: Considerable (Feb. 21, 2020) “These common prescription drugs might boost your dementia risk”

 

Loss of Stretch IRA is Not Such a Big Deal

Yes, the SECURE Act takes away the use of the stretch IRA, which is the ability to pass an IRA down to a child or grandchild and have them take out withdrawals over their lifetime as part of your estate planning. No big deal, says the article “No stretch IRA? No problem” from Investment News. Here’s why.

Only the biggest IRAs are affected. How many IRAs actually make it to the beneficiary that are large enough to justify stretched payouts? According to the Treasury Department, only about 20% of all individuals who were required to take the Required Minimum Distribution (RMD) actually stick to the schedule and take that amount out. Four out of five people who own IRAs take much more money than the minimum. This reduces the amount in the account that is left for their beneficiaries and reducing and even eliminating the possibility of heirs using the stretch IRA option.

There’s no change to spousal beneficiaries. Most married people leave their IRAs to their spouses, and surviving spouses are exempt from the new stretch restrictions. Spouses who inherit IRAs and other assets still have the same options they had before the SECURE Act was passed. Financially savvy spouses (or those with good advisors) will do a spousal rollover and further delay the “no stretch problem” for another generation. By doing this, they postpone the start of the ten-year payout rule. If they use more of the IRA during their own lifetime, again, there’s not that much to worry about.

Most beneficiaries don’t stretch. Not at all. Windfalls usually don’t last very long. How many beneficiaries wait patiently for 30, 40 or 50 years to deplete an inherited IRA? Not many. For many beneficiaries, the new ten-year rule might actually be more realistic. For the smaller IRAs, it may be more logical to empty the account with a lump-sum distribution, especially if it is distributed among several beneficiaries in low tax brackets. However, if the IRA is a Roth, hang on to it and let it grow, tax-free, for as long as possible.

Most beneficiaries are in lower tax brackets. People like to leave their IRAs to their grandchildren, but most grandchildren, under the SECURE Act, will not be able to stretch IRA payouts over their lifetime. If the grandchild is a minor, then the kiddie tax emerges, and the child might have to pay taxes on any withdrawals at their parent’s tax rates. Do your homework with your estate planning attorney.

While the inherited payout is ten years, the tax hit to younger, usually lower income earners, won’t be as bad. However, the kiddie tax could lead to a huge tax hit for your adult children and grandchildren. Another option is naming multiple grandchildren. More beneficiaries will at least stretch out the tax hit over multiple tax returns.

Speak with your estate planning attorney about what needs to change on your estate plan, in light of the new restrictions created by the SECURE Act, which takes away the ability to pass an IRA down to a child or grandchild and have them take out withdrawals over their lifetime. There are strategies that they can discuss with you to minimize tax liability and manage your family’s inheritance.

Reference: Investment News (March 2, 2020) “No stretch IRA? No problem”

 

fundamental estate planning

What Is So Important About Powers Of Attorney? (Especially Now?)

Powers of attorney can provide significant authority to another person, if you are unable to do so. These powers can include the right to access your bank accounts and to make decisions for you. Having the right power of attorney, right now, is more important than ever.

AARP’s article from last October entitled, “Powers of Attorney: Crucial Documents for Caregiving,” describes the different types of powers of attorney.

Just like it sounds, a specific power of attorney restricts your agent to taking care of only certain tasks, such as paying bills or selling a house. This power is typically only on a temporary basis.

A general power of attorney provides your agent with sweeping authority. The agent has the authority to step into your shoes and handle all of your legal and financial affairs.

The authority of these powers of attorney can stop at the time you become incapacitated. Durable powers of attorney may be specific or general. However, the “durable” part means your agent retains the authority, even if you become physically or mentally incapacitated. In effect, your family probably won’t need to petition a court to intervene, if you have a medical crisis or have severe cognitive decline like late stage dementia.

In some instances, medical decision-making is part of a durable power of attorney for health care. This can also be addressed in a separate document that is just for health care, like a health care surrogate designation.

Virginia is among the states that recognize “springing” durable powers of attorney. With these, the agent can begin using her authority, only after you become incapacitated. Other states don’t have these, which means your agent can use the document the day you sign the durable power of attorney.

A well-drafted power of attorney helps your agent help you, because she can keep the details of your life addressed, if you cannot. That can be things like applying for financial assistance or a public benefit, such as Medicaid, or verifying that your utilities stay on and your taxes get paid. Attempting to take care of any of these things without the proper document can be almost impossible.

A poorly drafted power of attorney, or one not tailored to your needs now, could make it difficult or impossible for a loved on to apply for important government health care benefits you could need down the road. (Or sooner!)

In the absence of proper incapacity legal planning, your loved ones will need to initiate a court procedure known as a guardianship or conservatorship. However, these hearings can be expensive, time-consuming and contested by family members who don’t agree with moving forward.

Don’t wait to do this. Every person who’s at least age 18 should have a power of attorney in place. If you do have a power of attorney, be sure that it’s up to date. Ask an experienced elder law or estate planning attorney to help you create these documents. And we have no-contact consultations available right now via phone or Zoom Meeting.  Call us now.

Reference: AARP (October 31, 2019) “Powers of Attorney: Crucial Documents for Caregiving”

C19 UPDATE: Bookmark this Page from the IRS for Ongoing Coronavirus Updates

The IRS has established a special section focused on steps to help taxpayers, businesses and others affected by the coronavirus. This page will be updated as new information is available. https://www.irs.gov/coronavirus

For health information about the COVID-19 virus, visit the Centers for Disease Control and Prevention (CDC) https://www.coronavirus.gov

Other information about actions being taken by the U.S. government visit https://www.usa.gov/coronavirus and in Spanish at https://gobierno.usa.gov/coronavirus.

The Department of Treasury also has information available at Coronavirus: Resources, Updates, and What You Should Know https://home.treasury.gov/coronavirus

C19 UPDATE: Emergency Estate Planning Decisions to Make Right Now

Though it is hard not to panic when our grocery store shelves are empty, the number of confirmed cases of COVID-19 keeps rising — a friend of mine just posted his positive diagnosis yesterday — and we see sobering statistics here and across the globe It is clear we will not overcome this challenge with a panicked response. Or by failing to act.

Clearly, there are things we all need to be doing right now – and Virginia public health officials are the best resource on how to stay personally safe and help prevent the virus from spreading.

When it comes to the seriousness of this outbreak, however, there also are some critical estate planning decisions you should make – or review – right now.  You nay be sitting at home mire this week.  It is a good time to ask yourself these questions:

  1. Who will make medical decisions for me should I become severely ill and unable to make these decisions myself?
  2. Who will make my financial decisions in that same situation — for example, who will be authorized to sign my income tax return, write checks or pay my bills online?
  3. Who is authorized to take care of my minor children in the event of my severe illness? What decisions are they authorized to make? How will they absorb the financial burden?
  4. If the unthinkable happens – what arrangements have I made for the care of my minor children, any family members with special needs, my pets or other vulnerable loved ones?
  5. How will my business continue if I were to become seriously ill and unable to work, even remotely … or in the event of my death?

These are the most personal decisions to make right now to protect yourself and your loved ones during this emergency. Now is also a good time to ask yourself if you have plans in place for the smooth transfer of your assets and preservation of your legacy.

We are ready to help walk you through these decisions, understand the ramifications of your choices, and memorialize your plans in binding legal documents. The Nance Law Firm is currently offering no-contact initial conferences remotely, including consultations via Zoom Meetings. In other words, you may be able to use some of your down time to take care of decisions you may have put off.  Book a call now and let us help you make the right choices for yourself and your loved ones.

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