A good add-on to that sentence is something like, “provided that it is kept separate from marital assets.” To say it another way, when an inheritance or any other exempt asset (like a premarital asset) is “commingled” with marital assets, it can lose its exempt status.
A few courts have said that an inheritance was exempt even when it was left for a short time in a joint bank account. This might happen after a parent’s death when the proceeds of a life insurance policy were put into the family account to save time during a stressful situation. In another case, the wife took the insurance check her husband had received and opened a joint investment account with the money. That money was never touched, but the wife still wanted half of it when the couple divorced a few years later. However, in that case, the judge ruled that the proceeds from the insurance policy were the husband’s separate property.
The law generally says that assets exempt from equitable distribution (like insurance proceeds) may become subject to equitable distribution if the recipient intends them to become marital assets. The commingling (mixing) of these assets with marital assets may make them subject to a division in a divorce. However, if there’s no intent for the assets to become martial property, the assets may remain the recipient spouse’s property.
Courts will look at “donative intent,” which asks if the spouse had the intent to gift the inheritance to the marriage, making it a marital asset. Courts may look at a commingled inheritance for donative intent, but also examine other factors. This can include the proximity in time between the inheritance and the divorce. Therefore, if a spouse deposited an inheritance into a joint account a year before the divorce, she could argue that there should be a disproportionate distribution in her favor or that she should get back the whole amount. Of course, the longer amount of time between the inheritance and the divorce, the more difficult this argument becomes.
Be sure to speak with a divorce attorney or your estate planning attorney about the specific laws in your state. If there is a hint of trouble in the marriage, it might be wiser to simply open a new account for the inheritance.
If you need long-term care, you may be able to deduct some of your long-term care expenses on your tax return. If you purchased a long-term-care insurance policy to cover the costs, you may also be able to deduct some of that. Retirement planning entails long-term care, so it’s critical to know how these tax deductions can help offset overall costs.
Kiplinger’s article, “Deduct Expenses for Long-Term Care on Your Tax Return,” explains that you can deduct unreimbursed costs for long-term care as a medical expense, including eligible expenses for in-home, assisted living and nursing-home services. However, certain requirements must be met. The long-term care must be medically necessary and can include preventive, therapeutic, treating, rehabilitative, personal care, or other services. The cost of meals and lodging at an assisted-living facility or nursing home is also included, IF the main reason for being there is to get qualified medical care.
The care must also be for a chronically ill person and given under a care plan prescribed by a licensed health care practitioner. A person is “chronically ill,” if he or she can’t perform at least two activities of daily living—like eating, bathing or dressing—without help for at least 90 days. This condition must be certified in writing within the past year. A person with a severe cognitive impairment is also deemed to be chronically ill, if supervision is needed to protect his or her health and safety.
To claim the deduction, you must itemize deductions on your tax return. Itemized deductions for medical expenses are only allowed to the extent they exceed 10% of your adjusted gross income in 2019. An adult child can claim a medical expense deduction on his own tax return for the cost of a parent’s care, if he can claim the parent as a dependent.
The IRS also permits a limited deduction for certain long-term-care insurance premiums. You must submit an itemized deduction for medical expenses, and only premiums exceeding the 10% of AGI threshold are deductible in 2019. Further, the insurance policy itself must satisfy certain requirements for the premiums to be deductible. For instance, it can only cover long-term-care services. This limitation means the deduction only applies to traditional long-term-care policies, rather than hybrid policies that combine life insurance with long-term-care benefits. The deduction has an age-related cap.
These deductions are typically not useful for people in their fifties or sixties but can be valuable for people in their seventies and older. That’s because income tends to drop in retirement, so the deductions can have a greater overall impact on tax liability. As you age, you’re also more likely to have medical expenses exceeding 10% of AGI. Those deductions could move your total itemized deductions past the standard deduction amount. The chances of satisfying the medical necessity requirements for the care costs deduction also increase with age, and the cap for the premium deduction levels off after age 70.
Is contesting a Will worth the effort, money, and time? This question comes up more frequently than you’d think. The desire to sue an estate sometimes is the result of an unpleasant shock, and at other times, it’s due to anger. However, according to this article from Forbes, “5 Things You Should Know About Contesting A Will,” before you start making revenge plans or hiring the most tenacious attorney in town, take a deep breath. You need to consider some cold hard facts:
Litigation is expensive. I’m going to repeat that again: Litigation is expensive!! Many people will ask if an attorney will take the case on a contingency fee basis—typically a third of what you receive, and he or she only gets paid if you do. Most probate litigation attorneys won’t take a Will contest case on a contingency fee basis because there’s a pretty good risk they won’t get paid. If they do take the case, make sure you have a litigation attorney with experience in estate battles.
Have lots of Rolaids on hand. You’re gonna need them. A Will Contest lawsuit is a rough journey; one that can be full of lies, misrepresentations, and accusations. There may also be a counter lawsuit against you. You’ll probably be interrogated in a deposition, where the opposing lawyer will ask you questions about your relationship with the deceased person and with the other beneficiaries. You will likely be portrayed as greedy, and you may have to testify in court.
Snap decisions are required. Once you hire your attorney, he or she will work with you to develop a strategy for the case. Your attorney may recommend that you file suit immediately and be the first one to the courthouse. Or your counsel may think it best to send a letter to the attorney representing the person you’re suing with a request for information. Then, depending the response, you may decide to file suit. In most cases, you’ll have a limited time to contest the Will. If you don’t do so within that time period, you can’t ever bring a lawsuit. Talk to an experienced attorney shortly after the death.
You’ll probably reach a settlement. Once the Will Contest litigation has begun and the attorneys have had time to exchange information and do some fact finding (in what is known as the discovery process), your attorney will talk to you about the strengths and weaknesses of your case. It may be appropriate at that juncture for one side to present the other with a settlement offer. This would end the litigation without the time and expense of trial. This may be a wise option if you’re tired of fighting and willing to consider a settlement instead of going to trial. Your attorney may also point out weaknesses in your case and advise you to be happy with getting a settlement. That way you can move on with your life. You should approach the settlement like a business decision, and try to keep emotion out of it.
Expect emotional pain. While you may get some satisfaction if you win, you will destroy your relationships with the people you bring to court. If you lose, well, that’s a lose-lose proposition. No matter how big the win, all the underlying emotional issues will still be with you.
It’s not unusual for a parent not to fall in love with their child’s choice for a spouse. They may even go as far as to try to make certain that their daughter- or son-in-law doesn’t get their inheritance.
A good strategy is to create a trust, either as part of a Will or a living trust, that would receive the estate assets for the benefit of the child and the child’s children.
A trust is a fiduciary arrangement that lets the trustee maintain trust assets on behalf of a beneficiary or beneficiaries.
Trusts can be created in many ways and can specify precisely how and when the inheritance can be allowed to pass to the beneficiaries.
The trustee is a person or company that holds and administers the trust assets for the benefit of a third party. A trustee can be given a wide range of authority in the trust agreement. The trustee makes decisions in the beneficiary’s best interests, and they have a fiduciary responsibility to the trust beneficiaries. For the most protection, the child should not be the trustee of her own trust.
Trust assets can be used for the health, education, maintenance and support of a child. The inheritance assets that are left over (if any) at the death of the child and any remainder are directed to go to the grandchildren outright or in trust.
Provided the assets distributed to the daughter aren’t commingled with the assets of her husband, those assets wouldn’t be subject to equitable distribution, if they couple were to one day get divorced.
The daughter can also enter into a prenuptial or postnuptial agreement. With this type of agreement, her spouse waives the right to any assets owned or inherited by the daughter.
Talk these types of situations over with a qualified estate planning attorney.
Caregivers tend to be so over-scheduled that they put off making preparations for a rainy day, like getting legal documents in place. When you feel as if your to-do list gets longer every day, planning for a potential future emergency can take a back seat to juggling your day job, your children, and taking care of your aging relative.
Before you can go to the lawyer and get documents drafted, you need to know what your aging relative’s wishes are. Find out if she has already made any arrangements or signed legal documents. You might not need to do as much as you think. Make sure these documents are not in a safe deposit box, since you will need a court order to open the box after your relative dies if you are not authorized on the account.
Gather all the existing legal papers and go through them with your loved one to see if the documents need to be updated or changed. People often make a Will, for example, and stick it in a drawer. Thirty years later, when the Will gets dusted off for probate court, you discover that none of the beneficiaries of the Will is still alive.
Here are some of the topics you might want to discuss with your relative:
Who should make his medical and financial decisions, if he cannot do so. These might be two different people.
End-of-life decisions about hospice, life support, and organ donation.
What funeral and burial arrangements he would like, if he does not have a pre-paid plan and burial plot.
The organization to which he would like donations sent, in lieu of flowers, if that is his preference.
How he wants his property distributed after death.
Getting the Legal Documents
Once you have compiled all the information and old papers, you and your relative should talk with a lawyer to get documents drafted. Depending on the situation, your loved one might need some or all of these legal papers:
Durable power of attorney for financial decisions, to appoint someone to act on his behalf, if he becomes unable to do so.
Durable power of attorney for health care decisions, so the named person can make medical decisions, if he becomes incapacitated.
HIPAA medical records release, so the person who makes the medical decisions can have access to his medical records to make informed decisions.
Will or living trust, to distribute his assets when he dies.
Depending on his wishes, you might need a Do Not Resuscitate Order (DNR), health care directive with specific instructions about particular types of life support, or Physician Orders for Life-Sustaining Treatment (POLST). Your elder law attorney can guide you toward the correct form for your state.
Once you take these measures, you can relax and enjoy the time you spend with your loved one, knowing you are well-prepared for whatever the future brings.
Your state might have different regulations than the general law of this article. You should talk with an elder law attorney near you.
Investopedia’s recent article, “The Executor’s Checklist: 7 Tasks Before They Die,” reminds us that being executor of an estate means significant responsibility. It can be a daunting task, if you’re unprepared. Here are some simple steps to take while the testator is still alive to make the executor’s job easier.
Make Sure You Know the Location of the Will and Other Estate Planning Documents. This is a no-brainer. It makes the executor’s job easier if the testator (the person who executed the Will) keeps the original Will, deeds, partnership documents, insurance policies, or other important papers in an agreed-upon spot, with copies at a backup location.
Retitle Accounts Where Appropriate. If the testator has a spouse, mostly like they want assets to flow directly through to the surviving spouse (if neither spouse has children outside the marriage) or to a trust, so retitle accounts appropriately.
Make a List of the Testator’s Preferences. Another way to make things easy on the executor and the family is to include document your funeral preferences in writing.
Draft a Possessions List and Their Recipients. A big issue that many executors overlook is distributing personal possessions that have little financial value but great sentimental value. Along with the testator, an executor can create a list for the dispersal of personal items, as well as a system of distribution. The testator can include their reasoning for who got what gift. Sharing the list with those involved may also eliminate some hurt feelings. An organized dispersal can make an executor’s job easier and help with issues of fairness.
Create an Annual Accounting Sheet and Updating Schedule. If the testator keeps track of the estate electronically on an annual basis, the executor will have a good idea of assets when it’s required. This e-document will also decrease the time spent searching for that jewelry the testator gave to a granddaughter or tracking down the funds that were supposedly in a now-empty investment account.
Create a Sealed Online Accounts Document. An executor should also have a record of the testator’s online presence to deactivate accounts. This document simplifies work for the executor.
Meet the Relevant Professionals. Executors should be familiar with the accountant, estate planning attorney and other professionals the testator uses. They may have further advice specific to the testator’s situation.
Preparation will greatly decease the odds of any complications when carrying out your duties as an executor. Take these actions while the testator is still alive to help make certain that the executor carries out the testator’s wishes.
If you’re on Medicare, your coverage away from home depends partly on your destination and whether you’re on basic Medicare or receive your benefits through an Advantage Plan. It can also can depend on whether the health care you get is routine or due to an emergency.
Travel medical insurance can be the solution to gaps in coverage, but it’s good to first determine whether you need it. Remember that original Medicare consists of Part A and Part B. Retirees who opt to stay with just this coverage—instead of going with an Advantage Plan—typically pair their coverage with a stand-alone prescription-drug plan (Part D). If you fit in this situation, your coverage while traveling in the U.S. and its territories is fairly simple. You can go to any physician or hospital that accepts Medicare, regardless of the type of visit.
However, when you journey beyond U.S. borders, things get more complex.
Generally, Medicare doesn’t provide any coverage when you’re not in the U.S – with a couple of exceptions. These include if you’re on a ship within the territorial waters adjoining the country within six hours of a U.S. port or you’re traveling from state to state but the closest hospital to treat you is in a foreign country. As an example, think about a trip to Alaska via Canada from the 48 contiguous states.
Roughly a third of retirees on original Medicare also buy supplemental coverage through a Medigap policy (but you can’t pair Medigap with an Advantage Plan). Those policies, which are standardized in every state, vary in price and offer coverage for the cost-sharing parts of Medicare, like copays and co-insurance. There are some Medigap policies—Plans C, D, F, G, M and N—that offer coverage for travel. You pay a $250 annual deductible and then 20% of costs up to a lifetime maximum of $50,000. However, that may not go very far, depending on the type of medical services you need.
There’s also no overseas coverage through a Part D prescription drug plan, and Medigap policies don’t cover any costs related to Part D, whether you’re in the U.S. or not. For seniors who get their Medicare benefits—Parts A, B and typically D—through an Advantage Plan, it’s a good idea to review your coverage, even if you’re not leaving the U.S. any time soon. These plans must cover your emergency care anywhere in the U.S., but you may have to pay for routine care outside of their service area or you’ll pay more.
Some Advantage Plans may also have coverage for emergencies overseas, so review your policy. Whether you have an Advantage Plan or original Medicare, travel medical insurance might be a good move if you think your existing coverage isn’t enough. The options are priced based on your age, the length of the coverage and the amount. In addition to providing coverage for necessary health services, a policy usually includes coverage for non-medical required evacuation, lost luggage and dental care required due to an injury.
There’s coverage for a single trip of a couple weeks or several months, or you can buy a multi-trip policy, which could cover a longer time period.
It’s also important to know if your policy covers pre-existing conditions, since some don’t. You should also be aware that some Advantage Plans might disenroll you, if you stay outside of their service area for a certain time, usually six months. In that situation, you’d be switched to original Medicare. If you are disenrolled, you’d have to wait for a special enrollment period to get another Advantage Plan.
The Setting Every Community Up For Retirement Enhancement (SECURE) Act became effective Jan. 1, 2020, and it will affect nearly everyone in some way. Like any huge tax bill, there are things that some people will like and some people will hate. Here are some of the provisions that most people will want to know:
Some of the good news:
Required Minimum Distribution (RMD) change. If didn’t turn 70 1/2 in 2019 or earlier, you don’t have to take your first RMD until you turn 72. Just like the RMD rules that have been in place for years, you could delay taking that first RMD until April 15th of the calendar year after you turn 72, but you’d also have to take a second RMD before December 31st of that same year.
Contributions to Traditional IRA Change. Until now, you couldn’t make contributions to your Traditional IRA once you hit the calendar year in which you turned 70 1/2. The SECURE Act removed that age limit, and, as long as you have earned income, contributions can be made at any age.
New Exception To The 10% Early Withdrawal Penalty. Up to $5,000 can be distributed penalty-free from an IRA or from a qualified plan as a “Qualified Birth or Adoption Distribution.” It has to taken within a year after the birth or adoption, and, as of now, it appears that it’s not a one-time-only deal and can be used following subsequent births or adoptions.
New Qualified Education Expenses for 529 Plans. Under the SECURE Act, 529 plans can now be used to pay for expenses related to certain Apprenticeship Programs and a lifetime amount of $10,000 can be used to pay the principal and/or interest of qualified education loans. The $10,000 lifetime limit on student loan debt is a per-person limit, and in addition to using the funds in a 529 plan to pay for the 529 plan beneficiary’s debt, an additional $10,000 may be distributed as a qualified education loan repayment to satisfy outstanding student debt for each of a 529 plan beneficiary’s siblings. This change is effective retroactive to the beginning of 2019.
Bigger Tax Credits for Small Employers who Establish Employee Retirement Plans. Employers with less than 100 employees who establish a small business-sponsored retirement plan, such as a 401(k), 403(b), SEP IRA or SIMPLE IRA may be eligible for a tax credit of of $500-$5000.
Some of the bad news:
Elimination of the “Stretch IRA” Provisions for Most IRA Beneficiaries. This is a game-changer for many parents and children. Under current tax law, children who inherit an IRA from a parent could stretch out the required minimum distributions (RMDs) over their own life expectancies, thereby taking advantage of tax-deferred growth and spreading out the tax consequences. Now, under the SECURE Act, if you die in 2020 or later, your adult children beneficiaries will have no annual RMDs, but will be required to withdraw the entire amount in a lump sum in 10 years! Beneficiaries who are spouses, disabled per IRS regulations, or are less than 10 years younger than the IRA owner will still be able to stretch out their RMDs. But the trusts many people use to control IRA distributions to their children may now not work as they intended. The IRS has not addressed this specific issue yet.
This is just a rough outline of some of the provisions included in the law and don’t include a lot of the details. Contact your financial advisor if you have questions about how the SECURE Act may affect your retirement plan. If you named a trust or a sub-trust as a beneficiary of your IRA, contact your estate planning attorney to discuss your options.
Quite often, a person who calls into our office starts the conversation with something along the lines of “I just need a simple Will leaving everything to my son.” Sometimes they do, but, more often than not, their situation really isn’t “simple,” and their current “plan” is a time bomb waiting to destroy their family.
During our conversation, I discover that the caller is 78 years old, divorced, and in poor health due to a chronic disease. She has three adult children, about $300,000 in assets including her home, and has added the oldest son as a joint owner on her bank accounts, safe deposit box, and her home. She has no long-term care insurance, Durable Power of Attorney, Designation of Health Care Surrogate, or Living Will. She’s calling about a Will because a friend told her that she needs a Will to avoid probate when she dies.
First, I explain that her well-meaning friend was incorrect – a Will actually mandates probate. A Will tells the probate judge who gets the assets that are subject to probate after the court proceeding is done in 6-9 months. Probate can be avoided by other strategies, but those strategies also have some drawbacks that need to be evaluated for each situation.
Then I ask why she’s disinheriting her other children. “Oh, no,” she says. “I’m not disinheriting my other children. I love them. I’m leaving everything to my son because that’s much simpler for me, and he’ll share with his siblings.”
Maybe he will, maybe he won’t. The fact is, most of the time, he won’t. I know, because I get those calls, too, from the siblings who didn’t know their brother would inherit everything and they’re legally entitled to nothing. Mom’s wishes are just that – wishes.
I explain that by naming her son as her sole beneficiary in her Will and as joint owner on her bank accounts and home, her other children will be legally entitled to nothing. Her son will have absolutely no legal obligation to share one cent with anyone when she dies. He will be the sole legal owner. Siblings are notorious for spats and rivalry. The fact that she left everything to him – no matter what her thoughts and wishes were – will deeply hurt her other children and could permanently ruin their relationship with their brother and tarnish their memory of their mother.
In addition, while she’s alive, her bank account and home are wide open to her son’s creditors – including accident victims, the IRS, and a divorcing spouse. Not only that, but by adding him as a joint owner on her home that she’s owned for 30 years, he’s stuck with her low cost basis in the home and he’ll likely end up paying capital gains taxes when he sells it at her death. But if her children inherited the home at her death, they’d inherit it at the higher fair market value as of her date of death, and likely owe no capital gains taxes if they sell it immediately.
Then I ask why she doesn’t have a Durable Power of Attorney, which names the people who would have the legal right to act on her behalf for financial or legal matters – pay her bills, sign contracts, sue, sell property, open and close bank accounts, talk to the IRS, apply for Medicaid, etc. She says, “But I don’t need that. My son is on my bank accounts and house, so he can handle anything that needs to be done with those.” I explain that no, he can’t. Yes, he can sign checks, but he can’t legally speak for or sign anything on her behalf. He can’t sell or mortgage the house by himself. And even worse, if her health gets to the point where a nursing home is needed, he can’t hire an elder law attorney to get her qualified for Medicaid unless he goes to guardianship court.
She never heard of a Designation of Health Care Surrogate. She assumed her son would easily be able to make medical decisions for her because he’s her son. I explain, that yes, under Florida law, since she’s not married, her children are authorized under our statute to make medical decisions for her. But the statute doesn’t say which child – all the children have equal status. So, which child should the doctors listen to? What if the children disagree about something or one beats the others to the punch when a decision has to be made? A Designation of Health Care Surrogate solves those problems.
I then ask whether she’s ever discussed her end-of-life wishes with her children. “No,” she says. “Every time I bring it up, they don’t want to listen and change the subject.” So, her children could end up arguing over whether or not they should “pull the plug.” No matter what they decide, if they love her, they may have lifelong guilt because they’ll fear they made the wrong decision. I explain that a Living Will allows her to state her desire to die a natural death – not be hooked up to nutrition, hydration or respiration – when there’s no reasonable hope for recovery, and her Health Care Surrogate must enforce that on her behalf. This simple document takes that awful decision-making burden off her children’s shoulders.
At the end of our conversation, she may or may not decide to change her plan to make it more family-friendly, but at least now she has a better understanding of what her choices mean for her family.
Being asked to be a Trustee is a question that deserves serious consideration. Because there are so many different types of Trusts and Trustees, the answers to the question posed above will vary greatly, says The Mercury in a recent article that asks “Should you be a trustee?”
At the very simplest level is a revocable living trust. The person who creates the Trust during his lifetime is called the Grantor, The Grantor appoints a Trustee when the trust is established. The Grantor may name himself – or someone else – as the Trustee of the Trust. The Grantor’s assets are retitled in the name of the trust and are now possessed by the Trustee. The Grantor continues to file the same income tax returns, using his Social Security number, and the income from the Trust assets are treated as his income.
In this instance, the Trustee duties are pretty easy. Instead of wearing your “Mr. Jones” hat, you are just wearing your “Mr. Jones, Trustee of the John Jones Trust” hat.
In most cases, the Trust document names at least one successor Trustee. Those persons are typically adult children, although it could also be a lawyer, accountant, or a financial institution. If the Grantor becomes disabled or incapacitated, the successor Trustee is responsible for managing the Trust assets – dealing with banks, financial institutions and others on behalf of the Grantor.
After the Grantor dies, the successor Trustee would continue in that role, and details of their responsibilities should be outlined clearly in the Trust document.
Another type of Trust is called a testamentary Trust. It’s generally a very simple Trust that’s created pursuant to a Will. It’s often created to provide support for a minor beneficiary who might inherit assets. Usually parents or the surviving parent of a minor beneficiary or the executor of the Will is named as the Trustee for the child’s funds until the child reaches a certain age.
All Trustees, regardless of what type of Trust is involved, have a fiduciary responsibility, meaning that they are held to a high legal standard of accountability and must always put the needs of the Trust before their own. The Trustee is required to maintain accurate documents and cannot take funds for their own use. A Trustee can be paid a reasonable fee, unless the Trust documents have other directions.
In most cases, the Trust document gives the Trustee the right to hire other people, such as attorneys, accountants, or financial advisors, to help fulfill their responsibilities. Sometimes those responsibilities may be as simple as setting up a bank account, but other times it may be much more complicated.
When do you stop being a Trustee? It is usually when the Trust document says the Trust is to end, which might be at a certain date, or when the beneficiaries reach a certain age, or when the Trust fund is empty. Or it may be when a Court terminates the Trust.
For more complicated Trusts, the Trustee may need the help of an estate planning attorney, also known as a Trusts and Estates attorney. One complicated type of Trust is called a Special Needs Trusts (SNT). An SNT is created for an individual with special needs who receives help from needs-based government programs like Supplemental Security Income (SSI) or Medicaid. There are different kinds of SNTs, depending on the needs of the individual and their family.
Other more complicated Trusts include: irrevocable income only Trusts, intentionally defective grantor Trusts, non-grantor Trusts, qualified personal residence Trusts and many, many others.
So, before you accept the responsibility of being a Trustee, make sure you have some understanding of what you’re agreeing to do.