You can choose anybody you like to be the executor of your Will, but consider who will do the best job.
Executors, or personal representatives (as they’re called in Florida), are legally responsible for several tasks, including identifying everything in the estate, collecting all the assets, and paying all the debts and liabilities. When all of that is done, then the personal representative is allowed to make distributions to beneficiaries, in accordance with the terms of the Will.
The trust departments of a bank are in the business of managing money and are experienced in administering estates. This typically means they may be able to settle the estate more quickly and efficiently than a family member could.
Banks have policies and procedures in place to make certain that the assets are protected from mismanagement and theft.
Banks are impartial parties that cannot be influenced by beneficiaries. Impatient beneficiaries can be a big headache for a family member who is asked to be executor. Relationships can deteriorate over the enforcement of the terms of a Will, especially when one sibling is named executor and has the authority over the administration of the estate—perhaps to the detriment of her brothers and sisters.
What are some of the disadvantages? While any executor is entitled to compensation under state laws, family members frequently waive this – especially if they’re also a beneficiary. However, banks do charge fees for serving as executors, and these fees may be higher than you’d expect. Also, many banks won’t serve as executor unless the estate is substantial enough to meet the minimum fees charged by the bank.
But, if you’d prefer not to burden your loved ones with months of time-consuming and aggravating work settling your estate, and family harmony is important to you, consider naming a bank as your executor.
Did you know that based on the state in which you decide to retire, your state income tax bill could vary by several thousands of dollars? However, it’s not only a state’s tax rate that’s important. In addition, the type of income you get in retirement, frequently has a greater effect on your state tax liability than the tax rate you pay.
That’s because each state has its own method of taxing certain types of retirement income, explains Kiplinger’s article “State Taxes on Retirees Differ by Types of Retirement Income.” The article examines the way in which states tax two common forms of retirement income: Social Security benefits and retirement plan payouts.
First, let’s look at the taxes on Social Security benefits. While the federal government taxes up to 85% of Social Security benefits, most states don’t tax Social Security benefits at all. Alaska, Florida, Nevada, South Dakota, Texas, Washington, and Wyoming don’t tax these benefits because they simply don’t have an income tax. New Hampshire and Tennessee only tax interest and dividends.
Social Security benefits are exempt from tax in the District of Columbia and 28 states (AL, AZ, AR, CA, DE, GA, HI, ID, IL, IN, IA, KY, LA, ME, MD, MA, MI, MS, NJ, NY, NC, OH, OK, OR PA, SC, VA, and WI). The remaining 13 states may tax some of Social Security benefits. New Mexico, Utah, and West Virginia currently tax Social Security benefits to the same extent they are taxed on the federal return. However, West Virginia will begin phasing out its tax on Social Security benefits in 2020. Taxation of Social Security benefits in the remaining states (CO, CT, KS, MN, MO, MT, NE, ND, RI and VT) depends on a person’s income and on your filing status in many instances.
There are also some states that totally exempt Social Security for taxpayers under specific income thresholds. For example, Kansas says that Social Security benefits are completely exempt from state tax, if your federal adjusted gross income (AGI) is $75,000 or less, regardless of your filing status. Beginning this year in North Dakota, single residents can fully exclude Social Security benefits from state taxable income, if their federal AGI is $50,000 or less. Married North Dakota residents filing a joint return can claim the exclusion with a federal AGI of $100,000 or less. Missouri has partial exemptions for joint filers with federal AGI above $100,000 and all other filers with AGI over $85,000. Missouri taxpayers with income below these thresholds can get a full state tax exemption. The rest of the states have specific formulas for deciding whose Social Security benefits are taxed and to what extent.
State taxation of payouts from retirement plans, such as pensions, IRAs and 401(k)s, can be more complex. The states without an income tax (FL, AK, NV, SD, TX, WA, WY) or that just tax interest and dividends do not tax retirement plan payouts. However, in other states, there are a wide variety of rules. Mississippi and Pennsylvania generally don’t tax any retirement income. However, California, Washington, D.C., Nebraska, and Vermont have slight or no tax breaks for retirement plan payouts. Many of the states in between offer credits or deductions that can run from a few hundred dollars to tens of thousands of dollars. Georgia has the largest tax break with a $65,000 retirement-income exclusion for anyone age 65 and older (couples can shelter up to $130,000).
To make it more complicated, some states differentiate based on the type of retirement plan. Take Kansas, for example. It exempts income from government pensions but taxes private pension payouts. Alabama taxes defined-contribution plan distributions but not private pension payouts. Beginning this year, North Dakota exempts military retirement pay but not other retirement plan payouts.
But keep in mind that a state’s or city’s property and sales taxes could outweigh any benefit you receive by paying lower or no income taxes. And some states will tax your estate and/or your beneficiaries when you die. If you’re considering moving to another state due to taxes, meet with an experienced tax professional in that state to get a clearer picture of your particular situation.
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.