George Michael’s Charity Continues

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One of George Michael’s sisters, 55-year-old Melanie Panayiotou, was found dead on Christmas Day, exactly three years after her brother died at his home in Goring-on-Thames, Oxfordshire at aged 53.

London’s Metropolitan Police said in a statement that emergency services were called to a home in north London, due to “reports of the sudden death of a woman, aged in her 50s.”

The Wealth Advisor’s recent article, entitled “George Michael’s sister Melanie donated her share of $128m inheritance to charity before her death on Christmas,” said that George had left most of his $128 million fortune to Melanie and his other sister, Yioda.

Sources say that the former’s share will be donated to charity. George was active in LGBT causes after coming out as gay in 1998 and was also very involved in numerous HIV/AIDS charities.

George began his philanthropy in 1984, when his fame started to grow. He joined together with other British and Irish pop stars to form ‘Band Aid’ to raise money for famine relief in Ethiopia. Michael also donated the proceeds from his 1991 single “Don’t Let the Sun Go Down on Me” to 10 different charities for children, AIDS and education. He was also a patron of the Elton John AIDS Foundation.

In 2003, George joined other celebrities to support a campaign to help raise $26.3 million for terminally ill children run by the Rainbow Trust Children’s Charity. He also famously gave $20,000 to a ‘Deal or No Deal’ contestant for IVF treatment and $33,000 to a debt-ridden woman crying in a café.

After his death, numerous charities revealed he had privately supported them for years.

“George’s family share his caring spirit,” the source told the Sun, speaking about Melanie’s donation of her inheritance. “Knowing that some good is going to come out of this double-tragedy has provided a small amount of comfort.”

Melanie, who was a hairdresser, traveled around the world with her brother George during the peak of his music career and was said to be devastated over his death.

While her cause of death has not yet been revealed, Melanie is expected to be buried at the Highgate Cemetery next to her brother. Their mother was also buried in the same location.

Reference: Wealth Advisor (Jan. 7, 2020) “George Michael’s sister Melanie donated her share of $128m inheritance to charity before her death on Christmas”

Succession Planning for Family Owned Farms

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Succession planning is not thought of as fun, simple, or quick. That’s true. A recent article from Ag Web puts it clearly: “Succession Planning Takes Leadership.” It also takes time, knowledge and guidance from smart professionals, including estate planning attorneys, financial advisors, and accountants. Let’s look at four important elements that should be present in any succession planning:

Clarity. Transitioning leaders need to answer a few questions. What do they want for themselves, for their operation, and for their stakeholders? Developing a successful plan by guessing what other family members want, rather than asking them directly can undo good planning. Having private conversations with individual members of the family will lead to more honest answers.

Certainty. Many times, families are not in perfect harmony about what succession looks like, which can lead to some uncertainty. Family leaders must step up and be decisive, and their decisions may not be popular with everyone. However, if a leader lets someone else make decisions, the situation becomes murky and confusing.

Continuity. It can take two or five years to create a succession plan, depending on the complexity of the operation and the number of family members involved. The actual succession itself can take ten years to unwind, depending on the time horizon for the transitioning leadership. A big problem for any process that takes so long is the loss of focus and momentum. Your team of professionals should be able to help mitigate this challenge.

Communication. A strategy for communication needs to be built into the succession plan, although it is often overlooked. Develop a timeline and establish when you will communicate progress and/or milestones to stakeholders. Your professional team may be needed to help with both the timeline and the communication strategy. Family members need to know what is happening, even when it seems like nothing big is occurring.

With strong leadership in each of these four factors, the succession plan is more likely to succeed. With less stress and an increased level of trust and clear communication, the family will work together to achieve the leader’s goals.

Reference: Ag Web (December 5, 2019) “Succession Planning Takes Leadership”

Estate Planning Documents for a Natural Ending

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If you have strong preferences on how you want the end of your life to go and you wish to have at least some control your demise, there are a handful of documents that are typically created during the process of developing an estate plan that can be used to achieve this goal, says the article “Choosing a natural end” from The Dallas Morning News.

The four documents are the Medical Power of Attorney, the Directive to Physicians, the Out-of-Hospital Do-Not-Resuscitate, and the In-Hospital Do-Not-Resuscitate. Note that every state has slightly different estate planning laws. Therefore, you will want to speak with an experienced estate planning attorney in your state. If you spend a lot of time in another state, you may need to have a duplicate set of documents created. Your estate planning attorney will be able to help.

The Medical Power of Attorney, also known as the Advance Health Care Directive, allows you to appoint an agent to make health care decisions if you are unable to do so for yourself. These decisions may include turning off any life-support systems and refusing life-sustaining treatment. Talk with the person you want to take on this role and make sure they understand your wishes and are willing and able to carry them out. You have the right to change your agent and your wishes at any time.

The Directive to Physicians is a way for you to let physicians know what you want for comfort care and any life-sustaining treatment in the event you receive a diagnosis of a terminal or irreversible health condition. You aren’t required to have this, but it is a good way to convey your wishes to a neutral professional in a situation that is usually very emotionally charged among family and friends. The directive does not always have to be the one created by the facility where you are being treated, and it may be customized to your wishes, as long as they are within the bounds of law. Many people will execute a basic directive with their estate planning documents, and then have a more detailed directive created when they have a health crisis.

The Do-Not-Resuscitate (DNR) forms come in two different forms in most states. Unlike the Directive to Physicians, the DNR must be signed by your attending physician. The Out-of-Hospital DNR is a legally binding order that documents your wishes to health care professionals acting outside of a hospital setting not to initiate or continue CPR, advanced airway management, artificial ventilation, defibrillation or transcutaneous cardiac pacing. You need to sign this form, but if you are not competent to do so, a proxy or health care agent can sign it.

The In-Hospital DNR instructs a health care professional not to attempt CPR if your breathing or heart stops. It is issued in a health care facility or hospital and does not require your signature. However, the physician does have to inform you or make a good faith effort to inform a proxy or agent of the order.

If you would prefer not to spend your final days or hours hooked up to medical machinery, speak with your estate planning attorney about how to legally prepare so that your wishes can be protected and followed.

Reference: The Dallas Morning News (Jan. 12, 2020) “Choosing a natural end”

Stay-at Home Moms After the Children Become Adults

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When many people are thinking about retiring, women who have been stay-at-home moms often find themselves in an awkward position. People who have worked outside the home sometimes assume the stay-at-home mom will go to college, open a business, or start a career after the children grow up and move out of the house.

Indeed, many people who have worked outside the home create a “second act” for their lives, after they retire from their day jobs. There are many options available to stay-at-home moms after the children become adults, including choosing to retire and not pursue a second act.

Saying, “No Thanks,” to a Second Act

You worked hard for 20 or 30 years or longer, raising a family. You did not get evenings or weekends off. Even when the family took a vacation, you were still “on duty,” organizing and watching over everyone. You faced less respect than you deserved during those years, and now you face another chapter of disrespect. Some people assume you do not deserve to retire, because you never (in their minds) worked a “real job.”

Unfortunately, you will never convince those people you worked as hard as they did or harder and you have earned the right to spend your time however you want now. You did not need their permission to be a stay-at-home mom, and you do not need their approval now.

Kicking Your Previous Career into High Gear

You might have worked outside the home before becoming a stay-at-home mom. If you enjoyed the type of work you did then, you might want to go back to it. You might need to take a couple of courses at your local community college to get some of your job skills, like using specific types of software. Without kids at home, you can devote as much time as you want, without getting pulled in multiple directions.

Changing Careers

Of course, if you hated the employment you had in the past or want to try something new, you can always explore a job field that sounds interesting to you. You likely have more freedom now than ever before, so this could be the ideal time to explore new things.

Helping Others

Let’s say you always wanted to live in a remote part of the world while helping people. The Peace Corps actively recruits people over 50 to serve a tour of duty.

Sometimes people do not get to choose who they help. Many people who are thinking about retiring, find themselves serving as caregivers to elderly parents rather than sailing around the world.

Getting That College Degree

You might have started college but never completed the degree. Perhaps you earned your bachelor’s degree but now want to attend graduate school. On the other hand, life might have gotten in the way of you ever getting to start college. Many people choose to go back to school after they finish their child-raising careers.

Opening a Business

You might have a fantastic idea for a business you want to launch and run. There is no time like the present. With all of these options, the important thing is to make a decision. You do not want to have regrets one day, when you look back on this opportunity. Do your research, then have fun with whatever you choose.

References:

Huffpost “I Was A Stay-At-Home Mom For 22 Years. I Don’t Need A ‘Second Act’ To Feel Fulfilled.” (accessed December 12, 2019) https://www.huffpost.com/entry/stay-at-home-mom-after-50_n_5d812feae4b077dcbd6595ae

How Does the SECURE Act Change Your Estate Plan?

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The SECURE Act has made big changes to how IRA distributions are passed on after a participant’s death. Anyone who owns an IRA, regardless of its size, needs to examine their retirement savings plan and their estate plan to see how these changes will have an impact. The article “SECURE Act New IRA Rules: Change Your Estate Plan” from Forbes explains what the changes are and the steps that need to be taken.

Some of the changes include reviewing wills and trusts which include provisions creating conduit trusts that had been created to hold IRAs and preserve the stretch IRA benefit, while the IRA plan owner was still alive. Existing conduit trusts may need to be modified before the owner’s death to address how the SECURE Act might undermine the intent of the trust.

It may be necessary to rethink and possibly completely restructure the planning for IRA accounts. This may mean changing the beneficiary of an account to a charity, and possibly using life insurance or other planning strategies to create a replacement for the value of the charitable donation.

Another alternative may be to pay the IRA balance to a Charitable Remainder Trust (CRT) on death that will stretch out the distributions to the beneficiary of the CRT over that beneficiary’s lifetime under the CRT rules. Paired with a life insurance trust, this might replace the assets that will ultimately pass to the charity under the CRT rules.

The biggest change in the SECURE Act being examined by many estate planning and tax planning attorneys is the loss of the “stretch” IRA for beneficiaries inheriting IRAs after 2019. Most beneficiaries who inherit an IRA after 2019 will be required to completely withdraw all plan assets within ten years of the date of death.

One reason why Congress enacted this law was to generate tax revenues that would become collectible far sooner. In the past, the ability to stretch an IRA out over many years, even decades, allowed individuals to pass their tax deferral on significant IRA growth to their family members, which meant that tax revenue due from the assets’ growth could not be collected.

Another interesting change is that there are now no periodic mandatory withdrawals when an IRA is inherited. However, at the ten-year mark, ALL assets must be withdrawn, and taxes paid. Under the prior law, the period in which the IRA assets needed to be distributed was based on whether the plan owner died before or after the RMD and the age of the beneficiary.

The deferral of withdrawals and income tax benefits encouraged many IRA owners to bequeath a large IRA balance completely to their heirs. Others, with larger IRAs, used a conduit trust to flow the RMDs to the beneficiary and protect the balance of the plan.

There are exceptions to the 10-year SECURE Act payout rule. Certain “eligible designated beneficiaries” are not required to follow the ten-year rule. They include the surviving spouse, chronically ill heirs, and disabled heirs. Minor children are also considered eligible beneficiaries during the time that they are minors (as defined by the tax code), but when they reach the age of majority, the ten-year distribution rule then applies to them. For example, a child who has reached the age of majority at 18 must take all assets from the IRA by the time they are 28 and pay the taxes as applicable.

The new law and its ramifications are under intense scrutiny by members of the estate planning and elder law bar because of these and other changes. Speak with your estate planning attorney to review your estate plan to ensure that your goals will be achieved in light of these changes.

Reference: Forbes (Dec. 25, 2019) “SECURE Act New IRA Rules: Change Your Estate Plan”

Will My Heirs Pay Inheritance Tax?

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Will My Heirs Pay Inheritance Tax?
Tax return check on 1040 form background

U.S. News & World Report explains in its article, “What Is Inheritance Tax?” that estate taxes and inheritance taxes are often mentioned as if they’re the same thing. However, they’re really very different in concept and practice.

Remember that not every estate is required to pay estate taxes, and not every heir will pay inheritance tax. Let’s discuss how to determine whether these taxes impact you.

Inheritance is considered to be taxable to heirs. Whether heirs need to pay this is based upon the state in which the deceased lived and the heirs’ relationship to the benefactor.

Inheritance tax is a tax imposed by the state on a portion of the value of a deceased person’s estate that is paid by the inheritor of the estate. There is no federal inheritance tax. Currently, there are only six states that impose an inheritance tax, according to the American College of Trust and Estate Counsel. The states that have an inheritance tax are Iowa, Kentucky, Maryland, Nebraska, New Jersey, and Pennsylvania.

Inheritance tax laws and exemption amounts are different in each of these six states. In Pennsylvania, there’s no inheritance tax charged to a surviving spouse, a son or daughter age 21 or younger and certain charitable and exempt organizations. Otherwise, the inheritance tax is charged on a tiered system. Direct descendants and lineal heirs pay 4.5%, siblings pay 12% and other heirs pay a hefty 15%.

Whether inheritance tax applies is determined by the state in which the deceased lived. Estate taxes are deducted from the deceased’s estate after death and aren’t the responsibility of the heirs. Some states also charge their own estate taxes on assets more than a certain value. The states that charge their own estate tax are Connecticut, Hawaii, Illinois, Maine, Maryland, Massachusetts, Minnesota, New York, Oregon, Rhode Island, Vermont, Washington and Washington, D.C.

Decreasing estate taxes are the responsibility of the deceased prior to his or her death. They should work with an estate planning attorney to map out strategies that can lessen or eliminate estate taxes for certain assets.

Remember that inheritance taxes are state taxes. They are imposed by only six states and are the responsibility of the heirs of the estate, even if they live in another state. In contrast, estate taxes are federal and state taxes. The federal estate tax is a 40% tax on assets more than $11.58 million for 2020 ($23.16 million for married couples). This is charged, regardless of where you live. Some states have additional estate taxes with their own thresholds.

Inheritance taxes are paid by the heirs, and estate taxes are paid by the estate. An estate planning attorney can help to find ways to reduce taxes and transfer money efficiently.

Reference: U.S. News & World Report (October 8, 2019) “What Is Inheritance Tax?”

Should I Use a Trust to Protect My Children’s Inheritance?

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Parents with savings have several options for their children’s future inheritances.

nj.com’s recent article answers this question: “We have $1.5 million. Should we get a trust for our children’s inheritance?” According to the article, parents could create lifetime trusts or trusts in their wills for the benefit of the surviving spouse during the spouse’s lifetime.

After that, they can have the remainder of the assets pass in trusts for each of the children, until they reach a certain age or ages.

A lifetime trust is a type of trust that’s created during an individual’s lifetime. This is different from a testamentary trust, which is a trust created after a person’s lifetime through the operation of that person’s will.

Usually, the individual who settles a lifetime trust (the “Grantor”) will retain control over the assets in the trust, including the right to revoke the assets during his or her lifetime. These forms of lifetime trusts are known as grantor trusts.

Another option is to have these types of trusts continue for the benefit of the grandchildren.

The children’s trusts can have instructions that the assets and income are to be used for the health, maintenance, education, and support of the child.

The parents would need to name a trustee or co-trustee. This is the person who’s responsible for investing the assets, filing tax returns and paying taxes (if necessary). He or she will also distribute the assets, according to the terms of the trust.

Trusts are a complicated business, so meet with an experienced estate planning attorney to determine the best strategies based on your circumstances and goals.

Reference: nj.com (October 16, 2019) “We have $1.5 million. Should we get a trust for our children’s inheritance?”

How Will the New SECURE Act Impact My IRAs and 401(k)?

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The SECURE Act is the most substantial change to our retirement savings system in over a decade, says Covering Katy (TX) News’ recent article entitled “Laws Change for IRA and 401K Retirement Savings Plans.” The new law, called the Setting Every Community Up for Retirement Enhancement (SECURE) Act, includes several important changes. Let’s take a look at them.

Increased RMD Age. There is now a higher age for RMDs. The old law said that you must start taking withdrawals or required minimum distributions from your traditional IRA and 401(k) or similar employer-sponsored plan when you turn 70½. The new law delays this to age 72, so you can hold on to your retirement savings a while longer.

No age limit for contributions to traditional IRAs. Before the new law, you could only contribute to your traditional IRA until you were 70½. Under the new SECURE Act, you can now fund your traditional IRA for as long as you have taxable earned income.

Stretch IRA Limitations. Previously, beneficiaries could stretch taxable distributions from an inherited retirement account over his or her lifetime. Under the SECURE Act, spouse beneficiaries can still take advantage of this “stretch” distribution, but most non-spouse beneficiaries will have to take out the entire balance of the IRA by the end of the 10th year after the account owner dies. Therefore, non-spouse beneficiaries who inherit an IRA or other retirement plans could have significant income tax consequences due to the larger distributions that must be received within a shorter amount of time.

Exception to early withdrawal penalty for a new child. As a general rule, a plan participant must pay a 10% penalty when funds are withdrawn from IRA or 401(k) accounts prior to 59½. However, the new legislation allows you take out up to $5,000 from your retirement plan without paying the early withdrawal penalty if it is taken out for the costs of a new child, and the money is taken out within a year of a child being born or if an adoption becomes final.

There are provisions of the SECURE Act that primarily impact business owners, which include the following:

New multi-employer retirement plans. The new law allows unrelated companies to coordinate to offer employees a 401(k) plan with less administrative work, lower costs and fewer fiduciary responsibilities than individual employers used to have when offering their own retirement plans.

Tax credit for automatic enrollment. There’s now a tax credit of $500 for some small businesses that create automatic enrollment in their retirement plans. A tax credit for establishing a retirement plan has also been increased from $500 to $5,000.

Annuities in 401(k) plans. The Act makes it easier for employers to add annuities as an investment option within 401(k) plans. Before the SECURE Act, businesses avoided annuities in these plans because of the liability related to the annuity provider. However, the new rules should help decrease any concerns.

Talk to an experienced estate planning attorney to examine the potential impact on your investment strategies and determine any possible tax and estate planning implications of the SECURE Act.

Reference: Covering Katy (TX) News “Laws Change for IRA and 401K Retirement Savings Plans”

What Does the New SECURE Act Mean for My Retirement?

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Lawmakers in Washington are providing some essential tools to those trying to put together a financial plan for their retirement, Motley Fool reports, in its recent article entitled “3 Ways the SECURE Act Could Make You Replan Your Retirement.” However, in the process, our legislators also threw some curveballs into the existing legal system. This may provide new opportunities for savers but also may create pitfalls for the unaware. As a result, it’s important to know the three primary ways that the SECURE Act will change the way you think about retirement.

  1. Delaying RMDs from IRAs and 401(k)s until age 72. Many Americans use IRAs, 401(k)s, and other tax-favored retirement accounts to help them save for retirement. These accounts offer deferral on any paying taxes due on the income generated by the investments within the accounts until the funds are withdrawn in retirement. However, Congress didn’t want people to be able to defer taxes on their retirement savings forever, so they created a system of required minimum distributions (RMDs). Under the old law, most people have to start taking withdrawals from IRAs and 401(k)s beginning in the year they turn 70½. The distribution amount is based on the person’s life expectancy, so that they gradually use up the retirement account balances over time. The SECURE Act changes the age at which people are required to take RMDs to age 72. This allows people some extra time before dealing with RMDs and also eliminates the complication of dealing with a half-birthday. You can withdraw money from your retirement accounts at age 70½ if you want to, but the legislation lets you make the choice.
  2. Allowing IRA contributions after age 70½. Under current law, people can’t make IRA contributions once they reach 70½, despite still working. Congress again didn’t want people to keep adding to their retirement accounts when they were already past typical retirement age. However, in reality, many people still work after age 70½. Therefore, allowing them to set money aside in a tax-favored way is only fair. That’s why the SECURE Act’s changed the age to allow further IRA contributions.
  3. Forcing faster withdrawals from inherited IRAs. The third change isn’t as favorable: to help pay for the tax impact of these changes, Congress decided to curtail the rules that let those who inherit retirement accounts to stretch out distributions over their entire lifetimes. The new legislation would still let spouses treat an inherited account as if it belonged to the spouse, but most non-spouse beneficiaries would have to take distributions within 10 years.

With this change, you should review your estate planning to see if changes are necessary to reach the best possible outcome. Ask your estate planning attorney to go over these changes and how they may have an impact upon your estate plan.

Reference: Motley Fool (Dec. 19, 2019) “3 Ways the SECURE Act Could Make You Replan Your Retirement”

Start the New Year with Estate Planning To-Do’s

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Families who wish their loved ones had not created an estate plan are far and few between. However, the number of families who have had to experience extra pain, unnecessary expenses, and even family battles because of a lack of estate planning are many. While there are a number of aspects to an estate plan that takes some time to accomplish, The Daily Sentinel recommends that readers tackle these tasks in the article “Consider These Items As Part of Your Year-End Plan.”

Review and update any beneficiary designations. This is one of the simplest parts of any estate plan to fix. Most people think that what’s in their will controls how all of their assets are distributed, but this is not true. Accounts with beneficiary designations—like life insurance policies, retirement accounts, and some bank accounts—are controlled by the beneficiary designation and not the will.

Proceeds from these assets are based on the instructions you have given to the institution, and not what your will or a trust directs. This is also true for real estate that is held in JTWROS (Joint Tenancy with Right of Survivorship) and any real property transferred through the use of a beneficiary deed. The start of a new year is the time to make sure that any assets with a beneficiary designation are aligned with your estate plan. Request a copy of your beneficiary designations from the institutions that administer your plans, and make changes if needed.

Take some time to speak with the people you have named as your agent, personal representative or successor trustee. These people will be managing all or a portion of your estate. Make sure they remember that they agreed to take on this responsibility. Make sure they have a copy of any relevant documents and ask if they have any questions.

Locate your original estate planning documents. When was the last time they were reviewed? New laws, and most recently the SECURE Act, may require a revision of many estate plans, especially if you own a large IRA. You’ll also want to let your executor know where your original will can be found. The probate court, which will review your will, prefers an original. A will can be probated without the original, but there will be more costs involved and it may require a few additional steps. Your will should be kept in a secure, fire and water-safe location. If you keep copies at home, make a note on the document as to where the original can be found.

Create an inventory of your online accounts and login data for each one. Many people open a new online account on a regular basis, so it is important to keep track of the login information. That should include email, personal photos, social media, and any financial accounts. This information also needs to be stored in a safe place. Your estate planning document file would be the logical place for this information but remember to update it when changing any information, like your password.

If you have a medical power of attorney and advance directive, ask your primary care physician if they have a means of keeping these documents, and explain how you wish the instructions on the documents to be carried out. If you don’t have these documents, make them part of your estate plan review process.

A cover letter to your executor and family that contains complete contact information for the various professionals—legal, financial, and medical—will help them know who your trusted professional team is in the case of an unexpected event.

Remember that life is always changing, and the same estate plan that worked so well ten years ago may be out of date now. Speak with an experienced estate planning attorney in your state who can help you create a plan to protect yourself and your loved ones.

Reference: The Daily Sentinel (Dec. 28, 2019) “Consider These Items As Part of Your Year-End Plan”