How Low-Interest Rates Create Estate Planning Opportunities

  • Post Author:

One result of the global health crisis is that interest rates are lower now than they have been in many, many years. The April 2020 AFRs (Applicable Federal Rates), which are used to determine the least amount of interest that has to be charged for below-market loans and are often used for intrafamily lending, have decreased to 0.91 percent for loans less than 36 months, 0.99 percent for loans of 36 months or more and less than nine years, and 1.44 percent for loans of nine years or longer.

The article, titled “Estate Planning in a Low Interest Rate Environment,” from The National Law Review Journal, explains that for families where intrafamily lending has already occurred, these low rates provide a chance to amend the terms of current promissory notes to obtain these rates.

There are two opportunities presented:

  • The amount that the borrower needs to repay is reduced, thereby easing the burden on a borrower who has a cash flow problem.
  • If a parent has already lent money to a child who will eventually inherit assets from the parent, this lower interest rate will help to facilitate wealth transfer. The parent will receive lower payments under the note, minimizing the assets that are added back to the lender’s taxable estate.

Here are a few situations where these loans are typically used:

  • Parents extend a loan to adult child, who is going through a challenging financial period.
  • Parent lends money to a child with the understanding that the child will invest the money at a higher rate of return than the interest charged under the note, thus allowing growth to occur in the child’s estate rather than in the parent’s estate.
  • Complex estate planning, where a sale is made to an intentionally defective trust, where the seller’s goal is to freeze the value of the estate for a price at which the asset was sold on an installment basis. This allows future growth to take place outside of the seller’s taxable estate.

These intrafamily loans are usually part of sophisticated estate planning. Other methods include Grantor Retained Annuity Trusts (GRATs), or Charitable Lead Trusts (CLTs), which also become more attractive in a low interest rate environment.

With a GRAT, there is a transfer of assets to a trust, in which the settlor retains an annuity payment for a certain number of years. At the end of the term, the remaining assets pass to the trust beneficiaries with no estate tax implication. The CLT operates in a similar way, except that the payment for a specified number of years is made to a charity.

Speak with an experienced estate planning attorney about how your estate could benefit from the current low interest rate environment.

Reference: The National Law Review (April 13, 2020) “Estate Planning in a Low Interest Rate Environment”

What are Three Areas of Giving Not to Skip?

  • Post Author:

It may be important to you that your family and the charities in which you believe, benefit from your success. Giving lets you practice your core values. However, for your giving to be meaningful, you need a plan to maximize your generosity.

Kiplinger’s recent article entitled “Gifting: 3 Areas You Shouldn’t Overlook” advises that there are many things to think about before gifting, and although there are benefits to estate planning, there are other issues to consider.

Think about your gifting goals. Any amount given to a family member, friend, or organization will no doubt be treasured, but ask yourself if the recipient really wants or values the gift, or it only satisfies your personal goals.

As far as giving to a charity, you should be certain that your donation is going to the right organization and will be used for your intended purpose. Your giving goals, objectives, and motivations should match the recipient’s best interests.

If gifting straight to a family member is not a goal for you now, but you want to engage your family in your giving strategy and decision making, there are several gifting vehicles you can employ, like annual gifts, estate plans, and trusts. Whichever one you elect to use, it will let you place an official process in the works for your strategy. Family engagement and a formalized structure can help your gift make the greatest impact.

There is more to gifting than just determining who and how much. It’s critical to be educated on the numbers, in order to maximize your gift value and decrease your tax exposure.

You can now gift up to $11.58 million to others ($23.16 million for a married couple) while alive, without any federal gift taxes. The amount of gift tax exemption used during your life also decreases your federal estate tax exemption. You should also be aware that this amount will fall back to $5 million (and $10 million for a married couple) indexed for inflation after 2025, unless renewed.

If you transfer your wealth to heirs and beneficiaries early and letting it compound over time, you can avoid significant estate taxes. In addition, note the annual gift exemption because, with it, you can gift up to $15,000 ($30,000 as a married couple) to anyone or any kind of trust every year without taxes.

An experienced estate planning attorney can help you create a giving strategy to achieve success for you and those you are benefiting.

Reference: Kiplinger (March 19, 2020) “Gifting: 3 Areas You Shouldn’t Overlook”

Did Little Richard Have a Smart Estate Plan?

  • Post Author:

Little Richard’s primary career was about 35 years in length, which was plenty of time to generate significant wealth, says Wealth Advisor’s recent article entitled “Does Little Richard’s Son Inherit His $40 Million Career Or Will God Get Everything?”

Estimates are that Little Richard generated at least $40 million in the span of his career, but the question is whether much of that money is left or even if there are people around to claim it. Little Richard most likely left the majority of his estate to his son Danny.

There is also a good chance that religious charities will get some of his estate, since Richard may have decided to leave it all to one or more church organizations.

The big question is how much money and property there is to distribute. As far as assets, they may be scarce. The authorship of the hits like “Tutti Frutti” is disputed, but Richard’s birth name “Penniman” is on the original singles as composer. However, Little Richard sold the publishing rights in the mid-1950s and the intellectual property eventually ended up at Sony. He sued numerous times, trading cash settlements for royalty rights each time. As a result, Little Richard has no vast copyright library with which his heirs can generate income.

Everything else is cash. Little Richard had no foundations or charities. He was a private person and died that way.

Little Richard’s challenges were the same as the ones that face others: longevity and income. You should plan well enough to have sufficient income on which to live. You don’t want to outlive your income.

His song publishing should have been the major component to Little Richard’s retirement plan, but he sold that away very early. Without the royalties or the ability to trade them for a lump sum check, he was effectively a mere performer paid by the show. When he stopped touring, that money stopped. Likewise, because he stopped recording decades ago, that money dried up as well.

Little Richard seems to have garnered enough money settling his lawsuits to live nicely, so he didn’t need to work. However, who knows if he left $40 million. He was still able to pay his bills and didn’t have to tour from a wheelchair at county fairs. He made choices that aligned with his conscience and religious views.

Perhaps Little Richard didn’t have a lot of money in the end, but it was “enough.”

Reference: Wealth Advisor (May 11, 2020) “Does Little Richard’s Son Inherit His $40 Million Career Or Will God Get Everything?”

How Long Do You Have to Settle an Estate?

  • Post Author:

The beneficiaries of an estate are recently eager to receive their inheritance. In a common scenario, a trust was left instead of an actual will. All the parties received their respective shares, except for the two brothers and a sister who is the trustee. The trust instructed the brothers to divide the estate property in half for each of them. The sister was to get $15,000.

However, one of the brothers lives in the home.

As you may know, the administrator or executor of an estate has the job of collecting the decedent’s assets, paying debts, making distributions to the beneficiaries, and finally closing the estate in an expeditious manner.

nj.com’s recent article entitled “How long does it take to pay out a family trust?” tries to sort out what the siblings need to do to settle the estate. The key factor in this scenario is the wording of the trust.

There are situations in which a trust is used as a substitute for a will. In that case, a person’s assets are placed in a trust. The trustee pays all the liabilities and administers the assets in the trust in accordance with the instructions of the trust during the individual’s life and after her death.

Even when trusts are used as will substitutes, they aren’t always designed to be closed with distribution to happen immediately after the debts are paid, as in the case of the estate. The terms of the trust dictate the trustee’s duties as to the distribution of trust assets.

If you’re a beneficiary of a trust and think that the trustee is breaching his fiduciary duties, you should inform the trustee of the nature of the suspected breach. If nothing is done to remedy this, you may ask the court for help.

One option is that you can request the court to order the trustee to take actions, which you state in your complaint filed with the probate court. Another option is to request that the court direct the trustee to stop taking specific actions that you detail in your complaint.

A third choice is to ask the court to remove the trustee due to breach of fiduciary duties that you set forth in your complaint filed with the court.

However, such court intervention can be expensive. Another thing to consider is that the trustee may petition the court to have his legal fees paid from the trust funds—which will deplete the money in the trust. Because of this, it is usually best to attempt and resolve these issues before getting the court involved.

Reference: nj.com (Feb. 12, 2020) “How long does it take to pay out a family trust?”

How Do I Protect Property If I Need Long-Term Care?

  • Post Author:

Nearly 90% of those over age 65 would say they’d prefer to stay in their home and live independently as they age. However, even if you are one of those people, you need to make certain that you have a long-term care plan in place to ensure your assets can go toward the things you want, rather than unexpected healthcare costs.

The Observer-Reporter’s recent article entitled “Protecting Your Assets is Only Half of Your Long-Term Plan” explains that there are many factors, like chronic conditions and lifestyle choices, that can increase healthcare expenditures as you get older. Understanding and planning for the potential costs now, could be the difference between spending your savings on health care expenses, instead of on the things you want.

You may be concerned about being a burden to family and friends as you age. That’s common since nearly three-quarters (72%) of parents expect their children to become their long-term caregivers. However, just 40% of those children are aware they were tapped for that role!

Research shows that when family and friends assume the role of primary caregivers, they have a 60% chance of exhibiting clinical signs of depression—six times more than the general population. Having your family and friends become your caregivers may be best for you financially, but it probably isn’t in their best interest.

You should have a sound understanding of the cost and burden that long-term care can put on your family and friends. This is the first step to preparing your long-term plan. It is important to understand that there are a few different long-term planning options available, with varying levels of care coverage. One is Medicaid, which is a means-tested government health insurance plan that can cover some or all of the care you may need in a skilled nursing facility. However, what it covers is income- and asset-based. Medicare may cover some limited long- term care for rehabilitation but typically not custodial care.

There is also long-term care insurance which can fill many of the gaps that Medicare and Medicaid may leave. Most plans are customizable and have options for full or partial coverage for all of the types of long-term care. However, there may still be gaps in your coverage.

Ask an elder law attorney about other options and resources.

Reference: (Washington, PA) Observer-Reporter (Feb. 17, 2020) “Protecting Your Assets is Only Half of Your Long-Term Plan”

How to Talk to a Parent Suffering from Alzheimer’s or Dementia during the Pandemic

  • Post Author:

If you have a parent living in an assisted living facility or a nursing home, or they’re at home, caregivers need to know how to explain the current coronavirus pandemic in an appropriate and clear manner—and in a way that protects and cares for your own personal health.

Long Island Weekly’s recent article entitled “Caregiving During The Coronavirus” explains that older adults often have more health complications, like heart disease, diabetes, and hypertension. As a result, they’re more susceptible to the complications of the coronavirus. Review the recommendations of the Centers for Disease Control and Prevention (CDC) and World Health Organization (WHO) for protecting you and your family from exposure.

And although some people suffering from Alzheimer’s or dementia may not fully understand the complexity and severity that the COVID-19 pandemic is having on our communities, they can sense what’s happening. They can read your personal energy and can sense your stress. This may cause them to show more symptoms of anxiety, agitation, cognitive decline, and confusion. Communicate as best you can to your parent frequently and clearly about what’s happening. While they may not need to have all the details, let them know that there’s a virus spreading within the community and that we need to wash our hands thoroughly and stay indoors.

For those still being cared for at home, take the necessary precautions as you’d do for yourself. Modify your grocery shopping trips, since stores are adding special senior hours, reschedule unnecessary doctor visits, stock up on needed medications, and talk to your doctors about any concerns.

For those in a facility, understand the visitation policies, because many have adjusted their policies to limit or prohibit personal visitation. Ask the administration about visitation and what the care facility is doing to ensure your parent’s care.

Although you might be frustrated that your parent’s facility is limiting or canceling visitation, remember that the new rules are designed to protect the residents. You may be able to schedule a time to speak with your mother or father on the phone every few days, or you can deliver food or items, like photos albums or other gifts to stay connected. Try to be reasonable and understand that these facilities may be understaffed.

Here are a few key points that may be helpful to get through this crisis:

  • Have a talk with your parent and with the facilities in which they’re living, so they can understand the new policies.
  • Be careful yourself. Take reasonable precautions for yourself and your family member.
  • Avoid public spaces. This includes routine, or non-essential doctor visits, grocery shopping, and other visits.
  • Stay upbeat. Know the latest news and guidelines but try to remain calm, because your parent may sense your stress and reflect that.

Be reasonable and understanding and try your best in these uncertain times—for yourself and your loved one.

Reference: Long Island Weekly (April 12, 2020) “Caregiving During The Coronavirus”

What Happens when Mom Refuses to Create an Estate Plan?

  • Post Author:

This is a tough scenario. It happens more often than you’d think. A family member owns a home, investment accounts, and an inheritance, but doesn’t want to have an estate plan. They know they need to do something, but keep putting it off—until they die, and the family is left with an expensive and stressful mess. A recent article titled “How to Get a Loved One to Visit an Estate Planning Attorney Before It’s Too Late” from Kiplinger, explains how to help make things right.

Most people put off seeing an estate planning attorney, because they are afraid of death. They may also be overwhelmed by the thought of how much work is involved. They are also worried about what it all might cost. However, if there is no estate plan, the costs will be far higher for the family.

How do you get the person to understand that they need to move forward?

Talk with the financial professionals the person already uses and trusts, like a CPA or financial advisor. Ask them for a referral to an estate planning attorney they think would be a good fit for the person who doesn’t have an estate plan. It may be easier to hear this message from a CPA, than from an adult child.

Work with that professional to promote the person, usually an older family member, to get comfortable with the idea to talk about their wishes and values with the estate planning attorney. Offer to attend the meeting, or to facilitate the video conference, to make the person feel more comfortable.

An experienced estate planning attorney will have worked with reluctant people before. They’ll know how to put the older person at ease and explore their concerns. When the conversation is pleasant and productive, the person may understand that the process will not be as challenging and that there will be a lot of help along the way.

If there is no trusted team of professionals, then offer to be a part of any conversations with the estate planning attorney to make the introductory discussion easier. Share your own experience in estate planning, and tread lightly.

Trying to force a person to engage in estate planning with a heavy hand, almost always ends up in a stubborn refusal. A gentle approach will always be more successful. Explain how part of the estate plan includes planning for medical decisions while the person is living and is not just about distributing their assets. You should be firm, consistent, and kind.

Explaining what their family members will need to go through if there is no will, may or may not have an impact. Some people don’t care, and may simply shrug and say, “It’ll be their problem, not mine.” Consider what or who matters to the person. What if they could leave assets for a favorite grandchild to go to college? That might be more motivating.

One other thing to consider: if the person has an estate plan and it is out of date, that may be just as bad as not having an estate plan at all, especially when the person has been divorced and remarried. Just as many people refuse to have an estate plan, many people fail to update important documents, when they remarry. More than a few spouses come to estate planning attorney’s offices when a loved one’s life insurance policy is going to their prior spouse. It’s too late to make any changes. A health care directive could also name a former brother-in-law to make important medical decisions. During a time of great duress, it is a bad time to learn that the formerly close in-law, who is now a sworn enemy, is the only one who can speak with doctors. Don’t procrastinate, if any of these issues are present.

Reference: Kiplinger (May 11, 2020) “How to Get a Loved One to Visit an Estate Planning Attorney Before It’s Too Late”

Did Kirk Douglas Leave His Wealth to His Son Michael?

  • Post Author:

Kirk Douglas, who died in March at the age of 103, made sure that he gave $50 million away via the Douglas Foundation at his death.

Wealth Advisor’s recent article entitled “Kirk Douglas’ $61M fortune given mostly to charity, none went to son Michael Douglas” reports that the beneficiaries included St Lawrence University, Westwood’s Sinai Temple, Culver City’s Kirk Douglas Theatre and Children’s Hospital Los Angeles.

Kirk’s Oscar-winning actor Michael is not listed as a beneficiary. That is okay, because he’s worth about $300 million on his own.

Michael announced the death of his father on February 5 in an Instagram post. He included several photos of his famous father and family members.

“It is with tremendous sadness that my brothers and I announce that Kirk Douglas left us today at the age of 103. To the world, he was a legend, an actor from the golden age of movies who lived well into his golden years, a humanitarian whose commitment to justice and the causes he believed in set a standard for all of us to aspire to.”

Michael went on to add, “But to me and my brothers Joel and Peter he was simply Dad, to Catherine, a wonderful father-in-law, to his grandchildren and great-grandchild their loving grandfather, and to his wife Anne, a wonderful husband.”

Michael finished his Instagram message by writing, “Kirk’s life was well-lived, and he leaves a legacy in film that will endure for generations to come, and a history as a renowned philanthropist who worked to aid the public and bring peace to the planet. Let me end with the words I told him on his last birthday, and which will always remain true. Dad – I love you so much and I am so proud to be your son.”

Kirk Douglas was a three-time Oscar nominee, known for his roles in “Spartacus” and “Ace in the Hole.”

He was buried at the Pierce Brothers Westwood Village Memorial Park and Mortuary. In addition to Michael, some of the mourners were Kirk’s wife of 65 years, Anne Buydens, and his other sons Peter and Joel.

Reference: Wealth Advisor (March 3, 2020) “Kirk Douglas’ $61M fortune given mostly to charity, none went to son Michael Douglas”

What Do I Do If I’m Named Financial Power of Attorney?

  • Post Author:

A financial power of attorney (POA) is a document whereby the “principal” appoints a trusted someone known as the “attorney-in-fact” or “agent” to act on behalf of the principal, especially when the principal is incapacitated. It typically permits the attorney-in-fact to pay the principal’s bills, access their accounts, pay their taxes, and buy and sell investments or even real estate. In effect, the attorney-in-fact steps into the shoes of the principal and is able to act for them in all matters, as described in the POA document.

Kiplinger’s recent article entitled “What Are the Duties for Financial Powers of Attorney?” says these responsibilities may sound overwhelming, and it’s only natural to feel this way initially. Let’s look at the steps to take to do this important job:

  1. Don’t panic but begin reading. Review the POA document and determine what the principal has given you power to do on their behalf. A POA will typically include information addressed to the agent that explains the legal duties he or she owes to the principal.
  2. See what you have to handle for the principal. Create a list of the principal’s assets and liabilities. If the principle is organized, it’ll be easy. If not, you will need to find their brokerage and bank accounts, 401(k)s/IRAs/403(b)s, the mortgage, taxes, insurance, and other bills (utilities, phone, cable, and internet).
  3. Protect the principal’s property. Be sure the principal’s home is secure and make a video inventory of the home. If it looks like your principal will be incapacitated for an extended period of time, you may cancel the phone and newspaper subscriptions. You may need to change the locks on the principal’s home. If you have control of the principal’s investments and their incapacitation may continue for a long time, review their brokerage statements for high-risk positions that you don’t understand, like options, puts and calls, or commodities. Get advice on liquidating positions you don’t have the know-how to handle.
  4. Pay all bills, as necessary. Look at your principal’s bills and credit card statements for potential fraud. Perhaps you should suspend their credit cards that you won’t be using on the principal’s behalf. Note that they may have bills automatically paid by credit card and plan accordingly.
  5. Pay the taxes. Many powers of attorney give the agent the power to pay the principal’s taxes. If so, you’ll be responsible for filing and paying taxes during the principal’s lifetime. If the principal passes away, the executor of the principal’s last will is responsible for preparing any final taxes.
  6. Keep meticulous records. Track every expenditure you make and every action you take on the principal’s behalf. You’ll be asked to demonstrate that you have upheld your duties and acted in the principal’s best interests. It will also be important for you to receive reimbursement for expenses, and (if the power of attorney provides for it) the time you spent acting as agent.

Finally, you must always act in the principal’s best interest.

Reference: Kiplinger (April 22, 2020) “What Are the Duties for Financial Powers of Attorney?”

Should I Use My 401(k) Now in the Pandemic?

  • Post Author:

Many Americans are struggling with what to do with their retirement savings, as we endure the COVID-19 pandemic. Many don’t know if they should stand pat or cash in their savings.

The new CARES Act makes it easier for us to tap our 401(k) and retirement accounts. However, there may be significant long-term effects for your financial security.

The Coronavirus Aid, Relief, and Economic Security (CARES) Act was passed by Congress signed into law by President Trump on March 27. The law provides more than $2 trillion in economic relief to protect the American people from the public health and economic impacts of COVID-19. The Act provides fast and direct economic assistance for American workers, families, and small businesses, as well as preserving jobs for American industries.

CNBC’s recent article entitled “Tapping Your 401(k): Is now the right time to do it?” says that if you need emergency cash, and your 401(k) is your only source of funds in this pandemic, taking a short-term loan from your retirement account as a “last resort” may be a wise option.

While you will be repaying yourself rather than paying 11% interest on average on a personal loan, know that you’re borrowing from your financial future and possibly risking your financial security in retirement.

The CARES Act lets you borrow up to $100,000 (double the previous loan limit of $50,000) from your 401(k) and delay repayment for up to a year. After you borrow, you’ll typically have to repay the loan within five years, depending on the terms of your 401(k) plan. Under the CARES Act, loan payments due in 2020 can be delayed for up to a year from the time you take out the loan. However, if you can’t pay back the loan within the time frame designated by your plan, your outstanding balance will be taxed like a withdrawal. That means you’ll also pay a 10% early withdrawal penalty.

If you leave your job — regardless of whether by choice — there’s a good chance your plan will require you to repay the money back quickly. If you don’t, your account balance will be decreased by the amount owed and considered a taxable distribution. This choice must factor in the length of time before you need your money, your ability to save, and your comfort level with risk.

You can also take a penalty-free distribution from your IRA or 401(k) of up to 100% of your balance or $100,000, whichever is less. You aren’t required to pay the 10% early withdrawal penalty, if you’re under age 59½ and you can pay taxes on the money you take out over a period of three years or pay no tax, if you pay it all back. However, your employer must agree to adopt these new rules for your existing 401(k) plan.

Reference: CNBC (April 20, 2020) “Tapping Your 401(k): Is now the right time to do it?”