Avoid These 4 IRA Mistakes to Protect Assets

It is currently estimated that Americans have more than $5 trillion invested in IRAs, and much of this wealth will pass to their heirs.  To ensure that it does, be sure you are not committing one of these five costly errors:

1.  The Missing Form - if your family doesn't know where to find your IRA beneficiary form, then they will be stuck with the default provisions of your plan - which may mean the IRA assets go to your estate, which is not where you want them to go.  Be sure you get an acknowledged copy of your IRA beneficiary form from your plan administrator and keep it with your other important estate planning documents.

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7 Tips for People About to Retire

If you are planning to retire soon, here are 7 things you need to consider before you take the plunge:

Are you fully vested in your retirement benefits? Many employers require that you become fully vested before you receive the full amount the employer has contributed as a match to your retirement account. Be sure you understand the rules; staying until you are fully vested could add a lot to your retirement security.

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9 Ways to Protect Your Estate from a Lawsuit

Of all the things we plan to leave our families, a lawsuit surely is not one of them. Before you say, "My family would never..." consider how many lawsuits in court now involve decedents who thought their relatives would never sue one another. Probably the vast majority. Remember that one can never under estimate the power of a spouse or financial desperation where significant money might be involved. Thousands of suits are filed every year and families torn apart because enough care was not taken when drafting an estate plan to build in these essential protection strategies:

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So you think you can do your own estate planning or use an attorney who dabbles?

The Internet has brought about a fantastic explosion of previously closely held information and do-it-yourself options.  You can form your own business, learn how to repair your car, find the best price, and much more thanks to the Internet.  And of course, you can create your own estate planning documents for less than $100 in many cases online.

It is true that you could go online and create your own trust or will without an attorney.  And if your assets pass accordingly to your loved ones, you will have saved a couple thousand dollars and taken care of your loved ones.  The problem is that when things go wrong with the "DIY" option, the cost of errors is several times that of a custom estate plan.  Especially because most of the time the problem with the estate planning documents is discovered after the person who created the documents is gone.  Remember, everyone who did their own online estate plan or consulted with a non-attorney thought their situation was simple and straightforward.  I would be willing to bet dollars to donuts that nobody ever thought, "I could make a mistake here that would cost my loved ones tens of thousands of dollars to fix or cause my assets to go to the wrong people.  But I'm going to go ahead with this online trust software anyway."  Below are some real life examples of cases I handled where the trust creator either went the DIY route or utilized an attorney who is not a dedicated estate planning lawyer

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Can a Will be Challenged?

When a family member, close friend, or other interested person in a will has doubts about whether a last will and testament is legitimate, s/he may challenge the will in court. A will challenge is a legal proceeding which can be complex. When a family member feels slighted for being left out of the deceased's estate, it may be tempting to challenge the will but unless there is some legal basis for the will challenge, it may be a large waste of time, money, and emotional energy to challenge the will.

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What you can Learn from Michael Jackson

In Michael Jackson's case, someone other than his mother was appointed to be trustee of his trust which means his mother, Katherine, does not control the money. This is a common estate planning strategy to make sure there is some accountability for the money. If the guardian is also the trustee, it makes taking money easier, but it can also make it too easy to spend money on things other than the children. Jackson's will also provided a monthly allowance to be paid to his mother. Her allowance would continue regardless of her status as guardian.

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Help for the Sandwich Generation

The sandwich generation describes many people who are caring for children while also caring for their aging parents. They are literally "sandwiched" in between two generations of family members who are dependent upon them for financial and physical care. It can be financially and physically exhausting to be responsible for loved ones with many similar yet substantially different needs.

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How does Debt Impact an Estate Plan?

For various reasons ours is a debt-ridden culture. When creating an estate plan, sometimes people are more worried about the debt they might be leaving than the assets they might be leaving. What happens to a house if mortgage payments are behind and the homeowner dies? What happens to credit card debt when the debtor dies?

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Patients' Rights Dictate that Psychotherapists and Counselors must have a Professional Will

A psychotherapist is under a duty to create a professional will, because most if not all ethical codes as well as various laws require the clinician to provide for undisrupted care of patients in the event of an untimely death or incapacity. Most, if not all, psychotherapists and counselors know that they must leave a backup therapist available when your regular therapist is unavailable (due to illness or vacation, for example). The same concept holds true, if not more so, in the event a therapist meets an untimely demise or somehow loses the capacity to treat patients. Therefore, a professional will must act as the backup in such situations.

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Is Just Filling Out Documents Enough?

I have nothing to add to this article, other than to point you to a good article on this topic by my esteemed colleague, Janet BrewerClick here to read her article, which boils down to this: Attorneys' job is not to create documents.  Rather, our job is to listen to your situation and advise you as to what is in your best interests given the facts and law applicable to you.  And, as Attorney Brewer's article points out, many times clients have no idea that their "simple" wishes are not as simple as they may have appeared.  For example, I had a client who wanted to leave 1/2 of his home to his daughter.  But he did not consider the fact that his daughter was a minor and that, therefore, the house (for his particular needs) needed to remain in trust until the daughter reaches a certain age.

Tales from the World of DIY Planning - February 15, 2017

The following is based on a true story with names and particulars changed to preserve client confidentiality.

Marissa helped her mother draft a will she got from an online do-it-yourself service.  Marissa's mother was married to Marissa's step-father.  Marissa's mother left her house to Marissa using the following words:

I leave my home at 123 Elm Street, San Jose, California 95123 to:
husband = one half; daughter = one half of home

After the death of her mother, Marissa's step father interpreted the language above to mean that he gets 1/2 of his deceased wife's interest in the house.  Marissa was 100% certain that what her mother meant was that the husband already owned 1/2 of the house and that Marissa was to receive her mother's half of the house.

The result was a 6-hour mediation.  The mediation included attorney's fees.  Marissa alone paid three times the cost of a typical foundational estate plan (living trust, will, power of attorney, advance health care directive) in attorney's fees.  Add on top of that, the attorney's fees paid by the opposing party, and it is clear that the DIY option was very expensive in this case.

One can safely assume that when she signed her form will, Marissa's mother thought her wishes were very clear, and that her estate was simple.  So, she probably reasoned, no lawyer was needed.  The fact that she created a will shows that she cared about her daughter's well-being after the mother's death.  Not only did Marissa's daughter have to spend thousands of dollars on an attorney, but she also had to endure a fair amount of stress.  Because the adversarial legal process is naturally stressful.

Had she known then what we know now, it is safe to assume that she would have sought an experienced estate planning lawyer to assist her with her needs.

Keep Your Affairs Private

There are a variety of reasons you should consider using a trust in creating your estate plan. One of the primary reasons a trust is recommended is that it allows your loved ones to avoid the time-consuming, expensive and often public probate process. Saving time and money is always beneficial, but equally important to many families is protecting their privacy. Nobody relishes the thought of nosey outsiders being able to snoop into their financial information. 

Click here to get the entire February 7, 2017 Newsletter

Caregiving for Elderly Loved Ones

January 3, 2017 Newsletter

If you have a loved one who is no longer able to adequately care for her/himself, it is time to explore your options. For most families, it comes down to deciding whether to move the loved one into a nursing home (or other type of assisted care facility) or to hire an in-home caregiver. There are many factors to consider in making this decision.

Click here to get the entire January 3, 2017 Newsletter.

Eliminating the Estate Tax is a great way to shift the tax burden from the wealthiest Americans to the middle class

The common adage against the Estate Tax goes something like this:

A person works an entire lifetime and pays income taxes on hard earned savings.  Then after the person dies, the government wants to tax the person's hard earned money again!

While that argument sounds logical and fits well into a politician's 15 second sound bite, the truth of the matter is much different.  First of all, the government allows $5,000,000 (indexed to inflation so that the amount is $5,450,000 as of this writing) to pass free of any estate tax.  Thus, for a married couple, we are talking about a $10,000,000 exemption.  Only after that exemption is worn out, the decedent's estate would owe a 40% tax on the taxable estate beyond the exemption.  So in very rough terms, a $20,000,000 estate would pay a functional estate tax of 20%.

But it's still double taxation!  Not exactly.  The overwhelming majority of people who have accumulated tens of millions of dollars in wealth, did so through investments generally subject to capital gains income taxation.  Take a real estate portfolio.  Someone could have accumulated dozens of commercial real properties over a lifetime.  And even when they sell those properties, in many cases, the property owner would make a "1031 exchange" which, in short, allows a property owner to swap real property while deferring capital gains tax liability.  This person's wealth lies primarily in their accumulation of real property.  The person can borrow against that property, enjoy the cash from the loan proceeds, and never pay one penny of income tax.  When this (more typical) wealthy person dies, she or he has paid little or no income taxation on all of that wealth accumulated.

When our hypothetical person dies, the government is essentially saying, "We have created the infrastructure for you to accumulate all of that wealth without paying any income taxes on your gain.  Now we will allow you to pass $10M+ to your descendants and we will take a 40% tax on your wealth beyond that $10M."  Here the person paid no income taxes during life and at death the estate pays an effective 20% tax on the entire estate.  Much lower than income taxes would have been!  Not only that, but the wealth grew tax-free, which is an added advantage.

Now let's revisit what really happens if our hypothetical politician eliminates the estate tax regime.  The issue is the stepped up basis of property.  With the estate tax in place, when one inherits mom's $1,000,000 stock portfolio, the cost basis for the portfolio is the date of death value of the securities.  Thus, Junior can turn around and sell the $1,000,000 in stocks with zero capital gain tax liability.  Without an estate tax, the cost basis for securities does not get that stepped up basis.  This means that if mom paid $100,000 for her $1,000,000 stock portfolio, Junior would have to pay about $180,000 capital gains taxes on the $900,000 gain.

Do you see what just happened?  The $100,000,000 estate gets a huge boon from shifting tax liability from the 40% estate tax to the 20% capital gains income tax.  And the $1,000,000 estate goes from zero capital gains taxes to $180,000 in capital gains taxes.

This is the hard sell.  Because I can't find a way to explain this in a 15 second television soundbite.  But when you read through the scenario above, you can see that an elimination of the estate tax regime is literally a shift of the tax burden from the tiny minority who has a hugely disproportionate amount of wealth to a larger plurality who has managed to accumulate some wealth.

For more on this topic, check out this article by Bill Gates, Sr.