Moynihan Lyons PC

Big Mistakes in Estate Planning That You Can Avoid

It is important to have a plan and important to keep it up to date.

If you don’t have an estate plan, your family can face some really difficult times and find themselves in a disagreement that can cause harm, according to The San Diego Union-Tribune in “6 estate-planning mistakes to avoid.”

Even attorneys run into problems with their family estate plans. One attorney was devastated when her mother was diagnosed with Alzheimer’s disease. As the mounting costs continued for 10 years, and tragedy struck again when her two older brothers died just before her mother passed away, she learned first hand just how important having a plan in place can be for the family. Without a plan, everything is more challenging and costly. Here are the top six mistakes that people make:

Not having a plan. No one wants to think about death, dying or incapacity, especially when they are relatively young and healthy. However, that is the best time to put a plan in place. Start by making sure you have powers of attorney for both health care and finances. Otherwise, you risk having the court making decisions on your behalf, instead of a trusted family member.

Not communicating your plan or wishes. Make sure that your loved ones know what your plan is. The people who have been chosen as your financial power of attorney and health care power of attorney need to know that they have been named and what your wishes are. Having a plan is step one. Communicating its wishes and its location is step two. Miss one step and the plan is worthless.

Doing estate planning only with taxes in mind. A comprehensive estate plan addresses much more than tax planning. It includes charitable giving, planning for a family member with special needs, succession planning, planning for children from a prior marriage, planning for your pets and more.

Leaving assets directly to minors. Giving assets to a minor will lead to the necessity of the court appointing a custodian or guardian if one is not named in your will. There may be problems with a court-appointed guardian, who may have a different idea of how the money should be used, not to mention associated costs.

Neglecting to update how assets are titled. Today’s family often means a blended family. Therefore, how assets are titled can have a big impact. If one spouse purchased a home long before the second spouse and their children joined the household, who inherits the house? There are tax consequences and control issues that arise in a blended family that requires advance planning and a lot of communication. In community property states, this can become particularly messy.

Failing to fund or update trusts. If a trust is not funded, it will not achieve its desired outcome. Assets that are not retitled when trusts are created, will not avoid probate. These are the details that make or break an estate plan.

An estate planning attorney can advise you in creating an estate plan that fits your unique circumstances, as well as keeping it up to date as changes occur in your life.

Reference: The San Diego Union-Tribune (April 18, 2019) “6 estate-planning mistakes to avoid”

Prince’s Estate Remains in Turmoil

Prince died three years ago without a will. A $200 million estate could take decades to settle.

Multitalented entertainer Prince died three years ago of an opioid overdose and he did not leave behind an estate plan or a will. And, there has been little progress as the court had to sort through claims from 45 people who said they were heirs as well as consultants, according to the New York Post in “Fight over Prince’s $200 M estate could go on for years.”

The estate includes a 10,000 square foot Caribbean villa, a mansion in Minneapolis and master tapes of his recordings. The estate has been estimated by some to be worth in the neighborhood of $200 million.

Right now, the heirs are in a court battle with the estate’s administrator, which has already blown through $45 million in administrative expenses. That’s from a probate-court petition filed by Prince’s heirs. They’ve asked the court for a transition plan and a new administrator, which is scheduled for the end of June.

One observer noted that this estate may take decades to resolve, all because there was no will.

A judge had to determine who Prince’s heirs were. More than 45 people stepped up to claim inheritance rights when the Purple One died in 2016. Some said they were wives, others said they were siblings and one said he was the artist’s son. DNA testing debunked that claim.

The list of heirs has been narrowed down to six: his full sister, Tyka Nelson, and half-siblings Norrine Nelson, Sharon Nelson, John Nelson, Alfred Jackson and Omarr Baker.

Until fairly recently, the heirs were divided and quarreling among themselves. For now, they have come together to challenge the court-appointed bank that became the estate’s administrator, Comerica. The estate was being run by Bremer Trust at first, but that was a temporary appointment.

The statement said they don’t agree with Comerica’s cash flow projections, accounting, or inventory of estate assets. They also claim that Comerica is not being responsive to their concerns. What is even worse, they say that Comerica is the reason that the estate is $31 million behind on estate taxes, which are continuing to accumulate interest.

The company stated that it was the best possible administrator of the estate and insisted it is making all tax payments necessary to settle the estate.

Everyone needs to have a will (even with a small estate) so that heirs are not left battling over assets.  

An estate planning attorney can advise you on creating an estate plan that fits your unique circumstances.

Reference: New York Post’s Page Six (April 19, 2019) “Fight over Prince’s $200 M estate could go on for years.”

Supporting Favorite Causes in Your Will or Trust - (Endangered Species Day)

Today, May 17, is Endangered Species Day.  It is incredible to reflect on the fact that so many species of animals are so close to becoming extinct particularly when the causes involve purely selfish human activities such as poaching, trafficking in animal body parts, the ruination of habitat, and the broader impact of climate change.

This Newsweek article provides a list of critically endangered species and suggestions for what we can do to protect them compiled from information gathered by WWF and the Endangered Species Coalition. ENDANGERED SPECIES DAY 2019: LIST OF MOST THREATENED ANIMALS AND PLANTS IN THE U.S. AND WORLD.

The list of endangered species most affected by short term climate change includes almost two dozen species including certain elephants, gorillas, orangutans, tigers, leopards, rhinos, turtles, and other sea life.

Suggestions include direct actions regarding recycling and choosing to use alternatives to herbicides and pesticides.  But of course, another option is to provide financial support.

Clients often express their wish that they could support their favorites causes followed by comments indicating their concern that they can’t give right now. They are afraid of running out of money later or of depriving their kids of their inheritance.

This is when we talk to them about how they can provide for charities in their estate plan.  Gifts can be structured in a variety of ways.  If an outright gift of a specific amount doesn’t appeal to them, they might consider whether they have highly appreciated assets or IRAs that might be left to charity in order to avoid some significant tax hits.  Or, they can specify a percentage of the trust or estate that should be distributed to the charity.  They can even make the gift contingent on whether the total value of their trust or estate exceeds a certain amount.

 

Not everyone has a favorite cause that they would love to support.  But if they do, there is probably a good way to make it happen.

Reference: Newsweek (May 17, 2019) ENDANGERED SPECIES DAY 2019: LIST OF MOST THREATENED ANIMALS AND PLANTS IN THE U.S. AND WORLD.

Single Women often Need to Play Catchup in Retirement

 
Retirement can be a challenging time for unmarried women.

The retirement savings for single women can be lower than married, or even widowed, women. That should be taken into consideration, when planning retirement, according to Barron’s in “The Single Woman’s Guide to Retirement Planning.” Married women may face a steep decline in income when their spouses dies. However, their single peers don’t have the opportunity to inherit a partner’s assets and spousal benefits from Social Security.  

Most retirement advice is geared toward couples. There needs to be a different plan for singles, because no one is going to save with them. They need to save and plan more.

Retirement security for Gen Xers was the topic of a study from the Employee Benefit Research Institute. This is the generation that was born between 1961-1981. The study found that only in one group of Gen Xers — single women — were 50% at risk of not having enough money to cover retirement basics. The average expected shortfall was as high as $73,000. That’s twice the estimated average shortfall for single men and more than triple that of widows. The gap continues into the highest income levels.

Americans are staying single longer and marriage rates are declining. Those trends, and the relatively new phenomenon of “gray divorce,” points to more women facing this scenario in the near and distant future. A little more than half of millennials, have never been married. When today’s older retirees were the age of today’s millennials, they were mostly married — only 17% were single.

Because the risk of running out of funds is higher for women, some advisors favor a more conservative approach, with lower expected returns on an investment portfolio. Add to that, the fact that women provide much of the caregiving to others and afterwards end up having to look after themselves. Perhaps that’s why so many occupants of nursing homes are women.

Advisors to women also recommend that they purchase insurance to help with the cost of long-term care. The first phase tends to come from family members. However, if you don’t have children or family living nearby, you have to be more careful about planning for long-term care costs.

About two thirds of people living alone at home over age 85 are women, according to a 2017 study from the Society of Actuaries. Living at home brings its own challenges and costs. Advisors tell single women that they should consider continuing-care retirement housing earlier than married couples.

Estate planning is especially important for single women. It’s crucial to be sure that documents, including a will, possibly a revocable trust, powers of attorney for both finance and health, and a HIPAA waiver, are in place, while they are well. For those who have trouble naming a proxy (substitute decision-maker)  due to a lack of family, an estate planning attorney can help to identify a private professional fiduciary or financial institution that can serve as a proxy and act as a co-trustee.

Finally, single women need to check on the beneficiary designations on their accounts. Some pensions do not allow for non-spousal beneficiaries, so it might be better to roll the pension into an IRA.

Reference: Barron’s (March 4, 2019) “The Single Woman’s Guide to Retirement Planning”

What If the Children are Not Independent – Yet?

At what point does asking for loans, become elder financial abuse?

It is often a challenge for a child to grow up and become an adult. Perhaps more importantly, for the child to become independent from the parents, according to Newsday in “Good to Know: Are your grown-up children taking advantage of you?”

Plenty of parents don’t know what to do when they are asked too many times for too many financial favors. They may feel pressured to agree, worried that they may see their grandchildren or their children less, if they say no. That’s a bad reason for generosity. If the parent is asked to co-sign for a large purchase, like a home or a car, they need to put the brakes on and discuss this thoroughly with their child. It may also be a good idea to speak with an estate planning attorney, for an objective viewpoint.

There needs to be recognition of the child’s creditworthiness. Have they borrowed money from their parents or other family members and failed to pay it back completely, or made only partial payments, and only after being reminded repeatedly? Don’t expect behavior to change. Parents facing this example also need to discuss this between themselves. They should only “lend” money that they can afford to lose.

If the child has been turned down for credit through regular financial channels and the bank of Mom and Dad is the only option, find out why. Ask them for a credit report and be transparent about your concerns. Can you afford to pick up the mortgage payments, if the child fails to make them? What about car loan payments?

Taking advantage of parents can extend past money. Some families welcome their grandchildren with open arms for unlimited times. However, if you find yourself babysitting on weekends and several week nights during the week, it’s time for a discussion. For one family, whose son was interested in spending time with a new fiancé more than with his two toddlers, the situation went on for nearly a year, until the parents gathered the courage to speak up.

They added up all the time they were spending each week taking care of the children. It has turned out that they were watching the children for fifteen hours or more each week. This was discussed calmly. They then made it clear that they were happy to continue caring for the children, but for a far more reasonable period of time.

If you feel that your children are taking advantage of you, you’ll need to have a discussion in a calm and reasonable manner. If there are financial matters that are spinning out of control, speak with your estate planning attorney about how to create a plan to stop the flow of money.

Reference: Newsday (April 14, 2019) “Good to Know: Are your grown-up children taking advantage of you?”

It May Be Late but It’s Not Too Late to Plan Retirement

If expenses for the kids have been reduced, you have a chance to make your financial situation stronger.

Is your 401(k) going to see you through retirement? Good question but if the answer is no, it is not too late to take a fresh look at your finances and plan for your retirement, according to Bloomberg in “Bigger 401(k) Contributions Are Easier for Empty Nesters.”

We all wish we had taken the advice printed in the 401(k) materials we got at work long ago: be disciplined about savings, put away 10% of your income and maybe 20%, if you can manage it. Every time you get a raise, increase your savings. The longer you wait to save, the more likely you’ll be among the millions of Americans struggling to maintain their lifestyle in retirement. You’ve heard all this. It was great advice. However, those recommended percentages are difficult to do.

It is little wonder then that the average combined 401(k) IRA account balance for American working households in 2016 is about $135,000, according to the U.S. Federal Reserve. That would equate to a household income of $600 monthly in retirement. It is not quite enough to maintain your lifestyle, is it?

Before throwing your hands up in the air, consider that you are far from doomed. Instead, take the opportunity to build your household finances, by continuing to work. This is especially true, if you are an empty nester. The number one solution to a successful retirement is working longer. Even a few years can have a large impact.

Empty nesters who are still working are in the best position of all. The cost of raising children is expensive. Well-off married couples with a child born in 2015 can expect that child to cost about $372,210 from birth to age 17 (that’s in 2017 dollars), according to the U.S. Department of Agriculture. When the children are out of the house, cash flow changes.

If you can keep working, and if the children can become financially independent, your retirement saving should be able to shift into higher gear. The most important thing for empty nesters is not to get comfortable with the new cash flow, when the kids move out. Instead, put away more.

Working longer has now become increasingly common. The civilian labor force participation rate of Americans ages 60-64 increased to 57% in 2018, from 44% in 1987, according to a report from the Brookings Institution.

Knowing that there’s time to save for retirement later in your career is liberating and not as difficult as saving while the children are still with you. There is time to restore your finances, if you take the right steps when the time is right.

Reference: Bloomberg (April 8, 2019) “Bigger 401(k) Contributions Are Easier for Empty Nesters”

Some Retirees Following in the Steps of ‘The Golden Girls’

  If you live together, there’s a good chance of stronger financial security and support.

Deborah Knox, who is 75 years old and has Parkinson’s disease, decided she needed some help in order to remain living in her home. She decided to seek a roommate and successfully avoided assisted living, according to the AARP Bulletin in “Housemate Wanted. Must Lift Heavy Objects.”

This is not unusual for the newest retirement dynamic — senior housemates. Older Americans are seeking companionship, mutual care and in some cases, a less expensive living situation. The number of households headed by renters 65 and older is expected to balloon by 80%, according to the Joint Center for Housing Studies at Harvard University.

A small industry has emerged from this need. There are companies that match housemates, doing background checks and matching up older renters. There are also companies that focus on older homeowners with housemates who can also help with chores.

The Golden Girls model is alive and well. The trend is more common among women, possibly because women tend to live longer than men and may feel more comfortable living in a communal setting. However, there are challenges. Living with a housemate isn’t without issues. A renter may feel unsettled by the lack of control, while a homeowner may feel agitated at having to share possessions and space.

Sharing houses may not be the American dream, but it may present a solution for seniors who want to maintain their independence.

Shared housing takes work. It also benefits from rules that are written down and agreed upon in advance. One woman purchased an eight-bedroom house in Portland and rented rooms to women who were like her — 55 and older and single. The tenants make their house rules and collectively decide who joins the community. So far, all but three rooms are filled.

Finding a roommate who isn’t family to live with requires some caution, advise experts. Some services offer a two-week trial and prepare for a confrontation if it does not work for you. Explore all issues, especially the thorny ones, in your first interviews. If your politics or spiritual practices are vastly different, there may be no way to overcome that. You should also discuss the details. Does one person like to watch television all the time, at full blast? If you prefer a quiet house, that’s not going to work out.

Put it in writing, from how costs will be divided to how bills will be paid. Who will be responsible for what chores? Are overnight guests permitted? Does the homeowner have the ultimate say? The more details you can cover, the less room for quarrels.

Reference: AARP Bulletin (March 14, 2019) “Housemate Wanted. Must Lift Heavy Objects”

A Health Care Directive Can Become Real Important, Real Fast

What happens if you suddenly cannot make your own decisions?

A health care directive can become very important, if you should find yourself incapacitated. That is why it is part of a comprehensive estate plan, according to the McPherson Sentinel in “Advance health care directives important to all adults.”

Documenting your wishes about future health care lets a cognitively healthy person express their wishes with a clear perspective. Unfortunately, only one in four American adults has their advance health care directive in place. Many wait to begin the planning process, until they are in their 50s or 60s. The problem is, life doesn’t have a plan. At any time in life, tragedy can strike. A serious illness or an accident can occur, and leave the family wondering what the person would have wanted.

The most common advance directives including a Durable Power of Attorney for Health Care, Living Will, and pre-hospital do not resuscitate directive, known also as a “DNR.”  California also recognizes a POLST (Physicians Order for Life Sustaining Treatment) which, because it is a medical order, must be signed by the doctor to be valid.

The Durable Power of Attorney for Health Care allows you to name a person to make medical decisions for you, in the event you cannot. They are also referred to as a “Medical Power of Attorney” or “Health Care Agent.”

This is different than a Durable Power of Attorney, which gives a person the right to act as another person’s agent and conduct all business and financial matters on their behalf.

It’s very important that the people you name to fulfill these roles are told that they have been named. They need to fully understand what your wishes are, what kinds of treatments are and are not acceptable for you, your preferences for doctors and where you would like the treatment to take place.

The person selected will need to be trustworthy and have the ability and willingness to communicate your wishes, even if family members don’t agree with your choices. They will need to follow your wishes, even if they are not the same as their own.

Keep family dynamics in mind. If a younger sibling is selected to be your health care agent and they have been dominated throughout their life by an older sibling, will your wishes be honored, or will they become the subject of an extended argument?

A Living Will is a document that details the type of care you want to receive at the end of life. It explains your wishes about accepting life-sustaining procedures, like being placed on a ventilator, receiving artificial nutrition and hydration, if at least two physicians deem your condition to be terminal.

These documents should be prepared for you as part of your overall estate plan, with the guidance of an estate planning attorney. Be aware that the laws vary from state to state, so you’ll want to work with an attorney who knows your state’s laws. If you relocate to another state, you will need to have your estate plan updated to ensure that it is still valid.

Reference: McPherson Sentinel (April 17, 2019) “Advance health care directives important to all adults”

Thinking of Passing on the Family Business?

Who will work in the business? Who will control the business? There are many, many more questions.

Passing on a family business isn’t as simple as selling your business, because it isn’t just financials and operations that must be considered. It would be very wise to consider the family dynamics in order for the situations to proceed as peacefully as possible, according to the North Bay Business Journal in “How to plan for a smooth transition of your family business.”

Estate planning attorneys can serve as sounding boards in creating a balance between what will be best for the business and what will work to maintain peace and cohesiveness in the family. With experience in guiding families through this process, they are able to provide an unbiased view and can be helpful, when hard decisions need to be made.

Another part of the plan is having the family and the estate planning attorney meet with other professionals, such as a wealth manager and CPAs. This is especially helpful when the owners are reluctant to talk about what is happening in the business with their children, before clarifying their own thoughts about the business.

Taking time to step back and gain some perspective before holding a family meeting where decisions are made, will give the owners more clarity.

A succession plan often starts a business plan. Once there is a plan for the future of the business, it’s an easier transition to financial and estate planning. Taking these steps can help the business’ success. Any business will run better when the numbers and projections for future growth are in place. Banks and other lenders look favorably on a company that has its financial reports in place.

This also permits tax planning to be done properly. In some cases, transferring a business or other asset, while the owner is still living can be beneficial in the long run, even with today’s higher federal estate tax exemptions.

Lifetime gifts can be a way to reduce estate taxes because making a gift today before there has been substantial appreciation, is one way to leverage the gift and estate tax exemption. Let’s say an asset is valued at $1 million, but at the time of your death it may be valued at $8 million. By giving it today, you can use less of your lifetime exemption.

To transfer the business to one or more children and give them an opportunity to succeed on their own, through their own efforts, consider bringing them in as a responsible manager with some ownership.

A gradual approach in transferring control of a business is a wise move, experts say.

An estate planning attorney can advise you in creating an estate plan that fits your unique circumstances and may include passing on a family business.

Reference: North Bay Business Journal (April 9, 2019) “How to plan for a smooth transition of your family business”

Beware of New Social Security Number Scam (and Don't Send Anyone Gift Card Pins)

As an Elder Law attorney, I am always on the lookout for scams that target seniors.  Here's one that hit home this week. - Maureen Lyons

I just got a phone call from one of my clients.  She was a bit shaken as she told me  about a call that she had just received. Caller ID indicated that the Social Security Administration was calling. It was a recording telling her that there was some suspicious activity associated with her Social Security number and that the number had been suspended.  She was told to respond immediately. The caller was asking her to confirm the number.  Thankfully,  she  hung up, and called me immediately.

I knew that it was a scam, but I didn't know how prevalent it is. I did some research via Google. According to the FTC, more than 35,000 people reported the scam to them in 2018.   Here's what the FTC has to say about the scam: This is what a Social Security scam sounds like.  There is even a recording of one such call.

Apparently, in addition to obtaining your Social Security number, scammers often advise you to drain your bank accounts before you account is frozen and use that money to purchase gift cards to hold your funds.  Next, they ask you to provide them with the pin numbers on the cards.  If you fall for this, say good-bye to your money.  It's gone.

The FTC said that most consumers don't fall for the scam.  But they do worry that someone has their social security number.  

Here's what you should know:

1. Never give out your Social Security number over the phone.
2. Don't trust Caller Id. Scammers can make your Caller Id show the name and number of the SSA.
3. Social Security is never going to call you and threaten to suspend your Social Security number.
4. They won't ask you to wire funds.
5. It is always a scam if you are being asked to buy gift cards.