Month: November 2018

Why Should I Leave an Inheritance to My Kids?

Passing on wealth, or leaving an inheritance, may seem intuitive, but there may be more to legacy decision-making than you’d think.

America is about to see a massive transfer of wealth from baby boomers, who’ve stockpiled an estimated $30 trillion. The “Me Generation” will probably spend some of its fortune, but there’ll be a lot remaining to pass along to their heirs. Research shows that between 2031 and 2045, as much as 10% of U.S. wealth could change hands every five years.

Think Advisor’s recent article, “Who Leaves an Inheritance, Who Doesn’t,” says that some people are more inclined to leave behind money than others. The reasons for doing so aren’t all intuitive.

In an effort to better understand what influences an individual’s intention to leave an inheritance, researchers at Kansas State University analyzed data from the 2016 Survey of Consumer Finances. The survey is given every three years by the Federal Reserve. It gathers data about U.S. household balance sheets, income, expenditures, key demographics and attitudes. After controlling for net worth, household income and other demographic characteristics, KSU used a binary logistic regression model to parse out the variables associated with the expectation of leaving an inheritance.

The results revealed the traits that are closely linked to bequest intentions and those that aren’t. They found that children aren’t a significant predictor of whether a person is likely to leave an inheritance. Likewise, owning cash-value life insurance or being a habitual saver doesn’t seem to play a role in an individual’s bequest rationale.

The top predictor most associated with passing on wealth is an individual’s own expectation of receiving an inheritance. The survey found that people were nearly 16% more likely to leave money to their heirs. However, those who actually did receive an inheritance, were 7% more likely to want to do the same for their own family.

It is not a shock, but a second leading predictor is a person’s attitudes about leaving an inheritance to others. Those respondents who ranked this goal as important, are 9.5% more likely to expect to leave an inheritance, as opposed to those who said it wasn’t important.

It is notable that business owners prioritize inheritances. They’re approximately 10% more likely to do so than non-business owners. Try to balance the competing priorities of maintaining a comfortable lifestyle in retirement, while leaving behind money to your heirs. For many families, the big issue in their planning will be focused on values and principles, rather than estate taxes.

Reference: Think Advisor (October 19, 2018) “Who Leaves an Inheritance, Who Doesn’t”

Digital Assets? Bring Your Estate Plan into Today’s Digital World

Life, as well as estate planning, used to be much more one-dimensional. Now that our lives are lived “In Real Life” (IRL) and online, estate plans need to include both aspects of our lives, according to this recent article from North Bay Business Journal titled “Your digital life likely will outlive you, so here’s how to bring your estate plan into the modern age.” You could decide not to deal with it, but then you are leaving a mess in digital assets behind for your loved ones to untangle.

Here are a few of your digital assets to consider: bank accounts, email accounts, Facebook page, Linked In profile, online photo albums, blogs and websites. They’re likely to be around long after you are gone.

This is still a relatively new area of estate planning. What often happens is that heirs think they can simply find and use the decedent’s user name and passwords to access their accounts. However, what they learn is that they are legally not permitted to do so. There are state and federal laws, online platform user agreements and a host of barriers to retrieve online assets.

A new law was passed in 2017 in California that attempted to bring order to this chaos back in 2017. The Revised Fiduciary Access to Digital Assets Act allows executors and trustees to obtain disclosure of a person’s digital assets, after the original owner dies but only under certain conditions.

In the recent past, federal and state laws have made it hard for executors and trustees to gain access to these assets without a court order.

Just being the executor or trustee does not automatically give you the right to access assets. There has to be evidence that the decedent consented to disclosure and a court order may be necessary to prove the consent was correct.

The new law mainly gave social media platforms and privacy advocates what they wanted: a requirement of prior consent before disclosure.  However, the end result is that it is easier to gain access to digital assets, if executors and trustees can show that the decedent did consent to disclosure.

However, it’s still not that simple. Here are a few steps to help your loved ones deal with your digital assets:

Inventory every digital asset that you have. Create a list of log-in and password information, plus any “secret questions/answers.”

Tell your trusted family member or friend where that list is. Store it with your other estate planning documents, possibly in your attorney’s vault.

Ask your estate planning attorney how they handle digital assets. Your lawyer will know what steps are necessary in your state to ensure that someone will have legal access to your digital assets after you pass away.

Do not include your digital asset inventory, as part of your will. If your estate goes through probate, all of your account information will become part of the public record.

Many wills don’t include provisions about digital assets. If this is the case with your will, contact your estate planning attorney now to make sure your online life is as protected as your “In Real Life” life.

Reference: North Bay Business Journal (Oct. 19, 2018) “Your digital life likely will outlive you, so here’s how to bring your estate plan into the modern age”

He’s 60. She’s 48. What Does Their Retirement Plan Look Like?

When couples are about the same age, working the retirement numbers is complicated enough.  However, what about when there’s a big age gap? In fact, an article from The Washington Post asks “How will a couple’s retirement look when there’s a big age gap?” Apparently, a big age gap can lead to some special challenges.

Not only are men who have recently remarried more likely to have a spouse who is younger, said one researcher, in many cases they are marrying women who are much younger. Twenty percent of newly married men wed women who are at least 10 years younger than themselves and another 18% marry women who are six to nine years younger.

By comparison, just 5% of men in their first marriage marry women who are 10 years younger.

For women, the likelihood of having a far younger spouse is very low.

That big age gap can be a big factor in decisions about when you retire, when spouses take Social Security and in planning how much money the couple needs to save and how to invest their savings.  Since women tend to outlive men, it’s especially important for retirement savings to last longer, when the wife is much younger than her husband.

When to retire is one of the big questions. Long-term care considerations, health insurance and other health costs become more significant, when there’s a younger spouse.

Couples with big age gaps need to have a plan that accommodates the partner with the longest life expectancy. Therefore, a 70-year-old husband and a 56-year-old wife need to plan for their portfolio to last over the wife’s longer life span. That could be 30 years, especially if she has good health and a family history of longevity.

If the older partner had a higher income level over his working career, delaying Social Security filing past full retirement age to age 70 could be extremely important. It will enlarge the higher-earning spouse’s benefit and it will also enhance the lifetime benefits for the surviving spouse.

If there is a big age gap between you and your partner, you’ll need to have a lot of discussions about the issues that retirement and retirement planning brings.

Couples should sit down with our estate planning attorneys and discuss the challenges they may face because of a large age difference. Our attorneys will be able to provide guidance, including exploring the use of many kinds of trusts or other estate planning tools that will protect the younger spouse.

Reference: The Washington Post (Oct. 22, 2018) “How will a couple’s retirement look when there’s a big age gap?”

Will My Medicare Premiums Go Up Next Year?

The Centers for Medicare & Medicaid Services has recently announced that most seniors will pay $135.50 per month for Medicare Part B in 2019. That’s a bit of a nudge up from $134 per month in 2018.

Kiplinger’s recent article, “What You’ll Pay for Medicare Premiums in 2019,” reports that a few Medicare beneficiaries (about 3.5%) will pay somewhat less because the cost-of-living increase in their Social Security benefits isn’t big enough to cover the full premium increase. The “hold-harmless provision” keeps enrollees’ annual increases in Medicare premiums from rising above their cost-of-living increases in Social Security benefits, if their premiums are automatically deducted from their Social Security payments. Social Security benefits are increasing by 2.8% in 2019, which will cover the increase in premiums for most seniors.

Premium increases are also pretty slight for most higher-income beneficiaries. Who are they? Those with adjusted gross income plus tax-exempt interest income of more than $85,000, if single or $170,000, if married filing jointly. These people already pay a high-income surcharge. However, a new surcharge tier will apply in 2019 for people with the highest incomes. Thus, monthly premiums for higher-income beneficiaries will be between $189.60 to $460.50 per person, based on their income.

If your income is $85,001 to $107,000 (or $170,001 to $214,000 if filing jointly), your monthly premium will go from $187.50 to $189.60. Monthly premiums for singles with an income of $107,001 to $133,500 (joint filers with income of $214,001 to $267,000) will be $270.90 (that’s up from $267.90).  Premiums for singles earning $133,501 to $160,000 ($267,001 to $320,000 for joint filers) will increase from $348.30 to $352.20.

If your income was greater than that, your monthly premium for 2018 was $428.60. In 2019, again, there’ll be an extra surcharge tier for people with the highest income. These high-income surcharges for 2019, are typically based on 2017 income. You can contest the surcharge, if you’ve had life-changing events that may have dropped your income since then. This includes retirement, divorce or the death of a spouse.

If your income is in the range of $160,001 to $499,999 ($320,001 to $749,999 for joint filers), you’ll pay $433.40 per month. Single filers with income of $500,000 or more ($750,000 or more for joint filers) will pay $460.50 per month.

Deductibles will also go up in 2019: the deductible for Medicare Part A, which covers hospital services, will increase from $1,340 in 2018 to $1,364 in 2019. The deductible for Medicare Part B, which covers physician services and other outpatient services, will see a small increase from $183 to $185.

Reference: Kiplinger (October 12, 2018) “What You’ll Pay for Medicare Premiums in 2019”
Health care directives

Why Should I Write a Living Will?

“Advance care planning takes place over a lifetime. It changes as one’s goals and priorities in life change through different stages of life and health conditions,” asserts new guidelines on living wills from the American Bar Association Commission on Law and Aging.

There are typically four stages of life that should necessitate changing a living will, says Forbes in its recent article, “Living Wills Stressed For Adults Of All Ages.”

How Do I Calculate My Estate Taxes?

Most people are aware that estate taxes are owed on asset transference, but people tend to be foggy on the details, until it’s too late to do anything about it.

Handling the affairs of a loved one’s estate can be stressful and difficult. However, to receive the full benefit of the gift a loved one leaves you, it’s critical to be prepared for the taxes that gift will incur. This is the advice in Investopedia’s article, “Estate Taxes: How to Calculate Them.” The article explains the potential tax liability, upon transfer of an estate after death. …

After Legal Battle, Rapper’s Unreleased Recordings to be Returned

There have been big “Changes” to the state of some of Tupac Shakur’s previously unreleased music after a drawn-out legal battle.

A collection of recordings that the hip-hop icon Tupac Shakur made before his death, has been returned to his estate.

It’s part of a settlement of a drawn-out legal struggle, according to TMZ.

In addition, The New York Daily News reports in its October article, “Unreleased Tupac music returned to his estate after drawn-out legal battle,” that Tupac’s estate accused the Entertainment One company in a 2013 lawsuit of keeping a strong grip on his unheard master tracks, and at the same time retaining royalties for some of the rapper’s music.

The lawsuit alleged that Entertainment One breached a contract to pay Tupac’s estate royalties worth seven figures for 2007’s Beginnings: The Lost Tapes. Tupac’s estate also sued for the ownership of the master recordings for all of the artist’s unreleased music.

Tupac’s unreleased recordings will now be returned to his estate, while a six-figure payment will be made to cover the royalties.

It’s not certain what will happen to those unreleased tracks, or if there is any plan to release them to the public.

Shakur’s mother, Afeni, had been leading the battle to protect her son’s estate. The litigation over his recordings continued after her death in 2016 at the age of 69, after suffering a heart attack.

“My son left many incomplete pieces and even more unfinished ideas,” Afeni said when filing the lawsuit. “Using the blueprints he gave us, I am committed to fulfilling this duty…[We] will find innovative ways to continue to keep his music, his message, and his legacy alive.”

Tupac died at the age of 25 in 1996 in an unsolved drive-by shooting in Las Vegas, Nevada.

Death Row Records originally had the rights to Tupac’s music, but the label sold them to Entertainment One in 2006.

Reference: The New York Daily News (October 1, 2018) “Unreleased Tupac music returned to his estate after drawn-out legal battle”

Business Owners: How Do You Plan the Succession of Your Business?

After tough years building their businesses, most business owners take great pride in what they’ve created. Some owners are so proud and dedicated to their businesses that they don’t wish to retire. Instead, they intend to continue leading the business they love, until their dying day.

The San Antonio Business Journal’s recent article, “Plan your exit even if you never plan to leave your business,” explains that many owners think it’s okay to delay preparing for their business exit. Some think there’s no reason to plan for their exit whatsoever, because they’re willing to die in the business.

Did Microsoft Founder Paul Allen Have an Estate Plan?

The question isn’t whether the secretive Microsoft founder structured his finances for maximum posthumous impact. It’s whether the estate plan is so well-designed that we’ll never find out.

People who knew Paul Allen say he had a long-term plan. They say his money has been working in secret for decades now, arguably outside his immediate control. Wealth Advisor’s recent article, “Paul Allen Had A $20 Billion Estate Plan (The IRS Can’t Touch)” notes that fact will made it difficult for the IRS to get a share of the estate. …


Are Trusts the Right Solution for Me?

Trusts can be very powerful tools to transfer and protect family wealth for future generations.

However, frequently families wind up becoming unhappy with their trusts because it’s the wrong solution, according to a recent article from Forbes, “Why You Might Need To Fix Your Family Trusts.”

There are several reasons why this happens. They include:

  • Poor Set-up. The trust wasn’t created properly, and the lawyer drafting the trust didn’t truly understand the wishes of the family;
  • Poor Writing. The language in the trust is inappropriate or too vague, which can cause issues; and
  • Poor Planning. The trust isn’t viable anymore because situations change, and the document wasn’t created in a way to adapt to a shifting environment.

The law is constantly changing. As a result, there are new legal strategies and structures that are better for some situations than a trust. An experienced trust attorney should be consulted about all of the options for your situation.

For any family, there’s bound to be specific reasons why they need to fix their trusts.

Most problems, however, can be categorized in three areas:

  1. The trust doesn’t have provisions to provide necessary distributions to family members;
  2. The governance structure or rules of the trust may not provide for effective management or sufficient oversight; and
  3. The trust is tax inefficient.

When any of these situations occurs, there are ways to make sure the trusts work along with the needs and wants of the family. A trust that has any of these issues won’t be effective. The trust must be fixed or replaced to achieve the family’s goals.

It’s wise to periodically review trusts to be certain that they’re satisfying the intended objectives and taking advantage of all of the possible benefits. A trust attorney may be able to make some adjustments that are significantly advantageous to the family.

If a family has questions about the efficacy of their trusts, they should review them with one of our experienced estate planning attorneys. It’s important to examine the trust with a sound understanding of the needs, desires and preferences of the family.

Reference: Forbes (October 17, 2018) “Why You Might Need To Fix Your Family Trusts”


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