Trusts and Estates Wills and Probate Tax Saving Strategies Medicaid

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All too often a client comes in with a sad tale about an estranged child.  Naturally, they are at a loss as to what to do about the situation when it comes to leaving that child an inheritance.

Years ago, the famous advice columnist Ann Landers wrote that her all time most requested column for reprint was on this very subject.  Ann wrote that an inheritance should be considered a gift and that if the gift is not deserved one should not be expected.  While that may have been good advice at the time and perhaps still is in most cases, like many things it is more complicated today.

In practice, we find that many of these once loving sons and daughters have married individuals with borderline or narcissistic personality disorders. Their spouses are manipulative and controlling. They seek to separate the loving son or daughter from their family so as to better control their spouse.  The estranged child knows from experience that going against the wishes of their narcissistic spouse is like throwing gasoline on a fire — so they go along to get along.

Adapted from author Doug Armey, the following are keys to keeping your brain “lit” as you age.

  1. Flow. A sedentary life causes brain deterioration.  Blood flow to the brain keeps oxygen in your brain cells which gives them life. Keep moving, walking and get some exercise.
  2. Energize. Junk food clogs your arteries and lowers energy, causing a sedentary lifestyle.  Healthy food gives energy to your body and brain.  Refuel and brighten the lights.

What happens if you have an accident or an illness whereby you are unable to handle your legal and financial affairs?  Many people incorrectly believe their spouse is legally able to handle their affairs. Similarly, a parent has no legal authority to handle the affairs of a child, once the child attains the age of majority – eighteen years.

Without a power of attorney, you would have to apply to a court to be named a legal guardian.  These proceedings are expensive, time-consuming and fraught with peril.  The judge has no obligation to name the spouse or parent as legal guardian and may appoint a stranger.  For example, the judge may feel that the spouse or parent has a conflict in that they are the beneficiary of the incapacitated person’s assets, or the judge may decide that someone else has more knowledge and experience in handling such matters.

Who should you choose as your “agent”?  In our experience, the vast majority of powers of attorney name the spouse first and one or more of the children second.  While on its face this seems reasonable, experience has shown it may not be a good idea.  We often need to use the power of attorney when the client is quite elderly and infirm.  Often, so is the spouse at that time.  Son or daughter wants to step in and help out with bill paying, etc. only to find they are unable to use the power of attorney for dad unless they can prove that mom can’t.

The Secure Act governs distributions from IRA’s and other retirement plans. After the death of the account holder, most named beneficiaries are required to take the funds out over ten years.

While the IRS has not finalized the regulations, the safest approach is to take minimum distributions for the first nine years, based on the life expectancy of the beneficiary. More may be taken, and taxes will be based on that amount. The way the minimum distribution works is as follows. Let’s say the beneficiary has a life expectancy of forty years when the account holder dies. In the year following the account holder’s death they must take one-fortieth, the following year one-thirty-ninth, and so on until year ten when they are required to take the retirement account balance in full.

There are a few exceptions to the ten year rule. Spouses may roll the inherited IRA into an IRA of their own and continue it for their own lifetime — generally waiting until they are 72 to start taking required minimum distributions (RMD’s) unless they need the funds earlier.

In his book, subtitled “Lessons From a Year Among the Oldest Old”, journalist John Leland takes us on a journey into uncharted territory. Mr. Leland spent a year with six elderly New Yorkers, exploring their lives.

He divides the book into the first six chapters chronicling the years spent with each of the six — John, 97, living in the same Manhattan apartment for forty-six years, the last six of them alone after the death of his partner; Fred, 87, a World War II vet and retired civil servant living in a three-story walk up; Helen, 90, living in The Hebrew Home in the Bronx, dating Howie, living down the hall; Ping, 89, providing an Asian perspective, living in a rent-controlled apartment with a Medicaid paid home attendant for seven hours a day; Ruth, a feisty 90, in assisted living in Sheepshead Bay, Brooklyn and, finally, Jonas, 92, an active filmmaker and writer.

Along with the author, we live the lives of these six people from getting up in the morning to going to bed at night. “How did they get through the day, and what were their hopes for the morrow?  How did they manage their medications, their children, and their changing bodies…”  Further, says Mr. Leland “All had lost something: mobility, vision, spouses, children, peers, memory but few had lost everything.”  What the author found was that the “oldest old” are not a different species, as so many people see them, but rather much the same as you and me — getting up each morning with wants and needs and doing the best they can with what they have.  Nevertheless, older people report a greater sense of well-being and fewer negative emotions than younger people.  “Experience helps older people moderate their expectations and makes them more resilient when things don’t go as hoped.” We learn the many ways his six seniors chose to be happy.

For the ever-increasing number of those who become legally incapacitated later in life (i.e. unable to handle their legal and financial affairs) having a legal guardian appointed looms as a distinct possibility.

A guardianship proceeding may be commenced by a hospital, nursing home, assisted living residence, family member or a professional involved in the affairs of the “alleged incapacitated person” or “AIP”. These proceedings arise for various reasons such as the facility looking to secure payment or a family member or professional finding that the AIP is either not handling their affairs well or is being taken advantage of financially.

Once the proceeding is commenced a vast bureaucratic process begins to unfold. Notice of the proceeding and of the date and location of any hearings are sent to all interested parties, including all immediate family members.

In the event of their death, many people wish to provide for the adequate care and feeding of their beloved dog, cat, bird or other pet. Here is an abridged version of New York’s statute authorizing a trust for your pet;

  1. The intended use of the principal or income, of a trust for the care of a designated domestic or pet animal, may be enforced by an individual designated for that purpose in     the trust instrument. Such trust shall terminate when no living animal is covered by the trust.
  2. No portion of the principal or income may be converted to the use of the trustee or to any use other than for the benefit of a covered animal.

Your “basis” for calculating capital gains taxes is what you paid for the stock or the real estate. For real estate, the basis gets raised by the amount of any capital improvements you make to the property.  When you sell your primary residence you may exclude the first $500,000 of gain if you’re a couple or $250,000 if you’re single.  The $500,000 exclusion for a couple get extended for a sale occurring up to two years after a spouse dies.

For gifts you receive of appreciated stock or real estate during the donor’s lifetime, no capital gains tax is payable, however the donee receives the donor’s basis.  It is generally considered better to wait, if possible, and pass the gift to the donee at death, due to the “stepped-up basis”.  The basis of any inherited property is “stepped-up” to date of death value.  If the property is sold within six months of the date of death, then the sale price is deemed to be the date of death value.

If the property is going to be held for some time it is helpful to get date of death values to establish the new basis.  For real estate, this means getting an appraisal from a licensed real estate appraiser (not a real estate broker!).  For stocks, you simply ask the company holding the stocks to provide this information.

You should strive to review your estate plans every few years. While it might not seem like it, many events can occur during this period that impacts your estate planning goals. Besides personal changes, the country also experiences national elections every four years which often lead to changes in estate taxes.

Consider Role Appointments

One of the most critical parts of estate planning is appointing who among your friends and family members will act in the role of executor, power of attorney, and other estate planning positions. You should also question whether the parties you nominate to act in such a role remain fit and willing to act in these positions. It’s also important to remember that the suitability of appointments can change. While a person might seem like a good executor, they might not be a suitable executor a decade from now. 

After a person is named an executor, the individual takes on the obligation to adequately and promptly complete the estate’s administration in addition to distributing an estate’s assets to anyone listed as a beneficiary. Assuming that the executor appreciates the duty that he or she owes to the estate and pursues appropriate assistance, an estate’s administration can be performed in a timely manner, and assets are distributed appropriately.

It’s not unique for new challenges to appear during estate administration. This article highlights some situations where a court might remove an executor after paperwork is filed by an estate beneficiary.

A common issue faced by beneficiaries is when executors do not timely administer an estate. Even though estate administration is nuanced, executors have a duty to administer estates in a timely manner. Unfortunately, executors sometimes do not expediently process how an estate should be administered. Instead, executors sometimes take too long to complete estate planning processes. 

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