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Estate Planning Blog

Serving Clients Throughout North Central Missouri

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What was Stephen Sondheim Estate Plan?

Ninety-one-year-old Broadway legend Stephen Sondheim died suddenly at his Roxbury, Ct. home in November, one day after celebrating Thanksgiving, according to his lawyer and friend F. Richard Pappas at the time.

New York Post’s recent article entitled “Stephen Sondheim left behind an estate worth an estimated $75 million” reports that the “West Side Story” songwriter’s assets totaled about $75 million, according to documents accompanying his 2017 will filed in Manhattan Surrogate’s court last month.

Sondheim’s will gives all of his wealth, including his personal effects, the rights to his music and literary works, to the Stephen J. Sondheim Revocable Trust. Sondheim left his nearly $75 million estate to his husband, charities and other friends as beneficiaries of the trust. The trust was created with Sondheim’s pour-over will, where everything goes to the trust.

It is believed that Sondheim worked with an estate planning attorney to create a very good sound estate plan that will benefit his spouse, as well as friends and charitable organizations that were important to him. It also keeps order of his intellectual property, so there’s somebody managing his musical legacy.

The Broadway legend named 20 people and charities as beneficiaries to his trust, including his husband Jeffrey Romley, the Smithsonian Institute, the Museum of New York City, the Library of Congress, the New York Public Library for the Performing Arts, the Dramatists Guild Fund and the Irish Repertory Theater Company. His “Into the Woods” collaborator and director James Lapine is also listed as a beneficiary to the trust.

Irish Repertory Theater co-founders Ciarán O’Reilly and Charlotte Moore called the bequest “a lovely surprise.”

Sondheim “never failed to honor us with his staunch support … especially of our musicals and musical adaptations,” their statement continued. “Having ‘Himself’ in our audience, while absolutely terrifying, confirmed our right to venture into the mysterious worlds in which he was the undisputed master.”

Whitney Donhauser, the Ronay Menschel Director of Museum of the City of New York, said in a statement, “We feel honored that Stephen Sondheim — theater titan, lifelong New Yorker and 2013 Louis Auchincloss Prize recipient — recognized our mission as New York’s storyteller, by including us as a beneficiary of his trust.

“His generous contribution allows us to continue sharing the powerful, diverse and important role of the theater in New York City.”

Reference: New York Post (Jan. 23, 2022) “Stephen Sondheim left behind an estate worth an estimated $75 million”

 

estate planning

Taking Care of Dying Parent’s Financial Affairs Can Be Challenging

It’s not uncommon for adult children to have to face a parent’s decline and a stay in hospice at the end of their life. The children are tasked with trying to prepare for his passing. This includes how to handle his financial matters.

Seniors Matter’s recent article entitled “How do I handle my father’s financial matters now that he’s in hospice?” says that caring for a sick family member is a challenging and emotional time. Because of this major task, it is easy to put financial considerations on the back burner. Nonetheless, it is important to address a few key issues.

If a family member is terminally ill or admitted to hospice – and you are able to do so – it may be a good idea to start by helping to take inventory of your family member’s assets and liabilities. A clear idea of where their assets are and what they have is a great starting point to help you prepare and be in a better position to manage the estate.

An inventory may include any and all of the following:

  • Real estate
  • Bank accounts
  • Cars, boats and other vehicles
  • Stocks and bonds
  • Life insurance
  • Retirement plans (such as a 401(k), a traditional IRA, a Roth IRA and a SEP IRA);
  • Wages and other income
  • Business interests
  • Intellectual property; and
  • Any debts, liabilities and judgments.

Next, find out what, if any, estate planning documents may be in place. This includes a will, powers of attorney, trusts, a healthcare directive and a living will. You will need to find copies.

This is hard to do while a loved on is dying, but it can make the aftermath easier and less stressful.

Reference: Seniors Matter (Feb. 22, 2022) “How do I handle my father’s financial matters now that he’s in hospice?”

 

estate planning for Married Couples

Do You Have to Pay Taxes on Inherited IRAs?

If you’ve inherited an IRA, you won’t have to pay a penalty on early withdrawals if you take money out before age 59½. However, you may have to make those withdrawals earlier than you’d wanted. Doing so may trigger additional income taxes, and even push you into a higher tax bracket. The IRA has always been a complicated retirement account. While changes from the SECURE Act have simplified some things, it’s made others more stringent.

A recent article titled “How Do I Avoid Paying Taxes on an Inherited IRA?” from Aol.com explains how the traditional IRA allows tax-deductible contributions to be made to the account during your working life. If the IRA includes investments, they grow tax—free. Taxes aren’t due on contributions or earnings, until you make withdrawals during retirement.

A Roth IRA is different. You fund the Roth IRA with after-tax dollars, earnings grow tax free and there are no taxes on withdrawals.

With a traditional inherited IRA, distributions are taxable at the beneficiary’s ordinary income tax rate. If the withdrawals are large, the taxes will be large also—and could push you into a higher income tax bracket.

If your spouse passes and you inherit the IRA, you may take ownership of it. It is treated as if it were your own. Howwever, if you inherited a traditional IRA from a parent, you have just ten years to empty the entire account and taxes must be paid on withdrawals.

There are exceptions. If the beneficiary is disabled, chronically ill or a minor child, or ten years younger than the original owner, you may treat the IRA as if it is your own and wait to take Required Minimum Distributions (RMDs) at age 72.

Inheriting a Roth IRA is different. Funds are generally considered tax free, as long as they are considered “qualified distributions.” This means they have been in the account for at least five years, including the time the original owner was alive. If they don’t meet these requirements, withdrawals are taxed as ordinary income. Your estate planning attorney will know whether the Roth IRA meets these requirements.

If at all possible, always avoid immediately taking a single lump sum from an IRA. Wait until the RMDs are required. If you inherited an IRA from a non-spouse, use the ten years to stretch out the distributions.

If you need to empty the account in ten years, you don’t have to withdraw equal amounts. If your income varies, take a larger withdrawal when your income is lower and take a bigger withdrawal when your income is higher. This can result in a lower overall tax liability.

If you’ve inherited a Roth IRA and funds were deposited less than five years ago, wait to take those funds out for at least five years. When the five years have elapsed, withdrawals will be treated as tax-free distributions.

One of the best ways for heirs to avoid paying taxes on an IRA is for the original owner, while still living, to convert the traditional IRA to a Roth IRA, paying taxes on contributions and earnings. This reduces the taxes paid if the owner is in a lower tax bracket than beneficiaries, and lets the beneficiaries withdraw funds as they want with no income tax burden.

Reference: Aol.com (Feb. 25, 2022) “How Do I Avoid Paying Taxes on an Inherited IRA?”

 

estate planning

What are the Signs of Elder Abuse?

According to the National Adult Protective Services Association, the “vast majority” of cases reported to its member agencies involve people the victim knows, including relatives, caregivers, neighbors and friends.

AARP’s  recent article entitled “Spot the Red Flags of Elder Financial Abuse” explains that financial exploitation can range from stealing someone’s Social Security check to forging financial documents to misappropriating cash, jewelry and other property. Financial fraud costs seniors at least $36.5 billion annually, according to the National Council on Aging.

Here are some signs and circumstances that can help you identify elder financial abuse and perhaps prevent it from happening to you or someone you love:

Unusual financial activity. A big red flag of potential financial abuse is unexplained activity in an older person’s accounts. Ask about any large withdrawals and unpaid bills to make certain sure there are no questionable credit card charges. Stop any bank transfers or recurring transactions the account holder does not remember making. Review an aging loved one’s bank and credit card statements regularly with him or her to help guard against fraud. You may also create a transparent system that lets both of you monitor financial activity and perform basic record-keeping, and keep the lines of communication over money matters open.

New ‘friends’ or helpers. Those seniors who live alone are particularly susceptible to financial exploitation. Wrongdoers can more readily hide their misdeeds, if no one else is around. Experts caution that perpetrators of financial abuse, especially new acquaintances, frequently try to box out others and limit relatives’ contact with a vulnerable, older adult. Use caution with newcomers who try to insert themselves into a senior’s life in a way that makes them indispensable in the eyes of the victim.

Cognitive decline or loss of financial acumen. If a senior has known cognitive impairments like Alzheimer’s or dementia or is beginning to show a loss of financial acumen, a trusted individual may need to immediately step in to help. Financial fraud can easily happen when a third party has access to an older adult’s sensitive private data, such as account numbers, passwords or Social Security number. Many older people also require help with money management tasks.

Mobility or frailty issues. Even those without cognitive impairments may be susceptible to financial abuse if they have physical disabilities or other issues that prevent them from driving or otherwise getting around. Therefore, seniors with mobility issues who are unable to go to the bank on their own, or who are not good with computers, may not have the physical ability or the aptitude to do remote banking. They may have to rely on another to handle routine transactions, such as deposits, withdrawals, or transfers.

Reference: AARP (Feb. 28, 2022) “Spot the Red Flags of Elder Financial Abuse”

 

Is Estate Planning for Everyone?

What Is a Trust and How Does It Work?

A trust is a legal entity, created to hold assets for a person referred to as a beneficiary. The person in charge of the trust is the trustee. The person who creates the trust is known as the grantor (or trustmaker, settlor, or trustor). How the trust is structured and what it does varies widely, as detailed in the aptly-named article “Trusts Explained” from U.S. News & World Report. Trusts are used in estate planning to reduce estate taxes, help avoid having certain assets go through probate, or assist in validating and settling an estate.

Simply put, trusts are used to transfer assets from one person to another person, or institution, such as a nonprofit or a bank. The grantor establishes the trust and funds it by retitling assets to be owned by the trust. The grantor also chooses one or more beneficiaries and a trustee or a group of trustees, who are in charge of managing the trust.

You might create a trust to benefit a charity and have it managed by a bank or another type of financial institution. If the trustee is an institution, it will name a trust administrator or trust officer, who is in charge of managing the trust.

Placing assets in a trust ensures they are managed as directed in the trust documents, even when you cannot manage them yourself. Assets in a trust do not go through probate, allowing heirs to access assets more quickly than if they were transferred using a last will.

Certain kinds of trusts, and there are many, can be used to remove assets from your estate to reduce estate taxes.

Revocable living trusts provide a lot of flexibility. The grantor may change the terms of the trust or even shut the trust down at any time. The grantor may also be a trustee, so as to maintain complete control of the trust during the lifetime of the grantor. A successor trustee is named to control the trust when the primary trustee dies or becomes incapacitated.

In exchange for this much control, the assets are still considered part of the grantor’s estate. To avoid this, use an irrevocable trust. This trust cannot be altered by the grantor once it’s established. The grantor may not change the terms of the trust or dissolve the trust. Assets are under control of the trustee only. Assets in an irrevocable trust are not considered part of an estate, not subject to estate taxes and the grantor does not have to pay taxes on income generated by the trust during their lifetime. Note: this description is “painting” with a broad brush as there are many legal and tax “moving parts,” when it comes to irrevocable trusts.

Wills and trusts are both used to direct how assets are transferred after death. Trusts can be used to manage assets on your behalf, if you become incapacitated as well as after your death. Trust documents do not become part of the public record, while wills do. Wills have to be validated by the court; trusts do not. Some people place most or all of their assets within a trust to keep their business private.

Trusts provide a great deal more control over your assets and maintain privacy for the family. You control how and when assets are distributed in the trust document. For instance, children can be given money over a controlled period of time, rather than all at once. You can also use trusts to pass assets along to a family member with special needs who is receiving government benefits using a special needs trust. Passing assets directly to such an individual could put all of their government support and programs at risk.

Speak with your estate planning attorney about trusts and how they may benefit you, your spouse and your family. They can provide you with even greater peace of mind than a will. Note: the above description of a trust is truly “painting with a broad brush,” since there are many legal and tax “moving parts” when it comes to irrevocable trusts.

Reference: U.S. News & World Report (Feb. 7, 2022) “Trusts Explained”

 

Meet Michael OLoughlin

Should I have a Charitable Trust in My Estate Plan?

Charitable trusts can be created to provide a reliable income stream to you and your beneficiaries for a set period of time, says Bankrate’s recent article entitled “What is a charitable trust?”

Establishing a charitable trust can be a critical component of your estate plan and a rewarding way to make an impact for a cause you care deeply about. There are a few kinds of charitable trusts to consider based on your situation and what you may be looking to accomplish.

Charitable lead trust. This is an irrevocable trust that is created to distribute an income stream to a designated charity or nonprofit organization for a set number of years. It can be established with a gift of cash or securities made to the trust. Depending on the structure, the donor can benefit from a stream of income during the life of the trust, deductions for gift and estate taxes, as well as current year income tax deductions when the assets are donated to the trust.

If the charitable lead trust is funded with a donation of cash, the donor can claim a deduction of up to 60% of their adjusted gross income (AGI), and any unused deductions can generally be carried over into subsequent tax years. The deduction limit for appreciated securities or other assets is limited to no more than 30% of AGI in the year of the donation.

At the expiration of the charitable lead trust, the assets that remain in the trust revert back to the donor, their heirs, or designated beneficiaries—not the charity.

Charitable remainder trust. This trust is different from a charitable lead trust. It’s an irrevocable trust that’s funded with cash or securities. A CRT gives the donor or other beneficiaries an income stream with the remaining assets in the trust reverting to the charity upon death or the expiration of the trust period. There are two types of CRTs:

  1. A charitable remainder annuity trust or CRAT distributes a fixed amount as an annuity each year, and there are no additional contributions can be made to a CRAT.
  2. A charitable remainder unitrust or CRUT distributes a fixed percentage of the value of the trust, which is recalculated every year. Additional contributions can be made to a CRUT.

Here are the steps when using a CRT:

  1. Make a partially tax-deductible donation of cash, stocks, ETFs, mutual funds or non-publicly traded assets, such as real estate, to the trust. The amount of the tax deduction is a function of the type of CRT, the term of the trust, the projected annual payments (usually stated as a percentage) and the IRS interest rates that determine the projected growth in the asset that’s in effect at the time.
  2. Receive an income stream for you or your beneficiaries based on how the trust is created. The minimum percentage is 5% based on current IRS rules. Payments can be made monthly, quarterly or annually.
  3. After a designated time or after the death of the last remaining income beneficiary, the remaining assets in the CRT revert to the designated charity or charities.

There are a number of benefits of a charitable trust that make them attractive for estate planning and other purposes. It’s a tax-efficient way to donate to the charities or nonprofit organizations of your choosing. The charitable trust provides benefits to the charity and the donor. The trust also provides upfront income tax benefits to the donor, when the contribution to the trust is made.

Donating highly appreciated assets, such as stocks, ETFs, and mutual funds, to the charitable trust can help avoid paying capital gains taxes that would be due if these assets were sold outright.  Donations to a charitable trust can also help to reduce the value of your estate and reduce estate taxes on larger estates.

However, charitable trusts do have some disadvantages. First, they’re irrevocable, so you can’t undo the trust if your situation changes, and you were to need the money or assets donated to the trust. When you establish and fund the trust, the money’s no longer under your control and the trust can’t be revoked.

A charitable trust may be a good option if you have a desire to create a legacy with some of your assets. Talk with an experienced estate planning attorney about your specific situation.

Reference: Bankrate (Dec. 14, 2021) “What is a charitable trust?”

Retirement Planning

Can Estate Planning Reduce Taxes?

With numerous bills still being considered by Congress, people are increasingly aware of the need to explore options for tax planning, charitable giving, estate planning and inheritances. Tax sensitive strategies for the near future are on everyone’s mind right now, according to the article “Inheritance, estate planning and charitable giving: 4 strategies to reduce taxes now” from Market Watch. These are the strategies to be aware of.

Offsetting capital gains. Capital gains are the profits made from selling an asset which has appreciated in value since it was first acquired. These gains are taxed, although the tax rates on capital gains are lower than ordinary income taxes if the asset is owned for more than a year. Losses on assets reduce tax liability. This is why investors “harvest” their tax losses, to offset gains. The goal is to sell the depreciated asset and at the same time, to sell an appreciated asset.

Consider Roth IRA conversions. People used to assume they would be in a lower tax bracket upon retirement, providing an advantage for taking money from a traditional IRA or other retirement accounts. Income taxes are due on the withdrawals for traditional IRAs. However, if you retire and receive Social Security, pension income, dividends and interest payments, you may find yourself in the enviable position of having a similar income to when you were working. Good for the income, bad for the tax bite.

Converting an IRA into a Roth IRA is increasingly popular for people in this situation. Taxes must be paid, but they are paid when the funds are moved into a Roth IRA. Once in the Roth IRA account, the converted funds grow tax free and there are no further taxes on withdrawals after the IRA has been open for five years. You must be at least 59½ to do the conversion, and you do not have to do it all at once. However, in many cases, this makes the most sense.

Charitable giving has always been a good tax strategy. In the past, people would simply write a check to the organization they wished to support. Today, there are many different ways to support nonprofits, allowing for better tax advantages.

One of the most popular ways to give today is a DAF—Donor Advised Fund. These are third-party funds created for supporting charity. They work in a few different ways. Let’s say you have sold a business or inherited money and have a significant tax bill coming. By contributing funds to a DAF, you will get a tax break when you put the funds into a DAF. The DAF can hold the funds—they do not have to be contributed to charity, but as long as they are in the DAF account, you receive the tax benefit.

Another way to give to charity is through your IRA’s Required Minimum Distribution (RMD) by giving the minimum amount you are required to take from your IRA every year to the charity. Otherwise, your RMD is taxable as income. If you make a charitable donation using the RMD, you get the tax deduction, and the nonprofit gets a donation.

Giving while living is growing in popularity, as parents and grandparents can have pleasure of watching loved ones benefit from the impact of a gift. A person can give up to $16,000 to any other person every year, with no taxes due on the gift. The money is then out of the estate and the recipient receives the full amount of the gift.

All of these strategies should be reviewed with your estate planning attorney with an eye to your overall estate plan, to ensure they work seamlessly to achieve your overall goals.

Reference: Market Watch (Feb. 18, 2022) “Inheritance, estate planning and charitable giving: 4 strategies to reduce taxes now”

 

Extended-Family

What Does Estate Plan Include?

The will, formally known as a last will and testament, is just one part of a complete estate plan, explains the article “Essential components of an estate plan” from Vail Daily. Consider it a starting point. A will can be very straight-forward and simple. However, it needs to address your unique situation and meet the legal requirements of your state.

If your family includes grown children and your goal is to leave everything to your spouse, but then make sure your spouse then leaves everything to the children, you need to make sure your will accomplishes this. However, what will happen if one of your children dies before you? Do you want their share to go to their children, your grandchildren? If the grandchildren are minors, someone will need to manage the money for them. Perhaps you want the balance of the inheritance to be distributed among the adult children. What if your surviving spouse remarries and then dies before the new spouse? How will your children’s inheritance be protected?

Many of these questions are resolved through the use of trusts, another important part of a complete estate plan. There are as many different types of trusts as there are situations addressed by trusts. They can be used to minimize tax liability, control how assets are passed from one generation to the next and protect the family from creditor claims.

How a trust should be structured, whether it is revocable, meaning it can be easily changed, or irrevocable, meaning it is harder to change, is best evaluated by an experienced estate planning attorney. No matter how complicated your situation is, they will have seen the situation before and are prepared to help.

A memorandum of disposition of personal property gives heirs insight into your wishes, by outlining what you want to happen to your personal effects. Let’s say your will leaves all of your assets to be divided equally between your children. However, you own a classic car and have a beloved nephew who loves the car as much as you do. By creating a memorandum of disposition, you can make sure your nephew gets the car, taking it out of the general provisions of the will. Be mindful of state law, however.

Note that some states do not allow the use of a memorandum of disposition, let alone permit such “titled” assets to be transferred by such an informal memorandum. Consequently, you must clarify how this situation will be handled in your state of residence with your estate planning attorney.

You will also need a Power of Attorney, giving another person the right to act on your behalf if you should become incapacitated. This is often a spouse, but it can also be another trusted individual with sound judgment who is good with handling responsibilities. Make sure to name a back-up person, just in case your primary POA cannot or will not serve.

A Medical Power of Attorney gives a named individual the ability to act on your behalf regarding medical decisions if you are incapacitated. Make sure to have a back-up, just to be sure. Failing to name a back- up for either POA will leave your family in a position where they cannot act on your behalf and may have to go to court to obtain a court-appointed guardianship in order to care for you. This is an expensive, time-consuming and stressful process, making a bad situation worse.

A Living Will is a declaration of your preference for end-of-life care. What steps do you want to be taken, or not taken, if you are medically determined to have an injury or illness from which you will not recover? This is the document used to state your wishes about a ventilator, the use of a feeding tube, etc. This is a hard thing to contemplate, but stating your wishes will be better than family members arguing about what you “would have wanted.”

Reference: Vail Daily (Feb. 15, 2022) “Essential components of an estate plan”

Celebration

What are Trends in Senior Health Care?

Feeling comfortable using virtual care technologies in the home, demanding more tech in independent living communities and becoming more engaged in their own health data are trends that show that seniors will be turning to technology more than ever to enhance their healthcare in the next year. Health Tech’s recent article entitled “3 Senior Care Tech Trends to Watch in 2022” gives us the top three trends in senior care for 2022:

  1. Senior Care Will Continue to Adopt the Hospital-at-Home Model. Hospital-at-home is a growing trend in healthcare, as increased adoption of virtual care technologies permits the care of seniors with acute conditions to take place at home.

A 2018 AARP survey found that 76% of adults ages 50+ said they prefer to stay in their homes and communities, aging in place rather than moving to an independent living community. According to the American Hospital Association, the hospital-at-home care delivery model can reduce costs, improve outcomes and enhance the patient experience. However, traditional healthcare organizations have a part to play in this care delivery model with telehealth and remote patient monitoring that can extend care to the home setting.

  1. Organizations Will Create Tech Concierge Roles to Help Seniors. Tech ownership, adoption, and use among older adults increased during the pandemic, with nearly half of those in an AARP saying that they used video chats more than before. With growing use of texting, email, smartphones and wearable devices, seniors are using more technology. As a result, the trend is likely to continue.
  2. Consumerization Will Give Seniors More Control Over Their Health. Wearables and apps place health data in consumers’ hands. Healthcare organizations will not have to provide patients with all of their health information, which will create even more patient involvement in healthcare. This will give older adults more information and empower them to be active in decision-making about their health. Another impact of consumerization on senior care is that older adults are getting more comfortable with technology and are joining independent living communities’ selection committees to make decisions about which technologies the community will acquire.

As we go into 2022, consumerization and the desire for personalization are expected to impact the types of technology preferred by older adults and offered by independent living communities, as well as the ways seniors interact with digital health solutions.

Reference: Health Tech (Dec. 14, 2021) “3 Senior Care Tech Trends to Watch in 2022”

 

Near Retirement Planning

Can I Avoid Password Problems for My Family in Estate Planning?

Barron’s recent article entitled “How to Ensure Heirs Avoid a Password-Protected Nightmare” explains that even financial planners may not consider until too late, how difficult it can be to recover and access a loved one’s accounts after they pass away. Since we are much more paperless with our finances, getting access to these accounts can be extremely hard for heirs, if they don’t have the right information. That’s because digital accounts are protected by encryption, multifactor authentication and federal data privacy laws.

Create a list of digital accounts and instructions on how to access them. The list should include not only financial assets but social media and other accounts. Digital accounts that loved ones or advisors may need to access following a death include:

  • Traditional financial accounts
  • Cryptocurrency accounts
  • Home payment and utilities accounts
  • Health insurance benefits
  • Email accounts
  • Social media
  • Smartphone accounts
  • Storage and file-sharing
  • Photo, music and video accounts
  • E-commerce accounts
  • Subscriptions to streaming services, such as Netflix, newspapers, music services; and
  • Loyalty/rewards programs for airlines and hotels.

Create a list of accounts, passwords and access information, keeping it up to date as information changes and letting a trusted person, such as an executor or estate planning attorney, know its location. Without a password list, it can be a nightmare.

Note that with every digital account, there’s a specific process that heirs must undertake to gain access, which should then be communicated clearly in your estate plan. Make a list of all digital assets and their access information, but don’t include this in the will itself, since the document is part of the public record in probate.

Being prepared well ahead of time can help your family avoid additional stress and delays as they probate your estate. It also ensures that they don’t forfeit significant financial assets concealed behind an impenetrable digital wall.

Reference: Barron’s (Dec. 15, 2021) “How to Ensure Heirs Avoid a Password-Protected Nightmare”