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Estate Planning Blog

Serving Clients Throughout North Central Missouri

estate planning

Social Security Cost of Living (COLA) Is Likely to Increase in 2024

Following two years when Social Security Cost of Living Adjustments (COLAs) soared to the highest levels in decades, beneficiaries should not be surprised by more modest increases in monthly payments in 2024, reports a recent article, “Social Security COLA 2024: How Much Will benefits Increase Next Year?” from AARP.

The inflation gauge used by the Social Security Administration (SSA) to set the annual COLA rose at a 2.6% annual rate for July and 3.4% for August. These are the first two of three months the SSA uses to determine the final increase, which will be announced more formally in October.

The August uptick was a bit higher than anticipated, and September’s inflation numbers are expected to rise to similar levels. Analysts expect a 2024 COLA of about 3 percent.

This may seem like a letdown for recipients. Still, COLA is calculated to exactly offset the price increases faced by consumers, measured by the Consumer Price Index, since the prior COLA was determined.

A 3 percent COLA indicates inflation is slowing down or getting under control, which is especially important for seniors living on a fixed income. While a higher COLA sounds nice, it reflects rising prices, which can be far more challenging for retirees who count on Social Security benefits to pay their household bills.

All forms of benefits are affected by the COLA, including retirement, disability, family, and survivor benefits. The adjustment starts with the December Social Security benefits, which most folks receive in January 2024.

Benefits are calculated by the CPI-W, a subset of the main Consumer Price Index, which measures a broad range of retail prices. The SSA compares the average CPI-W for July, August, and September of each year to the figure for the same period the year before to arrive at the COLA for the year to come.

For example, the year-over-year changes in the CPI-W for the three months in 2022 were 9.1%, 8.7%, and 8.5%, respectively. Over the entire quarter, the index was 8.7% higher than average for the same period in 2021, resulting in the COLA used at the start of 2023.

If projections hold, and there’s no reason to think they won’t, the 2024 adjustment will align more with the relatively low inflation pre-pandemic period. When there’s no inflation, there’s no COLA. This happened in 2010, 2011 and 2016. The most significant adjustment ever? 14.3 percent in 1980.

Studies by the Center for Retirement Research show Social Security benefits generally keep up with inflation in the long term but can lag during short-term periods of volatility, depending on whether or not the price index is trending up or down when the COLA is set.

Beneficiaries in 2021 and 2022 lost buying power when COLAs were outpaced by surging inflation, peaking around 9 percent in mid-2022. This year, inflation was cooling somewhat when the 8.7 increase took effect and remained below the COLA level.

Another factor impacting the COLA’s value is Medicare costs. A rise in Medicare Part B premiums in 2024 would offset a portion of the COLA increase for Social Security recipients who have premiums deducted directly from their benefits, which is about 70 percent of Medicare enrollees.

Reference: AARP (Sep. 13, 2023) “Social Security COLA 2024: How Much Will benefits Increase Next Year?”

healthcare

What Happens When the Second Parent Passes?

After doing everything right, including having an estate planning attorney prepare estate plans for her parents, a woman managed her mother’s affairs after her death in a matter of months. She expected the same when her father died, but some unexpected events occurred. A recent article from Business Insider, “I thought I was ready to wrap up my parents’ finances when they died. I was wrong,” provides some cautionary insights.

As their Power of Attorney, she managed her parents’ finances for several years before they passed, including placing most of their assets into irrevocable trusts. When her mother died, the trusts specified how the assets would be divided. A third went to the surviving spouse and a third to each of the two children. She was able to complete the transfer by phone with the investment company. She also filed her mother’s final tax returns and paid any outstanding bills.

She expected to have the same experience when her father died. However, she found that settling the second spouse’s affairs more complicated, even though she’d previously helped settle a second spouse’s estate for her father-in-law.

Her father’s estate was more straightforward: he lived in an assisted living facility with few possessions. Transferring the remaining trust assets to her sister and herself took one phone call and outstanding medical bills were paid in a matter of months. However, problems arose.

Her father’s bank account wasn’t in the trust, and neither she nor her sister could access his bank account without a will. He had a trust but no will, so her sister had to go to court and be legally declared his next of kin before she could close the bank account.

Filing the final tax return was also a challenge. While getting his traditional mail was always a challenge, she had been able to find any paper documents in the past. She could not log into his online accounts, since digital assets were never addressed.New Article

Getting a transcript from the IRS has been a long and complex process, and she’s hoping to get tax information in time to file by the tax extension deadline. As he died in 2023, she’ll have to do another set of tax returns next year.

Lessons learned:

Having a will and trust documents prepared by an estate planning attorney will make life easier. Designating an executor and/or trustee ahead of time can ease potential friction between siblings.

Gather all the paperwork. If parents are well enough and willing, gather financial paperwork, from tax records, bank and credit card information and login information to online accounts while they are still living.

Set realistic expectations. Don’t expect to complete all tasks quickly. It will take a few months and maybe longer to finalize taxes, sell property and deal with any outstanding legal or financial issues. Knowing it’s going to take time may make the process less frustrating.

Losing a parent is hard, and losing a second parent is often harder. Preparing for the estate planning aspects in advance can make a tough time a little easier.

Reference: Business Insider (Sep. 19, 2023) “I thought I was ready to wrap up my parents’ finances when they died. I was wrong.”

mountains

What Is Happening with Barbara Walters’ Estate?

New York Post’s recent article entitled, “Barbara Walters’ belongings auction-bound — own a piece of the broadcaster’s beloved NYC home,” reports that later this month and into early November, more than 300 items from Barbara Walters’ Upper East Side apartment of more than 30 years will be up for auction.

The famous news anchor — who passed away late last year, aged 93 — spent more than 30 years at her posh dwelling, “surrounded by treasured American Art, jewelry, fashion, furniture, decorative items and cherished personal mementos — all of which will be going under the hammer” in a live and online auction, reads a description by auctioneer Bonhams.

“In line with Walters’ commitment to philanthropy, the net proceeds of the sale will benefit charities dear to Walters.”

More than 120 pieces of jewelry will be on offer, including many of the bold earrings and brooches Walters became known for wearing during her legendary interviews.

One of these is the 13.84-carat engagement ring Merv Adelson gave Walters during their brief marriage (estimated to be worth anywhere from $600,000 to $900,000), a ruby and diamond floral brooch Walters wore to the Waldorf Astoria in 1991 for the eighth annual Night of Stars fashion festival, as well as gifts from celebrity friends, including a silver-plated cigarette box she received from Michael Douglas and Catherine Zeta-Jones.

Her extensive dinnerware collection is also up for auction. These are fine China teacups and dishes likely used by the star-studded guests of her soirees, from Dr. Henry and Nancy Kissinger, Oscar and Annette de la Renta and Andrew Lloyd Webber to Hugh Jackman.

For anyone with $19.75 million to spare, Ms. Walters’ silverware and art pair wonderfully with the apartment itself, which hit the market in April.

Located at the white-glove cooperative 944 Fifth Avenue, the unit (currently configured as a two-bedroom) boasts a wood-burning fireplace, 10-foot-high ceilings, views of Central Park, and, of course, the priceless association with a woman who was once the world’s highest-paid news anchor.

Reference: New York Post (Oct. 5, 2023) “Barbara Walters’ belongings auction-bound — own a piece of the broadcaster’s beloved NYC home”

estate planning

What Is in Senator Dianne Feinstein’s Estate?

The properties demonstrate Feinstein and her husband’s expansive wealth and success in their respective fields, according to BNN’s recent article, “Feinstein’s Billionaire Legacy: Children to Inherit Prominent Properties Amid Disputes.”

Feinstein, who was raised with money, has been one of the wealthiest members of Congress for years. She was independently wealthy when she married Richard Blum in 1980. After her election to the Senate, she placed her securities into a blind trust valued between $5 million and $25 million.

The couple’s combined fortunes have thrived, surpassing even the senator’s previous standard of living. Her primary residence is a 9,500-square-foot mansion in the posh Pacific Heights neighborhood of San Francisco. Until recently, their vacation homes included the 36-acre Bear Paw Ranch in Aspen, Colorado, and a seven-bedroom Lake Tahoe compound. Current holdings include a property on the Hawaii island of Kauai and a home in Washington, D.C.

However, the battle over Blum’s estate raises questions about the extent of his wealth and the out-of-pocket cost of home health care that Senator Feinstein has received since her bout with shingles earlier this year. During his lifetime, Blum, a private equity magnate, was often publicly referred to as a billionaire. However, the pandemic reportedly significantly impacted his investments, particularly his extensive hotel holdings.

An ugly dispute has arisen among the couple’s children, casting a new light on their fortune, and hinting at a potential court battle over the estate. Feinstein’s daughter, Katherine, and Blum’s three daughters, Annette Blum, Heidi Blum Riley, and Eileen Blum Bourgarde, will split the estate equally.  However, a dispute has come up concerning a waterfront house in Marin County, California, valued at $7.5 million, which was at the center of a dispute between Katherine and Blum’s daughters this year.

The couple’s wealth is largely attributed to his success as an investor. Feinstein’s daughter and three stepdaughters are set to inherit the late senator’s $102 million property portfolio and her $62 million private jet.

The distribution of the portfolio, estimated to be worth over $160 million, is now a big issue among the couple’s children.

Reference: BNN (Oct. 3, 2023) “Feinstein’s Billionaire Legacy: Children to Inherit Prominent Properties Amid Disputes”

elder law

Estate Plan can Ease Anxiety and Confirm Legacy

Creating an estate plan can take stock of today’s priorities while creating a legacy by clarifying intentions. This could mean providing for your family, supporting charitable organizations, or providing a means for future generations to know about your passions. Estate planning also addresses tax issues and can be used to reduce court involvement with your estate, according to a recent article from Worth, “Take Charge of Your Legacy With an Estate Plan.”

For most people, considering death is uncomfortable, but your estate plan is essential to those loved ones taking care of your estate. Nearly all wealthy Americans expect to leave money or other assets to their children. People who don’t consider themselves wealthy also intend to leave property to their loved ones.

Consider what happens when no estate planning is done. It took six years to settle the $156 million estate of singer Prince, who died without a will in 2016. A jury only recently finished determining the inheritance of Aretha Franklin, who left conflicting wills after she died in 2018. While the estate was being decided, it dwindled from an estimated $80 million to $6 million.

Having an estate plan can also alleviate anxiety, with a survey showing individuals with investible assets of $1 million—$10 million feeling more in control of their finances once they have an estate plan in place.

Creating an estate plan may be easier if you address parts individually. You may even have some parts in place already, such as details about ownership of bank or investment accounts and beneficiary designations.

All assets need to be recorded, including digital assets. The estate plan should include information on life insurance proceeds because there may be adverse tax implications for the estate if they’re not appropriately structured. For instance, life insurance proceeds are generally exempt from federal income taxes; they are included in the estate and could potentially bump the estate’s value above the federal estate tax exemption. This can be avoided by transferring ownership of the policy to another person or establishing an Irrevocable Life Insurance Trust. Any transfer of life insurance policies made within three years of death is subject to federal tax, so this step needs to be considered carefully with the help of an estate planning attorney.

Don’t overlook the emotions of loved ones. Items with sentimental value often cause family strife, so create a distribution plan for possessions. Your last will and testament should include jewelry, artwork, and family heirlooms.

Part of your estate plan addresses what would happen if you become incapacitated. This includes Do-Not-Resuscitate instructions and other wishes for medical care. Everyone over 18 should have a Power of Attorney in place so someone can manage their legal and financial affairs in case of incapacity. There are different types of POAs; your estate planning attorney will know which best suits your needs.

Estate planning is a time to speak with family members about the role they can play in carrying out your legacy. A family meeting to discuss values, vision, and purpose can be helpful at any level of wealth, from endowing a new building at an alma mater to volunteer opportunities in the community.

Your estate plan is not a “set-it-and-forget-it” document. It should be reviewed annually and fine-tuned, especially when significant life changes occur, like marriage, divorce, death, the sale of a business, a change in the law, or a change in real estate ownership.

Reference: Worth (Sep. 22, 2023) “Take Charge of Your Legacy With an Estate Plan”

Extended-Family

What Estate Planning Is Needed for Parents?

Even when you’re young, childless and don’t have many assets, you need to do some basic estate planning.

However, this takes on a new urgency when you become a parent.

It’s essential to state who you’d want to care for your children if you’re gone and also to provide for their financial security.

The Motley Fool’s recent article entitled, “3 Estate Planning Documents Every Parent Needs,” details three estate-planning documents parents should consider. Work with an experienced attorney to draft these documents.

  1. Last will and testament. A will is probably the most basic estate planning document you should have. You can leave instructions about how you want your property distributed when you die. In addition, you can use this document to name a legal guardian to care for your child if you and their other parent die before the child reaches adulthood.
  2. Revocable living trust. If you die before your child reaches the age of majority (age 18 in most states), a court-appointed guardian will manage any assets the child inherits. When they reach adulthood, they can take control of the property. However, this can be a problem if you have substantial assets. You may not want an 18-year-old coming into a lot of money at once. A revocable living trust is like a will in that you can use it to specify who gets your property. However, it allows you to be more detailed about how your property will be distributed.
  3. Financial power of attorney. This document allows you to designate an individual to manage your finances if you become incapacitated. Parents must have this document so that someone can access their bank accounts and pay bills, if necessary. Without it, access will typically require a court order. You’ll want to make sure money is available for your children’s expenses without delay in an emergency.

3.5. Life insurance. Once you become a parent, purchasing life insurance is a must. Term life insurance policies, which only pay a benefit if you die within a specified period, are usually affordable.

No one likes to think about their mortality. However, if you have children, preparing for the worst is something you can’t afford to put off.

Reference: The Motley Fool (June 2, 2023) “3 Estate Planning Documents Every Parent Needs”

mountains

What was in Singer Sinéad O’Connor’s Estate Plan?

The late “Nothing Compares 2 U” singer told People in 2021 that she wanted to protect her art and finances at all costs if she dropped “dead tomorrow.”

Sinéad O’Connor revealed in 2021 that she gave her children instructions for her death, reports Page Six’s recent article entitled, “Sinéad O’Connor gave kids instructions for what to do if she dropped ‘dead tomorrow.’”

“See, when the artists are dead, they’re much more valuable than when they’re alive,” she told the magazine at the time.

The controversial Irish singer told her children from when “they were very small” that if their “‘mother drops dead tomorrow, before you called 911, call my accountant and make sure the record companies don’t start releasing my records and not telling you where the money is.’”

O’Connor was found dead at her London home on July 26th. She was 56.

While no cause of death has been given, authorities announced that the late performer would undergo an autopsy. The test results are expected to be returned in “several weeks.” Police also said that O’Connor was “pronounced dead at the scene.” However, her “death is not being treated as suspicious” as no foul play was suspected.

“It is with great sadness that we announce the passing of our beloved Sinéad,” her family confirmed in a statement. “Her family and friends are devastated and have requested privacy at this very difficult time.”

O’Connor never quite recovered from her 17-year-old son Shane’s suicide in January 2022, tweeting that she had been “living as an undead night creature” ever since he took his own life.

“He was the love of my life, the lamp of my soul. We were one soul in two halves. He was the only person who ever loved me unconditionally,” she continued.

“I am lost in the bardo without him.”

O’Connor is survived by her three other children: Jake, 36, daughter Roisin, 27 and son Yeshua, 16.

Reference: Page Six (July 28, 2023) “Sinéad O’Connor gave kids instructions for what to do if she dropped ‘dead tomorrow’”

What Is the Deceased Spousal Unused Exclusion Portability Deadline?

Our tax system is designed to tax the aggregate of property transferred during an individual’s lifetime, commonly referred to as gifts, as well as the property transferred upon death. The total value of taxable gifts and assets transferred at the time of death must surpass a specific threshold before any gift or estate taxes are levied, as explained in the article “Portability of Deceased Spousal Unused Exclusion Extended” from The CPA Journal.

The current federal estate tax exclusion is $12,900,000 for 2023, and within a marriage, each spouse has a unified exclusion amount of $12,900,000. The Unified Exclusion Amount or Unified Transfer Tax Credit for 2023 is $5,113,800.

The portability election allows the estate of a deceased taxpayer whom a spouse survives to apply the decedent’s unused exemption amount to their own transfers during life (gifts) and at the time of their death.

By properly calculating and timely filing the Deceased Spousal Unused Exemption (DSUE), heirs can mitigate their tax liability on the inherited estate. Certain requirements must be met:

  • The deceased was a spouse.
  • The deceased died after December 31, 2010.
  • The deceased was a citizen or resident of the US at the time of their death.
  • The estate was not required to file an estate tax return based on the gross value of the estate and adjusted taxable gifts.

The portability provisions of the 2010 legislation were set to expire on January 1, 2013, but the American Taxpayer Relief Act of 2012 made the ability to elect portability election permanent. The Revenue Procedure 2022-32 became effective on July 8, 2022, and allowed certain taxpayers an extended amount of time—five years—to make a portability election regarding estate and gift taxes.

When first enacted, the executor of an estate was required to elect portability within nine months of the date of death or on the last day of the period covered by a granted extension. Note Revenue 2022-32 only applies to estates not required to file an estate tax return.

The IRS was swamped by estates requesting an extension to elect portability regarding the DSUE. A high percentage of these requests were determined to come from the estates of taxpayers who died within five years preceding the date of the requests for portability. As a result, the IRS extended the period to five years.

The estate executor must complete and properly prepare Form 706, the United States Estate and Generation-Skipping Transfer Tax Return, within five years of the taxpayer’s death. In addition, the executor of the estate must state at the top of Form 706 that the return is “Filed Pursuant to Revenue Procedure 2022-32 to Elect Portability under Section 201(c)(5)(a)” to fulfill portability requirements.

Executors who have not made the portability election must file Form 706 within five years of the decedent’s death. Speak with your estate planning attorney to be sure this is done in a timely manner. While the federal exemption for estate taxes is currently very high, the law will decrease by half on January 1, 2026, when more estates will need to pay federal estate taxes.

Reference: The CPA Journal (August 2023) “Portability of Deceased Spousal Unused Exclusion Extended”

estate planning

What is the Best Estate Plan to Keep Family from Killing Each Other?

It’s not unusual for families to fight over inheritance, leading to prolonged legal battles and damaged relationships. The Ascent’s recent article, “How to Create a Will That Keeps Your Family From Fighting,” provides some tips on how to create a will that keeps your family from fighting.

Discuss your intentions beforehand. Parents need to discuss the objectives and intentions of their estate plans with their children. This lets them set expectations. You don’t have to reveal dollar figures or investment assets. Instead, the key is ensuring the children understand the rationale behind the will.

Splitting up unique assets. Dividing up unique property can frequently result in fights. You may have sentimental items that multiple family members have expressed interest in, or maybe a piece of property has sentimental value to one family member over the others. You may want to speak to family members beforehand to see if any items are particularly important to them. It’s crucial to be clear in your wishes and make sure that everyone is on the same page.  You should also use specific language in your will that outlines who gets what and under what conditions.

Preserving inheritance for blended families. This can be even more complicated for blended families. It’s important to approach the division of your assets with sensitivity and thoughtfulness to avoid potential conflicts among family members. Parents with children from previous marriages should take extra care to protect those children financially because stepchildren can be disinherited once a parent dies. Separate wills for each spouse can add protection. There’s something called a “contractual” will” where each spouse agrees that the surviving spouse doesn’t have the legal right to execute a new will that disinherits the children of the deceased spouse. This is designed to ensure that each spouse’s assets are distributed according to their wishes and prevents the surviving spouse from making changes that cut other family members out of the will.

Creating a will that keeps your family from WWIII is a valuable process. Parents should be open about their estate plans with their children to ensure that they understand their intentions. Communication is vital when it comes to estate planning.

Reference: The Ascent (Aug. 15, 2023) “How to Create a Will That Keeps Your Family From Fighting”

Retirement Planning

How Can I Successfully Transfer My Business to My Children?

According to ITR Economics, out of the 77 million Baby Boomers in the U.S., an estimated 12 million are privately held business owners.

As ownership of businesses for those born between 1946-1964 is transferred to the next generation, an estimated $10 trillion worth of business assets is expected to be transferred in the coming years.

AZ Big Media’s recent article, “Passing the torch: Considerations for a successful generational business transfer,” explains the best way to have a successful business transfer.

Develop a Strategic Plan.  A successful generational business transfer takes time and planning. You should begin the planning process way in advance of the change in leadership. This can give a family time to define what the future of the company looks like. Determine what technology, human resources, and capital requirements the company needs to be successful in the short and long term. Ensure that the current and future owner’s visions are communicated. If both visions aren’t in alignment, discuss what the future for the business may look like. Balancing long-standing business practices with new changes can mean a sustainable and successful business. Begin integrating the future leader into day-to-day business operations before transitioning. Establishing a clear transfer of duties and mapping out a timeline can help with a smooth transfer process.

Get Finances in Order. Preparing business finances in advance of a generational transfer is critical. The current business owner may consider setting up a grantor-retained annuity trust for their successor. An experienced estate planning attorney can help to create this trust, which earns annual income for the beneficiary receiving the funds with minimal or no gift tax liability upon expiration. Family members may also consider transferring their business to the successor through an installment sale, which is a sale of property where at least one payment is received after the tax year in which the sale occurs. Note that an installment sale could mean a tax benefit for the seller because the overall tax liability is spread out over time rather than all at once during the business transfer. Once you decide on the preferred financial path to conduct the transfer, look at the company’s cash flow and other financial projections. List the projected expenses, liabilities and potential taxes owed, and then identify sources of liquidity to pay them.

Work With Financial Partners. If not already in place, look to assemble a team of trusted advisors, including a CPA, attorney, banker, and wealth advisor. This team can work through the financial aspects of any generational business transfer.

Transferring a business is a major family event involving potentially tough conversations and decisions. This can be a complex process. However, with proper planning, it also has the potential to be an opportunity to achieve new growth and elevate long-standing family business goals.

Reference: AZ Big Media (June 8, 2023) “Passing the torch: Considerations for a successful generational business transfer”