|
Bailey and Holliman Estate Planning Law Firm
Thursday, February 09, 2012 A Letter of Instruction Can Spare Your Heirs Great Stress
While it is important to have an updated estate plan, there is a lot of information that your heirs should know that doesn't necessarily fit into a will, trust or other components of an estate plan. The solution is a letter of instruction, which can provide your heirs with guidance if you die or become incapacitated.
A letter of instruction is a legally non-binding document that gives your heirs information crucial to helping them tie up your affairs. Without such a letter, it can be easy for heirs to miss important items or become overwhelmed trying to sort through all the documents you left behind. The following are some items that can be included in a letter:
-
A list of people to contact when you die and a list of beneficiaries of your estate plan
-
The location of important documents, such as your will, insurance policies, financial statements, deeds, and birth certificate
-
A list of assets, such as bank accounts, investment accounts, insurance policies, real estate holdings, and military benefits
-
Passwords and PIN numbers for online accounts
-
The location of any safe deposit boxes
-
A list of contact information for lawyers, financial planners, brokers, tax preparers, and insurance agents
-
A list of credit card accounts and other debts
-
A list of organizations that you belong to that should be notified in the event of your death (for example, professional organizations or boards)
-
Instructions for a funeral or memorial service
-
Instructions for distribution of sentimental personal items
-
A personal message to family members
Once the letter is written, be sure to store it in an easily accessible place and to tell your family about it. You should check it once a year to make sure it stays up-to-date.
Tuesday, January 24, 2012 When Should You Update Your Estate Plan?
Once you've created an estate plan, it is important to keep it up to date. You will need to revisit your plan after certain key life events.
Marriage
Whether it is your first or a later marriage, you will need to update your estate plan after you get married. A spouse does not automatically become your heir once you get married. Depending on state law, your spouse may get one-third to one-half of your estate, and the rest will go to other relatives. You need a will to spell out how much you wish your spouse to get.
Your estate plan will get more complicated if your marriage is not your first. You and your new spouse need to figure out where each of you wants your assets to go when you die. If you have children from a previous marriage, this can be a difficult discussion. There is no guarantee that if you leave your assets to your new spouse, he or she will provide for your children after you are gone. There are a number of options to ensure your children are provided for, including creating a trust for your children, making your children beneficiaries of life insurance policies, or giving your children joint ownership of property.
Even if you don't have children, there may be family heirlooms or mementos that you want to keep in your family.
Children
Once you have children, it is important to name a guardian for your children in your will. If you don't name someone to act as guardian, the court will choose the guardian. Because the court doesn't know your kids like you do, the person they choose may not be ideal. In addition to naming a guardian, you may also want to set up a trust for your children so that your assets are set aside for your children when they get older.
Similarly, when your children reach adulthood, you will want to update your plan to reflect the changes. They will no longer need a guardian, and they may not need a trust. You may even want your children to act as executors or hold a power of attorney.
Divorce or Death of a Spouse
If you get divorced or your spouse dies, you will need to revisit your entire estate plan. It is likely that your spouse is named in some capacity in your estate plan -- for example, as beneficiary, executor, or power of attorney. If you have a trust, you will need to make sure your spouse is no longer a trustee or beneficiary of the trust. You will also need to change the beneficiary on your retirement plans and insurance policies.
Increase or Decrease in Assets
One part of estate planning is estate tax planning. When your estate is small, you don't usually have to worry about estate taxes because only estates over a certain amount, depending on current state and federal law, are subject to estate taxes. As your estate grows, you may want to create a plan that minimizes your estate taxes. If you have a plan that focuses on tax planning, but you experience a decrease in assets, you may want to change your plan to focus on other things.
Other
Other reasons to have your estate plan updated could include:
-
You move to another state
-
Federal or state estate tax laws have changed
-
A guardian, executor, or trustee is no longer able to serve
-
You wish to change your beneficiaries
-
It has been more than 5 years since the plan has been reviewed by an attorne
Contact us to review or update your plan.
Thursday, December 08, 2011 What Should a Good Estate Plan Include?
There is more to estate planning than just drafting a will. A good estate plan should be designed to avoid probate, save on estate taxes, protect assets if you need to move into a nursing home, and appoint someone to act for you if you become disabled. To achieve these goals, almost every estate needs to include a will and a power of attorney at the very least. The will directs where your assets will go after you die and allows to appoint a guardian for your children. A power of attorney appoints someone to act on your behalf if you become incapacitated. Another common estate planning component is a trust, which is useful for avoiding probate, among other things. Medical directives allow you to appoint someone to make medical decisions on your behalf. All these components need to work together to form a complete plan
Thursday, December 08, 2011 Raising the Medicare Eligibility Age Would Simply Drive Up Health Care Costs for Everyone
It appears that the bandwagon to raise the age of Medicare eligibility to 67 is gaining steam, despite studies finding that it would increase out-of-pocket costs for younger seniors and raise health care costs overall. GOP presidential hopeful Mitt Romney has embraced the idea, and the Congressional “supercommittee” charged with coming up with $1.2 trillion in savings by Thanksgiving is reportedly giving it serious consideration.
Making baby boomers wait two more years before they’re covered by the highly popular Medicare program would indeed save the federal government $5.7 billion in 2014, according to a study by the Kaiser Family Foundation. But at the same time, Kaiser says the change would mean that 65- and 66-year-olds, their employers, other Medicare enrollees, and states would have to cough up an extra $11.4 billion. It’s robbing Peter to pay Paul, except in this case Peter would pay double what Paul would get out of the deal.
The Kaiser study projects that the change would raise premiums by about 3 percent both for all other Medicare beneficiaries and for those covered by private insurance. Medicare premiums would go up because the program would lose its healthiest beneficiaries – 65- and 66-year-olds. At the same time, private insurers would suddenly get an influx of older beneficiaries, driving up their premiums as well. And this assumes the survival of the health reform law, which requires insurers to cover applicants despite preexisting conditions. If the law is repealed, as Romney and other GOP candidates recommend, large numbers of 65- and 66-year-olds would be uninsurable.
Kaiser found that 3.3 million people ages 65 and 66 would pay more out of pocket for health care if they were no longer eligible for Medicare. This prompted the group Strengthen Social Security to calculate that increasing the eligibility age would consume up to 45 percent of a middle-class senior’s Social Security check.
Raising Medicare’s eligibility age is a “savings” our society cannot afford; it would effectively amount to a tax on all health insureds, especially 65- and 66-year-olds.
Thursday, November 17, 2011 House Democrats Start Debate Over Extending Estate Tax
November 17, 2011
House Democrats plan to introduce a bill Thursday to extend and overhaul the estate tax beyond 2012 in the opening salvo of what is likely to be a long and politically-charged debate next year.
A favored target of Republicans, the tax on inherited wealth already promises to be one of the most controversial elements of the tax code up for renewal at the end of next year. Six Republican presidential candidates, including all of the front-runners, have said they would repeal the tax.
But the legislation by Rep. Jim McDermott (D., Wash.), a veteran member of the House Ways and Means Committee, proposes to extend the current reach of the estate tax by reducing the amount of the estate exempted from the tax to $1 million from $5 million and raising the tax rate to 55% from 35%, bringing it back to pre-Bush era levels.
"I'm not against people making money in this country, but I do think they have a responsibility to give some of it back," especially at a time of a deep federal budget deficit, McDermott said in an interview this week.
While Democrats acknowledge they will face stiff resistance from Republicans, McDermott said taxpayers need to know Congress is not ignoring the issue until the last minute. In a deal brokered with President Barack Obama last December, Congress reinstated the estate tax for this year and next, after letting it lapse for one year in 2010. While the estate tax is slated to revert back to 2001 levels after next year, Republicans in Congress have already introduced legislation to repeal it again.
"It really is a question of clarity," for both families and planners, McDermott said. "The question is how to bring fairness into it."
Under McDermott's proposal, co-sponsored by Rep. Charles Rangel (D., N.Y.), the exemption for married couples would drop to $2 million from $10 million.
Spouses could still claim the remainder of their partner's exemption if some remains unused after death, as they can now. The rate and $1 million exemption would be adjusted for inflation, beginning at the 2000 level.
The bill, slated to be introduced Thursday, would also unify the estate and gift taxes. That means a taxpayer would only have a single exemption of $1 million for their estate and most gifts. The legislation also includes several provisions from Obama's last budget proposal to end targeted estate tax breaks.
Republicans, often led by Sen. Jon Kyl (R., Ariz.) have pushed hard in previous years to repeal the tax, whose rates and exemption levels have varied wildly over the last decade.
Wednesday, October 26, 2011 Veterans' Compensation Cost of Living Adjustment Act of 2011
Veterans' Compensation Cost-of-Living Adjustment Act of 2011
Posted in [Veterans Aid & Attendance]
The first cost-of-living adjustment since 2008 has recently been made, bringing a 3.6% increase in benefits.
The cost-of-living adjustments are based on increases in the Consumer Price Index for Urban Wage Earners and Clerical Workers ("CPI-W"). A cost-of-living adjustment effective for December of the current year is equal to the percentage increase (if any) in the average CPI-W for the third quarter of the current year over the average for the third quarter of the last year in which a cost-of-living adjustment became effective. If there is an increase, it must be rounded to the nearest tenth of one percent. If there is no increase, or if the rounded increase is zero, there is no cost-of-living adjustment.
The senate unanimously passed S. 864: Veterans' Compensation Cost-of-Living Adjustment Act of 2011, effective on December 1, 2011, for benefits to be payable in January of 2012. The Act outlined the following pension increases:
Single Veteran: $1,703
Married Veteran: $2,019
Surviving Spouse of a Veteran: $1,094
Friday, October 21, 2011 Tips for Starting a Business in Retirement
Tips for Starting a Business in Retirement
Our government believes they are responsible for creating jobs in this great country. Well, they have it all wrong. It is the American dream that has created most of the jobs. That's right—more than 60 percent of jobs created in America are created by the small businesses, according to the Small Business Administration.
Not that long ago, retirement meant long days punctuated by occasional games of golf and bridge. But today, with lengthening life expectancies and dwindling pensions, many Americans are looking to create their own jobs. Here are some tips for those of you that think you want to start your own business:
Common characteristics. Mature entrepreneurs differ from their younger counterparts in several critical ways. For one, they are usually in a much better financial position than younger entrepreneurs. Their bigger financial cushion—retirement packages, nest eggs, or home ownership—affords them flexibility in the initial stages of a start-up, where funding is often critical. Because they can often rely on other sources for current income, they are in a better position to take entrepreneurial risks.
Creativity and business acumen are also key characteristics of older entrepreneurs. Having been tested again and again in their lives, they're not afraid of failure or worried about what others will think. Instead of that urgency to "make it," they get their satisfaction from the process of building their companies.
The type of businesses typically started by folks who have retired varies widely. Consulting, small retail businesses, and bed-and-breakfast establishments are perennial favorites. A growing number of late-life start-ups also involve Internet-based businesses. While most start-ups are related to an individual's former career, some break into completely new territory.
Know your limitations. There are several considerations to bear in mind before taking the leap. Start-ups can be physically and emotionally draining. Are you willing or able to work the long hours that may be required in a fledgling business?
Then there's financial vulnerability. Compared with their younger colleagues, the mature rely much more on personal investments to supply a portion of their income. For this reason, they are advised not to sink too great a portion of their investment portfolio into a new business and should avoid pledging as loan collateral personal assets such as a home. Here are some other items retirees should consider before starting a business:
1. Build on already established contacts and expertise, which can give you a competitive advantage in virtually any business.
2. Start small and gradually work your way into a full-blown business. This will give you time to assess whether you're willing or able to take on another full-time career.
3. Consider your income needs before investing a portion of your nest egg in a new business, and think twice before taking on any personal debt.
4. Consider what business entity structure would suit your business the best—S-corp, sole proprietor, or partnership.
Starting a new business can be one of the most rewarding ventures of a lifetime, but they don't become successful overnight. Being able to commit both mentally and physically for the first three years will help you make the most of your opportunity for success.
Friday, October 21, 2011 Getting Social Security While Living Overseas
|
Getting Social Security While Living Overseas
|
|
Many retirees look forward to traveling in their retirement, and more and more are actually retiring overseas, in part as a way to stretch savings. But what happens to retirees' federal benefits while they are out of the country? The short answer is that although Social Security benefits are available to retirees in other countries, Medicare is not. In this installment we look at Social Security.
As is not the case with Medicare, retirees who decide to move to another country are still entitled to Social Security benefits. Once a retiree has been outside the country for 30 days in a row, he or she is considered outside the United States and the rules for collecting benefits apply.
The Social Security Administration (SSA) will send checks to anyone who is eligible for benefits and is living abroad. However, there are a few countries where the SSA is not allowed to send checks. Retirees who move to Cuba or North Korea cannot receive any checks while they are in either country, but they can get any withheld checks if they go to a country where paychecks can be sent. In addition, the SSA generally does not send Social Security checks to Cambodia, Vietnam, or areas that were in the former Soviet Union (other than Armenia, Estonia, Latvia, Lithuania, and Russia), but retirees may be able to apply for an exception. In such cases, retirees may have to agree to certain conditions, such as appearing in person at the U.S. embassy each month, to receive benefits.
Retirees who are U.S. citizens are entitled to continue receiving benefits for as long as they live outside the United States. However, citizens of other countries who receive Social Security may have some restrictions on how long they can receive benefits while outside the United States. The rules are quite complicated; the Social Security publication Your Payments While You Are Outside the United States explains in detail what restrictions citizens of individual countries are subject to. The SSA Web site also offers beneficiaries a payment screening tool that tells them whether they will be entitled to benefits if they remain outside the country for more than six months.
Retirees may have their checks directly deposited into a bank account in the United States, and direct deposit is available in some other countries as well. Using direct deposit avoids check-cashing and currency-conversion fees.
In countries with a large number of U.S. retirees, American embassies and consulates have individuals who are trained to provide Social Security services, including taking applications. The countries are: Argentina, Australia, Austria, Belgium, Chile, Costa Rica, Croatia, Denmark, the Dominican Republic, Finland, France, Germany, Greece, Hong Kong, Ireland, Iceland, Israel, Italy, Jamaica, Korea, Japan, Mexico, the Netherlands, New Zealand, Norway, the Philippines, Poland, Portugal, Slovenia, Spain, Sweden, Switzerland, the United Kingdom, and Yemen. Individuals in other countries need to contact the SSA in writing or by phone. For a list of phone numbers, visit the SSA's Web page
The taxes on overseas Social Security benefits are the same as taxes on benefits for retirees living in the United States. Retirees who file individual tax returns and earn between $25,000 and $34,000 may have to pay taxes on up to 50 percent of benefits. Retirees with income over $34,000 may have to pay taxes on 85 percent of benefits. Retirees who file a joint tax return and have a combined income of between $32,000 and $44,000 may have to pay taxes on 50 percent of their benefits. Joint filers with a combined income of more than $44,000, may have to pay taxes on 85 percent of their benefits. Combined income is the retiree's adjusted gross income plus nontaxable interest plus one-half of the retiree's Social Security benefits.
In addition to U.S. taxes, some foreign countries may tax benefits as well. To find out whether a country imposes taxes on Social Security benefits, contact the country's embassy in the United States.
The SSA Web site provides information and resources on its International Programs home page for retirees who are moving outside of the United States.
What About SSI?
The rules for receiving Social Security overseas do not apply to Supplemental Security Income (SSI) benefits. Most recipients of SSI are not entitled to benefits outside the United States. SSI benefits will stop if a recipient is outside the United States for more than 30 days, and benefits won't start up again until the recipient is back in the country for at least 30 days. However, there are exceptions for dependent children of military personnel and students studying abroad.
|
Friday, October 21, 2011 Using IRAs in Estate Planning
|
|
|
Using IRAs in Estate Planning
Last Updated: 8/22/2011 10:57:04 AM
|
|
Individual Retirement Accounts (IRAs) are a popular investment tool for retirement, but they also need to be taken into account when doing estate planning. Although IRAs can be used to provide for heirs either directly or through a trust, to what extent your heirs will benefit from the IRA and avoid unnecessary taxes depends on proper planning.
What Is an IRA?
IRAs are personal savings plans that allow you to set aside money for retirement and create tax savings. The advantage of IRAs is that you may be able to deduct some or all of your contributions to an IRA from your taxes and also be eligible for a tax credit equal to a percentage of your contribution. Earnings in a traditional IRA are generally are not taxed until distributed to you. At age 70 1/2 you have to start taking distributions from a traditional IRA. Earnings in a Roth IRA are not taxed nor do you have to start taking distributions at any point, but contributions to a Roth IRA are not tax deductible. Any amount remaining in your IRA upon your death can be paid to your beneficiary or beneficiaries.
Rule Number One: Name Beneficiaries
From an estate planning perspective, the most important thing to remember with an IRA is to name a beneficiary. While a spouse is usually the logical choice for a beneficiary, you should be sure to name contingent beneficiaries as well. If you and your spouse died at the same time and there was no contingent beneficiary, then the IRA would go to your estate and be subject to probate (the legal process of administering the estate of a deceased person). When a spouse inherits an IRA, he or she can roll it over into his or her own IRA. When a non-spouse inherits an IRA, the heir will need to start taking distributions within a year after the IRA owner dies.
Stretching an IRA
If you don't need the funds in your IRA for retirement and want to use them to provide for your beneficiaries instead, you may be interested in "stretching out" your IRA. To do this, when you reach 70 1/2, take only the required minimum distributions, leaving more assets in your IRA. When you die, your beneficiary can also stretch distributions out over his or her lifetime and then designate a second-generation beneficiary. It makes sense to name a young beneficiary because the younger the beneficiary, the smaller each distribution must be, which gives the funds in the IRA extra tax-deferred years to grow. For more information on stretching out an IRA, click here.
Trusts as Beneficiaries
In some cases, it may make sense to name a trust as a beneficiary. This is particularly true if you have minor children, children with special needs, or a beneficiary with poor spending habits. But the trust must be properly drafted to avoid negative tax consequences. If the trust is a "see-through" trust or "conduit" trust, then the distributions from the IRA to the trust after the participant's death can be stretched out over the life expectancy of the oldest trust beneficiary. If you are planning to leave your IRA to a trust, you must consult with your attorney to ensure that the trust is properly drafted.
An IRA can be a valuable part of an estate plan, but the rules can be complicated. Consult with a qualified elder law or estate planning attorney to find out your options.
|
|
|
|
Tuesday, April 05, 2011 Financial Parenting Tips
Every parent is challenged to prepare their children for living meaningful lives and managing their affairs responsibly. Here are a few parental tips to help set the tone for your children and their approach to handling the money you provide.
My thanks to my WealthCounsel colleague, Wayne Ball, for turning my attention to these financial planning tips first shared by his legal colleague in Little Rock, Arkansas - Dee Davenport of Delta Trust.
· Make money meaningful: Good financial parenting could begin with an allowance that is tied to the completion of specific chores. It’s important to teach children that money is the result of performance or effort. It must be earned.
· A sense of sharing: Give young children holiday gifts in three pieces: one piece to spend, one piece to save, and one piece to give to someone who is in need. Families report great results with this simple plan, and heirs remember the lessons learned and speak of them gratefully for a lifetime.
· Give just enough: The sage of Omaha, Warren Buffet says “Give your children enough so they can do anything, but not enough so they do nothing”. At the same time, mature children whose values are intact could do so much good in the world, not only for themselves and their families, but also for their communities.
· Think long range: Some of the most successful families have constructed “100 year plans” (four generations) to pass on both the family values and the family financial assets. Increasingly, families are engaging community members in their legacy development processes to assure the effectiveness of the gifts made.
These are just a few guidance tips for instilling many of the basic tenets of financial planning. I hope you find one or more that you can incorporate into your parenting activities.
For more formal estate planning strategies, I would enjoy meeting with you and sharing my experience and knowledge. We can meet – just give me a call, or you can leave a comment on this post.
| |
|
With two offices in Pelham and Anniston, AL, the attorneys of Bailey & Holliman Estate Planning Law Firm assist clients With with Estate Planning, Advanced Estate Planning, Wills and Trusts, Elder Law, Pet Trusts, Special Needs Planning and Veterans Benefits in Birmingham, Fairfield, Pleasant Grove, Bessemer, Gardendale, Pinson, Helena, Alabaster, Maylene, Chelsea, Oxford, Weaver, Alexandria, Jacksonville, Heflin and Edwardsville in Shelby County, Jefferson County, Calhoun County and Cleburne, County.
|
|
|
|