Attorney Sandy Ard, of the Ard Law Firm, PLLC, writes about Estate Planning, Medicaid Planning, Veterans Benefits Planning, Wills, Trusts, Living Trusts, Pet Trusts, Special Needs Planning, Asset Protection, Elder Law, Farm Trusts and Non-citizen Spouse Estate Planning, Probate & Estate Administration, Business Succession, and Family Business Planning in Houston, Texas, and the surrounding areas.
Does an "inherited" retirement account remain a retirement account for the intended heir? This may sound like a rhetorical question, but it is currently one before the U.S. Supreme Court in the matter of Clark et ux. V. Rameker et al. The decision could have important consequences for those who are looking to leave an IRA to their heirs – and NOT to the heir's creditors.
This issue was explored by Reuters in a recent article titled “U.S. high court to chart fate of inherited IRAs in bankruptcy.”
You see, the Clarks inherited a $300,000 IRA and then went into bankruptcy to the tune of some $700,000. Consequently, when the bankruptcy trustee became mighty interested in the IRA, the Clarks cried foul. As a general rule, IRAs are exempt from many bankruptcy proceedings of the account owner. Some courts have upheld this protection even when the account is inherited by one who is not yet a retiree and is not the account owner, but still complies with the strict distribution requirements for inherited IRAs.
Other courts have been less favorable and now it is up to the highest court.
It may seem strange to think about bankruptcy when planning for the eventual distribution of your IRA to heirs. After all, leaving your heirs behind is one thing, but ensuring that they are protected is a still greater step.
How will the Supreme Court determination affect you?
Reference: Reuters (November 26, 2013) “U.S. high court to chart fate of inherited IRAs in bankruptcy”
If you own a small business, what will your last day at work be like? What is your exit strategy? The answer hinges on whether your exit will be by design or by default.
To exit your business by design requires coordinating your personal estate with the estate of the business. Oftentimes the two are intertwined. Ask yourself the question recently posed in the title of a recent Forbes article: “How Will You Leave Your Small Business The Last Time?”
Will you sell it? Apparently as many as a third of business owners surveyed by the author planned to do so. However, the business brokerage industry reports a successful sales record of not much more than 20%.
Going to pass it on to the next generation? Some 14% of survey respondents said they were, but only roughly 30% of family businesses actually continue to the next generation.
In either case, the numbers simply do not add up well for casual business exit planning.
Just as you have worked hard to build your business, it seems you will need to work hard to successfully leave it. Accordingly, plan now for that last day or risk losing your investment by default.
Reference: Forbes (November 4, 2013) “How Will You Leave Your Small Business The Last Time?”
As the holiday giving season begins with the tax year ending shortly thereafter, now is a good time to plan your giving. But take note: there is giving, and then there is “smart” giving. And since you want the best outcome for both you and the charities you support, smart giving is accomplished by thorough planning.
Fortunately, Forbes has provided some giving tips and reminders well in advance in a recent article titled “Making Your Gifts Count:10 Smart Tips For Charitable Giving.”
While there is much to say and consider regarding each of these 10 points, here they are if you are looking for a checklist:
2. Choose carefully.
3. Get a receipt – even for cash.
4. Don’t overlook payroll deductions.
5. Pay attention to the value of any incentives.
6. Consider donating appreciated assets.
7. You can’t deduct the value of your time.
8. Document the value of your gift.
9. Limits may apply.
10. Pay attention to the calendar.
It is worth noting, however, that this is really only the beginning of smart charitable giving. What are your ambitions and what are your goals?
The higher you set your giving sights, then the greater your need to pre-plan and seek appropriate legal, financial and tax counsel.
Reference: Forbes (November 1, 2013) “Making Your Gifts Count:10 Smart Tips For Charitable Giving”
Managing your personal finances can be a challenge. But what if you had to manage money for someone else? Managing the finances of a loved one is a far more tenuous role to occupy, as the outcome involves another's well-being instead of your own.
If you are caring for an elderly loved one and stepping up to oversee their finances as well, then there are some important rules to know and follow.
Recently, the Consumer Financial Protection Bureau released four helpful guides on the topic of “Managing Someone Else’s Money.” In addition, for some short tips on the subject you can review the “4 rules for managing parents’ money,” a MarketWatch article released on Veterans Day.
The four tips – paraphrased – include:
1. Understand the power, meaning you have to understand what you can and cannot do under a power of attorney document.
2. Keep accounts separate, even if it can be a pain to moderate so many accounts, avoid the temptation to commingle funds that are not yours.
3. Document everything, even if it means doubling down on the bookkeeper.
4. Be watchful for exploitation by others, because being in charge of the finances does not mean you are the only one who exerts some financial control or influence. Those seeking to take financial advantage of the elderly include strangers and loved ones themselves.
In reality, there is much more to know and follow when managing other people’s money. Nevertheless, you certainly will be held to the basics. Remember to keep the CFPB guides and the MarketWatch article available for handy reference.
In truth there are many little rules for managing finances, but these are the basics that you need to accomplish to do the job. If there is time, you and your elderly loved one ought to plan now so you are prepared to fulfill your management role and the challenges ahead.
Reference: MarketWatch (November 11, 2013) “4 rules for managing parents’ money”
Communication is key when it comes to estate planning. In fact, the entirety of an estate plan – from the advance health directives covering your end-of-life decisions down to the distribution of your assets – is all about communication. However, not all decisions are easily and clearly communicated in writing. What you may need is a “family meeting.”
If the term “family meeting” conjures little more than memories of classic TV shows, (e.g., the “Brady Bunch”), then you are not alone.
As addressed in a recent article on WealthManagement.com titled “Family Meetings Come of Age,” the family meeting can be a very useful forum for estate planning. A family meeting, whatever that may mean for you and your loved ones, represents a conscious act to come together and openly communicate.
All families are different, too. The family meeting for one family may be more of a means to relay information, while for another family there may be more collaboration on the planning itself.
In the end, as long as there is something to communicate, there is value to the family meeting. As the original article notes, it is really up to you and your loved ones to shape the event together.
Reference: WealthManagement.com (November 7, 2013) “Family Meetings Come of Age”
When two people have lived together outside of marriage for some time, the question of who owns what can get downright confusing. Obviously, jointly owned assets can be tricky. Surprising, separately owned assets can be just as complicated.
When it comes to jointly owned assets it is not too hard to understand how problems can erupt. When it comes to separately owned assets, take a look at a recent article in The Wall Street Journal titled “Separate Assets, Joint Problems.”
What are the biggest problems behind separate assets?
The original article gives four points to ponder:
1. Those assets aren’t necessarily separate under the law.
2. Separate accounts may foster a failure to communicate.
3. Separately owned property may be at greater risk in a bankruptcy or lawsuit.
4. Separate accounts can lead to administrative difficulties.
When you boil it all down, the underlying difficulty behind three of these points is simply coming to terms with what separately held assets mean for a married couple.
For example, sometimes assets are not truly separate because state law makes them marital. Like most things in life, there are trade-offs regardless. The time and money spent getting competent legal, financial and tax counsel may be well worth the investment.
Reference: The Wall Street Journal (November 10, 2013) “Separate Assets, Joint Problems”
The 2013 year is winding down. While there is still much to enjoy, especially in terms of the holidays, it is not too early to think about your financial and estate plans for 2014.
Surprise! The IRS is already looking forward to 2014, to include the estate and gift tax exemption.
So what will estate and gift planning be like in 2014? Fortunately, as noted in a recent Forbes article, the number will be a bit more generous. According to the article, titled “IRS Raises Limit On Tax-Free Lifetime Gifts,” the basic exclusion (or unified exclusion), has been $5.25 million for 2013, but it is set to shimmy up to $5.34 million for 2014. Remember, this is the amount an individual can transfer to their loved ones without fear of taxation, either in life as a gift free from gift tax or in death as a bequest free from estate tax.
Unfortunately, the basic/unified exclusion increase does not mean an increase to the annual gift exclusion. That is the amount you can gift per year to an individual without affecting the basic/unified exclusion. Currently you can give $14,000 per person per year, and it will be no different in 2014.
Again, with time still remaining on the 2013 clock, there is still time to maximize your gifting before the year ends. That noted, check out a companion article titled “The 2013 Limits On Tax-Free Gifts: What You Need To Know.”
Reference: Forbes (October 31, 2013) “IRS Raises Limit On Tax-Free Lifetime Gifts”
Forbes (November 1, 2013) “The 2013 Limits On Tax-Free Gifts: What You Need To Know”
Although the Federal government may cast a big shadow in terms of estate taxes, don't forget those state laws lurking in the shadows. If you are building your estate plan, be sure to find out which state estate taxes apply to you.
MarketWatch recently provided some advice in an article titled “Protecting your estate in a high-tax state.”
Ironically, the estate tax scare at the federal level is less of a concern at present. The IRS has issued the estate and gift tax exemptions for 2014 and the new unified exemption/credit will be pegged at a cool $5.34 million. Unfortunately, the states did not get the same memo.
The states are still different and vary considerably. Certain states have their own forms of gift tax, estate tax, inheritance tax, and so on. There are even more subtle taxes such as those on real property.
Even if you live in one state, you might just be affected by the laws of another state if you own the wrong kind of property or conduct business there. Where you choose to retire could also upset your estate tax planning apple cart. In addition, you may be inheriting from family members who are residents in a tax-happy jurisdiction.
Consequently, it is important to follow the Boy Scout motto and always “Be Prepared.’
Reference: MarketWatch (October 28, 2013) “Protecting your estate in a high-tax state”
According to recent news from the Social Security Administration, the Cost Of Living Adjustment (COLA) made to Social Security payments will increase 1.5% in 2014. Although it is a small increase, you will be able to enjoy some "diet COLA" with your Social Security next year.
ElderLawAnswers weighed in on the news in an article titled “Social Security Benefits to Rise Only 1.5 Percent in 2014,” while the SSA has issued its own COLA Fact Sheet.
The COLA is an important adjustment for many Social Security beneficiaries, especially those on a fixed income. These can be very important dollars and cents. If costs of living go up on an annual basis, then Social Security beneficiaries would be left with fewer dollars to purchase more expensive goods (and services) without the COLA increase.
On a positive note, this COLA increase is welcome. Historically, there have been years without any COLA increase. That noted, at 1.5% the 2014 COLA is still less than the 1.7% COLA in 2013, which some regarded as too low.
The math, as summarized by ElderLawAnswers, works out like this:
Starting in January 2014, the average monthly Social Security retirement payment will rise from $1,275 to $1,294 a month for individuals and from $2,080 to $2,111 for couples. The 1.5 percent increase will apply to both elderly and disabled Social Security recipients, and individuals who receive both disability and retirement Social Security will see increases in both types of benefits. The maximum Social Security benefit for a worker retiring at full retirement age, which is age 66 for those born between 1943 and 1954, will be $2,642 a month.
The good news is that it is not all bad news. While the SSA is seeing a lower COLA, it is worth noting that Medicare Part B will not be seeing an increase from the 2013 standard monthly premium of $104.90. In the end, then, for many beneficiaries 2014 might not be too unreasonable.
Reference: ElderLawAnswers (October 31, 2013) “Social Security Benefits to Rise Only 1.5 Percent in 2014”
Handling finances can be tricky
for yourself alone.So imagine the task
of taking care of your elderly loved one’s finances. How do you take care of
business for someone else?
The issue is much more than one
of financial acumen. No, there are very specific rules to follow depending upon
the role you take on and it is important to play the part properly.
Managing the estate or affairs
of an elderly loved one is sometimes such a delicate dance that it has
attracted the attention of the Consumer Financial Protection Bureau (CFPB).
Late in October the CFPB came to the table with four guides entitled Managing
Someone Else’s Money. Available
online, these guides were unveiled on the Consumer
Financial Protection Bureau Blog in a post titled “Managing someone else’s money.”
The four guides address matters
that include powers of attorney, court-appointed guardians, trustees and
Those left to pick up the reins
on behalf of a loved one would do well to learn their roles, and these can be
helpful guides. That said, however useful, a guide is still just a “guide.”
Unfortunately, most family members who pick up those reins learn on the job.
Regardless, loved ones on either
side – those who receive care and those who take care of them – would do well
to consider the issues early and plan accordingly.