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.
In our busy lives, some things just fall through the cracks.
Did you change the batteries in your smoke detectors when we switched to Daylight Savings Time?
Did you change the oil in your car after you reached another 5,000 miles?
And—did you update your IRA beneficiaries when you switch financial providers?
This last question points out a common oversight that is easily forgotten.
Morningstar provided some important guidance on this subject in a recent article titled “Dos and Don'ts for Leaving IRA Assets to Your Loved Ones.”
So, take five minutes and make sure that the information for your beneficiaries is up-to-date and accurate. People move and change phone numbers. You want to make sure that there are no issues with your IRA proceeds getting into the hands of those you've designated as beneficiaries.
Another thing to watch for is naming a minor child as the beneficiary of your IRA. In some cases, children under the age of 18 or 21—depending where you reside—can't be the beneficiaries of life insurance policies, retirement plans, or annuities. If you'd want to leave IRA assets to a minor, speak to an estate planning attorney about your options.
Take the time to check.
And while you're at it, change the oil in your car and the smoke detector batteries.
Reference: Morningstar, February 28, 2014: “Dos and Don'ts for Leaving IRA Assets to Your Loved Ones”
Estate Planning Begins Now!
The best estate planning not only addresses our affairs after death, it also positions us to deal with our affairs under potentially adverse circumstances during our lifetime.
1. When people hear the term "estate planning," most immediately think of senior citizens, retirement, wills and perhaps funerals. While that may be your immediate reaction, it shouldn't be your only one. You should be thinking about estate planning throughout your life—more importantly, you should be doing something about estate planning now and from here on out.
2. This was the topic of a recent article in The Times of Trenton titled “The best estate planning covers all stages of life.”
3. For the new college graduate, estate planning can mean setting up a budget, putting away some savings and paying off student loans.
4. Just married? You should be planning now to provide for your spouse in the event of your death or disability.
5. When starting a family, it's never too soon to invest in a college savings fund and arrange for guardians (i.e., back-up parents) should your children become orphans.
6. As the nest empties, you might downsize your home to have more cash for investments and plan for the eventual efficient distribution of your estate. Annual gifting to your “adult” children can be very rewarding and a great way to test their financial maturity. Do they “blow it” or are they “good stewards” with it?
7. Finally, when retirement is right around the corner, you can feel good that you have planned for many years to stop working full-time and to devote your time to other interests. You've taken care of your spouse and family, and everything is in order.
8. Time to relax and enjoy!
Reference: The Times of Trenton, February 23, 2014: “The best estate planning covers all stages of life”
"Spend less than you earn and invest the difference wisely."
Of course, there's more to it than that. Nevertheless, if you adhere to those eight words as a guiding principle, you will find yourself in good shape down the road. If it worked for Ben Franklin and J.P. Getty, it can work for you.
A recent article in the Huffington Post describes a three-legged stool as a way to conceptualize your strategy. According to the article, titled “Everything You Need To Build Wealth.. In One Sentence,” one of the most important and most difficult of the three ideas is to live a more frugal lifestyle by cutting luxuries and discretionary purchases. For example, think about your car (or cars). Does your monthly car payment look nearly the same as your mortgage? Ask yourself if you really need two expensive models.
Ok, now ask yourself again and this time be honest. Might you survive on just one and perhaps trade the other for something more economical and easier on the budget? Do you buy a new car every two or three years? What if you kept that car for five years and enjoyed some time without a monthly car payment. People do it and they don't appear to be harmed in any way. In fact, having only a $200/month car payment or no payment at all means more money to invest and save for the future. Try it!
While you will want to read the original article, here are the other two legs to whet your appetite to learn more:
Leg 2 – “Increase your income by improving job skills or changing jobs -- or consider working overtime or starting a new business.”
Leg 3 – “Invest wisely by learning what is necessary.”
Don’t focus on just one or two legs of the three-legged stool. In fact, each is just as important as the others. Follow the advice in the original article with the expert assistance of your financial advisor and you will be building your financial success on a secure foundation.
Reference: Huffington Post, February 19, 2014: “Everything You Need To Build Wealth.. In One Sentence”
Although it seems that there are lessons to be learned from the mistakes of others, celebrity mistakes can seem all the more colossal. Forbes recently pointed out some of the sound planning Walker did at an early age and before much of his stardom in an article titled “Five Estate Planning Lessons From The Paul Walker Estate.”
For example, in his will, Walker left all of his assets to a trust he created. This can create a much easier and simpler probate process. It was a revocable living trust, which is a very effective estate planning tool. Although it isn't a public record, if Walker went to the trouble of creating the trust, he most likely was concerned about the way that his young daughter would be handed his large estate.
Many young people do live life "fast and furious" and don't think ahead to the future. Take a break and sit down with an estate planning attorney sooner versus later. You never know when it will be too late.
Reference: Forbes, February 10, 2014: “Five Estate Planning Lessons From The Paul Walker Estate”
Did you catch the recent article in US News and World Report titled “5 Steps to Save More for Retirement?” We won't spoil the fun and give you all of the tips discussed in the original article, but one great way to save for retirement is automatic payroll deductions.
Start out with a modest amount and gradually increase it. Most employers and financial institutions are set up to allow you to deposit money into more than one account; if not, set it up to deduct from your checking account the day you get paid.
"You don't miss what you don't have," as the saying goes. Or another way to think of it: "You can't spend what you already put in the bank."
Be sure to take a look at the original article and make an appointment with your financial advisor and estate planning attorney. Together, they can coordinate your retirement plan with your estate plan to help you implement those tips recommended in the article, as well as others that fit your situation. After that planning, you can get your nest egg growing!
Reference: US News and World Report, February 6, 2014: “5 Steps to Save More for Retirement”
How many people really know you? Your spouse, parents, best friend, or business partner?
These people and more may try to “help” with your estate, unless you leave a clear and unambiguous will that specifically states your intentions for your belongings and describes in detail how you want your estate distributed.
For an example of what can happen, consider the case of the late Nelson Mandela, as this issue was taken up in a recent Forbes article titled “Will Nelson Mandela's Heirs Tarnish His Legacy Through Greed And Fighting?”
Closer to home, someday you may have close relations or friends trying to divide up your assets in a way that was never intended—or you may have relatives you've never met claiming a right to some or all of your estate. Others who feel they know you the best might try to help interpret the will to their own benefit.
Avoid hard feelings, strain on already delicate emotions, and fighting among your relatives and friends by consulting with an experienced estate planning attorney. A qualified attorney can help you determine the best ways to handle your estate, so you are explicit in your directions. The directions include how the estate should be probated, whether alternatives should be considered to avoid probate, and also to find strategies that will provide for the greatest return for your loved ones.
Reference: Forbes, December 13, 2013: “Will Nelson Mandela's Heirs Tarnish His Legacy Through Greed And Fighting?”
What is Medicaid? More than likely you have heard of Medicaid, considering it has been part of the national political debate for some time. But what exactly does Medicaid mean to you and your elderly loved ones?
If you have elderly parents, it is high time to learn about Medicaid and how it works.
Fortunately, a recent Forbes article is a good place to start. The article is aptly titled “Medicaid And Your Parents: The Basics.” Essentially, Medicaid is a program run jointly by the federal government and each respective state government. Think of it as government insurance for, among other things, late-in-life medical care like home care or nursing home care when the one needing care has too limited financial resources.
Medicaid is “means-tested.” Consequently, having too great an income or too much in assets will disqualify a Medicaid applicant and create a legal hurdle to receiving benefits. In addition, having “assets” is not the same as having the money to pay for care.
For those with assets exceeding the Medicaid limits, “giving” assets away will only disqualify them from Medicaid assistance if the transfers violate the “look back” period designed to keep them from gaming the system. Of course, an elderly individual might have had innocent intentions when they made a disqualifying gift a few years ago and the need for Medicaid was unforeseen. Regardless, such transfers are a red flag when it comes to Medicaid qualification.
Each state is subtly different in its approach, but these are very real rules and they require careful thought and timing. Otherwise, it is easy to run afoul of the rules now and be disqualified from care later. You owe it to your elderly loved ones to start planning for a worst case scenario without delay.
Reference: Forbes (February 11, 2014) “Medicaid And Your Parents: The Basics”
A business is not merely a thing. No, a business is a mindset, an activity and, oftentimes, even a lifestyle. It can get complicated. If your legacy is the family business, then with great responsibility comes the need for equally careful planning, preparation and dialogue.
Because every business is different, as every family is different and every individual is unique, what is right for a family business is something to be figured out and understood. That said, businesses have been coming and going for generations. Some have transferred successfully and others less so. Consequently, there are some tried and true strategies to consider when planning for your own family business succession.
Whether your objective is a sale, windup or succession, Forbes has provided a practical roadmap in a recent article titled “Six Steps For Making Your Business A Family Legacy.”
Here are the six steps by heading alone:
1. Give the family a reason to continue the family business
2. Develop a management team
3. Structure a business succession plan
4. Fund the business succession plan
5. Wealth replacement for other family members
6. Have a successful business
So what is right for you, your family and your business? I recommend reading the original article and then consulting with your team of professional advisors. Your attorney, accountant, financial planner and insurance agent will each bring a valuable and unique skill set to the table.
Reference: Forbes (February 3, 2014) “Six Steps For Making Your Business A Family Legacy”
When planning to pass on your estate, you may feel like all will be fine as long as everyone gets a piece of the pie. If only it were that easy! If you are considering splitting up your estate in unequal parts, be aware that your heirs may feel snubbed if they are on the lesser side of the inheritance.
How do you split your estate unevenly and still keep the peace in the family or, at the very least, keep it out of the courts?
The uneven distribution of an estate is always a challenge. Nevertheless, when it must happen, it must happen carefully. Why might you split assets differently among your children and what are the challenges? Private Wealth investigated this matter recently in an article titled “Playing Favorites.”
While “favoritism” may be the sole motivation, such is generally the exception to the rule. Commonly, after a “lifetime” of rearing their children, parents may want to level the playing field out of a sense of fairness. Whether making adjustments for unrepaid lifetime “loans,” helping children who were less “successful” financially than their siblings, or protecting an inheritance from a squandering prodigal, the reasons for unequal inheritances as unique as families themselves.
Since there are so many variations on the unequal inheritance theme, the key is to ensure that your reasons are thought-through, valid, and, better yet, conveyed. Remember: inheritance and disinheritance are complicated subjects, both legally and emotionally. Depending upon your reasons, you may even find another path forward to be more useful.
Reference: Private Wealth (January 7, 2014) “Playing Favorites”
The estate tax is no longer the beast to be tamed. It's not dead, mind you, but at least these days the estate tax isn't causing such a fuss as in recent history. On the other hand, there is another less obvious tax monster that you cannot afford to ignore.
The capital gains tax.
The reason for the pivot from estate tax to capital gains tax has everything to do with the same legislation. Actually, it is a fairly recent change, as far as these things go. The budget deal of January 1, 2013, locked in a high estate tax exclusion amount and enshrined the ability for spouses to pass unused estate tax exemption amounts between themselves (so called, “portability”). In the same swoop, though, the capital gains tax jumped up another 8.3% to 23.8% from the previous 15%.
So, with this capital gains tax in mind, what does that mean for planning? This is a question Forbes explored in a recent article (intriguingly) titled “Freebasing Your Estate.”
The nut of the issue with capital gains is “cost basis,” a term for the original value against which the present value is used to determine the taxable portion of capital gain. Essentially, a “postmortem (at death) bequest” and an “intervivos (during life) gift” may transfer an asset with the same current value. However, they transfer a different cost basis to the inheritor and donee respectively. The inheritor inherits the “date of death” value as the basis of the inheritance. This is known as the “stepped up” basis. The donee receives and continues to hold the same basis held by the donor. This is known as the “carryover” basis.
With the estate tax now less of a concern, it makes more sense to transfer an asset at death rather than during your lifetime, all other considerations being equal.
What assets will you be transferring? Is the estate tax or is the capital gains tax a greater threat to your family wealth? Regardless, it is wise to keep in mind that what Congress puts into place it can just as easily undo.
Reference: Forbes (February 12, 2014) “Freebasing Your Estate”