Texas Estate Planning

How Do I Talk to My Parents About Estate Planning?

Failing to draft an estate plan can mean a pair of obstacles when a parent dies. First, it can leave you scrambling to unravel their financial picture while trying to grieve. Second, it can be expensive.

MarketWatch’s recent article entitled “It’s easy to put it off, but here’s why you should talk to your parents about estate planning, and how to start the conversation” says that a wise way to avoid both scenarios is to begin talking with your parents about estate planning. While this can sound like a job just for the uber-rich, it is really an essential process that ensures clear directives exist for all sorts of situations that accompany the end of life.

An estate plan is a chance to set mindful intentions about life’s inevitabilities.  It is, therefore, a great idea to ask your parents to take account of their assets and belongings. This is not just about the numbers and paperwork—it is a chance to gauge preparedness.

Start by asking your parent(s) the following:

• Who do you want as your primary caregiver?
• How will we pay for health care expenses?
• What are your medical care preferences?
• Which of us should make medical decisions on your behalf?
• How should we handle your property when you die?
• Do you have any valuable items that you want to be handled in a special way?
• Where are your most important documents and do we have access to all of your digital records?

Inheritance often require probate. However, if the right legal documents are in place, it can be a relatively quick and painless process. When someone dies intestate (without a will), it can sticky and get tricky. Understand that the state has its own rules for dying without a will. Depending on the situation, you might need to hire a probate attorney because there will be legal proceedings. Therefore, make certain that your parents have a will and that beneficiaries are clearly stated in all policies and documents. It is a preventative measure that can pay dividends.

Remember that when wealth is transferred (or assets are passed from one person to another), taxes are often inevitable. Work with an experienced estate planning attorney to minimize liability.

Reference: MarketWatch (Dec. 29, 2021) “It’s easy to put it off, but here’s why you should talk to your parents about estate planning, and how to start the conversation”

What are Penalties When Contributing to or Withdrawing From Retirement Accounts?

Money Talks News’ recent article entitled “3 Tax Penalties That Can Ding Your Retirement Accounts” reviews some penalties to avoid when contributing to or withdrawing from retirement accounts.

Excess IRA Contribution Penalty. Building a large amount of retirement savings is a super goal. However, contributing too much to an IRA can cost you. It is possible to commit this offense by (i) contributing an amount of money that exceeds the applicable annual contribution limit for your IRA; or (ii) improperly rolling over money into an IRA.

What happens if you get a little too eager to build a nest egg and make one of these mistakes? The IRS says that excess contributions are taxed at 6% per year provided the excess amounts remain in the IRA. The tax cannot be more than 6% of the combined value of all your IRAs as of the end of the tax year.

The IRS offers a remedy to fix your mistake before any penalties will be applied: you must withdraw the excess contributions — and any income earned on those contributions — by the due date of your federal income tax return for that year. Therefore, if you contributed too much to an IRA for 2021, you have until April 18, 2022, to withdraw the excess and thus avoid a penalty.

Early Withdrawal Penalty. Taking money out too soon from a retirement account is another potentially big error. If you withdraw cash from your IRA before the age of 59½, you might be subject to paying income taxes on the money, plus an additional 10% penalty. The IRS says, however, that there are several scenarios in which you are allowed to take early IRA withdrawals without penalties. For example, if you lose a job, you are allowed to tap your IRA early to pay for health insurance premiums.

The same penalties apply to early withdrawals from retirement plans like 401(k)s. However, there are again exceptions to the rule that allow you to make early withdrawals without penalty.  The exceptions that let you to make early retirement plan withdrawals without penalty sometimes differ from the exceptions that allow you to make early IRA withdrawals without penalty.

Missed RMD Penalty. Retirement plans are neat because they let you to defer paying taxes on your contributions and income gains for decades. However, the IRS is eventually going to want its share of that cash. Taxpayers were previously obligated to take required minimum distributions — also known as RMDs — from most types of retirement accounts beginning the year they turn 70½. However, the Secure Act of 2019 raised that age to 72. The consequences of failing to make these mandatory withdrawals still apply. If you do not take your RMDs starting the year you turn 72, you face harsh penalties, and you may have to pay a 50% excise tax on the amount not distributed as required.

Remember that the RMD rules do not apply to Roth IRAs. You can leave money in your Roth IRA indefinitely, but another part of the Secure Act says your heirs have to be careful if they inherit your Roth IRA.

Reference: Money Talks News (March 1, 2022) “3 Tax Penalties That Can Ding Your Retirement Accounts”

What are My Responsibilities if I’m Named an Executor?

An executor is the person who helps finalize the finances and assets for a deceased person. As executor of an estate, you will need to get copies of the death certificate, notify authorities, such as Social Security, to stop benefits and may be involved in arranging the funeral.

You will also need to follow the instructions in the will to administer the estate.

You will organize the assets, pay off any debts, close accounts like utilities and cable or phone plans and distribute money and possessions to beneficiaries.

US News’ recent article entitled “How to Prepare to Be an Executor of an Estate” takes a look at the responsibilities of an executor.

If are asked and accept the position, start by finding the important documents, like the will. As executor, you are acting in a fiduciary capacity, and your efforts are directed toward the interests of the beneficiaries of the decedent’s the estate.

The time required to be an executor can be extensive. If you are asked to be the executor before the person passes away, ask to locate the original will. Read it and make certain that you understand it.

There are also requirements that must be met to be an executor of an estate. Anyone convicted of a felony is not allowed to be an executor, even if they are named in the decedent’s will. The exact rules vary, depending on the state, so ask an estate planning attorney.

After the death, it typically takes at least six months or more to carry out all the administrative work related to the estate. Therefore, if you do not have the time, do not agree to serve as executor.

Finally, executors may be compensated for their work. Some states have commission schedules listed in their statutes that the executor can collect, while other states require that you keep track of your time and the judge will authorize “reasonable” compensation for your actual efforts.

Ask for help if tasks seem overwhelming or you do not understand certain instructions on accounts or the will. An experienced estate planning attorney can assist.

Reference: US News (Dec. 22, 2021) “How to Prepare to Be an Executor of an Estate”

What are Proposed Changes to Vets’ Disability Ratings?

The changes to the Department of Veterans Affairs disability ratings system are part of a review of the VA’s Schedule for Rating Disabilities. This governs how VA staffers evaluate and compensate veterans with service-connected injuries.

Military Times’ recent article entitled “Vets’ disability benefits for tinnitus, mental health issues may change” says Thomas Murphy, acting VA undersecretary for benefits, said the goal of the work was not to reduce or increase the number of veterans receiving disability benefits but instead to ensure that “veterans receive decisions based on the most current medical knowledge relating to their condition.”

For veterans currently receiving those payouts, the changes will not take away any existing benefits or lower their disability rating. However, vets could see their ratings increased based on the changes, if the new rules end up more advantageous to their health situation. Vets who apply for benefits in the future will see a different set of standards applied to their cases than their older peers. This could have significant financial ramifications for those individuals.

Under VA rules, a disability rating of at least 10% can mean monthly payouts of more than $140 for a vet. A vet who receives a disability rating of 100% — either from a single service-related condition or a combination of injuries and illnesses — can receive roughly $3,100 a month in disability compensation.

The number of veterans receiving compensation for sleep apnea — interrupted breathing during sleep — has increased dramatically in recent years. Under proposed changes, VA officials for the first time could offer a “0 percent evaluation” for asymptomatic sleep apnea, allowing the department to formally acknowledge a veteran’s condition without requiring any compensation if the condition is easily controlled with treatment. Vets would receive ratings of 10% or more for sleep apnea “only when treatment is either ineffective or the veteran is unable to use the prescribed treatment due to comorbid conditions.”  They can currently get a rating of 10% or more for the condition, even if treatments are effective at dealing with the condition.

Veterans dealing with mental health issues would see a lower threshold for getting increased disability ratings under the changes. Conditions such as anxiety, depression, or post-traumatic stress disorder (PTSD) would be evaluated on how they impact a veteran’s ability to perform everyday functions. Even mild impairment would be available for compensation. The proposed rules say that the changes better recognize the effect of mental health on individuals’ well-being “ by placing greater emphasis on a disabled veteran’s ability to function in the work setting, rather than focusing on symptoms alone.”

The VA does not have a planned implementation date for the changes.

Reference: Military Times (Feb. 15, 2022) “Vets’ disability benefits for tinnitus, mental health issues may change”

Can I Split My Inheritance with My Sibling?

Let’s say that you are the beneficiary of your brother’s IRA.

All of his assets were supposed to be split between you and your sister according to a living trust. However, the IRA administrator says the IRA only has one beneficiary… you. How can you spilt this equally?

Can you sell half and give your other sibling her money?

What is the effect on taxes and the cost basis?

nj.com’s recent article entitled “Can I give my brother half of my inheritance?” says that it’s important to review beneficiary designations to make sure they reflect your wishes.

In this case, you would essentially be making a gift to your sister from the IRA account that you inherited.

To do this, you would have to liquidate some of the account and pay the taxes on the liquidated amount, if it is a traditional IRA.

You would also have to file a federal gift tax return for the amount gifted above the $16,000 annual exclusion amount. However, no gift tax should be due if you have less than $12.06 million in your estate and/or lifetime gifts made above the annual exclusion amounts.

The unified tax credit provides a set dollar amount that a person can gift during their lifetime before any estate or gift taxes apply. This tax credit unifies both the gift and estate taxes into one tax system that decreases the tax bill of the individual or estate, dollar to dollar.

As of 2021, the federal estate tax is 40% of the inheritance amount. However, the unified tax credit has a set amount that a person can gift during his or her lifetime before any estate or gift taxes are due. The 2021 federal tax law applies the estate tax to any amount above $11.7 million. This year’s amount is $12.06 million.

While you would receive a step-up in basis, the cost basis of your brother’s gifted share would be the value at the time the gift is made.

Another thought is that if there are other assets in the estate, perhaps your sister could have a greater share of those, so you could keep the IRA intact to avoid paying taxes at this time.

Reference: nj.com (Feb. 23, 2022) “Can I give my brother half of my inheritance?”

What’s the Latest News on Mental Health Benefits for Veterans?

Roughly 88% of those who took part in the Wounded Warrior Project’s annual survey have used the VA’s health care in the past, and 77% of the group have a disability rating of 70% or more. That makes them eligible for Veterans Affairs assistance.

Military Times’ recent article entitled “Wounded veterans still struggle to access mental health support: survey” reports that about one in five Wounded Warrior Project members surveyed responded that they have experienced issues getting mental health care. Of that group, 59% say they were not sure what professional mental health care options were available to them, and 66% said they would be embarrassed or ashamed to use those services.

Officials say the new survey from Wounded Warrior Project shows a need for more transition programs focused on women. The report had nearly 18,000 respondents. It also emphasizes the danger of the disconnect between those veterans’ needs and their access to those services. About one in four veterans surveyed said they had suicidal thoughts within the last year.

“Mental health continues to be a critical concern for this population of post-9/11 injured warriors,” said Dr. Melanie Mousseau, vice president of program operations for Wounded Warrior Project.

Because the survey is restricted only to the Wounded Warrior Project members, it is not necessarily reflective of the entire Iraq and Afghanistan War population or all injured veterans. However, officials said the findings do show the trends within the group’s 152,000 members, hinting at obstacles facing disabled veterans throughout the country.

“Our resources need to be targeted on the most impactful efforts, so we need to know where the biggest challenges are,” said Jennifer Silva, chief program officer for the Wounded Warrior Project. “We want to be a partner to everybody who wants to support veterans, whether it’s lawmakers, VA or corporations. Having this data in efforts like this is really important for that.”

Mental health and suicide prevention have been a major focus of VA programming in recent years, but they have had mixed results. Veteran groups have praised the work, but about 17 veterans a day die by suicide— a number that has remained largely constant over the last decade.

Among those surveyed, 78% reported having persistent sleep problems, 75% said they had symptoms of post-traumatic stress and three quarters (74%) reported struggles with depression. While major combat operations have ended overseas, the charity is seeing its membership numbers rise each month.

Roughly 16% said they have filed a disability claim related to injuries for toxic exposure, and about a third (32%) of those said they have been granted a service connection for those health issues.

About 83% of those surveyed said they feel like civilian peers respect their military service. However, only one in 10 said they think those civilians understood the sacrifices and stress of life in the military. Officials said they plan to use the findings to better target upcoming program offerings to veterans’ needs.

Reference: Military Times (Feb. 22, 2022) “Wounded veterans still struggle to access mental health support: survey”

Why Do I Need a Will?

Some people mistakenly think that not having a will allows their probate assets to bypass the time and expense of probate. No, that is not true.

Probate assets are those assets with no surviving joint owner, designated beneficiary, or are not titled in a revocable living trust.

If you die without a will, your probate property still must go through probate, says Fed Week’s recent article entitled “Expressing Your Will with a Will.”

Therefore, you should have a will. If probate avoidance is a concern, you can ask an experienced estate planning attorney about utilizing various non-probate transfer methods, to include creating a trust. If you have a revocable living trust, you can keep control over the trust assets while you are alive.

The assets placed in revocable living trust during your lifetime can be distributed at your death, under the terms of the trust, without the requirement of probate.

When you draft a will, you cannot simply forget about it. Special life events, such as births, adoptions, deaths, marriages, and divorces, all may require you to revisit your will. After each change, make certain that your current will is both safe and accessible. You can leave a copy of your will with your executor.

If you decide to keep your will somewhere else, your executor and other loved ones should know that location. The estate planning attorney who prepared your will should have a copy, as well as a memo revealing the location of the original.

Regardless of where you put your will, you should create a separate document for your funeral and burial instructions. That is because wills typically are not read until days or weeks after death.

 It will not help your survivors make prompt decisions about a funeral or a memorial service.

A separate letter should be used to specify your final wishes and your executor should know where these instructions are located.

These arrangements include seeing if there is a pre-arranged funeral plan, meeting with a funeral director to make arrangements for the funeral services, confirming cemetery arrangements and choosing the necessary casket or urn, grave marker and funeral stationery.

Reference: Fed Week (Feb. 22, 2022) “Expressing Your Will with a Will”

Estate Planning Tools and the Ones You Must Have

When hip-hop star DMX died in 2021, he had no will and only a few liquid assets. His estimated 15 children are expecting a share of his estate, but the estate has been in the probate court for months. An estate also has to be established to manage any expected future earnings from his music. However, with no appointed administrators and legal costs, DMX’s estate will be dwindling until the proceedings are finalized.

In fact, some reports estimate that DMX's net worth was estimated to be $10 million. However, it fell to a perhaps even negative $1 million at the time of his death.

Finurah’s recent article entitled “Not Just for the Rich: Five Estate Planning Tools Everyone Needs” reports that the number of Black Americans who have completed a will has increased by 6.2% (from 25.9% to 27.5%).

Estate planning lets you stay in control of your assets, while contributing to your family’s generational wealth. Let’s look at five tools necessary to create a comprehensive estate plan.

1. Will. A will establishes the distribution of your individual assets. A will is also important if you have minor children because it is the only way you can nominate a guardian of your choosing for them.
2. Trust. A trust is a fiduciary arrangement that lets a third party (the trustee) hold assets on behalf of a beneficiary or beneficiaries. Trusts can be arranged in many ways and can specify exactly how and when the assets pass to the beneficiaries.
3. Power of Attorney. This lets you appoint a trusted person to act on your behalf as your agent or attorney-in-fact. He or she will handle financial decisions on your behalf, such as real estate transactions, banking transactions, insurance and Medicare.
4. Health Care Proxy. This document allows someone you have appointed to make medical decisions in the event that you cannot.
5. Living Will. If you have a terminal illness or death is imminent, this document identifies the treatments or medications you would want administered, withheld, or withdrawn, allowing you to remain in control of your end of life. In short, this lets people know what you want and do not want.

Talk to an experienced estate planning attorney about a comprehensive estate plan that includes these five documents.

Reference: Finurah (Feb. 5, 2022) “Not Just for the Rich: Five Estate Planning Tools Everyone Needs”

Do You Need a Revocable or an Irrevocable Trust?

Many seniors planning for the future may want to place their home in a trust for their children.

This is especially true if the house is paid off, and free and clear of a mortgage.

However, what would happen if the home were placed in a trust and the senior then decides to sell it?

Nj.com’s recent article entitled “Can I sell my house after I put it in a trust?” explains that there are two primary types of trusts: revocable and irrevocable. In this situation, placing the home in a revocable trust may be a wise option.

The assets in a revocable trust avoid probate but stay in the grantor’s control. That is because you can always change the terms of the trust or terminate the trust. With a revocable trust, the terms can be altered or canceled dependent on the grantor (also known as the trustmaker, settlor, or trustor) of the trust.

During the life of the trust, income earned is given to the grantor, and only after death does property transfer to the beneficiaries.

A grantor can be the trustee. In that way, the grantor is still able to live in the home and sell it and dispose of it as they want upon death.

Assets in a revocable trust are available to creditors and are subject to estate taxes upon death.

In contrast, an irrevocable trust cannot be changed or altered once it is established. In fact, the trust itself becomes a legal entity that owns the assets placed in it.

Because the grantor no longer controls those assets, there are certain tax advantages and creditor protections.

An irrevocable trust is best used for transferring high-value assets that could cause gift or estate tax issues in the future.

Trust are very complicated, so in any situation consult with an experienced estate planning attorney about whether to use a trust and to make certain that you create the best trust for your specific situation.

Reference: nj.com (Feb. 25, 2022) “Can I sell my house after I put it in a trust?”

What Changes are Considered to VA Caregiver Programs?

“I am worried about the feedback we’re getting,” Veterans Affairs Secretary Denis McDonough told reporters at his monthly press conference on VA issues. “We work for caregivers, we work for the veterans. We want to make sure that they’re getting the information they need and clarity about why we’re making the decisions we’re making.”

Military Times’ recent article entitled “Changes to VA caregiver programs being reconsidered amid complaints” reports that earlier this month, a coalition of 15 veterans service organizations made formal objections to planned department changes in the Program of Comprehensive Assistance for Family Caregivers, which provides stipends to family members who provide home care to elderly or infirm veterans.

About 20,000 caregivers of injured veterans will have their cases re-examined to see if they still qualify for the benefit. Some of the complaints were that the new rules “drastically changed the program’s eligibility criteria” resulting in “harsh impacts” for families.

Roughly 33,000 people are currently enrolled in the program, which provides support services and monthly stipends to caregivers of veterans unable to perform basic self-care activities.

The stipend is set to expand in October 2022 to include families of veterans who served between the Vietnam War and the Afghanistan War, motivating  the VA to ensure that existing program participants are being treated equitably.

VA officials announced in the fall of 2021 that it anticipated about 6,700 families would be dropped from the program under the changes. However, no families would see any financial payouts decreased or ended before October.

The thought was to make sure these people would have time to get ready for the financial effect of losing the stipends, which can total more than $3,000 a month. However, advocates objecting to the changes have said they’re too restrictive and unforgiving, aimed more at culling families from the program than balancing veterans’ medical and emotional needs.

McDonough said that, in near future, Deputy Secretary Donald Remy will lead a review on the project thus far “to make sure that we’re learning everything we can from it and that we’re making best use of investments Congress has made in this program.”