Vacek & Thain, PLLC

Retiring and Living to 100

Retirement money could be challenging for those who join the rising number of Americans living to celebrate their 100^th birthday.

While the total number of Americans living to see their 100^th birthday is relatively low at 72,197, the growing trend toward an increase in centenarians grew 44% from 2000 to 2014, according to the Center for Disease Control and Prevention. This could create quite a challenge for retirement funding.

Recently, U.S. News & World Report offered some tips for planning for such a long retirement in "How to Finance Living Until 100."

The advice includes:

• Delay Social Security Benefits – Every year you delay taking Social Security past full retirement age increases your monthly benefits by 8 percent.
• Be Wary of Inflation – Invest in assets that are either guaranteed to keep up with inflation or have historically done so.
• Get A Pension – If you have a job that offers a pension, then you will have more money to spend during retirement.
• Get an Immediate Annuity – While they are not right for everyone, getting an immediate annuity will allow you to receive regular payments no matter how long you live.
• Draw Down Slowly – When you do retire, be as conservative as possible in drawing down your retirement savings.

It is still unlikely that any particular person will live to be 100. However, it is always good to plan for the contingency that you might be one of the lucky few.

A good estate plan could be helpful for those who become centenarians. And, if you do not live that long, the assets will not be wasted as long as you get an estate plan that appropriately passes the assets on to your heirs.

Reference: U.S. News & World Report (Jan. 22, 2016) "How to Finance Living Until 100."

Mounting Debt Challenges Millennials Saving For Retirement

Many millennials who carry a large debt load could be making a mistake as they face the challenge of planning for retirement.

Mounting student loan and credit card debt has become a burden to the millennial generation as they begin their professional careers. And, while debt should be paid off as soon as possible, many of the millennial generation are making the mistake of delaying retirement planning until they are at risk of not having enough savings for their retirement years.

Recently, U.S. News & World Report offered some debt reduction and savings advice for millennials in "How to Balance Debt Reduction and Retirement Savings."

The tips include:

• Avoid High Interest Debt – Getting out from high interest debts, such as credit cards, as quickly as possible allows people to save more for retirement.
• 401(K) Matching – If your employer offers a 401(K) matching program, no matter how small, take advantage of it.
• Buy Cars With Cash – Saving money to buy a car for cash instead of financing the car purchase is a good way to have extra money for retirement.
• Be Realistic – It is important to set realistic goals about how much money you will need for retirement.
• Be Aggressive – The younger you are, the more aggressive you should be with investments.

Once millennials do start saving for retirement appropriately, they will also need to get estate plans that detail how those savings should be distributed should something happen to the savers.

Speaking with an estate planning attorney could help you meet the challenge of saving for the future and paying off debts.

You can visit our website for more information on estate planning. 

Reference: U.S. News & World Report (Jan. 22, 2016) "How to Balance Debt Reduction and Retirement Savings ."

States Evaluate Importance of Estate Taxes

Since wealthy elderly residents have been known to relocate to states with more favorable estate tax laws, a clear trend has developed with more and more states reducing or eliminating estate taxes.

A dilemma has been presented to state governments facing revenue declines. They can raise tax revenue by taxing the estates of the wealthy but they then risk their own residents relocating to more lenient states before they pass away.

When such citizens move away that means these state governments with estate taxes do not receive income or capital gains taxes from those wealthy people. In the end, such states must determine which taxes are more important to them and their budgets.

Kiplinger's Personal Finance reports in "More States Giving Heirs a Break on Estate Taxes" that the majority of states have chosen to keep their citizens rather than impose an estate tax.

So, how many states still have an estate tax? At present, this number includes only 14 states and the District of Columbia. Tennessee is the latest state to do away with its estate tax and six other states have increased their estate tax exemptions recently.

Although it might be tempting to say this trend is clear evidence that estate tax revenue is not as important as other revenue, there probably is not enough definitive evidence to make that claim. The political controversy surrounding the estate tax might play some role in this trend amongst the states.

It will be worth watching if the states still imposing the tax continue to face pressure to repeal it to keep the wealthy from fleeing to other states in their retirement years.

An estate planning attorney could be helpful in guiding you through these important issues.

Reference: Kiplinger's Personal Finance (February 2016) "More States Giving Heirs a Break on Estate Taxes"

Please visit our website for more information on estate tax or to register for a free living trust seminar.

The Red Duchess' Effort to Deny Her Children Their Family Legacy

The Duchess of Medina Sidonia was clearly not centered around her children. She feuded with them while she was alive and tried to prevent them from receiving any portion of the family archives and legacy. The children have now turned to the Spanish courts in the hopes that a right of inheritance in Spanish law will protect them.

Known as the Red Duchess for her strong political response to Franco, Luisa Isabel Álvarez de Toledo and her descendants trace their lineage back to the man who was best known for leading the dramatically failed Spanish Armada against England. While she was alive, the Duchess was in control of the family's historical archive, a private asset valued at some $67 million.

In the 1990s, her children successfully sued her to stop her from giving away portions of the family estate. This caused a permanent rift and the Duchess decided to leave nothing behind for her children. Eventually, she created a foundation to hold the archives.

On her deathbed in 2008, the Duchess married her longtime lover and put her in charge of the foundation, believing this would effectively cut her children out of the estate. The Telegraph reported this story in "Children of 'Red Duchess' who married lesbian lover on deathbed in battle over legacy." The children are now suing for part of the archive.

Under Spanish law children have a right to receive at least one-third of the estate of their parents. However, the courts will have to sort out whether that applies in a case such as this, where the property was actually given to a foundation before the parent passed away. It is clear that the intent behind the law is to make certain that parents cannot leave their children nothing. Thus, if policy dictates, it would seem the children should win.

Reference: Telegraph (October 12, 2015) "Children of 'Red Duchess' who married lesbian lover on deathbed in battle over legacy."

For more information on how to create a living trust, please visit our website.

Your Gift May Have Strings Attached: IRS Form 709

Technically speaking, whenever you give a gift to someone, you have to follow the gift-tax rules. You don't have to file a gift tax return every time you give someone a birthday present or a bouquet of roses, but it's useful to know when the gift tax – embodied in IRS' Form 709 – needs to be dealt with. It's better to know the rules and follow them than to have to deal with the IRS with an unexpected tax.

The purpose of IRS Form 709 is to report gifts that are subject to gift and generation-skipping transfer taxes, as explained in The Motley Fool's article, "Form 709: Do You Need to File a Gift Tax Return?" While this sounds like another unpleasant task to add to your to-do list, in actuality the IRS has some favorable rules that make many gifts exempt from these reporting requirements.

The annual exclusion lets you give up to $14,000 in cash or property to another without having a taxable gift, which prevents most of the regular holiday or birthday gifts from being taxable. Unlimited gifts to spouses are also typically permitted without having to file Form 709. This annual exclusion applies to each person receiving a gift—so if your child is married, you can give $14,000 to your child and another $14,000 to her spouse without any gift tax. The same thing works for your spouse: he can make $14,000 gifts to as many people as he wants, regardless of the gifts that you've made.

A special rule allows a spouse in a married couple to make double-sized gifts and have them viewed as made equally by both spouses. This might keep you from paying a tax, but you'll still have to file a gift tax return in order to claim it. There are other exclusions that will keep you from having to file Form 709, such as the educational exclusion and the medical exclusion. These aren't considered taxable gifts, so no gift tax return is necessary. However, you must make the "gifts" directly to the institution, not the beneficiary, to qualify for this valuable exclusion.

Even if you made a taxable gift, the tax code gives you some help. The federal gift and estate tax provides for gifts made during your lifetime to be treated the same as gifts made from your estate after your death. Each person has a lifetime exemption from gift and estate tax which stands at $5.43 million in 2015. So even after you use up your $14,000 annual exclusion, any remaining gift amount applies towards your lifetime exemption amount.

Gift tax returns are frequently needed for more complex estate planning strategies, so talk with a qualified estate planning attorney about future interests and generation-skipping issues. He or she can create a wise strategy for your situation and will take care of preparing the Form 709 so that you meet all the requirements.

Reference: The Motley Fool (October 3, 2015)"Form 709: Do You Need to File a Gift Tax Return?"

Please visit our website for more information on gift tax.

Family Limited Partnerships and Family LLCs About to Get Overhauled

The details are still unknown, but family limited partnerships and family limited liability companies are being scrutinized by the IRS and the US Treasury and changes are coming. The IRS is looking to close a loophole that has worked very well for many years for wealthy families.

The IRS is about to get tough on the use of family limited partnerships and family limited liability corporations, used by wealthy families to avoid paying millions in taxes, according to The New York Times in “Navigating Tougher I.R.S. Rules for Family Partnerships.” There are no specific details available at this time, but anyone who is in the process of setting up one of these entities needs to get them completed as soon as possible. There’s no way to know when this will happen, but it's coming.

The White House estimated in 2012 that closing this loophole could net at least $18 billion in tax revenue over 10 years. Assets in family partnerships, like securities and cash, still have a value that does not support a discount of 30%. Some advisers argue that the partnership, not the individuals, controls when securities are bought and sold and distributions are made. However, tax experts expect that entities set up to hold businesses or assets that require consolidated management, like rental properties, will still see some discount.

If a family has significant real estate, typically they use discounts to transfer interest in the entity. If you’re already setting up a partnership or making gifts to one to accelerate what they were doing, get it in under the deadline. The IRS won’t make the date retroactive, so get going.

Talk to your estate planning attorney about how this change may affect your estate planning.

Reference: The New York Times (August 17, 2015) “Navigating Tougher I.R.S. Rules for Family Partnerships”

Please visit our website for more information on estate planning.

Wealth Needs a Deep Bench of Talent

Managing and growing wealth requires a deep bench of skilled and trusted advisors. Among millionaire investors, a third are comfortable with having two advisors, while 36 percent prefer to work with three advisors. Interesting that those prefer two advisors are mostly Baby Boomers, while half of those who prefer the trusted trio are Gen X-ers, ages 36- 44. When asked, members of the Ultra High Net Worth households ($5 million to $25 million) prefer three advisors.

Whether you are a millionaire or an aspiring millionaire, a recent Millionaire Corner article, “Financial Planning--Who's On Your Money Team?,” describes the professionals that should be on your financial team.

CERTIFIED FINANCIAL PLANNER™ Practitioner. Along with your estate planning attorney, this player is responsible for helping you paint the “big picture.” This perspective allows you to identify your financial goals and prepare for a financially secure retirement. This will include money management, investing advice, estate planning, insurance planning, business planning, and other strategies to help you get ready for retirement and the ability to enjoy your senior years in comfort.

Certified Financial Planner Board of Standards Inc. owns the certification marks CFP® and CERTIFIED FINANCIAL PLANNER™ in the U.S., which it awards to individuals who successfully complete CFP Board's initial and ongoing certification requirements.

Accountant. An accountant or an attorney experienced with tax matters is also an essential player on your team. It’s good to have an accountant or lawyer who will prepare your taxes and offer appropriate tax shelter recommendations.

Insurance Broker. This person will help navigate the wide range of available products and determine which best suits the needs of you and your family. If they team with your estate planning attorney, you can be sure that all of your objectives are met and that everything works towards the common goal of placing you in the best position when you retire.

Estate Planning Attorney. This is the “pivotal” money team member. This is your clean-up batter or your quarterback. The attorney is crucial and will assist you with the creation of your estate plan. He or she will help you draft essential estate planning documents like a will, living trust, a health care directive and a power of attorney. Your quarterback will make sure that your assets are protected and your estate is settled according to your wishes.

Huddle up with your quarterback and make sure you have a winning game plan for your estate planning. Don’t get blind-sided by not preparing!

Reference: Millionaire Corner (August 18, 2015) “Financial Planning--Who's On Your Money Team?”

For more information on how to protect your wealth, please visit our website.

Why Your Estate Plan Needs to Be Reviewed and When

Life is about changes, both good and bad. Children grow up and marry and have children of their own. Families experience the pain of divorce. New families are created when divorced parents remarry. Many of these changes require revisiting and making changes to your estate plan. Even when your family life is stable, laws change and can impact the best of estate plans. An estate plan needs to be reviewed and changed as family situations, laws or other factors change. Here are some common points when estate plans need to be reviewed.

There are certain life events that call for your estate plan to be reviewed, detailed in“9 Life Changes That Require An Estate Plan Review.” from the Huffington Post. Some of the events are happy times, like the birth of a grandchild. But whether they are happy or sad, they all require that you take the time to review your estate plan to ensure that your loved ones are protected and that your wishes are carried out in the event of your death or if you become incapacitated.

Marriage. Did you know that your spouse may not be the sole beneficiary or heir of your estate?Depending on where you live at the time of your death, this may be unknown without a solid estate plan. To ensure your spouse, or anyone else gets certain belongings from your estate, you need to detail this in your plan. When you wed, you should review your estate plan and make any necessary adjustments.

Remarriage. A marriage license typically doesn’t set up your new spouse to receive your entire estate after your pass away. The laws of most states say that your new spouse will share in your estate assets along with your children from your first (or previous) marriage unless you change this in your will, living trust, or other estate planning document. If you get remarried, it's critical that you update your estate plan to add your new spouse and any of his or her stepchildren should you want them to inherit from you.

Divorce. Typically when a divorce decree is entered, the laws automatically disinherit a former spouse. Nonetheless, if you included provisions in your estate plan that give specific property to your former spouse by name, make sure to change this to disinherit him or her.

Birth of a Child. This big change definitely qualifies for an update of your estate plan to protect your child or children. You need to nominate guardians to care for your children in case something happens to you. If not, your children will be cared for by guardians appointed by the court. That could be anyone. The same thing applies if you adopted a child.

Death of a Beneficiary. Updating your estate plan may be the furthest thing from your mind if this should occur. However, it's important. If your beneficiary dies, you will need to ensure your estate plan still does what you want, such as if the beneficiary had children and you want his or her portion to go to them. You’ll typically need to talk to your estate planning attorney to make sure that happens.

Illness or Disability. One often overlooked aspect of estate planning is illness or disability. There are lots of things to consider regarding your care, and you need to articulate your desires before you become ill, disabled, or incapacitated. This can save your loved ones heartache. In addition, you need to think about the situation if you passed away and one of your beneficiaries became incapacitated. Money from your estate could actually harm them by causing him or her to be ineligible for needs-based government care programs. You need to look at a special needs trust. Plan for both of these scenarios by updating your estate plan before anything happens.

A Substantial Increase in Assets or Income. If you have more money or assets now than when you first created your estate plan, then that is a good thing up to a point. That point is when you and your beneficiaries are subject to federal or state estate taxes. Your estate planning attorney can structure your estate to minimize these taxes and keep more money for your estate.

Moving to Another State. Every state has its own unique set of estate laws, so you should talk to your estate planning attorney.

Changes in the Law. State and federal tax and estate laws are always changing. When this occurs, your estate plan may be at risk.

Review your plan with your attorney to make sure everything is OK.

Reference: The Huffington Post (August 17, 2015) “9 Life Changes That Require An Estate Plan Review”

Please visit our website for more information on how to keep your estate plan current.

The Best Estate Sales from the Most Eccentric People!

No stranger to unusual estate issues -- like a pet eel with no named caretaker and a security detail for a ring worth half a million dollars -- the Orange County Public Administrator’s Office is now preparing for an estate sale of Gerald Willits, who left behind 69 cars in his yard, several real estate properties and no heir.

Gerald Willits was an eccentric plumber who liked to collect cars and didn’t seem to mind having wills executed according to The Orange County Register. “A Buena Park plumber's death left behind 69 cars and one big mystery.” Willits had 69 cars neatly parked in rows on his property. He also had three wills, all of which disinherited his only child.

The most recent will designates a California charity as the beneficiary. However, this one isn’t considered valid because it’s a copy, which leaves the 1996 will in play. That one has the estate going to his parents, who were already deceased. As a result, the county is trying to settle an estate that is basically “up for grabs.” Several people are making claims.

Gerald Willits was a plumber and, in addition to all of the vehicles, he also owned four homes that together are worth at least $1.2 million. Willits was a pack rat who was cited for trash, overgrown trees, peeling paint, a lack of running water, and housing inoperative vehicles on his property. He was eccentric and a very private person.

The auto auction is scheduled for September 1 and is expected to net $60,000 to $150,000 from 110 “lots.” This sale includes a 1930 Ford Model A Roadster and a 1965 Volkswagen van. There will be dozens of Fords, Chevys, rusted flathead V8s, as well as an experimental aircraft.

Many people believe that the Public Administrator is trying to get the estate, but that never happens. That office is entitled to a maximum of 4% of the estate’s value under California law.

Don’t have your loved ones fighting over your massive collection of cars or other assets of your estate. Talk to an experienced estate planning attorney. He or she can help you draft a legal will and other estate planning documents to ensure that your wishes are carried out properly.

Reference: The Orange County Register (August 17, 2015) “A Buena Park plumber's death left behind 69 cars and one big mystery”

Please visit our website for more information on how to create a sound estate plan.

Penny-Wise and Pound-Foolish: The Expensive Cost of Cheap Wills

Families in the United States and the United Kingdom who think they can save a few pence by downloading wills from online services are learning the hard way that cheap wills usually become very expensive when the person dies. The only person who gets the bargain is the person who is paying for the will – executors and heirs end up paying full freight.

Not very long ago, the only way to have a will prepared was to go to an attorney. There were some how-to books available, and some forms that non-attorneys might find in the local library, but it was generally understood that if you wanted a properly prepared will, you needed to go see an attorney.

The process is very different today, but it does not always work out so well for heirs and executors.

Now, people can spend a few minutes online, pay a relatively small fee and create their own will. People can also go to all sorts of individuals who claim to be professionals in financial planning or retirement planning who will draft wills for their customers.

As these options are cheaper than hiring an attorney, many people choose them. Unfortunately, doing so is almost always a bad idea.

Fenland Citizen recently published an article titled "Cheap and nasty wills causing problems."

The article notes one example in London where a cheap will caused a problem.

It seems a gentleman had a will drafted that gave half of a piece of property to another family member. However, the property was owned in joint tenancy by the man and his wife.

Thus, when he passed away, the entire house became the wife's property as a matter of law. Now, the family member who was supposed to inherit half the property is suing the will drafter.

That is just one example.

The same type of thing happens every day in probate courts in the United States.

When you try to save money by getting a cheap will, it often costs more money in the long run because the will turns out to be defective in some way.

Contact an experienced estate planning attorney and do not leave your estate plan to chance.

Reference: Fenland Citizen (August 2, 2015) "Cheap and nasty wills causing problems"

Please visit our website for more information on protecting your estate.