Vacek & Thain, PLLC

Your Social Security Could Go to Your Survivors

Your Social Security benefits don't necessarily end when you pass away. It is possible your dependents could receive survivor's benefits.

Social Security is a retirement plan that gives us monthly payments when we retire. You do not name a beneficiary for your Social Security but that does not mean that your savings can't be passed on through survivor's benefits.

The Lowell Sun recently listed who might be eligible for those benefits in "Social Security has survivor's benefits."

The list includes:

• Widows/Widowers – A widow or widower can get full survivor's benefits when he or she reaches retirement age or sooner if taking care of a child under the age of 16.
• Divorced Widow/Widower – Someone who was married to the deceased for at least 10 years may be able to get survivor's benefits.
• Minor Children – Children of the deceased under the age of 18 are eligible for the benefits. If still a full-time student, then benefits are available until the age of 19. Benefits can be claimed at any time if the child of the deceased became disabled before the age of 22.
• Parents – If a parent depended on the deceased for at least half of his or her support and the parent is over the age of 62, then the parent is eligible for survivor benefits.

An elder law attorney could answer your questions about eligibility for survivor benefits.

Reference: Lowell Sun (Jan. 24, 2016) "Social Security has survivor's benefits."

Please visit our website for more information on estate planning.

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."

Use the Tax Season to Look at Your Estate Plans

Your estate plan should be reviewed occasionally and linking it to the annual tax season could be beneficial.

The tax season is a time for gathering all of your key financial information and is an excellent time to take a look at your estate plan. While doing your taxes you will be gathering much of the same documentation needed to review an estate plan. In addition, the documentation will be fresh in your mind.

Accounting Web recently offered some tips about estate planning during the tax season in "Estate Planning Reminders for This Tax Season."

The advice includes:

• Review or Get a Will – Spend a little time to review your will and make sure everything is up to date. If you do not already have a will, visit with an estate planning attorney about getting one.
• Prepare a Letter of Instruction – Make a list of your assets, where they are located, and how they should be handled in your estate.
• Review Beneficiaries – Since you should have the asset documentation available as part of your tax preparation, make sure all beneficiary designations are up to date.
• Consider a Trust – Again since you already have the documentation handy, tax time is a good time to have a trust drawn up and to transfer assets into the trust.

The person who prepares your taxes and your estate planning attorney could work together. Consider it as tax time comes around.

Reference: Accounting Web (Feb. 8, 2016) "Estate Planning Reminders for This Tax Season."

For more information on how to plan your estate or better: attend a free seminar, please visit our website. 

The IRS Isn't Easily Misled on Art Value

The IRS has its own methods when it comes time to set the value of prized collections.

Estate taxes are not an exception when it comes to the general goal of paying as little tax as possible but little flexibility is available when it comes to setting the value of an estate.

Liquid assets have a value that is easy to determine and an estate with $10 million in securities is not easily limited by way of estate taxes, but some assets have values that are more difficult to determine.

For instance, many wealthy families have art and other prized collectibles. The true value of these tangible assets cannot be easily ascertained until the items are put up for auction and sold. For estate tax purposes these items must be appraised.

Not surprisingly, some people attempt to choose appraisers who will give a low value to reduce the estate tax on the items. In the end, as the New York Times explains in an article entitled "Revaluing Family Treasures for the Taxman," that is not always the best idea.

The IRS has its own process for appraising art and other high-ticket items.

The Art Advisory Panel is a group of experts employed by the IRS. Every year the panel reviews hundreds of items to determine their value and make sure taxpayers are not undervaluing them for estate tax purposes. In other words, if something is undervalued by an appraiser, it is not a good idea to assume the IRS will not find out about it. Of course, the IRS's valuation can be challenged, but that does require a long and lengthy process.

An estate planning attorney could be helpful in avoiding a long, drawn-out struggle.

Reference: New York Times (Feb. 6, 2016) "Revaluing Family Treasures for the Taxman"

Please visit our website for more information on estate planning. 

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.

A Headache Can Accompany Long-Term Care Insurance

The possibility of acquiring a long-term care insurance policy can bring confusion, a waste of time and a headache.

The cost of nursing home care can be extreme and more and more people are looking at possible solutions to paying those costs. An industry arose to answer those concerns and insurers began offering policies to cover those costs. While it sounds like it might be a simple solution to a difficult problem, it appears the process isn't so simple.

Recently, The New York Times discussed the complexities in an article entitled "Long-Term Care Insurance Can Baffle, With Complex Policies and Costs."

The key thing to understand is that 90% of the companies that offered long-term care policies in the past no longer do so. These companies discovered it is very difficult for insurers to make money on the policies.

Those companies still in the market offer a confusing array of policies with benefits and costs that are not always easily understood. It can be migraine-inducing for people to figure out what they are getting if they purchase a policy.

It can also be a complete waste of time for a couple of reasons.

First, 40% of people who apply for the policies are turned down for health reasons. Second, the policies do not offer life coverage. They are short term policies and if your need for coverage exceeds the policy term then the money spent on premiums is wasted.

If you are looking into long-term care insurance it might be wise to seek independent advice such as from an estate planning attorney or elder law attorney to be sure the policy is of value to you and what benefits you would actually receive.

Reference: The New York Times (Dec. 18, 2015) "Long-Term Care Insurance Can Baffle, With Complex Policies and Costs."

Please visit our website for information on estate planning.

Just How Healthy Are Elderly Baby Boomers?

The baby boomer generation may be living longer than previous generations but a real concern has arisen over health issues the generation may face.

As the last of the baby boomer generation becomes eligible for Medicare in 2030, the average life expectancy is expected to be an additional 20.1 years but health issues may present major challenges.

A recent study suggests that those elderly people who will live longer will do so in poorer overall health than the elderly people from previous generations. It appears, in part, this is because medical science has done such a great job of finding treatments for diseases that often kill people early, such as cardiovascular problems. As people will be living longer, however, they will get other diseases, such as cancer and Alzheimer's, in greater numbers.

The Bangor Daily News reported this story in "Baby Boomers are more likely to spend their last years in worse health than past generations."

This has important implications.

While an individual cannot know for certain whether he or she will be one of the people who live longer and suffer from disease, individuals can play it safe and plan ahead.

Baby boomers should consider getting estate plans that include powers of attorney and advanced health care directives so if they become sick or incapacitated, the people handling their affairs will have been chosen by them.

Reference: Bangor Daily News (Dec. 29, 2015) "Baby Boomers are more likely to spend their last years in worse health than past generations."

Please visit our website for more information on estate planning.

A Checklist for the Executor

Naming the right person as the executor of your estate is one of the hardest and most important decisions. Knowing what to do if you’ve been named an executor can feel overwhelming. Being named an executor is an honor – it means that someone trusted your judgment and your ability to handle complex tasks on their behalf. But it is also a complex responsibility, requiring a fair amount of time and energy. Some estates take years, even decades, to settle depending on the size and complexity of the estate.

If you are appointed executor of an estate, your first task, according to a recent Forbes article, “What an Executor of an Estate Needs to Do,” is to identify an experienced estate planning attorney who can guide you through the complex process of settling an estate.

When settling an estate, an executor is in charge of these basic functions:

• Locating, collecting, and being responsible      for the estate’s assets until they are distributed to the beneficiaries.
• Paying the decedent’s debts and estate      administration expenses.
• Handling tax matters, including filing      the decedent’s and the estate’s income tax returns and paying the income      taxes, if any.
• Distributing the remaining assets in      accordance with the terms of the will.

The financial responsibilities of an executor mean that he or she must make an investment analysis of all assets in the estate to determine which to sell and how the estate’s cash needs will be met. The majority of the administrative work in handling an estate is recordkeeping.

The executor must first arrange for his or her court appointment in probate court to obtain “Letters Testamentary,” which permits the executor to represent the estate to third parties such as banks and financial companies to collect, liquidate and distribute assets and other tasks. The executor must compile information about the decedent’s finances and then sell or divide certain assets among those named to receive them in the will or to pay taxes.

In addition, the executor must cancel the decedent’s credit cards, have utilities turned off and pay expenses such as rent, taxes and insurance premiums. Home repairs or maintenance may also be needed. The executor will also need to open an estate bank account to hold the collected assets. These funds are used to pay the bills.

An estate planning attorney can be a huge help with this process to ensure that everything is done right and that the decedent’s estate is settled in an efficient manner.

Reference: Forbes (August 26, 2015) “What an Executor of an Estate Needs To Do”

For more information on how to administer an estate plan, please visit our website.

Retirement Savings Options for Self-Employed

Unlike people who work for an employer and can set automatic deductions for their IRA accounts, self-employed people need to set up and contribute to retirement accounts. Two of the most frequently used accounts are the Simplified Employee Pension (SEP-IRA) and the Solo 401(k). Contributions to both are tax-deductible, allowing the entrepreneur to obtain tax-deferred growth and cut taxes.

Figuring out which retirement account is best for your circumstances will be easier after reviewing this article in Physician’s Money Digest, “Self-Employed Can Still Cut 2014 Taxes with a Retirement Plan.”It lists the pros and cons of each of these two accounts, along with a general description of each.

An SEP-IRAis similar to a traditional IRA in that the investment earnings grow taxed-deferred until they are withdrawn. However, a self-employed individual can save and deduct much more than the $5,500 ($6,500 if 50 and over) for contributions to a traditional IRA. SEP-IRA contribution limits are calculated as the lesser of 20% of net business income or $52,000 for 2014, $53,000 for 2015.

A Solo 401(k) is for self-employed individuals with no employees. Your spouse is not included in the employee count and is permitted to contribute to the plan if he or she is employed by the business. This 401k can be structured as a traditional 401(k) or as a Solo Roth. The maximum 2015 contribution is $53,000 or $59,000 for those 50 and older. The contribution includes (i) an annual employee deferral up to 100% of compensation or earned income for a self-employed individual (to a maximum of $18,000 and $24,000 if 50 or older), which allows some to contribute more to a Solo 401(k) than to a SEP-IRA; and (ii) an employer discretionary contribution of up to 25% of compensation as defined by the plan or 20% of earned income for a self-employed individual.

One advantage a 401(k) offers over an IRA is that you can borrow from a 401(k). If you opt for Solo Roth 401(k), there’s no deduction, but withdrawals are tax-free if you wait until you’re 59½. The plan lets you save much more than a Roth IRA. Another advantage for the Solo Roth 401(k) is that contributions aren’t subject to income limits (unlike the Roth IRA).

Which is better… a Roth or traditional IRA?It depends on many factors. If you expect to be in a higher tax bracket in the future, the Roth version may make more sense, but if your current tax rate is low, it might be better to forgo a deduction now in order to withdraw money tax-free when you’re in a higher bracket in the future. What’s nice is that it doesn’t have to be an “either-or” proposition: you can have both traditional and Roth 401(k) plans and divide contributions between them.

For most self-employed individuals, the SEP-IRA may be a better choice than a traditional IRA because the contribution limits are much higher. Also, deductions for traditional IRA contributions are limited by income for participants who are covered or whose spouse is covered by a retirement plan at work.

Talk to a qualified estate planning attorney to see how these IRA options may fit into your strategy.       

Reference: Physician’s Money Digest (August 27, 2015) “Self-Employed Can Still Cut 2014 Taxes with a Retirement Plan”

Please visit our website for more information on how to protect your retirement.

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.