Klitzman Law Group, PLLC

What Do You Do If Elderly Family Member Is Being Financially Abused?

Financial elder abuse is when a family member, caregiver, or another individual illegally or improperly uses an elderly person’s assets for their own personal gain without the knowledge or understanding of the elderly person. A recent article from The Sun Times News, “Elder Financial Abuse Can Be A Family Affair,” notes the coming “Great Wealth Transfer” of Baby Boomer assets could lead to a dramatic increase in elder financial abuse.

Even minor memory loss can be exploited by scammers and, sadly, family members. With nearly seven million Americans having moderate cognitive issues, the possibility of financial abuse is growing. Boomers live longer than any previous generation, translating into huge healthcare costs in post-retirement years. At the same time, their children and grandchildren face challenges, including student debt and high homebuying costs. The combination of these issues isn’t pretty.

A contributing factor is the increased misinformation about Medicaid, wills, trusts, guardianship and power of attorney. When seniors make their wishes known and formalize them through an estate plan and trusts to protect their assets, the chances of them becoming victims of exploitation can be minimized.

In many cases, isolation leads to vulnerability. One woman allowed her son’s ex-wife to move into her Colorado home to live with her elderly mother. The ex-wife fell victim to scammers herself and convinced the elderly mother to send two checks totaling $70,000 to two scammers, one claiming to be running a children’s mission in Nigeria and another rescuing animals in Malaysia. The elderly woman’s bank didn’t question the large checks, which it should have. The ex-wife also forged checks worth more than $10,000 on the elderly woman’s account. The promised caregiving never happened, and while the woman was arrested and prosecuted, the family will never recover the money as the ex-wife is unemployable—she was a bookkeeper.

The National Center on Elder Abuse suggests only one in 24 cases of elder abuse is reported to authorities. If abuse of any kind is suspected, it should be reported immediately to the police in the jurisdiction where the senior lives. Financial statements, bank statements, credit card bills, canceled checks and evidence must be provided. Even if you don’t have evidence, suspected abuse should be reported.

Families can be torn apart when heirs battle over inheritances. Two means of prevention are creating an estate plan by an experienced estate planning attorney, with trusted family members or professionals to serve as Power of Attorney and executor. The second is to maintain ongoing contact with the senior, if possible, in person and, if not, via phone calls, video calls and visits. The more involved you are with an aging person’s life, the better your chances of uncovering or preventing financial elder abuse.

Reference: The Sun Times News (May 8, 2024) “Elder Financial Abuse Can Be A Family Affair”

What Information Should Be in a Will?

While it’s clearly more fun to plan for a baby shower than to contemplate your own mortality, making arrangements for the eventualities of life as we age—including incapacity and, yes, our own passing—does bring peace of mind. It’s necessary for everyone 18 and older, says a recent article from BestLife, “The 10 Most Important Things to Include in Your Will, Experts Say.”

The reason is simple: if you are incapacitated and cannot speak for yourself regarding healthcare decisions or your financial life, you need someone to do so for you. This is as much a part of your estate plan as asset distribution.

Planning for incapacity includes having a Power of Attorney (POA) and possibly a lifetime or revocable trust. The POA assigns someone else to manage everyday financial matters. The Healthcare POA is used to designate someone else to make medical decisions on your behalf if you can’t do so. You’ll need to discuss these roles with the person or people being named to ensure that they are comfortable with the responsibilities. Be sure that your Healthcare POA knows your wishes regarding medical directives and will carry them out, even if they feel differently about your wishes.

Your Last Will and Testament is part of a group of documents, including the POAs mentioned above. A will is used to name an executor who administers your estate. The executor has a large task, including gathering information for all assets, filing final taxes and estate taxes, paying off debts, notifying family members and distributing assets. Your executor should be someone you trust and who has the financial acumen to take on all these tasks, as well as managing heirs who don’t always appreciate the executor’s responsibilities.

You’ll need backups for all the people in all roles. Let’s say you chose a respected friend of many years to be your executor. If they become ill or die themselves, who will oversee your estate? You need a second, or even a third, backup executor to be named in your will. The same goes for trusts. A successor trustee is necessary to be sure that your trust and its assets are in good hands.

Minor children or dependents are protected through a will that is used to name a guardian (and a backup guardian) for minor children. If no one is named, the court will decide who will raise your child(ren). Similar issues need to be addressed, such as when you would want your children to receive an inheritance—all at once or when they reach legal age. Could it be specific percentages based on age? Picking the right person and creating a plan will ensure that the children have a good life, even in your absence.

Keeping wills up to date is critical to ensuring that your wishes are followed at every stage of life.  Everyone involved should know where the original copy of the will is located. Some estate planning attorneys will safeguard your will, while others recommend keeping it at home in a fire and water-proof safe. Whichever route you take, tell your executor and family members where it can be found.

Discuss the use of trusts with your estate planning attorney. Using trusts can minimize the amount of your estate needing to go through probate, which can be time-consuming and costly.

Don’t neglect your furry or feathered friends. If your lifestyle includes companion animals who are dear to you, consider who would take care of them if you became incapacitated or died. You can use a pet trust to provide assets for their care and name a caretaker, so they don’t end up in a shelter.

Avoid family battles by including your wishes for personal possessions with special meaning in your will. Family heirlooms, artwork and jewelry are among the items families fight over. Spare your family this stress by naming them in your will or gifting them while you are still living.

Digital assets have become a part of our modern lives. Suppose you leave a list of accounts, usernames, passwords and specific directions for your wishes. In that case, your executor will need to be able to manage your digital assets, including financial accounts, photos, subscriptions, airline miles, email and social media accounts.

If you wish to leave assets to a charity, you can do so in your will or make gifts before you die. Speak with your estate planning attorney about how to bequeath assets to a charity, which should be done in alignment with your overall estate plan.

Reference: BestLife (May 3, 2024) “The 10 Most Important Things to Include in Your Will, Experts Say”

Are Charitable Remainder Trusts a Good Idea?

For many years, the Stretch IRA was used to leave assets to heirs very tax-efficiently. Then came the SECURE Act, according to the article “Charitable Remainder Trust: The Stretch IRA Alternative” from Kiplinger. The ability for IRA beneficiaries to take the smallest of RMDs (Required Minimum Distributions) annually and leave a large sum in the IRA to grow tax-deferred over their lifetimes was over.

The SECURE Act in 2019 brought significant changes, taking away a valuable tool from anyone who died after Dec. 31, 2019. The new rules require the entire amount in an inherited IRA to be withdrawn by the end of the tenth year of the original account owner’s death. These withdrawals are taxable, so instead of stretching the withdrawal out over an extended period, accounts must be emptied, and taxes paid within a relatively short period. Compared to the stretch, the Ten-Year Rule is, in a word, taxing. It's crucial to understand these changes and their implications.

There are exceptions to the rule for certain beneficiaries, including spouses and disabled individuals, non-spouse beneficiaries no more than ten years younger than the original account owner and a biological or adopted minor until they reach age 21. On their 21^st birthday, they have ten years to empty the account.

There are alternative strategies for IRA owners to consider to help heirs enjoy more of their legacy, which an experienced estate planning attorney will know. One is the Charitable Remainder Trust (CRT), which offers both tax benefits and charitable giving.

Start by designating a CRT as the beneficiary of your IRA. When you die, the assets will pass to the CRT. Since the CRT is a tax-exempt entity, the assets in the IRA continue to grow tax deferred. The CRT’s beneficiaries receive income distributions over a specified period. At the end of the CRT, any remaining funds go to a charitable beneficiary.

CRT beneficiaries may receive distributions over a much longer period than a direct inheritance or inherited IRA, which has a mandated 10-year distribution.

The CRT strategy is best for charitably minded people who would have donated to the charity regardless of the IRA restrictions. If this aligns with your values, it makes sense from an estate planning perspective. There are costs associated with setting up a CRT, which should be considered when considering the totality of your estate plan. Speak with your estate planning attorney to see if this makes sense for you and your family.

Reference: Kiplinger (April 19, 2024) “Charitable Remainder Trust: The Stretch IRA Alternative”

Does Your Retirement Plan Include Moving to a Lower Tax State?

People have long moved from high-tax to low-tax states. However, this movement increased during the pandemic and continues today. The response from high-tax states has become aggressive, especially in cases where people maintain a home in two states and try to pay taxes only in the less costly state. A recent Forbes article issues a clear warning: “Beware The Tax Traps Spring On Those Who Move In Retirement.”

These states levy a tax on income, estate and sales taxes based on where people make their legal domicile. However, determining where you live isn’t quite as cut-and-dried as people think. Tax departments in high-tax states have amped up their residency audits. When the system sees someone who once filed an income tax return as a full-time resident begins filing as a part-time resident or doesn’t file, the state wants to ensure that it’s not missing out on any revenue.

A residency audit is conducted. It may consist of a questionnaire asking about where the person lives, asking them to provide information about their lifestyle and providing details about the property they own in both states.

An aggressive state will search property records and other public records for evidence of ongoing connections to the state. Social media has become part of this information gathering, no matter how private people may set their profiles.

If you’ve moved for retirement or enjoy the benefits of living in two or more states, you’ll need to choose a state and prove your legally established residence in that state. Ideally, you’ll do this long before the residency audit arrives.

Did you already receive a letter from a state tax authority asking questions? Chances are the state has already begun investigating your status. The letter might include a questionnaire, an interview request, or both.

If you haven’t yet moved, consider how you’ll respond to these questions:

• Where do you vote?
• Where are your cars, boats, or other vehicles registered?
• Do you belong to a house of worship, and if so, where is it located?
• Do you have an estate plan, and what address does it show?
• Where do you own property, and how much time do you spend at each location?
• Do you belong to any social clubs – country clubs, bowling leagues, gyms, or community groups?
• If you own a business or are an employee, where is your business or employer located?

You’ll need to demonstrate where you live and whether you’ve truly cut ties with your prior state of residence. A final word of advice: don’t go into a residency audit unprepared or unrepresented. The possibility of paying taxes in two states should motivate you to make any necessary changes.

Another detail to consider when moving to retirement is that an estate plan made in one state may not be valid in another state. A local estate planning attorney in your new domicile should be consulted to review your will, power of attorney, healthcare directives and other state-specific documents to ensure they will be effective in your retirement home.

Reference: Forbes (April 23, 2024) “Beware The Tax Traps Spring On Those Who Move In Retirement”

Why Unmarried Couples Need Protection of an Estate Plan

Couples decline to marry for a variety of reasons. Some are pragmatic, such as protecting health insurance eligibility. Taxes are another reason, as is qualifying for government benefits, like Medicaid or needs-based student financial aid. However, a recent article from the Journal of Accountancy, “Forgoing marriage? Estate planning for unmarried couples,” explains why unmarried couples must protect themselves from life's unexpected but inevitable events.

There is an old saying that marriage is the cheapest estate plan available, and in part, this is true. Here’s what unmarried couples can do to protect themselves.

How are assets titled? Having the home titled as a joint tenancy/ownership with the right of survivorship protects both partners. If one partner dies, full ownership automatically switches to the other partner, with no need for court documents or other paperwork.

Beneficiary designations. Each partner should review the beneficiary designations on all applicable financial accounts and products. This includes life insurance, pensions, retirement accounts, and, if possible, bank accounts. If the couple doesn’t want to make each other joint owners of the bank accounts, see if they can be added as beneficiaries.

Cohabitation agreement. This document clarifies everything from financial responsibilities during and after the relationship, from who will care for a shared pet to the distribution of jointly owned property if there is a breakup. Think of it as a prenup for unmarried people.

Power of Attorney. This allows the partners to step in and manage each other's affairs if one should become incapacitated. It’s also effective if one person travels and needs the other partner to manage daily financial matters.

Advance Care Directive. This document states a person’s wishes about medical care if they cannot communicate on their own. It should include a Health Care Power of Attorney, allowing the partners to make medical decisions for each other. Without it, adult children, siblings, or parents will be the only ones who can make these decisions. This will also permit the partners to access personal health information for each other during an illness or an emergency.

Last Will and Testament. Distribution of property or assets not owned jointly takes place through the will. The will is also used to name an executor in charge of the estate and carrying out the instructions in the will, as well as a guardian for minor children. If there is no will, an unmarried surviving partner will have no control over any property or assets. Without a will, the laws of intestacy take control, and usually surviving children, parents, siblings and even distant cousins who are related by blood come before the unmarried partner.

Trusts. If the couple wishes to keep their possessions and distribute them privately, a trust can be created to own assets, with the trustee being one partner and the successor trustee being the other. Couples with minor children, shared real estate investments, or assets in more than one state may find using trusts more efficient than passing assets through a will. Assets in a trust are not subject to any instructions in a will, do not become public and do not go through probate.

A consultation with an estate planning attorney can provide unmarried couples with a clear path to protect each other for the rest of their lives. This is the peace of mind provided by an estate plan.

Reference: Journal of Accountancy (April 30, 2024) “Forgoing marriage? Estate planning for unmarried couples”

Prepare Now for Coming Changes to Estate Taxes

Anyone who wants to leave their estate to heirs needs to plan now so their wishes will be followed and, equally importantly, to minimize their estate’s tax liability. A recent article from The San Diego Union-Tribune asks, “Are you prepared for changes to estate tax laws? Here’s what you need to know.”

Because of the Tax Cuts and Job Acts of 2017, taxpayers who die in 2024 can pass up to $13.61 million federal tax-free to their heirs. In 2025, this amount will be adjusted for inflation. On January 1, 2026, the federal basic exclusion amount reverts to $5 million indexed for inflation. Many experts expect this to adjust to $6.5 to $7 million.

When calculating the total value of one’s estate, the IRS looks at all taxable gifts made while you are living, and all assets transferred upon your death. This includes the value of your home and its contents, retirement and investment accounts, life insurance not owned by an irrevocable trust, cash, annuities, boats, vehicles and bank accounts.

Estate planning must include tax planning. With the right planning, preserving the 2024 and 2025 higher exclusions may be possible through a lifetime gifting program. Let’s say the exclusion amount in 2026 is $7 million. You’d have to gift more than $7 million before January 1, 2026, to preserve the current exclusion amount.

Two years ago, in April 2022, the Treasury and IRS published Proposed Regulation Section 20.2010-1(c)(3) to limit certain types of gifts from qualifying for the current exclusion and restrict benefits of certain types of gifts if they were made within 18 months of the date of death. This regulation is still proposed and not final. However, you and your estate planning attorney must remember it during the estate planning process.

If making large, multi-million-dollar gifts is not possible without constraining the taxpayer’s lifestyle, there are other gifting strategies to use to take appreciating assets out of the estate over time. One way to do this is to make annual exclusion gifts every year. These are gifts that pass entirely tax-free. In 2024, a taxpayer could gift up to $18,000 per person to an unlimited number of people without paying any gift taxes.

Gifts to 501(c)(3) charities of any amount can be made tax-free with no gift or estate tax. This includes gifts made while you are living or after you have passed.

It is also permissible to pay an unlimited amount for tuition for an unlimited number of people, if the payment is made directly to the educational institution. These gifts may not include room, board, or fees. Similarly, one person can pay for another person’s medical expenses if the payment is made directly to the healthcare provider.

There are many ways to prepare for the coming changes to tax laws. What is right for one person may not be right for another, as everyone’s circumstances are unique. Discussing how to prepare for these changes with your estate planning attorney should take place soon, as it takes time to work out the details of a new estate plan and you can be sure estate planning attorneys will be very busy in 2025.

Reference: The San Diego Union-Tribune (April 30, 2024) “Are you prepared for changes to estate tax laws? Here’s what you need to know”

What Does an Executor Need to Do?

Being named an estate executor is an honor and a big task. It is an honor because being named executor means your family member or friend trusts you implicitly enough to put you in charge of their estate when they are gone. It’s also a big task, with many moving parts to manage, which is the topic of a recent article from Kiplinger, “Eight Steps to Take When Settling an Estate as the Executor.”

You may feel like you must accomplish all of the tasks as soon as possible. However, working through an estate takes time. As a fiduciary, the executor must prioritize the decedent's desires and the estate's interests.

Managing expectations for the executor and heirs. It can take anywhere from two months to five years to settle an estate, depending upon its complexity and how much planning has been done. There is always the brother-in-law who knows better than anyone else how things should be handled and how long it should take. Ignore this.

Death certificates. An early task in the process is working with the funeral home to arrange memorial services, burial, cremation, or whatever the decedent wanted. Request ten original death certificates, since the probate court and financial institutions will want original certificates, which may or may not be returned.

Where are the estate documents? To file for probate, you (or an estate planning attorney) will need the last will and testament, trust documents, titles for cars or boats, deeds for the home, etc. ou should also try to locate a letter of instructions or intentions. This is not legally binding but can provide more insight into the person’s wishes.

Make a list of financial institutions, life insurance, and other assets. After you’ve been an executor and seen how complicated it becomes when you don’t have this list, chances are good you’ll start creating one for your own executor. A list of all financial institutions where accounts are held, the name of a financial advisor, estate planning attorney, or CPA, and information about all insurance (life, health, car, auto, home, etc.) spares the executor from having to conduct a scavenger hunt to identify these assets. Start a spreadsheet or a handwritten notebook to track every step you take with these assets, from who you speak with, what is said, best contact emails and phone numbers, etc.

Contact Social Security and any pension custodians. You’ll need to notify SSA and pension companies to have payments stopped and any benefits paid to the estate.

Find digital assets. Here’s where it gets tricky. Traditional assets often turn up when statements are mailed. However, if all statements are being made through email, you’ll need to log into the person’s computer and start looking for accounts, including financial accounts, credit cards, subscriptions, loans, leases and recurring charges. You’ll also need to notify the three credit bureaus. Look for a computer file or a printout of all accounts with passwords, including social media.

Contact the HR department if the person was still working. If the person has passed, let the HR department know. You may need to do some paperwork concerning retirement plans, health benefits and compensation for unused vacation time. Let the financial aid office know if a minor child is away at college. The student might now qualify for assistance.

Don’t be averse to getting professional help. Talk to the person’s estate planning attorney, financial advisor and CPA. If your loved one died without making a will, you’ll need help managing the probate process and figuring out what, if any, debts need to be paid. The estate planning attorney will also help you navigate any estate taxes, both on a federal and state level.

Reference: Kiplinger (April 3, 2024) “Eight Steps to Take When Settling an Estate as the Executor”

What’s the Best Way to Pass the Family Home to Heirs?

One family wanted their daughter to have the home where she grew up. They gave it to her as a gift.  However, they continued to live in it until their deaths. With the help of an estate planning attorney, the process was handled outside of their will, according to a recent article from Newsday, “Wills, trusts, sales: How Long Island parents pass houses to kids.” This ensured that the house didn’t go through probate, which can be costly and time-consuming.

In a real estate market where prices and interest rates keep rising, parents are taking steps to keep their homes in the family, building generational wealth and creating a legacy of stability. However, how this is accomplished can have consequences, especially regarding Medicaid eligibility and taxes.

The best of circumstances is when parents can hand down a home they own outright, with no mortgage or a small mortgage. When property is transferred from one owner to another, the bank or mortgage lender can demand the full mortgage payment. While the parents could continue to pay the mortgage, the lender could still demand full payment once ownership transfers.

If the mortgage company decides to demand full payment, the mortgage cost could go up dramatically, since interest rates today are higher than they were ten years ago.

Leaving a home to a child in a will is the most common way to pass the house to the next generation. If the children decide to sell the house, the basis is the value of the house at the time of the parent’s death. Beneficiaries named in a last will and testament get a stepped-up basis. This means the capital gains the heir incurs are based on the home’s value at the time of the parent’s death. The value of the home when the children decide to sell could be far higher. However, the gain is erased for tax purposes for the heirs, which is a significant saving.

If children decide to keep the house for a while, they should get an appraisal or comparative marketing analysis to prove the home's value at the time of death. If the house is sold many years later, they must confirm this value to use the stepped-up basis.

If the house remains in the parent’s name while they are living, the children may face an issue if the parent needs to apply for Medicaid for long-term care. Medicaid could deny coverage if the house is in the applicant’s name, no spouse is living in the home and the applicant’s equity is higher than the current $1.071 million limit. Medicaid might still pay for long-term care if someone owns a home under the limit and is otherwise eligible. However, it could claw back money from the Medicaid patient’s estate after they die.

Gifting a house is another way to transfer ownership. Parents can sign deeds and gift the property.  However, this needs to be done with the lifetime federal gift tax exemption in mind. While the $13.16 million level is one most people don’t need to worry about, it’s a factor for wealthy people.

Other options for transferring a home include using revocable or irrevocable trusts and transferring homes by signing over a deed while retaining a life estate on the deed, which allows parents to remain in the home as long as they live.

The best way to transfer a family home to the next generation starts with consulting an estate planning attorney to review the options. Family dynamics, tax planning and Medicaid all need to be considered. Just as with all things concerning estate planning, the best plan is to put a plan into place long before it’s needed.

Reference: Newsday (May 2, 2024) “Wills, trusts, sales: How Long Island parents pass houses to kids”

What Is Expected from Social Security?

More than a third of Americans rely on Social Security for all or part of their monthly income. When created, Social Security was intended to serve as a safety net for the sick and indigent. However, it has become part of most American’s retirement budget. An article appearing in The Motley Fool asks the key question: “Social Security on Average Pays 40% of Workers’ Earnings in Benefits, but What Will You Get?

Social Security was meant to provide 40% of pre-retirement earnings for the average American wage earner. Some people get more based on their years of earnings, and others receive less. Figuring out how much you’ll get isn’t as complicated as you might think.

How does the Social Security Administration calculate your benefits? There are three key numbers used to calculate a worker’s benefits. First, how many years did you work to earn income? Income from other sources, like rental properties or investment accounts, doesn’t factor into the Social Security equation. It’s all about earnings.

The SSA looks at your 35 highest-income years. The lowest earning years are ignored if you worked more than 35 years. However, if you worked for less than 35 years, those years are treated as “zero-income” years and added to your benefit calculation.

The next number is how much money you earned during those 35 highest-income years.

Remember, you pay Social Security payroll taxes on the first $168,600 in 2024, so only this amount counts towards benefits. Every year has a ceiling at which point your income isn’t counted, and in past years, this number was lower.

Increasing your earned income increases your monthly benefits. It’s that simple.

The last of the three factors concerns when you begin receiving benefits. You’ll need to wait until your official “Full Retirement Age” or FRA to receive the full benefits determined by your birth date. Taking benefits too early could reduce them by as much as 30%. Delaying benefits is good if you can. However, it’s simply not a possibility for some people. Consider your health and financial situation to determine the best time to start taking benefits.

The government has a robust website called My Social Security Account that helps you fully understand your benefits. Simply create an account, and you’ll be able to see how much you have paid into the system and what you can expect to receive.

Why should you spend the time getting familiar with this information? One is obvious; you’ll want to plan your retirement budget with this information. However, another reason concerns your estate plan. How much money you’ll have to live on during retirement impacts how your estate planning attorney structures your estate plan. Will you leave anything to heirs based on your Social Security benefits? Will you need to have a trust created to protect assets?

Creating a holistic estate plan with an experienced estate planning attorney will address Social Security income and other retirement income sources, so you’ll know what you’ll have during retirement and what kind of a legacy you might leave to your family. Remember, legacies aren’t just about money.

Reference: The Motley Fool (April 19, 2024) “Social Security on Average Pays 40% of Workers’ Earnings in Benefits, but What Will You Get?