Oconee Estate Planning Blog

How Do You Survive Financially after Death of Spouse?

The financial issues that arise following the death of a spouse range from the simple—figuring out how to access online bill payment for utilities—to the complex—understanding estate and inheritance taxes. The first year after the death of a spouse is a time when surviving spouses are often fragile and vulnerable. It’s not the time to make any major financial or life decisions, says the article “The Financial Effects of Losing a Spouse” from Yahoo! Finance.

Tax implications following the death of a spouse. A drop in household income often means the surviving spouse needs to withdraw money from retirement accounts. While taxes may be lowered because of the drop in income, withdrawals from IRAs and 401(k)s that are not Roth accounts are taxable. However, less income might mean that the surviving spouse’s income is low enough to qualify for certain tax deductions or credits that otherwise they would not be eligible for.

Surviving spouses eventually have a different filing status. As long as the surviving spouse has not remarried in the year of death of their spouse, they are permitted to file a federal joint tax return. This may be an option for two more years, if there is a dependent child. However, after that, taxes must be filed as a single taxpayer, which means tax rates are not as favorable as they are for a couple filing jointly. The standard deduction is also lowered for a single person.

If the spouse inherits a traditional IRA, the surviving spouse may elect to be designated as the account owner, roll funds into their own retirement account, or be treated as a beneficiary. Which option is chosen will impact both the required minimum distribution (RMD) and the surviving spouse’s taxable income. If the spouse decides to become the designated owner of the original account or rolls the account into their own IRA, they may take RMDs based on their own life expectancy. If they chose the beneficiary route, RMDs are based on the life expectancy of the deceased spouse. Most people opt to roll the IRA into their own IRA or transfer it into an account in their own name.

The surviving spouse receives a stepped-up basis in other inherited property. If the assets are held jointly between spouses, there’s a step up in one half of the basis. However, if the asset was owned solely by the deceased spouse, the step up is 100%. In community property states, the total fair market value of property, including the portion that belongs to the surviving spouse, becomes the basis for the entire property, if at least half of its value is included in the deceased spouse’s gross estate. Your estate planning attorney will help prepare for this beforehand, or help you navigate this issue after the death of a spouse.

It should be noted there is a special rule that helps surviving spouses who wish to sell their home. Up to $250,000 of gain from the sale of a principal residence is tax-free, if certain conditions are met. The exemption increases to $500,000 for married couples filing a joint return, but a surviving spouse who has not remarried may still claim the $500,000 exemption, if the home is sold within two years of the spouses’ passing.

There is an unlimited marital deduction in addition to the current $11.7 million estate tax exemption. If the deceased’s estate is not near that amount, the surviving spouse should file form 706 to elect portability of their deceased spouse’s unused exemption. This protects the surviving spouse if the exemption is lowered, which may happen in the near future. If you don’t file in a timely manner, you’ll lose this exemption, so don’t neglect this task.

Reference: Yahoo! Finance (July 16, 2021) “The Financial Effects of Losing a Spouse”

Suggested Key Terms: Surviving Spouse, Estate Planning Attorney, Marital Deduction, Step Up in Basis, Joint Tax Returns, Form 706, Portability, IRA, Inherited, Beneficiary, Required Minimum Distributions, RMD, Roth, Principal Resident, Community Property

Do You Need a Revocable Trust or Irrevocable Trust?

There are important differences between revocable and irrevocable trusts. One of the biggest differences is the amount of control you have over assets, as explained in the article “What to Consider When Deciding Between a Revocable and Irrevocable Trust” from Kiplinger. A revocable trust is often referred to as the Swiss Army knife of estate planning because it has so many different uses. The irrevocable trust is also a multi-use tool, only different.

Trusts are legal entities that own assets like real estate, investment accounts, cars, life insurance and high value personal belongings, like jewelry or art. Ownership of the asset is transferred to the trust, typically by changing the title of ownership. The trust documents also contain directions regarding what should happen to the asset when you die.

There are three key parties to any trust: the grantor, the person creating and depositing assets into the trust; the beneficiary, who will receive the trust assets and income; and the trustee, who is in charge of the trust, files tax returns as needed and distributes assets according to the terms of the trust. One person can hold different roles. The grantor could set up a trust and also be a trustee and even the beneficiary while living. The executor of a will can also be a trustee or a successor trustee.

If the trust is revocable, the grantor has the option of amending or revoking the trust at any time. A different trustee or beneficiary can be named, and the terms of the trust may be changed. Assets can also be taken back from a revocable trust. Pre-tax retirement funds, like a 401(k) cannot be placed inside a trust, since the transfer would require the trust to become the owner of these accounts. The IRS would consider that to be a taxable withdrawal.

There isn’t much difference between owning the assets yourself and a revocable trust. Assets still count as part of your estate and are not sheltered from estate taxes or creditors. However, you have complete control of the assets and the trust. So why have one? The transition of ownership if something happens to you is easier. If you become incapacitated, a successor trustee can take over management of trust assets. This may be easier than relying on a Power of Attorney form and some believe it offers more legal authority, allowing family members to manage assets and pay bills.

In addition, assets in a trust don’t go through probate, so the transfer of property after you die to heirs is easier. If you own homes in multiple states, heirs will receive their inheritance faster than if the homes must go through probate in multiple states. Any property in your revocable trust is not in your will, so ownership and transfer status remain private.

An irrevocable trust is harder to change, as befits its name. To change an irrevocable trust while you are living takes a little more effort but is not impossible. Consent of all parties involved, including the beneficiary and trustee, must be obtained. The benefits from the irrevocable trust make the effort worthwhile. By giving up control, assets in the irrevocable trust may not be part of your taxable estate. While today’s federal estate exemption is historically high right now, it’s expected to go much lower in the future.

Reference: Kiplinger (July 14, 2021) “What to Consider When Deciding Between a Revocable and Irrevocable Trust”

Suggested Key Terms: Irrevocable, Revocable, Trusts, Incapacitated, Power of Attorney, Probate, Inheritance, Heirs, Beneficiary, Trustee, Successor, Pre-Tax retirement Funds, IRS, Grantor

Does Estate Planning Vary by State?

Estate planning laws vary greatly from state to state and understanding the difference could have a significant impact on whether your estate plan is valid. It is best to get this straight shortly after moving, says The National Law Review in the recent article “Updating Your Estate Plan: What Michigan Residents Need to Know When Moving to Florida.”

It’s not just people from Michigan who move to Florida who need to have their estate plans reviewed, if they are snowbirds or making a full-time move—it’s anyone who moves to another state, from any state. However, Florida’s popularity makes it a good example to use.

Florida restricts who is permitted to serve as a Personal Representatives under a will. The personal representative, also known as an executor, must be a descendent or ancestor of the decedent, a spouse, brother, sister, aunt, uncle, nephew, niece or descendant or ancestor of any such person or a Florida resident.

Florida doesn’t recognize “no contest” clauses in trusts or wills. It also does not recognize unwitnessed testamentary documents, which are handwritten documents even if they are in your own handwriting. Michigan may accept them, but Florida courts do not.

Florida also has a special set of laws, known as the Homestead laws, designed to protect a decedent’s surviving spouse and children. You may have had other plans for your Florida home, but they may not be passed to the people you have designated in your non-Florida will, if they don’t follow the Sunshine State’s guidelines.

Power of Attorney laws differ from state to state, and this can create huge headaches for families. In Michigan, the Durable Power of Attorney can be “springing,” that is, it is effective only upon incapacity. In Florida, once a Durable Power of Attorney is signed, it is effective. Florida may accept a DPA from another state, but Florida law will be applied to the agent’s actions, and restrictions will be based on Florida law, not that of another state.

As for estate planning documents concerning medical and financial decisions while you are living, these are also different. A living will names a person, known as a “Patient Advocate” in Michigan or a “Health Care Surrogate” in Florida, who is authorized to make decisions regarding end of life care, including providing, withholding, or withdrawing life-sustaining treatment. In Michigan, you need two doctors to certify a patient’s incapacity for non-life-or-death decisions. In Florida, only one doctor is needed.

Whether you are traveling north for a cooler summer or planning to leave a northern home before the winter arrives, meet with your estate planning attorney to understand how any and all of your estate planning documents will work—or not—when you are in another state.

Reference: The National Law Review (June 30, 2021) “Updating Your Estate Plan: What Michigan Residents Need to Know When Moving to Florida”

Suggested Key Terms: Holographic Will, Power of Attorney, DPA, Estate Planning Attorney, Living Will, Patient Advocate, Health Care Surrogate, Homestead Laws, No Contest Clauses, Executor, Personal Representative

What were Zsa Zsa’s Last Wishes in Her Estate Plan?

Zsa Zsa Gabor’s ashes were laid to rest in a prominent cemetery in Budapest alongside other famous Hungarian actors, writers and poets, in a ceremony where a gypsy band played. Zsa Zsa’s favorite yellow and pink roses were on display.

Wealth Advisor’s recent article entitled, “Zsa Zsa’s Last Wishes Achieved With Budapest Burial,” reports that she was born Sari Gabor into a wealthy Hungarian family. Zsa Zsa was named Miss Hungary in the 1930s. As World War II loomed, she and her sisters headed for America. She left behind her first husband, a Turkish diplomat.

Her last husband, Frederic Prinz von Anhalt, to whom she was married from 1986 until her death aged 99 in 2016, said that in her will she expressed a wish to end up in Hungary.

Von Anhalt said he carried an urn with three-quarters of Gabor’s ashes to London, then to Germany. From there, he traveled to Budapest, using a window of opportunity as border closures due to the coronavirus pandemic eased. The rest of her remains would stay in Los Angeles, he said.

“She was first class, she had her own seat, and she had her passport, everything there. It was her last trip, she always used to go first class, she had her champagne, caviar…”

“And then we arrived in Budapest … That is what she wanted and that is what she had in her last will. She definitely wanted to be in Budapest because her father is buried here too,” he told Reuters. Von Anhalt said Gabor wanted “a celebration of life, not a funeral.”

Gabor’s Hungarian cousin, Jozsef Gabor, said Zsa Zsa was a “Hungarian girl” in the United States. “She did a lot for Hungarians, be it for those who fled after the 1956 uprising, or during the polio epidemic, and she did not do those things because she wanted to get into the news,” he added.

Gabor, one of the last stars of Hollywood’s golden age, would address people as “dah-link” in her thick Hungarian accent. Along with her two sisters, Eva and Magda, she became a fixture on Hollywood’s social circuit in her prime.

Zsa Zsa was in more than 30 movies, including “Moulin Rouge” in 1952 and “Lili” in 1953.

By the 1970s, she began declining smaller roles, saying: “I may be a character but I do not want to be a character actress.”

Reference: Wealth Advisor (July 20, 2021) “Zsa Zsa’s Last Wishes Achieved With Budapest Burial”

Suggested Key Terms: Estate Planning, Wills, Letter of Last Instruction, Probate Attorney

What Does Cleveland Clinic Say about the New Alzheimer’s Drug?

When the drug first debuted, the Cleveland Clinic said it would not administer Aduhelm, the new FDA-approved Alzheimer’s medicine. However, the hospital system was promoting the unproven drug on its social media accounts.

Cleveland Clinic was the first major medical center to say it would not administer Aduhelm, and two hospital systems have followed the clinic’s lead. However, the Cleveland Clinic made a sudden change, as just two weeks ago, the clinic said that the drug offered “hope.”

Axios’ recent article entitled “Cleveland Clinic’s about-face on the new Alzheimer’s drug” reports that the hospital posted the article on Facebook (July) and on Twitter (June 29)— about a month after the FDA approved the drug. Each social media post said the treatment has been “a sign of hope” for the patient.

At the end of the article, a patient says: “There are people who could really benefit from this, so let’s give them the drug. We’d all like to take something that may be able to help us. Hope is hope.”

Babak Tousi, a neuro-geriatrician at the Cleveland Clinic, called the drug “a real turning point in the field of dementia.”

However, a footnote at the bottom of the article discloses that Dr. Tousi is a paid adviser to Biogen.

She has received $16,700 from Biogen and the drug’s co-developer Eisai since 2014, according to federal data.

Dr. Tousi also has received more than $25,000 during that time from Eli Lilly, which makes a competing experimental Alzheimer’s drug.

What they are saying: The Cleveland Clinic did not make anyone available for an interview, and calls to Tousi’s office went unanswered.

A Cleveland Clinic spokesperson said the article was about the trial, and “research is fundamental to our mission. We regularly provide updates on studies we are participating in.”

The Cleveland Clinic spokesperson did not address questions about the article being promoted after the FDA’s approval and that the article said the drug offered “hope,” even though there’s conflicting evidence about whether the drug works.

The spokesperson added, “We support continued research in this area, and when additional data become available, we will re-evaluate this medication for use in our patients.”

Reference: Axios (July 19, 2021) “Cleveland Clinic’s about-face on the new Alzheimer’s drug”

Suggested Key Terms: Dementia, Alzheimer’s Disease, Aduhelm

What Happens If You Inherit a House with a Mortgage?

Nothing in life is certain, except death and taxes, says the old adage. The same could be said about mortgages. Did you know that the word “mortgage” is taken from a French term meaning “death pledge?” A recent article titled “What happens to your mortgage when you die?” from bankrate.com explains the options for homeowners who wonder what might happen to their home, mortgage and loved ones, after they die.

When a homeowner dies, their mortgage lives on. The mortgage lender still needs to be repaid, or the lender could foreclose on the home when payments stop, regardless of the reason. The same is true if there are outstanding home equity loans or lines of credit attached to the property.

If there is a co-borrower or co-signer, the other person must continue making payments on the mortgage. If there is no co-signer, the executor of the estate is responsible for making mortgage payments from estate assets.

If the home is left to an heir through a will, it’s up to the heir to decide what to do with the home and the mortgage. If the lender and the terms of the mortgage allow it, the heir can assume the mortgage and make payments. The heir might also arrange for the property to be sold.

A sole heir should reach out to the mortgage company and discuss their options, after conferring with the family’s estate planning attorney. To assume the loan, the mortgage must be transferred to the heir. If the property is sold, proceeds from the sale are used to pay off the loan.

Heirs do not need to requalify for the mortgage on a loan they inherited. This can be a good opportunity for someone with bad credit to repair that credit, if they can stay current on the mortgage. If the heir wants to change the terms of the mortgage, they will need to qualify for a new loan and meet all of the lending institution’s eligibility requirements.

Proof that a person is the rightful inheritor of the property or executor of the estate may be required. The mortgage lender will typically have a process to specify what documents are needed. If the lender is not cooperative or balks at any requests, the estate planning attorney will be able to help.

If you own a home, it is very important to plan for the future and that includes making decisions about what you want to happen to your home, if you are too ill to manage your affairs or for when you die. You’ll need to document your wishes,

Reference: Bankrate.com (July 9, 2021) “What happens to your mortgage when you die?”

Suggested Key Terms: Mortgage, Inheritance, Will, Estate Planning Attorney, Executor, Co-Borrower, Co-Signer, Assets, Heirs, House, Homeowners

Can I Set Up a Trust for an Adult Child?

If you are the parent or guardian of an adult who depends upon you financially, estate planning is critical. When you can’t care for your child, an estate plan which includes funding and guidance protects your dependent and ensures that they will receive the care they need, reports Parents in the article “Wills and Trusts for Adult Dependents.”

First, you need a will. This fundamental estate planning document lets you be very specific about what you want to happen after your death. It also nominates guardians for minor and adult children and pets. Wills can be used to manage decisions that apply to everyone. If there is no will, the laws of your state and a court make all of the decisions, not you.

If you have dependents, the will lets you choose who you want to serve as a guardian for your children. If you are already the legal guardian of a dependent adult, the will can be used to name the person to take over for you. Choose guardians who are up to the responsibilities that come with caring for a dependent adult.

The will is used to manage assets after your death. However, in the case of a dependent adult, you may also need a Special Needs Trust. If you pass assets directly to a dependent adult and they are receiving certain government benefits, the inheritance may make them ineligible for benefits and services.

A Special Needs Trust allows you to earmark a certain amount of money for their care. An estate planning elder lawyer will be familiar with this type of trust and help you create it.

If your dependent adult does not receive any means-tested benefits but is not able to manage an inheritance, then a trust can be used to hold assets to be controlled by a trustee, who might also be a guardian or caretaker.

A will and trusts are central to a well-prepared estate plan. Working with an estate planning attorney will give you the opportunity to consider how you want to distribute assets while you are living and after you have died. It also gives you the opportunity to name a personal representative, or executor, who will manage your estate after your death and be in charge of making sure that your wishes, as expressed in your will, are followed.

Trusts are more complex than wills and allow for a greater degree of control over assets. The trust is a legal entity to benefit others, and a trustee is the person named to be in charge of the trust.

Bear in mind that anything passed through a will has to go through a court process known as probate. The will has to be validated and the executor has to be approved by the court. Any assets in the trust are already outside of your estate and do not go through probate.

Reference: Parents (July 7, 2021) “Wills and Trusts for Adult Dependents.”

Suggested Key Terms: Wills, Trusts, Estate Planning Attorney, Adult Dependents, Special Needs Trust, Personal Representative, Probate, Assets, Inheritance, Executor, Trustee

What Do I Need to Know about Second Marriage Estate Planning?

AARP’s recent article entitled “Remarried with Children? 5 Estate Planning Mistakes to Avoid” says that most  mean well and want their spouse to inherit their possessions when they die, then want their heirs to split what’s left when the spouse dies. Here are five mistakes to avoid and to prevent fighting and hard feelings after you are gone.

Mistake #1: Failing to change beneficiaries. This is one of the most common mistakes. An advantage of changing the name of the beneficiary, is that the money will go directly to the intended person, typically the surviving spouse, bypassing the probate process. Review all of your financial accounts to be certain that your spouse is designated the beneficiary, if that is your intention. You should also check all life insurance beneficiaries because these payouts also do not go through probate.

Mistake #2: Failing to change your will. A will states who gets the rest of the assets that you and your spouse accumulated during your lifetimes. Update your will to avoid handing your home to your ex-spouse. People on their second marriage usually decide that the surviving spouse gets all the assets, and upon the death of the second spouse, the remaining assets will be divided evenly among the children. However, this assumes that everyone will still be getting along in the future, and that your spouse, upon your death, will not write a new will that removes your side of the family from the estate. You should also plan in advance who will get important family items, no matter if their value is sentimental or otherwise. You do this with a codicil to your will or a letter of instruction to your executor.

Mistake #3: Treating all heirs equally. There is no law that says all children must be treated equally. There are many reasons why parents do not treat children equally, such as when there is a child with special needs. In that instance, you should talk to your spouse about how to ensure that child is protected, perhaps through an ABLE (Achieving a Better Life Experience) account or a trust. In some situations, a child may have an addiction or a gambling problem. Some parents will create a “spendthrift trust” which disburses money at regular intervals to the beneficiary and deters creditors from getting the money in the trust.

Mistake #4: Waiting until you are gone to give. If you are planning to leave money to your children, you might think about giving it to them now, rather than in your will. The IRS allows you to give up to $15,000 per person without having to pay the federal gift tax or deal with the IRS. Your spouse may also give the same amount.

Mistake #5: Not Using an Experienced Estate Planning Attorney. If you are older and on your second marriage, chances are that your life is not uncomplicated. Ex-spouses, blended families and comingled assets create complexity, as well as having a child with special needs or an aging parent. It is smart to invest the time and money in creating a comprehensive estate plan with the help of an experienced estate planning attorney.

Reference: AARP (July 9, 2021) “Remarried with Children? 5 Estate Planning Mistakes to Avoid”

Suggested Key Terms: Estate Planning Lawyer, Wills, Codicil, Intestacy, Probate Court, Inheritance, Asset Protection, Will Changes, Letter of Last Instruction, Probate Attorney, Estate Tax, Gift Tax, Unified Federal Estate & Gift Tax Exemption, ABLE Account, Spendthrift Trust

How Do I Spot Elder Abuse?

The Courier Tribune’s recent article entitled “Are you a victim of elder abuse?” reports that the biggest problem is that these thefts often go unreported.

The main reason why so much elder abuse flies under the radar and is not reported, is because the one doing the abusing is typically a family member.

Remember that financial abuse and theft are not the only forms of elder abuse. This crime also includes emotional, sexual and physical abuse, neglect and exploitation.

Emotional abuse can include threats, belittling and verbal attacks. It can be anything that causes mental distress and pain.

Exploitation can be fraud, undue influence over a senior’s assets and being pressured to sign papers he or she does not understand. This might be a power of attorney (POA) that gives a caretaker overly broad authority to abscond with a senior’s money or property.

One Texas county says the elder abuse reports are on the rise—a phenomenon seen across the U.S.— with self-neglect comprising the largest percentage of intake reports for older people, followed by financial crimes.

If you or a loved one sees themselves in any of those categories, speak to an elder law attorney and go to the National Center on Elder Abuse website (ncea.acl.gov).

If you or an elderly family member is being abused in some way, help is available.

In all states, there are professionals who are required to report suspicions of maltreatment.

Known as mandatory reporting, many states have a comprehensive list of professions who must take actions and file a report, such as chiropractors, occupational therapists, member of the clergy, attorneys, animal control officers, bank employees and many others.

Reference: Courier Tribune (July 11, 2021) “Are you a victim of elder abuse?”

Suggested Key Terms: Elder Law Attorney, Elder Abuse, Financial Abuse, Undue Influence, Power of Attorney

Do I Need Long-Term Care Insurance?

Women face some unique challenges as they get older. The Population Reference Bureau, a Washington based think tank, says women live about seven years longer than men. This living longer means planning for a longer retirement. While that may sound nice, a longer retirement increases the chances of needing long-term care.

Kiplinger’s recent article entitled “A Woman’s Guide to Long-Term Care” explains that living longer also increases the chances of going it alone and outliving your spouse. According to the Joint Center for Housing Studies of Harvard University, in 2018 women made up nearly three-quarters (74%) of solo households age 80 and over. Thus, women should consider how to plan for long-term care.

Ability to pay. Long-term care is costly. For example, the average private room at a long-term care facility is more than $13,000/month in Connecticut and about $11,000/month in Naples, Florida. There are some ways to keep the cost down, such as paying for care at home. Home health care is about $5,000/month in Naples, Florida. Multiply these numbers by 1.44 years, which is the average duration of care for women. These numbers can get big fast.

Medicare and Medicaid. Medicare may cover some long-term care expenses, but only for the first 100 days. Medicare does not pay for custodial care (at home long-term care). Medicaid pays for long-term care, but you have to qualify financially. Spending down an estate to qualify for Medicaid is one way to pay for long-term care but ask an experienced Medicaid Attorney about how to do this.

Make Some Retirement Projections. First, consider an ideal scenario where perhaps both spouses live long happy lives, and no long-term care is needed. Then, ask yourself “what-if” questions, such as What if my husband passes early and how does that affect retirement? What if a single woman needs long-term care for dementia?

Planning for Long-Term Care. If a female client has a modest degree of retirement success, she may want to decrease current expenses to save more for the future. Moreover, she may want to look into long-term care insurance.

Waiting to Take Social Security. Women can also consider waiting to claim Social Security until age 70. If women live longer, the extra benefits accrued by waiting can help with long-term care. Women with a higher-earning husband may want to encourage the higher-earning spouse to delay until age 70, if that makes sense. When the higher-earning spouse dies, the surviving spouse can step into the higher benefit. The average break-even age is generally around age 77-83 for Social Security. If an individual can live longer than 83, the more dollars and sense it makes to delay claiming benefits until age 70.

Estate Planning. Having the right estate documents is a must. Both women and men should have a power of attorney (POA). This legal document gives a trusted person the authority to write checks and send money to pay for long-term care.

Reference: Kiplinger (July 11, 2021) “A Woman’s Guide to Long-Term Care”

Suggested Key Terms: Elder Law Attorney, Medicare, Medicaid, Paying for a Nursing Home, Long-Term Care Planning, Long-Term Care Insurance, Medicaid Planning Lawyer, Social Security, Elder Care, Financial Planning, Estate Planning Dementia, Alzheimer’s Disease, Power of Attorney