Ken Kossoff - Estate Planning Blog

After College and Before Their First Apartment: A Time to Enjoy Your Almost-Grown Kids

The number of college graduates who find themselves living with their parents has grown by 8.8% in the last decade, according to an analysis of census data by the online real estate company Zillow. The young adults in your family may find moving home, even temporarily, a bit constraining after college life.  However, chances are they’ll be out of the house before you know it.

Kiplinger’s recent article, “Your Kid Is Moving Back Home? How to Make the Most of It,” says that most families want to build cohesion as members mature. However, it gets increasingly tough as families grow and disperse. When your college graduate moves home, use the opportunity to discuss and clearly state your family values. This can play a critical role in cohesion building—these core values serve as the foundation from which a family can form a shared purpose.

Without a shared purpose in a family, wealth often dissipates by the third generation. A shared purpose can unite, energize, and excite family members to do more, be more, contribute more, and behave in a certain manner. To prepare children, a unique and custom-tailored approach to their broader education is often helpful. This might include:

• Understanding their personal goals, hopes, and visions (“motivators”);
• Establishing their role and responsibilities in the family, community and society at large;
• Defining the effect they’d like to make and the purpose of their wealth;
• Learning to work collaboratively with others;
• Creating a financial decision-making process that is clear, well-thought-out and consistent;
• Understanding basic financial concepts, like investments, taxes, estate planning and credit; and
• Working with a trusted team of advisers.

This can be a time of bonding and growing your relationship with your kids, as they are now young adults. Enjoy the time you have with them, keep dialogues as open as possible and help them as they grow and stretch their wings.

Reference: Kiplinger (July 23, 2018) “Your Kid Is Moving Back Home? How to Make the Most of It”

Would a Joint Bank Account Work for You and Your Parents?

Like any other financial move that seems to make sense at first, a joint bank account could actually create more issues than it solves, warns NextAvenue in the article, “Should You Have a Joint Bank Account With Your Parent?”

A joint bank account can be a quick and easy way to help your parents pay bills and monitor their spending. With you monitoring their account, it’s also easier for you to see potential fraud. It allows an adult child to watch for unauthorized purchases or other issues with the account, like late fees or overdrafts. Another benefit is that in the event of your parents’ deaths, you will have immediate access to the account funds without the need to go through the probate process. This can be helpful when paying burial and other final expenses.

However, there’s plenty that can go wrong if you have a joint bank account with your parents.

First, your parents’ money won’t be safe from your own debts or liabilities. If something happens to you, like an accident, divorce, or bankruptcy, you’ll be putting your parents’ money at risk. Depending on the rights of survivorship on the account, all the money in the account could go directly to you when the last of your parents dies. That would disinherit your brothers and sisters.

If you make deposits to the account yourself, it may impact your parents’ eligibility for government benefits, like Medi-Cal. A joint account may also play a role in your child’s student financial aid eligibility because government and financial institutions can designate all the money in the joint account as your money—even if half of it is yours and half belongs to your parents.

There can also be tax implications to having a joint account. The IRS could deem this to be a gift, triggering a gift tax return, if the account is valued above $15,000 (from each parent for 2018). Likewise, if the parents and adult child open a new account together, and the parents deposit a large amount of money which the adult child later withdraws, it could arguably be seen as a gift.

Look at these options that might work better for you and your family instead of a joint bank account:

1. With signature authority on an account, you can pay your parents’ bills. However, you won’t be authorized to use the money in ways that aren’t for their benefit, and the money will be protected from your creditors.
2. With a durable power of attorney, an adult child can make financial decisions on the accounts that are titled in the parents’ names. The DPOA should be durable, so that it will still be in place, if the parents become incapacitated.  However, banks often are very reluctant to honor powers of attorney -- even when they are done on the bank's own forms.  
3. Your parents can create a revocable living trust, appoint you as co-trustee and open a bank account in the name of the trust. Talk with an estate planning or elder law attorney to see if this makes sense in your situation.
4. If you’re worried about your mom or dad’s mental capacity, you petition the court for conservatorship, which will let you to manage his or her finances. The conservator doesn’t own the funds, and the money can’t be garnished or seized to settle a conservator’s debts. However, it’s a difficult, complicated and costly process. All concerned may be better served to have a durable power of attorney in place, before a parent becomes incapacitated.
5. What if your larger concern is that funds will not be available after your parents die, because they’ll be part of probate? One way to address is by adding a ““Payable on Death” provision to their bank account. The funds will be paid directly to the account’s beneficiaries. A word of caution: speak with an estate planning attorney to be sure that this will not have an impact on any estate planning already in place.  Also recognize that a payable on death designation does nothing to gain access to funds for your parents' needs while they are alive.  

Reference: NextAvenue (July 17, 2018) “Should You Have a Joint Bank Account With Your Parent?”

What Should You Do When the Diagnosis is Just Plain Bad?

Once the initial shock of a bad diagnosis has passed, says CNBC in a recent article, “When end-of-life planning is suddenly a lot closer than you thought,” you’ll need to take action so that your loved ones aren’t left with an expensive and stressful situation. It won’t be easy, but it is necessary.

First and foremost, consider the implications to YOU and your loved ones of the progression of the disease with which you have been diagnosed.  Do you have enough assets to provide for care if your home?  If so, will that be medically feasible throughout the duration of your suffering?  If so, what will that look like as the disease progresses?  If not, what are your options?  What types of facilities are licensed to care for people with needs you do or will have given your condition? 

For many conditions, the progression of the disease can be predicted.  The failure to plan for the period when you won't die is failing to plan for what may be the hardest part of the journey.  This is precisely why my firm brought a medical social worker on staff to assist our clients in preparing themselves and their loved ones for the inevitable decline of progressive disease.  Take advantage of the burgeoning field of life care planning to make a very difficult time a bit easier on you and your loved ones.  

Now to the more standard financial and legal issues that most people discuss.  One way to get organized is to set up a ringed-binder notebook so you can easily add information. This will allow you to have all the information in one place. Therefore, your family won’t stress about trying to find things.

If you don’t have an up-to-date will, make a list of your assets, such as your financial accounts, real estate and retirement accounts.  You should also make a list of personal belongings and who you’d like to have them, because this isn’t spelled out in a will.

Next, be sure to designate beneficiaries on your financial accounts. Many brokerage firms allow you to attach transfer-on-death instructions to your non-retirement accounts. Transfer-on-death deeds can also be used on real estate in 27 states.  While that now is allowed in California, the well-intended but incredibly poorly drafted California law concerning transfer-on-death deeds is such a mess that using it is not at all a good idea -- unless you know for certain that your heirs will not want to sell your house for at least three years (which they will not be able to do because they cannot get title insurance until three years after death if you use a California's transfer-on-death deed), and do not mind personally assuming full responsibility for all of your debts.  

You should next list your liabilities, such as your home mortgage, loans, credit card debt, and your insurance policies for health, home, and autos. Create a contact list of people your family can reach for help, like your attorney, CPA, insurance agent, and financial advisor.

If you already have an estate plan in place, it can be a good idea to consult with an attorney experienced in estate planning, if you’re hit with some dire news. That may alter some of your thinking.

Keep all your passwords in the binder.  You should also monitor your pension and Social Security benefits, since there could be survivor benefits. Your binder should always include a copy of the previous year’s tax return.

Make arrangements for your pets, so that they do not end up in kill-shelters. If you own a home, create a list of all service agreements, like landscaping and utilities.

Finally, write a legacy letter, instructing your heirs as to what you would want for your funeral arrangements and how you would like your personal belongings to be distributed. Speak with your estate planning attorney to have this information incorporated into your will.

 

Reference: CNBC (July 18, 2018) “When end-of-life planning is suddenly a lot closer than you thought”

Why Estate Planning is So Important

It’s true—planning a summer vacation is far more fun that facing your own mortality and deciding who gets Aunt Susan’s soup tureen.  However, families who are left to clean up the mess, when a loved one doesn’t put an estate plan into place, including a will, power of attorney and healthcare directive documents, are the first to tell you, they’d rather you go on vacation after you prepare your estate plan.

Investopedia’s recent article, “4 Reasons Estate Planning Is So Important,” reminds us that estate planning isn't only for the rich. To show you that estate planning is necessary, look at these four reasons why you should have an estate plan to avoid potentially devastating consequences for your loved ones.

Keeps Your Wealth From Going To Unintended Beneficiaries. Estate planning helps middle-class families plan, in the event something happens to a family's breadwinner(s). If you don’t decide who receives your assets when you pass away, you won’t have any control as to who gets what. Without an estate plan, a probate court will decide who gets your assets, based on state intestacy law. This may not be what you would have wanted. A will can avoid this result.

Families with Young Children are Protected. If you're the parent of minor children, you need to name a guardian to be certain your children are taken care of the way you’d want. Without this fundamental provision in your will, the probate courts will make this decision.  Even with that provision, a court will have to issue an order officially appointing your nominated guardian, but in the vast majority of cases, California courts will appoint the person or persons you nominate.  

No Huge Taxes for Your Heirs. Estate planning serves to protect your family from unnecessary estate and income taxes. You want to minimize or eliminate all of their federal and state estate taxes or state inheritance taxes (though there are currently no California estate or inheritance taxes), as well as the income that tax beneficiaries might have to pay. Without a plan, these taxes can be significant.

Avoids Headaches and Messes for Your Loved Ones After You're Gone. Family fighting after a loved one dies is not uncommon, and it's another reason why an estate plan is needed. An estate plan will let you say who controls your finances and assets, if you become mentally incapacitated or after you die. It will also go a long way towards settling or preventing any family conflict and ensuring that your assets are handled in the way you wanted them to be.

Think of an estate plan as a gift you leave, your final message, to those you love from the grave. It’s your way of telling them you cared enough to address the really tough stuff. Contact an estate planning attorney and make your appointment without delay.

Reference: Investopedia (May 25, 2018) “4 Reasons Estate Planning Is So Important”

Here’s Big Five Medicare Mistakes to Avoid

One solution for navigating the process of choosing the right Medicare insurance and related plans is to sit down with a Medicare expert who can help you figure out what you’re eligible for, what plans are available to you and how to figure it all out.

Investopedia’s article, “5 Mistakes People Make When Enrolling in Medicare,” says it's important to do your research. In many instances, the best place to begin is learning what not to do.

Leaving Your Employment and Forgetting the Medicare Enrollment Deadline. If you’re 65 and still working, you might be receiving health insurance coverage from your employer. If so, you may not have to sign up for Medicare—which allows you to avoid the Part B premiums. However, if you happen to leave your job, you must enroll within eight months or you’ll have to wait for the next period of enrollment. That could result in you having to go without coverage for several months and perhaps having to pay penalties. Be sure to compare your employer’s plan to Medicare, to see which is better.

Failing to Enroll in Medicare Because You’re Not Getting Benefits From Social Security. If you’re receiving benefits from Social Security, you may already know you’re automatically signed up for Medicare Parts A and B once you turn 65.  However, if you’re putting off filing for Social Security benefits until you’re at retirement age or later, you’ll have to enroll in Medicare on your own, and you’ll have to sign up within a seven-month window: three months before the month of your 65th birthday and up to three months after that month. Since Part A is free for most, there’s no reason to wait.

Believing Your Medical Providers Will Always Have Coverage Under Your Medicare Advantage Plan. The Medicare Advantage (MA) plan can cover medical expenses and prescriptions.  However, to get the lowest possible co-payments, you might need to use the network of doctors and hospitals on the plan. Make certain that your hospitals, doctors and healthcare providers are covered every year. You can switch your plan from October 15 to December 7 during open enrollment, if you need to.

Going with the Wrong Medigap Policy. Purchasing a Medigap policy within six months of signing up for Part B lets you get any plan available in your area—even if you have a pre-existing medical condition. If you want to switch plans after that, many insurers may reject you or even charge you more because of your condition, so choose a plan wisely.

Failing to Purchase Part D. Medicare Part D covers prescription drugs, and you should look at your options during open enrollment because the costs and coverage may change every year.

Your Medicare plan should work together with your retirement income plan, your estate plan and your overall goals for the retirement lifestyle you want to enjoy.

Reference: Investopedia (February 8, 2018) “5 Mistakes People Make When Enrolling in Medicare”

What Exactly Does “Cost Basis” Mean to Heirs?

A recent article -- nj.com’s recent article asks, “How will your inheritance be taxed?”  -- discusses "cost basis" of inherited assets.  Although the article was focused on New Jersey, much of the discussion applies outside of New Jersey as well (i.e. in California).  Thus, it is worth summarizing for our readers.  

The article explains that typically, the fair market value on the date of the decedent's death is almost always more than the decedent's cost basis. As a result, it’s called a "stepped-up" basis and it’s possible the basis could be lower.

Because of the step-up in basis, if you sell the property right after death, there’s typically no income tax consequence. The gain you’d report on the sale is the sales price minus selling expenses, less the fair market value of the property at the date of death.

As far as investment accounts, the new basis of a security is calculated by taking the mean of the high and low price of the security on the date of death, rather than the close price. Let’s say that the decedent passed away over a weekend. The date of death value is determined by taking the average of:

• the mean of the high and the low value on Friday; and
• the mean of the high and the low value on Monday.

The financial institution will usually give you the investment’s value.

For taxable estates, rather than using the date of death, an alternate valuation date (the date six months after the date of death) can be chosen. In that instance, it must be used to value all of the assets as of  the date. You can’t elect date of death value for some assets and an alternate value for others.  The IRS also requires consistency in reporting. The basis utilized by the beneficiary as the value of the property received from the decedent, can’t be more than the value of the property reported on the decedent's estate tax return.

For any retirement accounts other than Roth IRAs, income tax must be paid when distributions are made to the beneficiary—like it would have had to be paid on distribution to the decedent. The value of the retirement account in the decedent's estate and/or passing to the beneficiary isn’t reduced by the income tax that will have to be paid on future distributions.

Here’s the difference: if the property is gifted to you, that’s when you obtain the donor’s basis in the property. If you sell the property after you receive it as a gift, it’s more likely that you will have to pay income tax on it, than if you inherited it.

If possible, sit down with an estate planning attorney well in advance of any gift or inheritance and map out the best way to handle the transfer of property.

Reference: nj.com (July 11, 2018) “How will your inheritance be taxed?”

SEC Task Force to Protect Elderly Investors in the Legislative Pipeline

The creation of an interdivisional task force at the Securities and Exchange Commission (SEC) to protect senior investors, could become a reality, if the legislation continues to move forward.

Investment News recently published “House introduces bill targeting elder financial abuse.” The article reports that Representative Josh Gottheimer, D-N.J., introduced the National Senior Investor Initiative Act of 2018 to create a team of staff members from the SEC's Division of Enforcement; Office of Compliance, Inspections and Examinations; and Office of Investor Education and Advocacy. They would be responsible for examining the challenges facing elderly investors, focusing especially on the issues seniors have with financial services providers and investment products.

The task force would coordinate with law enforcement authorities, federal agencies, other SEC offices and state regulators, and report its findings every two years to the Senate Banking, Housing and Urban Affairs Committee, as well as the House Financial Services Committee.

The group’s objective would be to recommend specific regulatory or statutory changes that would help senior investors.

The bill also calls for the Government Accountability Office (the “GAO”) to study and report on the economic costs of the financial exploitation of senior citizens, within a year of the bill's enactment.

The law has a sunset clause that will end the task force after 10 years.

The full House subsequently passed by a 406-4 vote, the JOBS and Investor Confidence Act of 2018, also known as House Financial Services Committee Chairman Jeb Hensarling’s “JOBS Act 3.0,” which includes a package of 32 bills.

This “package” included H.R. 6323, also known as the National Senior Investor Initiative Act of 2018, which requires the SEC to make the senior task force a reality.

In my view, to date, few legislative or regulatory initiatives have done much to reduce, let alone stop, the thriving industry of elder abuse, and the likelihood that this task force will have any real impact is quite low.  Nevertheless, any attention that the federal government and regulators focus on elder abuse is better than what we have today, and maybe it will result in some incremental progress.  

Reference: Investment News (July 10, 2018) “House introduces bill targeting elder financial abuse”

Legacy Planning for the Future

In the next few decades, the largest wealth transfer between generations in recent history will take place. This makes legacy planning more important than ever. It also presents an opportunity: the chance for one generation to thoughtfully share its ideas of what wealth means to a family, what the family values are and determine the best way to pass both wealth and values along to the next generation.

For those who have spoken with me in the past week or so, and asked a simple question such as “what’s going on,” you have heard about the spectacular annual conference of the Purposeful Planning Institute I recently attended, which focused heavily on these types of issues, and gave me some additional tools with which to help clients on the human side of planning for their wealth and, more importantly, for their family. 

In addition, Forbes’ recent article, “3 Principles For A Successful Family Legacy,” says that frequently the failure to maintain wealth through the generations is because of a lack of communication, education and trust among generations, not a poor investment strategy or a series of economic downturns. Families who are successful at transitioning wealth from generation to generation, stick to three core legacy planning principles.

Integrating planning. Legacy planning is a collaborative effort that requires open discussion with your wealth advisor, family members and your estate planning attorney. You should first define your goals—how you want to enjoy your wealth and how you want it to benefit your family members and your community. Your legacy is about providing financially for future generations, along with how you want to be remembered. Discussing your values and ambitions to your advisors and those important to you, can help you develop a detailed wealth plan that is consistent with your legacy goals.

The creation of a healthy family wealth culture. Create a healthy culture with a shared set of attitudes, values, goals and behaviors that characterize you as a family. This is vital for legacy planning. Those families who develop a healthy attitude regarding their wealth through open and honest dialogue, are typically more likely to see their wealth preserved from generation to generation.

Develop the next generation. When developing your legacy, be sure to help younger generations understand that thoughtful spending, investing and charitable giving can add to a sense of purpose.

To help move wealth and values across generations, consider a family meeting with your estate planning attorney. If your children are more involved with your wealth management and estate plan, they will be more able to protect your legacy. Age-appropriate transparency, as they are growing up, will make everyone more comfortable with the legacy process.

Reference: Forbes (July 13, 2018) “3 Principles For A Successful Family Legacy”

King of Pop Sends His Father a Clear Message Through His Will

Before Michael Jackson was the King of Pop, he and his brothers were trained and terrified by their father Joe Jackson. The senior Jackson, who died in late June at age 89, had no room for softness in his plan to create what became a show business dynasty.

People’s article, “Joe Jackson Was Left Out of Son Michael's Will: 'This Is a Decision His Son Made' Says Lawyer,” reports that his son Michael, the King of Pop, had a troubled childhood with Joe, marred by trauma. In numerous interviews before his death in 2009, Michael said that beatings were common—punishments for minor infractions or poor performances—and his mother was powerless to intervene.

Joe remained unapologetic and even defiant about getting physical with his kids. He told Oprah Winfrey in 2010, that he didn’t regret using a strap as a method for hitting.

Their complicated relationship continued to play out even after Michael’s death. When Michael’s will, signed in July 2002, became public seven years later, it was discovered that Joe was effectively written out of Michael’s fortune.

His father was not among the names in the “Petition for Probate” list, which outlined all of the beneficiaries and fiduciaries named in the will and in the Michael Jackson Family Trust. These included trusts for his children and his mother, Katherine, who was named as guardian of his kids. In fact, rather than his father as a backup guardian for his children, Michael instead listed fellow Motown legend Diana Ross.

Apparently, there was a bit of discord among members of the family, who did not all believe that Michael Jackson’s 2002 will was legitimate. However, even if that had been proven, the three previous drafts of the will would have been considered and none of them included Joe Jackson. His attempt to challenge the will after Michael died failed, and the judge was very clear that Michael Jackson’s wishes were to give nothing to his father.

Reference: People (June 27, 2018) “Joe Jackson Was Left Out of Son Michael's Will: 'This Is a Decision His Son Made' Says Lawyer”

No Will? Here’s What Your Heirs Will be Left With

With no will or a will that is found to be invalid, the laws of the state determine what happens to any remaining assets. In most cases, only spouses, civil partners or close relatives are legally permitted to inherit from a person who dies without a will. As many estate planning attorneys like to say, if you don’t have a will, the state has one for you—but you might not like it.

Influencive’s recent article looks at what happens if you die without a will. The article, “How Estate Planning Works for Those Who Die Without a Will,” explains that if a person dies without a valid will in place, things may get tricky pretty fast. Some common questions include: What becomes of a mortgage, if the mortgagee dies? What happens to a home, when the owner dies? What becomes of a person’s bank account? How is next of kin determined?

When a property owner with a mortgage dies, the promissory note allows the creditor to get paid from the estate. If the estate can’t fully repay the mortgage, the lender may begin the process of selling the property. When a sole homeowner dies, the home is transferred according to the will. If he or she dies without a will, it is transferred, according to state intestacy laws. Those laws determine who qualifies as next of kin and thereby inherits the estate.

If a couple jointly owns their home and were joint tenants when the first partner dies, the surviving tenant will inherit the other’s share of the property.  However, if the partners are tenants in common, the surviving partner doesn’t automatically inherit the other person’s share.

Typically, there are four primary requirements that form the foundation of a valid will:

• The will must have been drafted with testamentary intent;
• The testator must have testamentary capacity;
• The will must have been drafted without fraud, duress, or mistake; and
• The will must have been duly executed.

Married and civil partners inherit assets following the rules of intestacy, if they are legally married, or in a civil partnership, when they die. If they only have been living together without any formal union -- as many people do in California -- the surviving partner may be in a world of hurt as she/he tries to assert a claim against the legal heirs.  If you are divorced, you won’t inherit anything -- except if you still are named as a beneficiary of a qualified retirement plan.

To save your loved ones from the complex, expensive and stressful process that takes place when there’s no will, make an appointment with an estate planning attorney.

Reference: Influencive (July 10, 2018) “How Estate Planning Works for Those Who Die Without a Will”