Fong Law Group

Making an IRA Part of the Estate Plan

“You’re hoping to leave your loved ones a nice legacy and something that can enhance their financial security or help them achieve special goals. Have you considered how your individual retirement account (IRA) fits into your estate plans?”

Most people use their IRAs (Individual Retirement Accounts) for retirement income. However, a lucky group find themselves not needing the money from their IRA accounts. Instead, the assets become part of a legacy that they leave to heirs. That is why most IRA accounts include the name of a beneficiary who could inherit these accounts, when the owner passes away, reports the Oakdale Leader in the article “Leaving An IRA As An Inheritance.”

If no beneficiary is named, things can get complicated for both the estate and the heirs. If the IRA has a named beneficiary, but the will names someone else to receive the IRA, the beneficiary named in the IRA is the one who receives the asset. The named beneficiary in any account and especially an IRA, supersedes the will, in almost every instance.

Anytime there is a significant event, often called a “trigger” event, like a divorce, marriage or birth, the estate plan and all accounts with named beneficiaries should be reviewed. This is to ensure that the assets go where the owner wants them, and not to an unintended heir, like an ex-spouse.

There are special rules for spouses, where IRAs are concerned. Married couples typically name each other as beneficiaries on their IRAs. A surviving spouse has certain decisions to make, when inheriting an IRA. The IRA may be rolled over into a new or existing IRA in the spouse’s own name. Taking this route depends upon the age of the spouse and the need for the money.

Another option is to convert the inherited traditional IRA into a Roth IRA. However, taxes must be paid on the conversion. It is also possible to transfer the IRA assets into an inherited IRA. An estate planning attorney will be able to explain all the options and how they will work with the surviving spouse’s estate plan.

To maximize the growth of the IRA, children or grandchildren can be named as IRA beneficiaries. They will need to start taking annual Required Minimum Distributions (RMDs) immediately, and the distributions will be taxable. However, the amount of the RMD will be based on their anticipated lifetimes, so the taxable distributions will be relatively small. The money in the account will have many years to grow.

When children or grandchildren are named as contingent beneficiaries, a surviving spouse has the option to disclaim the IRA, which allows the children or grandchildren to inherit the IRA and enjoy the tax-free years of growth.

Many advisors counsel against naming an estate as a beneficiary, because it helps avoid probate and strict distribution time limits.

Reference: Oakdale Leader (February 19, 2019) “Leaving An IRA As An Inheritance”

Dementia and Guns: A Dangerous Combination

“Having a loved one with dementia can be scary. However, if you add in a firearm, it can also get dangerous.”

Here’s a worrisome statistic: 45% of all adults age 65 or older, either own a firearm or live with someone who owns a gun. That’s a lot of people and a lot of guns. Firearms are the most common method of suicide for people with dementia, says the article “Guns and Dementia: Dealing With a Loved One’s Firearms” from J.D. Supra.

A person who has a gun and suffers from dementia can put family members or caregivers in grave danger, if the person suffers from confusion and doesn’t recognize the people around them. An investigation conducted by Kaiser Health in 2018 looked at news reports, court documents, hospital records and public death records since 2012. They found more than 100 cases, in which people with dementia used firearms to kill or injure themselves or someone else.

What is the best thing to do? Talk about the guns before they become a dangerous issue, like the moment someone is diagnosed with dementia. This is not that far from the conversation that must take place about driving and dementia, or for that matter, driving and aging.

Frame the issue as one about safety for the person and their loved ones. This is also the time to discuss guns and estate planning. Have a conversation with an elder lawyer that addresses an enforceable agreement about who has access to the guns, where the guns should be stored and what factors will determine when it is time for the guns to be taken out of the home. The gun owner may not remember the agreement, when it is necessary for it to be enforced. However, having the agreement in place will give the family member or other trusted individual clear directions about what steps to take.

What should you do with the guns themselves? You can start by separating the guns from the ammunition. If possible, have the weapons completely removed from the house. Local and state laws about the possession and transfer of firearms vary. Therefore, the family should consult an estate planning attorney, who is experienced in the relevant laws. It may be necessary for a gun trust to be created, and for family members to undergo training and licensing, if the firearms are going to be maintained or transferred to them.

Reference: J.D. Supra (Feb. 12, 2019) “Guns and Dementia: Dealing With a Loved One’s Firearms”

Spare Your Family From a Feud: Make Sure You Have a Will

“If you die without a will, it can lead to conflict between your surviving loved ones, as they try to figure out how best to divide up your personal belongings and finances.”

If for no other reason than to avoid fracturing the family, as they squabble over who gets Aunt Nina’s sideboard or Uncle Bruno’s collection of baseball cards, everyone needs a will. It is true that having an estate plan created does require us to consider what we want to happen after we have died, which most of us would rather not think about.

However, whether we want to think about it or not, having an estate plan in place, and that includes a will, is a gift of peace we give to our loved ones and ourselves. It’s peace of mind that our family is being told exactly what we want them to do after we pass, and peace of mind to ourselves that we’ve put our plan into place.

A recent article from Fatherly, “How to Write a Will: 8 Tips Every Parent Needs to Know,” starts with the basic premise that a will prevents family squabbles. Families fight, when they don’t have clear direction of what the deceased wanted. That’s just one reason to have a last will and testament. However, there are other reasons.

A will is one way to ensure that your property is eventually distributed as you wish. Without a will, your estate is administered as an “intestate estate,” which means the state’s laws will determine who receives your assets after you pass. In some states, that means your spouse gets half of your estate, with your parents getting the rest (if there are no children). If the parents have died and there are no children, the rest of the estate may go to your siblings.

Most people—some studies say as many as 60% of Americans—don’t have a will. It’s hard to say why they don’t: maybe they don’t want to accept their own mortality, maybe they don’t understand what will happen when they die without a will, or perhaps they want to wreak havoc on their families. However, having a will is essential.

Don’t delay. If you don’t have a will in place, stop putting it off. Creating a will gives you the opportunity to effectuate your wishes, not that of the state. What if you don’t want your long-lost brother showing up just to receive a portion of your estate? If you don’t want someone to receive any of your assets, you need to have a will. Otherwise, there’s no way to know how the distribution will play out.

Be thoughtful about how you distribute your assets. If you have children and your will gives them your assets when they reach 18, will they be prepared to manage without blowing their inheritance in a month? A qualified estate planning attorney will be able to help you create a plan for distributing your wealth to children or other heirs in a sequence that will match their financial abilities. You may want to create a trust that will hold the assets, with a trustee who can ensure that assets are distributed in a wise and timely manner.

Every family is different, and today’s families, which often include children from prior marriages, require special planning. If you have remarried and have not legally adopted your spouse’s children from a previous marriage, they are not your legal heirs. If you want to make sure they inherit money or a specific asset, you’ll need to state that clearly in your will. If you are not married to your partner, they will not have any rights to your estate, unless a will is created that directs the assets you want them to inherit.

Parents of young children absolutely need a will. If you do not, and both parents pass away at the same time, their future will be determined by the court. They could end up in foster care, while awaiting a court decision. Battling grandparents may create a tumultuous situation. The court could also name a guardian who you would never have chosen. A will lets you decide.

Speak with an estate planning attorney to make sure you have a will that is properly prepared and follows the laws of your state. You also want to have a power of attorney and a health care agent named. Having these plans made before you need them, gives you the ability to express your wishes in a way that can be legally enforced.

Reference: Fatherly (Feb. 6, 2019) “How to Write a Will: 8 Tips Every Parent Needs to Know”

 

How Does a Life Estate Deed Work for an Executor?

“I am the beneficiary on my father's life estate deed of his home. He passed in October 2018. I am wanting to sell the house and have not filed a warranty deed to put the house in my name. Also, the life estate deed is via power of attorney because my father had Alzheimer's and at the time of the preparation of the life estate deed, would not have been considered able to make such a decision.”

What should this person do next? What is allowed and what is not? This complex question is addressed in My San Antonio’s article, “Life estate deed by agent must preserve estate plan.” First, let’s clarify what a life estate deed is, and why it was used in this person’s estate plan.

A life estate deed is a real estate ownership arrangement, by which the owner gifts or sells to someone, in this case to the beneficiary child, a “remainder interest” in a piece of real estate property. The owner of the property holds a “life estate” in the real estate, which includes the right to live in the property, use it and even profit from it, as long as the life estate holder is alive. The remainder interest holder, the heir, can’t interfere with the life estate holder’s use of the property, while they are living.

The remainder interest holder does have an ownership interest in the property, which is granted in the life estate deed. The IRS publishes a table so that the value of the remainder interest can be calculated. Here’s why that matters:

• If the remainder is gifted, then the IRS table determines the gift tax amount.
• If the property is sold while the life holder is alive, the proceeds are split with the remainder holder, with the value determined from the IRS tables.
• If the life estate holder needs to apply for Medicaid, the gift value of the remainder will cause a disqualification.

If the life estate holder decides to sell the property, permission from the remainder holder is required. The life estate holder may not have to pay taxes, but the remainder interest holder is likely to owe capital gain taxes, if the property is sold.

There is a special type of estate deed which changes the description above. Known as an enhanced life estate deed, or a “lady bird deed,” the owner is given the right to cancel the deed at any time. Since there is no value transferred to the remainder holder, there is no gift tax, no disqualification from Medicaid and the life estate holder can sell without needing to obtain permission from the remainder holder.

In the example above, the father did not sell his life estate interest, but retained it until the date of his death. The first challenge is proving ownership of the property. The original life estate deed should be proof of the ownership, but it must be combined with proof of death. The official death certificate will be needed to be presented to the title company, which will establish ownership under the original life estate deed.

The Alzheimer’s diagnosis creates another hurdle. Title companies are cautious when circumstances could be interpreted as self-dealing. They may ask if the agent had preserved the principal’s estate plan. In other words, did the father’s will give the house to the agent or to someone else? The agent may not act in a way that violates the existing estate plan. The durable power of attorney must be recorded with the county clerk for the life estate deed to be valid.

This is a situation where a qualified estate planning attorney will be able to ensure that proper measures are taken to protect the heir, as well as the estate.

Reference: My San Antonio (Feb. 11, 2019) “Life estate deed by agent must preserve estate plan”

 

Tips to Boost Your Tax-Free Income in Retirement

“Although workers are told to put every spare pre-tax cent into a traditional 401(k) at work, the reality is that once the time comes to tap that account for income in retirement, income taxes will follow.”

There is a bright side to the income taxes that will follow you into retirement. Create a pool of tax-free income, advises CNBC, by following the advice in the article “3 tips to help boost your tax-free income in retirement.”

Introduce yourself to the Roth IRA and the Roth 401(k). Unlike a traditional IRA, with a Roth IRA you pay taxes when you make your contribution to the account. The funds then grow tax-free over time and, as long as you meet certain conditions, there are no taxes on withdrawals. With a Roth IRA, there are none of those pesky RMDs (Required Minimum Distributions). However, there are withdrawal distribution requirements for a Roth (401)k.

Most employers offer Roth IRA and Roth 401(k) accounts, so there’s a good chance they are offered by your employer.

Roth IRAs are often offered along with their counterpart, the traditional 401(k). Between the two of them, it’s possible to save as much as $19,000 in 2019. For those workers who are 50 and over, you can add $6,000 as a catch-up contribution.

The power of the Roth 401(k) is the tax-free compounding that takes place over time. Don’t miss out on this, if you want to max out your tax-free savings.

There are two different types of Roth plans: the Roth 401(k) and a Roth IRA. Roth IRA plans have income limits. If your modified AGI (Adjusted Gross Income) is more than $137,000 for a single and $203,000 for a couple filing jointly, you aren’t allowed to make a direct contribution to a Roth IRA. However, there are no income caps for Roth (401)k. You can also save more for retirement in a Roth 401(k), compared to a Roth IRA. Roth IRAs are also subject to annual contribution limits: $6,000 in 2019, plus a $1,000 catch-up contribution, if you are over age 50.

Here are three steps to make your retirement savings more tax free:

Can you do an in-plan conversion? If your employer offers a Roth 401(k), you may be able to convert some of your traditional 401(k) savings to the Roth. This is called an in-plan Roth conversion. Just like a direct contribution to a Roth 401(k), it will be taxable. Therefore, make sure that you run the numbers before moving funds. You’ll be responsible for taxes on pretax principal and earnings. Don’t do it all at once, so that you don’t find yourself moved into a higher tax bracket.

What does your plan allow? If you’ve left your employer and have money in both a traditional 401(k) and a Roth (401)k, you might want to convert those accounts — if your retirement plan allows it.  Remember that you may not write a check from an outside bank account to add after-tax money to a Roth 401(k).

What’s your time-frame? Just as young workers are in the best position to save early and often, they are also in the best position to make the most out of Roth savings accounts of all types. It’s likely that younger workers have not yet reached their full career and earnings stage, so now is the best time to put money into a Roth 401(k). When incomes are higher, so will taxes on Roth retirement account contributions. If you’re close to retirement, there are other timing factors to consider, primarily Medicare. How much you pay for Medicare Part B and D, which covers doctor’s visits and prescription drugs, depends upon your modified gross income from two years ago. Do the conversion to a Roth at age 62, if you intend to file for Medicare at age 65.

Reference: CNBC (Feb. 10, 2019) “3 tips to help boost your tax-free income in retirement”

 

Retiring Business Owners, What’s Going to Happen to Your Business? 退休的商人，您的業務將會怎樣？ (中英對照)

“Owning a business can allow control over financial success, expanded creative freedom and an ability for growth that may be stifled in large corporations.”

When the business owner retires, what happens to employees, clients and family members all depends on what the business owner has planned, asks an article from Florida Today titled “Estate planning for business owners: What happens to your business when you leave?” One task that no business owner should neglect, is planning for what will happen when they are no longer able to run their business, for a variety of reasons.

The challenge is, with no succession plan, the laws of the state will determine what happens next. If you started your own business to have more control over your destiny, then you don’t want to let the laws of your state determine what happens, once you are incapacitated, retired or dead.

Think of your business succession plan as an estate plan for your business. It will determine what happens to your property, who will be in charge of the transition and who will make decisions about whether to keep the business going or to sell it.

Your estate planning attorney will need to review these issues with you:

Control and decision-making. If you are the sole owner, who will make critical decisions in your absence? If there are multiple owners, how will decisions be made? Discuss in advance your vision for the company’s future, and make sure that it’s in writing, executed properly with an attorney’s help.

What about your family and employees? If members of your family are involved in the business, work out who you want to take the leadership reins. Be as objective as possible about your family members. If the business is to be sold, will key employees be given an option of buying out the family interest? You’ll also need a plan to ensure that the business continues in the period between your ownership and the new owner, in order to retain its value.

Plan for changing dynamics. Maybe family members and employees tolerated each other while you are in charge, but if that relationship is not great, make sure plans are enacted so the business will continue to operate, even if years of resentment come spilling out after you die. Your employees may be counting on you to protect them from family members, or your family may be depending upon you to protect them from disgruntled employees or managers. Either way, do what you can in advance to keep everyone moving forward. If the business falls apart the minute you are gone, there won’t be anything to sell or for the next generation to carry on.

How your business is structured, will have an impact on your succession plan. If there are significant liability elements to your business, risk management should also be built into your future plans.

To make your succession plan work, you will need to integrate it with your personal estate plan. If you have a Last Will and Testament in a Florida-based business, the probate judge will appoint someone to run the business, and then the probate court will have administrative control over the business, until it’s sold. That probably isn’t what you had in mind, after your years of working to build a business. Speak with an estate planning attorney to find out what structures will work best, so your business succession plan and your estate plan will work seamlessly without you.

Reference: Florida Today (Feb. 12, 2019) “Estate planning for business owners: What happens to your business when you leave?”

“擁有一家企業可以掌控財務上的成功，擴展創意自由和增長能力，但這些都可能會被大公司所扼殺。”

當企業主退休時，員工，客戶和家庭成員所發生的一切都取決於企業主的計劃，Florida Today一篇題為“Estate planning for business owners: What happens to your business when you leave?”的文章, 任何企業主都不應忽視的任務就是因各種原因而不能再經營業務時會發生什麼。

挑戰是，如果沒有繼任計劃，州的法律將決定接下來會發生什麼。如果你創業的目的是為了更好地掌控自己的命運，那麼你就不想在你喪失能力，退休或去世時將會發生什麼由你所居住的州的法律來決定前路如何。

將您的業務繼任計劃視為您業務的資產計劃。它將決定您的財產會怎樣，誰將負責過渡以及誰將決定是繼續經營還是出售。

您的資產規劃律師需要與您一起審查這些問題：

操縱與決策。如果您是唯一擁有人，誰將在您缺席時做出關鍵決定？如果有多個業主，將如何做出決定？提前討論您對公司未來的願景，確保以書面形式，並在律師的幫助下正確地執行。

你的家人和員工會怎麼樣？如果您的家人參與了生意上的管理，您需要決定誰是掌舵人。盡可能客觀地了解您的家人。如果要出售業務，關鍵員工是否可以選擇買斷家庭股權？您還需要一個計劃，以確保業務在您擁有下和新擁有者的期間繼續運作，以保持其價值。

計劃改變動態。也許家人和員工在你在任期間相互容忍，但如果他們關係不是很好，那麼確保制定計劃以便業務可繼續運作，即使是多年的積怨在你死後爆發出來。您的員工可能依靠您來保護他們免受你家人的傷害，或者您的家人可能依賴您來保護他們免受心懷不軌的員工或經理傷害。無論哪種方式，盡可能提前做好讓每個人都可前進的方法。如果業務在您離開的那一刻就崩潰了，那麼就沒有任何東西可以出售讓下一代可繼續。

您的業務結構如何，將對您的繼任計劃產生影響。如果您的業務存在重大的負債因素，則風險管理也應納入您的未來計劃中。

要使您的繼任計劃有效，您需要將其與您的個人資產計劃結合。如果您在佛羅里達州的公司有遺囑，遺囑認證法官將指定某人來經營該公司，然後遺囑認證法庭將擁有該公司的行政控制權，直至該公司被出售。在你多年努力建立公司後，這可能不是你想要的情況。與資產計劃律師聯繫，了解哪種方案最有效，因此您的業務繼任計劃和資產計劃將在沒有您的情況下無縫運作。

參考: Florida Today (Feb. 12, 2019) “Estate planning for business owners: What happens to your business when you leave?”

Kids Grown Up? Protect Them with These Three Documents 子女都長大了？用這三份文件來保護他們 (中英對照)

“As a parent, you might not fully appreciate that when your child turns 18 years of age, at least in the eyes of the law, you no longer have certain inherent rights related to medical and financial details about your adult child.”

Without the right documents in place, you do not have the legal right to protect your own children, once they turn 18, says The National Law Review in an unsettling but must-read article titled “Three Critical Legal Documents Every Parent Should Get in Place Now to Safeguard Their Adult Children.”

There are only three documents and they are fairly straightforward. There is no reason not to have them in place. If your adult child was incapacitated by an accident or an illness, you would want to speak with the medical staff to find out how they are and what decisions need to be made. Whether you were making a phone call or arriving at the hospital, a nurse or doctor would not be permitted to speak with you about your own adult child’s condition or be involved with making any medical decisions.

It sounds unreasonable, and perhaps it is, but that is the law. There are steps you can take to ensure that you are not in this situation.

HIPAA Authorization Form gives you the authority to speak with healthcare providers. This is a federal law (Health Insurance Portability and Accountability Act of 1996) that safeguards who can access an adult’s private health data. HIPAA prevents healthcare providers from revealing any information to you or anyone else about a patient’s status. The practitioners could face severe penalties for violating HIPAA.

This is why you want to have a HIPAA authorization signed by your adult child and naming you as an authorized recipient.  This will give you the ability to ask for and receive information about your child’s health status, progress and treatment. This is especially important, if your child is unconscious or in an unresponsive state. The alternative? Going to court. That’s not what you want to be doing during a health emergency.

A Healthcare Power of Attorney needs to be in place, so you can be named his or her “medical agent” and have the ability to view their medical records and make informed decisions on their behalf. Without this (or a court-appointed guardianship), healthcare decisions will be in the hands of healthcare providers only. That’s not a bad thing, if you implicitly trust your child’s doctor. However, if your child is incapacitated in an out-of-town hospital with healthcare providers you don’t know, you will want to be able to make decisions on his or her behalf.

Note that physicians prefer a single medical agent, not a handful. The concern is that if time is a critical factor and a group of family members do not agree on care, it may compromise the healthcare services that can be provided. You can name multiple agents in priority order. A mother might be listed as the medical agent, and if she is unable or unwilling to serve, the second person would be the father.

The third document is a General Power of Attorney. This would give you the right to make financial decisions on your child’s behalf, if they were to become incapacitated. You would have the legal right to manage bank accounts, pay bills, sign tax returns, apply for government benefits, break or apply a lease and conduct activities on behalf of your child. Without this document, you won’t be able to help your child without a court-appointed conservatorship.

Keep in mind that these documents need to be updated every few years. If you try to use an older document, the bank or hospital may not accept them. Your adult child also has the ability to revoke these documents at any time, just by saying they revoke them or by putting it in writing. If you have an adult child living out of state, you want to have these documents prepared for your home state and their state of residence.

Finally, this is not a time to download forms and hope for the best. An estate planning attorney will know more specifically what forms are used in your state and help you make sure that they are prepared correctly.

Reference: The National Law Review (Feb. 11, 2019) “Three Critical Legal Documents Every Parent Should Get in Place Now to Safeguard Their Adult Children”

“作為父母，您可能不會完全明白，當您的子女年滿18歲時，您不再擁有您的成年子女有關醫療和財務的某些固有權利。但這是法律。”

沒有正確的文件，一旦他們年滿18歲，你就沒有合法權利去保護自己的子女，The National Law Review在一篇令人不安但必讀的文章中寫道：“Three Critical Legal Documents Every Parent Should Get in Place Now to Safeguard Their Adult Children.”

有三份相當簡單的文件你沒有理由不擁有。如果您的成年子女因意外或疾病而喪失能力，您可能希望與醫務人員交談，了解他們的狀況，以及要怎樣作出醫療決定。無論您是打電話還是直接到醫院，你都不被允許護士或醫生與您談論您的成年子女的病情或做出任何醫療決定。

這聽起來很不合理，但這就是法律。您可以採取一些措施來確保您不會遇到這種情況。

HIPAA授權表格授權您與醫療人員交談。這是一項聯邦法律(Health Insurance Portability and Accountability Act of 1996），規定誰可以取得私人醫療記錄。 HIPAA防止提供醫療服務的人向您或其他任何人透露有關患者的情況。違反HIPAA的人可能會面臨嚴厲的處罰。

這就是為什麼您希望獲得您成年子女的HIPAA授權，並將您命名為代理人。這將使您能夠取得有關您子女的健康狀況，進展和治療的信息。如果您的子女失去意識或處於無反應狀態，這一點尤為重要。替代方案？去法院。但這不是在緊急情況下你想做的事情。

醫療授權書需要到位，因此您可以被命名為他們的“醫療代理人”，以便可以查看他們的醫療記錄並且代表他們做出明智的決定。如果沒有這文件（或法院指定的監護權），醫療決定將由提供醫療服務的人負責。如果你信任你子女的醫生，這不是一件壞事。但是，如果您的子女在外地的醫院失去自理能力而那些提供醫療服務的人您並不認識，那您便希望可代表他們做決定。

請注意，醫生較喜歡單一的醫療代理，而不是多個。主要是因為如果時間是一個關鍵因素，而有些家庭成員不同意護理，便可能會影響醫療服務。您可以按優先次序命名多個代理。母親可被列為醫療代理人，如果她不能或不願意，第二個人可以是父親。

第三份文件是財務授權書。這將使您有權代表您的子女做出財務決定，如果他們失去自理能力。您將擁有管理銀行賬戶，支付賬單，簽署納稅申報表，申請政府福利，中斷或申請租賃以及代表您子女行事的合法權利。沒有這份文件，除非有法院指定的監管權，您將無法幫助您的子女。

請記住，這些文件需要每隔幾年更新一次。如果您嘗試使用較舊的文件，銀行或醫院可能不會接受。您的成年子女也可以隨時撤銷這些文件，只需說明他們撤銷這些文件或將其寫下。如果您的成年子女居住在外州，您希望在您的老家及他們所居住的州備好這些文件。

最後，現在不是下載表格和希望好事發生的時候。資產規劃律師將更具體地了解您所在州使用的表格，並幫助您確保這些文件是准確的。

參考: The National Law Review (Feb. 11, 2019) “Three Critical Legal Documents Every Parent Should Get in Place Now to Safeguard Their Adult Children”

The Dark Side of Reverse Mortgages for Seniors

“Also known as home equity conversion mortgages or HECMs, the most popular form of reverse mortgage allows eligible seniors age 62 and older to borrow up to 60% of their equity in their primary residences to pay for any expenses.”

It sounds great, even if you know that the reverse mortgages are known to be a little on the pricey side. However, unexpected circumstances can make this last-chance-to-save-your-retirement strategy backfire in a big way. Just ask Evelyn Boice, who is still wearing the same clothing that she brought to babysit her grandchildren last February. The Union Leader shares her story in the article “Silver Linings: Reverse mortgages for seniors–Lifestyle Maintenance or money pit?”

It seems that a flood at Evelyn’s retirement home caused by burst pipes led to a financial disaster. She’s 83 and didn’t expect to spend her last years living in an apartment attached to her daughter’s home. She’s got a chair, a TV, a bed and a kitchen stool. Everything she owned was destroyed in the flood.

She does have a lot of notebooks—stacks of confusing and incomplete financial statements loaded with indecipherable charges, including a $35 charge every time she calls the reverse mortgage company for help. She’s got threatening letters about being in default, while she waits for the mortgage lender to release an insurance check for $48,651 that she would use to salvage what’s left of her home.

When she called the insurance company, she heard an awful comment from someone at the office: “Why doesn’t she just hurry up and die?”

Boice took out a reverse mortgage in 2007 and used $50,000 of a $200,000 loan to make emergency repairs after Hurricane Wilma struck her home, blowing out windows and doors. However, the danger comes, when homeowners don’t have enough money to live on and maintain their homes, make essential repairs or pay for insurance and property taxes. That’s non-negotiable with a reverse mortgage. Any kind of default can lead to a cascade of new expenses for appraisals, property inspections and legal work to protect the lender. The lender has all the power and all the fine print.

Her case is an extreme example of what can go wrong. In 12 years, an unbelievable amount of paperwork has accumulated. One document shows that she owes $265,000, a number that keeps increasing. The monthly interest charges range from $100 to more than $1,000, and lump sums of more than $2,500, reflecting property taxes.

Boice is getting some help from the Claremont office of New Hampshire Legal Assistance. They are helping her work through the issue, but it may only come in the form of tax deferment or reductions.

Before taking out a reverse mortgage, seniors should look at all available options. They should also have an attorney review the contract from the reverse mortgage company. One small mistake can end up costing hundreds of thousands of dollars.

Reference: Union Leader (Feb. 2, 2019) “Silver Linings: Reverse mortgages for seniors–Lifestyle Maintenance or money pit?”

Think You’re Not in Favor of the Estate Tax? You’ll Be Surprised

“However, there’s one type of tax on millionaires that Americans have consistently been skeptical of: the estate tax. Polling typically shows that a majority of Americans favor repealing this tax completely.”

There are many headlines right now about proposals to increase taxes on wealthy people.  While this sentiment crosses party lines, the majority of people have generally always been in favor of wealthy Americans paying more taxes. However, for some reason, the estate tax has always been looked at as a bad tax that is unfair, observes this article titled “People like the estate tax a whole lot more, when they learn how wealth is distributed” from The Washington Post.

The use of the phrase “death tax” hasn’t done much to enhance the federal estate taxes’ likability. It is the tax on a person’s estate and is paid when the person dies. Many people feel like it’s an unfair tax, levied during a time of a family’s grief. However, a research study from Sweden has revealed some interesting responses to how people feel, when questioned about wealth inheritance. Sweden abolished its estate tax in 2004.

The study gave participants information about wealth inheritance in three bullet points:

• Inherited wealth represents about half of all wealth in the population.
• Those with the highest incomes inherit the most.
• A majority of Swedish billionaires have inherited their fortunes.

Others in the study were not given this information. The group who received this information were more likely to support the estate tax than those who did not. Of the people who did not receive these three facts, 25% supported the estate tax. Here’s the interesting thing: support among the group that did receive these facts stood at 33%, meaning the support for the tax was boosted by about 8 percentage points.

It boils down to this: people who do not know much about wealth distribution are likely to think an estate tax is not a good thing. The larger implication is that once people have a greater understanding of how wealth is distributed (or in this case, not distributed), they are far more likely to support an estate tax.

Similar studies in the U.S. have come to the same conclusion. People were asked if the estate tax should be abolished. Half of them were told that the tax effects only estates worth more than $5 million. In that group, support for keeping the tax was 46%. In the other half, people who were not told that fact, 27% didn’t want to keep the tax.

Generally speaking, most Americans don’t know as much about wealth distribution. One study revealed that Americans think the bottom 60% of the country owns a little more than 20% of the total wealth. The bottom 60% of this country owns 1% of the total wealth. Ninety percent of wealth is held by the richest 20% of families, with the richest 1% owning 40% of it.

Regardless of where you sit on the economic scale, and whether you think the estate tax should be abolished, your assets will be more likely to be passed to the next generation, if you have an estate plan in place.

Reference: The Washington Post (Feb. 6, 2019) “People like the estate tax a whole lot more when they learn how wealth is distributed”

Crypto Business Success Story Ends with Two Twists

“Gerald Cotten, the Canadian behind cryptocurrency exchange Quadriga CX, filed a will 12 days before his death listing substantial assets, according to court documents.”

The death of this 30-year-old cryptocurrency exchange founder, has exposed a key estate planning issue for anyone who owns digital assets and especially cryptocurrency: he did not leave a way for anyone to retrieve the cryptocurrency. He also died only 12 days after completing his will, as reported by Bloomberg in “Crypto Exchange Founder Filed Will 12 Days Before He Died.”

His unexpected death left $145 million in Bitcoin and other digital assets protected by his passwords and thorough security efforts. No provisions were made for anyone to retrieve the assets. His wife Jennifer Robertson was his sole heir and executor to his estate.

The Canadian press reported that a Nova Scotia Supreme Court Justice granted the company a 30-day stay on Tuesday to halt any lawsuits from proceeding at this time, and the Vancouver-based firm was granted protection from creditors.

The business was launched late in 2013, and users deposited cash or cryptocurrency through its online trading platform, storing digital currency on blockchain ledgers that are only accessible through a code. There were 363,000 registered users and 92,000 have account balances owing to them, in either cash or cryptocurrencies.

Cotten, the sole owner and director, did an excellent job of protecting his assets. This was fine while he was alive, but now presents a serious situation for account holders. He was very conscious about security. Everything, from his laptop, email addresses and messaging system, was encrypted. He was the only one who handled funds, coins and the banking and accounting side of the business. He also moved most of the digital coins into storage that was not connected to the internet, to avoid being hacked.

His wife can’t find his passwords or any business records for the company. Experts who attempted to hack into the system were only partially able to do so. Attempts to open an encrypted USB key have also failed. Some clients who claim that they are owed money, have retained counsel to represent them during creditor protection proceedings.

Cotten and his wife had no children. The assets that he left to her include several properties, an airplane, a yacht, a luxury car and his two pet chihuahuas. He died as a result of complications, due to Crohn’s disease.

This is an extreme example of what can go wrong, when digital assets are not made part of an estate plan. Most people today do have digital assets and need to address them in their estate plan to prevent the loss of both financial assets and sentimental items, like photos and videos.

Reference: Bloomberg (Feb. 5, 2-019) “Crypto Exchange Founder Filed Will 12 Days Before He Died”