“With wealth for millennials set to double in the next 20 years, it’s time to get over the awkwardness and have the conversation now.”
When is a good time to discuss your inheritance, taxes, and estate planning with your parents? How about never! However, by the same token, screaming at your sister in a fight over Mom’s Hummel figurines isn’t a pleasant thought either.
No matter how you look at it, this conversation will be uncomfortable. This is because it’s based on one ominous certainty: that the people we love are going to die.
However, the downside is that the average age at which most people will benefit is 61. The report also mentions that this huge transfer of wealth will further solidify societal inequality in our lifetimes. People usually marry those of a similar financial background. More than 80% of millennials who already own their home have parents who are homeowners. Compare that to 50% of non-home owning millennials who have parents who don’t own their homes.
For many individuals, this information won’t make much difference. The report stipulated that about 33% will have no property wealth to inherit, and those who do will discover that it arrives much too late to solve life’s biggest financial burdens, like the kids and the home mortgage.
Even so, it’s wise to discuss inheritance with your family, while the older generation is still living. This will decrease the risk of post-funeral family battles and establish definition and clarity regarding the parent’s wishes and plans. Yes, it’s awkward, but it’s the smart move.
Finances are frequently a forbidden subject in families. Approaching the topic of inheritance in the wrong way can be seen as disrespectful and pushy at best. At its worst, it can ruin relationships.
However, research like that from the Resolution Foundation may help start important discussions about inheritance now, before it’s too late.
“The Tenth Circuit overruled a district court decision that granted the trust that owns Hobby Lobby a $3.2 million refund. The refund claim was based on charitable contributions of appreciated property.”
Hobby Lobby describes itself as the largest privately owned arts-and-crafts retailer in the world, with more than 800 stores and 32,000 employees in 47 states, reports The Wealth Advisor in “Hobby Lobby Trust Loses $3.2M Tax Deduction.”
Hobby Lobby started as a home business by David and Barbara Green in 1970. They created the David and Barbara Green 1993 Dynasty Trust Agreement (DBGDT), with their son Mart named as the trustee. The Trust included a clause that it was intended to "carry out the mission of our family to serve the Lord."
Putting everything into the trust is a great estate planning strategy because future appreciation won’t be included in the Green estates. They might have used an "intentionally defective grantor trust" (IDGT), which would have avoided the income tax complications of fiduciary returns during their lifetimes. However, having the trust as a separate income tax entity has some significant advantages, like being able to distribute income to descendants based on current needs and a generous entity level charitable deduction. But there was an unexpected charitable deduction problem that gave rise to the litigation.
The beneficiaries of the trust are the descendants of the Greens, with one possible exception: "Any child or descendant who is born to persons out of wedlock shall not be considered as a "child" or "descendant" of such persons for purposes of this Trust Agreement.”
For 2004, DBGDT paid $8.4 million on its original return. There was $57 million included in income in flow through from the trust's 99% interest in Hob-Lob Limited Partnership, which is where most of the stores were. The refund of $3.2 million was based on increasing charitable deductions by $9.1 million to $29.7 million. Contributions by trusts are generally unlimited, but there’s a limitation based on Unrelated Business Taxable Income (UBTI). That wasn’t at issue, but rather it was the ability to take deductions at fair market value.
A charitable deduction by an individual will typically be based on the fair market value of the property. In this case, there were three properties, but the bulk of the appreciation was contained in one of them in Virginia, which was donated to the National Christian Foundation. The jury found the property to be worth $28,500,000. The property had been acquired less than a year before, with a basis of less than $11 million.
The IRS argued that charitable deductions for trusts are limited to basis, because the trust's charitable deduction is from gross income, and the inclusion of unrealized appreciation in income is questionable. The district court ruled in favor of the trust, but the Tenth Circuit did not buy in.
The Court of Appeal found the IRS’s arguments unpersuasive and said that the district court misconstrued the statute, relying in part on §642(c)(1)'s use of the phrase “without limitation.” The Supreme Court held that the phrase “without limitation,” as used in the predecessor statute to §642(c)(1), was intended only to make clear that the percentage limits outlined in §170 that apply to charitable deductions made by individuals and corporations do not apply to charitable deductions made by estates and trusts. The Tenth Circuit said that presumably the same holds true for §642(c)(1). Thus, §642(c)(1)'s use of the phrase “without limitation” can’t be construed as a signal by Congress to authorize the extent of the deduction sought by the Trust in this case.
The district court also relied on a Supreme Court decision for the proposition that charitable giving should be encouraged and thus, that §642(c)(1) should be construed in a broad manner. But the Tenth Circuit said this statement was made solely in the context of deciding whether the authorized deduction should be limited to amounts “paid from the year's [gross] income.”
Finally, the district court concluded, in part, that because §170 in certain instances allows individuals to claim a deduction for the fair market value of donated property, it’s okay to interpret §642(c)(1) in the same way. Not so. The language of §170 expressly discusses the fair market value of donated real property, the court said, whereas §642(c)(1) merely refers to gross income and does not otherwise incorporate §170's discussion of the fair market value of donated real property.
If Congress intended for the concept of “gross income”, in this instance, to extend to unrealized gains on property purchased with gross income, it would’ve said so, the Tenth Circuit held.
If this had been an IDGT, there wouldn’t have been a problem using the fair market value, although there would have been a 30% limitation to deal with, which might have been a problem for the Greens, who are committed to being very philanthropic.
This means determining the person who will look out for your best interests, if you are unable to speak. In short, it involves naming someone you trust as your medical power of attorney.
A living will, or advanced care directive, are important documents in your estate plan. However, you also need a medical power of attorney to help ensure that you are getting the kind of care you would want. A medical power of attorney, sometimes known as a health care power of attorney, designates the individual(s) you would want to make health care decisions in your stead, if you’re unable to communicate. This is your health care agent or representative.
Unlike an advanced care directive or living will, your health care agent can make decisions for you when your incapacitation isn’t life threatening.
If you don’t have a valid power of attorney designating your official health care agent, most likely either your spouse, an adult child or parent will be asked to make medical decisions on your behalf. This depends on the state in which you live and your circumstances.
Appointing a medical power of attorney is the only way to be certain the person you feel most comfortable with, is in charge in case of an emergency.
When you choose your representative, make sure he or she is willing to take on that responsibility. You should also name an alternate representative, if your primary person is unavailable. Be certain that he or she is comfortable in abiding by your wishes and relaying that information to your doctor.
Ask your estate planning attorney to complete the correct forms for your state of residence and have them notarized and/or witnessed.
“At a news conference on Tuesday, the HaysMed Foundation announced that the estate of Bob Schmidt, local businessman and community leader, included a $500,000 gift to the Foundation.”
The HaysMed Foundation in Hays, Kansas, recently announced the receipt of a $500,000 gift to the Foundation from the estate of Bob Schmidt.
Schmidt was a local businessman and community leader.
Co-executor of the estate and attorney for Schmidt, Joe Jeter, spoke about the generosity of Bob and Pat, his wife.
“Throughout their lifetimes, Bob and Pat Schmidt were generous donors to charities, foundations and building projects, not only in Hays but throughout the region,” Jeter said. “HaysMed played an important role in the lives of Bob and Pat. They both understood the need for a medical center in our region that offered not only primary healthcare but specialty care, particularly in cancer.”
The Dreiling/Schmidt Cancer Institute at HaysMed was named in recognition of the significant donations received from the Leo J. and Albina Dreiling Charitable Trust, along with the Robert E. and Patricia A. Schmidt Foundation. The Bickle/Eagle Health Complex was also named in honor of contributions made by the Schmidts and their close friends, Don and Chris Bickle of Hays.
Schmidt served on the Hays Medical Center Board of Directors and the Foundation’s Board. He was a Director Emeritus at the time of his death.
HaysMed President and CEO Eddie Herrman expressed his appreciation for the bequest in Schmidt’s estate plan.
“Through the generous and thoughtful estate planning by Bob and Pat, their bequest will be added to the Robert E. and Patricia A. Schmidt Endowment at the HaysMed Foundation,” Herrman said. “This endowment is permanently invested, and the income will provide unrestricted funding for equipment and other special projects at the medical center. Bob and Pat’s legacy of giving will continue in perpetuity to benefit the healthcare needs of our families and friends in western Kansas.”
The Chairs of the Powerful Technology Campaign announced that nearly $2.8 million had been received in gifts and pledges towards the $3 million goal prior to the Schmidt estate gift. The addition of the Schmidt bequest raises the current total to $3.3 million. The Foundation will continue to pursue donations for the Campaign that are essential in assisting with the acquisition of the new CT scanner, patient monitors, and cath lab equipment.
“Kansas Attorney General Derek Schmidt and the district attorneys for Johnson and Sedgwick counties have endorsed a proposal to include the infliction of physical injury, unreasonable confinement or unreasonable punishment in the state’s legal definition of criminal mistreatment of an elderly person.”
Three of Kansas’s most prominent law enforcement officers recently announced their commitment to support legislation during the current state legislature that would expand the definition of criminal mistreatment of an elderly person.
The Topeka Capital-Journal reported in “Prosecutors in Kansas to advocate for reform of state’s elder-abuse law,” that Kansas Attorney General Derek Schmidt and the district attorneys for Johnson and Sedgwick counties have endorsed a proposal to include the infliction of physical injury, unreasonable confinement, or unreasonable punishment in the state’s legal definition of mistreatment.
Current Kansas law prohibits financial abuse of an elderly person, but not physical abuse.
“As the population of senior citizens in Kansas continues to increase, we need to update our laws,” the attorney general said.
“It is important that our prosecutors have tools available to them to successfully prosecute those who take advantage of or abuse Kansas seniors.”
In 2015, Kansas had almost 400,000 residents who were 65 years of age or older.
The state’s elderly population is also expected to more than double in the next 50 years, according to a Wichita State University study.
Johnson County District Attorney Stephen Howe and Sedgwick County District Attorney Marc Bennett said they would ask state legislators to adopt the elder law reforms during the legislative session that has just begun.
“This legislative proposal will strengthen our ability to protect some of the most vulnerable members of our community and hold their abusers accountable,” Howe said.
“The decision to retire, isn't one to be taken lightly.”
If you're thinking that 2018 will be the year you bring your career to a close, be sure to consider these key items first, says The Motley Fool in the recent article, “Should You Retire in 2018?”
How are my savings? While there’s no magic number, the general rule says you should try to have 10 times your ending salary saved before you retire. Most retirees need around 80% of their former income to live comfortably. One savings tactic is to contribute to a 401(k). If you stay on the job a few years longer and max out during that time, you'll have extra cash in retirement and avoid tapping your nest egg sooner.
Full Retirement Age for Social Security? If you're planning to fall back on Social Security benefits in retirement, you'll need to think about whether retiring in 2018 will hurt you from a Social Security standpoint.
If you wait until your full retirement age to take benefits, you'll collect the exact amount you're entitled to, based on your work history without a reduction or boost. However, if you file for benefits early, you'll lower your payments by a certain percentage for each year you collect them before full retirement age.
If you delay taking Social Security past full retirement age, you'll accrue delayed retirement credits that give your benefits an annual 8% boost.
If you're thinking of retiring this year, calculate how your age might affect your Social Security payments, and make a smart decision based on that calculation.
Plans in place? While retirement is often thought of as a time to relax, travel and enjoy life, many seniors find themselves bored, restless and even depressed. Before you decide to retire this year, consider how you'll actually spend your time once you no longer have a job.
Retirement can be a fulfilling period of life, if you’re emotionally and financially prepared. But if that isn't the case, you should keep working until you have things mapped out, especially if you like your job and are able to keep doing it for a while.
“Unless you're very rich or very poor, you should be looking into all of the long-term care possibilities out there. Because of the costs and complexity involved, the choice isn't easy. But it is necessary.”
There is no easy way to plan for long-term-care expenses. According to the U.S. Department of Health and Human Services, 70% of those age 65 and over will need some sort of long-term care. Paying out of pocket won’t be possible for most, because the median annual cost of a private nursing room is $97,455.
Kiplinger notes, in its article, “The Impossible Reality of Long-Term Care Planning,” that the long-term care insurance industry is in flux, with many companies closing this part of their business because claims are much higher than expected.
While there’s no perfect, easy solution, you can consider long-term care insurance. The other option is to be very wealthy and pay out of pocket or try to qualify for Medicaid.
Most of us have a financial situation that could be ruined by the average long-term care event. The best bet is to transfer some of the risk to an insurance company. The issue then becomes determining the right amount. Many insurance agents recommend a monthly benefit that is aligned with the average facility cost. But given the high cost of long-term care insurance, it should be used to fill a gap, not cover the entire expense. Don’t reach to buy a policy you can barely afford today, because premiums can skyrocket.
As far as the type of policy, traditional long-term care insurance is the easiest to understand and the type everyone bought until a few years ago. While you’re covering a big risk from both a likelihood of need and a dollar perspective, it’s expensive.
The life insurance industry recently introduced a hybrid universal life insurance with long-term care riders. This is permanent universal insurance with flexible premiums. “Riders” are like guarantees. In effect, these are policies with set periods for the premium. You can pay for them all up-front or over time. Premiums are guaranteed not to rise, and if you don’t use the insurance, it will pass to the next generation as a death benefit. However, the death benefits are lower than they would be without the long-term care part, and the monthly benefit amounts are typically lower than they would be for the same amount in a traditional policy. Some will take this tradeoff for the certainty of knowing the amount of their premiums.
This insurance isn’t easy to get: there’s a standard life insurance exam plus a memory test. If you have health or cognitive issues, an annuity with a long-term-care rider may be the only option.