Cheryl Chapman Henderson, LLC

Understand the Complexities of Remarrying Later in Life

“Remarrying later in life can create several complex financial, legal, and emotional matters that should be addressed.”

About a third of U.S. residents ages 15 and older have been married at least twice, according to the U.S. Census Bureau, and remarriage among Americans ages 55 and older is increasing. At the same time, younger people are becoming less likely to have remarried.

The Flagstaff (AZ) Business News recently published an article, “Financial Issues to Consider in Remarriages,” which suggests that you should be candid about your financial situation. Couples who are marrying for the second (or third) time frequently have financial baggage. You should eliminate issues later in the marriage by having open and honest discussions about assets, debts and obligations. Think about the following questions to get the talks started:

• What financial obligations are we bringing to our marriage?
• How are our credit scores?
• Do we have financial obligations (alimony, child support) to our ex-spouse(s)?
• Do we want to pool our finances?
• Where will we live?
• How will our marriage impact college financial aid for our children from previous marriages or relationships?

 It is also important to update life insurance, medical directives and beneficiary designations. If you don’t do this and you (or your spouse) die, part of your estate could go to a previous spouse. If you and your spouse have living wills, health care powers of attorney or healthcare directives, review them with your estate planning attorney to ensure that these documents reflect your current wishes.

You should also consider how remarriage affects your retirement planning, like the benefits your partner may be receiving. These can include a deceased spouse’s social security benefits or pension payments.

Discuss estate planning with your attorney because subsequent marriages can impact estate plans—a common concern among older couples. An older couple is more likely than younger newlyweds to bring property and other valuables into the relationship. They often may want these family valuables to go to their own children from a prior marriage.

Beginning again with a new partner is exciting, even when the new marriage introduces complex financial considerations. Talking to each other, as always, is the key to long-term success.

Reference: Flagstaff (AZ) Business News (October 26, 2017) “Financial Issues to Consider in Remarriages”

How to Begin the Money Conversation with Your Parents

“If your senior parents don't want to talk about money, here are some tips to start the conversation.”

If your mother is a widow and she lives alone, you may notice that she's beginning to have difficulty getting around and refuses to have help in the house.

nj.com’s recent article, “When your older parent refuses help,” says that as parents live longer, a tension can develop between the kids who want to be sure that mom and dad are safe, and the parents who want their independence.

For many, the only thing they want help with is remaining independent as long as possible. You can start your conversation there. Maybe there's a relative, neighbor, or friend who’s living alone but can't go home after surgery, because there’s no one to nurse him back to health or someone you know has an injury after a fall. You want to make sure this doesn't happen to you.

Create a plan that addresses who will provide the help and how you will to pay for it. First, while your parent's mind is clear, get a durable power of attorney which allows the parent to select who will help him with financial decisions, if such assistance is needed either temporarily or permanently. Ask an estate planning attorney to draw up this document and get a healthcare proxy. The power of attorney only applies to finances.  However, the healthcare proxy appoints a person who can talk to your doctors and gain access to your medical information.

Next, see what professionals in your area could be resources for you. Find a geriatrician in your area. That is a physician who focuses his or her practice solely on seniors. You should also look for a geriatric care manager who knows the resources in your area, and can help you make a plan—whether to bring a parent home from the hospital or to place him or her in a residential care setting.

You should also find a qualified elder law attorney. He or she is trained to identify the elder law issues in routine transactions, like real estate transfers or gifting. In many instances, they collaborate with an informal network of geriatricians, retirement planners and geriatric care providers.

Some parents will welcome this conversation, but many will not, and seniors with dementia can't have this conversation. Collect information before an emergency occurs.

Reference: nj.com (October 11, 2017) “When your older parent refuses help”

Get a Handle on Your 401(k) Today

“Workers over age 59½ may want to take advantage of the flexibility and choice of IRAs, by rolling their 401(k)s over while they're still employed with an ‘in-service rollover."

In the past, most American workers received a pension when they retired. It was an important monthly income stream paid by an employer. It lasted throughout a retiree’s life.

A recent Kiplinger article asks, “Why Wait Until You Retire to Take Control of Your 401(k)?”

According to the article, these days most people have to count on themselves to create an income stream in retirement. Very few people now have pensions. Instead, employers provide employees with retirement accounts, like 401(k)s.

The main benefit of a 401(k) is the potential for a company match. Companies let their employees contribute up to a certain percentage each month, which is matched by the company.  However, 401(k)s are also limited in investment options and there are internal costs that many people pay on their accounts.

It’s extremely important to create a plan for your own retirement. Part of this is to take control of your retirement accounts, so your savings are working optimally for your future.

When you’re in your 30s and 40s and are working and saving money, you have both time and earning capabilities. If the market takes a hit, you’ll have income coming in and time to make up the losses. But when you’re in your 50s and early 60s, you can’t afford a big hit on your investments. You don’t have time or earning capabilities on your side. Therefore, you must take a hard look your money and make decisions to begin eliminating risk from your portfolio.

If you’re 59½ years old and still working, you can roll money over from your 401(k) into an IRA—it’s called an in-service rollover. There are no income restrictions and only some very minimal fees. Here are a few reasons why you should consider an in-service rollover:

1. More control. A 401(k) has limited investment options, but if you roll your money into an IRA, you have the entire spectrum from which to choose.
2. Greater investment options. This lets you to allocate your money to match your specific needs in retirement.
3. More safe havens for your money. An IRA gives you many different options to help protect your investments from a market downturn.
4. A stretch IRA or multigenerational IRA. These let you automatically set up your account so when the owner of an account passes away, the beneficiaries can stretch their payout over their life expectancies to decrease the tax burden.

Today, it’s imperative that you assume control of your retirement accounts. Be proactive and build your own financial plan to get you successfully to and through retirement.

Reference: Kiplinger (May 2017) “Why Wait Until You Retire to Take Control of Your 401(k)?”

A Tax-Free Transfer from an IRA to Charity Can Make a Significant Difference in Retirement

“Besides benefiting the charity, you may save a bundle on income taxes, as well as stay below the income cutoff for some other taxes and charges.”

At 70 ½, you need to begin taking required minimum distributions from your retirement accounts.

You can make a tax-free transfer from an IRA to charity and have that count as the RMD. However, you may question the advantage of doing that versus withdrawing the money and making a charitable donation on your own. If you itemize deductions, doesn’t it have the same effect?

According to a recent Kiplinger article, “The Advantages of a Tax-Free Transfer From an IRA to Charity,” if you itemize, the tax deduction will appear to be identical. That is, at first glance.

However, the transfer is deemed to be a qualified charitable distribution, which keeps your required minimum distribution outside of your adjusted gross income. This can help you remain under the income cut-off for some other taxes and charges. In addition, for those who don't itemize their deductions, making the tax-free transfer can benefit from their charitable gift.

If you are required to take large RMDs from your retirement savings, you could be lifted into a higher premium level for Medicare. However, making a tax-free transfer of that RMD to charity keeps that sum from the Medicare premiums calculation. If your AGI plus tax-exempt interest income is more than $85,000 for singles or $170,000 if married filing jointly, you'll have to pay higher Medicare Part B premiums. That could be a substantial difference: the monthly premiums are about $109 per month for most people who have their premiums deducted from their Social Security payments or $134 for new Medicare enrollees. Those subject to the high-income surcharge must pay from $187 to $428 per month for Medicare Part B in 2017, depending on their income—plus an extra $13 to $76 added to their premiums for their Part D prescription-drug coverage.

A lower AGI can also help you lower taxes on your Social Security benefits. You need to look at your provisional income, which is your adjusted gross income, not counting Social Security benefits, plus nontaxable interest and half of your Social Security benefits. If your "provisional income" is less than $25,000 and you file taxes as single or head of household—or less than $32,000 if you file a joint return—you won't owe taxes on your Social Security.

If you’re single and your provisional income is between $25,000 and $34,000—or between $32,000 and $44,000 if married filing jointly—up to 50% of your benefits may be taxable. If it’s more than $34,000 if single or more than $44,000 if married filing jointly, 85% of your Social Security benefits could be taxable. Keeping your RMD out of your AGI can help reduce your provisional income.

Remember: if you're over 70 ½, you can transfer up to $100,000 tax-free from your IRA to a charity annually.  However, the funds must be transferred directly from your IRA to the charity to stay out of your AGI.

Reference: Kiplinger (May 12, 2017) “The Advantages of a Tax-Free Transfer From an IRA to Charity”

Planning Ahead with Long-Term Care

“The experiences of people we care about often deeply affect us.”

    As we think of our parents aging, we may also start to think about our own aging. Sometimes it takes a negative experience with a parent’s estate planning to motivate us to start planning for our own long-term care and end-of-life decisions.

WTOP’s recent article, “Preparing for old age: Long-term care, insurance and estate planning,” says the first step is to mirror the kind of conversations you held with your parents and have the same conversation with yourself.

Take a look at your vision for how you want to age and how you want to address your end-of-life issues, before you make any moves with your estate plan or insurance coverage. If you have a partner, first work independently on your own wishes, and then have a conversation together.

Working with aging parents can also make you think about your planning for long-term care insurance. Start the process when you’re in your 50s. The older you get, the greater chance you have of running out of time to save or of becoming uninsurable. Recent statistics published by AARP show that 52% of  those individuals who turn 65 today, will develop some form of severe disability requiring long-term care support. The average lifetime cost of long-term care in retirement tops $250,000.

 The next step is to review your current estate plan in light of your goals. Many individuals or couples who have a plan in place will forget about them, letting their documents become out-of-date. If you don’t have an estate plan yet, getting it completed should be a top priority. Your estate planning attorney is experienced at working with clients to understand their wishes and to create a plan that reflects those intentions.

Before executing a plan, you’ll need to calculate your total level of wealth, create a list of intended heirs and charitable organization names, as well as a divorce decree, if applicable. If you have minor children, you’ll need to designate guardians to act in your absence.  It is also necessary to decide whether those same people will manage the inheritance for your children or whether you want someone else to assume that responsibility.

Planning for aging means taking careful consideration of many components of your financial plan. Look at how your retirement lifestyle and legacy plan could be impacted by a long-term care need.

Reference: WTOP (May 3, 2017) “Preparing for old age: Long-term care, insurance and estate planning”

Some Facts about Elder Financial Exploitation

“As with those who have endured other types of abuse, victims of financial elder abuse often feel they can't or shouldn't seek recourse.”

Perpetrators of financial exploitation are frequently family members, caregivers or other people who are known and trusted by the elderly. This makes many seniors who are financially exploited, even more reluctant to come forward. Perpetrators often depend on this or pressure victims to keep quiet.

As Yahoo Finance recently posted in “What to Do If You or Someone You Love Has Been Financially Exploited,” betrayal by a family member or another trusted person is especially hard on those who are financially abused. Seniors who've been financially exploited, may feel shame and guilt. Consequently, they do not feel entitled to help or support, let alone to feel victimized.

The widespread nature of financial exploitation shows that it can happen to almost anybody. More states are trying to find ways to legally address financial exploitation and to better address and deter this abuse, as the population ages and an increasing number of seniors are vulnerable.

Most states criminalize financial elder abuse.

This means that, in addition to laws already in effect to prosecute theft, there are added penalties, which can be filed in financial exploitation cases involving seniors or vulnerable adults,  increasing the jail time for perpetrators.

Some states also now have statutes allowing older or vulnerable adults to sue specifically for elder financial exploitation. The states include Arizona, California, Florida, Oregon, Minnesota, Utah, Illinois and Washington.

A key feature of elder financial exploitation cases is that they allow victims to sue for multiple times the amount lost (usually two or three times the amount) and to recover attorneys' fees. This punishes perpetrators more and acts as a deterrent. This approach also encourages settlement of these cases. Awarding attorneys' fees is another incentive for seniors to secure legal representation.

Remember that the cost of financial abuse goes beyond the monetary loss. Victims and their families should access services, like counseling and case management, to help them heal after being financially abused.

Reference: Yahoo Finance (March 14, 2017) “What to Do If You or Someone You Love Has Been Financially Exploited”

Avoid This Common Estate Planning Mistake

“Most people don’t want to be a burden on their family or children. One of the best things you can do to accomplish this goal, is to get your estate planning in order.”

What if your spouse is ill and you meet with an estate planning attorney to organize your family affairs? The attorney drafts a trust document and a will, and you and your spouse sign it. That’s that. You think everything is fine. However, what if your spouse suddenly dies, and you discover that the accounts aren’t set up to transfer the way you both wanted. Oh-oh. Could this happen to you?

Trust Advisor’s recent article, “These Hidden Estate Planning Mistakes Can Have Horrible Consequences,” reports that it happens all the time.

For instance, a couple might be in their second marriage with no children in common. However, the wife has two children from her first marriage. She and her current husband had been together for 10 years, when she’s diagnosed with cancer.

When they see an attorney, they agreed that her assets would be divided one-third each to the husband and her two children. But most of her assets were in her company 401(k), and the beneficiary on the 401(k) was the husband. No one changed the 401(k) beneficiary designation to reflect the wife’s wishes. When she died, he tried to get the 401(k) to send one-third to each of her children, but it didn’t work. Her employer was legally required to distribute the account, according to the most recent beneficiary designation that they had.

In our example, the husband was a decent sort: he rolled the 401(k) into his own IRA, withdrew the two-thirds for the kids, paid the tax, and gave each of his second wife’s children their share. If they had properly updated the beneficiary form to add the children as direct beneficiaries of the 401(k), the tax cost would have been much less significant. It’s not an uncommon estate planning mistake.

If you have a will and trust, it’s important to note that these account titles and beneficiary designations supersede everything and anything that’s mentioned in your will and trust. If this isn’t set up right, it can mean some time-consuming and expensive maneuvering for your family.

If your accounts list only the husband or wife as the owner, the account titles need to be changed to reflect their trust as the owner. If the wife passes away before this is done, the accounts must go through probate.

Be sure there isn’t a dormant administrative nightmare waiting for your loved ones. Your retirement accounts, life insurance policies and annuities let you designate a beneficiary. Review these periodically and update them if necessary.

Reference: Trust Advisor (March 9, 2017) “These Hidden Estate Planning Mistakes Can Have Horrible Consequences”

These Are Two of the Biggest Estate Planning Misconceptions

“Although these are just two of the misconceptions regarding wills, they take on special significance because they relate to some of the most important assets owned by a person.”

There are several misconceptions floating around in estate planning, and the Pauls Valley Daily Democrat reviews some misunderstandings about wills in “More on estate planning myths.” Let’s take a look:

“I’m young, so I don’t need a will.” This is not true. One of the most important parts of a will for a young couple, is a provision that designates a guardian—the person(s) who will care for their young children in the event of their mutual death. This is rare,  although it does happen. To make matters worse, what if there’s a family fight for custody of your children? Make this selection so the court isn’t forced to select a guardian for your minor children, if the event arises. A will can give you peace of mind concerning the care of your children.

“I really don’t have much of an estate, so I don’t need a will.” This is also not true. Even if you don’t have young children, a will is essential for the distribution of your personal effects. Surprisingly, even some very large estates have been contested, simply because of disputes over small items.

Typically, large cash amounts can be resolved without difficulty because the details should be provided in the will. However, sentimental family items, like jewelry, family photographs, a valuable baseball card collection and other articles can become the source of conflict and lawsuits. A will can clarify your wishes.

An estate planning attorney will also advise you to use techniques like Payable on Death transfers, TOD deeds or other non-probate transfers that simplify and speed up most asset transfers after death, without probate. Nonetheless, it’s still smart to have a will prepared as a backup, in case you’ve forgotten to provide for the transfer of any asset.

The emotional and sentimental items owned by a person may be of great importance to his or her heirs. Failure to carefully describe your plans for distribution of those items at death, can frequently generate conflicts that are just as bad—and sometimes worse—as the conflict over monetary funds.

Reference: Pauls Valley Daily Democrat (March 1, 2017) “More on estate planning myths”

What’s Better: A Joint Tenancy or a Trust to Give a Home to a Child?

“When leaving a home to your children, you can avoid probate by using either joint ownership or a revocable trust, but which is the better method?”

In the event you decide to add your child as a joint tenant on your home, you’ll each have an equal ownership interest in the property. When one joint tenant dies, the other joint tenant owns the entire property. This is an option that has the advantage of allowing you to avoid probate.

A recent article asks “Is It Better to Use Joint Ownership or a Trust to Pass Down a Home?

This article, in elderlawanswers.com, explains that a disadvantage of joint tenancy is that creditors can attach the tenant's property to satisfy a debt. In such a case, if a co-tenant defaults on his or her debts, the creditors can sue in a partition proceeding to have the property interests uncoupled so the property can be sold, even over the objections of the non-debtor owner(s). What’s more, without a creditor issue, one co-owner of the property can sue to partition the property and can force another owner to move out.

Joint tenancy can also impact the capital gains treatment of the property. When you give property to a child, the tax basis for the property is the same price for which you purchased the property.  However, inherited property receives a step up in basis. This means that the basis would be the current value of the property. When you pass, your child inherits your half of the property—one half of the property will receive a step up in basis. However, the tax basis of the gifted half of the property will be the same as the original purchase price. If your child sells the home after the parent dies, he or she would have to pay capital gains taxes on the difference between the tax basis and the selling price. To avoid this tax, the child must live in the house for at least two years before selling it. When that happens, he or she can exclude up to $250,000 ($500,000 for a couple) of capital gains from taxes.

Revocable Trust

If you place the property in a revocable trust and name yourself as the beneficiary and your child as the beneficiary after you die, the property will go to your child without going through probate when you pass away. A trust will also be able to guarantee you the right to live in the house and take into account changes in circumstances, like if your child passes away before you do.

One other important benefit of a trust pertains to capital gains taxes. The tax basis of property in a revocable trust is stepped up when you die. This means the basis in the home would be the date of death value of the property. Therefore, if your child sells the property immediately after inheriting it, the value of the property would not see much change. As a result, the capital gains taxes would be little or nothing.

A trust typically allows for greater flexibility and offers more options to protect both the parent and the child. Everyone’s situation is different. Be sure to speak with a qualified estate planning and Elder Law attorney about how to pass down your property effectively.

Reference: elderlawanswers.com (February 27, 2017) “Is It Better to Use Joint Ownership or a Trust to Pass Down a Home?

Farm and Ranch Families May Get Help with New Legislation

“Current law provides for an estate tax exemption of $5 million indexed for inflation, allows portability between spouses and includes stepped-up basis.”

Proposed estate tax repeal legislation has been introduced in Congress that would assist farm and ranch families with the challenges of passing their family businesses to the next generation.

An article in Farm Bureau, “Estate Tax Repeal Bills Would Help Family Farmers,” says that rather than spending money on life insurance and estate planning, many farmers today will expand their businesses by upgrading buildings, purchasing needed equipment and adding livestock.

More significantly, when a family member dies, the family can keep farming or ranching without having to sell land, livestock or equipment in order to pay the tax. While the current laws help people involved in agriculture, the estate taxes are still a big issue.

Family-owned farm and ranch assets typically are tied to illiquid assets like farm and ranch land, buildings and equipment. When estate taxes on an agricultural business are greater than cash and other liquid assets, surviving family partners have few options but to sell off their assets, which jeopardizes the viability of their business.

The bipartisan Death Tax Repeal Act of 2017 (H.R. 631 and S. 205) was introduced in the House by Representatives Kristi Noem (R-S.D.) and Sanford Bishop (D-Ga.) and in the by Senate John Thune (R-S.D.).

The bill is designed to help protect the family farms, which are vital to feeding our great country and who in many cases, barely generate enough profits to sustain their operations.

Reference: Farm Bureau (January 26, 2017) “Estate Tax Repeal Bills Would Help Family Farmers”