Do you have concerns about:
• Running out of money if you (or your spouse) become ill and require significant care
• Having no control over who provides care for you if you need it
• Choosing the type of care you want and where you want to receive it
• Leaving an inheritance to your loved ones, only to have it taken by their creditors
• Your children misusing the property or money you leave to them
• Providing support to a loved one with a disability both during your lifetime and after your passing
• Making sure your wishes about care and your finances are carried out
If you answered yes to any of the questions above, we can help. A long-term care asset protection plan is not a one-size-fits-all set of documents. Each plan is designed based on your concerns, your desires, and your goals.
If you own a small business you should consider providing a health plan for your family and that of your employees. Health plans help workers and their families take care of medical needs–a fundamental need of all humans. These plans can be one of the most important benefits an employer can provide.
There are many reasons to offer a plan. You and your family can receive coverage under the plan, which can help you save money and improve your health in the long run to be sure. But, by starting a plan, you will also help your employees and their families stay healthy. So, productivity and worker happiness remain higher. A health plan may also help you attract and retain talented people. Moreover, having a group health plan can help you gain significant tax advantages. Employer contributions to the health plan are deductible from the employer’s income. Also, small businesses may be eligible for tax credits under the Affordable Care Act. For more information, visit the IRS’ website at irs.gov or consult your tax professional. If you start a plan, there are many protections for your health plan coverage including Pre-existing condition exclusions are no longer permitted. Insurance companies can’t charge higher rates or deny coverage because of a pre-existing condition Insurance companies cannot impose lifetime or annual dollar limits on coverage of essential health benefits And there are 2 new ways to hold insurance companies accountable for rate increases and help keep your costs down.
One option for looking for a plan is the Small Business Health Options Program Marketplace, or SHOP. SHOP offers small businesses an easy way to compare and select plans. For more information, go to healthcare.gov or call 1-800-706-7893.
Another option we advise clients with at least 10 employees is to take a look at a plan that offers significantly discounted premiums, $250,000/year/covered person benefits, $0 deductibles, 43% discounts on in-network providers, a concierge service to find the best physicians at the best prices regardless of whether you want to stay in-network, Teladoc to meet with physicians without having to go to the waiting room and expose yourself to other ill patients, and a Critical Illness rider that pays a lump sum cash benefit in the event a covered persons suffers a catastrophe. With 10 or more employees, these plans offer guaranteed acceptance. They pay cash benefits to the claimant as defined in the plan. So, you know what you’re getting instead of spinning the roulette wheel to find out what the company will cover and what it won’t cover. These plans provide thousands in savings that can be used to grow other cash benefits for owners and employees.
What is a “Stretch IRA?”
The “Stretch IRA” refers to sustaining the tax-deferred status of an inherited IRA for as long as possible when the beneficiary is someone other than a spouse. Under current law, a stretch IRA is a way to limit required distributions on an inherited IRA. Instead of naming the spouse as beneficiary, an account holder names children, grandchildren, great-grandchildren, or even siblings, etc., who can stretch out the withdrawals over their expected lifespan. That ability translates into the possibility that the continued tax deferred status could mean a difference of hundreds of thousands, perhaps, millions of dollars over a beneficiary’s lifetime.
The New Bill for 2017
In 2016, the Senate Finance Committee voted 26-0 to end the stretch IRA for non-spousal beneficiaries. The Committee saw such curtailment as a way to bolster revenues by $5.5 billion over 10 years. The bill has a retroactive provision to apply to IRAs The proposed bill, the Retirement Enhancement and Savings Act (“RESA”), requires beneficiaries of an inherited IRA to pay all taxes due on the account within five years of the owner’s death. To lessen the bite a little, the bill contains a $450,000 exclusion for non-spousal beneficiaries, which means a $1 million IRA would be taxed only on $550,000.
Say, you die and leave a $1.45 million IRA to an only child, the child can claim the exclusion and defer taxes on $450,000 over his lifetime. however, the child must withdraw the remaining $1 million within 5 years subjecting the larger portion of his inheritance to accelerated income taxes. If there are multiple accounts, the exclusion must be prorated over each account.
Decedent had $2 million in retirement assets: $1.2 million in a traditional IRA, a $500,000 401(k), and a $300,000 Roth IRA. So, the proration looks like this:
- Traditional IRA–$1.2/2 = 60%
- 401k–$500k/2mm = 25%
- Roth IRA–$300k/2mm = 15%.
So, the beneficiary gets to stretch $270,000 of the traditional IRA (60% x $450,000); $112,500 of the 401k ($450,000 x 25%); and $67,500 ($450,000 x 15%) of the Roth IRA.
The accelerated tax rules would apply to the remaining $930,000 of the traditional IRA; $387,500 of the 401k; and $232,500 of the Roth IRA. These amounts must all be distributed within 5 years. But, the amounts out of the Roth wouldn’t be subject to tax.
Likelihood of Implementation
Leading experts like Ed Slott are on record that this is going to happen in 2017. While most agree that the bill won’t move along as a stand-alone provision according to Brigen L. Winters, a principal at Groom Law Group in Washington, DC, the RESA “can easily be inserted into any tax bill, especially since Congress is being told that this provision will produce billions in revenue,” says Slott. While Slott maintains that the RESA won’t generate any revenue, to the contrary is more likely to lose revenue, since Trump has promised comprehensive tax reform, odds are good that some type of tax legislation is coming. Slott’s rationale for the lack of revenue generation is that the majority of beneficiaries won’t stretch the IRA anyway, they’ll “go through them like water…it’s human nature.”
Inherited IRAs Aren’t Exempt Assets Under ERISA
A United States Supreme Court decision in 2014 unanimously ruled that inherited IRAs cannot be considered a retirement fund and thus are not subject to exemptions under bankruptcy laws. So, that means inherited IRAs are open to creditor claims in the event of fortuitous financial problems occurring.
Need for Detailed Planning Analysis
It’s important to note that any unused exclusion cannot be transferred to a surviving spouse. Thus, you can’t just leave everything to your spouse if you have a lot of money in retirement accounts without losing the chance to exclude a portion of the account from accelerated tax. This knowledge should serve as a wake-up call to married people who have a lot of money in retirement accounts. It only makes sense to take advantage of both exclusions, else they will lose the opportunity to take advantage of enormous tax savings.
So long as the family’s combined IRA balance is less than $450,000 and isn’t likely to grow beyond $450,000, no special planning will be needed unless Congress decides to use a different exclusion amount. if the combined balance of the IRAs is greater than the exclusion amount, then strategic planning will be needed to protect families from a harsh new tax structure. One option is to establish enormous flexibility in the estate-planning documents with extremely liberal disclaimers. Perhaps allowing the surviving spouse to disclaim to children and provisions allowing children to disclaim to trusts created for the benefit of their children are low-hanging tactics obviously to be employed. Roth conversions are another powerful strategy to be employed. Discussions on the Roth conversion will be the subject of a different article–stay tuned!
HB 221 overwhelmingly passed both houses under the Golden Dome this 2017-2018 session. The bill was heavily promoted by the State Bar of Georgia via its Fiduciary Section, which also worked as a wordsmith of sorts on the bill. This legislation seeks to modernize Georgia’s power of attorney statute by outlining the duty, liability and authority for agents, co-agents and successor agents. The bill also provides for the applicability, meaning, effect and termination of a power of attorney. To be titled as OCGA §10-6B-1:81 upon signing by the Governor, the new legislation also contains a statutory form. The new law will also amend OCGA §10-6-7 and OCGA §16-8-10 concerning affirmative defenses to criminal charges related to misuse of power over another’s property. If the Governor signs it, the law will become effective by its terms on July 1, 2017. You can review the legislation for yourself here.
5. Lack of Planning: What To Do?
The most important first step is planning, but not necessarily estate planning. By the time one of these situations has begun, it’s too late for thorough estate planning. Indeed, many of these situations occur despite good estate planning. Instead, your client needs to prepare for battle. That does not mean racing to the courthouse to sue everyone in sight. It does mean thinking through your options and taking initial steps to prepare for a potential fight.
The second step is to remember that the loved one’s will is not the only issue. In fact, for most people, the will is much less important than other documents. A last will and testament controls only assets belonging to the deceased’s estate. Most people, however, do not have significant assets in their estate. Instead, most people’s sizable assets pass outside the estate, probate and are not controlled by the will.
For example, most retirement accounts, investment accounts, and life insurance policies use payable-on-death beneficiary forms which designate who gets the particular asset at issue. The will does not override these forms.
So, as an estate dispute is simmering, it is vitally important to make sure that these non-probate assets are considered. Otherwise, there is a great risk of winning the battle over the will, but losing the war over the real assets.
3. Blended Families
Despite good intentions, this can lead to problems. For example, the husband may predecease the wife who eventually loses touch or becomes estranged from her stepchildren. If the husband’s will left assets to her with the expectation that her will would pass the assets along according to their long-term wishes, all certainty is lost. She can then make a new estate plan based on her own wishes. Depending on her relationship with her stepchildren, she might decide to leave everything to her own kids.
2. Late-in-Life Spouse
For lack of a better term, “gold diggers” exist—there are individuals who seek close personal relationships with elderly persons for their own financial gain. This was the case with J. Howard Marshall and Anna Nicole Smith and John Seward Johnson (of Johnson & Johnson) and his third wife (though, despite what these high-profile cases may indicate, gold diggers aren’t limited to one sex).
Sometimes, a late-in-life spouse has no ill intentions and simply can’t get along with the preexisting children, be it over matters of inheritance or just not being welcomed (or making an effort to fit) into the existing family paradigm.
Such scenarios often result in estate disputes between the late-in-life spouse and adult children or other persons who once stood to inherit. The spouse claims true love, the children claim undue influence, and the disputes almost always are fueled by personal animus and resentment between the parties.
4. The Trusted Caregiver or Confidant
When there are no family members to take care of an elderly client, he is often forced to rely on caregivers and other professionals for care. Unfortunately, these paid professionals can, likewise, be opportunists, preying on the weakened faculties and necessary dependency of their charges. In such a case, a client’s children and grandchildren may be disinherited (or have their inheritances significantly reduced) in favor of the nurse, attorney or other caregiver.
By way of example, a number of parties are currently litigating the estate of Ernie Banks, the famous Chicago Cub and baseball hall of famer, who made substantial estate planning changes late in his life in favor of a personal nurse and to the detriment of adult family members.
1. Local/Distant Siblings
Disputes often arise when a “local” sibling provides care and support for a parent at the end of life, while the other sibling is “distant,” either physically, psychologically or otherwise. In this scenario, the local sibling typically “helps” with (i.e., controls) most aspects of the elderly parent’s life—including bank accounts, doctor appointments and care providers. Thus, the local sibling often feels entitled to more from the parent, regardless of the parent’s wishes.
Over time, the local sibling may use proximity to the parent to begin a “money grab.” For example, the local sibling is added as a signatory to the parent’s checking account, ostensibly for convenience. Sometimes the local sibling exercises such control over the parent that he or she orchestrates an entire new estate plan or arranges to be added as a joint tenant on the parent’s house. Very often it is not until the parent’s death that a distant sibling learns about what has happened. The distant sibling suspects undue influence on the part of the local sibling, and a dispute arises, often creating contentious litigation.