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Law Office of Michael D. DellaMonaca

Have a Plan for Life

What Did Kobe Bryant Do for Estate Planning?

Many people were shocked to learn about the death of NBA superstar Kobe Bryant. As one of the wealthiest athletes in the world, his estate is expected to be the subject of increasing interest for his family and others.

The retired Los Angeles Lakers star was killed along with eight other people, including his 13-year-old daughter, Gianna, in a helicopter crash in Calabasas, California last month. Bryant was only 41 years old and seemed ready for a successful career after professional basketball in business. The news devastated his fans and the world at large, but it was heartbreaking for his widow Vanessa Bryant and their three surviving young children.

Newsone’s recent article entitled “Did Kobe Bryant Have A Will? NBA Legend’s Death Highlights Estate Planning In Life” reports that Kobe Bryant died with a net worth of about $600 million. This was in large part to being the second-highest-paid NBA player of all time with career earnings of $323 million just from his 20 years’ worth of league contracts alone, according to Forbes.

You might think that the uber-wealthy need not concern themselves with estate planning. That’s what lawyers are for right? However, that’s actually not the case in many notable instances — especially with members of the black community.

Poor estate planning is fairly common for black people. One scholar says that the failure of African Americans to prepare wills, is likely linked to distrust of government, a belief that their children will ultimately inherit their property and reticence to create division within the family.

One estate planning lawyer told Black Enterprise that “Black Americans are 50% less likely to have a living will, in place in comparison to other groups.”

It is not just African Americans with this problem: a Gallup poll found that most people in the U.S. don’t have a will. AARP estimated that six in 10 adults in America don’t have one.

In many cases, the lack of having a will and testament in place can create family battles, like over the estates of Prince and Aretha.

Hopefully, Bryant was prepared and had a will in place to make sure he controlled his finances in death, as he did in life.

Reference: Newsone (Jan. 30, 2020) “Did Kobe Bryant Have A Will? NBA Legend’s Death Highlights Estate Planning In Life”

Charitable Giving and Your Estate Plan

Americans are a country of generous people. We give to organizations that we feel connected to, and we give to charities that we feel are important. We also give to honor our loved ones, to make life better in our communities and to help when disaster strikes.

Most people don’t give to charity purely for the tax benefits, but charitable giving has long been a benefit of lowering income taxes during our lifetimes, as well as helping minimize estate taxes when we die, says the article “5 Ways to Incorporate Charitable Giving into Your Estate Plan” from Kiplinger. Therefore, if you are charitably minded, why not achieve the most tax-savings you can? Here are five ways to do this.

Appreciated Stock. Gifts of publicly traded stock that has grown or appreciated in value is a good way to support a charity while you are living. If you sell appreciated stock, you will need to pay capital gains tax on the appreciation. However, if you donate appreciated stock to a charity, you’ll receive a charitable income tax deduction equal to the full market value of the stock at the time of the gift. That avoids capital gains taxes. You get the benefit on the appreciated amount, without having to sell it. The charity can, if it wants, sell the stock without paying any capital gains taxes, because registered nonprofits are tax exempt.

Charitable Rollovers. If you are older than 70 ½, you may donate up to $100,000 per year to charities directly from your IRA. This is known as a Qualified Charitable Rollover, or a QCD. The QCD counts towards any Required Minimum Distributions (RMDs) that you need to take from your IRA annually. Under the recently passed SECURE Act, in the future RMDs must be taken by December 31, 2020, after the account owner celebrates their 72nd birthday. Because RMDs are taxable income, they are taxed at ordinary income rates.

By donating through a QCD, you can support a charity, fulfill your RMD requirement and exclude the amount that you donate from your taxable income. For those who don’t need their RMDs, that’s a win-win situation.

Bequest by Will or Revocable Trust. A more traditional way to support a charity, is to leave an amount in your will or revocable trust. The bequest is language in your will or trust that states the amount you want to leave to the charity, clearly identifying the charity you want to receive the funds, and if you want, stating the purpose that you’d want the charity to use the funds. An important point: make sure that you use the legally accurate name of the charity to avoid any confusion. This is a common error that causes no many problems for charities.

Consider also giving a donation that can be used for a charity’s “general purpose.” This lets the charity decide where to best allocate your donation, rather than tying the money to a specific program. If you chose to list a specific purpose, meet with the development office or the executive director at the charity to ensure that they are able to fulfill that desire. Otherwise, the charity may need to refuse the bequest.

Name a Charity as the Beneficiary of Retirement Accounts. This can be done by naming the charity as a beneficiary on the account documents. Be sure to use the legally correct name of the charity. The charity will be able to withdraw funds from the retirement account without paying taxes. People who receive funds from retirement accounts pay income tax rates on distributions, but charities do not. You may want to donate retirement account funds to charities, and non-taxable assets to heirs.

Charitable Remainder Trusts. This is a way to help the charity and provide for heirs. Your estate planning attorney would create a Charitable Remainder Trust (CRT) and names the CRT as the beneficiary of an IRA. A CRT is a “split interest trust,” where a person receives annual payments for the CRT for a set period of time. When the person or charitable organization’s interest in the CRT ends, the remaining funds are distributed to the charity of your choosing. There are very strict rules about how CRTs are structured, including the percentages that the charity must receive. An estate planning attorney will be able to create this for you.

Reference: Kiplinger (March 2, 2020) “5 Ways to Incorporate Charitable Giving into Your Estate Plan”

How Do I Revoke a Revocable Trust?

A revocable trust is a flexible legal vehicle that lets the creator (known as the grantor) manage trust assets, as well as to alter the trust itself or its beneficiaries at any time in her lifetime. Also called a “living trust,” this trust is frequently used to transfer assets to heirs to avoid the time and expenses of probate. It is much different than if assets were simply bequeathed in a will. During the life of the trust, income earned is distributed to the grantor, and only after her death does its property transfer to the beneficiaries.

A recent Investopedia article asks “How exactly does one go about revoking a revocable trust?” According to the article, people might revoke a trust for several reasons, but typically it involves a life change. A common reason for revoking a trust, is a divorce when the trust was created as a joint document with one’s soon-to-be ex-spouse.

A trust might also be revoked because the grantor wants to make changes that are so extensive that it would be simpler to dissolve the trust and create a new one. A revocable trust may also be revoked, if the grantor wants to appoint a new trustee or totally change the provisions of the trust.

Note that while they avoid probate, revocable trusts aren’t exempt from estate taxes. Because of the fact that the grantor has control of the assets during his or her lifetime, the property is considered part of the taxable estate.

When dissolving a revocable trust, first remove all the assets that have been transferred into it. This means changing titles, deeds, or other legal documents to transfer ownership from the assets of the trust back to the trust’s grantor directly. Next, have a legal document created that states the trust’s creator, having the right to revoke the trust, does want to revoke all terms and conditions of the trust and dissolve it completely. This is often called a “trust revocation declaration” or “revocation of living trust.” As a seasoned estate planning attorney to create this document for you to be sure that it is correctly worded and meets all the qualifications of your state’s laws. If the trust has a variety of assets, it is also often smarter to let an experienced attorney make certain that everything has been properly transferred out of the trust.

The dissolution document should be signed, dated, witnessed and notarized. If the trust being dissolved was registered with a specific court, the dissolution document should be filed with the same court. Otherwise, you can just attach it to your trust papers and store it with your will or new trust documents.

Reference: Investopedia (Jan. 13, 2020) “How exactly does one go about revoking a revocable trust?”

The Second Most Powerful Estate Planning Document: Power of Attorney

All too often, people wait until it’s too late to execute a power of attorney. It’s uncomfortable to think about giving someone full access to our finances, while we are still competent. However, a power of attorney can be created that is fully exercisable only when needed, according to a useful article “Power of attorney can be tailored to circumstances” from The News-Enterprise. Some estate planning attorneys believe that the power of attorney, or POA, is actually the second most important estate planning document after a will. Here’s what a POA can do for you.

The term POA is a reference to the document, but it also is used to refer to the person named as the agent in the document.

Generally speaking, any POA creates a fiduciary relationship, for either legal or financial purposes. A Medical or Healthcare POA creates a relationship for healthcare decisions. Sometimes these are for a specific purpose or for a specific period of time. However, a Durable POA is created to last until death or until it is revoked. It can be created to cover a wide array of needs.

Here’s the critical fact: a POA of any kind needs to be executed, that is, agreed to and signed by a person who is competent to make legal decisions. The problem occurs when family members or spouse do not realize they need a POA, until their loved one is not legally competent and does not understand what they are signing.

Incompetent or incapacitated individuals may not sign legal documents. Further, the law protects people from improperly signing, by requiring two witnesses to observe the individual signing.

The law does allow those with limited competency to sign estate planning documents, so long as they are in a moment of lucidity at the time of the signing. However, this is tricky and can be dangerous, as legal issues may be raised for all involved, if capacity is challenged later on.

If someone has become incompetent and has not executed a valid power of attorney, a loved one will need to apply for guardianship. This is a court process that is expensive, takes several months and leads to the court being involved in many aspects of the person’s life. The basics of this process: three professionals are needed to personally assess the “respondent,” the person who is said to be incompetent. The respondent loses all rights to make decisions of any kind for themselves. They also lose the right to vote.

A power of attorney can be executed quickly and does not require the person to lose any rights.

The biggest concern to executing a power of attorney, is that the person is giving an agent the control of their money and property. This is true, but the POA can be created so that it does not hand over this control immediately.

This is where the “springing” power of attorney comes in. Springing POA means that the document, while executed immediately, does not become effective for use by the agent, until a certain condition is met. The document can be written that the POA becomes in effect, if the person is deemed mentally incompetent by a doctor. The springing clause gives the agent the power to act if and when it is necessary for someone else to take over the individual’s affairs.

Having an estate planning attorney create the power of attorney that is best suited for each individual’s situation is the most sensible way to provide the protection of a POA, without worrying about giving up control while one is competent.

Reference: The News-Enterprise (Feb. 24, 2020) “Power of attorney can be tailored to circumstances”

Can an Elder Law Attorney Help My Family?

The right elder law attorney can counsel a family through the difficult details and requirements of the situations that may come up to protect the rights and welfare of seniors and their families. An elder law attorney may help with issues, such as guardianship, conservatorship, power of attorney, estate planning, Medicaid planning, probate and estate administration and advanced directives.

The Senior List’s recent article entitled “What is Elder Law and How Can an Elder Law Attorney Help Me?” explains that because the laws on the care of the elderly differ in each state and are always subject to change, it is essential to find an elder law attorney who is skilled, knowledgeable and up-to-date on elder law policy and legal issues.

Before meeting with an elder law attorney, create a list of the specific concerns for the present and foreseeable future so you know what qualifications and capabilities your attorney will need. You want a lawyer who’s experienced and educated, as well as comfortable to speak with.

You can ask these questions of your elder law attorney to help you make your decision:

  • How long have you been practicing in elder law?
  • Do you stay up to date on this area of law, by ongoing study and attending seminars on this subject matter?
  • Take a look at the required services we think will be needed. Can you fulfill them?
  • Do you have litigation experience?
  • What type of fee schedule do you offer?

If you’d like to try to stay up to date on what’s happening within elder law, go online and search for “aging and disability” as well as the name of the state in which the senior lives. Every state government has a department in charge of these matters (the official names will vary).

While caring for a love done can be stressful, understanding what options are available to them and to you, can make it all much easier. We suggest you contact an experienced elder law/estate planning attorney.

Reference: The Senior List (Oct. 10, 2019) “What is Elder Law and How Can an Elder Law Attorney Help Me?”

 

C19 UPDATE: Employers Now May Help Employees with Tax-Free Direct Disaster Relief Assistance

As the coronavirus pandemic emergency unfolds, it’s clear that increasing numbers of employees will likely suffer financial impacts … from quarantines, illnesses, workplace closings, etc. President Trump’s declaration of a National Rmergency on March 13 now allows employers to make direct disaster-relief payments to assist employees affected by the virus. These types of payments are not treated as income/wages to the employees and are deductible to the employer as ordinary and necessary business expenses. There is no specific cap on the amount of assistance that may be provided to an employee other than it must be “reasonable and necessary” and must not be for an expense reimbursable by the employee’s insurance.

Section 139 of the Internal Revenue Code, allows that a “qualified disaster relief payment” of any amount may be paid to reimburse or pay reasonable and necessary personal, family, living or funeral expenses (not otherwise compensated for by insurance) incurred because of a “qualified disaster.” The term “qualified disaster” includes a federally declared disaster or emergency under the Stafford Act. Accordingly, due to the Declaration, Coronavirus is now a “qualified disaster” for Section 139 purposes, so disaster relief may be provided to employees on a tax-free basis (assuming all the requirements of Section 139 are satisfied).

As always check with your CPA or estate/tax planning attorney before implementing any tax planning strategy for your business.

Read more at The National Review, Coronavirus National Emergency Declaration Permits Employers to Offer Tax-Favored Financial Assistance to Employees, March 14, 2020

 

How Can I Fund A Special Needs Trust?

When sitting down to plan a special needs trust, one of the most urgent questions is, “When it comes to funding the trust, what are my options?” TapInto’s recent article entitled “Ways to Fund Special Needs Trusts”  explains how to fund a special needs trust.

There are four main ways to build up a third-party special needs trust. One way is to contribute personal assets, which in many cases come from immediate or extended family members. Another possible way to fund a special needs trust, is with permanent life insurance. In addition, the proceeds from a settlement or lawsuit can also make up the foundation of the trust assets. Finally, an inheritance can provide the financial bulwark to start and fund the special needs trust.

Families choosing the personal asset route may put a few thousand dollars of cash or other assets into the trust to start, with the intention that the initial investment will be augmented by later contributions from grandparents, siblings, or other relatives. Those subsequent contributions can be willed to the trust or the trust may be named as a beneficiary of a retirement or investment account. It is vital that families use the services of an elder law or special trusts lawyer. Special needs trusts are very complicated, and if set up incorrectly, it can mean the loss of government program benefits.

If a special needs trust is started with life insurance, the trustor will name the trust as the beneficiary of the policy. When the trustor passes away, the policy’s death benefit is left, tax free, to the trust. When a lump-sum settlement or inheritance is invested within the trust, this can allow for the possibility of growth and compounding. With a worthy trustee in place, there is less chance of mismanagement, and the money may come out of the trust to support the beneficiary in a wise manner that doesn’t risk threatening government benefits.

In addition, a special needs trust can be funded with tangible, non-cash assets, such as real estate, securities, art or antiques. These assets (and others like them) can be left to the trustee of the special needs trust through a revocable living trust or will. Note that the objective of the trust is to provide the trust beneficiary with non-disqualifying cash and assets owned by the trust. As a result, these tangible assets will have to be sold or liquidated to meet that goal.

As mentioned above, you need to take care in the creation and administration of a special needs trust, which will entail the use of an experienced attorney who practices in this area and a trustee well-versed in the rules and regulations governing public assistance. Consequently, the resulting trust will be a product of close collaboration.

Reference: TapInto (February 2, 2020) “Ways to Fund Special Needs Trusts”

 

Is Life Insurance a Good Idea for My Estate Plan?

The complexity of many types of life insurance make it hard to know if you’re getting good advice.  Around 57% of adults in the U.S. own a life insurance policy, according to a joint study by LIMRA, a trade group, and Life Happens, a nonprofit insurance advocate. CNBC’s recent article entitled “Why some life insurance could prove risky for consumers” goes on to state that the sales standards governing how agents and brokers can recommend certain types of life insurance to consumers are not strict.

There are some types of life insurance that aren’t necessarily mind-boggling. For example, term insurance is pretty clear. This type of policy covers buyers for a certain period of time, such as 10 or 20 years, for an annual fee that’s locked in and which the purchaser knows at the time of sale.

However, permanent life insurance — also called as cash-value insurance — is more complicated. With permanent life insurance, a buyer is meant to keep the insurance policy, such as whole life and universal life, until death rather than for a set term. This type of insurance also has a side investment account that earns interest and dividends. The account is designed to cover annual premiums and other insurance costs, which typically increase each year with age. But in the event that an investment account underperforms expectations or insurance charges increase more than expected, a purchaser may have to pay more money to cover a shortfall or risk losing the coverage altogether.  Remember that a policy that may look fairly inexpensive today, may not be the case later in life.

It’s also important to note that state life insurance regulations frequently don’t require insurance agents to fully disclose the risks to the public. Of course, insurance companies promised that they’ll disclose the risks to buyers in the contracts they sign. However, the fine print can be more than 100 pages long.

Insurance agents are also typically permitted to recommend life insurance that will pay them a higher commission, rather than suggesting a policy that may be just as good but pay the agent less or no commission. While not every life insurance agent is misleading the public, the regulations aren’t in the buyer’s favor, say consumer advocates. Each state regulates many different aspects of life insurance, like advertising, disclosure, licensing and unfair trade practices.

State insurance regulators say that there were over 4,000 individual cases of wrongdoing by life insurers or insurance agents in 2019, according to data from the National Association of Insurance Commissioners. That’s compared with the nearly 138 million life insurance policies owned by Americans as of year-end 2018, according to ACLI.

As a reminder, you should only buy insurance policies that you understand. Be sure to ask about and be aware of risks, like potential increases in future premiums and other elements of a life insurance policy that could be changed. You should also consult with an experienced estate planning attorney to be sure that the amount of life insurance you’re considering fits into your overall financial and estate plan.

Reference: CNBC (January 19, 2020) “Why some life insurance could prove risky for consumers”

 

C19 UPDATE: Bookmark this Page from the IRS for Ongoing Coronavirus Updates

Bookmark these websites for ongoing Coronavirus updates, the IRS has established a special section focused on steps to help taxpayers, businesses and others affected by the coronavirus. This page will be updated as new information is available. https://www.irs.gov/coronavirus

For health information about the COVID-19 virus, visit the Centers for Disease Control and Prevention (CDC) COVID-19 virus.

Other information about actions being taken by the U.S. government visit https://www.usa.gov/coronavirus and in Spanish at https://gobierno.usa.gov/coronavirus.

The Department of Treasury also has information available at Coronavirus: Resources, Updates, and What You Should Know https://home.treasury.gov/coronavirus.

Do You Need a Revocable Trust?

A will lets you determine how your property will be distributed when you die and a revocable living trust also accomplishes that task. However, the owner of the trust can make strict stipulations about how specific assets should be distributed, says Barron’s in the article “Revocable Living Trusts Can Help Your Heirs Avoid Probate. Here’s How They Work.” Another advantage of a revocable trust—avoiding probate, which gives the trust owner far more control over asset distribution.

Remember, probate is a process that takes place under the supervision of a judge in a court. Things don’t always happen the way the decedent may have wanted.  It’s best for individuals or couples with complex estate planning needs to meet with an estate planning lawyer, who will discuss whether a living trust is the right option. One question couples should ask: does it make sense for them to have a living will, and should it be a joint trust, or should it be two separate ones?

When a trust is created, it needs to be funded. Assets such as real estate, bank accounts, taxable non-retirement investment accounts all need to be retitled so they are owned by the trust. The person who creates the trust has no restrictions as to how the assets within the trust are used while they are alive. The trust can also be revoked during the owner’s lifetime, but it’s more common for owners to make tweaks to the trust.

Trusts are very popular in states like California and Massachusetts which have more restrictive probate laws than other states. Trusts are very good for people who own property in multiple states and would otherwise have to deal with probate in multiple states. Trusts are also excellent for people who wish to maintain privacy about their assets, since the trust’s contents remain private. A will, once it enters the probate process, becomes a public document.

Someone who does not own his or her own home and has limited assets may prefer to use a will, which is less expensive and simpler than a trust. Once they do own a home and have more extensive assets, they can always have a trust created.  A living trust is part of a larger estate plan. Other estate planning documents are still needed, including a durable power of attorney for finances, an advance health care directive, a nomination of guardianship for families with minor children and a living will.

People who have revocable trusts should ask their estate planning attorney about something called a “pour-over” will. This is a will that ensures that any assets accidentally left out of the trust are added to the trust after the death of the owner. If the majority of assets are in the trust, the probate of the pour-over will should be much simpler and there may even be a “fast-track” option for assets under a certain dollar level.

Please contact an experienced estate planning attorney to discuss your plan.

Reference: Barron’s (February 22, 2020) “Revocable Living Trusts Can Help Your Heirs Avoid Probate. Here’s How They Work”