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Inherited IRAs

Inherited IRAs survived a Congressional proposal to limit their duration to 5 years rather than the life expectancy of the beneficiary.

There are several issues that arise for the beneficiary:

1.  The rules for trusts receiving the benefits must be strictly complied with.  The advisor in the article has a more negative take on trusts as beneficiaries than I do.   The benefits of trusts as beneficiaries can be great and the compliance is not that difficult.

2.  Inherited IRAs should be re-titled after death to read:  “William Smith, Deceased (date of death) IRA F/B/O James Smith, Beneficiary.

Children With Drug Problems?

The Foxbusiness expert whiffed on advising a couple with children with drug problems. Sure, showing them a revised will that excludes them might make them stop using drugs, but the distant inheritance is most likely not an immediate incentive and eventually they will be disinherited and still have a drug problem.

I prefer using a trust to hold their inheritance with the stipulation that it can not be disbursed until they are clean. I also would provide that their share can be used to pay for treatment programs. This type of provision is too complicated to administer solely through a will.

I prefer using a trust to hold their inheritance with the stipulation that it can not be disbursed until they are clean. I also would provide that their share can be used to pay for treatment programs. This type of provision is too complicated to administer solely through a will.

Long Term Care Insurance

Long term care insurance can be worthwhile to protect against high nursing home costs.  The insurance itself can be expensive.  Premiums have risen dramatically in recent years with several companies pulling out of the market.

For an individual, the key policy factors to consider are:

1.  Daily benefit.  $250/day should cover most costs.
2.  Length of care.  3 years is the average stay.
3.  Protection against inflation.  5% increase is the most common policy provision, but also the most expensive.

A policy provision that should be included is one paying for alternative care such as an in-home assistant.

Planning for Dementia

Apparently Mike Wallace was suffering from dementia at the time of his death.  Because it can never be repeated enough, an individual should have the following documents to enable his family to manage his affairs in the event he suffers from diminished capacity:

1. Health Care Power of Attorney
2.  Living Will
3.  Financial Power of Attorney
4.  Revocable Trust

Pets After Death

A woman’s 1988 will specified that all of her pets were to be euthanized upon her death. Presumably, she was concerned about them being mistreated after her death.  When her trustee, 5/3 Bank, noticed that animal related charities were the primary beneficiaries of her assets, after talking with neighbors and friends they found a home for her healthy, 11 year old cat instead. They surmised that she would prefer a good home for the cat to euthanizing.

Two lessons can be learned:

1.  Clients should update their wills to reflect their current circumstances and wishes.
2.  Pet trusts can be used to provide for animals after the death of the owner.

Props to 5/3 for being humane.

Avoid Time Shares!

Clients often ask my advice about buying time shares.  I almost always advise them to avoid the purchase unless they plan on using it regularly.  This articleaffirms that time shares rarely appreciate (in fact prices on some units are $1) and that annual maintenance fees are expensive (average is over $700).

Time to Make Gifts?

For clients with large estates ($5 million+), this is the year to make large gifts.  If the client is worried about needing the funds in the future, the client can make the gift in trust and have the spouse be a beneficiary of the trust (which indirectly benefits the client if the couple remains married) with the assets ultimately distributed to the children.

The ability to make large gifts will most likely lapse next year due to changes in the gift tax law.

Removing a Trustee?

Beneficiaries of a large trust are unable to move the trust to a different trust company because the agreement they signed with the current trustee requires all 94 beneficiaries to consent to the change of trustee.  The beneficiaries are displeased because the bank has had poor investment returns.  The beneficiaries have sued the bank.

Several lessons can be learned:

1.  Trust documents should allow for the removal of a trustee by a majority of the beneficiaries.
2.  If the trust allows for separate shares for each beneficiary, that beneficiary should be permitted to select his own corporate trustee.
3.  In Ohio, poor investment performance is not grounds for removing a trustee in a lawsuit which makes lessons 1 and 2 more important.

Children and Money

Jon and Eileen Gallo (yes, of those Gallos) offer advice on raising financially responsible children.   Seven characteristics shared by parents include:

  • Being optimistic about changing money behaviors
  • Valuing financial savvy and financial intelligence
  • Thinking about the meaning of money in their lives
  • Educating their children financially.
  • Recognizing that their money deeds have a strong impact on their kids.
  • Feeling that children should hear “no” and “enough” in terms of money education
  • Wanting children to work for a sense of satisfaction as opposed to money.
For more, check out their book, “Silver Spoon Kids”  which is indispensable to upper income families.

Executors Are Personally Liable for Income Taxes of Decedent

In a recent case, executors of an estate were held personally liable for the unpaid tax lien on their parents’ house.  The planning tips from this matter are:

1.  Make sure your parents pay their income taxes,
2.  Feel free to decline to serve as executor,
3.  Pay income tax obligations before paying other debts, and
4.  If selling an asset, do not reinvest the proceeds in a risky asset so that there will not be any liquid funds if the IRS comes looking for payment of its lien.

Working with Blended Families

USA Today wrote about the complexity of planning for blended families with a dizzying number of familial situations.  What the article did not mention is that a trust could be used to address all of the concerns of the individuals.  Simply, a trust can be used to retain assets for a second spouse while ensuring that assets are ultimately distributed to children from a prior marriage.  Similarly, trusts can be more flexible in making differing allocations among beneficiaries.

Interesting statistic form the article.  Of people who live past 85, one half will experience Alzheimer’s disease.

Declining to Serve as Guardian?

When declining to serve as guardian of a friend’s child, it is best to answer in terms of the increased family size of the restrictions placed by current housing.  Do not follow the example in an old Carol Burnett Show skit where a couple decided to act obnoxious and asocial with atrocious dinner manners so they would not be asked.  The other couple asked eventually because “you act just like we do.”

Gift Opportunity

This bears repeating.  2012 is great year to make a large gift due to the $5 million unified credit.  It is unlikely that the credit will ever be larger and it is possible that it will be much smaller if the scheduled reduction to $1 million remains intact.

Organ Donation – Keeping Options

The WSJ ran a squeamish article about the organ donation process.  The best advice seems to be to foresake checking a box on the driver’s license and allow family members decide if and when to donate organs.  Family members will be in a position to ensure that proper brain death procedures have been followed and that anesthesia has been administered.

Timing Social Security

In trying to maximize lifetime Social Security benefits, it is best to delay taking distributions as long as possible.  However, if ill health is a factor, grab them as soon as possible.

Digital Data (Again)

When estate taxes do not apply to most people, the hot topic in estate planning apparently becomes accessing post-mortem digital data. I have revised my wills to authorize executors to access on-line accounts.  A corollary is to have a note with the will which lists the passwords and desired disposition of the account and data.

nb.  The recommended language in the article is the type of drafting that people pejoratively refer to as “legalese.”

Trusts Are Still Needed

Even with the current estate tax environment, trusts are still necessary.  My reasons for recommending them are to protect youthful heirs and to simplify the administration process.  The forthcoming decrease of the estate tax exemption amount to $1 million is a third reason.

Sports Blog Post

Paul Daugherty of the Cincinnati Enquirer allowed me to write his blog today.  I consider it the Moby Dick of blog posts (in terms of length, not quality).

What to do with Collections?

Collections are difficult to plan for because their value can be mostly emotional.  People should decide the value of their collection, decide whether it should be kept intact, and choose which family member(s) should receive it or whether it should sold or donated.  None of this applies to Beanie Babies, which should be thrown away.

Never Mind

The prior post about a possible law requiring that inherited IRAs must be distributed within 5 years of date of death is now moot because lobbyists have urged Senate Dems to remove the provision from a highway funding bill.  Skipping the question of why an IRA payout provision is in a highway funding bill, apparently everything has a price, except integrity and strong leadership are priceless.

Contact Me

All Posts By Jay Brinker

I am an attorney located in Cincinnati, Ohio who practices in the areas of estate planning, probate, asset protection, and small business advice. I make a difficult and bewildering process as simple as possible. Most importantly, I provide "more for less" for my clients.