Paul R. Tierney Law

When Did You Last Review Beneficiary Designation Forms?

“When it comes to your retirement accounts, do you know who your beneficiaries are? These types of accounts have complex distribution rules and significant tax implications for those who inherit them. This complexity is compounded, if there are errors or missing information on your beneficiary forms, as is often the case. Add to this the game-changer SECURE ACT, the largest retirement legislation that has been passed in decades—and there has never been a more important time to review your beneficiary forms.”

For many people, naming beneficiaries occurs when they first set up an account, and it’s rarely given much thought after that. The Street’s recent article entitled “Secure your IRA – Review Your Beneficiary Forms Now” says that many account holders aren’t aware of how important the beneficiary document is or what the consequences would be if the information is incorrect or is misplaced. Many people are also surprised to hear that wills don’t cover these accounts because they pass outside the will and are distributed pursuant to the beneficiary designation form.

If one of these accounts does not have a designated beneficiary, it may be paid to your estate. If so, the IRS says that the account has to be fully distributed within five years if the account owner passes before their required beginning date (April 1 of the year after they turn age 72). This may create a massive tax bill for your heirs.

Get a copy of your listed beneficiaries from every institution where you have your accounts, and don’t assume they have the correct information. Review the forms and make sure all beneficiaries are named and designated not just the primary beneficiary but secondary or contingent beneficiary. It is also important tomake certain that the form states clearly their percentage of the share and that it adds up to 100%. You should review these forms at any life change, like a marriage, divorce, birth or adoption of a child, or the death of a loved one.

Note that the SECURE Act changed the rules for anyone who dies after 2019. If you don’t heed these changes, it could result in 87% of your hard-earned money to go towards taxes. For retirement accounts that are inherited after December 31, 2019, there are new rules that necessitate review of beneficiary designations:

• The new law created multiple “classes” of beneficiaries, and each has its own set of complex distribution rules. Make sure you understand the definition of each class of beneficiary and the effect the new rules will have on your family.
• Some trusts that were named as beneficiaries of IRAs or retirement plans will no longer serve their original purpose. Ask an experienced estate planning attorney to review this.
• The stretch IRA has been eliminated for most non-spouse beneficiaries. As such, most non-spouse beneficiaries will need to “empty” the IRA or retirement account within 10 years and they can’t “stretch” out their distributions over their lifetimes. Failure to comply is a 50% penalty of the amount not distributed and taxes due.

For many, the beneficiary form is their most important estate planning document but the most overlooked.

Reference: The Street (Dec. 28, 2020) “Secure your IRA – Review Your Beneficiary Forms Now”

A Health Savings Account Can Improve Financial Outlook

“Open an HSA in minutes to help you save on taxes, cover medical expenses and grow your retirement nest egg.”

A health savings account or HSA can be a great help when it’s needed to tap the funds and it’s a tool to save money for retirement.

Money Talks News’ recent article “3 Ways a Health Savings Account Can Improve Your Finances” explains that an HSA can help you stretch your health care dollars and build your retirement savings at the same time, provided you’re eligible for one and you spend the money in your HSA on eligible expenses.

Let’s look at the benefits of HSAs and tips for opening one:

1. HSAs are tax-free. Depositing funds in a health savings account is one of the very few ways you can do to entirely avoid paying any taxes on that money at any point. Compare that to money in tax-advantaged accounts, like 401(k)s and individual retirement accounts (IRAs), that may grow tax-free. However, you will pay taxes on at least the principal at some point.

 However,with an HSA, you get a tax deduction for the money you put into the account. The earnings grow tax-free, and provided that you use it for qualified health care expenses, you don’t pay taxes on the money you withdraw from the account. It’s truly tax-free.

2. HSAs are more flexible than FSAs. A health flexible spending account (FSA) is another type of tax-advantaged account for stretching health care dollars.

However, FSAs have a big drawback: FSAs are subject to a “use-or-lose” provision. This means workers are usually required to spend any money in their FSAs within their health insurance plan year or else lose the money.

However, with an HSA, your money stays in the account and thus can grow year after year.

3. You can invest the money in your HSA. You are allowed to invest the money that’s in your HSA, so it can grow faster with investment options. The investment options will vary depending on where you open your HSA.

It is fairly easy to start an HSA, but you must be eligible for one. The IRS says that the primary requirement to qualify is that you are covered by a high-deductible health insurance plan. To open an HSA, you pick a custodian—an institution that offers HSAs.

Reference: Money Talks News (May 26, 2020) “3 Ways a Health Savings Account Can Improve Your Finances”

Am I Missing Retiree Tax Breaks?

“For new retirees—especially those on a fixed income—it's more important than ever to take full advantage of every tax break available. After all, you have to stretch out your retirement savings to cover the rest of your life. However, holding on to your money is becoming more difficult these days, thanks to the economic problems caused by the coronavirus pandemic. That's why retirees really need to be on top of their tax situation.”

Seniors frequently can miss tax-saving opportunities. In many cases, it's simply because they just don't know about them, says Kiplinger’s recent article entitled “The Most-Overlooked Tax Breaks for Retirees.” Let’s look at some these:

A Larger Standard Deduction. When you turn 65, the IRS offers you a bigger standard deduction. For 2020 returns, a single 64-year-old gets a standard deduction of $12,400 ($12,550 for 2021). A single 65-year-old gets $14,050 in 2020 ($14,250 in 2021). That $1,700 will make it more likely that you'll take the standard deduction rather than itemizing. If you do, the additional amount will save you more than $400 if you're in the 24% bracket. Couples in which one or both spouses are age 65+, also get larger standard deductions than younger taxpayers.

Medicare Premium Deduction. If you become self-employed when you leave your job, you can deduct the premiums you pay for Medicare Part B and Part D, plus the cost of supplemental Medicare (Medigap) policies or the cost of a Medicare Advantage plan. It isn’t subject to the 7.5%-of-AGI test that applies to itemized medical expenses. However, you can't claim this deduction if you’re eligible to be covered under an employer-subsidized health plan offered by either your employer (if you have retiree medical coverage, for example) or your spouse's employer (if he or she has a job that offers family medical coverage).

Spousal IRA Contribution. You must have earned income to contribute to an IRA, but if you're married, and your spouse is still working, he or she can contribute up to $7,000 a year to an IRA that you own. Provided your spouse has enough earned income to fund the contribution to your account (and any deposits to his or her own), this is an option.

The RMD Workaround. Required minimum distributions (RMDs) weren't required in 2020 (due to COVID), but retirees taking RMDs from their traditional IRAs in 2021 and beyond may have an extra option for meeting the pay-as-you-go demand. If you don't need the RMD during the year, wait until December to take the money. You can ask your IRA sponsor to hold a large part of it for the IRS—enough to cover your estimated tax on both the RMD and your other taxable income as well. If your RMD is more than large enough to cover your tax bill, you can keep your cash safely in its tax shelter most of the year and still avoid the underpayment penalty.

Reference: Kiplinger (Dec. 29, 2020) “The Most-Overlooked Tax Breaks for Retirees”

Some Veteran Caregivers Eligible for COVID-19 Vaccine through VA

“Tens of thousands of caregivers providing critical medical support to disabled veterans will be eligible to receive coronavirus vaccine doses soon under a new policy announced by the Department of Veterans Affairs this week.”

The move is the result of a coalition of veterans groups that lobbied for the caregivers to be sent to the top of the vaccine list, arguing that they deserved to be included in the first wave of medical professionals being protected against the deadly illness, says Military Times’ recent article entitled “Tens of thousands of veteran caregivers now eligible for the coronavirus vaccine through VA.”

Dr. Richard Stone, executive in charge of the VA, released a memo stating that those registered with the department’s Program of Comprehensive Assistance for Family Caregivers can be given the vaccine “in a coordinated manner with the veterans for whom they provide care.”

More than 6,700 VA patients have died from COVID complications in the last 10 months. Stone’s memo states that decisions will be made “in balance with site-specific resources, needs, vaccine availability, hesitancy to accept the vaccine and status of the pandemic locally.”

In an interview with Military Times, Stone commented that he is shifting many of those vaccination decisions to local officials to give coverage to more individuals.

“We need to leave it up to people at the bedsides, to make sure they are making the best decisions for veterans,” he said. “When someone brings a veteran in to give them the vaccine, they can easily identify what the other needs are.”

Roughly 20,000 veterans are registered in the caregiver program at the Department of Veterans Affairs. This program provides monthly stipends and other support to individuals providing regular medical assistance to infirm veterans.

The data shows that the majority of this group are family members of post-9/11 veterans. The caregiver assistance program was expanded last fall to veterans who served before May 1975.

And recently, a coalition of veteran groups, including The Independence Fund, Military Order of the Purple Heart and the Non-Commissioned Officers Association sent a letter to Federal Emergency Management Agency officials asking them to authorize the VA to administer the caregiver vaccines, under its role as the lead coordinator of federal response to the pandemic.

Dr. Stone said as of January 13, VA officials had administered the first dose of the two-part vaccine to more than 332,000 department health care employees and veterans at high-risk of contracting coronavirus. Another 45,000 individuals have already received their second dose. The vaccine has been sent to nearly 200 department facilities. However, officials have warned that it could be months before they can administer the more than 7 million vaccines they expect to be requested by veterans and staff.

Reference: Military Times (Jan. 14, 2021) “Tens of thousands of veteran caregivers now eligible for the coronavirus vaccine through VA”

Did Larry King have an Estate Plan?

“Retirement can be a bigger drag on the assets than all the professional and romantic mistakes put together.”

Larry King’s health was not good the past few years before he died in the hospital last week. He was 87, with a history of heart trouble, a stroke and then he got sick with the coronavirus. He was also paying spousal support as part of a lengthy divorce negotiation.

This was his seventh wife who outlasted all the others. Since the divorce wasn’t final, she’ll inherit much of his estimated $50 million estate, says Wealth Advisor’s recent article entitled “Two Bankruptcies, Seven Wives: Larry King's Estate Planning Miracle.”

The King of Talk wasn’t an early success. He was bankrupt before he was 30 and filed again at 45, when most successful people start eying early retirement. However, Larry had large gambling debts, grand larceny charges for defrauding a business partner and many professional setbacks.

By the time he really became a household name on CNN, he’d already had five divorces to four women as well as one youthful annulment.

Under normal circumstances, this would mean depleted bank accounts, since the households multiplied, and income continues to be split among the exes. However, King continued to work, and while each bankruptcy reset his official net worth to zero, every contract negotiation kept the income flowing.

Since he died before finalizing the divorce, his current wife Shawn is believed to receive everything not otherwise assigned in his will.

If the divorce were a done deal, she would have gotten a lump sum payment and $300,000 in annual support. Shawn had argued that she needed $1 million a year, but now it looks like she inherits everything.

Shawn lists $7 million in assets in her own name, including a house in Utah. That’s usually a good start to a divorce settlement division of property, but she wanted more because Larry was still working.

In fact, only last year, he signed a trial podcast deal worth at least $5 million.

Reference: Wealth Advisor (Jan. 25, 2021) “Two Bankruptcies, Seven Wives: Larry King's Estate Planning Miracle”

Do I Assume My Parents’ Timeshare when They Die?

“Can an owner of a timeshare will the timeshare back to the timeshare corporation and does the corporation have to accept it?”

Ridding yourself of a timeshare can be difficult. Frequently, heirs of a timeshare owner don’t want to take on the liability and the responsibility.

Nj.com’s recent article entitled “Can I leave a timeshare to the timeshare company in my will?” explains that as a general rule, unless it’s in an attempt to defraud creditors, a beneficiary may always renounce or disclaim a bequest made to him or her in a will.

However, if you write a provision in your will, it doesn’t mean that it’s legal, needs to be followed, or can be carried out.

As an example, a beneficiary designation on a bank account or certificate of deposit (CD) to your brother Dirk would take precedence over a specific bequest in your will that the same account or CD goes to your brother Chris. In that instant, the bank will pay the bank account or CD to your brother Dirk—no matter what your will says.

Likewise, with shares in a closely held business. If there is a contract between the shareholders dictating what happens to shares of the business if someone dies, that agreement will also override a provision in your will.

A timeshare is a contract. That means the terms of that contract control what happens. Your will doesn’t.

If the will doesn’t contradict the contract, like bequeathing the timeshare to a third-party who will continue to pay the contract obligations, both documents can co-exist.

A timeshare owner can’t avoid contractual obligations by just giving back the unit back to the corporation, unless that’s permitted in the contract.

The timeshare corporation isn’t required to take back a timeshare unit whether it is returned by the terms of the will or by the executor in administrating the estate, unless the signed timeshare agreement provides for this, or terms of the return are negotiated.

Reference: nj.com (Dec. 24, 2020) “Can I leave a timeshare to the timeshare company in my will?”

Can You Answer Key Retirement Questions?

“You’re closing in on retirement, but you’re not there yet. Are you on track?”

Kiplinger’s recent article entitled “Turning 60 Checklist: 10 Key Retirement Questions to Ask” can help find out if you will be ready when it is time to retire. Turning 60 can be an important milestone and catalyst for many people to take a hard look at different aspects of retirement. Here’s the list:

• Have I saved enough for retirement and if I don’t, with likely five to eight years to go, what should I do today?
• Is it a good idea at 59½ to do an “in-service” rollover into an IRA, even while still working?
• Am I diversified properly? Am I taking on more risk than I need to (or should)?
• What part of my retirement income versus expenses is guaranteed (such as pensions, Social Security, income annuities), rather than drawing down assets from potentially fluctuating accounts?
• What about long-term care?
• Is my estate planning up to date and accurate?
• Should I convert some of my pretax money (traditional or rollover IRA, for example) to a Roth IRA, so I have tax-free funds from which to draw?
• Should I purchase a life insurance policy that will continue beyond retirement?
• Is my retirement plan ready if my spouse or I die, and how would the reduction in Social Security affect the surviving spouse?
• Should I have a written retirement plan?
• When should I start to collect Social Security?

These are just some of the questions to think about when you hit 60 or when you find yourself seriously starting to consider retiring in the next five to eight years.

Review your assets to make sure there is enough income to last (while keeping up with inflation) over a potentially 30+ year period of your life, after you quit working.

Reference: Kiplinger (Dec. 23, 2020) “Turning 60 Checklist: 10 Key Retirement Questions to Ask”

Marilyn Monroe’s Estate Makes Money 50 Years after Her Death

“Marilyn Monroe’s estate makes millions every year. At the time of her death in 1962, the icon’s net worth was $10 million, when accounting for inflation. In 2020 alone, she made almost as much as that. But fans of the late star might be surprised to learn that it isn’t her many movies that make her estate the most money.”

Screen siren Marilyn Monroe starred in 23 films in her career. She created the first female-owned production studio. Marilyn Monroe Productions first film produced was The Prince and the Showgirl with Laurence Olivier.

Cheat Sheet’s recent article entitled “Marilyn Monroe’s Estate Is Still Making Millions but Not Because of Her Movies” says that as she became more famous, she saw bigger paydays.

Monroe died at the age of 36 in 1962, at the peak of her fame. However, Marilyn’s star would only continue to rise. More than 58 years after her fatal overdose, she’s still one of the most famous women in history. Her face and name are instantly recognizable, and public perception around her acting abilities have only improved in the years since her death.

According to Forbes, Monroe’s estate earned $8 million this year, making her the 13th highest-paid dead celebrity, and also the only woman on the list. Marilyn Monroe’s likeness makes her millions. Even today, Monroe is still the world’s biggest sex symbol.

Forbes reported that Monroe’s likeness is used by nearly 100 brands around the world, including high-end fashion houses like Dolce & Gabbana. Her famous face is still her biggest money-maker, but her films still bring in cash to her estate. Some Like It Hot made her estate $4.5 million in 1999 alone.

Monroe never had children and she was not married at the time of her death, so she left most of her money to her acting coach, Lee Strasberg. Marilyn also left money for her mother, half-sister, and close friends. Strasberg’s second wife, Anna, inherited the estate when Lee died in 1982. It was Anna who signed the deal with CMG Worldwide to license official Marilyn Monroe products, which contributed greatly to her estate.

While Monroe wanted her personal items to be left with friends, items like the dress she wore to sing “Happy Birthday” to President Kennedy and her beloved white baby grand piano were sold by the estate. The dress was sold for $4.8 million in 2016, and singer Mariah Carey bought the piano for more than $600,000.

Reference: Cheat Sheet (Dec. 21, 2020) “Marilyn Monroe’s Estate Is Still Making Millions but Not Because of Her Movies”

How to Plan for a ‘Fragile’ Beneficiary

“Today, estate planning can encompass more than addressing your potential tax exposure. It frequently requires protection of a “fragile beneficiary,” who can include family members with disabilities, individuals struggling with addiction, spendthrifts and even minors and there are planning options available to do so.”

Frequently, estate plans will include an inheritance for a minor beneficiary. If you have minor children, you should spell out exactly what you want as far as who will care for your children and how your children’s financial needs will be met.

Wealth Advisor’s recent article entitled “Handle with care: Tips on planning for the fragile beneficiary” explains that if a minor child inherits property outright, the court will usually appoint a conservator to handle the property until the minor reaches 18. Because of this, some parents make use of a trust, which lets the assets be available for a minor’s benefit but held under terms you set, when establishing the trust. A trustee oversees this.

A beneficiary with a disability. In some cases, a loved one with a disability may be receiving needs-based government benefits. To make certain that an inheritance doesn’t disrupt those benefits, many parents or guardians ask an experienced estate planning or elder law attorney to create a special needs trust (SNT). This is an irrevocable discretionary trust created by the parent in many cases for the benefit of a child with special needs. When set up correctly, the special needs trust won’t be considered an available resource for the purpose of determining eligibility for needs-based government benefits.

Incentive planning. Another aspect of estate planning is to use your assets to influence your loved one’s values and future behavior. A trust with incentive or disincentive provisions may help guide the choices and actions of your family, even after you have died.

Advanced planning for successful beneficiaries. If you plan to leave assets to a beneficiary who has the potential to incur significant personal liability due to his or her profession, ask your estate planning attorney about an irrevocable discretionary lifetime trust. If an inheritance is left to such a person without any protections, it may be attached by a judgment creditor upon distribution. A successful beneficiary may also need tax planning. If the beneficiary’s inheritance is properly left in a lifetime trust with the help of an experienced estate planning attorney, it may be removed from his or her taxable estate for federal estate tax purposes.

Although estate planning may be thought of as a way to transfer your assets to your family in a tax-efficient manner, it is also a way in which you can motivate, and at times protect, your loved ones.

Reference: Wealth Advisor (Dec. 22, 2020) “Handle with care: Tips on planning for the fragile beneficiary”

Why Is a Trust Smart Estate Planning for Farmers?

“Depending on your family situation and the value of your estate, forming a trust can be an important addition to your farm transition plan.”

A will gives people the basic assurance of where farm and personal assets will go at an owner’s death. However, a trust can give you added detail and instruction, plus flexibility to transition your farm in the manner you intend.

The LeMars Daily Sentinel’s recent article entitled “Trusts can serve as important estate planning tool for farm families” says that a trust is a very useful and flexible tool for estate planning. However, it’s most likely the most underused estate management technique.

A trust is essentially the creation of another entity to hold title to assets and then writing the rules as to what should happen with those assets, while so held.

An experienced estate planning attorney will help you decide if a trust is necessary in your specific family situation. More complicated situations with multiple generations and rights of ownership and management can make a trust a wise choice.

Some of the common mistakes people make with trusts include forgetting to retitle assets into the trust now or by beneficiary designation, so they will become part of the trust at death, and making certain the parties comprehend the types of tax liabilities based on the type of trust that is created. There are two main types of trusts—living and testamentary trusts. A living trust is established by a living person, as opposed to a testamentary trust that is created in a will and goes into effect at the time of death. Living trusts can be revocable or irrevocable. Every trust has different stipulations on what the grantor can and can’t control, as well as different types of tax liability.

With the help of an experienced estate planning attorney, a trust can help keep a family member in farming and let the other family members receive ownership in the farm, land, money, or whatever assets the grantor chooses. Due to the fact that farm operations have so many moving parts and expenses, a trust can help make the transition as easy as possible and can accomplish the goals of the grantor.

You should be transparent with family members and tell each one where they stand concerning the estate. Sharing documents and holding family discussions can also help keep everyone on the same page.

Everyone should have a copy of these documents, including a will, power of attorney, or a trust because everyone in the family should know what is going on.

Reference: LeMars (IA) Daily Sentinel (Dec. 29, 2020) “Trusts can serve as important estate planning tool for farm families”