Paul R. Tierney Law

Additional Benefits for Vets?

“Millions of veterans could be eligible for an additional year of education benefits starting next semester, thanks to another federal court ruling rejecting the Department of Veterans Affairs prohibition on collecting both Post-9/11 GI Bill benefits and Montgomery GI Bill payouts.”

A decision by the U.S. Court of Appeals for the Federal Circuit late last week will give millions of veterans a chance for an additional year of education benefits.

Military Times’s recent article entitled “Millions of vets may be eligible for extra GI Bill benefits thanks to court ruling” explains that it was one vet’s GI Bill fight that now gives benefits to potentially millions of other students.

The case, Rudsill vs. McDonough, has been pending in federal courts for nearly six years. At its center is department officials’ belief that vets can use either the Post 9/11 GI Bill program or the Montgomery GI Bill program, but not both. However, the case could give an additional year of benefits to those who’ve used up their post-9/11 GI Bill but still have some eligibility left under the Montgomery GI Bill program.

Jim Rudsill, an Army veteran wounded in a roadside bomb attack in Iraq in 2005, challenged that policy, saying it was based on a misreading of the law by department officials. He’s attending seminary school using his additional education benefits, after a lower court order let him start collecting the money, even as the case was appealed.

This was the latest in a series of courts to support his case, agreeing that Rudsill shouldn’t have been forced to give up eligibility in either program and should be entitled to 48 months of education benefits (the existing cap on total government higher education payouts under federal statute.) The ruling affirms lower court decisions that say eligible vets can begin using the benefits as early as next semester.

Under the Post-9/11 GI Bill education benefits program, eligible veterans receive 36 months of tuition payouts, housing stipends and other financial help. The Montgomery GI Bill benefits program offers far less money, but still has several thousands of dollars annually to offer vets for tuition costs, if they paid into the program at the start of their military service. That program is expected to be completely phased out in the several years.

If they have a choice between the two programs, most veterans go with the more financially generous Post 9/11 GI Bill program. However, court decisions have allowed for the possibility of another year of lesser education stipend payouts for veterans who can’t complete their degrees in 36 months.

Federal officials have two months to appeal the ruling or start paying out potentially billions in new education benefits.

Reference: Military Times (July 12, 2021) “Millions of vets may be eligible for extra GI Bill benefits thanks to court ruling”

Can I Learn from the Estate Planning Miscues of Celebs?

“If you do not learn from your mistakes, you are doomed to repeat them. In estate planning, if you do not learn from other’s mistakes, you are likely to repeat them. Mistakes in the estate planning of high-profile celebrities is one very good way to learn the lesson of what not to do. Here are eight celebrity estates, where the mistakes have been reported in the news over the years.”

Forbes’s recent article entitled “Lessons to Be Learned From Failed Celebrity Estates” gives us some great examples of some poor decisions by stars that left their families in a mess, estate planning-wise. Here are three:

James Gandolfini of Sopranos fame left only 20% of his estate to his wife.  If he left more of his estate to his wife, the estate tax on that gift would have been avoided in his estate. He failed to maximize the tax savings.

As a result, more than half (55%) of his total estate, including a significant art collection, was liquidated and sent to the federal government to pay estate taxes.

Jurassic Park author Michael Crichton was survived by his pregnant fifth wife. His son was born after his death, but because his will failed to anticipate a child being born after his death, his daughter from a previous marriage tried to exclude that baby from his estate.

The California statute would have included his son in his estate as pretermitted heir, but Crichton included language that specifically overrode that statute and excluded all heirs not otherwise mentioned in his will. He failed to update his will with the new child on the way— not anticipating that he would die with an unborn son, which he didn’t mention in the will.

Doris Duke, heir to a tobacco fortune, left her $1.2 billion fortune, including an extensive art and historic real estate holdings, to her foundation when she died in 1993. Duke’s butler was named to be in charge of the foundation.

The consequences?

There were a number of lawsuits claiming mismanagement and costing millions in legal fees.

You can see that even the most famous and the wealthiest people have failed to properly plan for their demise and have inflicted unnecessary pain, headaches and expense of their families.

If you have an estate plan in place, review your existing documents with an experienced estate planning attorney to make certain that they still accomplish your wishes.

Reference: Forbes (June 18, 2021) “Lessons to Be Learned from Failed Celebrity Estates”

Do Singles Need Estate Planning?

“If you don’t have a spouse or children, you might think you don’t need to do much estate planning. However, if you have any assets, any familial connections, any interest in supporting charitable groups – not to mention a desire to control your own future – you do need to establish an estate plan.”

Pauls Valley Democrat’s recent article entitled “Even 'singles' need estate plans” tells us what might happen if you die intestate (without a last will and testament). In that case, your any assets without a surviving joint owner or designated beneficiary or titled in a revocable living trust may be required to pass through the probate process. As a result, they’ll be distributed by the court, according to the state's intestate succession laws.

Even if you don’t have children, you may have nephews or nieces, or even children of cousins or friends, to whom you’d like to leave some of your assets. However, if everything you own goes through probate, there’s no guarantee that these people will get what you wanted them to have. Therefore, if you want to leave something to family members or close friends, state this in your last will and testament.

However, you may also want to provide support to some charities. You can just name these charities in your will. However, there may be options that could provide you with additional benefits. One such possibility is a charitable remainder trust. With this trust, you’d transfer appreciated assets, such as stocks, mutual funds or other securities, into an irrevocable trust. Your named trustee could then sell the assets at full market value, avoiding the capital gains taxes you’d have to pay if you sold them yourself, outside a trust.

Moreover, if you itemize, you may be able to claim a charitable deduction on your taxes. With the proceeds, the trust can purchase income-producing assets and provide you with an income stream for the rest of your life. At your death, the remaining trust assets will go to the charities that you’ve named.

A single person also should have as part of his or her estate planning, a durable power of attorney and a health care proxy. A durable power of attorney allows you to designate an individual to manage your finances, if you become incapacitated. This is really important, if you don’t have a spouse to step in.

If you become incapacitated, your health care proxy – also known as a health care surrogate or medical power of attorney – allows you to name another person to legally make health care decisions for you, if you are unable to do so yourself.

Estate planning can be complex, so work with an experienced estate planning attorney.

Reference: Pauls Valley Democrat (June 24, 2021) “Even 'singles' need estate plans”

What Should LGBTQ+ People Know about Estate Planning?

“The conversation about being prepared for the passing of a partner can be difficult to have but navigating the issue can be more complicated for LGBTQ+ families.”

Of course, it can be incredibly hard to experience a period of mourning, loss and grief, and then also be forced to navigate the legal complexities and probate and estate planning and try to determine these complicated issues.

Fox 17’s recent article entitled “Estate planning can be complicated for LGBTQ+ families” explains that when someone passes away without a will, they’re considered to have died intestate.

States all have different laws that apply, when someone dies intestate or without a will.

State law typically says that blood relatives have priority, if you’re not married. Therefore, if you’re in a same-sex relationship but not married (or any relationship but not married), the result may not be what you want.

There are several specific estate planning documents that everyone should have in place to make certain that their loved one is protected and provided for, in the event of their passing or being incapacitated.

This means that every adult should have a basic estate plan that includes a will, perhaps a trust and a set of healthcare documents that plan for incapacity during their lifetime.

If you don’t have a health care directive, and you're in an unmarried relationship, your partner may not have any legal rights to care for you or make decisions on your behalf.

You can state your wishes in a medical power of attorney or healthcare directive.

If you fail to have these documents squared away, a partner could even face difficulties caring for an adopted child, in some situations.

There are many cases of same-sex couples where there's one biological parent, and the other parent is not a biological parent but hasn’t yet legally adopted the child.

Without that legal adoption in place, that non-biological parent may not have any legal rights to care for those children, if the biological parent were to pass away.

Don’t let unfortunate and even disastrous circumstances result from your failure to plan your estate.

Speak with an experienced estate planning attorney today.

Reference: Fox 17 (Grand Rapids MI) (June 18, 2021) “Estate planning can be complicated for LGBTQ+ families”

When Should I Terminate an Irrevocable Life Insurance Trust (ILIT)?

“Should I terminate these trusts and just have my children as beneficiaries of my investment accounts and life insurance?”

Nj.com’s recent article entitled “Should I terminate this trust and do I need a will?” looks at the situation where a person created a revocable and an irrevocable life insurance trust (ILIT) to take care of his family after his death.

However, now everyone in the family is financially independent and the value of his estate is far below the 2021 taxable threshold of $11.7 million.

Should he end the trusts and simply designate his children as beneficiaries of his investment accounts and life insurance?

The purpose of an irrevocable life insurance trust (ILIT) is to own and control term or permanent life insurance policies, so the policy proceeds aren’t part of the insured’s taxable estate upon death.

In this situation, the ILIT was funded with a term policy that’s set to expire soon. As a result, it may be easier to let the policy owned by the ILIT expire.

If that happens, the ILIT would be immaterial. Note that the terms of the ILIT will dictate the procedure for the termination of the trust. This can be simple or difficult. Talk to an experienced estate planning attorney to examine the trust’s language.

A revocable living trust lets the individual creating the trust control the assets in the trust and avoid probate.

This type of trust can also be used to manage the trust assets by a successor trustee, if the grantor who created the trust becomes incapacitated.

An experienced estate planning attorney will know the state laws that regulate trusts, so consult with him or her. For example, banks in New Jersey may freeze 50% of the assets in an estate upon the owner’s death to make certain that any estate or inheritance taxes due are paid. In the Garden State, a tax waiver must be obtained to lift the freeze. However, the assets in a trust aren’t subject to a similar freeze.

At the grantor’s death, a trustee must pay income tax, if the gross income of the trust reaches the threshold. However, the trust may not accumulate gross income of $600, if the assets are distributed outright to the beneficiaries soon after the death of the grantor.

Reference: nj.com (June 15, 2021) “Should I terminate this trust and do I need a will?”

What Common Medicare Faux Paus Should I Avoid?

“If you don't make the right choices to fill in the health coverage gaps, you could end up with high Medicare premiums and big out-of-pocket costs.”

Medicare covers most of your health care costs when you turn 65. However, Medicare's rules can be confusing and mistakes can be costly. AARP’s recent article entitled “11 Costly Medicare Mistakes You Should Avoid Making” gives us some common Medicare mistakes to avoid.

Keeping Your Medicare Part D Plan on Autopilot. Open enrollment for Medicare Part D and Medicare Advantage plans goes from October 15 to December 7 every year. This is a good time to examine your options. The cost and coverage can vary a lot from year to year, and some plans boost premiums more than others.

Purchasing the Same Medicare Part D Plan as Your Spouse. There are no spousal discounts for Medicare Part D prescription-drug plans, and most spouses don't take the same medications. One plan may have much better coverage for your drugs, and another plan may be better for your spouse.

Going Out-of-Network in Your Medicare Advantage Plan. If you opt to get your coverage through a private Medicare Advantage plan that covers both medical expenses and prescription drugs, you usually need to use the plan's network of doctors and hospitals to get the lowest co-payments. Some plans won't cover out-of-network providers, except in an emergency. Be sure that your healthcare providers are covered in your plan from year to year.

Not Switching Medicare Advantage Plans Mid-year, If needed. Even though open enrollment for Medicare Advantage plans runs from October 15 to December 7, you also have from January 1 to March 31 to switch to a different Medicare Advantage plan. You can also switch plans outside of open enrollment, if you have certain life changes.

Not Selecting the Right Medigap Plan. If you buy a Medicare supplement plan within six months of enrolling in Medicare Part B, you can get any plan in your area even if you have a preexisting medical condition. However, if you attempt to switch plans after that, insurers in most states can reject you or charge more because of your health. So, choose your plan carefully.

Forgetting That You Can Sign Up for Medicare at 65. If you're already receiving Social Security benefits, you'll automatically be enrolled in Medicare Part A and Part B when you turn 65 (although you can turn down Part B coverage and sign up for it later). However, if you aren't getting Social Security benefits, you'll need to act to enroll in Medicare. If you're at least 64 years and 9 months old, you can sign up online. You have a seven-month window to sign up—from three months before your 65th birthday month to three months afterward (you can enroll in Social Security later).

Failing to Enroll in Medicare Part B, If You Have Retiree or COBRA Coverage. When you turn 65, Medicare is generally considered to be your primary insurance, and any other coverage you have is secondary—unless you or your spouse has insurance through a current employer with 20 or more employees. However, note that the coverage must be with a current employer. Other employer-related coverage, like retiree coverage, COBRA coverage, or severance benefits isn't considered to be primary coverage after you turn 65. As a result, if you don't enroll in Medicare, you may have gaps in coverage and be subject to a lifetime late-enrollment penalty of 10% of the current Part B premium for every year you should have been enrolled in Part B but were not. You may also have to wait to get coverage.

Forgetting the Medicare Part B Enrollment Deadline After Leaving Your Job. If you have coverage through an employer with 20 or more employees, you don't have to sign up for Medicare at 65. You can elect to keep coverage through your employer, so you don't have to pay the Part B premiums. However, you need to enroll within eight months after you leave your job, or you may have to wait until the next enrollment period (January through March, for coverage to begin on July 1). That means you could go for several months without coverage. You may also see the 10% lifetime late-enrollment penalty.

Making Financial Moves that Increase Your Medicare Premiums. Most seniors pay $148.50 per month for Medicare Part B premiums in 2021. However, if you're single and your adjusted gross income is more than $88,000 (or more than $176,000 for joint filers), you'll have to pay from $207.90 to $504.90 per month this year. You will also have a high-income surcharge for your Part D prescription-drug coverage. That can boost your premiums by $12.30 to $77.10 per month. If you're close to the income cutoff, remember that financial moves could up your adjusted gross income and make you subject to the surcharge. This includes thigs like rolling over a traditional IRA to a Roth or making large withdrawals from tax-deferred retirement accounts.

Failing to Contest the High-Income Surcharge for the Year You Retire. Your Part B and Part D premiums are higher, if you earned more than $88,000 if you’re single or $176,000 if you’re married filing jointly. The Social Security Administration uses your most recent tax return on file to determine if you're subject to the surcharge. But note that you may be able to get the surcharge reduced if your income has dropped since then because of certain life-changing events, like marriage, divorce, the death of a spouse, retirement, or a reduction in work hours. If so, you can ask Social Security to use your more recent income instead.

Enrolling in Medicare Part A, If You Want to Contribute to an HSA. Remember that you can't contribute to a health savings account (HSA) after you sign up for Medicare. However, that doesn't necessarily mean that you have to stop making HSA contributions when you hit 65. If you or your spouse has health insurance through your current job, you can delay signing up for Part A and Part B and keep contributing to an HSA. However, you can’t do this if you’ve already signed up for Social Security or your employer has fewer than 20 employees. If so, you can't delay signing up for Part A.

Reference: AARP (June 30, 2021) “11 Costly Medicare Mistakes You Should Avoid Making”

Should a Charitable Lead Trust Be a Part of My Estate Planning

“What is a charitable giving technique that doubles as a wealth transfer technique to avoid estate taxes and at the same time works especially well in a low-interest rate environment (as we find ourselves in now)?”

A charitable lead trust is usually implemented after other basics are done, such as your will, powers of attorney and health care directive, says Tri City Business News’ recent article entitled “Charitable lead trusts do good while reducing estate taxes.”

A charitable lead trust is a separate, standalone trust.

Let’s say there’s a married couple with some extra money who want to benefit a charity. The couple has an attorney draft a Charitable Lead Trust (CLT). The terms of the trust say that, for the lifetime of the couple (or the surviving spouse), the CLT will annually pay 5% of the trust to a qualified charity. At the death of the surviving spouse, the money left in the trust will go to the couple’s children. This is called a “split-interest” gift, where a portion of the gift to the trust goes to charity and a portion will ultimately go to the children.

The current interest rate is used to actuarially set the amount of the gift going to the children, which the parents will use to file a gift tax return.

With a few exceptions, there’s no tax assessed on a gift like that. It’s just required by law to report gifts that size to the IRS.

In a low interest rate environment, the calculated (the actuarially determined) amount going to the children will appear to be lower. However, the actual amount could be much higher, based on the performance of the assets in the trust.

For the calculation, because the amount going to the children appears lower, the calculated amount going to the charity must be higher.

Neither the parents nor the children get anything from the trust during the parents’ lifetime. In that way, it’s like a will where nothing goes to the children until the deaths of the parents. What makes a charitable lead trust attractive is the added ability to give to charity and engage in potential wealth transfer tax mitigation.

In addition, a charitable lead trust has another benefit: it potentially provides a consistent and reliable stream of income to your favorite charity for years to come. As such, in addition to acting as a legallysanctioned wealth transfer technique, it provides a wonderful benefit to worthy organizations.

Reference: Tri City Business News (Aug. 2021) “Charitable lead trusts do good while reducing estate taxes”

If I Have a Will, Do I Have an Estate Plan?

“While a will is often part of an estate plan, an estate plan covers much more ground.”

Estate planning and writing a will are entirely different terms.

An estate plan is a broader plan of action for your assets that may apply during your life, as well as after your death.

However, a will states the way in which your assets will go after you die.

Yahoo Finance’s recent article entitled “Estate Planning vs. Will: What’s the Difference?” explains that a will is a legal document that states the way in which you’d like your assets to be distributed after you die.

A will can also detail your wishes about how your minor children will be cared after your death, and it names an executor who’s in charge of carrying out the actions in your will. Without a will, the state’s probate laws determine how your property is divided.

Estate planning is a lot broader and more complex than writing a will. A will is a single tool. An estate plan involves multiple tools, such as powers of attorney, advance directives and trusts.

Again, a will is a legal document, and an estate plan is a collection of legal documents. An estate plan can also handle other estate planning matters that can’t be addressed in a will.

A will is a good place to start, but you’ll want to create an estate plan to ensure that your family is fully covered in the event of your death.

While having a will is important, it’s only the first step when it comes to creating an estate plan.

To leave your heirs and loved ones in the best position after your death, you should talk to an experienced estate planning attorney about creating a comprehensive estate plan, so your assets can end up where you want them.

Reference: Yahoo Finance (Aug. 10, 2021) “Estate Planning vs. Will: What’s the Difference?”

What’s the Best Way to Create a Comprehensive Estate Plan?

“When it comes to estate planning, many Americans are unprepared for what comes after death. Two out of three adults do not have a will or other estate planning documents, according to the caregiving website Caring.com.”

The number of young adults ages 18 to 34 with estate planning documents increased by 63% since 2020. That’s mainly because of the pandemic, says CBS News’ recent article entitled “How to create a well-rounded estate plan.”

Estate planning is more than just writing a will. A will is one part of a comprehensive estate plan, which involves multiple tools.

Some common inclusions are wills, powers of attorney, advance directives, trusts and more. Estate plans can involve both durable power of attorney for your finances and healthcare power of attorney for medical decisions, if you’re incapacitated.

For young adults, a significant issue beyond the distribution of family assets may be designating a health care proxy and power of attorney (POA).

This part of an estate plan addresses the question of who will make a health care decision on your behalf, if you are unable to do this yourself.

A POA solves the issue of who will make a business or financial decision on your behalf if you can't.

These documents aren’t just for when you're on life support. They may be implemented when you're in the hospital and out of action for a while.

As far as medical directives, you should detail your treatment wishes as much as possible.

This is a very big task to place on someone, so the more detailed you can be about your wishes, the better it will be. And the easier it will for the person who’s your health care agent to carry out your wishes.

You should talk to the individual you’ve selected to be your agent to make certain that he or she is willing and able to assume this big job.

If you have a complicated situation, such as a blended family or you're not in great standing with the rest of your family, you should definitely work with a qualified estate attorney in the state in which you reside.

Reference: CBS News (Aug. 11, 2021) “How to create a well-rounded estate plan”

Are Gen Z’s Ready for Estate Planning?

“Despite the pandemic, many Gen Z’ers are graduating from college and setting their course for success. This is a generation of young people who know what they want out of life and have the financial literacy tools – from podcasts to online platforms – to save for retirement, maximize their savings and achieve their goals.”

Once their 401K plan and IRAs are set up, many Gen Z’ers turn their attention to their parents’ financial planning. They want to make sure their parents have also maximized their tax savings, so they can get the most out of their inheritance. Forbes’ recent article entitled “What Gen Z Needs To Know About Estate Taxes” tells us what this savvy generation needs to know about the estate tax.

The estate tax, also known called “the death tax,” is a completely different tax than income tax. Income tax is a yearly tax on your income earned during that year.

The estate tax is a one-time tax on a person’s assets after they die. It’s due nine months after a person dies, if certain monetary thresholds are met. There are two types of estate tax—state and federal.

When a spouse dies and leaves everything to the surviving spouse, there’s usually no estate tax due because there’s no estate tax due if you leave all your assets to your spouse.

However, estate tax returns would need to be filed.

The government doesn’t want the surviving spouse to be a ward of the state. The surviving spouse will have access to the funds to live on and then they’ll be taxed after both spouses die. Therefore, estate taxes will need to be paid after both spouses die and before the assets are distributed to the children.

Another way to save on estate taxes would be to start a gifting program. Any person can gift up to $15,000 a year to a person with no tax consequences. A husband with two children could gift $15,000 to each of his children, and his spouse could do the same. As a result, this would transfer $60,000 on a yearly basis to the next generation with no tax consequences. 

There’s also the federal estate tax. In 2021, that tax is imposed on estates with assets at or over $11,700,000. However, in 2026 the exemption amount drops to $5 million (adjust yearly for inflation). The federal estate tax rate is a whopping 40%.

In states like Washington and Hawaii, estate tax rates can be as high as 20%. There are a number of states, like Massachusetts, where estate taxes can hit 16% (New York, Minnesota, Oregon, Illinois, Rhode Island, Maryland, Vermont, and D.C.). Connecticut and Maine’s estate tax is 12%. Every state with estate taxes has a different exemption level, so talk to an experienced estate planning attorney about how to proceed.

Reference: Forbes (Aug. 10, 2021) “What Gen Z Needs To Know About Estate Taxes”