The Petrosewicz Law Firm Estate Planning Blog

Blended Families Need More Thoughtful Estate Plans

Estate planning for blended families is like playing chess in three dimensions: even those who are very good at chess can struggle with so many moving parts in so many dimensions. Preparing an estate plan requires careful consideration of family dynamics, and those are multiplied in blended families. This is another reason why estate plans need to be tailored for each family’s circumstances, as described in the article “Blended families have unique considerations in estate planning” from The News Enterprise.

The last will and testament is often considered the key document in an estate plan. But while the will is very important, it has certain limitations and a few commonly used estate planning strategies can result in unpleasant endings, if this is the only document used.

Spouses often leave everything to each other as the primary beneficiary on death, with all of their children as contingent beneficiaries. This is based on the assumption that the second spouse will remain in the family home, then will distribute any proceeds equally between the children, if and when they move or die. However, the will can be changed at any time before death, as long as the person making the will has mental capacity. If when the first spouse dies, the relationship with the surviving children is not strong, it is possible that the surviving spouse may have their will changed.

If stepchildren don’t have a strong connection with the surviving spouse, which occurs frequently when the second marriage occurs after the children are adults, things can go wrong. Their mutual grief at the passing of the first spouse does not always draw stepchildren and stepparents together. Often, it divides them.

The couple may also select different successor beneficiaries. The husband may name his wife first, then only his children in his will, while the wife may name her husband and then her children in her will. This creates a “survival race.” The surviving spouse receives the property and the children of the spouse who passed won’t know when or if they will receive any assets.

Some couples plan on using trusts for property distribution upon death. This can be more successful, if planned properly. It can also be just as bad as a will.

Trust provisions can be categorized according to the level of control the surviving spouse has after the death of the first spouse. A trust can be structured to lock down half of the trust assets on the death of the first spouse. The surviving spouse remains as a beneficiary but does not have the ability to change the ultimate distribution of the decedent’s portion. This allows the survivor the financial support they need, giving flexibility for the survivor to change their beneficiaries for their remaining share.

Not all blended families actually “blend,” but for those who do, a candid discussion with all, possibly in the office of the estate planning attorney, to plan for the future, is one way to ensure that the family remains a family, when both parents are gone.

The Petrosewicz Law Firm can assist you with your estate planning and trust needs.  Contact us today at (281) 344-9455 or [email protected].  

Reference: The News Enterprise (November 4, 2019) “Blended families have unique considerations in estate planning”

Are Seniors Prepared for Natural Disasters?

With hurricanes, tropical storms and wildfires becoming routine events, data from the National Poll on Health Aging suggest that older adults, loved ones and their care providers should take time to prepare for how they will cope and communicate in an emergency. The question is not if something will occur, but when. According to the article “Many Older Adults Aren’t Ready for Natural Disasters” from the website futurity.com (U. Michigan), fewer than half of the seniors surveyed have signed up for emergency warning systems from their community. Less than a third have an emergency kit prepared with essential supplies and medicines to get them through an emergency or to take with them, if there is an evacuation.

The poll asked a national sample of 2,000 adults age 50 to 80 about their readiness for several different types of emergency situations. About seventy-five percent said that they had already experienced at least one major emergency in their lives.

“Whether it’s as straightforward as a power outage that lasts a day, or as severe as a hurricane, tornado, or earthquake, preparing can make a huge difference,” says Preeti Malani, the poll’s director and a professor at the University of Michigan Medical School.

One of the key steps for an adult to take in disaster readiness is to talk with loved ones about what will happen in different types of emergencies, and what needs they should consider. For those who depend upon medicine, medical supplies and equipment, this can be lifesaving.

A basic emergency plan to evacuate and be safe is a smart idea for everyone. For older adults who have health issues or mobility challenges, this is particularly important.

There are some areas where seniors are prepared. 85% said they have a week’s supply of their medications on hand, and 72% say they have a week’s worth of other medical supplies.

Having a plan in place for disaster is important for seniors. So is having an estate plan, to prepare for life’s unexpected occurrences. If you don’t have an estate plan, speak with an estate planning attorney soon to have a will, power of attorney, healthcare proxy and other planning documents in place.

The Petrosewicz Law Firm can assist you with your estate planning needs.  Contact us today at (281) 344-9455 or [email protected].  

Reference: futurity.org (U. Michigan) (Sep. 4, 2019) “Many Older Adults Aren’t Ready for Natural Disasters”

Retirement and Estate Planning Work Better Together

So, you’ve been married for a while, and you’re both comfortable with which bank accounts, credit cards and investment accounts are shared and which other accounts are kept separate. However, where the big picture is concerned—like coordinating retirement plans, health coverage and tax planning—you both need to take an active role in planning and making good decisions. In fact, says the article “Couples and Money: When Together is Better” from Kiplinger, the decisions that work well for you as individuals may not be so hot, when they are looked at from a couple’s perspective.

Here’s an example. A man is working at a firm that doesn’t offer a match for his 401(k) contributions, but his wife’s employer does. Instead of contributing to his 401(k) plan, he uses the money to pay off a HELOC (Home Equity Line of Credit) that the couple had taken together to do some upgrades on their home. She contributes enough to her own 401(k) to get her company’s match every year. The goal is to cut their debt and save as much as possible. This worked at that time in the couple’s life.

Ten years later, they are both maxing out their 401(k) savings and working to build short-term savings to send kids to college through the use of 529 College Savings Accounts.

Retirement accounts can never be jointly owned. However, some couples fall into a trap of saving for themselves without considering the overall household. Dual earning couples often run into trouble, when one has a workplace plan and the other does not. The spouse with the workplace plan isn’t thinking that he or she needs to save enough for two people to retire. With two incomes, you might think that both are making retirement a savings priority, but without a 401(k) plan, it’s possible that only one person is saving and only saving enough for themselves.

A general recommendation is that both members of a couple save between 10-15% of their household earnings, rather than their personal earnings, in retirement accounts. Couples should review their respective retirement plans together and plan together. If one has a more generous match, access to a Roth option, or better investment opportunities, they should consider how much the person with the better plan should save.

Couples also need to examine other financial aspects of their lives. Coordinating retirement benefits, reviewing life insurance policies, planning a coordinated strategy for taking Social Security and making informed choices about health care coverage can make a big difference in the family’s financial well-being.

Equally important: making sure that an estate plan is in place. That includes a will that names a guardian for any minor children, a health care proxy and a financial power of attorney. Depending upon the family’s circumstances, that may include trusts or other wealth transfer strategies.

The Petrosewicz Law Firm can assist you with your estate planning needs.  Contact us today at (281) 344-9455 or [email protected].  

Reference: Kiplinger (Dec. 23, 2019) “Couples and Money: When Together is Better”

How Does the SECURE Act Change Your Estate Plan?

The SECURE Act has made big changes to how IRA distributions occur after death. Anyone who owns an IRA, regardless of its size, needs to examine their retirement savings plan and their estate plan to see how these changes will have an impact. The article “SECURE Act New IRA Rules: Change Your Estate Plan” from Forbes explains what the changes are and the steps that need be taken.

Some of the changes include revising wills and trusts which include provisions creating conduit trusts that had been created to hold IRAs and preserve the stretch IRA benefit, while the IRA plan owner was still alive.

Existing conduit trusts may need to be modified before the owner’s death to address how the SECURE Act might undermine the intent of the trust.

Rethinking and possibly completely restructuring the planning for the IRA account may need to occur. This may mean making a charity the beneficiary of the account, and possibly using life insurance or other planning strategies to create a replacement for the value of the charitable donation.

Another alternative may be to pay the IRA balance to a Charitable Remainder Trust (CRT) on death that will stretch out the distributions to the beneficiary of the CRT over that beneficiary’s lifetime under the CRT rules. Paired with a life insurance trust, this might replace the assets that will ultimately pass to the charity under the CRT rules.

The biggest change in the SECURE Act being examined by estate planning and tax planning attorneys is the loss of the “stretch” IRA for beneficiaries inheriting IRAs after 2019. Most beneficiaries who inherit an IRA after 2019 will be required to completely withdraw all plan assets within ten years of the date of death.

One result of the change of this law will be to generate tax revenues. In the past, the ability to stretch an IRA out over many years, even decades, allowed families to pass wealth across generations with minimal taxes, while the IRAs continued to grow tax tree.

Another interesting change: No withdrawals need be made during that ten-year period, if that is the beneficiary’s wish. However, at the ten-year mark, ALL assets must be withdrawn, and taxes paid.

Under the prior law, the period in which the IRA assets needed to be distributed was based on whether the plan owner died before or after the RMD and the age of the beneficiary.

The deferral of withdrawals and income tax benefits encouraged many IRA owners to bequeath a large IRA balance completely to their heirs. Others, with larger IRAs, used a conduit trust to flow the RMDs to the beneficiary and protect the balance of the plan.

There are exceptions to the 10-year SECURE Act payout rule. Certain “eligible designated beneficiaries” are not required to follow the ten-year rule. They include the surviving spouse, chronically ill heirs and disabled heirs. Minor children are also considered eligible beneficiaries, but when they become legal adults, the ten year distribution rule applies to them. Therefore, by age 28 (ten years after attaining legal majority), they must take all assets from the IRA and pay the taxes as applicable.

The new law and its ramifications are under intense scrutiny by members of the estate planning and elder law bar because of these and other changes. Speak with your estate planning attorney to review your estate plan to ensure that your goals will be achieved in light of these changes.

The Petrosewicz Law Firm can assist you with your estate planning and trust needs.  Contact us today at (281) 344-9455 or [email protected]. 

Reference: Forbes (Dec. 25, 2019) “SECURE Act New IRA Rules: Change Your Estate Plan”

What has the Average American Saved for Retirement?

It’s the question we all wonder about, but not very many of us will come out and ask. A 2019 analysis of more than 30 million retirement accounts by Fidelity Investments found that the average balance in corporate sponsored 401(k) plans at the end of 2018 was $95,600. When it came to traditional, Roth and rollover IRAs, the number was $98,400, reports Investopedia in a recent article titled “What Is the Size of the Average Retirement Nest Egg?” A look at 403(b) and other defined contribution retirement plans in the non-profit sector found that it was $78,7000. These numbers were down between 7.8%-8% from the same quarter of the prior year. Blame the stock market for that.

Averages like this only indicate a few things. Younger workers, for example, tend to have less in their retirement accounts than older workers. Their salaries are smaller, and they haven’t had decades to accumulate tax deferred income in their accounts. However, that gap is wide.

A June 2018 report from the Transamerica Center for Retirement Studies looked at a nationally representative sample of more than 6,000 workers and broke out retirement savings by generation. The boomer members had estimated median retirement savings of $164,000 in 2017, while Gen Xers had $72,000 and millennials had $37,000.

Aside from age, the big factors in retirement savings success seem to be education and income. People with higher income put more money into their retirement accounts. The Transamerica study shows that households with incomes of under $50,000 had estimated median retirement savings of $11,000. Households with incomes between $50,000 and $99,999 had median savings of $61,000 and those with incomes of $100,000 or more had $215,000.

The higher the level of education, the more money people have set aside for retirement.

Therefore, if you’re wondering how your nest egg compares to the average nest egg, the first thing you’ll want to do is decide to whom you want to compare yourself and your nest egg. You can compare yourself to the U.S. population in general, or to people who are more like you in education, age and income.

Here’s an unnerving thought: no matter if your nest egg is way above your peer group, that doesn’t mean it will be enough when retirement rolls around. Everyone’s situation is different, and life hands us unexpected surprises.

One way to prepare is to have an estate plan. If you don’t already have an estate plan, which includes a will, power of attorney, health care power of attorney, possibly trusts and other strategic tools for tax planning and wealth transfer, make an appointment with an estate planning attorney.

The Petrosewicz Law Firm can assist you with your estate planning needs.  Contact us today at (281) 344-9455 or [email protected].  

Reference: Investopedia (Sep. 24, 2019) “What Is the Size of the Average Retirement Nest Egg?”

How to Keep Giving After We Are Gone

Americans are a generous people, giving of our time and resources, through donations and volunteering. However, according to the article “Charitable conundrum: Why do we give up on giving at death?” from the Austin Business Journal, less than one out of nine individuals include a charitable donation as part of their estate plan.

Why do we stop giving at death? We know that the causes we care about continue to work after we are gone. There are many reasons for this, but perhaps the biggest reason behind his omission is that we tend to avoid estate planning. It’s an emotional challenge, preparing in a very real way to leave the world we enjoy with our loved ones. It’s not as much fun as going fly fishing or playing with the grandchildren.

Here are a few ways to include charitable giving in your estate plan, even when you aren’t having your estate plan created or reviewed.

Charitable beneficiaries. You can make a charity a beneficiary of a retirement account. They can be added as a primary beneficiary or as a contingent beneficiary. These changes can be made simply by contacting the custodian of the account and following their instructions for changing beneficiaries. Note that in certain states, spousal approval is required for any beneficiary changes. You can use this opportunity to also update your beneficiaries.

There’s a tax benefit in doing this. Charitable beneficiaries do not have to pay income tax on retirement distributions, although individuals do. Depending on the income level of an individual beneficiary, an heir could lose more than 40% of the inherited retirement account to state and local taxes.

The addition of a charitable beneficiary may restrict the ability for family members to stretch the receipt of retirement assets over time. Check with your estate planning attorney to make sure your good deed does not cause a hardship for family members.

Create a charitable IRA of your own. Another way to use retirement funds for a donation, is to roll some assets out of a main retirement account into a smaller retirement account with only charitable beneficiaries. Instead of consolidating accounts, you are doing the opposite, but for a good reason. This will allow you to manage the amount of money being left to the charity and take required or discretionary distributions from whichever account you choose.

Life insurance and annuities. Both of these vehicles use beneficiary designations, so the same strategy can be used for these accounts. Typically, the annuity must still be in the deferral state—not annuitized—and the life insurance contract must allow for changes to be made to the beneficiaries, which is true for most accounts. Note that life insurance proceeds are non-taxable to individuals and charities, and annuity proceeds are generally partially tax-free to individual heirs (amount of basis in the contract).

Talk with your estate planning attorney about the optimal strategies for making charitable giving part of your estate plan. Your situation may differ, and there may be other ways to maximize the wealth that is shared with charities and with your family.

The Petrosewicz Law Firm can assist you with your estate planning needs.  Contact us today at (281) 344-9455 or [email protected].  

Reference: Austin Business Journal (October 2, 2019) “Charitable conundrum: Why do we give up on giving at death?”

Planning for Care in Advance

An aging parent’s health can fail suddenly, or they can have a fall that will unexpectedly put them into a precarious state. Therefore, it is vitally important that legal and medical arrangements be made, while they are still well enough to be an active participant in decisions, advises TAP into Roxbury in the article “Putting Together a Plan of Care.” Here are the steps to get you started:

Advance Directive: This document spells out their wishes regarding future medical care and treatment, if they are no longer able to speak or make decisions on their own behalf.

A Living Will is used to state in advance whether or not they want to have medical treatment, like a feeding tube, ventilator, or heart machine to prolong life, when death is inevitable.

A Durable Health Care Power of Attorney appoints another person to make medical decisions, if the person becomes incapacitated.

A Power of Attorney names someone who will be able to make decisions about their finances, pay bills, and manage real estate and other assets.

A Last Will and Testament provides information about what they would like to happen to their assets upon their demise and names an executor who will be in charge of carrying out their wishes.

Copies of medical insurance cards and any other insurance information, if emergency treatment is needed.

A Do Not Resuscitate (DNR), if they do not wish to be brought back to life during a medical emergency.

A list of medications they are currently taking, as well as doctor’s names and contact information.

A list of professionals, including their estate planning attorney, CPA and financial advisor, and all contact information.

Having all these documents prepared in advance of any emergency will be helpful, if they are ever needed. Keeping them in a safe and accessible location where they can be obtained quickly in an emergency is also important. Do not put them in a safe deposit box, which may be sealed upon their death.

Some seniors are reluctant to have these discussions, although they may be more comfortable having them with a person outside the family, like an estate planning attorney.

The Petrosewicz Law Firm can assist you with your estate planning needs.  Contact us today at (281) 344-9455 or [email protected].  

Reference: TAP Into Roxbury (October 7, 2019) “Putting Together a Plan of Care”

When Selecting Beneficiaries Gets Overlooked

Here’s one way to mess up your estate plan: naming beneficiaries not by name, but by the generic term “children.” If yours is a blended family, your stepchildren may be out of luck, according to the article “Five mistakes to avoid when naming beneficiaries” from Delco Times. In many states, stepchildren aren’t recognized if the word “children” is used. Use your beneficiaries’ full names.

Here are more mistakes that people make about beneficiaries:

Failing to name a beneficiary on every account. The great thing about beneficiary designations as that they do not go through probate and beneficiaries receive assets directly from the custodian of the account. However, if you fail to name a beneficiary, the asset, whether life insurance proceeds or the entire balance of a 401(k) account will go to your estate, and then it will need to go through probate.  For retirement accounts, your heirs will also lose the ability to stretch withdrawals.

Failing to name a contingency beneficiary. What if the first person passes away before you and there’s no contingency beneficiary named? The asset goes through probate, as if there were no beneficiary named at all.  If both people die at the same time, all of the funds must go through probate.

Neglecting to review beneficiary selections on a regular basis. Beneficiary designations override a will, so it’s very important to keep them current. Every few years, review the accounts that you own and see what your beneficiary designation choices are. This is especially necessary, if you have been divorced, widowed or remarried. If you fail to take your ex-spouse off an insurance policy, for instance, there’s little that can be done when you die—even if you put your wishes that a new spouse or children receive the proceeds in your will. If the dispute goes to court, your new spouse or children won’t be likely to win, no matter what your intentions may have been.

Not communicating with your partner and family members. Talking with family members and loved ones about your wishes for your legacy and asset distribution is an important way to let them know what to expect when you die. It’s not an easy conversation, but it will be helpful to all. Knowing you have a plan will alleviate them from the worry of the unknown. There’s no need to talk specific dollar amounts, unless you want to. Instead, give them a high-level overview of what your intentions are.

Some families find these conversations easier in the presence of an objective third party, like your estate planning attorney. If your estate plan includes trusts or any complex planning strategies, a family meeting provides a means of explaining the plan and the processes involved.

The Petrosewicz Law Firm can assist you with your estate planning and probate needs.  Contact us today at (281) 344-9455 or [email protected].  

Reference: Delco Times (October 6, 2019) “Five mistakes to avoid when naming beneficiaries”

Special Needs Planning is a Lifelong Event

Working to get her son assessed to qualify for support programs, fighting to get benefits and finding therapists became a full-time job, and one that led to enormous costs, even with the family’s having good health insurance. In a recent article “Their Child Has Special Needs. Here’s How They’re Planning for a Lifetime of Assistance” Barron’s explores the life-long journey of caring for a special needs family member.

Smyth’s biggest worry is the same as other parents in her situation: what will happen to her now 23-year old son, when she and her husband are no longer around to support him?

For families with a special needs child, the focus is on the health of the child, but the financial and legal planning to care for someone whose life will likely extend beyond the traditional financial life of the parents is critical.

The estimates of costs are overwhelming. The lifetime cost for a person with autism averages from $1.4 million to $2.4 million, depending on whether the person has an intellectual disability, according to Autism Speaks, an advocacy group. Residential or 24/7 care can easily cost $100,000 a year.

The medical assessment is often the first step to getting benefits, through Medicaid and developmental disability and autism programs. How much and which programs may be covered, depends upon the state. Where you live matters. For parents who are thinking about where to retire, moving to a condo in Florida might be great for lowered costs and taxes, but it could mean a special needs child loses important benefits.

Beneficiary designations must be planned carefully, since a special needs individual may not own more than $2,000 in assets. An inheritance or even a job could disqualify them from accessing programs. One way to avoid this is to open an ABLE account. It’s a state-run savings account that can be funded by the special needs individual or family members with after-tax money up to $15,000 a year, and can be used for housing, education, transportation, and other services. The account’s assets are not included in the benefits calculation as long as the total balance is under $100,000.

Another option is a special needs trust, which can shelter assets. Grandparents who want to leave money to special needs children leave it in a special needs trust. The same holds for life insurance policies that pay out on the death of the parents for the special needs child. Just be careful about over-funding the trust too early, as money that goes in cannot be withdrawn for other purposes. The beneficiary of the trust after the special needs child dies, does not get a step-up in basis for taxes.

Talk with an elder lawyer about planning for the special needs child. You’ll also need to have a health care proxy, a power of attorney, a HIPAA release form and a last will and testament. The estate planning elder law attorney with experience helping special needs families may also know of important resources in your community, which can be invaluable to the qualify of life for you and your child.

The Petrosewicz Law Firm can assist you with your estate planning and trust needs.  Contact us today at (281) 344-9455 or [email protected].  

Reference: Barron’s (November 29, 2019) “Their Child Has Special Needs. Here’s How They’re Planning for a Lifetime of Assistance”

Holiday Gatherings Often Reveal Changes in Aging Family Members

A look in the refrigerator finds expired foods and an elderly relative is asking the same questions repeatedly. The same person who would never let you walk into the house with your shoes on now, is living in a mess. The children agree, Mom or Dad can’t live on their own anymore. It’s time to look into other options.

One of the biggest questions, according to the Cherokee Tribune & Ledger-News’ article is “How to pay for long-term care.”

The first question involves the types of facilities. There are many different options but the distinctions between them are often misunderstood. Assisted living facilities provide lodging, meals, assistance with eating, bathing, toileting, dressing, medication management and transportation. However, a skilled nursing facility adds more comprehensive health care services. There’s also the personal care home, which provides assisted-living type accommodations, but on a smaller scale.

The next question is how to pay for the residential care of an elderly family. This weighs heavily on the family. That elderly person is often the one who did the caregiving for so many years. The reversal of roles can also be emotionally difficult.

There are a few different ways people pay for care for an elderly family member.

Long-term care insurance, or LTC insurance. Few elderly people have the insurance to cover their residential facility stay, but some do. Ask if such a policy exists, or go through the piles of paperwork to see if there is such a policy. It will be worth the search.

Veteran’s benefits. If your loved one or their spouse served during certain times of war, is over 65 or is disabled and received an honorable discharge, he or she may be entitled to certain programs that pay for care through the Department of Veterans Affairs.

Private pay. If your loved one has financial accounts or other assets, they may need to pay the cost of their residential facility from these assets. If they don’t have assets, the family may wish to contribute to their care.

Another route is to apply for Medicaid. An elder law attorney in their state of residence will be able to help the individual and their family navigate the Medicaid application, explore if there are any options to preserving assets like the family home, and help with the necessary legal strategy and documents that need to be prepared.

Meet with an elder law estate planning attorney to learn what the steps are to help your elderly loved one enjoy their quality of life, as they move into this next phase of their life.

The Petrosewicz Law Firm can assist you with your elder law needs.  Contact us today at (281) 344-9455 or [email protected].  

Reference: Cherokee Tribune & Ledger-News (November 30, 2019) “How to pay for longterm care.”