Barnes Lipscomb & Stewart PLLC

Are You Sure You’re Not Single?

“Single retirees may feel left out of the Social Security conversation, since it fixates on how married couples can make the most of their benefits.  However, it’s a mistake to assume that there are no claiming strategies to maximize benefits for solo retirees. The fact of the matter is that single retirees need to plan just as carefully for their Social Security benefits as do married beneficiaries.”

As Investopedia’s article, “Social Security Claiming Options for Singles,” explains, unmarried retirees need to be certain they understand exactly how Social Security defines “single.” It’s not limited to never-married beneficiaries, because those who divorced prior to their tenth anniversary are also considered single. If you are single due to the death of your spouse, you’re eligible for widow/widower benefits based on your spouse’s work record, provided the marriage lasted at least nine months prior to your spouse’s death.

Since single retirees have no spousal work records from which to claim benefits, they must increase their own benefits. They can do this in one of two ways: maximizing earnings before retirement or waiting for benefits as long as possible to get delayed retirement credits. Delayed retirement credits offer you an increase of about 8% a year between your full retirement age and age 70.

In addition to a larger monthly benefit for single retirees who wait to file for Social Security, there’s also the possibility of taking retroactive benefits if you need cash. You can get retroactive benefits if you wait at least six months after reaching full retirement age to claim benefits. When you apply, you’ll get a maximum of six months’ worth of missed benefits as a lump sum. You will also begin receiving your monthly benefit from that point forward.

If you wait more than six months past full retirement age to claim retroactive benefits—though applying for retroactive benefits will cause beneficiaries to lose the delayed retirement credits they’ve accrued during those six months—they’ll also get to keep any delayed retirement credits accrued prior to the six-month time frame.

The positive of being single in retirement is there are fewer obstacles and more opportunities for truly golden years than married couples have. Nevertheless, you need to plan ahead for the potential financial pitfalls, especially when it comes to deciding when and how to claim your Social Security benefits.

Reference: Investopedia (December 26, 2017) “Social Security Claiming Options for Singles”

Naming Beneficiaries: The Right Way and the Wrong Way

If something happened to you tomorrow, do you know for a fact that your beneficiary designations are correct? Or will your ex-spouse get an unexpected windfall?

Your will may be updated, but if you haven’t looked at your beneficiary designations on documents like life insurance policies, IRAs or investment accounts, your estate plan may have a big vulnerability that needs to be buttoned up.

As WTOP’s recent article, “7 common mistakes to avoid when naming your beneficiaries,” explains, after any major life change, like a marriage, divorce, birth of a child, or death of a spouse, you need to review your beneficiary designations. It’s also wise to review them on a more regular basis.

We all have opened multiple bank, investment, and retirement accounts that require us to name beneficiaries directly for each account. It is important to remember how important this is, because these direct beneficiary designations supersede a will. They should be reviewed carefully and aligned with your estate plan.

How your accounts are titled will determine whether they’ll go through probate at your death.  However, proper account titling lets you avoid probate and transfer assets directly to your named beneficiaries, since these assets pass outside of your will.

If you fail to name a beneficiary, your assets will go through probate. However, with a retirement plan or life insurance company holding your assets, there may be a contract term that designates a “default” beneficiary which may not be what you’d want. In addition, there could be some avoidable tax liabilities.

If you name your estate as the beneficiary for your retirement plan, the distributions go through probate and are more limiting than if you had named a spouse or non-spousal beneficiary. Either a lump sum makes the entire retirement amount taxable at that time or within five years of the decedent’s date of death and taxable at the time of distribution.

 However, a spousal beneficiary can roll over retirement proceeds directly into her own IRA and take required minimum distributions (RMDs) based on her age, rather than the decedent’s. A non-spousal beneficiary can establish an inherited IRA and withdraw an annual amount based on his life expectancy.

An experienced estate planning attorney will be able to review your investments, accounts and life insurance policies to make sure that they are titled properly, your beneficiary designations are up-to-date and that they are all aligned with other estate and legal documents.

Reference: WTOP (February 21, 2018) “7 common mistakes to avoid when naming your beneficiaries”

What Kind of IRA Can a Self-Employed Person Use?

There are many options for business owners, some of which allow for more savings than a traditional IRA.

If you are self-employed or own a business where your only employee is yourself or a spouse, you can use “solo 401(k) and fund it with about 20% of your net profits when business is going great. Nice touch: you can also skip making any contributions when profits are sparse.

As Kiplinger says in the article, “Retirement Savings Plans for the Self-Employed,” whether you’re running a side business or you are entirely self-employed, you have options when it comes to saving for retirement.

You can select from several retirement plans that let you make pretax contributions that grow tax-deferred, until you withdraw the money. If you choose to make after-tax Roth contributions to your solo 401(k), withdrawals in retirement will be tax-free.

There are also some self-employed plans that let you contribute above the limits for a traditional or a Roth IRA. With a solo 401(k), for example, you can put in money both as employee and as employer.

Therefore, you could potentially contribute as much as $55,000 of your self-employment income. Some of the common plans for the self-employed are the solo 401(k), the SEP (simplified employee pension) IRA, and a SIMPLE (Savings Incentive Match Plan for Employees) IRA.

The new tax law will have an impact on retirement plans.  It may affect how you may save for retirement. For example, sole proprietors, partnerships, and other pass-through entities can now deduct 20% of their profits from their taxable income. However, the 20% pass-through deduction will be applied to the lesser of your qualified business income or taxable income minus any capital gains.

Whatever plan you and your accountant decide is best for you, bear in mind that you want to find the solution that allows you to max out retirement savings, while minimizing your tax bill. Take into consideration how much you earn and how much you can afford to save while maintaining your lifestyle, and what kind of retirement you’d like to enjoy.

Reference: Kiplinger (February 21, 2018) “Retirement Savings Plans for the Self-Employed”

New Program to Respond to Elder Abuse in San Diego County

How a society treats its most vulnerable, including seniors and dependent adults, is emblematic of what it values and respects.

Best practices and a partnership with law enforcement, including prosecutors, is part of a new program launched in San Diego County to address the rising number of elder law and dependent adult abuse incidents.

To address an increase in crimes against seniors, as well as the impending explosion of the elder population, District Attorney Summer Stephan met with professionals who deal with the elderly and dependent adults to identify gaps and needs in the community and to set goals for the future.

This group created the San Diego County Elder and Dependent Adult Abuse Blueprint, according to CBS8.com’s recent post, “County unveils new program to prevent elder abuse.”

Stephan said, "With this countywide initiative, we're proactively responding to an increase in elder abuse crime as this population continues to grow. This first-of-its-kind combating elder abuse blueprint will provide a coordinated regional response leveraging resources and partnerships to protect seniors and keep them safe in our community."

In San Diego County, about 23% of the population will be over age 65 by 2050—a 10% increase from 2015. The increase in the older population means that elder abuse is also on the rise.

In 2016, there were 780 violent crimes against senior citizens, an increase of 13% from the previous year and 37% from five years ago. Those 780 crimes included 14 homicides, 24 rapes, 205 robberies, and 537 aggravated assaults.

"What makes elder abuse so heartbreaking, and so difficult for outsiders to recognize, is that it often comes at the hands of caretakers or family members who have the victim's trust," said San Diego City Attorney Mara Elliott.

Without the full involvement of the authorities and the community, she added, it’s difficult to protect the elderly from fraud, neglect and abuse. It’s critical for the community to be aware of these crimes and available resources, and regional cooperation and mobilization must be part of the solution.

Reference: CBS8.com (March 1, 2018) “County unveils new program to prevent elder abuse”

Planning a Quick Sale of Your Business? Not So Fast!

Small business owners often do not understand that selling their business takes a lot of planning.  There may be bumps along the way.

It’s hard for small business owners to objectively assign a value to their business, as examined in Southcoast Today in “Retiring after you sell your business? It may not be as simple as you think.”

The simple answer is that it’s worth what someone else is willing to pay for it.

 However, there are many factors that need to be considered when valuing a business. They include the age of the business, revenue, income, stability of revenue and income, growth rate, industry, management, systems and procedures, key employees, employee turnover, the economy and more.

There are also multiple methods used to value it, such as Book Value, Comparative Business Sales, Multiple of Discretionary Earnings, Discounted Cash Flow and Asset Valuation.

In many instances, the business is the single biggest asset owned by the owner.  It may represent the majority of his or her net worth. If so, the owner should consider how he or she will monetize the value of the business, when it comes time to retire. They also need to protect the business against risks that could close it.

If the business is the owner’s biggest asset, how is she going to be able to retire comfortably?

There should be a succession plan in place to clarify whether the business is to be sold to an outside third party, to company employees or to the owner’s children. The owner will also have to possess enough other non-business assets, if it’s to be left to his or her children

In a family business, there could be one child who worked in the business, while the other children didn’t. How will this be handled in estate planning?

Selling a privately held business is a complex undertaking with many moving parts. An experienced estate planning attorney, working in concert with a CPA who has credentials in valuation and forensics, will be able provide you with a clear picture of the value of the business, align the sale of the business with your family dynamics and create a plan for the future that addresses retirement planning, succession planning and estate planning.

Reference: Southcoast Today (March 2, 2018) “Retiring after you sell your business? It may not be as simple as you think”

Surprise –You’re Running a Small Nursing Home in Your Own Home!

Have your parents ever made a remark that they took care of you and expect you to return the favor as they get older? If so, you’ll want to have a more in-depth conversation.

It’s one thing for parents to expect kids to do chores. It’s another to expect that they will take parents into their homes and provide round-the-clock care when you have your own family and responsibilities. According to MarketWatch’s article, “Not expecting to be a caregiver? You’d better check that with your parents,” disaster for all can result when a parent’s idea of home care centers on their adult children’s homes.

In many instances, parents have no one to help them in the house or bring them to appointments. Those adult children who do help their parents may save less for their futures as they help pay for their parents’ care and, in some cases, may cut back on work hours or leave a job altogether. Even worse, these discussions may not take place until it’s too late.

According to a survey by Bay Alarm Medical, some 55% of parents say that their children will be the ones caring for them, physically or financially, as they age. However, not all children agreed with that or knew about it. Parents are more likely to lean on their daughters (and expect that of them) than their sons—about three and a half times more so, according to a 2006 study on mothers’ expectations of caregiving by their children. That’s because they usually rely on the children they believe are closest emotionally.

 However, like many money and final year-type topics, families don’t talk about this because they’re uncomfortable or private. Parents will keep their finances hidden and sometimes forget or avoid (or just don’t know how!) telling their children what they expect in their old age. This could mean a disappointed parent or one without the proper plan to fund their care. Children bear the brunt financially if they become their parents’ caregivers without planning. They may not pursue specific careers because they have to move back home, or they won’t put more money in retirement savings because they think they’ll need liquidity for when their parents’ health deteriorates.

Communication is critical on the topics of caregiving and estate planning. Start these discussions with the whole family together and create a list of questions or concerns.

Conversations between parents and children and, if there are siblings, between the siblings, are necessary to make a reasonable plan that will be as fair as circumstances allow. A discussion with an estate planning attorney may yield some useful insights, as they have experienced the varied arrangements of many families and can bring an unbiased and unemotional approach to the family’s situation.

Reference: MarketWatch (February 21, 2018) “Not expecting to be a caregiver? You’d better check that with your parents”

What Business Owners Can Accomplish with the Right Estate Plan

Business owners know that they should have an estate plan in place, but not all of them will take the necessary steps. Many find it challenging to imagine that the business will continue after they are gone, but with the right plan in place, it’s possible. No plan? Not likely.

A recent article in Hotel Management, “How to handle estate planning for continued business growth,” advises business owners that a good estate plan can help distribute wealth and minimize estate taxes. However, a good estate plan will also increase the changes of the business surviving when the owner has passed.

One reason is that it lets the owner maintain control of the business beyond his or her lifespan.  Estate plans can also insulate owners against lawsuits and the impact of divorce. They direct the distribution of assets, communicate owners’ health-care wishes, decrease estate tax liability at the state and federal levels and help create a legacy.

A primary reason to implement estate planning in any business, is to limit estate tax exposure. Paying for or decreasing federal and state taxes are two key reasons for estate planning.

The new tax law says the federal estate tax threshold is $11.2 million per person. That means owners can pass a total of $11.2 million to their beneficiaries tax-free. Any amount over that cut-off is taxed at 40% on the federal level. Remember that, absent future political action, this exemption will revert to $5 million per person indexed for inflation after 2025.

Estates can also be taxed on the state level, which can create some complications.

Some states have estate taxes, and some have inheritance taxes. A few have both estate and inheritance taxes, like New Jersey and Maryland. Tax thresholds and percentages vary based in each state.

Establishing a will or revocable living trust is important, because these legal tools allow you to designate assets to certain heirs and helps to avoid probate judges making decisions on an owner’s behalf.

In some states, if you own an asset when you pass away, and if it’s not clearly written in a will or a revocable living trust that it goes to your intended heir (your daughter or grandson, for example), the probate judge will determine who will get the asset based on state intestacy law.

In addition, a will or revocable living trust can allow for equalization of the estate. For instance, if one child wants to continue the business, but another wants to do something else, then their parents can make sure they are both treated equally in the will or revocable living trust.

Reviewing and updating estate plans is particularly important for business owners, because assets tend to be larger and there’s more at risk. Changes in tax law and changes in your life also call for reviews to ensure that your wishes are followed, and your family is protected.

Reference: Hotel Management (February 13, 2018) “How to handle estate planning for continued business growth”

Elder Fraud Gets a National Platform from Attorney General Sessions

The largest elder care enforcement action in the country’s history has been unveiled, with more than 200 charged with defrauding seniors.

Financial elder abuse has taken center stage, with the Attorney General and other authorities stepping up to taking a more aggressive stance, as reported in cbslocal.com’s recent article, “Law Enforcement Has A Major Warning For The Nation’s Elderly.”

One Texas woman who was scammed by predators targeting the elderly lost everything. Her granddaughter believes the fraud drove her grandmother to suicide.

“She felt humiliated and she had lost everything. She died with 69 dollars in her bank account,” said the fraud victim’s daughter, Angela Stancick.

Attorney General Jeff Sessions recently announced a major federal crackdown.

“The rise of new technologies has made it easier for criminals to coordinate their efforts and perpetrate their crimes,” said Sessions.

More than 200 defendants have been charged in fraudulent sweepstakes, contests, and technology schemes. They’re accused of defrauding seniors out of their life savings.

“You can be a target, but you don’t have to be a victim,” said Postal Chief Inspector Guy Cottrell.

Officials stress that consumer education is the best defense from these scams. They advise seniors never to pay to receive sweepstakes winnings.

Families should watch for suspicious mail.

Families are encouraged to speak with the FBI, the Federal Trade Commission (FTC), or their state attorney general, if they have any questions or concerns.

A Senate committee on aging reports that its fraud hotline took double the number of reports in 2016 as in 2015. Hopefully, the federal crackdown, steps taken by states and a growing awareness of elder financial abuse will at least slow down, what has become an epidemic of crime against seniors.

Reference: cbslocal.com (February 22, 2018) “Law Enforcement Has A Major Warning For The Nation’s Elderly”

Power of Appointment is Key Issue in Rhode Island Supreme Court Case

A will must be very clear in spelling out what the individual wishes to happen, so that if there is an estate battle, the decedent’s wishes can be easily understood in plain English. The role of the court is to uphold the intent of the decedent, says one judge.

The two surviving children of Constantine W. Pournaras, Elaine Jaffe (Jaffe) and William C. Pournaras (William)—are battling over a Superior Court judgment that gives Jaffe declaratory relief and prohibits William from transferring assets of their father’s irremovable living trust into his estate. The case made its way to the Supreme Court of Rhode Island.

Findlaw recently published the case of “Jaffe v. Pournaras.” In this case, Constantine, who passed away in 2012, executed signed documents during his lifetime that are at issue: a revocable living trust (the living trust), an irrevocable living trust (the irrevocable trust), and a last will and testament.

The living trust named Constantine as trustor and sole trustee with William as the sole successor trustee. According to Jaffe, the living trust was "funded with approximately $500,000." The living trust provides that, upon Constantine's death, the trustee (William) "shall pay the property located at 43 Knollwood Avenue, Cranston * * * to * * * POURNARAS [William]* * *"; the living trust also provides that, if the trust owned liquid resources, the trustee shall pay $50,000 from those liquid resources to Jaffe, not including the aforementioned real property.

The irrevocable trust names William as trustee. Jaffe says that William advised her that the irrevocable trust contained assets worth approximately $694,000. The irrevocable trust reserved to Constantine the power "to appoint any part or all of the [t]rust [e]state to or for the benefit of any of [his] descendants, in equal or unequal amounts, either directly or in [t]rust, as [he] may direct." It also specified that this power of appointment is "exercisable by written instrument during [his] lifetime or by [w]ill or any [c]odicil thereto[.]" The power of appointment, however, is limited and cannot "be exercised in favor of [Constantine's] estate, the creditors of [his] estate or in any way that would result in any economic benefit to [him]." The trust also directs William, as trustee, to divide the trust assets into "separate and equal shares" between Jaffe and William, as his surviving children, upon Constantine's death.

The will names William as personal representative and provides that he "shall distribute [Constantine's] residuary estate to the then acting [t]rustee" of the living trust (William). Section 5.01 of the will defines "residuary estate" as, in relevant part, "any property over which [Constantine] may have a power of appointment * * * less all valid claims asserted against [his] estate * * *."

In 2014, the will was admitted to probate, and Jaffe filed a complaint seeking declaratory and injunctive relief to prevent William from transferring the assets of the irrevocable trust into Constantine's estate, and to have William removed as trustee. She alleged that he intended to transfer assets from the irrevocable trust to Constantine's estate by exercising the limited power of appointment in the irrevocable trust.  However, William argued that the will was intended to be an exercise of the limited power of appointment contained within the irrevocable trust.

Chief Justice Paul A. Suttell said in his opinion that the court's primary objective when construing language in a will or trust is to ascertain and effectuate the intent of the testator or settlor, if that intent is not contrary to law. Plain language of the will or trust is considered first, and the court won’t resort to considering extrinsic evidence, where the intent is clear "from within the four corners of the will[.]"

Jaffe argued that the plain language of the irrevocable trust was clear and expresses Constantine's intention to prohibit the limited power of appointment from being exercised in favor of Constantine's estate or creditors of his estate. She argued that Constantine could have but did not exercise his limited power of appointment by his will to appoint the property to a third party, such as directly to his living trust or to [William]. She said the language in the will didn’t constitute a valid exercise of the power of appointment, because it would contravene the plain language of the irrevocable trust, which expressly prohibits the exercise of the power of appointment for the benefit of Constantine's estate. The Supreme Court agreed.

The Chief Justice found that if the exercise of the power of appointment were deemed valid, the very terms of the will would place the assets of the irrevocable trust in his residuary estate, subjecting them to the demands of creditors. That would be contrary to Constantine's intent, as expressed in the irrevocable trust.

In this case, the Supreme Court ruled that the language of Constantine’s irrevocable trust was clear. Therefore, there was no need to examine his intent by using extrinsic evidence. He wished to make sure that the power of appointment was used to benefit his descendants. The Supreme Court ruled that the decision of the Superior Court was correct and upheld its decision.

Reference: Findlaw (February 23, 2018) “Jaffe v. Pournaras”

Can You Protect a Beneficiary from a Judgment or Lien?

Inheritances are not always straightforward. This is especially the case, when the beneficiary is encumbered by financial problems.

A parent who wants to leave children a home or the proceeds from the sale of the home, needs to think long and hard about whether or not those children have any financial issues that will get in the way of their inheritance. For instance, consider the issue facing a family when a mom dies and leaves her home to three sons when one of the sons has a child support judgment pending. In a simpler situation, the executor would hire an attorney to have the deed retitled in the son’s names and they would take possession, deciding what to do with the property.  However, in this case, the executor and the sons are going to get some bad news.

nj.com’s recent article, “What child support judgment means for inheritance,” explains that judgments can complicate things. A judgment for child support is a lien against an inheritance, and that lien has priority over all claims other than taxes owed by the estate.

Typically, an executor must conduct a child support judgment search before making distributions to a beneficiary. If a child support judgment is outstanding and is greater than the inheritance to be paid the beneficiary, the executor must pay the entire amount to partially satisfy the judgment.

If the inheritance is more than the child support judgment, the executor will pay the judgment amount owed and when he or she gets a satisfaction of judgment, the balance will be distributed to the beneficiary.

Executors usually are given some leeway to pay property in kind. This means that they can distribute the house to the three sons as the beneficiaries or liquidate the property and distribute it in cash.  However, when distribution in kind isn’t an option, liquidation may be the only option.

If this type of situation is one you are facing, speak with a knowledgeable estate planning attorney. This is because it may be possible to avoid liquidating the house, depending on additional facts and the amount of the outstanding child support judgment.

One option is for the two other sons to lend the third son the funds to pay off the child support judgment and in return take a larger share of the house or other security for repayment. That way, the house wouldn’t need to be sold.

Once the child support judgment is paid off, and a new search shows no outstanding liens, the house could be distributed as the parties agreed.

Talk with your estate planning attorney, if any of the people you wish to list as beneficiaries have financial problems that include a judgment now or who may face such an issue in the future. There may be some options, including using trusts, to recognize and protect your wishes (testamentary intent, in legal parlance) and to protect your beneficiary. This is an issue that is best addressed in advance.

Reference: nj.com (February 21, 2018) “What child support judgment means for inheritance”