Family Security Law Group, APC

Research Funeral Costs Now to Help Your Family Later

“The days after a loved one dies are terrible for making smart financial decisions.”

It’s fairly typical for the grief and stress of losing a loved one to cloud a person’s judgment. You may not be thinking clearly, and you want to do everything you can to honor the person who’s passed away. Add to this the immediacy of planning something as expensive as a funeral.

AZ Central’s recent article, “Why this group wants you to know the cost to bury your loved one,” says that what’s even worse, only one out of six funeral homes post full price lists online. This lack of data makes it hard to compare costs, according to a new survey by the Funeral Consumers Alliance and Consumer Federation of America. Without the ability to shop online, you may spend far more than you planned or needed on a burial or cremation.

Grieving people regularly don’t even address the cost, only to be surprised when the bill comes months later.

The cost of a funeral service can vary by thousands of dollars, even in the same city. For example, in Tucson, funeral homes that fully disclosed prices on their websites charged about $3,500 for a full-service funeral, a 2017 report by FCA and CFA found—about $1,100 less expensive for the same service than at other funeral homes in the city. A simple cremation with a container cost about $765 at Tucson funeral homes whose prices were displayed online, a savings of $230 over funeral homes without transparency.

You can get a full price list by visiting a funeral home in person or requesting costs over the phone. That’s a federal law. Arizona law also requires funeral homes to provide price lists upon request by mail.

To save even more, you can research costs ahead of time and talk with family members about your funeral preferences. You can then put those decisions in writing. Planning now could save your family a significant amount of money later.

California became the first state to mandate that funeral homes post services they offer on their websites five years ago, and the Federal Trade Commission (FTC) is currently reviewing its funeral home regulations. Consumer groups are advocating to the FTC and 49 other state legislatures to take action requiring the online posting of prices. They also want the FTC and states to require prices to be prominently displayed on the funeral home's homepage.

Some less reputable funeral homes in California have skirted the law by putting the price list in small font, at the bottom of the homepage, or in a section of the website that’s hard to find.

Reference: AZ Central (February 4, 2018) “Why this group wants you to know the cost to bury your loved one”

Should a Widower Add His Kid to the House Deed to Avoid Probate?

“Medicaid utilizes a five-year lookback to determine if you gave assets away within five years of your application for benefits. Transferring the home could make you ineligible for a period of time.”

It’s not uncommon for a senior who’s a widow or widower to want to help his or her children with the estate, by re-deeding their mortgage-free home to include a child or children.  However, there’s a specific way to do this.  It is important to be aware of the effect of this action on government benefit programs, like Medicaid.

nj.com advises in its recent article, “The risks of changing your home's deed,” that to avoid the probate process, a person could change the deed to the home to add an adult child as Joint Tenant with Right of Survivorship. In that way, the home will avoid probate, when the senior passes away.

There can be some potential negative consequences.

If the home has unrealized capital gains when he passes away, only his half of the value of the home would be eligible for a step-up in basis. If a senior goes ahead and sells the home while he’s still alive, he can exclude up to $250,000 of capital gains from tax, if it was his primary residence in two of the five years directly preceding the year it was sold.

 However, if the daughter lives out of state, adding her to the deed will mean that her half won't be eligible for the exclusion because her primary residence is in another state.

In addition, if the daughter has creditors to whom she owes money, those creditors could attach a lien to her half of the senior’s home.

One other thought is whether the senior owns other assets or has long-term care insurance or other resources to pay for long-term care, should it become necessary.

If the senior in our scenario transfers half of his home to the daughter, it could be an issue if he needs long-term care and needs to qualify for Medicaid. Medicaid has a five-year lookback to determine if you gave assets away within five years of your application for benefits. Transferring the home could make the widow here ineligible for a time.

Speak to an experienced estate planning attorney at Family Security Law Group about your specific circumstances to be certain you understand all of the consequences of taking such action.  Contact us today at (805) 496-4681.

Reference: nj.com (January 29, 2018) “The risks of changing your home's deed”

The Joy of Planning Your Own Funeral

“The idea of planning a funeral is generally not at the top of anyone's "to do" list. It's a job that almost always falls to the spouse, children, or close friend of a deceased. Expressing your preferences or actually making the formal arrangements can truly be a gift to your family and friends.”

It’s not uncommon for an estate planning attorney to get a phone call from a personal representative of the estate of a recently departed, asking if the attorney has any documentation about the decedent’s wishes for a memorial service. Unless some sound planning took place, chances are there are no instructions.

Inside Indiana Business’ recent article, “The Gift of Pre-Planning a Funeral” explains that if your wishes are documented, it can help eliminate your family’s stress during a highly emotional time. A 2017 study by the National Funeral Directors Association found that while 66% of Americans believe that pre-planning is important, only 21.4% had actually completed the exercise.

Pre-planning does not have to be complicated. It can be as simple as a written statement of your desires or a legal Funeral Planning Declaration.

There are several reasons why pre-planning makes good sense. Let’s take a look at them:

Decreasing stress. Pre-planning can eliminate some of the stress on family or friends. It also can avoid emotionally charged conflicts right after your passing. Spend some time now to make your preferences known or make the actual arrangements.

Avoid spending excessively. If you pre-plan, you can select appropriately. Your family may not consider the cost as they decide right after your passing—a time when they can barely think. Some may mistakenly feel the amount spent shows the amount of respect and love they have for you. Either way, it often means overspending.

Specify detailed instructions. You can provide some peace to your family by knowing that your final wishes will be carried out. You might consider things like burial or cremation, your attire, the location, service participants, music, readings, flowers and photographs. Some feel that this level of detail is unnecessary, but if you don’t specify your wishes, someone else will make these decisions.

Reimbursement of family expenses. If you want to reimburse long-distance family members and friends for their travel, you can add that into your pre-planning documentation. Talk to your attorney about including this provision in your will.

You should also think about how you’ll pay for your funeral expenses. Perhaps you can designate funds in your savings or investment account or use life insurance proceeds. By pre-paying, you can lock-in today's funeral prices but be sure your funds are safe. Ask if the sales person is an agent of your funeral home and how and where your money will be held.

Once you decide on the details of your pre-planning, share the details with your family. Pre-planning your funeral is an act of kindness for your family and friends. It’s also a chance to express your personal desires and to potentially avoid issues that can arise after your death.

Reference: Inside Indiana Business (January 15, 2018) “The Gift of Pre-Planning a Funeral”

Asking Mom and Dad What You’ll Inherit, May be the Most Awkward Conversations Ever

“With wealth for millennials set to double in the next 20 years, it’s time to get over the awkwardness and have the conversation now.”

When is a good time to discuss your inheritance, taxes, and estate planning with your parents? How about never!  However, by the same token, screaming at your sister in a fight over Mom’s Hummel figurines isn’t a pleasant thought either.

No matter how you look at it, this conversation will be uncomfortable. This is because it’s based on one ominous certainty: that the people we love are going to die.

The Guardian’s article, “Discussing inheritance is too important to be left until someone has died”, reports that research from the Resolution Foundation showed that inheritable wealth for those currently aged 20-35 will double in the next 20 years—hitting an all-time peak in 2035.

However, the downside is that the average age at which most people will benefit is 61. The report also mentions that this huge transfer of wealth will further solidify societal inequality in our lifetimes.  People usually marry those of a similar financial background. More than 80% of millennials who already own their home have parents who are homeowners. Compare that to 50% of non-home owning millennials who have parents who don’t own their homes.

For many individuals, this information won’t make much difference. The report stipulated that about 33% will have no property wealth to inherit, and those who do will discover that it arrives much too late to solve life’s biggest financial burdens, like the kids and the home mortgage.

Even so, it’s wise to discuss inheritance with your family, while the older generation is still living. This will decrease the risk of post-funeral family battles and establish definition and clarity regarding the parent’s wishes and plans. Yes, it’s awkward, but it’s the smart move.

Finances are frequently a forbidden subject in families. Approaching the topic of inheritance in the wrong way can be seen as disrespectful and pushy at best. At its worst, it can ruin relationships.

 However, research like that from the Resolution Foundation may help start important discussions about inheritance now, before it’s too late.

Reference: The Guardian (January 13, 2018) “Discussing inheritance is too important to be left until someone has died”

Why Long-Term Care Insurance is Great for Protecting Your Assets

Long-term care (LTC) refers to a broad range of services that assist those with chronic conditions, such as cognitive impairment or a need of help to perform the essential activities of daily life (ADLs), such as dressing, bathing, eating, transferring in/out of a bed or chair, continence and toileting.

A U.S. Department of Health and Human Services report from September 2008 determined that about 70% of people over age 65 will require long-term care (LTC) services at some point, and some 40% will require nursing home care.

It's also expensive, saysnj.com, in the recent article, “Should we get long-term care insurance?”

Data from Genworth's 2017 Cost of Care Survey found the national median cost of an assisted living facility is $3,750 per month. A nursing home costs $8,010 per month. The cost is also typically more for those with dementia. According to the American Association for Long-term Care 2008 Sourcebook, more than half of people needing nursing home care require a stay of more than 12 months, with almost 25% staying more than three years. Those in the latter group, can really wreck a family's finances.

 In addition, most people don’t know that Medicare only covers a very narrow set of LTC costs. Similarly, Medicaid only covers those with very limited financial resources. For all but the extremely wealthy, long-term care insurance (LTCI) is a solution to defray the expense of home healthcare, assisted living, or nursing home care. Yes, it can be pricey.

Getting coverage when you are relatively young and still in good health helps to keep the costs down.

Some folks are worried they’ll be paying LTCI premiums for many years and die before they ever use the benefit. However,  we do the same type of thing for auto or homeowners insurance. Everyone gets this coverage because the financial risk of doing without is too great.

Insurance companies have combination life insurance/LTCI policies, called "hybrids," that address the fear of wasted premiums. With these hybrid policies, provided that the premium is paid for your lifetime, you or your heirs will receive the full policy benefit, as the life insurance death benefit, the LTC benefit, or a combination.

Reviewing LTCI options can be difficult, because of the number of policy variations. Speak with experienced professionals to get fully informed before making any decision.

Reference: nj.com (January 12, 2018) “Should we get long-term care insurance?”

Stepmothers Frequently Fight with Stepchildren on Estate Matters

“In all different cases — will contests, trust contests, life-estate challenges, probate objections, elder financial abuse, deed revocations or joint-tenancy quarrels — the interests and paths of stepmothers and stepchildren often collide.”

It’s not uncommon for conflicts to arise in estate matters between stepmothers and stepchildren, as tensions in blended families can carry over into disputes over an inheritance, beneficiary rights to a trust, or estate property.

Forbes’ recent article, “Stepmothers: The Cause Of So Many Estate Fights,” explains that this stepmother phenomenon in estate disputes starts with the fact that there’s a life expectancy gap in the U.S. between men and women. A man reaching 65 today can expect to live, on average, until 84; a woman turning the same age today can expect to live, on average, until 86. Widowed females also far outnumber widowed males (11.2 million vs. 2.9 million). When these widowed females and males have stepchildren, it is obvious that the number of surviving stepmothers heavily outweighs the number of surviving stepfathers.

It’s not surprising that research shows that only about 20% of adult stepchildren feel close to their stepmoms. Studies also show that stepmothers and their stepchildren don’t grow closer over time.

Inevitably, a large percentage of estates managed by a widowed stepmother with stepchildren heirs winds up in a fight over inheritance rights. Many of these arise after a short-term marriage where the decedent’s marriage was cut short by his death and his long-term estate plan may have been thwarted by undue influence right before his passing.

While a long-term marriage is no guarantee for an amicable estate settlement, they’re more likely to have produced estate plans that balance the welfare of a father’s children with those of his later spouse.

Evidence of wrongdoing may be nuanced. Questions as to the existence or nonexistence of estate planning documents are avoided and personal property disappears or is transferred to the wrong recipients. Family heirlooms might be found in the garbage at the decedent’s house, perhaps as early as the date of death. The family home is locked up, the locks are changed, and no one except the controlling party is allowed access.

Cases that are not resolved with cooler heads will frequently escalate to probate, estate, trust, and property disputes that exemplify the stereotypes surrounding classic battles between stepmothers and their stepchildren.

Reference: Forbes (January 23, 2018) “Stepmothers: The Cause Of So Many Estate Fights”

Inherited IRA Basics

“Inherited IRAs and 401(k)s can be a great vehicle for passing assets from these accounts to non-spousal beneficiaries.”

Inherited individual retirement accounts have been a common way to let non-spousal beneficiaries inherit an IRA account and allow the account to continue to grow on a tax-deferred basis in the future. These rules were changed in 2007 to allow non-spousal beneficiaries of 401(k) and similar defined contribution retirement plans to treat these accounts the same way.

Investopedia’s article, “Inherited IRA and 401(k) Rules Explained,” says spousal beneficiaries of an IRA have the option of taking the account and managing it, as if it was their own. This includes the calculation of required minimum distributions (RMDs). For non-spousal beneficiaries, an inherited IRA account can give them a few options, including the ability to stretch the IRA over time by letting it continue to grow tax-deferred.

IRA account holders who want to leave their accounts to non-spousal beneficiaries should enlist the help of an estate planning attorney who understands the complex rules surrounding these accounts. The account beneficiaries must be careful to ensure they don’t inadvertently trigger a taxable event.

The beneficiaries of an inherited IRA can open an inherited IRA account, taking a distribution (which will be taxable), or disclaiming all or part of the inheritance (causing the funds to pass to other eligible beneficiaries). Traditional IRAs, Roth IRAs, and SEP IRAs can be left to non-spousal beneficiaries in this way. A 2015 rule change says the creditor protection previously afforded an inherited IRA was ruled void by the U.S. Supreme Court. Inherited IRA accounts can’t be commingled with your other IRA accounts, but the beneficiary can name their own beneficiaries upon their death.

The rules for RMDs for inherited IRAs or inherited 401(k)s are based on the age of the original account holder at the time of his or her death. If the account holder wasn’t yet 70½—the age at which RMDs must start—the beneficiary can wait until they reach age 70½ to begin taking RMDs. The required percentages will be based on the IRS table in effect for their age at the time.

If the original account holder had reached age 70½ and was taking RMDs, then the beneficiary must continue taking a distribution each year.  However, the RMDs will be based on their age, not the age of the original account holder. As a result, the distribution amounts will be less than those of the original account holders (assuming the beneficiary is younger). This lets him or her to stretch out the account via tax-deferred growth over time.

These rules are complicated, so work with a Thousand Oaks estate planning attorney at Family Security Law Group, APC to be certain they’re followed to avoid costly errors.

Reference: Investopedia (December 18, 2017) “Inherited IRA and 401(k) Rules Explained”

What Assets are Considered When Determining Medicaid Eligibility?

“Understanding how different assets are considered for Medicaid eligibility.”

Medicaid is a needs-based government program administered by the states, with income and asset limitations that apply before you can qualify for the program’s assistance, says nj.com in the recent article, “How trusts fit in with Medicaid planning.”

To prevent individuals from just making quick transfers of their property, either outright or in a trust, to qualify for the Medicaid program, there’s a penalty period imposed on transfers made within five years of applying for Medicaid.

The penalty is a period of time, during which the applicant doesn’t get Medicaid benefits after otherwise qualifying because of the amount transferred within the prior five-year period. The penalty period is determined by dividing the amount transferred by the monthly penalty divisor.

In the same vein, if a person creates a trust using some of his or her own funds, where the individual is the sole beneficiary or one beneficiary in a group of beneficiaries, the trust may be considered an available resource for purposes of determining eligibility for Medicaid. It will be counted as an asset when determining eligibility for the program.

This is especially true, if the trust can be revoked. A revocable trust and its assets can be “pulled back” into the name of the Medicaid applicant, and be counted as his or her asset for eligibility purposes.

If the trust is created by a third party and with third party funds for the benefit of the Medicaid applicant, the answer would depend on the specific terms of the trust and whether the settlor (the person who created the trust) is the spouse of the Medicaid applicant.

This is because income and asset limitations are imposed on the “community spouse” (the spouse still living at home), in order for the applicant spouse to qualify for Medicaid.

The state government may also have the right of recovery against the estate of a deceased Medicaid recipient for Medicaid benefits paid to that person during his or her lifetime. This means if the deceased Medicaid recipient's estate has a claim to assets, either outright or in a trust, the state may be able to recover some of those assets.

Reference: nj.com (December 26, 2017) “How trusts fit in with Medicaid planning”

Now That the Tax Bill is Signed, What Happens for Me?

“…President Donald Trump signed into law the sprawling tax bill that was hastily built out by Republican leaders over the past month. In doing so, he formalized a huge range of changes to how Americans — and American businesses — will pay their taxes.”

In light of the fact that our tax laws weren’t exactly user-friendly even before the Republican reforms, The Chicago Tribune explains how the new law will affect Americans over the course of the year and beyond in its article, “What happens next with the Republican tax plan, month by month.”

There are a couple of things to keep in mind. One is that the details won’t be ironed out until the IRS releases new regulations based on the changes that Congress made. These are expected to come out throughout the coming year. Second, as with any tax discussion, you should speak with your tax advisor about your particular situation.

Let’s look at what happens when, as we know it now:

January 2018: The new tax law goes into effect.

Speak with tax advisers early in the year to plan for how the new law will impact you. One change starting in January is an expansion of the 529 College Savings Plans. These used to be reserved for saving money for college, but the new law expands their use to also include paying for K-12 education.

If you're looking to buy or refinance a house, the mortgage interest deduction will be capped at $750,000 as of the first of the year—not $1 million. If you purchase a new house or refinance, there will be some different considerations.

The estate tax threshold goes up.

Businesses will start seeing lower tax rates as part of the Republican plan “trickle down” theory of economics. Some stockholders will also likely see benefits, as companies buy back stock.

February 2018: The IRS will publish new tax rates. The tax code changes will also impact your paycheck, so your W-4s may require tweaking. In January, the amount that's withheld will likely be too high, since most people are getting a tax cut. However, we won't know until February when the IRS releases the new rates about how much you're overpaying. (You'll get those overpayments back after you file in 2019.) Once the IRS publishes the new rates, you'll have fewer dollars taken out of your paycheck in taxes.

April 2018: File your taxes. There aren’t too many changes here, because you're paying on your 2017 earnings.

Before the end of 2018: Consider how to prepay alimony before the end of 2018. Your ability to deduct that payment will end, beginning in 2019. You may want to ask the judge if you can pay more in 2018 to claim the deduction on that year's taxes.

January 2019: The Obamacare individual mandate ends. The requirement that you either have insurance coverage or pay a fine is eliminated, so you can just not have medical insurance and not have to pay extra on your taxes.

April 2019: File your taxes. You'll get more money back after filing your taxes, because of your overpayment in January and February of 2018.

The alternative minimum tax (AMT) also goes up at this time.

2026: Individual tax cuts expire, unless they’re renewed by Congress.

Reference: Chicago Tribune (December 23, 2017) “What happens next with the Republican tax plan, month by month”

Financial and Estate Planning with Special Needs Family Members

“Since most federal and state benefits are "needs based," the government is always looking over the shoulder of special needs persons.”

About 58 million people nationwide over the age of five identify themselves as disabled. That’s the largest single minority in the country. Millions of Americans want to help them.

However, as CBS News says in its recent article, “’Special needs’ people need special financial planning,” giving money directly to a special needs child or adult—especially if they're already receiving government benefits—can create problems.

If a person with special needs has more than $2,000 in their own name, he or she risks the loss of the government benefits that he or she already receives. It’s a major headache to get them back.  Instead of giving a lump sum of cash to a special needs person, the money should be structured in a way that doesn't violate government benefit requirements.

This is important because children with disabilities, like Down syndrome, now have a much longer life expectancy. As a result, the dependent person will probably outlive the parents.  However, they will still require care throughout their life. Many special needs adults live independently or in homes with little assistance. However, this doesn't mean that their government program benefits can cover their everyday needs. Therefore, it’s crucial to plan ahead.

There are several ways to have your money benefit people with special needs throughout their lives, without the loss of their federal benefits. One way is to create a special needs trust. This is a trust with the explicit purpose to "supplement, not supplant" federal and state assistance programs and to create a better quality of life for this person. A special needs trust can provide for special medical equipment, eyeglasses and vacations.

Work with an experienced estate planning attorney to create a special needs trust, because there are  many rules and regulations involved. For example, the beneficiary (the individual with special needs) can't own the trust—there must be a designated trustee or "third-party provider" who dispenses the money.

Another important part of an estate plan for the future of a dependent with special needs, is a "letter of intent." These are instructions that state what the guardian wants to happen in the future. It sets out everything a person with special needs requires, their history and what you and the person want in the future.

Another alternative is an ABLE (Achieving Better Life Experience) account. This allows contributions to a maximum of $15,000 annually, provided the person is diagnosed as disabled prior to age 26. There is a maximum of $100,000 that can be in this account, before the disabled person loses his or her government benefits. An ABLE account can be used for expenses like education, employment training, health, legal fees, and funeral expenses.

Avoid these common mistakes that parents and caregivers make when planning:

• Disinheriting the child with special needs. Government benefits help provide food, shelter, and medical care, but remember it’s no more than bare bones necessities.
• Placing assets in your child's name. To qualify for government benefits like SSI or Medicaid, a person can’t have more than $2,000 in assets. If you leave funds or convertible assets directly to your child with special needs, they’ll need to be "spent down" to qualify for benefits.
• Relying on your other children to take care of their special needs sibling. This is a lot to ask of a brother or a sister, and it can cause resentment.
• Leaving money to your other children to support their sibling with special needs. This isn’t a good idea because the funds could be lost if the caregiving sibling dies, gets divorced or is sued, goes bankrupt, or just spends the funds. There's also no accountability.
• A 529 College Savings Plan or savings bond in your dependent's name. Like other assets, if these are more than $2,000, your child with special needs could be ineligible for government benefits.

Reference: CBS News (December 25, 2017) “’Special needs’ people need special financial planning”