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Can You Refuse to Serve as an Executor?

Not everyone is cut out for the tasks that come with being an executor, but before saying no to a loved one or family member, consider what you are being asked to do.

It's true that being asked to serve as an executor of someone's estate is flattering and indicative of a great deal of trust and respect. However, according to New Jersey 105.com's article, "What if you don't want to serve as executor?" this is also a serious responsibility.

If you are chosen to be an executor, think about why you were chosen. Your friend or loved one may see you as the person in his or her life who's most qualified to handle the various tasks and responsibilities associated with the role.

In addition, there may be no one else to whom he or she can turn. This person may not feel he or she has a good second option to serve as the executor.

Think carefully before telling someone that you won't serve as the executor of his or her estate: confidence in the person selected as executor is a critical part of realizing the peace of mind that comes with a well-planned estate.

In addition, the executor's day-to-day responsibilities are in many instances shared or delegated to an estate planning attorney hired by the executor to help with the administration of the estate. The attorney and his or her staff can deal with many of the more time-consuming and difficult tasks in settling an estate.

Nonetheless, the executor is still responsible for the oversight of all aspects of the administration. This includes collecting, maintaining, and valuing assets; paying debts and expenses of the estate; filing estate and income tax returns; and distributing the assets per the directions in the will.

The executor's task may be very difficult if the estate has tough issues to address, such as insolvency, unpaid taxes, or real property disputes. However, if the estate is fairly simple as far as its assets and issues, the executor's job could be a breeze.

Should you decide to decline this role, it would be kinder to discuss your decision with the person in advance of his or her passing. However, the law does allow you to decline or renounce being appointed as an executor after the testator's death. You may want to continue a conversation with the person to explore other people in his or her life who may be good candidates, or ask that the person choose an alternate just in case you are unable to serve at the time of his or her passing.

Reference: New Jersey 105.com June 6, 2016) "What if you don't want to serve as executor?"

More Headlines, More Lawsuits

One has to think there might have been a better way for the final years of Sumner Redstone to play out, rather than becoming a cautionary tale for other moguls and corporate leaders.

It was not a lack of funds or a failure to plan that led to the epic battle for corporate control, flanked by an estate catastrophe that may well be what Sumner Redstone ends up being remembered for most.

The New York Times' article, "In Sumner Redstone Affair, His Decline Upends Estate Planning," explains that a lawsuit brought by Manuela Herzer, one of Redstone's girlfriends, revealed humiliating details about his physical and sexual appetites and his diminishing mental capacity. A medical expert testified that Redstone suffers from dementia that's "toward the severe end of moderate." That case was dismissed last month; however, the testimony about Redstone's mental state will be important in a showdown between Redstone's previously estranged daughter Shari and the man who looked to be his heir apparent, Philippe Dauman. The fate of the Redstone's CBS and Viacom mega-corporations is what's at stake.

Dauman is the CEO of Viacom and was—until last month—Redstone's longtime confidant and a trustee of the trust that controls 80% of National Amusements (his daughter owns the remaining 20 percent), which owns 80% of the voting stock in both CBS and Viacom. People around Redstone now appear to be competing for control—and each one has his or her own objectives, but many of them are attempting to influence decisions related to his estate, the trust and Viacom.

Redstone's problems are a billion-dollar example of what's happening throughout the country. Caregivers, often younger women, are ingratiating themselves into the lives of older men—often beginning as caregivers then becoming romantic suitors. As Americans live longer and more families must cope with late-in-life issues like dementia, the problem is expected to continues getting worse. Seniors are susceptible to the influence of people who happen to be around them during their final days. And this is an issue for many people of even modest wealth.

Regardless the size of their net worth, a good number of those people will consult with estate planning attorneys to create a trust—either revocable (which can be changed later) or irrevocable. A trust anticipates problems and can define what the creator of the trust means by incapacity, which could be a much less rigorous standard than is typically applied by courts. The trust should define the meaning of incapacity and who determines incapacity.

Summer Redstone created this type of trust, but it gives very little control to others as long as he's alive. In addition, it doesn't specifically define incapacity. His lawyers say that his trust is irrevocable, but Redstone is the sole beneficiary as long as he's alive; he has the power to remove or add trustees unless he's incapacitated. But that can only happen if and when he's judged incompetent by a court or by the opinion of three doctors who say that, based on medical evidence, he's not able to manage his affairs in a competent manner.

The critical issue in all of this is who controls the seven-trustee board of his trust: the National Amusements trust will control Redstone's assets, including his dominant stakes in CBS and Viacom, if he dies or is deemed to be incapacitated.

Dauman and his co-trustee filed to have their dismissal deemed invalid on grounds that Shari has isolated her father and is exercising undue influence over him. She denies these claims. Redstone's lawyers filed suit in Los Angeles, seeking a ruling that the trustee changes were valid. His mental capacity is a crucial issue in both lawsuits.

Remember that when you create this type of trust, you should have clear standards and procedures for determining capacity. Different decisions might require different standards for determining capacity, but the real question is does someone have the capacity for the decision at issue?

This entire mess might have been avoided. One way to do this would have been to create a trust that allowed a majority of trustees to determine whether or not Redstone had the mental capacity to remove trustees. Trusts can be designed to include fail safe provisions that are triggered when the creator of the trusts reaches a milestone age. However, it is likely that Redstone would not have agreed to any estate planning that would have acknowledged his becoming incapacitated or even actually dying.

Reference: New York Times June 6, 2016) "In Sumner Redstone Affair, His Decline Upends Estate Planning"

Those Under 40 Need to Have an Estate Plan Also

If you have a financial plan, it's not complete until you also have an estate plan and a will. Building and protecting assets and family must include the possibility of a premature death.

If you have a financial plan, you also need an estate plan. While those under age 40 usually think that they only need a financial plan, the reality is that people do die early. All of the financial planning in the world will be worthless if a well-crafted estate plan is not in place.

As noted in the CBS Boston article, titled "The Boomers' Kids: Estate Planning," if you die without a will, your state laws will provide one for you—and it won't be what you want. The state will dictate the order in which your assets will be distributed. Along the same lines, if you are married with young children and both parents die, then your failure to appoint guardians means the court system will decide this for you.

Your estate plan doesn't need to be fancy, expensive, or complicated. You begin with a will through which you designate an executor/executrix to carry out your wishes and distribute your assets. Again, if you have minor children, you can name a guardian for them. However, appointing a guardian can be done less formally in some states.

Speak with the people you are considering to raise your children. Ask them if they are comfortable with that responsibility. Make certain you understand their values and their patience level.

A durable power of attorney is also needed while you're still alive. This document lets you appoint someone to act on your behalf legally and financially if you're not able to do so.

You will want to have a health care proxy prepared so that if you are unable to make medical decisions, someone you trust will be permitted to do this on your behalf. Make sure that the person you select has a clear understanding of your wishes concerning the use of life support, dying and death. If you have strong religious beliefs or philosophical convictions about end of life, have that conversation now to ensure the person will know what it is that you would like to happen.

Life does not always go as planned, but with advance planning, you can help make things easier for those who love you.

Reference: CBS Boston June 3, 2016) "The Boomers' Kids: Estate Planning"

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Outdated Wills Equal Missed Opportunities

If you haven't updated your will in the last three years, you may be missing out on significant planning opportunities. New rules make this a worthwhile effort.

We report frequently on how many Americans don't understand how important it is to have a will. Now imagine how challenging it may be to convince those who have a will that it is important to get their estate plans reviewed!

Changes that have occurred since 2013 make updating a will a win-win for many high-income families, according to ThinkAdvisor's article, "New Estate Planning Strategies for a Post-Portability World." Update a pre-2013 estate plan with new techniques and strategies to take advantage of the recent rules to minimize estate and income tax liability.

Relying on the old credit shelter trust strategy may no longer be a wise move, since there are new strategies that can produce dramatic tax savings—as well as more flexibility.

Prior to portability, which allows a surviving spouse to (almost) automatically use the deceased spouse's estate tax exemption, credit shelter trusts were used by married couples to fully use their two estate tax exemptions. Part of the deceased spouse's assets equal to the estate tax exemption amount would be placed into a trust created for the benefit of the surviving spouse. The remaining assets—those in excess of the deceased spouse's exemption—would pass outright to the surviving spouse. The surviving spouse didn't technically own the assets held in the trust. As a result, those assets would pass without estate tax to his or her heirs. The assets that the surviving spouse owned outside of the trust would also pass without estate tax up to the value of—but not exceeding—the exemption amount.

For many, a credit shelter trust isn't necessary for estate tax purposes. The "permanently" higher federal estate tax exemption is now at $5.45 million this year. Many folks don't understand that the value of the assets (tax basis) is in effect frozen at the time they're placed in the credit shelter trust. Thus, if those assets appreciate in value, they may create an unexpected income tax hit for the heirs. But if those assets were left outright to the surviving spouse, they'd see a step-up in basis upon the surviving spouse's death. If the asset value has appreciated, capital gains taxes are minimized.

But unlike a credit shelter trust strategy, a disclaimer strategy can provide flexibility to a surviving spouse. This lets a spouse evaluate his or her financial circumstances and the tax rules as they actually exist at the time of the deceased spouse's death. To use this strategy, he or she leaves all assets to the surviving spouse outright but gives the survivor the option of disclaiming those assets. If the spouse opts to disclaim the assets, they'll pass into a bypass trust established for his or her benefit. This can be nice if the surviving spouse lives in a state with its own estate or inheritance tax, since that exemption may be a lot lower than the federal exemption. In addition, a bypass trust can also be good from an asset protection standpoint if the surviving spouse is worried about creditors' claims or a possible new spouse later in life. The disclaimer strategy lets the surviving spouse analyze his or her situation when it's relevant. They don't have to rely on a strategy that was possibly put into place years before.

Start by sitting down with a qualified estate planning attorney to review your current will and estate plan to learn how the changes can be used to your advantage.

Reference: ThinkAdvisor June 7, 2016) "New Estate Planning Strategies for a Post-Portability World"

Expect to Rely on Medicaid for Nursing Home Care? Plan Ahead

Medicaid eligibility can be tricky to navigate. Planning well in advance with an experienced elder law attorney is necessary to protect your spouse and heirs.

The last thing a typical 50 or even 60 year old is thinking about is planning ahead for Medicaid eligibility. It seems like something that is way off in the future, until the time arrives suddenly and you are not ready. The problem is, if you have no assets, Medicaid will pay for nursing care. But if you have any assets, Medicaid will pay only after you have exhausted most of your assets.

The US News article, “What to Consider If You May Depend on Medicaid for Nursing Care,” says that trying to qualify for Medicaid can be tough, and it may leave your spouse or heirs with less than you’d imaged. For that reason, you should plan for the possibility that you’ll outlive your assets for years or decades. Your planning should start while you’re still young.

Almost every American, regardless of income or assets, is eligible for Medicare to cover his or her health care in retirement. Medicare covers doctor visits, treatments, hospitalization, and drugs. It also covers a short-term stay in a nursing home for rehab, but it does not pay for any type of long-term care.

The cost of nursing home care averages $225 a day for a semi-private room, which will quickly consume a modest estate. Medicaid covers medical care for poor people of any age and will pay for long-term care in a nursing home. However, this is only for those who meet specific asset and income guidelines, which vary by state. Medicaid is designed to protect those with limited incomes, but planning could be the difference between keeping the family home for the next generation and being forced to sell.

Planning for end-of-life care should be part of retirement and estate planning. Talk with an attorney who specializes in Medicaid planning.

Remember that not all facilities accept Medicaid patients, and they’re not required to accept it. Some facilities only have a certain number of beds for Medicaid patients.

Eligibility rules and asset limits vary by state, and most let you keep your house and some assets and still qualify for Medicaid. However, the state will look back five years to determine your eligibility for Medicaid, meaning the state will analyze the assets you’ve given away or otherwise disposed of in the past five years.

Also, if you sell assets at less than market value to heirs or otherwise give away assets, it might delay your Medicaid eligibility. The asset calculations will consider a healthy spouse. Typically, a healthy spouse can keep half of the joint assets up to a certain ceiling plus enough income to live on when his or her spouse qualifies for Medicaid. This amount may vary by state and situation.

In addition, the state may try to recoup its cost after your death, either through filing a claim against the estate or filing a lien against property; however, the property usually is safe as long as the surviving spouse is living.

A frequent knee-jerk reaction from those who are unfamiliar with Medicaid qualification is to start transferring assets to children, but this is can have disastrous consequences. In addition to the tax consequences, including capital gains tax and gift taxes, there are time limitations that may make this a lose-lose situation. Start with a conversation with an elder lawyer with experience regarding the Medicaid rules in your state, along with an understanding of the tax implications for you and your heirs. Consider purchasing a long-term care insurance policy if you do not already have one in place. There are new hybrid policies that combine life insurance and long-term care, and they may make more sense for you and your family.

Reference: US News June 9, 2016) “What to Consider If You May Depend on Medicaid for Nursing Care”

What You Need to Know About Long-Term Care

Long-Term Care insurance is needed for care in a nursing home or for care at home with a home health aide. It is something that nearly two thirds of all people over age 65 will need at some point.

According to the National Institute of Health (NIH), as many as 70 percent of people over age 65 will need some form of long-term care during their lifetime, and 40% will need care in a nursing home. The Huffington Post’s article, “What is Long Term Care?” explains how Long-Term Care (LTC) works and how to plan for it.

LTC is now a very broad term and has evolved into a term for the type of care required instead of the time period. The need for this care can be because of a sudden event like a fall, or it can develop gradually. Before someone reaches the point where total personal care is required for his or her activities of daily living (ADLs), other ancillary services might be necessary. There are adult day care and senior centers to help them socialize and keep active.

Even when elder care doesn’t mean admission to a facility, caregiving demands may make paid LTC with a home health aide a necessity. AARP found that more than 40 million Americans provided unpaid care to adults last year, with an average of 44.6 hours for spouses or partners. And 10 percent of those caregivers were elderly themselves—age 75 years or older.

Beyond an individual’s personal savings, long-term care insurance is available with many options and levels of coverage. It’s more affordable the earlier you sign on. LTC insurance will typically cover care not covered by health insurance, Medicare, or Medicaid. It can guard your savings accounts from becoming depleted by increasing healthcare expenses, and premiums may be tax deductible. LTC insurance can also eliminate the burden on family members who would be providing this care.

Funding for Long-Term Care requires the insights and knowledge of an elder care or estate planning attorney. This is a complex area that must integrate funding from some programs like Medicare and Medicaid, Social Security and—if applicable—veteran’s benefits. There are certain steps that must be taken well in advance to protect the family’s assets, and only an experienced estate planning and elder care attorney will have the knowledge and experience to assist the family.

Reference: Huffington Post June 8, 2016) “What is Long Term Care?”

Learn from Ultra-Wealthy Examples How to Avoid Mistakes in Life Insurance

Mention life insurance at a party and you’ll likely get some yawns, but if aligned with your overall goals and structured correctly, it can be a valuable part of your estate plan.

If it’s easy for the ultra-wealthy business owners discussed below to make mistakes with life insurance, then any of us can make these mistakes. Best advice: make sure that your estate planning attorney is involved in how these policies are structured. Done correctly, you can bet your life that life insurance can work well for you and your heirs.

A recent study that looked at the life insurance purchased by 94 ultra-wealthy business owners with a net worth of $30 million or more showed that roughly 40% of them didn’t have the appropriate level or type of life insurance—or it wasn’t properly structured to meet their needs and goals.

A recent Forbes article, “How The Ultra-Wealthy Avoid Life Insurance Missteps,” says that there were several reasons for these results. The most common mistake made by more than 80% of the business owners was buying more life insurance than actually was necessary. Also, for 60% of these uber-wealthy business owners, their life insurance wasn’t effectively integrated with their estate plans.

For example, if the policies are not held in irrevocable trusts, then the proceeds are included in the estate values and are subject to estate taxes. About 75% of these surveyed business owners had policies that were simply wrong for their specific situations. Each of us should have the type of life insurance that addresses the particular needs of our individual situations.

While the study was just exploratory, it demonstrates the need for working with a highly experienced and reputable life insurance specialist. Choose to be like one of the remaining 60% of successful business owners in the study who have the right amount of the right kind of life insurance that is properly structured.

The results of the research also suggest the practicality of a second opinion. If you have questions or uncertainty about the appropriateness of a life insurance policy, there’s no harm in getting a second opinion. Whether you are ultra-wealthy or an ordinary purchaser of life insurance, there’s the possibility of making costly mistakes or not being able to get the desired results.

Remember that life insurance is sold by people who make their income based on commissions from their sales. While that does not mean there are not many well-meaning professionals, it does make sense to get a second opinion, just as you would with any other large investment. Also, coordinate your life insurance policies, before and after you purchase them, with your estate planning attorney to ensure that the policies are optimized for your estate and your heirs.

Reference: Forbes June 7, 2016) “How The Ultra-Wealthy Avoid Life Insurance Missteps”

You’d Argue with the IRS About This Tax Bill Too!

Now that dead celebrity estates are growing based on use of names, images and performances, the IRS is taking notice and pursuing these assets. Expect more valuation battles, not less.

Determining the value of multi-million dollar estates has never been an easy calculation, but as reported in Billboard’s article, “Whitney Houston Estate Challenges $11 Million Tax Bill,” Whitney Houston’s heirs may be in for a bigger battle than most. They are currently in Tax Court fighting over a significant difference in how the estate is valued. The IRS says that $22.6 million was underreported, while the heirs claim that the IRS numbers are all wrong.

Some of the money that’s owed is from Whitney’s song and performance royalties. There’s also a $9 million dispute over the value of her album catalog.

The Whitney Houston estate claims that the IRS is in error by increasing the value of her publicity rights from $11.5 million to $11.7 million. There’s no indication as to the agency’s rationale for the increase, but it shows that the IRS means business and will continue to pursue money from the name and image of dead stars. A trial is scheduled for next February.

At the same time, another celebrity battle with the IRS is underway. The Michael Jackson estate is in court with a battle over assigning a value to his publicity rights. The IRS had asserted the value of $434 million, while at one point, the King of Pop’s estate claimed it was a mere $2,105. The takeaway from this: major discrepancies will always draw the ire of the IRS!

Reference: Billboard May 27, 2016) “Whitney Houston Estate Challenges $11 Million Tax Bill”

Will Muhammad Ali’s Estate Be Different than Recent Celebrity Estate Battles?

At his prime, no one could touch Ali’s power and smarts in the ring. But it remains to be seen whether or not his estate plan will float like a butterfly or sting like a bee!

Until, and if, the details of Ali’s will and estate plan become public, there’s no way to know if the Greatest One and his estate planning attorney prepared his estate for the challenges that come with celebrity wealth. Investment News notes, in “How will Muhammad Ali's estate play out?”, there are certain aspects of his estate—valued between $50 and $80 million—that will certainly raise some attention from the IRS and estate planning attorneys.

Ali, one of the most recognizable people on earth, earned millions of dollars every year from endorsements and image licensing deals. The deals were directed to his company, Goat, LLC—which stands for “Greatest Of All Time.” He sold stakes in the company but kept a 20% interest. Similar to other deceased celebrities, the estate is required to place a present value on the anticipated future earnings that could possibly be derived from publicity rights, which will set the ultimate tax.

It’s a tough task. The IRS and estate of the deceased might have widely varying estimates of the future income stream from these sorts of intangible assets. For example, the passing of a well-known music artist or sports figure means that this person’s popularity will soar after his or her death—and appreciate the value of these assets.

If Ali left everything to his wife, including the 20% company stake, the valuation will be academic because she will have an unlimited marital deduction. This allows the transfer of an unrestricted amount of assets to a spouse without estate tax at any time, including death. Others receiving a stake in his image rights don’t get the same break.

No matter who inherits the rights, Arizona has some favorable rules for protecting image rights. This is because of something called a post-mortem right of publicity: the estate has an enforceable right to prevent others from exploiting his name, likeness, and image for commercial use.

Ali’s primary residence was in Arizona, one of the states that doesn't have a state estate tax, so his estate would only be subject to the federal 40% tax rate on estate values exceeding the $5.45 million exemption. In contrast, the Champ also owned property in Kentucky, where he grew up. Kentucky has an inheritance tax. His heirs will see a maximum 16% tax rate on inherited assets. Some parties are exempt from paying the inheritance tax. Kentucky statutes say that if Ali willed his residence to his wife or children, they’d be exempt from the tax. Any nieces, nephews, aunts, uncles, daughters-in-law and sons-in-law would have to pay.

His personal life was complicated, to say the least. He married four times. Ali fathered nine children, including one adopted son and two daughters outside of marriage. How they are described in his will—whether he mentions each by name, collectively refers to them as his children, or makes another reference to them—will make a difference in their rights to inherit.

Reference: Investment News June 9, 2016) “How will Muhammad Ali's estate play out?”

Strategies for Maximizing Social Security

Recent changes in the law have eliminated many of the “file and suspend” methods once used to max out benefits. Today, the best strategy is to wait to file.

While it was not originally intended to be a national retirement plan, today many people count on Social Security to help cover their costs during retirement. After a lifetime of working and having income withheld for Social Security, the next concern is how to make the most of this benefit. Social Security uses a formula to determine how much you will receive based on when you reach your full retirement age, which today is from 66 to 67—depending on the year that you were born.

Although these calculations sound complex, in its recent article “How to boost your Social Security benefit,” Vanguard says there's something easy you can do to up your benefit: DELAY IT!

Hard to believe, but delaying your Social Security benefits as long as possible is the best thing for many retirees.

The Social Security Administration reports that nearly 75% of retirees who receive benefits take reduced payments because they filed before reaching FRA. If you wait and take your benefits at age 70, you easily can maximize your benefit. If you continue to work between ages 62 and 70 and earn more than ever before, the numbers used to calculate your lifetime earnings will increase, which may up the benefit you're eligible to receive when you decide to collect benefits.

Coming up with the best time to take benefits requires some thoughtful planning that also includes your spouse’s situation and earnings history. Other factors include the age difference between you and your spouse, your health and your spouse’s health, expectations for longevity, spending habits and your overall financial situation. Don’t plan in a vacuum. Do good planning, and enjoy your retirement!

Reference: Vanguard June 21, 2016) “How to boost your Social Security benefit”