Stapleton Elder Law

Actress Joanne Woodward’s Memories of Paul Newman Stolen by Alzheimer's Disease

One of Hollywood’s leading ladies is suffering from the devastating disease, as the family appears to be enmeshed in the early stages of what may become a bitter estate battle.

Known for their devotion to each other over decades, Joanne Woodward and Paul Newman were an iconic Hollywood couple.  However, a recent report from Blasting News says that “Hollywood star Joanne Woodward can't remember husband Paul Newman anymore.”

Joanne Woodward and Paul Newman met in 1958, according to Life & Times of Hollywood, when they co-starred in the classic film "The Long, Hot Summer." They were inseparable from 1958 until 2008, when Newman passed away at the age of 83 from cancer.

Today, it’s reported that Woodward has lost nearly all memories of Paul from her fight with Alzheimer's Disease.

Newman left his billions to his wife and charities, but gave just $5 million to each of his children.

The 85-year-old Woodward has now lost all memories of her years with her husband because of the disease. A source close to the family was quoted as saying her "health is rapidly deteriorating, and only once in a while states that she used to be married to someone handsome."

Shortly after Newman passed in 2008, Woodward started to first exhibit signs of Alzheimer's. The couple’s daughters began noticing that their mother was frequently disoriented. The disease grew worse, and she now requires 24-7 care. She rarely speaks and seldom recognizes her children or grandchildren.

Woodward’s illness has precipitated a family battle over Newman's billion-dollar estate. Just before his death, he gave each of his five daughters, three with Woodward and two from his first marriage, $5 million each for their inheritance. Newman believed that his children were all successful and didn’t need the family money. The majority of his estate was left to Joanne and various charities.

The five Newman children are not happy with their father’s belief that they didn’t need more of an inheritance, and there is concern that Joanne’s will may give the rest of the billion-dollar estate to charity and none to the children. It is possible that they could contest the will after she dies.

Reference: Blasting News (July 24, 2017) “Hollywood star Joanne Woodward can't remember husband Paul Newman anymore”

To ensure your estate plan is sound and reflects your concerns and goals,  please visit our website. 

Actor Philip Seymour Hoffman’s Will Reflects His Life

Hoffman’s estate is expected to be settled soon, and while avoiding taxes may not have been his first priority, he did make a plan that put his family first, while protecting a professional legacy.

Large estates take time to settle, as all of the property needs to be distributed and the executor’s responsibilities are carried out. Actor Phillip Seymour Hoffman’s will took a slightly different tack than most, and demonstrated his values and trust in the mother of his children,  without the legal stamp of marriage.

Wealth Advisor’s article, “Posthumous Philip Seymour Hoffman Buzz Reveals: Big Estates Have A Life Of Their Own,” notes that for people like Hoffman, who accumulate recurring income or intellectual property, such as movie residuals, the probate process may keep going without actively liquidating those assets and obligations or winding them down, even when an estate plan is well-done. For those that are not, lawsuits can last for decades.

Philip Seymour Hoffman left $35 million behind.  He wrote a will that assigned ownership of that wealth to his partner, who’s also the mother of his children. That’s not a perfect solution because they weren't married. As a result, his millions didn't pass to her tax-free. However, it’s still much better than no will at all, like the estate of the late rock musician Prince.

Hoffman didn’t ensure that his kids would inherit every asset legally permitted by the tax laws. He knew that their mother would use the money to care for them. However, these decisions have financial consequences. Hoffman’s estate didn’t receive the unlimited marital deduction which would have reduced the risk-free Treasury interest the family money could’ve generated from $1 million to $700,000 a year, without touching the principal.

Unmarried partners are really hit hard with taxes in this situation. Hoffman’s estate paid a sizeable tax to pass on his wealth to his girlfriend. With current tax laws, she’ll pay again to pass it to the kids, reducing the ultimate inheritance by 65% in two steps.  This will put a dent in possible current income.

Hoffman’s kids and their mother will be fine, even with the large tax bill. But for families who measure their wealth in hundreds of millions, lifestyle decisions and estate planning can make a big difference in how many generations get to enjoy the legacy of their ancestors. For the rest of us, estate planning is necessary to manage taxes on a lesser, but still important, scale.

Reference: Wealth Advisor (July 30, 2017) “Posthumous Philip Seymour Hoffman Buzz Reveals: Big Estates Have A Life Of Their Own”

To learn more about creating an estate plan that meets the unique needs of your family, please visit our website. 

 

Grandchildren and IRAs Work Together for an Early Start

It’s never too early to help a family member build their own retirement nest egg.

Summer usually finds teens and college students working at summer jobs, and for many, proudly pocketing their first earnings. But an interesting perspective comes from Kiplinger Retirement Report, as explained in “Seed a Roth IRA for Your Grandkids,” that grandparents can use summer earnings as a teachable moment about retirement planning. Grandparents can make contributions to a Roth IRA for their grandchildren, who can use those funds in later years to build retirement income or even purchase a home.

As an illustration, if you were to contribute $2,000 a year over four years beginning when a grandchild is 15—with a modest 6% annual rate of return—those contributions will grow to more than $143,000 by the time the grandchild is age 66.

If he or she has a summer job or works while attending school, a grandchild has most likely earned income to be able to contribute to a Roth IRA. That contribution can't be more than he or she earned during the year or the maximum of $5,500 (in 2017 per the IRS), whichever is less. One idea is to deposit the money into the account for your grandchild and let your grandson or granddaughter hang onto his or her earnings. If she was to earn $3,500 from a summer job, then she can use it to buy a car. If you give $3,500 to the grandchild, then that money can be contributed to the Roth IRA.

The contribution you make to your grandchild is considered a gift to the child, so be certain to arrange that with your other gifts for the year. A grandparent can give up to $14,000 per year per person, without having to file a gift tax return (or a total of $28,000 to one person from both grandparents).

You can also “pre-fund” an account. However, in the event your grandchild's job falls through or she earns less than was expected, you’ll need to make ensure the excess contribution and its earnings are withdrawn from the account before the next tax filing deadline.

Until your grandchild turns 18 or 21, and depending on the laws of your state, you’ll be able to control the money, and then your grandchild will be able to use it, however he or she wants.

Reference: Kiplinger Retirement Report (May 2017) “Seed a Roth IRA for Your Grandkids”

To learn more about this and other estate planning strategies, please visit our website.

 

Do Singles Need Estate Planning More Than Couples?

Singles, especially those without children, might think that they don’t need to have an estate plan. However, it is important to remember that estate planning is for when you are incapacitated, as well as asset distribution.

While some tasks for estate and retirement planning for singles are the same as for couples, a recent article in Forbes, “5 Financial Planning Strategies For Singles,” notes that singles need to prepare for medical and financial emergencies. While a spouse is not a guarantee that these issues will be handled to a person’s liking, a single adult needs to be more self-reliant and that means planning in advance.

Start saving for retirement now. Many of us will bank on Social Security along with our own personal savings in retirement. Some may have a pension or will possibly continue working in retirement. Whatever the exact plan, a good retirement savings objective is 15% of your salary and include your employer match, if you get one in your 401(k) plan. If you don’t have a plan through work, consider starting a personal IRA.

Prepare for the unexpected. Singles don’t have the luxury of second income as a fall back, so build up an emergency fund that can cover three to six months of expenses. Singles should aim toward the six-month cushion, so any unexpected expenses can be paid off without having to use your credit cards or retirement savings. Keep the money in a liquid account.

Consider insurance. Life insurance can be a replacement income for those who depend on you. With no dependents, it might not be needed, but consider a small policy to cover funeral expenses.

Estate planning. Perhaps you think you don’t need an estate plan because you’re single.  However, you should have certain documents prepared, if you become incapacitated, so a trusted friend can make health and financial decisions on your behalf. This document is called a health care proxy or a durable medical power of attorney. You need this, along with an advance health care directive and a durable power of attorney for financial and legal matters.

For single parents of minor children, a will should be used to designate a guardian for them. Make sure that your beneficiary designations are up to date, since most of your assets are likely in your own name. The beneficiary designations will be in force, regardless of any wishes expressed in a will. You should also review your life insurance policies and retirement accounts. You might consider titling some of your accounts to “transfer on death” to ensure a relatively smooth transfer to another person.

Talk with an experienced estate planning attorney, who will be able to help you set up an estate plan to protect you and any heirs. Don’t forget to speak with family members or trusted friends, so that they know your wishes.

Reference: Forbes (July 5, 2017) “5 Financial Planning Strategies For Singles”

To learn more about creating an estate plan that reflects your goals and concerns, please visit our website. 

Delaware To Repeal Estate Tax

“Despite facing a $400 million budget hole, Delaware is the latest state to repeal its estate tax—as of Jan. 1, 2018.”

Delaware’s Governor John Carney Jr. recently signed an estate tax repeal bill, two days after signing the 2018 state budget, which includes tax hikes on real estate transfers, tobacco, and alcohol.

Wealth Advisor’s recent article, entitled “Latest State To Repeal Estate Tax: Delaware,” notes that Delaware is thinking that the very wealthy don’t have to move to Florida. The thought is that if they stay in Delaware—rather than changing residency to avoid the Delaware state estate tax—they will contribute to the state’s coffers by paying personal income taxes.

“We came to the realization that it was absolutely necessary to do [estate tax repeal] because we were losing more in income tax than what we would gain in estate tax,” says Rep. Mike Ramone, the bill’s primary sponsor and a small business owner.

A 2015 report by the Delaware Economic and Financial Advisory Council on Revenues described the estate tax as a “small, volatile source of tax revenue.” That group recommended the tax’s repeal, based in part on its negative influence on personal income tax revenues. The estate tax brought in a high of $16.2 million in 2011, a low of $1.3 million in 2014, and $9.3 million last year.

The state estate tax was initiated by Democratic Governor Jack Markell in 2009, as a temporary tax when the budget deficit was $800 million. The state exemption is tied to the federal estate tax exemption. As a result, it starts this year for individuals who die with more than $5.49 million in assets. The Delaware top rate is 16%, compared to the federal tax of 40%.

One proponent of the repeal cited the estate tax as the impetus for at least 10 wealthy clients to change their residency to no-income-tax states, such as Florida, where they had vacation homes.

In 2017, there are 18 states plus the District of Columbia that impose either estate or inheritance taxes or both. The Delaware change will drop that number to 17 states, plus D.C. next year. New Jersey’s estate tax will also be eliminated in 2018, but that state will keep its inheritance tax in effect.

Tennessee (2016), North Carolina and Indiana (2013), along with Kansas, Ohio, and Oklahoma (2010) all scrapped their estate or inheritance taxes in recent years.

Reference: Wealth Advisor (July 10, 2017) “Latest State To Repeal Estate Tax: Delaware”

To learn more about tax planning and your estate plan, please visit our website.

What’s the Best Way to Give to Charity?

Some of the terms used for charitable giving can be a little daunting. They sound more like complicated financial transactions and less like making a generous donation for a meaningful cause. But it’s really pretty simple.

There are many different ways to make a donation to charities in your estate plan, but the most common way, according to The Jewish News in “Keeping it (charitable estate planning) simple,” is with a “bequest.” This is, quite simply, leaving assets, money or property, to an organization through your will that are distributed after you die. It requires the bequest to be added to your will. That’s just one way to accomplish this philanthropic goal.

We have all heard of making a “pledge” for a fundraiser. It’s a promise to be paid soon thereafter. You can also make a pledge that is payable-on-death. It’s simply a bill that comes due, when your estate is being settled. You have the ability to revoke the pledge when you’re alive.  However, at your death, it must be paid by the executor of your estate.

Another way to leave money to a charity without changing your will, is to name a charity as a beneficiary of any financial asset, like an insurance policy, an IRA or a donor advised fund. All you need to do is complete a form that says what should happen when you die. You should retain a copy so that your executor will know where to direct the asset.

Charitable gifts paid directly from your IRA, can give you some terrific tax savings—both during your life and upon your death. Ask your IRA manager to arrange for a charitable beneficiary of your IRA to maximize the tax savings. You can also make charitable IRA distributions from your Required Minimum Distributions (RMDs) to your charities, to save the taxes now. However, make sure that the money goes directly from your account to the charity.

A charitable gift annuity is similar to a special bank account that pays you or a designated beneficiary annual guaranteed lifetime income. The rates are based on your age and are typically higher than you can earn with investments. This money is given to your designated charity as a gift, with the residual remaining with the charity when you die.

An estate planning attorney will be able to explain which of these methods make the most sense for you and your family and help make them part of your estate plan.

Reference: Jewish News (June 21, 2017) “Keeping it (charitable estate planning) simple”

To learn more about including charitable giving in your estate plan, please visit our website.

How Are Homes Taxed When Inherited?

If you plan on leaving the family home to your heirs when you die, be aware of the tax liabilities that are associated with inheriting a house.

This is the type of estate planning decision that requires a closer look with an estate planning attorney to evaluate the pros and cons, as well as the short and long-term consequences. First, you’ll need to know the value of the house, which will be based on its fair market value on the date of the owner’s death, according to a recent article from NJ.com, “Complex inheritance taxes on a home.”

If you have a home valued at over $1 million, it may sell for close to that amount. Let’s say that you’re single and are 80 years old. You live with your widowed sister. Your will instructs that your sister should have life ownership when you pass and then it is left in trust for nieces and nephews. What would their tax bill be?

The home's value is generally determined through an appraisal that would establish the home's fair market value.

Fair market value, in these circumstances, is typically defined as "the amount at which the property would change hands between a willing buyer and a willing seller, when the former is not under any compulsion to buy, and the latter is not under any compulsion to sell, both parties having reasonable knowledge of relevant facts."

The transfer of a life estate to the sister, followed by placing the home in a trust for the nieces and nephews, would mean they’d have an inheritance tax liability in New Jersey. The sister is a Class "C" beneficiary under the state’s inheritance tax laws, and the nieces and nephews are deemed to be Class "D" beneficiaries.

Generally, Class "C" beneficiaries have a $25,000 exemption and anything over that exemption is taxed at 11% on the next $1.075 million. The rates then go higher as the amount increases. Transfers to Class "D" beneficiaries are taxed at 15% on the first $700,000 and 16% on amounts exceeding $700,000.

This is unlike the situation where a beneficiary receives a readily determinable amount at death. In such cases, the tax can be calculated easily by reference to the beneficiary classes and applicable tax rates.  However, in this scenario, the value of the interests the beneficiaries will ultimately receive is uncertain.

The estate and the New Jersey Division of Taxation use the “Compromise Tax” procedure to come up with an acceptable inheritance tax liability. This is based on actuarial factors including the life expectancy of the current beneficiary, their beneficiary class and the likelihood of assets passing to remainder beneficiaries and what beneficiary classes they belong to.

An estate planning attorney will be able to explain how this works, as the “Compromise Tax” is a fairly complex process.

Reference: NJ.com (June 19, 2017) “Complex inheritance taxes on a home”

To learn more about estate taxes, please visit our website.

Equal Distributions May Put Support at Risk for Special Needs Children

Your first instinct as a parent may be to divide assets equally among children in your will. However, if your family includes a special needs child, that decision could have a negative impact on your child’s future.

Parents do their best to let their offspring know that they are loved, each in their own unique way. When the family includes a special needs child, their needs are different. However, they are not loved any less than their siblings. The same holds true for estate planning for a special needs family. According to Tickertape, “Estate Planning for Special Needs Children: Trying to Be Even-Steven?”, estate distributions with a special needs child typically need to be different than distributions to their siblings. It’s not about fairness, it’s about good planning.

Children with special needs are typically eligible for state and federal benefits that provide them with assistance for their long-term support. Among the most common are Supplemental Security Income (SSI) and Medicaid. In many states, SSI may qualify children for Medicaid, or Medicaid comes automatically with SSI. These are need-based benefits that are means-tested. SSI recipients have a strict assets threshold of $2,000 for an individual. If a special needs child gets an inheritance, it might push him or her, above that ceiling. This could result in ineligibility for the program benefits that might be used to cover medical, therapeutic, or housing needs.

When money is paid directly to the child as beneficiary, it can cut SSI benefits. The same is true, if the special-needs heir disclaims the inheritance.

Government benefits may be retained, if an inheritance is set up in a Special Needs Trust (SNT), which is designed to help a beneficiary with special needs and preserve government aid while protecting assets. The trust allocates inheritance assets to the child with special needs, but it’s via a third-party.

However, there might be tax implications. While the inheritance itself isn’t taxed, the income that it generates in a special trust is typically taxable at trust tax levels. Creating an SNT can be complicated, and the rules can vary from state to state. Speak to a qualified trust attorney to be sure that all income is reported properly and there are no deductions left on the table.

Be certain to consider the net tax implications and eligibility requirements of any government programs, when you create an estate plan. Talk with your children about your plan and the decisions you are making with regard to the future care for your special needs child. This will help everyone in the family be better prepared and ready to work together to maintain the integrity of the family, which is part of your legacy.

Reference: Tickertape (June 14, 2017) “Estate Planning for Special Needs Children: Trying to Be Even-Steven?”

To learn more about special needs trusts, please visit our website.

 

Power of Attorney and Anticipated Inheritance from a Relative Who Lives in Another State

If someone has designated you as their agent with a Power of Attorney, it’s important to understand what this legal document does and does not empower you to do.

A Power of Attorney (POA) gives you the legal right to manage a person’s financial affairs while they are alive, according to an article on NJ.com, “Inheriting money from out-of-state relative.” What most people don’t realize is that the POA is only in effect, while the person who named you their agent is living.

When the person dies and you are the beneficiary, you’ll need to know what your tax liability may be.

There are two distinct types of taxes that may be imposed by a state where the person is a resident at the time of their death. An estate tax may be required to be paid on the estate of an individual before the property is transferred to the beneficiary. There is also the inheritance tax. This tax is imposed on certain individuals who inherit property from an estate. Whether a state estate tax or inheritance tax must be paid, is dependent on the laws of the state where the person was a resident at the time of death, not the state where the beneficiary lives.

The estate of a person who is a resident of New York and dies between April 1, 2017 and Dec. 31, 2018 is subject to a New York estate tax, only if the value of the estate exceeds $5.25 million. On January 1, 2019, the New York estate tax exemption will equal the federal estate tax exemption. It is anticipated to be about $5.9 million.

In some states, the relationship between the testator and the heirs may make them subject to an inheritance tax.

If the relative, for example, owns real property in New Jersey, there’s an inheritance tax of 15% imposed by the state on the value of that real property. When a person inherits the estate assets, there would be a step-up in basis for any appreciated assets. This means that there shouldn’t be any capital gains tax on those assets, if they’re disposed of for the date of death values.

An estate planning attorney will be able to help you work through the tax consequences and the practical steps that need to be taken, when inheriting assets from a family member who lives in a different state.

Reference: NJ.com (June 6, 2017) “Inheriting money from out-of-state relative”

Please visit our website to learn more about the steps to take and options when receiving an inheritance.

Daughter of Chicago Radio Legend Hoping Fans Will Help Her Estate Battle

Herb Kent’s daughter Robbin and grandchild were completely left out of his will, which she says was the result of improper influence by his girlfriend. This won’t be an easy will to contest.

Legendary Chicago radio personality Herb Kent’s daughter used to go with him to public events and is widely known in the music industry. When he died at age 88 in October 2016, she and her son, Kent’s only grandchild, were completely left out of the will. Robbin says she is launching a crowd funding website to raise money to pay for legal fees that will result from the estate battle.

“It is with a heavy and exhausted heart that I come to you all for assistance in these trying times. Along with losing my father, I am in the midst of a tedious legal battle over my father’s estate,” Robbin said in a post on the funding site.

The Chicago Sun-Times, in the recent article, “Famed DJ Herb Kent’s daughter is contesting her father’s will,” says that although Kent’s net worth wasn’t known at the time of his death, the Hall of Fame DJ worked for 65 years in the Chicago radio market, performed at paid gigs nationwide and taught at Chicago State University for many years. He owned at least two residences.

Robbin and her father’s longtime girlfriend, Linda Stanford, had a contentious relationship, according to the elder Kent’s friends. They also say that Kent’s mental health declined over the last few years of his life. Robbin is accusing Stanford of manipulating her father in his last years. Robbin argues that they weren’t married, and her father had dementia. She says Stanford took advantage of him and “ran amuck.”

According to the will filed in the county probate, signed by Herbert R. Kent, Stanford is designated the executor of the estate, with his longtime radio producer as the successor executor (if Stanford is unable to fulfill her role). Robbin and Kent’s only grandchild were both left out of the will entirely.

Robbin was quoted as saying that she does not think her father would have wanted his only heir to be left out, and that she fully intends to fight for what she believes is rightfully hers.

Reference: Chicago Sun-Times (June 8, 2017) “Famed DJ Herb Kent’s daughter is contesting her father’s will”

Please visit our website to learn more about creating a solid estate plan that reflects your goals and concerns.