How to Combat Elder Financial Abuse

One estimate is that the amount of elder financial fraud is $30 billion a year, defining it as the theft of money by thieves who include con artists, strangers, caregivers or trusted friends or family members. According to Consumer Reports, in the article “3 Critical Ways to Prevent Elder Financial Abuse,” these crimes are often not reported. Sometimes, the seniors are too embarrassed to admit that they were fooled, or they don’t want to put a family member at risk. They often don’t know they have been scammed, or are physically unable to articulate what has happened to them.

This is starting to change, as banks are starting to increase their reporting of suspected elder financial abuse. Last year, U.S. banks reported roughly 25,000 cases of suspected elder financial abuse to the U.S. Treasury. That’s more than double the amount reported in 2013, as reflected in data from the U.S. Treasury department’s Financial Crimes Enforcement Bureau.

One reason behind the surge is demographics: although the baby boomers are getting older, they have a tremendous amount of assets and are vulnerable to being defrauded.

However, the increase in reported cases may also be bolstered by big pushes from the federal government, states, and the financial industry to fight elder financial abuse. New regulations are now in place to encourage people who are on the front lines for elder abuse: brokers, bankers and financial advisors.

FINRA, the self-regulatory agency that oversees brokers, now requires them to ask clients, no matter how young or old, to provide the name and contact information for a trusted family member or friend. If the broker believes that person is being exploited, they have someone to contact. The new regulations also allow brokers to put a hold on withdrawals from a client’s account, if they believe there may be elder financial abuse occurring. The hold is for 15 days but can be extended 10 more days.

From the federal government, the Senior Safe Act became law in 2018. It enables the employees of any financial institutions to report concerns about elder abuse, without fear of being held liable for disclosing private information. To qualify for this protection, financial institutions are required to provide training to staff about recognizing the abuse. At the state level, NASAA (the North American Securities Administrators Association, a group of state regulators) adopted a rule in 2016 which mandates that brokers and financial advisors report any suspected abuse to state authorities. The rule also allows them to stop withdrawals on accounts and protects brokers and advisors from liability, if they stop account disbursement. Sixteen states have enacted versions of the rule, and there are six more states working on legislation.

On a more personal level, there are three things family members and friends can do to prevent elder financial abuse. One is to stay in touch and ask questions of aging parents. Isolation and cognitive impairment are the biggest risk factors. Make sure that your parent is keeping up with bill paying, and whether he or she is in contact with new friends, strangers who may not have their best interests in mind.

If your parent is willing, start by offering to help with a few financial tasks, like bill paying. Keep it low key, by including a visit with the task. If you see things are not being handled well, stay on top of it.

Another step is to set up checks and balances, by making sure that critical legal documents are in place. There should be a will, a healthcare proxy, a HIPAA release form and a durable power of attorney. The durable power of attorney will let you pay bills and manage finances, if and when they can no longer manage. If there is no will or estate plan in place, make an appointment for your parent with a qualified estate planning attorney as soon as possible.

Consider streamlining aging parent’s finances. If they have too many credit cards and too many bank accounts, it may make things easier if they can pare things down to one bank and one credit card. Be very careful with retirement accounts, like 401(k)s and IRAs, to avoid any taxes and penalties.

Simplifying money management and being involved with your parent’s finances and their lives can help prevent financial elder abuse.

Reference: Consumer Reports (Feb. 22, 2019) “3 Critical Ways to Prevent Elder Financial Abuse”

Suggested Key Terms: Elder Financial Abuse, Baby Boomers, Fraud, Healthcare Proxy, HIPAA, Senior Safe Act

Why Is a Revocable Trust So Valuable in Estate Planning?

There’s quite a bit that a trust can do to solve big estate planning and tax problems for many families.

As Forbes explains in its recent article, “Revocable Trusts: The Swiss Army Knife Of Financial Planning,” trusts are a critical component of a proper estate plan. There are three parties to a trust: the owner of some property (settler or grantor) turns it over to a trusted person or organization (trustee) under a trust arrangement to hold and manage for the benefit of someone (the beneficiary). A written trust document will spell out the terms of the arrangement.

One of the most useful trusts is a revocable trust (inter vivos) where the grantor creates a trust, funds it, manages it by herself, and has unrestricted rights to the trust assets (corpus). The grantor has the right at any point to revoke the trust, by simply tearing up the document and reclaiming the assets, or perhaps modifying the trust to accomplish other estate planning goals.

After discussing trusts with your attorney, he or she will draft the trust document and re-title property to the trust. The assets transferred to a revocable trust can be reclaimed at any time. The grantor has unrestricted rights to the property. During the life of the grantor, the trust provides protection and management, if and when it’s needed.

Let’s examine the potential lifetime and estate planning benefits that can be incorporated into the trust:

  • Lifetime Benefits. If the grantor is unable or uninterested in managing the trust, the grantor can hire an investment advisor to manage the account in one of the major discount brokerages, or he can appoint a trust company to act for him.
  • Incapacity. A trusted spouse, child, or friend can be named to care for and represent the needs of the grantor/beneficiary. She will manage the assets during incapacity, without having to declare the grantor incompetent and petitioning for a guardianship. After the grantor has recovered, she can resume the duties as trustee.
  • This can be a stressful legal proceeding that makes the grantor a ward of the state. This proceeding can be expensive, public, humiliating, restrictive and burdensome. However, a well-drafted trust (along with powers of attorney) avoids this.

The revocable trust is a great tool for estate planning because it bypasses probate, which can mean considerably less expense, stress and time.

In addition to a trust, ask your attorney about the rest of your estate plan: a will, powers of attorney, medical directives and other considerations.

Any trust should be created by a very competent trust attorney, after a discussion about what you want to accomplish.

Reference: Forbes (February 20, 2019) “Revocable Trusts: The Swiss Army Knife Of Financial Planning”

Suggested Key Terms: Estate Planning Lawyer, Wills, Trusts, Trustee, Probate Court, Inheritance, Power of Attorney, Healthcare Directive, Living Will, Tax Planning, Guardianship

What Are The Details on Bernie Sanders Estate Tax Bill?

Senate Bill 309 was introduced by Senator Bernie Sanders in January. It is also called the “For the 99.8 Percent Tax.” The proposed legislation would establish a tax of 45% of the value of estates valued between $3.5 million and $10 million.

Rubber & Plastics News reported in “Bernie Sanders introduces bill to re-establish estate tax threshold” that the 77% tax rate would be assessed only on estates worth more than $1 billion, according to the bill. The rate would be 50% for estates assessed between $10 million and $50 million, and 55% for estates between $50 million and $1 billion.

“At a time of massive wealth and income inequality, when the three richest Americans own more wealth than 160 million Americans, it is literally beyond belief that the Republican leadership wants to provide hundreds of billions of dollars in tax breaks to the top 0.2 percent,” Sanders said in a statement accompanying the introduction of S. 309.

“Our bill does what the American people want, by substantially increasing the estate tax on the wealthiest families in this country and substantially reducing wealth inequality,” he said.

Since 2017, the estate tax exemption has been $11.4 million for individuals and $22.8 million for couples. However, that rate is scheduled to expire at the end of 2025.

Sanders’ bill seeks to limit estate planning techniques that help small business owners keep their businesses in the family, such as gifts of interest in a family business to younger family members, says opponents.

The bill would also be inherently unfair to small businesses, even more so than current estate tax law, one association said.

Senate Bill 309 was introduced after the Death Tax Repeal Act of 2019 was introduced. That bill would totally repeal estate taxes. Senate Majority Leader Mitch McConnell (R-Ky.), Senate Majority Whip John Thune (R-S.D.), and Senate Finance Committee Chairman Chuck Grassley (R-Iowa) were the co-sponsors, joined by 26 other Senate Republicans.

Reference: Rubber & Plastics News (February 25, 2019) “Bernie Sanders introduces bill to re-establish estate tax threshold”

Suggested Key Terms: Estate Tax, Legislation

Making an IRA Part of the Estate Plan

Most people use their IRAs (Individual Retirement Accounts) for retirement income. However, a lucky group find themselves not needing the money from their IRA accounts. Instead, the assets become part of a legacy that they leave to heirs. That is why most IRA accounts include the name of a beneficiary who could inherit these accounts, when the owner passes away, reports the Oakdale Leader in the article “Leaving An IRA As An Inheritance.”

If no beneficiary is named, things can get complicated for both the estate and the heirs. If the IRA has a named beneficiary, but the will names someone else to receive the IRA, the beneficiary named in the IRA is the one who receives the asset. The named beneficiary in any account and especially an IRA, supersedes the will, in almost every instance.

Anytime there is a significant event, often called a “trigger” event, like a divorce, marriage or birth, the estate plan and all accounts with named beneficiaries should be reviewed. This is to ensure that the assets go where the owner wants them, and not to an unintended heir, like an ex-spouse.

There are special rules for spouses, where IRAs are concerned. Married couples typically name each other as beneficiaries on their IRAs. A surviving spouse has certain decisions to make when inheriting an IRA. The IRA may be rolled over into a new or existing IRA in the spouse’s own name. Taking this route depends upon the age of the spouse and the need for the money.

Sometimes, it is appropriate to name a trust as a beneficiary of an IRA. However, you must be careful that your trust will qualify as a “designated beneficiary trust” to avoid negative tax consequences if naming it as a beneficiary. Typically naming a trust as a beneficiary is needed when you want to leave an IRA to a minor child, someone with disabilities, or if you want to restrict or control the distributions to your beneficiaries.

To maximize the growth of the IRA, children or grandchildren can be named as IRA beneficiaries. They will need to start taking annual Required Minimum Distributions (RMDs) immediately, and the distributions will be taxable. However, the amount of the RMD will be based on their anticipated lifetimes, so the taxable distributions will be relatively small. The money in the account will have many years to grow.

When children or grandchildren are named as contingent beneficiaries, a surviving spouse has the option to disclaim the IRA, which allows the children or grandchildren to inherit the IRA and enjoy the tax-free years of growth.

Reference: Oakdale Leader (February 19, 2019) “Leaving An IRA As An Inheritance”

Suggested Key Terms: Individual Retirement Account, Required Minimum Distributions, RMDs, Beneficiaries, Roth IRA, Surviving Spouse, Charitable Giving, Inherited IRA, Heirs

Iconic Designer Leaves a Fortune for Beloved Cat

The Burmese cat owned by Lagerfeld stands to inherit a sizable amount of the designer’s fortune, estimated at some $300 million, according to a report from CBS News titled “Karl Lagerfeld’s cat to inherit a fortune, but may not be richest pet.” The cat, named Choupette, was written into his will in 2015, according to the French newspaper Le Figaro.

Before Lagerfeld died on Feb. 19, the cat already had an income of her own, appearing in ads for cars and beauty products. She has nearly 250,000 followers on Instagram and is an ambassador for Opel, the French car maker. She is also the subject of two books. Choupette has had her own line of makeup for the beauty brand Shu Uemura.

Lagerfeld was a German citizen, but he and Choupette were residents of France, where the law prohibits pets from inheriting their human owner’s wealth. German law does permit a person’s wealth to be transferred to an animal.

There are three approaches that Lagerfeld might have taken to ensure that his beloved cat would be assured of her lifestyle, after his passing. One would have been to create a foundation, whose sole mission is to care for the cat, with a director who would receive funds for Choupette’s care.

A second way would be to donate money to an existing nonprofit and stipulate that funds be used for the cat’s care. A third would be to leave the cat to a trusted individual, with a gift of cash that was earmarked for her care.

It is not uncommon today for people to have pet trusts created to ensure that their furry friends enjoy a comfortable lifestyle, after their humans have passed. Estate laws in the U.S. vary by state, but they always require that a human have oversight over any funds or assets entrusted to a pet. Courts also have a say in this. There are reasonable limits on what a person can leave to a pet. A court may not honor a will that seeks to leave millions for the care of a pet. However, it has happened before.

Real estate tycoon Leona Hemsley left many people stunned, when she left $12 million for her Maltese dog. In 1991, German countess Carlotta Liebenstein left her dog Gunther IV a princely sum of $80 million. To date, Gunther remains number one on the “Top Richest Pets” list.

For pets who are beloved parts of regular families and not millionaires in their own right, an estate planning attorney will be able to help you plan for your pet’s well-being, if it should outlive you. Some states permit the use of a pet trust, and a no-kill shelter may have a plan for lifetime care for your pet. You’ll need to make a plan for a secure place for your pet and provide necessary funds for food, shelter, and medical care.

Reference: CBS News (Feb. 21, 2019) “Karl Lagerfeld’s cat to inherit a fortune, but may not be richest pet”

Suggested Key Terms: Inherit, Karl Lagerfeld, Choupette, Pet Trusts, Estate Planning

How Seniors Can Spot Work-at-Home Scams

Many people want to bring in a little extra money in retirement. Working from home seems like an ideal way to do that. You can earn some income, without having to dress in uncomfortable clothes or fight traffic jams to commute to the office. Scammers know how appealing this scenario sounds, so they develop ways to rip off hard-working older Americans. Here are some tips on how seniors can spot work-at-home scams.

According to the Better Business Bureau, most offers to work from home are actually fraudulent schemes that will cause you to lose money, not make it. The typical victim of these scams will lose about $800. Offers involving these activities are usually from con artists:

  • Assembling crafts
  • Typing
  • Data entry
  • Completing online surveys
  • Stuffing envelopes
  • Doing billing for medical offices

The scams will ask you to spend money upfront on things like:

  • Materials
  • Supplies
  • Training
  • Coaching
  • Leads to get clients

Red Flags That the Opportunity Is a Rip-off

Legitimate job offers do not require you to recruit more people into the scheme. However, many fraudulent set-ups do. If the advertisement sounds too good to be true, it probably is. For example, the ad promises that your upfront investment will pay itself off quickly with high income that requires very little effort by you. Con games also often claim that you do not need any job skills or experience to make lots of money.

How to Protect Yourself from Fraudulent Work-at-Home Schemes

It can be difficult to identify which job opportunities are legitimate and which are scams. Here are some steps you can take to keep from becoming a victim of a con:

  • Check out the company with the Better Business Bureau, both in the city where the company is located and in your town. Of course, if the advertisement does not provide an office address you can easily verify, that is not a good sign.
  • Contact your state’s consumer protection agency and Attorney General’s office to find out if people have filed complaints against the organization or if they are under investigation.
  • If the company does not yet have complaints against it, that could be because it is a new scheme. Con artists tend to change their business names frequently, just as telemarketers use many different phone numbers.
  • Be skeptical of testimonials in the advertisement or on the company’s website. There is an entire industry of fake testimonials.
  • Never pay any money or sign an agreement, without first doing a thorough investigation of the company.
  • Do not trust a job offer, just because it appeared in a reputable magazine, newspaper, or online job board.
  • Insist that the company put in writing when and how you will get compensation, and all costs you might have to incur. Make sure that you understand whether your payment will be salary or commission.
  • Instead of answering ads, which are almost always scams, list with a legitimate jobs board. Realize, however, that con artists can and do contact people on those sites.

If you become the victim of a scam, a lawyer might be able to help you get some of your money back from the con artists.

References:

AARP. “Work-at-Home Scams.” (accessed February 14, 2019) https://www.aarp.org/money/scams-fraud/info-2019/work-at-home.html

Suggested Key Terms: how to spot fraudulent work-at-home schemes, avoid getting ripped off when working from home

How Do I Know When It’s Time to Retire?

Many senior workers are actually a little afraid of retirement, because they’ve heard too many horror stories about people who retire too soon and wind up outliving their nest eggs. This is reflected in a 2016 survey from the Transamerica Center for Retirement Studies, which found that 51% of American workers say their top retirement worry is outliving their investments and savings.

Here are the key indicators that you’re probably ready to retire, according to this recent article from Investopedia’s, “6 Signs That You Are OK to Retire.”

  1. Hit Your Full Retirement Age. If you were born between 1943 and 1954, your full retirement age is 66. If you were born after 1959, it’s 67. You can start claiming Social Security benefits as early as 62, but your benefits will be much higher, if you wait until your full retirement age.
  2. Retire Debt-Free. If you have a ton of credit card debt or still owe a lot on your home or car, you may want to wait to retire because when you’re on a fixed income, a big mortgage or car payment can put a major dent in your finances. Before you retire, pay off all your debts, if possible, and get on a budget.
  3. Not Financially Supporting Your Kids (or Parents). If your kids still live with you–or you’re paying for their college education–you probably should wait with your retirement plans. Likewise, it might be smart to delay retirement, if you’re financially responsible for your elderly parents. If that’s you, retirement probably isn’t an option until your situation changes.
  4. Make a Retirement Budget. Prior to retiring, calculate whether you can live comfortably on your post-retirement income. Add up your mandatory monthly costs, like a mortgage or rent, groceries and utilities. Next, add in your ‘wants,’ like travel, entertainment shopping and eating out. You can then determine whether you’ll have enough retirement savings to cover all of this. Add your Social Security payments, pension, retirement account distributions and any other sources of income. Your retirement budget (if you retire in your mid-60s) shouldn’t be more than 4% of your investments, plus Social Security and pension payments.
  5. Review Your Portfolio. You’re going to depend a lot on your investment portfolio in retirement. If you haven’t had a portfolio review in a while, do it soon. Reassess your portfolio and determine if you need to make any modifications. As you get close to retirement, you may want to move to lower-risk investment strategies to protect your wealth.
  6. Plan with Your Spouse. Unless you live alone, retirement will have a major effect on your spouse or partner. Retirement should be reviewed together. Look at how the reduction in income will affect your lifestyle, and consider what changes may need to occur to make it enjoyable for you both.

These are just the basic elements to determine when you’re ready for retirement. You should also think about how you’ll spend your days, where you want to live and whether most of your friends will still be working. All of these things could have a big effect on your general enjoyment of retirement.

Reference: Investopedia (June 1, 2018) “6 Signs That You Are OK to Retire”

Suggested Key Terms: Asset Protection, Financial Planning, IRA, 401(k), Pension, Retirement Planning, Social Security

How Do I Incorporate Charitable Giving into My Estate Plan?

One approach frequently employed to give to charity, is to donate at the time of your death. Including charitable giving into an estate plan, is great way to support a favorite charity.

Baltimore Voice’s recent article, “Estate planning and charitable giving,” notes that there are several ways to incorporate charitable giving into an estate plan.

Dictate giving in your will. When looking into charitable giving and estate planning, many people may start to feel intimidated by estate taxes, thinking that their family members won’t get as much of their money as they hoped. However, including a charitable contribution in your estate plan will decrease estate tax liabilities, which will help to maximize the final value of the estate for your family. Talk to an experienced estate attorney to be certain that your donations are set out correctly in your will.

Donate your retirement account. Another way to leverage your estate plan, is to designate the charity of your choice as the beneficiary of your retirement account. Note that charities are exempt from both income and estate taxes. In choosing this option, you guarantee that your favorite charity will receive 100% of the account’s value, when it’s liquidated.

A charitable trust. Charitable trusts are another way to give back through estate planning. There is what is known as a split-interest trust that lets you donate assets to a charity but retain some of the benefits of holding the assets. A split-interest trust funds a trust in the charity’s name. The person who opens one, receives a tax deduction when money is transferred into the trust. However, the donors still control the assets in the trust, and it’s passed onto the charity at the time of their death. There are several options for charitable trusts, so speak to a qualified estate planning attorney to help you choose the best one for you.

Charitable giving is a component of many estate plans. Talk to your attorney about your options and select the one that’s most beneficial to you, your family and the charities you want to support.

Reference: Baltimore Voice (January 27, 2019) “Estate planning and charitable giving”

Suggested Key Terms: Estate Planning Lawyer, Wills, Split-Interest Trust, Trustee, Asset Protection, Inheritance, Estate Tax, Gift Tax, IRA, 401(k), Charitable Donation

A Love Letter to Your Family

Now, to the 70% of Americans who do not have an estate plan, the article “Senior Spotlight: Composing the ‘family love letter’” from the Lockport Journal should help you understand why this is so important. One reason why people don’t take care of this simple task, is because they don’t fully understand why estate planning is needed. They think it’s only for the wealthy, or that it’s only for old people, or even that it’s only about death and taxes.

Consider this idea: an estate plan is about protecting yourself while you are alive, protecting your family when you have passed and leaving a legacy for the living.

Some of the main elements of an estate plan are to create and execute documents that provide for incapacity and death, as well as provide information about your assets, liabilities and wishes.

You’ve spent a lifetime accumulating assets. It is now time to sit down with family members and have a heart-to-heart talk about the details of the estate and what your intentions are with respect to its distribution. The subject of death can be challenging for all. However, discussing your estate plan is vital, if you want to protect your family from what might come after you are gone. Each family has its own goals, so it’s a good idea to talk about it frankly, while you still can.

Without discussions and an estate, the chances of a family split, assets not going where you had intended and unnecessarily higher costs in taxes and legal fees, are a very real possibility.

If speaking about these topics is too hard, you may want to write your family a love letter. It would contain all the information that your family would need at the time of your death or if you become incapacitated because of illness or injury.

Your estate plan should also include the documents needed, so your family can make decisions on your behalf, if you are incapacitated. That includes a power of attorney, a health care directive and may include others specific to your situation.

Ideally, all this information will be located in one convenient place. Don’t put it on a computer where you use a password. If the family cannot access your computer, all your hard work will be useless to them. Put it in a folder or a notebook, that is clearly labeled and tell family members where it is.

They’ll need this information:

  • A list of your important contacts — your estate planning attorney, financial advisor, CPA, insurance broker and medical professionals.
  • Credit card information, frequent flier miles.
  • Insurance and benefits including all health, life, disability, long-term care, Medicare, property deeds, employment and any military benefits.
  • Documents including your will, power of attorney, birth certificates, military papers, divorce decrees and citizenship papers.

Think of these materials and discussions as your opportunity to make a statement for the future generation. If you don’t have an estate plan in place already or if you have not reviewed your estate plan in more than a few years, it’s time to make an appointment for a review. Your life may have not changed, but tax laws have, and you’ll want to be sure your estate is not entangled in old strategies that no longer benefit your family.

Reference: Lockport Journal (Feb. 16, 2019) “Senior Spotlight: Composing the ‘family love letter’”

Suggested Key Terms: Estate Plan, Will, Power of Attorney, Health Care Directive, Legacy

Retiring Business Owners, What’s Going to Happen to Your Business?

When the business owner retires, what happens to employees, clients and family members all depends on what the business owner has planned, asks an article from Florida Today titled “Estate planning for business owners: What happens to your business when you leave?” One task that no business owner should neglect, is planning for what will happen when they are no longer able to run their business, for a variety of reasons.

The challenge is, with no succession plan, the laws of the state will determine what happens next. If you started your own business to have more control over your destiny, then you don’t want to let the laws of your state determine what happens, once you are incapacitated, retired or dead.

Think of your business succession plan as an estate plan for your business. It will determine what happens to your property, who will be in charge of the transition and who will make decisions about whether to keep the business going or to sell it.

Your estate planning attorney will need to review these issues with you:

Control and decision-making. If you are the sole owner, who will make critical decisions in your absence? If there are multiple owners, how will decisions be made? Discuss in advance your vision for the company’s future, and make sure that it’s in writing, executed properly with an attorney’s help.

What about your family and employees? If members of your family are involved in the business, work out who you want to take the leadership reins. Be as objective as possible about your family members. If the business is to be sold, will key employees be given an option of buying out the family interest? You’ll also need a plan to ensure that the business continues in the period between your ownership and the new owner, in order to retain its value.

Plan for changing dynamics. Maybe family members and employees tolerated each other while you are in charge, but if that relationship is not great, make sure plans are enacted so the business will continue to operate, even if years of resentment come spilling out after you die. Your employees may be counting on you to protect them from family members, or your family may be depending upon you to protect them from disgruntled employees or managers. Either way, do what you can in advance to keep everyone moving forward. If the business falls apart the minute you are gone, there won’t be anything to sell or for the next generation to carry on.

How your business is structured, will have an impact on your succession plan. If there are significant liability elements to your business, risk management should also be built into your future plans.

To make your succession plan work, you will need to integrate it with your personal estate plan. If you have a Last Will and Testament in a Florida-based business, the probate judge will appoint someone to run the business, and then the probate court will have administrative control over the business, until it’s sold. That probably isn’t what you had in mind, after your years of working to build a business. Speak with an estate planning attorney to find out what structures will work best, so your business succession plan and your estate plan will work seamlessly without you.

Reference: Florida Today (Feb. 12, 2019) “Estate planning for business owners: What happens to your business when you leave?”

Suggested Key Terms: Business Owner, Succession Plan, Estate Planning Attorney, Key Employees

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