A new study published in the Journal of the American Geriatrics Society found that the challenges posed to seniors – many of whom were left sequestered alone in their homes – actually increased the amount of trust they were able to place in themselves and their abilities.

Seasons’s recent article entitled “Pandemic has made seniors more confident about aging in place, study reports” reported on this survey.

In fact, the survey was a part of a larger study, which asked 214 respondents to rate their general self-confidence as well as their confidence in a variety of scenarios—from managing their health to social interactions. This might be confidence in their ability to arrange rides and appointments or seeking support when they need help understanding something.

The researchers from Northwestern University found significant differences between the 66 seniors who responded to the survey before the pandemic and the 148 who answered after.

In fact, pandemic-era respondents not only had higher confidence in general but reported significantly higher confidence in their abilities to manage social interactions.

“Self-doubt is a part of human nature,” the study’s authors wrote. “COVID-19 restrictions forced older adults to experience the loss of in-person human interactions and overcome their self-doubt in managing social interactions. Older adults adapted to the challenges of isolated aging in place and came ahead with higher self-efficacy.”

The news is positive, considering that 77% of older adults want to age in place, according to the AARP. A jump in confidence will be a big help for caregivers who don’t want to see their loved ones institutionalized. Moreover, it opens the door for the necessary planning that will be needed to keep a senior home long-term. This includes installing grab bars and ramps or reconfiguring a two-story house.

Aging in place is good for both seniors and their caregivers. By staying in their homes, older people are able to hold onto more of their independence as they can determine their day-to-day life.

Moving individuals at the end of their life can also have many detrimental effects, including anxiety, depression and loneliness.

For caregivers who are concerned about these aspects, keeping a loved one home can be a big relief with the right support.

Reference: Seasons (Aug. 9, 2022) “Pandemic has made seniors more confident about aging in place, study reports”

Suggested Key Terms: Elder Law Attorney, COVID-19 (coronavirus), Senior Health, Aging in Place

A living trust can be revocable or irrevocable, says Yahoo Finance’s recent article entitled “Revocable vs. Irrevocable Trusts: Which Is Better?” And not everyone needs a trust. For some, a will may be enough. However, if you have substantial assets you plan to pass on to family members or to charity, a trust can make this much easier.

There are many different types of trusts you can establish, and a revocable trust is a trust that can be changed or terminated at any time during the lifetime of the grantor (i.e., the person making the trust). This means you could:

• Add or remove beneficiaries at any time
• Transfer new assets into the trust or remove ones that are in it
• Change the terms of the trust concerning how assets should be managed or distributed to beneficiaries; and
• Terminate or end the trust completely.

When you die, a revocable trust automatically becomes irrevocable and no further changes can be made to its terms. An irrevocable trust is permanent. If you create an irrevocable trust during your lifetime, any assets you transfer to the trust must stay in the trust. You can’t add or remove beneficiaries or change the terms of the trust.

The big advantage of choosing a revocable trust is flexibility. A revocable trust allows you to make changes, and an irrevocable trust doesn’t. Revocable trusts can also allow your heirs to avoid probate when you die. However, a revocable trust doesn’t offer the same type of protection against creditors as an irrevocable trust. If you’re sued, creditors could still try to attach trust assets to satisfy a judgment. The assets in a revocable trust are part of your taxable estate and subject to federal estate taxes when you die.

In addition to protecting assets from creditors, irrevocable trusts can also help in managing estate tax obligations. The assets are owned by the trust (not you), so estate taxes are avoided. Holding assets in an irrevocable trust can also be useful if you’re trying to qualify for Medicaid to help pay for long-term care and want to avoid having to spend down assets.

But again, you can’t change this type of trust and you can’t act as your own trustee. Once the trust is set up and the assets are transferred, you no longer have control over them.

Speak with an experienced estate planning or probate attorney to see if a revocable or an irrevocable trust is best or whether you even need a trust at all.

Reference: Yahoo Finance (Sep. 10, 2022) “Revocable vs. Irrevocable Trusts: Which Is Better?”

Suggested Key Terms: Estate Planning Lawyer, Wills, Probate Court, Inheritance, Asset Protection, Trustee, Revocable Living Trust, Irrevocable Trust, Probate Attorney, Estate Tax

Money Talks News’ recent article entitled “3 Tax Penalties That Can Ding Your Retirement Accounts” says make one wrong move, and Uncle Sam may ask for some explanations. Let’s review the three biggest mistakes people make.

Excess IRA contribution penalty. Contributing too much to an individual retirement account (IRA) can mean a penalty from the IRS. You can do this if you contribute more than the applicable annual contribution limit for your IRA or improperly rolling over money into an IRA. The IRS states, “Excess contributions are taxed at 6% per year as long as the excess amounts remain in the IRA. The tax can’t be more than 6% of the combined value of all your IRAs as of the end of the tax year.”

The IRS lets you remedy your mistake before any penalties will be applied. You must withdraw the excess contributions — and any income earned on those contributions — by the due date of your federal income tax return for that year.

Taking money out too soon from a retirement account. If you withdraw funds from your IRA before the age of 59½, you might be subject to paying income taxes on the money, plus an additional 10% penalty. However, there are several exceptions when you’re permitted to take early IRA withdrawals without penalties: if you lose your employment, you’re allowed to tap your IRA early to pay for health insurance premiums.

The same penalties apply to early withdrawals from retirement plans like 401(k)s, but again, there are exceptions to the rule that allow you to make early withdrawals without penalty. The exceptions that let you make early retirement plan withdrawals without penalty may differ from the exceptions that allow you to make early IRA withdrawals without penalty.

Missed RMD penalty. Taxpayers were previously obligated to take required minimum distributions — also known as RMDs — from most types of retirement accounts beginning the year they turn 70½. However, the Secure Act of 2019 bumped up that age to 72.

The consequences of not making these mandatory withdrawals still apply. If you fail to take your RMDs starting the year you turn 72, you face harsh penalties. The IRS says that if you don’t take any distributions, or if the distributions aren’t large enough, you may have to pay a 50% excise tax on the amount not distributed as required.

Reference: Money Talks News (March 1, 2022) “3 Tax Penalties That Can Ding Your Retirement Accounts”

Suggested Key Terms: Estate Planning Lawyer, Probate Attorney, Required Minimum Distribution (RMD), Retirement Planning, Tax Planning, Financial Planning, IRA, 401(k)

While death is a certainty, some taxes aren’t when IRAs are used to make charitable bequests, explains a thought-provoking article titled “Win an Income-Tax Trifecta With Charitable Donations” from The Wall Street Journal. For those who are philanthropically minded and tax-savvy, this is an idea worth consideration.

There are few better ways to leave funds to a charity than through traditional IRAs. The strategy is especially noteworthy now, given the growth in traditional IRA values over the last decade, even with the recent selloffs in bond and stock markets. At the end of 2022’s first quarter, traditional IRAs held about $11 trillion, more than double the $5 trillion in IRAs at the end of 2012.

With the demise of defined benefit pensions, traditional IRAs are now the largest financial account many people own, especially boomers. Therefore, it’s wise to know about applicable tax strategies.

The first advantage is tax efficiency. Donors of IRA assets at death win a three-way tax prize: no tax on the contributions going to the charity, no tax on annual growth and no tax on assets at death.

Compare this to donations of cash or investments, such as a stock held in a taxable account. For example, let’s say Jules wants to leave a total of $20,000 to several charities upon her death. She expects to have more than $20,000 in each of three accounts at this time. One account is cash, the other is a traditional IRA, holding stocks and funds, and the third is a taxable investment account holding stocks purchased decades ago.

A charitable bequest of assets from any of these three accounts will bring a federal estate-tax deduction. However, Jules’ estate will be smaller than the current estate tax exemption of about $12 million, so there are no federal estate taxes to consider.

Jules should focus on minimizing heirs’ income taxes on any assets she’s leaving them and donating traditional IRA assets is the way to go. If she leaves the IRA assets to heirs, they will have to empty the IRA within ten years and withdrawals will be taxable.

Giving IRA assets gets pretax dollars directly to the charities, which don’t pay taxes on the donation. A cash donation would be after tax dollars.

Donating the IRA assets to charity is also typically better than giving stock held in a taxable account. Because of the step-up provision, there is no capital gains on such investment assets held at death. If Jules bought the now $20,000 stock for $5,000, the step-up could save heirs capital gains tax on $15,000 when they sell the shares. If she donates the stock, heirs won’t get this valuable benefit.

Next, IRA donations allow for great flexibility. Circumstances in life change, so a will that is drawn up years before death could be changed over time, to give a bequest of a different size or to a different charity. It’s easier to make these changes with an IRA. One way is to set up a dedicated IRA naming one or more charities as beneficiaries and then moving assets from other IRAs into it via direct (and tax-free) transfers. Beneficiaries and the percentages can be easily changed, and the IRA owner can raise or lower the donation by transferring assets between IRAs.

If the IRA owner is 72 or older and has to take required minimum distributions, the owner can take out donations from different IRAs. Note the funds must go directly to the charity when making the donation.

Reference: The Wall Street Journal (Sep. 2, 2022) “Win an Income-Tax Trifecta With Charitable Donations”

Suggested Key Terms: IRA, Required Minimum Distributions, Donations, Charities, Assets, Transferred, Step-Up, Capital Gains, Estate Taxes, Income Tax

After examining the health records of 7,843 people newly diagnosed with dementia in Taiwan, a group of researchers found that 68 (0.9%) of them had hypothyroidism, says Money Talks News’ recent article entitled “Thyroid Condition Linked to Higher Dementia Risk.”

They also looked at the same number of people who didn’t have dementia and found that just 34 (0.4%) had hypothyroidism. In both groups, the average age was about 75.

Once the researchers adjusted for several factors that could impact dementia risk — including sex, age, high blood pressure and diabetes — they found that people ages 65 and older who’d been diagnosed with hypothyroidism were 81% more likely to develop dementia than people the same age who didn’t have the thyroid condition.

And of those age 65 and older who required medication for their thyroid condition, the likelihood of developing dementia was three times higher than among those who didn’t need medication.

However, those people younger than age 65 with a history of hypothyroidism didn’t have an increased risk of dementia.

Hypothyroidism is a condition in which the thyroid gland doesn’t produce adequate levels of thyroid hormones. This can slow the body’s metabolism, and it frequently results in weight gain and symptoms such as tiredness and sensitivity to cold.

Nearly 5% of Americans 12 and older have the condition, which is more common among people over 60 and especially among women, according to the National Institute of Diabetes and Digestive and Kidney Diseases.

In a press release, Dr. Chien-Hsiang Weng of Brown University in Providence, Rhode Island — the study’s lead author — says:

“In some cases, thyroid disorders have been associated with dementia symptoms that can be reversible with treatment. While more studies are needed to confirm these findings, people should be aware of thyroid problems as a possible risk factor for dementia and therapies that could prevent or slow irreversible cognitive decline.”

No connection was found between dementia and hyperthyroidism — a condition in which the thyroid gland produces too much thyroid hormone.

Weng also noted that the study was observational, so it just demonstrates an association between hypothyroidism and dementia, not that hypothyroidism causes the cognitive disorder.

Reference: Money Talks News (Sep. 6, 2022) “Thyroid Condition Linked to Higher Dementia Risk”

Suggested Key Terms: Elder Law Attorney, Dementia, Alzheimer’s Disease, Hypothyroidism

Most people think of estate planning as planning for death. However, a well-titled article “Planning for death probably isn’t the most important part of your estate plan” from Coeur d’Alene/Post Falls Press presents another reason for estate planning in clear terms. Estate planning is planning for the unexpected eventualities of life.

Estate planning documents address how things will work while you are still living but if you have become incapable of making your own decisions. In many cases, this is more important than distributing your worldly possessions.

Yes, you should have a will (last will and testament). But you should also have Power of Attorney documents—one for health care purposes and another for financial purposes.

The Power of Attorney document states who will be your substitute decision maker, or agent, if you are incapacitated or unable to make your own decisions while still living. This should be a personalized document prepared by an estate planning attorney to include the scope of tasks and the limits, if any, you want to set for your agent. The financial POA is an important one, as it gives your chosen agent the legal authority to make financial decisions on your behalf.

The health care power of attorney gives your agent the authority to make health care decisions on your behalf.

With both of these documents properly prepared and available, someone you name will be empowered to serve as your decision maker if necessary.

The will is used to state what happens to your possessions and assets when you die. It is also the legal document used to name your executor—the person who will be in charge of carrying out your instructions. The will tells the probate court how you want your estate to be administered after death.

Why do you need these and other documents? Your will only becomes effective after death. Your POA documents are effective if you become incapacitated. They are both part of your estate plan, which is a collection of legal documents and has nothing to do with whether you reside in a palatial estate.

Here’s how it might work. If you become seriously ill and cannot speak on your own behalf, but you have a Power of Attorney naming your daughter Carol to serve as your POA for healthcare and financial decisions, Carol will be able to pay bills, including paying the mortgage, keeping your car lease up to date, and taking care of all of the financial aspects of your life. If she is also named as your Health Care POA, she will be able to speak with your medical team, be involved in decisions about your course of care and follow the wishes you’ve expressed in your POA.

If you die, and Carol has also been named your executor, she will be able to transition into this new role by representing you through the probate process. She will be able to work with your estate planning attorney to have your will filed with the court and follow your directions for distribution of your assets.

Having only a last will and testament would not protect you while you are living. Having only a Power of Attorney would not protect your wishes after you have died. All of these documents—and there are others not mentioned here—work together to protect you during life and after you’ve passed.

Reference: Coeur d’Alene/Post Falls Press (Aug. 29, 2022) “Planning for death probably isn’t the most important part of your estate plan”

Suggested Key Terms: Power of Attorney, Healthcare, POA, Executor, Will, Estate Planning Attorney, Agent, Probate Court, Administer, Incapacitated

A new case out of Tax Court centers on the question of when a “deathbed gift” is considered acceptable for estate and gift tax purposes. The powerful tax law provisions used to help many taxpayers avoid federal estate tax, or reduce it to a manageable size, makes this an important decision, especially as we draw closer to a time when estate tax exemption is likely to return to a far lower number.

The two tax law provisions, described in the article “Tax Court Says When Deathbed Gifts Are Complete” from accounting WEB, are the following:

Annual gift tax exclusion. A taxpayer may give gifts to recipients under the annual gift tax exclusion without incurring any gift taxes. The exclusion, indexed for inflation in $1,000 increments, is $16,000 per recipient in 2022. It’s doubled to $32,000 for joint gifts made by a married couple. Estates can be reduced significantly with planned use of the annual gift tax exclusion. For instance, if a taxpayer and a spouse give the maximum $16,000 to five relatives for five years in a row, they will have transferred $800,000 ($32,000 x 5 x 5) out of their estate, free of taxes.

Unified estate and gift tax exemption. In addition to the annual gift exemption, gifts may be sheltered from tax by the unified estate and gift tax exemption. As of this writing, the exemption is $10 million, indexed for inflation, which brings it to $12.06 million in 2022. It is scheduled to drop to $5 million, plus inflation indexing, in 2026.

Using the exemption during the taxpayer’s lifetime reduces the available estate shelter upon death. These two provisions give even very wealthy taxpayers a great deal of flexibility regarding liquid assets.

The new case came about as a result of a resident of Pennsylvania, who executed a Power of Attorney (POA) in 2007, appointing his son as his agent. The son was authorized to give gifts in amounts not exceeding the annual gift tax exclusion. From 2007 to 2014, the son arranged annual gifts to his siblings and other family members, in accordance with the POA.

The father’s health began to fail in 2015 and he passed away on September 11. On September 6, five days before he died, the son wrote eleven checks, totaling $464,000 from the father’s investment account.

Some recipients deposited the checks before the decedent’s death, but others did not. Only one check was paid by the investment account before the decedent’s death.

The question before the Tax Court: are the gifts complete and removed from the decedent’s estate?

According to the IRS, any checks deposited before death should be excluded from the taxable estate, but the Tax Court looked to the state’s law to determine the outcome of the other checks. The Tax Court ruled the checks not deposited in time must be included in the decedent’s taxable estate.

The estate planning lesson to be learned? Timing matters. If checks are written as part of the plan to minimize taxes, they must be deposited promptly to ensure they will be considered as gifts and reduce the taxable estate.

Reference: accounting WEB (Aug. 26,2022) “Tax Court Says When Deathbed Gifts Are Complete”

Suggested Key Terms: Deathbed Gift, Estate Planning, Tax Court, IRS, Decedent, Exemption, Death, Unified, Power of Attorney, Taxable Estate

As of this summer, the total number of backlogged files — claims that have been pending for more than four months — was at 187,540. The figure had been as low as 70,000 claims before the beginning of the coronavirus pandemic in early 2020.

Military Times’ recent article entitled “Overdue veterans disability claims down almost a quarter in last four months” reports that since then, partial closures of benefits offices slowed processing of the disability claims. At the same time, the volume of new claims (particularly ones in recent years tied to the expansion of illnesses related to Agent Orange exposure during the Vietnam War) increased, putting additional pressure on the system.

Recent totals are 29% lower than that mark. Despite the rapid progress, officials have said it may take until mid-2024 to see the figure below the 100,000 case level again.

VA officials said that new hirings and employee overtime has helped with much of the recent improvement.

Last fall, VA Secretary Denis McDonough said the Veterans Benefits Administration would hire and train 2,000 employees to assist with the increasing volume of disability benefits claims processing. Roughly 80% of those new workers have started working. Plus, VA officials said they’ve paid for about $100 million worth of overtime for existing employees through American Rescue Plan funds awarded by Congress in early 2021.

In a statement, department leaders also credited new automated claims processing systems with helping streamline the work, leading to additional decreases in the backlog.

“Through these efforts, the claims development and decision-making portion of the claims process is more efficient and improves decision accuracy,” the statement said. “VBA continues to improve and expand this automated decision support process.”

The claims backlog has been a source of frustration and concern in recent times, particularly before the department’s processing systems were shifted to fully electronic files. The logjam hit its peak in spring 2013 at more than 610,000 cases, prompting calls from lawmakers and advocates for wholesale changes in how the claims are handled.

Reference: Military Times (June 27, 2020) “Overdue veterans disability claims down almost a quarter in last four months”

Suggested Key Terms: VA Benefits, Veterans, Military

Avoiding the costs and extensive time needed to settle an estate through probate is one reason people like to use trusts in estate planning. This type of trust allows you to designate a trustee to manage the assets in the trust after you have passed.  This is especially important if heirs are minor children or adults who cannot manage a large inheritance. A living trust, as explained in the article titled “The Lowdown on Living Trusts” from Kiplinger, has additional benefits. However, there are some pitfalls to be cautious about, especially concerning transferring assets.

Certain assets do not belong in a living trust. Regardless of their size, some assets should never be placed in a living trust, including IRAs, 401(k)s, tax deferred annuities, health savings accounts, and medical savings accounts and others .

Placing these assets in a trust requires changing the ownership on the accounts. Don’t do it! The IRS will treat the transfer as a distribution. You will be required to pay income taxes and penalties, if any are triggered, on the entire value of the account.

You may be able to make the trust a beneficiary of the retirement accounts. However, it is not appropriate for everyone. Changes to IRA distribution rules from the SECURE Act may make this a dangerous move, since the trustee may be required to empty the IRA within ten years of your death.

For practical purposes, assets like cars, boats or motorcycles do not belong in a trust. To transfer ownership to the trust, you will need to retitle them. This would result in fees and taxes. You would also have to change the insurance, since the insurance company may not cover assets owned by trusts. The cost may outweigh the benefits.

Assets belonging in a trust include real estate, especially your primary residence. Placing your home in a trust will minimize the hassle of transferring the home to heirs, if this is your plan. If you own property in another state, transferring the title to a living trust allows your estate to avoid probate in more than one state. Remember to get a new deed to transfer ownership to the trust. If you refinance or take a home equity line of credit, you may need to transfer the property out of the trust and into your name to get the loan. You will then need to transfer the property back into the trust.

Financial assets can be placed in a trust. Stocks, bonds, mutual funds, CDs, money market funds, bank savings accounts and even safe deposit boxes can be placed in a trust. There may be a lot of paperwork, and in some cases, you may need to open a new account in the name of the trust.

Once the trust has been created, do not neglect to fund it by transferring assets. Retitling assets requires attention to detail to make sure all of the desired assets have been retitled. The trust needs to be reviewed every few years, just as your estate plan needs to be reviewed. Be sure to have a secondary trustee named, if you are the primary trustee.

Trusts are an excellent option if you live in a state where probate is onerous and expensive. Assets placed in the trust can be distributed with a high degree of specificity, which also provides great peace of mind. If you believe your oldest son will benefit from receiving a large inheritance when he is 40 and not 30, you can do so through a trust. The level of control, avoidance of probate and protection of assets makes the living trust a powerful estate planning tool.

Reference: Kiplinger (March 24, 2022) “The Lowdown on Living Trusts”

Suggested Key Terms: Living Trusts, Transferring Assets, Beneficiaries, Probate, Retitling, Estate Plan, Safe Deposit Boxes, Stocks, Mutual Funds, Savings Accounts, Secondary Trustee, IRAs, 401(k), Distribution, Income Tax, Penalties, Home Equity Line of Credit, Primary Residence

A comprehensive estate plan contains far more than a last will and testament. It also contains a number of documents to communicate wishes for decisions to be made during life. These include a living will, an advance directive and a healthcare power of attorney, as explained in the article “What Is a Living Will and Do I Need One?” from healthline.

What is a living will? A living will is a document providing instructions for medical care, or in some circumstances, for the termination of medical support. They indicate wishes for the use or discontinuation of life-sustaining medical treatments. The living will is used if the individual becomes incapacitated and cannot communicate normally. Incapacitation is determined and certified by a medical professional. Living wills address such treatments as resuscitation, hydration, a feeding tube and pain management.

Each state has its own rules for creating a legally valid living will. The information required in most states is:

• Legal name and any aliases or nicknames.
• The current day, month and year.
• A statement attesting to being of sound mind and body.
• Healthcare instructions for events with no reasonable expectation for recovery or quality of life, which may include CPR, DNR (do not resuscitate) and do not intubate (DNI).
• The name of your healthcare proxy, the person who you want to communicate and state your wishes and the name of an alternate healthcare proxy, if you have one.
• Witness statements indicating you willingly and rationally signed this document (the number of witnesses varies by state).
• Your legal signature.

An advance directive is not the same thing but can include a living will. The advance directive has two parts: the living will and the healthcare power of attorney. These documents don’t address finances, property distribution, guardianship of children or any non-medical matters. For those, you need a last will and testament.

The healthcare power of attorney is a document identifying the person named to make healthcare decisions for you. It’s sometimes called a durable medical power of attorney. The person you name to make decisions is called your healthcare proxy, healthcare agent, or healthcare surrogate. This document does not address end-of-life care, but instead grants legal permission to the person to make decisions for you.

The living will, advance directive and healthcare power of attorney work together to allow someone else to represent you during a medical crisis. These documents should be created by an experienced estate planning attorney and shared with the people you choose, so they may act on your behalf. Unfortunately, we never know when a medical crisis or accident will occur, so these documents are needed at any age and stage of life.

Reference: healthline (Sep. 1, 2022) “What Is a Living Will and Do I Need One?”

Suggested Key Terms: Living Will, Advance Directive, Healthcare Power of Attorney, CPR, DNR, Estate Planning Attorney, End-of-Life Care, Incapacitated, Surrogate