Florida Estate Planning and Probate Law Blog focused on recent case law and planning ideas.

ROTH IRA ADDITIONAL PLANNING OPTIONS


Most individuals view a Roth IRA as a great way to save more for the future using after tax dollars. While the funds deposited into a Roth IRA are subject to income tax, they grow tax-free and are not subject to tax, even the growth, when withdrawn (assuming certain requirements are met).  However, a Roth IRA has other advantages that most individuals do not know about or utilize:

Saving for College:

A Roth IRA can be utilized to pay college expenses without the contributed funds being subject to any income tax or early withdrawal penalty. Unfortunately, while account earnings on contributions can be withdrawn penalty free, they still may be subject income taxation. 

In contrast, a 529Saving Plan will allow you to save a larger amount for college expenses but are not as flexible when it comes to investing and utilizing the funds. While contributed funds will grow tax-free, the account earnings will be subject to income tax upon withdrawal and subject to a 10% penalty if not utilized for college expenses.

Saving for a Home

A Roth IRA can be utilized to save for a down payment on the purchase of a home. To qualify, the purchasers must be first-time home buyer (someone who hasn't owned an interest in a home within the past two years) and had their Roth IRA set up for five years. Subject to those restrictions, they can withdraw up to $10,000 to buy, build, or rebuild a home without paying the 10% early withdrawal penalty or worrying whether your withdrawing contributions or earnings. The exemption may also be utilized to assist children or grandchildren purchase their first home.

Savings Option:

While the opportunity to contribute to a traditional IRA stops the year you turn 70.5 years old, contributions can be made to a Roth IRA as long as you live. If you're over 50 years old, you can contribute up to $6,500 per year as long as your income is below annual limits.


Sarasota and Manatee County residents can contact me directly to learn more.

2016 CHANGES TO AID AND ATTENDANCE BENEFITS ELIGIBILITY


Unknown to many veterans, the Veteran's Administration (VA) offers a pension benefit, known as “Aid and Attendance,” to low-income veterans (or their spouses) who are in nursing homes or who need help at home with everyday tasks (dressing, bathing, etc.).  In 2015, it could provide a wartime veteran with up to $21,466 a year ($1,788 per month) to cover care at home or in assisted living. A veterans surviving spouse was also eligible for Aid & Attendance benefits up to $14,353 per year ($1,196 per month). While the benefit is currently underused, new regulations have made it available to even fewer veterans. The new regulations specify asset limits for qualification and impose a look-back period and transfer penalties similar to Medicaid’s.

The regulations set an asset limit of $119,220 in 2016 (the same amount that a Medicaid applicant’s spouse may retain) for eligibility. This number will include both the applicant's assets and income and will be indexed to inflation in the same way that Social Security increases. The VA will not reduce the applicant’s assets by the amount of any mortgages or encumbrances on their primary residence or provide a hardship exception. Fortunately, an applicant's home (subject to a two acre lot size limit) will not count as an asset. The home exception will apply regardless of whether the applicant is residing in a nursing home, medical foster home, or an assisted living or similar residential facility that provides custodial care, or resides with a family member for custodial care. However, if the home is sold the sale proceeds will count as assets.


The regulations also establish a three-year look-back provision. This will adversely impact an applicant who has transferred assets within three (3) years of applying for benefits.  Those who violate the regulation can be subject to a ten (10) year penalty period (the penalty period will in months by dividing the amount transferred by the applicable maximum annual pension rate). An applicant can avoid the penalty if they can “present clear and convincing evidence that the transfer was not made in order to qualify for Aid and Attendance benefits.” Under the prior regulations, there was no penalty if an applicant divested themselves of assets before applying.

POTENTIAL PITFALLS OF PAY-ON-DEATH ACCOUNTS


It is not uncommon to hear an individual refer to a “Pay-On-Death” (“POD”) account as a poor individual’s version of a Will. The reason being is that upon the death of the account owner the account assets pass directly to the payee without going through probate. However, a 401k, IRA's, annuities and life insurance policies also falls into this category. Upon your death, the beneficiary designation on these accounts will determine to whom the account assets pass.  

In a recent case, an attorney prepared a Last Will and Testament (“Will”) for a client who wanted their substantial assets to be equally divided between her two sons.  The bulk of her assets were held in two brokerage accounts.  She named her oldest son as both the Personal Representative of her estate and as the “pay-on-death” beneficiary of the brokerage accounts. Upon her death, the oldest son took the position that it was his mother’s intention that he receive one-hundred percent of the brokerage accounts and that he and his brother would only split the assets passing under the Will.  The other son threatened to file a lawsuit and ultimately settled for an amount substantially less than his intended one-half share. Even if the woman had specifically bequeathed her accounts under her Will, the beneficiary designation would override the bequest and the account assets would pass to the designated beneficiary.

When should you utilize a POD?

The best use of a POD account is only when an individual wants a certain account to go to only one certain individual.  For example, an individual wants to leave their entire account or estate to their only child. Naming them as the pay-on-death account beneficiary will pass the assets directly to them and avoid the probate process. This same logic applies to 401k, IRA's, annuities and life insurance policies as well.

Review Beneficiary Designations Often:


To avoid unintended results, it is important to review beneficiary designations as a part of the estate planning process. A well intentioned estate plan can be foiled by a forgotten beneficiary designation.

PREPARING FOR YOUR ESTATE PLANNING MEETING

Many individuals become overwhelmed with the decisions that they need to make when preparing or updating their estate planning documents. The purpose of this list is to help you analytically consider all the questions and issues that must be addressed, provide you with time to reflect on them and work your way through what will be discussed at your meeting with your estate planning attorney. The goal is to achieve your planned result.

1. Create A List Of Your Assets And Liabilities. Knowing what you own can make the estate planning process a lot simpler. Your asset list should include your house (and mortgage), bank accounts, investment accounts, business interests, personal belongings with value (e.g., artwork or jewelry), insurance policies on your life and retirement accounts. For each asset on the list, include an estimate of its value or current balance, as well as whether you own the asset in your individual name or in joint name with another person, such as your spouse. It is equally important to make a list of your debts and legal obligations (mortgage on home, lines of credit, business loans that you have personally guaranteed, etc..

2. Decide Which, If Any, Personal Belongings You Want To Leave To A Specific Person. You should consider what you own and to whom you want it to pass upon your death. The value of the item should not be a consideration as it may have great sentimental value to the recipient. Most couples provide that all of their household furnishings, jewelry, collections, etc., pass to the surviving spouse, when the first spouse dies, and then everything will be divided equally among their children when both of them are gone. If there is a concern that your children or heirs may fight over items which have nothing more than sentimental value you should consider empowering an independent individual to be the ultimate decision maker.

3. Who Should Be The Personal Representative(s). A Personal Representative is the individual or entity appointed to administer your estate at death.  Their duties include collecting your assets, paying debts, expenses and any taxes that may be due and then distributing the assets as directed by your estate plan. People typically name their spouse and then child(ren) to serve as the personal representative of their estate. Florida law only requires that the individual named be (i) a state resident; or (ii) family member.  You can also name more than one person to serve as your Personal Representative.

4. Outright Distributions or Creation of Trusts For Your Children And Grandchildren. Since it is your hard earned money, at your death you can decide how and to whom you want it distributed.  You can elect to have it all distributed to your surviving spouse and then child(ren) or held in trust for their benefit and distributed to future generations. Other options include dividing the trust property into equal/unequal shares, with each share held in trust for a child or grandchild until they reach a specified age (e.g., 1/3 at age 30, 1/3 at 35, and the balance at 40), or their entire lifetime (Florida allows a trust to exist for 360 years after the creators death) or attain certain accomplishments (college or post-graduate degree). Two benefits of holding an inheritance in trust is that (i) the property can be insulated from the claims of that beneficiary’s creditors, including a divorcing spouse; and (ii) it can prevent rapid depletion of the funds by a youthful recipient. 

5. Who Should Be The Trustee(s). As with the appointment of a Personal Representative, the individual or entity that select as the trustee of your trust, following your death, can be a family members, friend and/or professional.  The trustee will be responsible for managing the assets and making sound distribution decisions, so there will be adequate resources to meet your spouse’s and/or your children’s needs after you are gone. Unlike a Personal Representative, there is no restriction on who you can select to serve as a trustee.

6. Who Should Make Medical Decisions For You If You Are Incapacitated. Your health care surrogate is appointed as your agent to make health care decisions for you. Make sure the individual(s) selected are capable of performing their responsibilities on your behalf. There is no restriction on who you can select to make these decisions on your behalf.

7. Who Should Take Care Of Your Financial Affairs If You Are Unable.  Your power of attorney appoints the individual(s) to act as your agent with regard to financial matters during your lifetime. In Florida, a power of attorney is in effect immediately after execution, even if you are not incapacitated. There is no restriction on who you can select to make these decisions on your behalf.

FLORIDA CLOSER TO GUARDIANSHIP REFORM

 
Guardianship reform has been an issue growing in prominence due to the many abuses found in systems across the nation. Florida is in the process the guardianship reform movement and a step in the right direction as the state Senate is set to have a final vote on a bill that would create a team to oversee the state guardianship system. Scandals have rocked Florida in recent years including one case where a judge was appointing his wife who would then initiate lawsuits on behalf of the ward which family members saw as unnecessary and intended as a vehicle to increase the fees paid to the supposed protector. However, this is not the first attempt at reformation after a bill was passed in recent years which supposedly ended judicial favoritism towards specific Florida guardians although advocacy groups argue that it did little to deter judges. Let us hope this new bill does the trick since guardianship abuse undermines public confidence in the legal system and harms the most vulnerable members of our society.
 
A link to the bill can be found at: