Jarvis Law Office

Seniors Given Some Flexibility with IRA Deferrals

Despite not always needing to take money out of their IRAs and 401Ks, seniors have been limited in gaining some growth in their accounts by mandatory distributions from the accounts. However, as Smoke Signals reports in "A new, liberating IRA option is available," seniors now have the choice to take lower amounts out of their retirement accounts.

While the rules in the past have required seniors to withdraw minimum amounts from their retirement accounts beginning at age 70½ based on their life expectancies as determined each year by complicated IRS charts, the new policy allows account holders to defer up to $125,000 or 25% of the total amount in their accounts, whichever is lower. The amount deferred does not factor into the required minimum distribution calculation.

The deferment can be taken until age 85, but the money must be placed in a qualified longevity annuity contract as the only premium payment of that annuity. The money placed into the annuity will continue to grow and payments will be made on the annuity when the deferment age is reached.

This new option allows seniors – who don't need to take money out of their retirement account – to continue to increase their income if they wish to preserve those accounts as part of their estates or if they anticipate living longer and might need the money later.

Reference: Smoke Signals (March 31, 2016) "A new, liberating IRA option is available"

High Tax Rate in New Jersey May Be Causing a Problem

Hedge fund manager Dave Tepper, who is rumored to have a net worth of more than $10 billion, has sparked some concern in New Jersey by his relocation to Florida. Many question if the reason for his relocation was the high tax rates of New Jersey compared to the low tax rates of Florida.

New Jersey has the lowest state estate tax exemption in the nation at only $675,000. It has the highest property tax rates in the U.S. It has a top income tax rate of 8.97%. Additionally, New Jersey is one of only two states in the country to have not only an estate tax but also an inheritance tax.

Florida, on the other hand, has neither an estate tax nor an income tax.

The Inquirer reported this story in "Billionaire's move puts New Jersey tax rates in spotlight."

While Tepper's move has many state lawmakers concerned about the state's high taxes and the loss of revenue from wealthy citizens moving to states with lower tax burdens, it is not certain that any changes to the state's taxes will be forthcoming. To date, the Republican governor and Democratic controlled legislature have been unable to reach agreements about changing the state's tax code.

Reference: The Inquirer (April 10, 2016) "Billionaire's move puts New Jersey tax rates in spotlight."

More Seniors Face Tax on Social Security Benefits

In an attempt to head off the anticipated revenue shortage expected for Social Security, lawmakers set up a tax for the richest seniors eligible for benefits in the 1980s. The idea was a form of "means testing" for benefits in order to limit or stop benefits to taxpayers defined as wealthy. At the time it was anticipated that only about 10% of beneficiaries would be taxed on any portion of their benefits. Nevertheless, the law included no mechanism to adjust for inflation.

Consequently, the same raw numbers from 1983 are still used today to determine whose benefits get taxed and how much of those benefits gets taxed. As My San Antonio points out in "Care to Guess How Many Seniors Could Be Taxed on Their Social Security Benefits by 2030?" that means many more Americans are taxed today than was originally intended.

As of 2010, 47.1% of beneficiaries were taxed on some portion of their Social Security benefits. That number is expected to rise to 58% in 2030 if no changes to the law are made.

As you near retirement be aware of these taxes and plan accordingly for the impact they may have.

Reference: My San Antonio (April 10, 2016) "Care to Guess How Many Seniors Could Be Taxed on Their Social Security Benefits by 2030?"

What to Do When You Inherit an IRA

The options are not the same for those who inherit IRAs compared to those who initiate IRAs as the American Legion published in "Five things to know about inheriting an IRA."

The list includes:

• People who create their own Roth IRAs are not required to take minimum distributions. However, those who inherit them are required to do so.
• All of the money in an IRA does not need to be taken out at once. Those who inherit can elect to take required minimum distributions based on their own life expectancy. This option must be initiated by December 31 of the year following the death of the original account holder.
• People who choose not to take out required minimum distributions must withdraw the full amount of the IRA within five years of the account owner's death. This option is available when the account originator passed away before reaching the age of 70½.
• Spouses can choose to treat the IRA as their own or as an inherited IRA. The rules must then be followed for whichever option the surviving spouse elects.
• Transferring an inherited IRA can only be done by moving it directly from one custodian to another. The funds cannot be withdrawn by the inheritor and later moved into a new IRA.

The rules and options can be confusing and an estate planning attorney could be helpful in meeting the challenges.

Reference: American Legion (March 16, 2016) "Five things to know about inheriting an IRA."

Gun Trust Is about to Become More Difficult

Machine guns and silencers are difficult to transfer from person to person and it is about to become even more difficult as Private Wealth reports in "It Will Soon Get Tougher To Create A Firearms Trust." A transfer between persons now requires notice to the federal Bureau of Alcohol, Tobacco, Firearms and Explosives as well as a $200 transfer fee and the approval of local law enforcement officials. Fingerprints and background checks must also be obtained.

Gun trusts have offered a way around many of those burdens and allowed families to pass on their firearms without having to cut through too much red tape.

As of July 13, 2016, new rules will be in place that will make transferring firearms into a gun trust more difficult. Every "responsible person" in the trust will need to go through fingerprinting and background checks. This includes the trust grantor, trustee and some beneficiaries. Notice will also need to be given to local law enforcement, however they will not need to sign off on the transfer.

Fortunately, gun trust applications received before July 13, 2016 will be grandfather into the current rules.

A wills and trusts attorney can offer advice on the proper transfer of firearms.

Reference: Private Wealth (March 30, 2016) "It Will Soon Get Tougher To Create A Firearms Trust"

Hospices Linked to Medicare Fraud

A report by a government agency points at hospices as a key industry involved in an estimated $260 million in fraud, according to an article in the Tampa Bay Times "Report: Medicare often overbilled by hospices and pays twice for some drugs." The fraud is linked to unnecessary inpatient care and ordering prescriptions twice.

The results of this study are of natural concern for all taxpayers, but they are of particular concern for seniors for a couple of reasons. First, seniors who may need hospice care should receive the proper care. When in-home care is the appropriate treatment, then they should not be given inpatient care because that is better financially for the hospice. Secondly, many seniors have co-pays for Medicare Part D prescriptions. If the drugs are already being paid for by Medicare, seniors lose money when Medicare Part D is charged as well.

Eliminating $260 million per year of unnecessary Medicaid charges would make it much less likely that benefits would need to be reduced – as politicians seek to save the government money by cutting these benefits.

Reference: Tampa Bay Times (April 2, 2016) in "Report: Medicare often overbilled by hospices and pays twice for some drugs"

Reverse Mortgages Need a Close Look

The government stepped in after the financial crisis of 2008 and addressed some of the concerns about reverse mortgages including seniors losing their homes. While the acceptance of reverse mortgage has now improved, many elder law advocates urge seniors to approach the option carefully as Consumer Reports discusses in "Reforms Come to Reverse Mortgages."

These considerations include:

• If you are not planning on staying in your home for very long, then a reverse mortgage is probably not a good idea. The fees associated with the mortgages make them less desirable the shorter amount of time that you will stay in the home.
• If you can meet your financial needs in a different way, then consider doing so. For instance, instead of getting a reverse mortgage it might be a better idea to downsize into a cheaper or smaller home.
• Consider whether your home will still be appropriate as you get older. Houses with lots of stairs may not be the best place for many seniors.
• If a spouse passes away, consider whether the surviving spouse will be able to afford to keep the home and pay the bills on time.

An elder law attorney could be helpful in discussing your options.

Reference: Consumer Reports (April 4, 2016) "Reforms Come to Reverse Mortgages"

Delaying Social Security May Not Always Be the Best Option

While delaying Social Security benefits is often considered the best option, it is not the best option for everyone as Wills, Trusts & Estates Prof Blog recently discussed in "Considerations To Chew Over When Choosing When To Take Social Security" including:

• Monthly benefits are determined based on actuarial data and average life expectancy. While you can receive more money per month by delaying benefits, your expected total lifetime amount will be the same on average whenever you start benefits.
• Your health and your family's health history can play a key role in the decision. If you are in poor health or you have a family history of serious health problems in retirement, then it might be better to take benefits sooner rather than later.
• Your current financial situation is also very important. If you need money now, then taking benefits as soon as you are eligible is a good idea. However, if you do not need the money or plan to continue working for a few years, then delaying benefits is often a better idea.

Reference: Wills, Trusts & Estates Prof Blog (April 3, 2016) "Considerations To Chew Over When Choosing When To Take Social Security"

Tech Companies Have Impact on Estate Laws

While the controversy over Apple's refusal to bypass security on the San Bernardino shooter's iPhone has drawn heavy media coverage, a grieving father has been making a plea to Apple to be allowed access to his dead son's phone as ABC 17 News reports in "Grieving father pleads with Apple to unlock his dead son's iPhone."

The dispute between the FBI and Apple over the San Bernardino case has apparently been resolved by the success of the FBI in bypassing the security system but Leonardo Fabbretti, who has been trying to get Apple to unlock his son Dama's iPhone for months, has not been so successful.

Dama passed away in 2015 from bone cancer. Fabbretti was able to unlock the phone by using his fingerprint. However, after the phone did a complete restart that option was no longer available. To access the information on the device a password is now needed and Fabbretti does not have it. Because of this he is unable to view the photographs of his son stored on the phone.

This is another in a long list of examples of how the policies of tech companies have an impact on estate law and grieving families. Allowing families to access digital information after a loved one passes away will continue to be an important legal battle for the foreseeable future.

Reference: ABC 17 News (April 1, 2016) "Grieving father pleads with Apple to unlock his dead son's iPhone"

Same-Sex Couples Still Face Challenges and Still Need Estate Planning

Many older same-sex couples can now legalize their relationship and receive the same benefits as heterosexual couples but they often continue to face discrimination in other areas as the Columbus Dispatch explains in "Older same-sex couples face specific challenges".

In many parts of the country discrimination in housing and employment is still not illegal against lesbian, gay, bisexual and transgender people.

Having a same-sex marriage announced in a newspaper could cause some people to be fired or evicted from their homes. Others fear social stigma and would prefer that their sexual orientation not be made public.

This leads to some older same-sex couples not getting married and thus not getting the estate planning benefits of being married.

Fortunately, same-sex couples who fear discrimination have other options besides marriage.

Traditional estate planning methods of ensuring a loved one is taken care of after a partner passes away are still available. Powers of attorney can be drafted to give a long-time partner control over financial and health care decisions as well.

Reference: Columbus Dispatch (March 13, 2016) "Older same-sex couples face specific challenges"