January/February 2022 Newsletter
To my Family and Friends,
This year has been quite a busy one. Usually, the winter months slow down a little with people heading south. I have not witnessed the usual slowdown. Instead, it has picked up. I am very grateful for that. You may have noticed I did not send a January newsletter out. I actually started the January newsletter at the end of January and then Melissa had unexpected surgery and was out for a week. So, I decided to combine January and February together.
Best Assets to Leave your Heirs. In last months newsletter, I reviewed what were the worst kind of assets to leave your heirs. This month, I will cover the best assets to leave your heirs.
What makes an asset a good asset to inherit? As you will see, it is mostly a combination of how easy it is to get access to the asset and whether or not the asset is taxable. Here is my list:
Cash. Not just “cash” in your mattress but deposited in a bank or credit union in a checking, savings, CD, or money market account. This money is not taxable to the heir and generally easy to access if the account names one or more beneficiaries. Most consider it the best asset to inherit. Keep in mind that the FDIC protection ends at $250,000 so avoid having more than that amount in one account.
Life Insurance. Life insurance death benefits are paid to the named beneficiaries without having to go through probate. The death claim benefit is relatively simple requiring only filling out a claim form and attaching a death certificate. The death benefit is not taxable.
Brokerage Accounts. These are accounts held by a brokerage firm such as Merrill Lynch or Schwab. The accounts include stocks, bonds, and mutual funds. When you open these accounts, you name the beneficiaries. A beneficiary can deliver a death certificate to the brokerage office and the account can be liquidated or transferred. If there is more than one beneficiary, the accounts can be divided easily. This type of account benefits from the “step up in basis” tax rule. I have discussed this in earlier newsletters. It means that when the beneficiary sells a stock or mutual fund or bond, the cost basis is not what the decedent paid for it but what the value was on the date of death. That rule eliminated most if not all of the taxable gain the decedent would have had if the decedent had sold the asset while alive.
Roth IRA. A Roth IRA will have a beneficiary and therefore avoid probate. The beneficiary would need to file a death certificate with the Roth IRA custodian. The account transfers to your beneficiary tax free. This is unlike your traditional IRA, 401k, 403b and other retirement accounts that are fully taxable. You can convert those taxable retirement accounts into a Roth IRA, but you must pay the tax on the amount that you convert. Whether this is a good idea or not will depend on the relative tax rates of the decedent and their beneficiaries.
Real Estate. Real Estate can transfer to one or more beneficiaries on death with the use of a “Ladybird deed”. All that is required to transfer title is to record the death certificate of the decedent(s) with the register of deeds office. This avoids probate. The beneficiaries get a “step up in basis” to the date of death of the decedent to determine the gain when they sell the property. However, real estate, without a beneficiary or in a trust, will have to go thru the expensive probate process.
Your 2021 Tax Returns. I have received several calls about getting your 2021 tax return completed at zero or low cost. I have been gathering information about the AARP tax assistance centers and have found the following:
Northville Community Center has booked all available appointments. However, they have a wait list. Call 248 305 2851
Livonia Senior Center is at 15128 Farmington, Livonia. Starting Tue, Jan 26, you must go to the Center on Tue or Wed to make an appointment for the following week and to pick up the checklist of documents.
To find other locations for AARP tax assistance, use the AARP Foundation Tax-Aide Locator
Charitable Contributions. Well over 90% of taxpayers use the enhanced standard deduction instead of itemizing deductions on their tax return. When you do that, you eliminate taking an itemized deduction for charitable contributions. The IRS will allow an additional deduction of $300 for cash contributions to qualified charities ($600 for married couples filing a joint return). Don’t overlook this when filing your return.
Around The Office This Month
Adding a trustee to the trust. Two families this month with similar issues. Mom or Dad is the sole Trustee of their trust. They are starting to have problems with attention, memory, or lack of concern for the trust assets. The trust will usually state that a Successor Trustee can take over on the death or disability of Mom or Dad. The problem is that Mom or Dad may want help now or in the near future but getting two doctors to say they are incompetent can be time consuming and expensive. Mom or Dad, as Trustee, have two simple options. First, they can resign so that the Successor Trustee takes over. They are no longer involved in decisions. The second option, and the one that is almost always selected, is that Mom and Dad will add the Successor Trustee as a current Co-Trustee. Mom or Dad do not give Co-Trustee can manage all the trust assets alone. When Mom or Dad eventually pass, the Co-Trustee is already in position to act as Successor Trustee.
The Lesson here is to always have a competent person acting as the Trustee. Do not wait until the Trustee is totally incompetent to give them help.
US Savings Bonds at 30 years. Most US Savings Bonds do not pay any interest after 30 years. If you cash them in, you will have to pay tax on all the interest earned over the 30 years. If you do not cash them, they will earn zero interest until you pass, then your heir will have to cash them in and pay tax on the interest. Often, Mom or Dad are in a much lower tax bracket than the heirs plus Mom or Dad can choose to spread the redemption of the bonds over two or more years to keep the tax rate as low as possible. You can get all the details on the website of the US Treasury at Treasurydirect.gov.
The Lesson here is to avoid losing interest payments after 30 years.
Agent under Power of Attorney steals. I met with a very nice grandmother this month who sadly reported that her agent had stolen money from her. She had named her 25-year-old granddaughter on her financial power of attorney. In the last 4 months of last year, the granddaughter moved over $60,000 of the grandmother’s money to her own accounts. The granddaughter will be liable for a civil lawsuit or the filing of criminal charges at the option of the grandmother.
The lesson here is a painful one. It is imperative that everyone have both financial powers of attorney and healthcare powers of attorney. However, there is always the danger of the agent on the financial power of attorney abusing their power. One solution is to add a provision that the agent only has power if you are examined and determined to be incompetent by your doctor and another doctor. Also, you can appoint co-agents and state they must be in agreement on all decisions. That way they if one wants to steal from you, they have to get the other one to agree.
DIY. You all know that I do not charge to review an estate plan whether I drafted it or not. A client this week came in with her notebook containing his trust, will, powers of attorney etc. What I discovered was a series of do-it-yourself documents that were going to lead to a nightmare for his children. The trust had a provision leaving the trust assets to the children in stated percentages. Then I found 3 documents that might act as Amendments to the trust. On the bottom of a deed for a home he purchased, he wrote that the home was to go to a certain child. If allowed as an amendment, that child would get the house plus the stated percentage of the balance of the trust assets. The other two documents also left a home to a child, one of which he no longer owned. Those two documents were not signed so they could be challenged by the other children as not being valid. They could lead to a breakup of the heirs over arguing about the validity of the amendments.
The lesson here is that amendments to trusts need to be prepared in the proper format and properly signed and notarized to avoid disputes among you heirs.
FEMA Will Pay For Covid Funerals. FEMA will provide assistance to pay for the funerals for individuals whose death is attributed to Covid-19. FEMA will reimburse up to $9,000 for funeral expenses.
The required documents:
Death certificate that shows death occurred in the United States
Death attributed to Covid-19, directly or indirectly
For expenses incurred after January 20, 2020
No online application. Call 844-684-6333 to get more information or to apply. You may also view their website at fema.gov/disaster/coronavirus/economic/funeral-assistance#apply
Seminars
Seminars are currently scheduled for 2022. I am returning to Northville, Plymouth, Westland and adding Dearborn Heights. Please see our website, www.gfalawfirm.com, to view our updated list of seminar dates and times.
Reviews/Feedback
We are so pleased to help you with your estate planning needs. The best way to receive new clients is through referrals from you. In addition, there are people out there searching for someone to help them. They feel comfortable calling an attorney that has a 5-star rating and details of client experiences. If I may, I will continue to ask all of my clients who have not done so yet, to provide a Google Review for me. Not only will it give me more positive reviews, it may help someone out, that doesn’t have a referral available, find an excellent resource...me! It is easy to do and takes very little time. Thank you!! (Please note: It may have you sign into your Google account if you haven’t already)
Simply type “Gary Allen attorney” and hopefully my information should pop up (if it doesn’t, call me).
On the right of your screen are gold stars and the number of Google reviews I have. Click on the google reviews and it will take you to my reviews.
Then in the top right corner it says in blue “Write a review”. Click on that to provide a review.
Please feel free to share this newsletter with your friends and family.
Very truly yours,
Gary