Here in North Carolina we know all to well that disasters can strike at any time. In this YouTube video, the IRS provides guidance for protecting tax and other important documents from natural disasters.
Our firm has nightly offsite backup - now that we are (semi) paperless, I worry a lot less about something happening to all my office files.
Even for those who don't have umbrella liability insurance coverage, homeowners insurance policies normally provide general liability coverage. This insurance will help protect your assets if a guest is injured in your home or your dog bites someone, for example.
However, when you move to a retirement community, you have usually just sold your house. No home equals no homeowners insurance. Then what happens in the event of a lawsuit? Your savings could be at risk. Liability insurance not only pays claims against you, but also pays for your legal defense.
I have been involved in a case where a neighbor sued two CCRC residents because she was attacked by a third party in their apartment. There has yet to be a trial, but the legal fees are quickly mounting. In this case there is insurance, luckily.
So, when you or a parent moves to a retirement community, don't forget about purchasing insurance to cover potential liability.
The distribution rules for inherited IRAs generally make it advantageous to have separate accounts, which can be done during your lifetime or by December 31 of the year following your death. If you plan to leave an individual retirement account (IRA) balance to several beneficiaries, consider splitting each beneficiary's share into a separate account during your life. Why is it so important to have separate accounts?
Your spouse has more alternatives available if he/she is the sole beneficiary. A surviving spouse can roll over the IRA to an IRA in his/her name or treat your IRA as his/her IRA. With the rollover IRA, the surviving spouse can name his/her own beneficiaries, thus extending the IRA's life, and can defer payouts until age 70 1/2. However, to roll over the IRA, the surviving spouse must be the sole beneficiary.
When there is more than one non-spouse beneficiary for an inherited IRA, distributions must be taken over the oldest beneficiary's life expectancy. By splitting the IRA into separate accounts, each beneficiary can take distributions based on his/her life expectancy.
Separating accounts is especially important when one of the beneficiaries is not an individual or qualifying trust, such as a charitable organization. If you die before required distributions must begin at age 70 1/2, then the entire balance must be paid out in five years. If you die after required distributions begin, then the balance can be paid out over your remaining life expectancy. When the account is split, the individual beneficiary can take distributions over his/her life expectancy.
An important estate planning strategy for inherited IRAs is the ability to disclaim all or a portion of the IRA. If a beneficiary disclaims an IRA within nine months of the decedent's death, the disclaimed IRA is not considered a gift and would then go to the contingent beneficiary. By splitting the IRA into separate accounts, you can better control what would happen if each beneficiary disclaims his/her share. For instance, your beneficiaries might be your two children, with your grandchildren named as contingent beneficiaries. With separate accounts, each child could decide whether to disclaim the IRA, knowing the proceeds would then go only to their children.
From an administrative standpoint, it is often easier to have only one IRA rather than several. But with separate accounts, you can ensure that your IRA is set up to work to the best advantage of your beneficiaries.
Source: TrustCounsel's May 24 , 2011eNewsletter by BizActions.I've been at the North Carolina Guardianship Association conference for the last couple of days. One issue that I never really gave much thought to is that the Veterans Administration, as a federal agency, does not recognize state guardianships. Neither the adjudication of incompetency under state law nor the appointment of a guardian is given credence by the VA.
Thus, a guardian has no authority to deal with VA benefit payments, and must initiate a federal proceeding to attempt to gain that right. The VA will make its own determination of incompetency, based on different standards than state law. Then, if the veteran or spouse is determined to be incompetent, a federal fiduciary is appointed. This may or may not be the same person as the guardian.
The federal fiduciary deals only with the VA payments, and must use the money in accordance with a strict spending plan set by the VA. There is virtually no discretion involved.
A couple of days ago I blogged about the dangers of bad estate planning, and presented a hierarchy of worst to best ways to plan. Today I'm providing a list of 10 of the most overlooked issues in estate planning (things that frequently aren't dealt with in lesser methods of planning). Many plans will address some of these items, but it's a rare plan that has adequately covered everything. The most important thing is that the person doing the planning is informed of all of the issues. That way they can make an educated decision that certain things need or need not be provided for in their particular plan. Here's the list, in no particular order:
I have seen plenty of bad estate planning planning in my 23 years of practice. The pitfalls are many - I will list them in my next post. Here's my list of the hierarchy of estate planning, from worst to best (and I have seen them all!):
Of course, the cost goes up with the quality, but it's that true for everything in life. Shopping estate planning based just on cost is like trying to compare a used Ford Pinto to a brand new Lexus. If someone calls my office to simply ask "how much do you charge for a will" I know right away they they do not understand all that goes into estate planning and probably do not see the value in the high level of service and expertise I can provide.
On April 22, 2011, I posted an IRS Notice about a tax relief program for victims of the April 16, 2011 storms in North Carolina. As of May 9, 2011, residents who live in or own a business in the following counties are eligible:
Bertie, Bladen, Craven, Cumberland, Currituck, Greene, Halifax, Harnett, Hertford, Hoke, Johnston, Lee, Onslow, Pitt, Robeson, Sampson, Tyrell, Wake and Wilson
The majority of states no longer have an estate tax, but North Carolina is not one of them. Hungry for revenue, some states, such as Connecticut, are trying to lower the tax threshold. I'm not aware of any such movement for North Carolina. Here's a chart of the states with an estate tax, with the exemption amounts:
Tennessee, not listed above, has an inheritance tax with a $1 million exemption. Inheritance tax differs from estate tax in that the rate differs depending on the relationship of the inheritor to the deceased. Immediate family member are subject to the lowest rate. While estate taxes raise revenue, of course, the taxes are often cause for wealthy individuals to move to states like Florida, which has no estate tax (and no income tax as well).
Note: the correct name of the source is the American College of Trust and Estate Counsel (not Council).
Taking care of an elderly parent may provide more than just personal satisfaction. You could also be entitled to substantial tax deductions even if your parent doesn't live with you.
Here are five tax opportunities you might have overlooked: Claim a dependency exemption.
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Share and share alike. Do you and your siblings chip in to help support a parent? Generally, there's no tax break for furnishing a small amount of money, but there's an exception in the tax law that allows families to share a dependency exemption.
Relatives can set up a "multiple support agreement" by filing an IRS form. In essence, your family is pooling the support payments and allowing one sibling to take the dependency exemption. The next year, the group designates another member to get the tax break.
This way, your family reaps the benefits of an exemption that no one can qualify for alone. Consult with your tax adviser for more information.
Take a medical deduction. Perhaps you pay a large amount for a parent's health care or nursing home bills. You may be able to secure a tax write-off by adding the amount to your deductible medical expenses. (Keep in mind, however that the medical deduction is limited and you can only write off qualified payments that aren't reimbursed by insurance.)
Claim a credit for home-based care.You can also get a tax break if you pay someone to care for a parent while you work. Let's say you hire a nurse's aide to watch your 85-year-old father because he's unable to stay alone. You may qualify for a medical expense deduction for the cost of the aide, as described above, but you could also be eligible for a dependent care credit. The credit is usually worth more because it's a dollar-for-dollar subtraction from the taxes you owe. A deduction only lowers the amount of income used to calculate your tax bill.
To qualify for a dependent care credit -- just like the one available to parents with children -- you must work full or part-time. The credit is also available if you're a full-time student, disabled, or actively searching for a job. The exact amount of the tax break depends on your income.
Become a head of household. There is a separate, lower tax rate for single people who pay more than half of the costs of maintaining a parent's home. You may be eligible for "head of household" tax filing status.
Source: TrustCounsel's May 3, 2011 eNewsletter by BizActions.My blog has a function that allows readers to comment on a post. In the vast majority of cases, however, the comments are actually questions by those trying to avoid having to pay a lawyer to assist or advise them. While I sometimes answer simple questions, my standard response is to tell the reader that he or she should consult with an attorney. Of course, you could say I'm biased, given that I'm a practicing attorney, but I normally don't even suggest that the reader chose my firm.
Here's a recent example of a question and my reply:
My dad just died at the age of 89. His will named my mom, age 91, as Executrix. I am handling all of that for her with her assistance. My question: Her will names my dad as Executor of her estate upon her death. Due to his death, that needs to be changed to name me, the only child, as Executor. Is there a way to do that in NC without having to involve a lawyer (and pay) a lawyer?
RESPONSE: Anyone can legally prepare their own estate planning documents, including a will or codicil. However, why take the risk making an expensive mistake? It's well worth paying a lawyer to make sure your assets and family are properly protected, and in many cases, it will save money in the long run.
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