ElderLawAnswers Blog

Will You Receive a Negative Inheritance?

A recent column in the Conde Nast's Portfolio.com explored what economist call "negative inheritance." People who don't prepare to care for sick and aging parents could fall victim to such "negative inheritance." The term (which was likely first used in the study of economics by Boston University Professor Laurence Kotlikoff) describes the situation when the costs to children of caring for aging relatives outstrip any gifts or bequests they might receive in return.

Those costs may be financial, physical and emotional, as children and other relatives give up jobs and homes to care for family members.  The following posting to the ElderLawAnswers.com Discussion Forum is not unusual:

My parents are in their mid-eighties and continue to live at home. We sold our large home 2 years ago and moved in temporarily with my parents while awaiting the purchase of our new home. Alas I discovered how much they needed more care than just each other during our stay. My husband and I now stay at my parents home and we do not even visit our own home. I quit my job last summer to increase the level of care necessary for them. We pay all their bills except for food as well as our own bills. I am taking CNA classes so that I may continue to take care of them at home as opposed to the option of nursing home care. We are now dipping into our personal retirement savings to continue to care for them.

While a supermajority -- 91% -- of boomers report being "generally pleased to be helping their parents," according to a survey by Putnam Investments, it doesn't relive the negative effects it may have on a caregivers own life.  Planning by purchasing long-term care insurance or making use of available public benefits can help eliminate these costs, decrease the stress on all concerned, and thus preserve and enhance the care family members can provide their parents. 

Why Do Men Shortchange Their Wives' Social Security Benefits?

According to a recent study released by the Center for Retirement Research at Boston College (http://crr.bc.edu), most men begin drawing on their Social Security retirement benefits at age 62 or 63, rather than waiting until their full retirement age or even age 70.  The early receipt of benefits means that both the husbands and their wives will receive less each month than they would if they waited.

According to the study, written by Steven A. Sass, Wei Sun and Anthony Webb, this early election has no effect on average on the men.  Though they will receive a smaller benefit check each month, this will be offset by the checks they receive between the ages of 62 and normal retirement age.  Of course, this is the average.  Men who are in ill health would do better to take early retirement and men who expect to live a long time should postpone their receipt of benefits for as long as possible.

This is also basically true of single women, meaning on average they do about as well in terms of lifetime Social Security benefits no matter whether they start earlier and get more smaller checks or start later and receive fewer larger checks.

But for today's seniors, most wives' benefits are based on their husband's work record.  If husbands choose to take benefits before the full retirement age, their wives are penalized twice -- first while their husband's are alive when they get a reduced benefit, usually half of the husband's benefit, and second when the husband dies (which often happens due to women's greater life expectancy) when they receive their husband's benefit rather than their own.

So, why do men do this?  Are they cads?  The researchers conclude that they are not, that instead they simply don't understand the implications of claiming benefits early.  More education may change their behavior, although the researchers note that "financial education has not been especially effective in changing behavior." As an alternative, they suggest a number of potential policy changes, such as requiring spouses to sign off on the decision to claim Social Security before the beneficiary's full retirement age.

Interestingly, while the Social Security Administration's Web site (www.ssa.gov) has a number of excellent calculators to assist beneficiaries in deciding when to retire, none appear to calculate spousal benefits.  Based on the Boston College report, adding such calculators would be a good first step.

To read the report, go to: http://crr.bc.edu/index.php?option=com_content&task=view&id=485&Itemid=4

Take Full Advantage of 529 Plans

Congress has given you a terrific way to save for college.  Don't let it slip by.

So-called "529" plans are investment vehicles which permit money you set aside for a child or grandchild's education to grow tax free.  If the funds are in fact used for college, they are never taxed.

Many states have offered further benefits to these plans, including creditor protection in the event of bankruptcy and state income deductions for contributions up to certain limits.  More than half of states offer some sort of creditor protection and more than 30 states offer at least some income tax deduction.  Though they may provide for recapture of the deducted income if the account is moved to another state.

An odd aspect of 529 plans is that although they are authorized under federal tax law, they depend on state legislation.  So each state has its own plan or plan operated by an investment company.  While investors may take advantage of any plan offered by any state or investment company, some of the state benefits only apply to their own state plans.

Another advantage to 529 plans is that permit automatic investment.  A donor can provide that a certain amount is deposited into the plan each month, allowing the account to grow over time almost painlessly.

A final change that makes 529 plans more attractive than formally is that the internal costs of many plans have come down in recent years and some plans now provide for investment in low-cost index funds.

Leona Helmsley's Will: What Legacy Will You Leave?

By all accounts, Leona Helmsley was not a nice woman in life.  In death, her mean spirit survives.

Helmsley, who served 19 months in prison for tax evasion, was reported to have said, ''Only the little people pay taxes.''

With an estate estimated to total $4 billion, Helmsley totally disinherits two of her grandchildren, reportedly because they didn't name their children after her husband, Harry (a decision this writer can fully appreciate).  Two other grandchildren receive $10 million each, provided they visit their father's grave at least once a year.

The largest beneficiary of Helmsley's estate is her dog, an 8-year-old Maltese named Trouble, who will be the beneficiary of a $12 million trust.  Ultimately, this may cause more trouble for Trouble because it may not comport with New York law.

Other large beneficiaries of the estate may be attorneys, since the will names five executors, all of whom will need to be represented if there are any disagreements -- and how could there not be any disagreements?

Interestingly, all of this might have been kept private if it had been set up through a trust rather than a will.

At least Leona died as she lived, making her feelings clear for all to see.  Let's hope we all do the same, with less mean-spirited results.

Click here to see the will: http://multimedia.nydailynews.com/pdf/2007/08/28/leona_helmsley_will/index.html

Make Your Durable Power of Attorney Work

An essential part of any estate plan is the durable power of attorney, through which you appoint someone else to handle your financial and legal issues in the event you are unable to do so because of illness, disability or incapacity.  The problem with these documents is that not all financial institutions accept them all the time, and it's hard to predict which will and which won't ahead of time.

Why won't your bank or investment house accept your validly executed power of attorney?  Because they are worried about liability in the event:

1. The document in fact was forged.
2. You had revoked the power of attorney before its use.
3. The person you appoint exceeds the powers you gave him in the power of attorney.

In any of these cases, the financial institution may be held liable for any losses you incur.  On the other hand, it may also be held liable for losses you incur if it unreasonably refuses to honor your power of attorney.

So, what can you and your estate planning attorney do to make it more likely that your appointment of an agent will be accepted?  This question is answered by Daniel A. Wentworth, Esq., Senior Legal Counsel with Fidelity Investments in the November/December 2003 issue of the American Bar Association's Probate & Property journal.  Attorney Wentworth recommends taking the following steps:

• Grant general powers in the document so that there is no risk the agent exceeds her authority.
• Also include specific powers clearly authorizing the actions the agent is likely going to need to take.
• Don't use "springing" powers of attorney that don't go into effect until you are incapacitated or, if you do, be very clear about what triggers their effectiveness.
• If you're appointing more than one person, clearly permit them to act separately (unless you really don't want them to).
• Sign several originals so that they are available for different financial institutions to review.
• Sign a new power of attorney every few years so that there's less likelihood that it may have been revoked and there's a long-term record of your desire to appoint your particular agent.
• If available, also sign any powers of attorney form offered by the financial institutions in which you have funds.

Taking all of these steps will make it more likely that your power of attorney will be accepted when needed.

To read the Probate & Property article, go to: http://www.abanet.org/rppt/publications/magazine/2003/nd/wentworth.html.

Case Reflects the Need for Communication in Estate Planning, Especially in the Case of Second Marriages

A recent Massachusetts case unfortunately, for the family involved, shows the need for complete transparency in estate planning especially where two families are involved.

In this case, Giles Nicholas (Nick) Dawson got married a second time to Freya.  The each had two children from a prior marriage and then had a son together, Wolfgang.

When Mr. Dawson died, his estate consisted primarily of two pieces of real estate.  They were held in a revocable trust which provided that it would be for Freya's benefit during her life and then at her death would be divided into six shares, two for Wolfgang and one share for each of Nick and Freya's older children.

Unfortunately, this is not what Nick older children -- Jane and Luke -- had expected.  They understood that the family home would be distributed as directed in the revocable trust, but that the other piece of real estate would come directly to them.

So, they sued.  And they lost.  The Court finds that “Nick’s estate plan evolved after he married Freya and they had Wolfgang." 

Unfortunately, Nick never told Jane and Luke.  One can imagine their surprise and disappointment and the rancor resulting from their lawsuit against Freya.

The moral or morals of this story?

First,  beware of second marriages. Jane and Luke undoubtedly wanted everything to stay the same, be it their first family or their father’s first estate plan. Bringing more people into the picture meant huge changes for them on all fronts. It’s unfortunate that those changes culminated in this lawsuit.

Third, communication is vital. While Jane and Luke might have been unhappy, this litigation might have been avoided if Nick had explained his estate plan and his reasoning to them.