Why Do Seniors Get Scammed by Family Members? – Annapolis and Towson Estate Planning

The Detroit Free Press’ recent article entitled “Elderly getting scammed by their own family members — and one group wants to stop it” says that the average victim can lose $120,000 to financial exploitation, according to AARP research. Repeated, out-of-the-ordinary cash withdrawals are a big sign of exploitation and scams.

“People are literally being robbed every day through scams or financial exploitation from members of their own family,” said Debra Whitman, executive vice president and chief public policy officer at AARP.

As part of the battle, AARP has launched a new online training module for bank and credit union employees who work with customers on the front lines as a way to prevent financial exploitation.

Instances of elder financial abuse can increase during the holidays because more family members and friends are around.

Financial exploitation has included abusing the relationship with an older relative or friend to force him or her into giving them a big portion of savings that’s in a bank or transferring property to someone else. It may begin with withdrawing just a few hundred dollars from a bank account and then build to repeated requests for more money. This type of exploitation may include misusing a power of attorney by denying an elderly person access to his or her own money and withdrawing money out of a senior’s bank account.

Many perpetrators are known to the victim, such as family members, caregivers, or other workers in the home. In addition to losing a life’s savings, seniors who are victims of scammers or loved ones can have a more rapid decline in health because of the emotional stress from being a victim of financial abuse.

According to a report called “Suspicious Activity Reports on Financial Exploitation: Issues and Trends” released in February by the Consumer Financial Protection Bureau, older adults lost an average of $48,300, when the activity involved a checking or savings account. This type of suspicious activity on average took place over a four-month period. Suspicious activity reports for elder financial exploitation quadrupled from 2013 to 2017. In 2017, this activity totaled 63,500 incidents. These reports may also be only a fraction of actual incidents, which may go unreported by victims.

AARP is promoting an online training effort called BankSafe that trains bank tellers and other front-line staff to take more direct action when they suspect a case of financial exploitation. They are encouraged to ask the customer probing questions when they see a possible red flag and even mention the situation to a supervisor who may be able to intervene.

AARP’s BankSafe pilot program was launched for six months at nearly 500 branches of banks and credit unions in 11 states. Nearly $1 million was protected when front line employees who participated in the pilot program intervened and stopped criminals from stealing money from the accounts of seniors. In some instances, the bank employee who stopped someone from being exploited refused or delayed a suspicious transaction, put a hold on the account, or explained concerns to the customer who was a potential victim.

The average victim was a woman between 70 and 79 with less than $20,000 in her bank account, according to the new AARP research. The estimated cost of financial exploitation varies but may be more than $2.9 billion a year.

Reference: Detroit Free Press (October 16, 2019) “Elderly getting scammed by their own family members — and one group wants to stop it”

Sims & Campbell, LLC – Annapolis and Towson Estate Planning Attorneys

The Downside of an Inheritance – Annapolis and Towson Estate Planning

As many as 1.7 million American households inherit assets every year. However, almost seventy-five percent of those heirs lose their inheritance within a few years. More than a third see no change or even a decline in their economic standing, says Canyon News in the article “Three Setbacks Associated With Receiving An Inheritance.”

Receiving an inheritance should be a positive event, but that’s often not the case. What goes wrong?

Family battles. A survey of lawyers, trust officers, and accountants conducted by TD Wealth found that at 44 percent, family conflicts are the biggest cause for inheritance setbacks. Conflicts often arise when individuals die without a properly executed estate plan. Without a will, asset distributions are left to the law of the state and the probate court.

However, there are also times when even the best of plans are created and problems occur. This can happen when there are issues with trustees. Trusts are commonly used estate planning tools, a legal device that includes directions on how and when assets are to be distributed to beneficiaries. Many people use them to shield assets from estate taxes, which is all well and good. However, if a trustee is named who is adverse to the interests of the family members, or not capable of properly managing the trust, lengthy and expensive estate battles can occur. Filing a claim against an adversarial trustee can lead to divisions among beneficiaries and take a bite out of the inheritance.

Poor tax planning. Depending upon the inheritance and the beneficiaries, there could be tax consequences including:

  • Estate Taxes. This is the tax applied to the value of a decedent’s assets, properties and financial accounts. The federal estate tax exemption as of this writing is very high—$11.4 million per individual—but there are also state estate taxes. Although the executor of the estate and not the beneficiary is typically responsible for the estate taxes, it may also impact the beneficiaries.
  • Inheritance Taxes. Some states have inheritance taxes, which are based upon the kinship between the decedent and the heir, their state of residence and the value of the inheritance. These are paid by the beneficiary and not the estate. Six states collect inheritance taxes: Iowa, Kentucky, Maryland, Nebraska, New Jersey and Pennsylvania. Spouses do not pay inheritance taxes when their spouse’s die. Beneficiaries who are not related to decedents will usually pay higher inheritance taxes.
  • Capital Gains Tax. In certain circumstances, heirs pay capital gains taxes. Recipients may be subject to capital gains taxes, if they make a profit selling the assets that they inherited. For instance, if someone inherits $300,000 in stocks and the beneficiary sells them a few years later for $500,000, the beneficiary may have to pay capital gains taxes on the $200,000 profit.

Impacts on Government Benefits. If an heir is receiving government benefits like Social Security Disability Insurance (SSDI), Supplemental Social Security (SSS) or Medicaid, receiving an inheritance could make them ineligible for the government benefit. These programs are generally needs-based and recipients are bound to strict income and asset levels. An estate planning attorney will usually plan for this with the use of a Special Needs Trust, where the trust inherits the assets, which can then be used by the heir without losing their eligibility. A trustee is in charge of the assets and their distributions.

An estate planning attorney can work with the entire family by planning for the transfer of wealth and helping educate the family so that the efforts of a lifetime of work are not lost in a few years’ time.

Reference: Canyon News (October 15, 2019) “Three Setbacks Associated With Receiving An Inheritance”

Sims & Campbell, LLC – Annapolis and Towson Estate Planning Attorneys

Sharing Legal Documents and Passwords – Annapolis and Towson Estate Planning

While parents are alive and well is the time to prepare for the future and when they begin to decline.

An adult child who is a primary agent and also executor has questions about organizing documents and managing storage in a digital format, as well as how to secure their passwords for online websites. The advice from the article “Safe sharing of passwords and legal documents” from my San Antonio is that these two issues are evolving and the best answers today may be different as time passes.

Safe and shareable password storage is a part of today’s online life. However, passwords used to access bank and investment accounts, file storage platforms, emails, online retailers and thousands of other tools used on a desktop are increasingly required to be strong and complex and are difficult to remember. In some cases, facial recognition is used instead of a password.

Many rely on their internet browsers, like Chrome, Safari, etc., to remember passwords. This leaves accounts vulnerable, as many of these and other browsers have been hacked.

The best password solutions are stand-alone password managers. They offer the option of sharing the passwords with others, so parents would provide their executor with access to their list. However, there are also new laws regarding digital assets, so check with your estate planning attorney. You may need to create directives for your accounts that specify who you want to have access to the accounts and the data that they contain.

Storage of legal documents is a separate concern from password-sharing. Shared legal documents need to be private, reasonably priced and secure.

Some password managers include document storage as part of the account. The documents can be uploaded in an encrypted format that can be accessed by a person, who is assigned by the account owner.

Document vault websites are also available. You will have to be extremely careful about selecting which one to use. Some of the websites resell data, which is not why you are storing documents with them. One company claims to offer a “universal advance digital directive,” which they say can provide digital access worldwide to documents, including an emergency, critical and advance care plan.

The problem? This company is located in a state that does not permit the creation of a legally binding advance directive, unless it is in writing, includes state-specific provisions and is signed in front of either two qualified witnesses or a notary.

Talk with your estate planning attorney about securing estate planning documents and how to protect digital assets. Their knowledge of the laws in your state will provide the family with the proper protection now and in the future.

Reference: my San Antonio (October 14, 2019) “Safe sharing of passwords and legal documents”

Sims & Campbell, LLC – Annapolis and Towson Estate Planning Attorneys

Do Name Changes Need to Be Reflected in Estate Planning Documents? – Annapolis and Towson Estate Planning

When names change, executing documents with the person’s prior name can become problematic.

For example, what about a daughter who was named as a health care representative by her parents several years ago, who marries and changes her name? Then, to make matters more complicated, add the fact that the couple’s daughter-in-law has the same first name, but a different middle name. That’s the situation presented in the article “Estate Planning: Name changes and the estate plan” from nwi.com.

When a person’s name changes, many documents need to be changed, including items like driver’s licenses, passports, insurance policies, etc. The change of a name isn’t just about the person who created the estate plan but also to their executors, heirs, beneficiaries and those who have been named with certain legal powers through power of attorney (POA) and health care power of attorney.

It’s not an unusual situation, but it does have to be addressed. It’s pretty common to include additional identifiers in the documents. For example, let’s say the will says I leave my house to my daughter Samantha Roberts. If Samantha gets married and changes her last name, it can be reasonably assumed that she can be identified. In some cases, the document may be able to stay the same.

In other instances, the difference will be incorporated through the use of the acronym AKA—Also Known As. That is used when a person’s name is different for some reason. If the deed to a home says Mary Green, but the person’s real name is Mary G. Jones, the term used will be Mary Green A/K/A Mary G. Jones.

Sometimes when a person’s name has changed completely, another acronym is use: N/K/A, or Now Known As. For example, if Jessica A. Gordon marries or divorces and changes her name to Jessica A. Jones, the phrase Jessica A. Gordon N/K/A Jessica A. Jones would be used.

However, in the situation noted above, most attorneys to want to have the documents changed to reflect the name change. First, there are two people in the family with similar names. It is possible that someone could claim that the person wished to name the other person. It may not be a strong case, but challenges have been made over smaller matters.

Second is that the document being discussed is a healthcare designation. Usually when a health care power of attorney form is being used, it’s in an emergency. Would a doctor make a daughter prove that she is who she says she is? It seems unlikely, but the risk of something like that happening is too great. It is much easier to simply have the document updated.

In most matters, when there is a name change, it’s not a big deal. However, in estate planning documents, where there are risks about being able to make decisions in a timely manner or to mitigate the possibility of an estate challenge, a name change to update documents is an ounce of prevention worth a pound of trouble in the future.

Reference: nwi.com (October 20, 2019) “Estate Planning: Name changes and the estate plan”

Sims & Campbell, LLC – Annapolis and Towson Estate Planning Attorneys

Do My Heirs Need to Pay an Inheritance Tax? – Annapolis and Towson Estate Planning

U.S. News & World Report explains in its article, “What Is Inheritance Tax?” that estate taxes and inheritance taxes are often mentioned as if they’re the same thing. However, they’re really very different in concept and practice.

Remember that not every estate is required to pay estate taxes, and not every heir will pay inheritance tax. Let’s discuss how to determine whether these taxes impact you.

Inheritance can be taxable to heirs. However, this is based upon the state in which the deceased lived and the heirs’ relationship to the benefactor.

Inheritance tax is a state tax on a portion of the value of a deceased person’s estate that’s paid by the inheritor of the estate. There’s no federal inheritance tax. Currently, there are only six states that impose an inheritance tax, according to the American College of Trust and Estate Counsel. The states that have an inheritance tax are Iowa, Kentucky, Maryland, Nebraska, New Jersey and Pennsylvania.

Inheritance tax laws and exemption amounts are different in each of these six states. In Pennsylvania, there’s no inheritance tax charged to a surviving spouse, a son or daughter age 21 or younger and certain charitable and exempt organizations. Otherwise, the Keystone State’s inheritance tax is charged on a tiered system. Direct descendants and lineal heirs pay 4.5%, siblings pay 12% and other heirs pay a cool 15%.

Inheritance tax is determined by the state in which the deceased lived. Estate taxes are deducted from the deceased’s estate after death and aren’t the responsibility of the heirs. Some states also charge their own estate taxes on assets more than a certain value. The states that charge their own estate tax are Connecticut, Hawaii, Illinois, Maine, Maryland, Massachusetts, Minnesota, New York, Oregon, Rhode Island, Vermont, Washington and Washington, D.C.

Decreasing estate taxes are the responsibility of the deceased prior to his or her death. They should work with an estate planning attorney to map out strategies that can lessen or eliminate estate taxes for certain assets.

Remember that inheritance taxes are state taxes. They are imposed by only six states and are the responsibility of the heirs of the estate, even if they live in another state. In contrast, estate taxes are federal and state taxes. The federal estate tax is a 40% tax on assets more than $11.4 million for 2019 ($22.8 million for married couples). This is charged, regardless of where you live. Some states have additional estate taxes with their own thresholds.

Inheritance taxes are paid by the heirs and estate taxes are paid by the estate. An estate planning attorney can help to find ways to reduce taxes and transfer money efficiently.

Reference: U.S. News & World Report (October 8, 2019) “What Is Inheritance Tax?”

Sims & Campbell, LLC – Annapolis and Towson Estate Planning Attorneys

Why Should I Pair my Business Succession and Estate Planning? – Annapolis and Towson Estate Planning

A successful business exit plan can accomplish three important objectives for a business owner: (i) financial security because the business sale or transfer provides income that the owner and owner’s family will need after the owner’s exit; (ii) the right person where the business owner names his or her successor; and (iii) income-tax minimization.

Likewise, a successful estate plan achieves three important personal goals: (i) financial security for the decedent’s heirs; (ii) the decedent (not the state) chooses who receives his or her estate assets; and (iii) estate-tax minimization.

Business owners will realize that the two processes have the same goals. Therefore, they can leverage their time and money and develop their exit plans into the design of their estate plans. The Phoenix Business Journal’s recent article “Which comes first for Arizona business owners: estate planning or exit planning?” explains that considering exit and estate planning together, lets a business owner ask questions to bring their entire picture into focus. Here are some questions to consider:

  1. If a business owner doesn’t leave her business on the planned business exit date, how will she provide her family with the same income stream they would’ve enjoyed if she had?
  2. How can a business owner be certain that her business retains its previously determined value?
  3. Regardless of whether an owner’s exit plan involves transferring part of the business to her children, does her estate plan reflect and implement her wishes, if she doesn’t survive?
  4. If an owner dies before leaving the business, can she be certain that her family will still get the full value of the business?

Another goal of the exit planning process is to protect assets from creditors during an owner’s lifetime and to minimize tax consequences upon a transfer of ownership.

Because planning exits from both business and life are based on the same premises, it can be relatively easy to develop a consistent outcome. There isn’t only one correct answer to the “estate or exit planning” question. A business owner must act on both fronts since a failure to act in either case creates ongoing issues for owners and for their businesses and families.

Reference: Phoenix Business Journal (October 8, 2019) “Which comes first for Arizona business owners: estate planning or exit planning?”

Sims & Campbell, LLC – Annapolis and Towson Estate Planning Attorneys

How Much Will I Really Spend in Retirement? – Annapolis and Towson Estate Planning

People are living longer today compared to previous generations. This means that their retirement savings need to last longer. As a result, you’ll need to be certain that you’re calculating your retirement spending accurately.

Kiplinger’s recent article, “Planning for Retirement? You’re Probably Underestimating Your Spending,” explains that general figures and trends don’t consider a person’s health and many other factors. Still, you should anticipate a lengthy retirement, which makes it even more critical to understand your cash flow and break out your expenses.

It’s not uncommon for people to totally underestimate their post-retirement spending. They don’t see the many additional expenses they’ll incur after ending their employment or selling their business. The common notion is that as you get older, you spend less. However, there are new expenses that come with retirement and current costs that you may not be accounting for.

Let’s look at the four main types of expenses that prospective or new retirees need to plan when creating a budget. Educating yourself in these areas will help to have a comfortable retirement.

  1. Formerly business-subsidized expenses. For many, the job provides more than a salary. It can include health benefits, cell phones and health club memberships. To avoid some surprise when you retire, make a list of the expenses that are now covered by your employer or business. Some you might be able to do without, while others may be a necessity in retirement.
  2. Overlooked expenses. Many people do the majority of their primary spending on one credit card. However, when they estimate their spending for retirement, they forget about spending on other credit cards and regular services and charges that may be paid for by cash or check, such as landscaping, housekeeping and real estate taxes. Prior to retirement, go through all your expenses and how they’re being paid. This should help flesh out a thorough understanding of your spending.
  3. Health care expenses. Even if you hit retirement without a major accident or illness, you’re still probably going to spend a good portion of your income to stay that way. A recent study found that a healthy male-female couple retiring at 65 in 2019 can expect to spend $285,000 on health care over their retirement years. Medicare begins at 65 and covers many expenses, but there are many common health care costs that are not covered, such as dental and vision services, prescription drugs (unless you buy a supplemental plan, such as Part D), and long-term care. Out-of-pocket costs can also shoot up if a senior has a serious or chronic disease, like a heart condition.
  4. Recurring non-recurring expenses. You may get a new car or need a major repair in your house. These are considered non-recurring expenses you commit to sparingly or just once in your life. However, big purchases and unexpected costs occur more often than you’d imagine. It’s a good practice to plan for at least one “one-time purchase” each year to cover these unanticipated bills.

Reference: Kiplinger (October 3, 2019) “Planning for Retirement? You’re Probably Underestimating Your Spending”

Sims & Campbell, LLC – Annapolis and Towson Estate Planning Attorneys

What’s the Best Way to Gift an Interest in My Business? – Annapolis and Towson Estate Planning

A couple who owned a small family business was thinking about giving interests in the business to their married son over time. However, they were worried about the “what if” scenario of a possible divorce in his future. If their son divorced, they didn’t want to be in business with his ex-wife.

Forbes’s recent article, “What Family Businesses Need To Know About Gifting Business Interests,” explains that prior to the couple transferring some of their business to their son, they asked their attorney to draft a shareholder agreement with restrictions on to who the stock can be transferred in the future. The parents’ goal was to keep the stock from being transferred as part of a potential divorce. In our scenario, the parents want their daughter-in-law to sign a consent agreeing that she would be bound by the shareholder agreement and that the stock would never be transferred to her. If their son and his wife later divorced, she’d be bound by the agreement and the stock would remain with the son.

While the parents’ plan sounds like a great idea, it is in theory. However, the reality is that there’s a good chance of a far different and less desirable result. Let’s examine three ways this type of agreement could become a big headache.

  • Creating a big, icky issue. Ask yourself if you really want to ask your daughter-in-law (or son-in-law) to sign this? This may open a big can of worms in your family. If she didn’t think there was any value in the business, she may feel differently when she reads the agreement. Thanksgiving dinner may end up in a food fight!
  • Is it legal? Ask your attorney to analyze how effective the agreement would be under the laws that apply to the agreement and in the state where the couple may divorce.
  • How much protection does it offer? In many states, the agreement wouldn’t remove the stock as a marital asset. Even if the stock stays on the husband’s side of the balance sheet, its value would still be subject to division, and the wife could get other marital assets to balance things out.

An alternative might be the use of a marital agreement, like a prenuptial or post-nuptial agreement. The family business may be better protected with the son having an agreement that states that the stock is outside the marital estate and not subject to division in the event of divorce. Of course, the parents can’t force their son to enter into the agreement, but they can stop the gifting spigot if he doesn’t.

Speak with your attorney and look at all your options to find the strategies that will work best for your business and your family.

Reference: Forbes (October 9, 2019) “What Family Businesses Need To Know About Gifting Business Interests”

Sims & Campbell, LLC – Annapolis and Towson Estate Planning Attorneys

What Do I Need to Know About an Irrevocable Life Insurance Trust? – Annapolis and Towson Estate Planning

An irrevocable life insurance trust (ILIT) is a trust that can’t be rescinded, amended, or modified after it’s created. ILITs are made with a life insurance policy as the asset owned by the trust. Once the grantor places property or life insurance death benefits into the trust, she can’t alter the terms of the trust or reclaim any of the properties held by it.

As an alternative to designating an individual beneficiary, ILITs offer several legal and financial advantages to heirs. This includes favorable tax treatment, asset protection, and the assurance that the benefits will be used in a manner concurrent with the benefactor’s wishes.

Investopedia’s recent article, “When Is It a Good Idea to Use ILIT Trust?” says that there are several advantages to ILITs, including state tax considerations, the protection of fiscally-careless beneficiaries from squandering their payouts and the prevention of courts and creditors from accessing the assets.

An ILIT is often used to set aside assets for certain purposes, like paying estate taxes, because these assets themselves aren’t taxable. To do this, the selected assets must be moved into the life insurance trust at least three years before they’re used. If you use a qualified estate planning attorney to create this, the death benefits paid to the ILIT won’t be included in the gross estate of the insured. This is different than when life insurance death benefits are paid to an individual because the proceeds are included in the taxable estate of the decedent.

The ILIT also has asset protection for the beneficiaries if they are involved in a lawsuit. That’s because ILITs aren’t considered to be owned by the beneficiaries. This makes it hard for courts to connect the assets to the beneficiary, making them nearly impossible for creditors to access.

There are some drawbacks to using an ILIT, so carefully consider the pros and cons of creating one. Changes to an ILIT can only be made by the beneficiaries. As a result, the benefactor loses control of the assets prior to death.  ILIT assets also are not taxed as part of the estate, but they are taxed as part of the beneficiaries’ estates, leaving a bigger tax burden to their descendants.

Preparing an ILIT is a sophisticated matter with strict guidelines that must be followed to ensure that it conforms with IRS guidelines. Talk with an experienced estate planning attorney to be sure that it is prepared properly, and that it aligns with your overall estate plan.

Reference: Investopedia (August 5, 2019) “When Is It a Good Idea to Use ILIT Trust?”

Sims & Campbell, LLC – Annapolis and Towson Estate Planning Attorneys

How to Enjoy Life After Retirement – Annapolis and Towson Estate Planning

By the time they reach retirement age, some people are so burned out, bitter, or damaged that they feel incapable of experiencing joy or happiness. After a lifetime of hard work, they are miserable. For many people, the only thing they enjoyed in life was their career. When they stop working, they feel lost and adrift. If you are feeling any of these things, you could use a roadmap on how to enjoy life after retiring.

You have spent the last several decades working to provide for and take care of yourself and your family. The vast majority of your waking hours were spent doing what needed to get done with little time, money, or energy left for doing what you wanted to do.

You might have had to deal with difficult bosses, marital troubles and financial crises. When you look back on your working life, you might feel dissatisfied with the compensation you received for your labors.

Shifting Your Focus

Continuing to approach life the same way you did during your career, might not bring you the happiness you would like in retirement. People who find fulfillment in their golden years often shift their focus from the concerns of making a living and raising a family to exploring other dimensions of life.

Regardless of how well you took care of yourself and how blessed you are with good health, eventually, your body will begin to lose strength and endurance. You can consider this reality a loss or a natural process.

Many people pay more attention to their spirituality or religion after retirement. They think about what matters and step away from things that do not bring them joy. Decluttering your life can be a lot like cleaning out a closet. You get rid of things you no longer need or want and unearth things you forgot were there.

It can be liberating to get away from toxic co-workers who brought you years of stress. You can replace them by looking up old friends or making new ones.

If you feel useless or not needed, you will not have fulfillment. After your career is behind you, it can be hard to figure out who you are and what you can contribute to society.

Finding a type of volunteer work can make you feel valuable and happy. Some people get such a rush from volunteering that they commit to it more than they should. When this happens, the person becomes unhappy and wonders what else to try, thinking that helping others made the volunteer miserable. In reality, being overscheduled made him unhappy. Simply cut back on your activities, until you find the right pace for you.

Everyone has valuable skills to teach others. If you can read, draw, play chess, sew, bake, create a budget, plant a garden, or any other task, someone out there wants to learn what you know. You do not need a Ph.D. to teach others useful life skills.

Be sure to give yourself the free time and solitude you want. Balance those aspects with stimulating social activities to stay connected and keep your brain healthy. You have earned this time, now enjoy it.

References: HuffPost. “How To Find Fulfillment In Life After Retirement.” (accessed October 9, 2019) https://www.huffpost.com/entry/how-to-find-fulfillment-i_b_11887068

Sims & Campbell, LLC – Annapolis and Towson Estate Planning Attorneys