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Coronavirus Update & Online Estate Planning

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Dear Clients, Colleagues and Friends,

We hope this finds you all well and safe! As promised, we want to give you an update on our plans in light of Governor Baker’s emergency order of this morning.

We are and will continue to be “open” for business as we are well-equipped to work remotely, including meeting with clients by phone or video conference. However, in compliance with the Governor’s order, we closed our physical office beginning Tuesday, March 24 at noon until Monday, May 4th (assuming we are permitted to re-open at that time), which means we will not be able to physically meet with clients to sign documents during that time.

We want you to know that we are here to help you. You are welcome to reach out to any of us by phone or email at any time. If you would like to schedule a time to speak or video conference with us, please email Jennifer Poles (poles@ssbllc.com) or Lynne Abe (abe@ssbllc.com) or call the office at 781-461-1020.

In other news, Attorney Abigail Poole of our office has been involved with proposed legislation, supported by hundreds of attorneys statewide, to allow attorneys who are notaries to conduct meetings to sign documents in a virtual manner via video conference. Keep an eye out for information about how you can support this effort by contacting your legislators.

We will continue to keep you updated as the situation evolves, and continue to wish you and your family health and safety during these uncertain times.

Suzanne R. Sayward
Maria C. Baler
Julia K. Abbott
Abigail V. Poole

Three Things You Can Do Now

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Dear Clients and Friends,

We hope this finds you all well and safe!  We want to give you an update on our plans and assure you that we’re here for you.  While we may need to close our physical office, please be assured that our team members are well-equipped to work from home and to attend to the important work we are doing for you.  You are welcome to reach out to us by phone or email.

Over the past week, we have been thinking about how we can best serve our clients during this uncertain time. Here are three things we can do to help you now:

1. Provide Access to Your Health Care Documents Electronically Contact us if you would like us to send you or your health care agents your health care documents in electronic format.  You and/or your named health care agents should store the documents on your smart phone so you have them on hand at all times. Here are our directions for doing so. Please contact Jennifer Poles at poles@ssbllc.com with the names and email addresses of the people to whom you would like us to send your health care documents.

2. Meet with you by Phone or Video Conference Contact us if you would like to schedule a phone or video conference to discuss your estate plan and any updates that may be necessary.  We are offering flexible hours – early in the morning, during business hours, or in the evening – to allow you to have these calls at a time that is convenient for you.

3. Provide Answers to Your Long-Term Care Planning Questions Contact us if you have concerns about planning for long-term care needs for yourself or a loved one.

While the new realities of social distancing, sheltering in place, and self-quarantining are consuming our thoughts right now, the important issues addressed by estate planning are still there, and in fact, are more important than ever.   We will get through this crisis.  During this time and after, we want you to know that we are here to help you, so please don’t hesitate to reach out.

We wish you and your family health and safety during these uncertain times.

Suzanne R. Sayward

Maria C. Baler

Julia K. Abbott

Abigail V. Poole

Imaginative and Unique Estate Planning Provisions

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As part of our work as estate planning attorneys, we draft and review a lot of Wills and Trusts.  For the most part, they are pretty standard.   The testator of a Will and the Grantor of a Trust tend to leave assets to a surviving spouse, and then to children.  Of course, there are some variations – a “specific bequest” to a certain person or charity (a certain amount of money usually), or perhaps a child is disinherited due to a chemical dependency, a rocky marriage or a spending problem.  But the majority of our clients’ Estate Planning goals and objectives are to provide for their spouse and children and that the will and trust documents they need are drafted accordingly.  They tend not to include much humor or any “unusual requests” for the most part.

But every so often, we see or read about (or are asked to draft) some more “colorful” provisions.  Here are some of the more creative Estate Planning requests we’ve seen or read about.

1. US comedian Jack Benny included a provision in his Will that a single long-stemmed red rose be delivered to his wife every day for the rest of her life.  And his florist ensured that it happened until Mrs. Benny died eight years later.

2. A donor in Britain in 1928 made a bequest of a half-million pounds for the purpose of clearing the national debt.  The issue was, the donor specified that it can only be paid out once it is sufficient to clear the entire national debt.  Although the bequest is now worth 350M pounds, it is not sufficient to clear the entire national debt so it remains held in trust.

3. The creator of the original Star Trek series, Gene Roddenberry, was understandably obsessed with space and this even appeared in his Estate Planning wishes.  His famous quote was to “boldly go where no man has gone before.”  In keeping with his obsession, his Will requested a celestial burial.   His request was honored and several years after his passing, a portion of his remains were placed on a rocket and shot into space.

4. The magician, Harry Houdini, conducted seances during his life.  His Will included a provision requesting that his wife conduct an annual session with the afterlife.  He further asked her to commit a secret code to memory which, he believed, would provide evidence of communication with the “other side.”  His wife honored this request from his will for ten years following Houdini’s death, always on Halloween (the anniversary of Houdini’s death).

5. Janice Joplin (known to her close friends as Pearl) died at the age of 27 from a drug overdose.  Her Will included a bequest of $2,500 (approximately $16,000 in today’s dollars) to enable her friends to hold a rocking wake party which did happen in California several weeks after her death.  The invitations stated “drinks are on Pearl.”

6. Benjamin Franklin’s Will left a picture frame containing more than 400 diamonds to his daughter with the instruction that she “not engage the expensive, vain and useless pastime of wearing jewels.”  He intended for her to leave the frame intact.  Shockingly, this Estate Planning wish was not honored.

7. Billionaire Leona Helmsley left her Maltese dog “Trouble” the de minimis sum of $12M.  Her Will also instructed that the family mausoleum where she was buried be “washed or steam-cleaned at least once a year,” for which she left $3 million.

8. William Shakespeare’s Will bequeathed his “second-best bed” to his wife, Anne Hathaway and the majority of his assets to his daughter, Susanna.  His Will stated “Item I gyve unto my wife my second best bed with the furniture.”

9. German poet Heinrich Heine left his estate to his wife, Matilda, on the condition that she remarry so that there “will be at least one man to regret my death.”

10. Portuguese aristocrat Luis Carolos de Noronha Cabral da Camara left his sizeable fortune to 70 people selected from a Lisbon phone directory.  They had been chosen at random from the directory, in front of two witnesses at a registry office 13 years before when Luis Carlos made his Will.

11. Napoleon Bonaparte’s last wish was that his head be shaved and the hair divided up amongst his friends, possibly his true heirs.

12. John Bowan, a millionaire from Virginia, constructed a mausoleum to house the remains of his wife and two daughters who predeceased him. Bowman believed that after he died the whole family would be reincarnated together. He passed away in 1891 and in his will left a $50,000 fund to maintain his mansion and the mausoleum. The High Net-Worth will provided that the house staff of the mansion were to prepare dinner every night just in case the Bowman family was hungry after returning from the dead. Additionally, no one was allowed to stay in the house overnight so they wouldn’t disturb the ghostly residents. This was carried out every night until 1950 when the trust fund ran out.

While these examples are entertaining and imaginative (and somewhat dramatic), these types of Estate Planning and Will and Trust provisions can be risky.  It is important to remember that Wills can be challenged (contested) in court.  If a beneficiary successfully challenges a Will, the provisions in the Will could be found to be void in part or in its entirety.  If the Will is found to be void in its entirety, your estate would then be distributed according to the Rules of Intestacy in your state.  Before being witty or creative in your estate planning wishes, check with your estate planning attorney.  It might be possible to draft these types of provisions in a stand-alone letter of direction.

Attorney Julia Abbott is partner with the Dedham firm of Samuel, Sayward & Baler LLC which focuses on advising its clients in the areas of estate planning, estate settlement and elder law matters. This article is not intended to provide legal advice or create or imply an attorney-client relationship. No information contained herein is a substitute for a personal consultation with an attorney. For more information visit www.ssbllc.com or call 781/461-1020. 

March, 2020

© 2020 Samuel, Sayward & Baler LLC

An Important Note to Our Clients and Partners

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Dear Clients and Friends,

As you may imagine, given our line of work, our client’s health and safety is our top priority.

You have no doubt been hearing about the spread of Coronavirus (COVID-19) which has been officially declared a pandemic by the World Health Organization. Many cases have now been confirmed in Massachusetts and Governor Charlie Baker has declared a state of emergency.

We understand that this virus has put many of our clients in a difficult situation, especially those who are older or have older loved ones at home.

Here are the preventative measures we are taking to keep our office environment as clean as possible, and to allow us to keep our clients and our staff safe while continuing to conduct business:

– We will practice social distancing, which includes the elimination of hand shaking.

– We wipe down all door handles, chairs, and conference tables after every meeting and have hand sanitizers and tissues available in every conference room.

– We will shortly have the ability to conduct meetings via video conference for anyone who wishes to do so. As always, if you would like to speak by phone, we are available to do so.

– We will postpone our upcoming Smart Counsel event scheduled for March 19, 2020, to be rescheduled at a later date.

If you have questions or concerns about an upcoming meeting at the office in Dedham, please call us to discuss other options for your meeting.

We will also take this opportunity to remind you to make sure your health care and other estate planning documents are in place and updated to reflect your current wishes. If you would like to schedule a meeting, phone call, or video conference to discuss your estate plan, please be in touch with Jennifer Poles at 781-461-1020 or poles@ssbllc.com.

Our office is currently open and will remain open as we closely monitor the situation in Dedham and the surrounding communities. We will keep you updated if anything changes. In the meantime, please don’t hesitate to reach out to us with any questions or concerns.

Sincerely,

Suzanne R. Sayward
Maria C. Baler
Julia K. Abbott
Abigail V. Poole

Five More Important Numbers to Know When Applying for Long-Term Care Medicaid Benefits

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Back in December, I wrote about in the event you require Medicaid (MassHealth) benefits to pay for long-term nursing home care expenses. To remind you, Medicaid is a federal/state government health care benefits program available to those who meet its medical and financial eligibility rules.  Here are five more important numbers to keep in mind if you are applying for long-term care Medicaid benefits in Massachusetts.

  1. An Account with $1,500 for Burial or Funeral Expenses is a Non-Countable Asset.

As you are preparing to apply for MassHealth benefits you may “spend down” your assets in certain ways and still qualify.  One way of spending down your assets is converting countable assets into non-countable assets. For example, MassHealth permits you to have a separate bank account of up to $1,500 for funeral and burial expenses.   This is in addition to the $2,000 a single person is permitted to own to qualify for MassHealth benefits. For example, let’s say you have a checking account with a balance of $3,500, which results in your ineligibility because you are over the $2,000 limit. Now let’s say you open a burial and funeral expenses account and deposit $1,500 into it. As you have only $2,000 remaining in your checking account you now meet the financial eligibility requirements to receive MassHealth benefits, and, bonus, you have put aside funds to assist with expenses after your death.  This account is in addition to any prepaid irrevocable funeral arrangements you may make.

  1. Your Principal Residence’s Equity Up to $893,000 is a Non-Countable Asset (for 2020).

Is my home considered a non-countable asset for Medicaid? If your principal residence is located in Massachusetts and your equity interest in the residence does not exceed $893,000 (for 2020), then it will be considered a non-countable asset for Medicaid benefits eligibility purposes. This equity interest amount typically changes each year. If your equity interest in your home is greater than that amount, it may cause you to be ineligible for Medicaid benefits, and you may need to sell your home or spend down the equity prior to or while your eligibility for Medicaid benefits is determined. However, if you make a good faith effort to sell your home Medicaid may exempt it from being countable for a period of nine (9) months, which time period may be extended.  Further, MassHealth may waive the period of ineligibility due to your home’s excess equity if it may cause undue hardship.

Let’s say your home has a tax-assessed value of $1,000,000 and you own it free and clear.  In that case, MassHealth would consider you ineligible for benefits because your home equity exceeds $893,000. Now let’s say you have a $250,000 mortgage on your $1 million home resulting in the equity interest in your home being $750,000. You are eligible for MassHealth benefits. Note that your home may be a non-countable asset immediately, regardless of your equity interest in it, if your spouse resides with you, or you have a child who is under age 21 or blind or permanently disabled, a sibling with ownership interest, or an adult child who is taking care of you and meets specific requirements residing with you. There are other things to know about Medicaid benefits for seniors and your home that are discussed here.

  1. You May Keep $72.80 of Monthly Income as Your Personal-Needs Allowance (PNA).

In general, your monthly income will be paid to the nursing home (the “Patient Paid Amount”) once you begin to receive MassHealth benefits, with some permissible deductions.  One permissible deduction is the Personal-Needs Allowance of $72.80, which amount has not changed in several years. You are permitted to keep the Personal-Needs Allowance in Massachusetts (PNA) to be used for any personal expenses not covered by Medicaid. You can pay for clothing, salon visits, etc. from your PNA account.

Other typical permissible deductions from income are health or medical insurance premiums and support for children, parents, siblings or your spouse remaining at home who meet certain criteria.

  1. 4 to 6 Months (or Longer) from MassHealth Application Submission to Approval.

It can take a few months to prepare a MassHealth application and gather the information you need to submit along with the application.  Once you have submitted the application and documentation to MassHealth it may take 4 to 6 months, or longer depending on your circumstances, to obtain approval to begin receiving Medicaid benefits.  During that time period you will receive correspondence from MassHealth requesting additional information to be provided to them.  The initial determination you receive from MassHealth on your application may be favorable or unfavorable.  If the determination is unfavorable an appeal may be filed with the Board of Hearings.

  1. There Are 26 Aging Services Access Points (ASAPs) in Massachusetts.

Aging Services Access Points (ASAPs) are private, non-profit agencies that contract with the Executive Office of Elder Affairs and cover 26 separate geographical regions in Massachusetts. They provide home care services, investigate elder abuse and assist with health insurance benefits, including Medicare inquiries and MassHealth applications. The local ASAP is Health and Social Services Consortium, Inc. (HESSCO) which covers the towns of Canton, Dedham, Foxborough, Medfield, Millis, Norfolk, Norwood, Plainville, Sharon, Walpole, Westwood and Wrentham.  Although ASAPs are a great source of information, it is always best to consult with an experienced elder law attorney before having anyone prepare a MassHealth application on your behalf, to ensure you are receiving appropriate advice about the timing of the submission of the application as well as any planning steps you may wish to take to achieve eligibility.  In many cases, having an elder care or long-term care attorney prepare the application will be in your best interest, and give you the greatest chance of success.

Meeting the financial eligibility criteria to receive Medicaid benefits to pay for long-term nursing home care expenses can be confusing and difficult depending on your assets, health and family relationships. An experienced long-term care and elder law attorney can assist you with advance planning to preserve your assets, address your questions and concerns, and prepare you and your family to navigate the eligibility process.

Attorney Abigail V. Poole is an associate attorney with the Dedham firm of Samuel, Sayward & Baler LLC which focuses on advising its clients in the areas of estate planning, estate settlement and elder law matters. She is an active member of the Massachusetts Chapter of the National Academy of Elder Law Attorneys (NAELA).  This article is not intended to provide legal advice or create or imply an attorney-client relationship. No information contained herein is a substitute for a personal consultation with an attorney. For more information visit www.ssbllc.com or call 781/461-1020. 

March, 2020

© 2020 Samuel, Sayward & Baler LLC

5 Things to Know about the SECURE Act

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What is the SECURE Act?

As you may be aware, a new law which significantly changes the way in which inherited retirement assets will be distributed to beneficiaries went into effect on January 1, 2020.  This is the SECURE Act.  While the SECURE Act includes some beneficial provisions such as increasing the age at which a participant must begin taking required minimum distributions from age 70.5 to age 72 and eliminating age restrictions for contributions to IRAs for individuals who continue to work, the significant downside to the Act is that it will require most beneficiaries of inherited IRAs or 401ks to withdraw all of the funds in the account within 10 years from the owner’s death.  This is a big change from the prior rules which permitted distributions over the life-expectancy of the beneficiary.  Read on for 5 Things to Know about the SECURE Act (and how it could impact your estate plan.)

  1. Your beneficiaries will realize less value from the inherited IRA under the SECURE Act. If you were counting on your beneficiaries receiving a certain amount from your estate which includes large IRAs or employer retirement plans, count again. Under the pre-2020 rules, an individual beneficiary could “stretch out” the withdrawal period over which he was required to take distributions over his life expectancy as of the death of the IRA owner.  Since the IRS assumes everyone is going to live until age 80 or so, this could mean a very long withdrawal period if your IRA was left to a child or grandchild.

For example, under the pre-2020 rules, a $1 million-dollar IRA inherited by a 50-year old beneficiary could be distributed to the beneficiary over approximately 30 years.  This means that in the first year the beneficiary would be required to withdraw about $33,000 from the $1 million IRA and include that amount in his taxable income.  The remaining $966,666 that was not withdrawn would continue to grow tax free.  Assuming a modest 5% growth, the balance at the end of the year would be $1,015,000. The following year the beneficiary would have to withdraw 1/29th of the balance in the IRA, or about $35,000 from that IRA. Again, the amount that was not withdrawn, about $980,000 would continue to grow tax free during that year and at 5% would be $1,029,000 at the end of the second year, and so on.

Under the SECURE Act rules for inherited IRAs, most beneficiaries will be required to withdraw the entire balance of the IRA within 10 years of the owner’s death.  Applying the new rules to the above example means that if the beneficiary withdraws 1/10th of the IRA the first year, she would withdraw $100,000 and pay income tax on that amount. The remaining $900,000 would continue to grow tax free during the year.  Assuming a 5% increase, this leaves a balance of $945,000 at the end of that year. If the beneficiary took out 1/10th the second year, that would be a withdrawal of $94,500 leaving a balance of $850,000, and so on.

  1. There are no changes in the distribution rules for a surviving spouse. While the rules regarding inherited IRAs for most beneficiaries have changed, they have not changed as to a surviving spouse. If you leave your traditional IRA or 401k to your spouse, your spouse will have the option to roll it over into his or her IRA and defer required minimum distributions until age 72. If your spouse is already age 72 or upon reaching age 72, the surviving spouse will be able to take withdrawals over his or her then life expectancy. It is only when the surviving spouse dies and the IRA passes on to the remaining beneficiaries, such as your children, that the 10-year rules come in to play and should be considered in your inheritance planning.

 

  1. If your IRA is payable to your Trust it gets more complicated. If you require more complex trust planning or you have structured your estate plan to leave your assets to a Trust for the benefit of your children following your death to provide asset protection for their inheritance or to control the distribution of the funds to them, then this change in the law is even more complicated. The reason for this is that distributions from the IRA are income taxable to the beneficiary.  If the beneficiary is a Trust, then the Trust will be responsible for reporting as income the distributions from the IRA and paying the income tax unless the distribution from the IRA is distributed out of the Trust to the beneficiary in the same tax year, in which case the beneficiary will report the income on her income tax return and pay the tax.   The problem is that the income tax rates on Trusts are much higher than on individuals.   An individual taxpayer reaches the highest federal taxable rate of 37% when she has taxable income of approximately $510,000. A Trust reaches that highest taxable rate when it has income of about $13,000.   Since no one wants to pay more tax than is necessary, logic dictates that the distribution from the IRA be distributed out of the Trust to the individual beneficiary.  However, once the funds are distributed to the beneficiary, the money is subject to the easy reach of the beneficiary’s creditors such as a divorcing spouse, a bankruptcy, a lawsuit or other creditors.  In addition, funds distributed out to the Trust to the beneficiary may be spent as the beneficiary pleases which may not be in accordance with your estate plan goals.

 

  1. IRAs passing to minor children may be paid out over the child’s life expectancy, but this comes with a price. Under the SECURE Act, if your IRA passes to your minor child, then the distribution can be stretched out over the minor’s life expectancy during the child’s minority.  (Note that the special stretch out rules for minors apply ONLY to the minor children of the IRA owner; they do not apply to step-children, grandchildren, or nieces and nephews).  Once the child reaches the age of majority, the 10-year rule applies.  There are many challenges associated with this new rule.  For example, a minor should never be designated as the direct beneficiary of an IRA.   Aside from the fact that most people don’t feel comfortable having assets pass into the hands of a young beneficiary, if a minor is named as the beneficiary of an IRA, then a court proceeding called a Conservatorship will be required. This is expensive and time consuming and best avoided.  The best practice is to leave an IRA to a minor beneficiary via a Trust.  In order for a Trust to be eligible for the life expectancy payout for a minor under the new rules, the Trust must direct that the required minimum distributions be distributed out of the Trust to the minor beneficiary immediately.  This may not be such a big deal while the beneficiary is a minor and the minimum distributions are calculated based on his then life expectancy.  Further, the minor would have a guardian who will receive and apply the funds for his benefit.  However, once the beneficiary reaches the age of majority (which, by the way, under the SECURE Act could be any time between the ages of 18 and 26), requiring that the IRA distributions be distributed out of the Trust and into the hands of the beneficiary could be a significant problem.

For example, if a $1 million IRA is left to a Trust for the benefit of a minor child who is 10 years old at the death of the parent, then the required minimum distribution the first year would be about $14,300.  This amount would have to be distributed out of the IRA to the Trust and then out of the Trust to the beneficiary, or his guardian.  Because of the small amount that must be distributed during the beneficiary’s minority, the balance in the IRA is likely to be $1.3 million or more when the beneficiary reaches the age of majority.  At that point, the balance in the IRA must be distributed to the beneficiary within 10 years.  The Trustee will have the difficult task of deciding on the timing of the withdrawals from the IRA.  Is it better to give an 18-year old $130,000 each year for 10 years, or should the Trustee defer taking withdrawals from the IRA until the beneficiary is older, and hopefully wiser, even if doing so will mean a larger tax liability?  These are hard decisions and will need to made on a case by case basis.  Given the requirement that IRA distributions be distributed out of the Trust to the beneficiary in order to obtain the stretch-out during the child’s minority, parents with large retirement assets may choose to forgo the stretch-out in favor of granting the Trustee discretion to retain withdrawals from retirement accounts in the Trust.

  1. If you have a Roth IRA, this change is actually beneficial. Under the old rules, inherited IRAs, including Roth IRAs, had to be paid out either within 5 years of the owner’s passing, or over the life expectancy of the beneficiary.  The life expectancy option was almost always the best choice as it minimized the taxes and maximized tax-free growth.  However, the life-expectancy withdrawal method required that every year beginning with the year after the death of the IRA owner, the required minimum distribution calculated on the beneficiary’s then life expectancy be distributed out of the IRA to the beneficiary.  Under the new 10-year rule, the entire amount of the IRA must be distributed by the end of the 10th year following the death of the owner; however, a beneficiary is not required to take the distributions in equal installments.  Since distributions from a Roth IRA are not income taxable to the beneficiary, a person who inherits a Roth IRA under the SECURE Act can refrain from taking any distributions for 10 years and allow the value of the Roth IRA to grow tax-free for that 10-year period.  After 10 years, the beneficiary will be required to withdraw the entire balance from the Roth but the amount withdrawn is not taxable income to the beneficiary since distributions from a Roth are income tax free.

The bottom line is that everyone who has significant retirement assets should review their estate plan with an experienced estate planning attorney who is familiar with the provisions of the SECURE Act, to understand the impact the Act will have on the distribution of these assets to their beneficiaries.  We are happy to review this with you and encourage you to be in touch to schedule a time to meet with one of our attorneys to evaluate how the enactment of the SECURE Act will affect your family and your estate plan.

Attorney Suzanne R. Sayward is a partner with the Dedham firm of Samuel, Sayward & Baler LLC which focuses on advising its clients in the areas of estate planning, estate settlement and elder law matters. She is certified as an Elder Law Attorney by the National Elder Law Foundation, a private organization whose standards for certification are not regulated by the Commonwealth of Massachusetts.  This article is not intended to provide legal advice or create or imply an attorney-client relationship. No information contained herein is a substitute for a personal consultation with an attorney. For more information visit www.ssbllc.com or call 781/461-1020.

Febraury, 2020

© 2020 Samuel, Sayward & Baler LLC

Ask SSB

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Q:       I have left each of my grandchildren $10,000 in my Will.  A friend recently told me this will cause a problem for my grandson Jared who has Down Syndrome.  Is this true?

A:        It is quite possible that Jared’s receipt of $10,000 from your estate following your death could create a problem for him.  The reason is that individuals with disabilities such as Down Syndrome are often eligible for valuable governmental benefits and services.  However, many of these benefits are ‘needs based.’  That means that in order to be eligible for the benefit or service, the individual can have only limited assets and income.  A person who receives a gift of money or property may lose his eligibility, and may need to spend that money on services before he will be eligible again.  That does not mean that you need to exclude Jared from your Will.  A supplemental needs trust can be used to hold or receive money for a person with a disability to ensure that those valuable governmental benefits are not lost, while allowing the trust funds to be used for the benefit of the disabled person to pay for things his benefits may not cover.  You should discuss this with your estate planning attorney to be sure you are doing the right thing for your grandson.

How Successful Retirees Cope with Retirement’s Biggest Uncertainties

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By Sarah Newell, CFP® and Steven Joshua Samuel, JD, MBA, AIF®

With average life expectancies increasing, retirees need strategies that address a broad array of uncertainties that arise during retirements that may last three or more decades. Retirees’ top concerns elicited in the 2018 American institute of CPAs (AICPA) Personal Financial Trends Survey included:

77% Health Care Costs

53% Market Fluctuation

50% Other Unexpected Costs

42% Lifestyle Expenses

22% Being a Burden on Relatives

The AICPA survey also reported that CPAs are seeing increases (from five years ago) in the number of clients who experience long term care impact on finances ( 57%), more clients taking care of aging relatives ( 50%); and in the number of clients affected by diminished capacity of a family member ( 45%).

A change in the law in 2020 offers a bit of help to retirees. However, the best approach is still self-help through identifying specific financial goals and developing a comprehensive approach  that includes investment strategy, taxes and legal documents. Here are some thoughts about those subjects.

The SECURE Act of 2020

Although legislation alone cannot solve retiree’s major concerns, the SECURE ACT offers some help. The SECURE Act went into effect on January 1, 2020 and makes significant changes to retirement planning. Some of the key changes that affect retirees include:

Age Limit Removed for IRA Contributions

Until 2020, people over 70.5 years of age could no longer contribute to IRA accounts. Beginning in 2020, persons of any age may contribute to an IRA as along that they have income from employment. Note that contributions to company retirement plans have always been permitted by any person eligible for the plan and that remains the law.

Required Minimum Distribution ( RMD) extended to start at age 72

Until 2020, people reaching age 70.5 had to begin withdrawing money from all their retirement accounts. The SECURE act extends the RMD requirement to begin at age 72 for people who had not reached 70.5 before 2020. People who reached 70.5 before 2020 must continue to take RMDs even before age 72.

Incentives are Offered for Small Businesses to Offer Retirement Plans

Elimination of Stretch IRAs

First, a not helpful provision of the SECURE Act requires non-spouse inheritors of IRAs to deplete the entire account within 10 years of inheritance. Previously, all heirs were permitted to stretch withdrawals to the full length of their lifetimes. Second and fortunately, spouses who inherit are permitted to continue to stretch their withdrawals and there are also partial exceptions to the harsh new rule for minor children and persons with disabilities.

The SECURE Act of 2020 makes saving for retirement and tax and estate planning for retirees better in some respects but somewhat more complex. This is a good time to check in with trusted financial and legal advisors. In the meantime, here are some additional thoughts about how successful retirees cope with the uncertainties of retirement.

How Successful Retirees Cope with Retirement’s Uncertainties

Most successful retirees start by carefully identifying their spending goals and developing a reasonably good estimate of their non-discretionary expenses, the basic spending they cannot avoid. Non-discretionary spending means the cost of rent or mortgage and taxes, utilities, transportation costs, meals; and, other lifestyle basics we all seem to have to need, such as our phone and cable. Successful retirees also set some parameters on their discretionary spending on vacations, gifts to family and similar beyond the basics “wants.” Equally important, successful retirees periodically assess potential future expenses such as home and car maintenance and address these with specific savings; and, they address big risks such as health needs with insurance and legal strategies. Of course, successful retirees also accumulate retirement savings and match the level of savings with their level of desired combined total spending, or reduce their spending if the numbers don’t match.

Identifying spending goals and having substantial retirement savings isn’t enough, though. Even substantial savings can be damaged by market losses, especially during retirement, when retirees are withdrawing money for living expenses. Retirees and people saving for retirement must reconcile the need for their investments to grow to keep up with inevitably rising costs versus the need to avoid investment market losses. The fear of failing to successfully reconcile these two goals is made more intense by the memory of the nearly 50% stock market declines in the early 2000s and again in 2008-9.

A powerful way some successful retirees reconcile the competing needs for investment growth and avoiding market losses is by regularly revisiting their investment asset allocation. Asset allocation, the ratio of stocks to fixed income in your investments, is an important driver of growth, the engine that can add substantial gains to investment accounts when the market does well. More importantly, asset allocation is a source of protection, when non-stock investments are a sufficient source of funds to avoid the need to sell stock in down times. Although there are many factors that go into deciding the appropriate ratio of stock to fixed income, one way to conceptualize the decision is to think of fixed income (bonds, cash and other lower risk investments) allocation in the context of annual spending needs. For example, if you must withdraw $20,000 per year from your investments, keeping about $100,000 of the overall balance invested in fixed income will support annual withdrawals for 5 years without having to sell from stock if stock prices decline. Five years is as long as it took the US stock market to fully recover to its peak after the Great Recession of 2008-9.

The chart below illustrates the difference in returns between the S&P 500 (the 500 largest US companies), a 60% stock / 40% bond portfolio, and a more conservative 40% stock / 60% bond portfolio. Although the S&P 500 performs well above the more conservative portfolios in good years, it does not recover as quickly in down years. After the trough of the market in October 2008, the 40/60 portfolio recovered only one year later in October 2009, whereas the S&P 500 did not recover until March of 2012 – 3 years behind the 40/60 portfolio. The 20-year annualized return further reinforces this idea by showing us that the annualized return of the S&P 500 over the last 20 years was only 0.40% higher than a 60/40 blend, and only 0.60% higher than a 40/60 blend.

A consistent, thoughtful review of your asset allocation is imperative to preserving assets for a long, prosperous retirement. Is your portfolio positioned to protect your financial future? As always, consult trusted tax and financial professionals before making important tax and financial decisions.

Samuel Financial LLC is located at 858 Washington St. Dedham, MA 02026 and can be reached at (781) 461-6886.  Securities and advisory services offered through Commonwealth Financial Network, member FINRA/SIPC, a registered investment adviser. www.samuelfinancial.com.

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The Do’s and Don’ts of Estate Planning According to the Movie Knives Out

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Over the holidays, I had the pleasure of seeing the movie Knives Out in the theater.  Knives Out is about an elderly author who dies shortly after a family gathering, and the subsequent inheritance of his multi-million-dollar estate.  The plot slowly reveals that the author’s death and his relationships with his family members and employees may not all be as they first seem. Naturally, I was curious to see the extent of artistic license taken versus my “real world” perspective as an estate planning attorney and probate administration attorney with regard to the inheritance and dealing with large estates. Here are a few do’s and don’ts of estate planning according to the movie Knives Out in comparison to the actual practice of estate planning and administration (warning – spoilers ahead).

Do Update Your Estate Plan Regularly to Reflect Your Wishes. In the movie, the author updates his Last Will and Testament shortly before his death and drastically changes who will inherit his estate from his family to an employee, thereby cutting off his family members from receiving any portion of his estate.

Practically, his family members could contest his Last Will and Testament in court for several different reasons in an effort to invalidate the Will and inherit the estate instead.  To combat an anticipated challenge to the Will, a so-called “no contest” provision (also known as an “in terrorem” or “poison pen” provision) may be included in a Will.    The no contest provision basically states that if any person who stands to inherit a portion of your estate challenges the Will he or she will receive nothing.  Such a provision is most effective when a person has something to lose in the event of a contest and it is clear that the Will creator intended to include the provision.  Not all states recognize these provisions as valid but Massachusetts does. Incidentally, part of Knives Out was filmed in Massachusetts at the Ames Mansion in Borderland State Park located in the towns of Easton and Sharon.

Don’t Tell Your Family Members That They Are Disinherited Otherwise It May Result in Your Untimely Demise If You Are A Rich Author. The author tells some of his family members that they are disinherited from his estate and will no longer receive financial support from him while he is alive. This leads to the author’s demise, which is investigated by an eccentric and cunning southern gentleman detective to determine if the author was, in fact, murdered, and by whom. The detective’s quest to discover the murderer leads him to the employee who is named to inherit the estate, which brings us to the last avenue by which the family could inherit the author’s estate: the so-called “slayer statute”. Under the slayer statute, if the person who stands to inherit from an estate is convicted of the deceased’s first-degree murder, second-degree murder or manslaughter, he or she is prohibited from receiving the inheritance (G.L.c. 265, §46).

In reality, it is your decision as to the information you wish to share with your family members about your estate plan. If it is important to you to be transparent about your wishes and you are comfortable sharing that information, you may wish to speak with each family member alone or hold a family meeting or simply provide copies of your estate plan. At the very least, provide your family members with your estate planning attorney’s contact information so they know who to call for guidance after your death.

Do Share Information About The Inheritance After The Person’s Death If You Are The Personal Representative. The Personal Representative (Executor) of the deceased’s estate must administer the estate according to the deceased’s Will or the state intestacy laws. One of the Personal Representative’s administrative duties is to inform those who will be receiving inheritances from the estate. The Personal Representative should work closely with an attorney to administer the estate properly, including filing probate pleadings, to ensure he or she completes all the necessary tasks according to certain deadlines to reduce the risk of liability.

Don’t Expect A Reading of The Will To Learn About Your Inheritance. The reading of the author’s Will is a pivotal and dramatic moment in Knives Out. In reality, readings of Wills rarely take place after the deceased’s death. Instead, copies of the Will are provided to the recipients of the estate by the Personal Representative.  Additionally, the original Will is filed with the probate court along with the pleadings and becomes public record.

If you have some free time and enjoy movies with well-crafted dialogue delivered by a talented multigenerational cast, surprising plot twists and turns, and filmed in Massachusetts, I suggest you see Knives Out. It is not only entertaining but also highlights the importance of having an up-to-date estate plan in place.

Attorney Abigail V. Poole is an associate attorney with the Dedham firm of Samuel, Sayward & Baler LLC which focuses on advising its clients in the areas of estate planning, estate settlement and elder law matters such as long-term care planning. She is an active member of the Massachusetts Chapter of the National Academy of Elder Law Attorneys (NAELA).  This article is not intended to provide legal advice or create or imply an attorney-client relationship. No information contained herein is a substitute for a personal consultation with an attorney. For more information visit www.ssbllc.com or call 781/461-1020.

January, 2020

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