Elderly parent wants to help unemployed sons

Dear Liz: Both of our sons, ages 63 and 59, are currently unemployed. We are 93 and self-supporting with Social Security and my retirement benefits. We live in our own home and are able to handle all our expenses, even though my wife requires a companion for 12 hours each day.

I believe we should financially aid both sons, to the limit of our ability, but my wife disagrees.

They are the two main beneficiaries of our estate. Each one is scheduled to receive about $40,000 upon our deaths. How should we proceed?

Answer: If your estates won’t amount to much more than $80,000 at your deaths, it doesn’t sound as if you have the financial wiggle room to help your sons. Your wife already requires significant care and may need more in the future. Plus, she’s likely to outlive you, which would mean getting by on less (certainly a smaller Social Security benefit, and perhaps a smaller pension amount as well). Any money you give them, in other words, is likely to be to her detriment.

Friday’s need-to-know money news

Today’s top story: The dangers lurking behind Black Friday shopping. Also in the news: How to resist splurging during the holidays, the pros and cons of tech warranties, and what you need to know before signing up for a store credit card.

5 Dangers of Black Friday Shopping
One of the favorite days of identity thieves everywhere!

7 Ways To Resist The Urge To Splurge During The Holidays
Just because it’s on sale doesn’t mean you have to buy it.

Spending: What you need to know about tech warranties
Protecting your latest bright and shiny gadget.

5 Things to Know Before Signing Up for a Store Credit Card
Too many store cards can damage your credit.

4 Tips to Begin the Estate-Planning Process
Having a thorough plan is an essential.

What you need to know about estate planning

Last will and testamentExclusive to Ask Liz Weston, this post comes courtesy of Ally Bank.

Whether you’ve worked for years or you’re just starting out, it makes sense to create a plan for distributing your assets after you’re gone. That’s where estate planning comes in. Estate planning may involve everything from creating a will to establishing trusts to designating guardians for dependents.

Below are a few common questions about estate planning addressed by several experts in the field.

What is estate planning?

Estate planning is the process of arranging for the disposal of your estate—your assets—during your life. In an interview with Ally Bank, Erin Baehr, president of Baehr Financial in Stroudsburg, Pennsylvania, stated, “all it really means is to organize the distribution of the things you own and the legacy you want to leave, large or small.”

Most estate plans are set up with the help of an attorney with experience in estate law. The core document in estate planning is the will, which describes which assets go to whom. Other aspects of an estate plan may include naming an executor of the estate, setting up durable power of attorney, and designating guardians for dependents. An estate plan usually will involve a trust.

In a recent interview with Ally Bank, Bruce D. Steiner, an attorney at the New York City firm Kleinberg, Kaplan, Wolf & Cohen and editorial advisory board member at Trusts & Estates, explained, “For most people, the focus is on what their will says. And in their will, if they’re sufficiently wealthy, and they give things away during their lifetimes, they almost always do it in some sort of a trust.”

Why establish a trust?

You want to ensure your beneficiaries receive what you intend to give with as few legal hurdles and unnecessary taxes as possible. A trust is a legal document that protects and controls your assets. Diane Morais, Ally Bank Deposits and Line of Business Integration Executive, explains, “As the economy stabilizes and Americans aim to grow their personal investments, Ally Bank suggests that savers protect the assets they have worked so hard to attain. Trusts can protect their legacies.”

Morais also noted in a recent article in The Huffington Post that many people are looking for bank products that work well with trusts: “With many Americans now able to save for the first time in years, many are evaluating bank accounts that are ideally suited for trusts . . . to firm up their own savings while simultaneously easing the burden on their beneficiaries.” Many banks, including Ally Bank, have deposit products ideally suited for trusts.

Who is estate planning for?

Anyone can benefit from planning for the future. Steiner explains that estate planning is for “Anybody who has assets and would like them to go in a way that might be different than the way they would go by default. That’s really most people.” And according to Baer, “Everyone should have an estate plan, if for no other reason than to make things easier on the people left behind.”

When should you start thinking about estate planning?

The answer is unique to you and your situation. As you age and accumulate assets, you may be more inclined to start thinking about how to protect what you’ve worked for.  Steiner suggested that a person’s family situation usually plays into his or her decision to get started with an estate plan. He notes, “It might be when [you] have a spouse, but for most people, I think it’s certainly when they have a child, since you have to decide, if you’re not around, who’s going to take care of that child? And if you leave money to a child, and the child can’t manage money, you have to decide who’s going to be the trustee for the child’s money.”

How should you prepare to meet with an estate planner?

As part of the estate-plan process, you will want to draw up a list of your assets, making it as complete as possible. You should include life insurance policies and retirement benefits. You also want to think about your wishes regarding family members, dependents, executors, trustees, guardians, and beneficiaries.

What are recent changes in estate planning law?

The American Taxpayer Relief Act of 2012 was approved earlier this year. Explains Steiner, “It permanently fixed the federal estate tax exempt amount at $5.25 million, as indexed for inflation. It made portability permanent, which means if I have a spouse and I don’t use my entire exempt amount, my spouse can inherit my unused exempt amount.”

Want to learn more about estate planning? Check out these posts:

Who owes taxes after death?

Missed deadline could limit inherited IRA benefits

Tax bills for inherited IRAs

Inherited IRA may have more options than you’re told

Elderly mom isn’t the only one overdue for estate planning

Wednesday’s need-to-know money news

Offering AdviceGetting creative with your down payment, must-have documents for estate planning, and common mistakes to avoid when buying your first home.

5 Creative Ways to Come Up With a Down Payment
None of which involve selling a kidney!

3 Retirement Planning Tactics to Adopt Before You Hit 60
These tactics will make the transition to retirement go more smoothly.

Documents that Should be Part of Everyone’s Estate Plans
These documents are a vital part of any estate plan.

9 ways to cut your student loan debt
Reducing student loan debt isn’t impossible.

5 First-Time Homebuyer Mistakes to Avoid
These common mistakes could have long term repercussions.

In case you missed it: car leases, celebrity estate disasters and how to choose your first credit card

Chevy VoltHere’s a column I never thought I’d write: “Sometimes, leasing a car is the right option.”

Most people are way better off financially if they buy cars slightly used and own them for at least 10 years. Even if you want to buy new, you’ll save a fortune (at least $250,000, by my calculations) by not trading your car in every few years. In most cases, leasing just encourages you to overspend on your wheels and ties you to never-ending car payments. Not good.

But there are situations where leasing actually makes sense, and those are outlined in the column.

Plenty of famous people have left seriously messed-up situations when they died. Lawsuits over the estates of Marilyn Monroe and Jimi Hendrix continued decades after they died. A court recently overturned a settlement in the James Brown estate, a situation complicated by the question of whether he was actually married when he died. Jerry Garcia’s estate plan appointed his third wife as a fiduciary for the second wife and the second wife’s children, legally requiring Wife #3 to put Wife #2’s interests ahead of her own…even though Wife #3 was also a beneficiary. Yikes.

I chose five other more recent but equally spectacular cases of celebrity estate disasters in “5 celebrities who messed up their wills.”

Back in June I wrote about “Why young people hate credit cards.” The good news, that people in their 20s and 30s have less credit card debt, is offset by the bad news, which is that credit cards, responsibly used, help build your credit scores and qualify you for better rates on mortgages, auto loans, insurance and more. If you’ve decided you do want some plastic after all, check out Doughroller’s “5 steps to choosing your first credit card.” Just remember that there’s no reason to carry debt to improve your scores, and that you should pay off your balances in full every month.

Wednesday’s need-to-know money news

Doctor feesNegotiating medical bills, why a financial power of attorney is a must, and the pros and cons of “pocket listings”.

Is It Ever Too Late to Negotiate a Medical Bill?
How soon do you need to question that eight dollar aspirin?

Why You Need a Financial Power of Attorney
Preparing for the unexpected is a necessity.

Poll: Just 32% of Americans Keep a Household Budget
Which percentage do you fall in to?

How to Pay Less for High-End Homeowners Insurance
High-End home insurance doesn’t need to break the bank.

Should You Sell a House Under the Radar?
Is the privacy worth the price?

Thursday’s need-to-know money news

Paid education. Graduate cap on bank notesMaking college more affordable, avoiding email scams, and deciding should get your iTunes library when you die.

14 Dangerous Emails That Could Be in Your Inbox
It’s not just Nigerian princes anymore.

Retiring Soon? Don’t Forget Tax Implications
When planning your retirement budget, be sure to factor in these taxes.

How to Cut Back on College Costs
Tips on how to make college slightly more affordable.

How to Manage Your Digital Afterlife
Do you REALLY want your loved ones finding your private Facebook messages?

Car Dealers No Longer Fear Bruised Credit
If you have less than perfect credit and need a car, now’s the time.

Gay marriage: more taxes, more benefits

Champagne glassesThe Supreme Court’s decision to invalidate the Defense of Marriage Act means that gay married couples will have access to the federal benefits now enjoyed by other marrieds.

These benefits include tax breaks, Social Security benefits and estate planning advantages that until now were denied gay couples, even if their marriages were recognized under state law.

Among other things, gay marrieds will now be able to:

  • claim Social Security benefits based on a spouse’s working record and qualify for survivor benefits.
  • fund an IRA or Roth IRA for a nonworking spouse.
  • split a retirement fund or other assets without triggering tax bills if they divorce.
  • exempt health care benefits for a spouse from their federal income.
  • bequeath their estate to a spouse without triggering potential federal estate taxes.

These gains may come with a cost: as NerdWallet puts it, “federal income tax brackets are in fact easier on high-income individuals than they are on most high-income married couples.” NerdWallet figured that same-sex couples earning more than $146,000 may see their tax bill go up by over $1,000.

One of my gay friends, a financial planner, just posted to her Facebook page that her taxes are likely to go up by several thousand dollars. But she was happy, as she put it, to “take one for the team.”

 

Financial infidelity: hidden debts mean you’re lying to your spouse

Dear Liz: I have three credit cards that are in my name only, plus a small loan at my credit union. My husband did not sign for any of these, nor does he know the extent of my debt, which is about $10,000. If I should die before I can get them paid off, will he be responsible for my debt?

Answer: Your debts become an obligation of your estate when you die. That means creditors will be paid out of the assets you leave behind. The extent to which creditors can make a claim on jointly owned assets — such as, say, your home — varies by state. In a community property state such as California, debts are generally considered owed by both people in a marriage, so a jointly owned home would be fair game. In other states, creditors could go after assets co-owned by your husband if the debts were incurred to benefit you both.

That’s not the only reason secret debts are a bad idea. Every day you hide these debts, you’re lying to your spouse about your true financial picture, both as an individual and a couple. Even if you keep your financial accounts strictly separate, you should have a clear idea of each other’s assets and obligations so you can plan your future together.

If you’re keeping mum because you’re worried your spouse will get violent, call the National Domestic Violence Hotline at (800) 799−SAFE (7233) for advice and help.

Otherwise, it’s time to come clean so that the two of you can work out a plan to pay off your debt and prevent you from incurring more.

Inheritance tax may not be worth avoiding

Dear Liz: My father-in-law’s spouse recently died. He is 89 and not in very good health. He has assets of about $3 million and lives in a state (Pennsylvania) that has an inheritance tax. What can he do to avoid state taxes and make sure his assets go where he wants them to go? He does not like to talk about these things but I’m trying to help. I have no interest in benefits to myself but I would hate to see his assets go to the state.

Answer: It’s one thing to encourage a parent or in-law to set up estate documents that protect them should they become incapacitated. Everyone should have durable powers of attorney drawn up so that someone else can make healthcare and financial decisions for them if they’re unable to do so.

It’s quite another matter to urge a potential benefactor to make sure the maximum amounts possible land in inheritors’ laps, especially if he or she doesn’t want to discuss the matter. You may need to accept that not everyone is interested in minimizing taxes for his heirs. Your father-in-law’s resistance to talk about these things is a good indicator that you should back off.

It’s not as if the majority of his assets will wind up in state coffers anyway.  Although Pennsylvania is one of the few states that has an inheritance tax, the rate isn’t exorbitant for most inheritors. (Unlike estate taxes, which are based on the size of the estate, inheritance taxes are based on who inherits. Your father-in-law doesn’t have to worry about estate taxes, since the federal exemption limit is now over $5 million and Pennsylvania doesn’t have a state estate tax.) In Pennsylvania, property left to “lineal descendants” — which includes parents, grandparents, children and grandchildren — faces tax rates of 4.5%. The tax rate is 12% for the dead person’s siblings and 15% for all others. Surviving spouses are exempt.

If he were interested in reducing future inheritance taxes, your father-in-law could move to one of the many states that doesn’t have such a tax. He also could give assets away before he dies, either outright or through an irrevocable trust. He may not be interested in or comfortable with any of those solutions. If he is, it’s up to him to take action. If he needs help or encouragement, let your wife or one of her siblings provide it. In estate planning matters, it’s usually best for in-laws to take a back seat.