Hawaii Estate Planning Blog

Take Your Estate Planning Documents With You on Vacation

Hauling a massive three-ring binder or a file folder with you when you travel is impractical.  However, there are times when having your estate planning documents at your fingertips can be helpful.  If you or someone close to you should experience a health emergency and can’t make decisions, how do you prove who has the authority to step in as “substitute decision maker”?  Wouldn’t it be ideal to have immediate access to your advance health-care directive and possibly other estate planning documents as well?  The good news is, you can. 

One substitute for that great big binder is a USB drive, also known as a “thumb” drive or a “jump” drive.  It is a thumb-sized piece of hardware that plugs into almost any computer (iPads excepted!) that will hold more information than you will need it to hold.  At a bare minimum, you will want access to your advance directive and your HIPAA authorization (the document that gives medical providers your permission to talk to your decision maker), but you might also want other documents available, such as your durable power of attorney.  The downside to this technology is that it is a piece of non-waterproof hardware that can be lost or stolen and misused.

Another solution is to subscribe to a service that will give you online access to your documents.  Two companies that provide this service are Legal Directives (866-363-4894, www.legaldirectives.com) and DocuBank (866-362-8226, www.docubank.com).  Both companies will keep your advance directive and HIPAA authorization on file and give you the ability to look at them online and print them out, or have them faxed by way of an automated system to wherever you are.  The way you access the system is by following the instructions on a credit card-sized plastic card that you are issued.  This is a great solution while you are in your home town as well as well as when you are on the road.  The major catch is that you need to have your card with you when you go to the emergency room or otherwise seek treatment.

Yet another option is internet technology that allows you to store your estate planning documents in the “cloud” and access them from a computer or laptop (including your iPad) whenever you want, and wherever you happen to be at the time.  One example is called Cubby (www.cubby.com), but there are others on the market.  When you are a cubby subscriber, you can create a secure link that you (or your kids or your financial planner) can use to access your estate planning documents, 24/7.  This can be a very helpful solution in a variety of contexts—not just medical emergencies.

Of course, all of these technologies require access to a computer, a telephone, and/or a fax machine, and may require Internet access.  If your travels take you deep into the jungles of Borneo or to the summit of Mt. Everest, you may need to do things the “old fashioned” way, and carry paper copies in a waterproof container.

IRS Now Allows IRA Distribution Deferrals

Required minimum distributions from retirement accounts such as IRAs and 401Ks have been problematic for many seniors who do not necessarily need to take money out of their accounts to meet their expenses. The rules have required seniors to withdraw minimum amounts from their retirement accounts beginning at age 70½ based on their life expectancies as determined each year by complicated IRS charts.

However, as Smoke Signals reports in "A new, liberating IRA option is available," seniors now have the choice to take lower amounts out of their retirement accounts.

The new policy allows account holders to defer up to $125,000 or 25% of the total amount in their accounts, whichever is lower. The amount deferred does not factor into the required minimum distribution calculation.

The deferment can be taken until age 85, but the money must be placed in a qualified longevity annuity contract as the only premium payment of that annuity. The money placed into the annuity will continue to grow and payments will be made on the annuity when the deferment age is reached.

For seniors who do not need to take money out of their retirement accounts, this new option allows them to continue to increase their income if they wish to preserve those accounts as part of their estates or if they anticipate living longer and might need the money later.

Leaving a Lasting Legacy

The life blood of your favorite charity is annual donations from regular donors. It is these donations that allow the charity to plan ahead and to budget. 

When a regular donor passes away or stops giving, it is not always easy to replace the lost income stream. One way to avoid this is for faithful donors to create lifetime endowments or to leave endowments in their estate plans. It doesn’t take an unusually large gift to make a difference.

If you annually contribute $100, then putting $2,000 in an endowment is enough for that level of annual giving to continue in perpetuity. That ratio holds up no matter how much you give each year. An endowment of 20 times an annual gift should allow for the same contribution to continue each year for long after you pass away or stop giving.

Contact your favorite charity for ideas about how to multiply the benefits of your gift—both for you at tax time and for the charity. If the charity is not geared up to manage endowments, you can create an endowment quickly and easily, and at very little cost in terms of administration fees, through foundations such as the Hawaii Community Foundation (which has offices in Honolulu, Waimea, Hilo, Lihue, and Kahului, and can be found online at www.hawaiicommunityfoundation.org) or the Hawaii chapter of the National Christian Foundation (808-524-5678).

Creating an endowment fund through an established charitable foundation can also enable you to make gifts to multiple charities. When you create your endowment fund, your gift is immediately tax-deductible (within limits prescribed by the Internal Revenue Code) because the foundation is itself a tax-exempt entity. You can then direct the foundation to send checks to all or any of the charities you support, and you can tell the foundation whether to let the charities know that the gifts came from you, or you can give anonymously.

Moreover, your endowment gift does not have to be cash. If you have stock or real estate that you are considering selling in order to make charitable gifts, consider putting those assets directly into your endowment fund and letting the foundation sell them. If you sell the assets yourself before you make your gift, you may have to report capital gains and pay taxes on those gains. Your net gift will be the amount of your sales proceeds minus sales costs and taxes.

On the other hand, if you give the assets to the foundation, the foundation can sell them and put the net proceeds into your endowment fund (with no taxes on capital gains), and your potential deduction will be the full fair market value of the gifted assets. If you give more than the law allows you to deduct in any one year, you can “carry forward” your gift and deduct a portion of it over each of the next five years, or until you have fully deducted your gift, whichever comes first.

President Obama's Proposed Tax Changes for Estates

President Obama has submitted his last budget proposal to Congress. It contains many of the same changes to the tax code that he previously tried to implement. While there appears to be little chance the Republican-controlled House of Representatives will agree to the changes, it is important to know what has been proposed. Recently, the National Law Review listed the changes that would affect estate planning in Any Estate Tax Changes on the Horizon?

The proposals include:

• Reducing the estate tax exemption from the current $5 million per individual to $3.5 million and raising the rate from the current 40% to 45%.
• Making it more difficult to use advanced estate planning techniques such as GRATS, defective trusts and gift/sale agreements to get around the estate tax.
• Capping Crummey gifting at $50,000 per year instead of the current unlimited amount.
• Doing away with the step-up basis for inherited capital gains.

It does not appear that the House of Representatives will even debate President Obama's budget proposals this year, so these changes are unlikely. However, there is always the possibility that the President and congressional leadership will need to compromise to get a budget passed.

In this election year legislators want to settle on a budget as early as possible so they can focus on their campaigns. It remains to be seen whether their desire to finish quickly will lead them to compromise on taxes, so interested parties should pay attention.  You should really sit up and pay attention if the Democrats take the White House and either house of Congress in the Fall.

Have a Favorite Charity? Consider an Endowment

Charities are always grateful and pleased to receive large one-time donations, or even small one-time donations. However, what really keeps most charities solvent are the annual donations they receive from regular donors.

It is these donations that allow a charity to plan ahead and budget. 

When those regular donors pass away the charity has to replace them, which is not always easy to do quickly. One way to avoid this problem for charities that you support is to leave an endowment for them in your estate plan.

As the Statesman Journal points out in “Today’s nonprofits need forever friends,” you do not need to leave millions in an endowment to make a difference.

If you annually contribute $100 to a nonprofit organization, then leaving $2,000 in an endowment is enough for that level of annual giving to continue in perpetuity. That ratio holds up no matter how much you give annually. An endowment of 20 times an annual gift should allow for the same contribution annually long after you pass away.

Many nonprofits have endowment funds to which you can contribute. For those that do not, there are a several enabling organizations, such as the National Christian Foundation of Hawaii, that can help you create one with very little set up or maintenance cost.

How to Talk with Young Children about Death

Jim Daly, the president and CEO of Focus on the Family, has posted an excellent piece on his blog, Daly Focus, that gives some great advice for talking with young children about death.

His first bit of advice is to prepare the child for what's coming.  Death is as inescapable a reality as life, and it is good for children to understand in a general way that all living things eventually die.  Daly suggests using object lessons from nature--the death of a pet, the fading of a flower arrangement--to prepare a child to process and understand death.

Next, Daly recommends telling the truth about dying.  "Grandma went on vacation" does not help a child understand death.  On the other hand, it is important to help a child understand the difference between a common cold and cancer.  Daly suggests “Grandma has a unique, different illness that’s very serious called cancer.  You can’t catch cancer like you can catch a cold.”

Daly's third point is to prepare the child for the grieving process.  Help the child understand that when a loved one dies, those left behind may experience a range of emotions from sadness to anger to confusion, and that those emotion may give rise to expressions that trouble the child.  It is helpful for the child to know he might see Daddy cry, and that is normal.

Finally, Daly suggests that teaching children about death gives us a chance to tell them about our faith.  Depending on what that faith is, a child (of any age) might find comfort in hearing about Heaven and eternal life.

What is THE most important estate planning document?

The one estate planning document that everyone 18 and older should have is an Advance Health-Care Directive.  It is not the sexiest tool in the estate planning toolbox, but can head off family strife, heartache, and needless attorney’s fees in ways that no other document can.

The names Karen Ann Quinlan, Nancy Cruzan, and Terri Schiavo may ring a bell for you.  They were three beautiful young women whose legacies are protracted legal battles over how they would be cared for after they lost the ability to speak for themselves.

In Karen’s case, the issue was whether “medical treatment” includes life-sustaining measures (such as use of a ventilator to keep a person breathing), and whether those measures can be declined by a patient or someone acting on the patient’s behalf.  As the law evolved in this area, we learned that the answer is “yes,” under the theory that medical treatment must be consented to before it can lawfully be rendered, and a person has a right to consent—or withhold consent—to receiving life-sustaining medical treatment.  The ventilator was removed, but Karen lived another 10 years.  Although her parents did not believe the ventilator should be continued, neither did they believe that food and water should be withheld.

Nancy’s case took the analysis a step further when her family had to wrestle with the question of whether the array of medical treatment that can be refused includes the administration of food and water by way of a tube.  In that case, the battle was between Nancy’s family, who believed that Nancy would not want to be sustained on a tube, and the State of Missouri, who asserted that only the patient can make that decision.  Unfortunately, Nancy had never given written instructions about her wishes.  Ultimately, Nancy’s family presented sufficient evidence to convince the court that Nancy did not want to be kept alive on a tube, and food and water were withdrawn.  She died 13 days later, but eight years had passed since the car accident that had rendered her incapacitated and the legal battle over her care had begun.

Terri’s case involved the question of who has the authority to make end of life decisions on behalf of an incapacitated person.  The law of Florida, where Terri lived, automatically conferred that authority on her spouse.  When the dust cleared following the legal battle between Terri’s husband and her parents over whether her feeding tube should be removed, Florida law was upheld, and Terri’s husband gave the order that led to Terri’s death 13 days later.

What these cases teach us is that we have a right to say “enough is enough” when it comes to our medical care, including administration of food and water by way of a tube.  We also have the right to name who will speak for us when we cannot speak for ourselves.  The only way to be sure that your wishes will be known and carried out is by having a clear and comprehensive advance health-care directive.

Are Smaller Inheritances a New Trend?

Due to demographic changes and changing economic fortunes, older Americans increasingly have to transfer money to their adult children to help support those children. Barron's, in a recent article titled "Boomers Spend Their Kids' Inheritance -- On Supporting Them," reports that intrafamily transfers have increased significantly in the last few years.

The article is a good read for anyone interested in retirement and demographic trends.

For estate planning purposes, this trend could create some issues. For starters, if the money is being spent now, then it obviously cannot be part of the estate later and children might receive smaller inheritances than they are expecting.

What if one child receives more support from the parents while they were alive than another child? This could lead to bitterness and even fighting over the estate. This is likely to happen if the estate plan divides what is left between the children equally, even though one or more children received money along the way.

Parents who are helping to support their adult children now should speak with an experienced estate planning attorney about what that means for their estate plan.

No parent wants a family feud as his or her legacy.

Before the Shooting Starts – Keeping Peace in the Family

On May 27, 2015, Reuters reported that a Georgia judge had agreed to appoint a mediator to help the family of the late Dr. Martin Luther King Jr. decide whether to sell Dr. King’s Nobel Peace Prize and his personal Bible.  Dr. King carried the Bible during the historic marches and rallies of the ‘60’s, and President Obama took the oath of office on it at his second inauguration.  According to the article, the “fight pits the slain civil rights leader’s sons Martin Luther King III and Dexter King, who want to sell the medal and Bible, against King’s surviving daughter, Bernice King, who opposes the sale of items she calls ‘sacred’ to the family.”

This family drama illustrates two important principles.  The first is that a well-thought-out and thoroughly-implemented estate plan will give your family priceless guidance.  The second principle is that there are better ways to resolve conflict than in the courtroom.

The benefits of good planning.  Putting the time and effort into devising a plan and taking care of all of the details that will make it work effectively will pay enormous dividends.  You may not reap them, but your loved ones certainly will.  Putting the right managers in place and taking the guesswork out of determining your wishes will enable your family to focus on honoring your memory and moving on with their lives.  And remember that your estate plan needs to be reviewed and updated from time to time if you want it to be effective.  Things change constantly and sometimes rapidly (the law, your finances, your family situation, your list of trusted advisors), and failing to make necessary adjustments will cause your plan to fall short.

Mediate rather than litigate.  Mediation is a way of getting disagreeing parties together, helping find their common ground, and then working toward solutions that may not make everybody happy, but that will satisfy their shared goals and values.  If you know that your loved ones are at odds, you can engaged a skilled mediator during your lifetime to assure that the eventual settling of your estate will be done peaceably.  If you find yourself in conflict after the death of a loved one or family member, one of the best things you can do is propose that your differences be mediated privately rather than hashed out in open court.  Mediation will save time and money, and you may find that it opens the doors to healing broken relationships. 

Even if you don’t have a Nobel medal or a historic Bible among your personal effects, you can appreciate the value of not having your loved ones shoot it out in court over “who gets what” or whether a prized heirloom should be sold.  You may not be able to make everybody happy with your estate plan or with the assistance of mediation, but you can head off or minimize problems that may tear your family apart and tarnish your legacy.

Retirement Truths

You'll probably retire earlier than expected. Although this sounds like a dream, it usually isn't. It's important to be aware of variables such as the size of your retirement nest egg and how many years you'll be saving before withdrawals start. The Wall Street Journal reported in a recent article titled "Five Myths About Retirement" that about 22% of workers say they expect to wait until age 70 to retire, but only 9% of retirees actually retire at that age.

It's not easy to get back into the workplace. Retirees may find it difficult to find new work. About two-thirds of retirees say they plan to work in retirement, but just 27% report actually doing so. Much of this drop-off is for the same reason it's more difficult for older workers to find jobs in general. This forced unemployment typically means they will try to find jobs with the same job skills. However, these retirees can't compete with younger and more socially savvy job seekers. Further, employers aren't eager to 'pay the price' for the experience these days. The article also notes that for some, the very health issues that prompted early retirement in the first place limit their ability to work.

You may regret buying that second home. A dream of some retirees is to buy a second home to live in part-time, and eventually sell their primary home. The advice from advisers is "Don't do it." They can be expensive, a hassle, and a mistake, the article says. Who needs the hassle of frozen pipes, neighbor disputes and volatile housing values? This issue is compounded by the fact that retirees age and become less able to take care of one house, let alone a second.

Medicare doesn't cover what you think it does. Health costs are a major issue for just about every retiree, but many individuals assume incorrectly that once they reach 65, Medicare will take care of everything. Not true. Traditional Medicare covers only about 48% of an enrollee's health costs on average. There are routine costs Medicare usually will not cover, such as eyeglasses, hearing aids, and dental care. Retirees are still required to pay deductibles, which can add up with any chronic or serious illness. The biggest problem: Medicare doesn't cover the cost of a long-term care facility or of home health-care aides. According to the article's sources, the average Medigap premium was $2,200 a year in 2010. However, premiums vary by age. For example, at 80, beneficiaries paid 52% more than 65 year-olds. And here is a critical point:  Medigap policies won't cover nursing home care.

Your budget may be unrealistic. A critical element of retirement planning is determining how much money you'll need to maintain a comfortable standard of living. Many retirees assume that they'll spend less after they stop working. The article cautions that while lower taxes and the end of retirement account contributions will typically lower income needs, retirees often don't take into account the general rise in out-of-pocket spending.

It pays to talk with your trust advisors about your specific situation.  They can give you tips and advice that will help you avoid retirement pitfalls.