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IN THIS ISSUE
YOUR SOCIAL SECURITY START DATE
A CAUTIONARY TALE
TAX OR PENALTY?
ARTICLES OF INTEREST
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"A good plan is like a road map: it shows the final destination and usually the best way to get there." -- H. Stanley Judd.
According to LegalZoom.com, 56% of Americans agree that estate planning is important. Surprisingly, then, only 34% actually have wills or other estate planning documents. Experience with COVID 19 makes a significant difference, 41% of those who had family members with the disease have taken care of this chore. Those who have had COVID are 66% more likely to have a will.
At one time, the main impetus for creating a will was to bring federal and state death taxes under control. Now, many states have repealed their death taxes or raised the threshold to pay them. On the federal level, the taxation threshold is currently much higher too, having doubled until 2026. Those who pass away in 2024 will have $13.61 million exempt from federal estate taxes. If you are married, both spouses could take advantage of that exemption amount and have $27.22 million exempt from federal estate taxes if they both die in 2024.
Although death taxes may not worry most families anymore, there are other reasons that do apply regardless of wealth level. Here are four considerations that may have an even bigger impact than taxes, such as:
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To provide directions. The will nominates an executor (the person or institution appointed to carry out the terms of the will) for the estate and avoids the intestacy rules [see Ask Garden State Trust Company that follows] that apply in the absence of a will. When you pass away and your will is presented to the Probate Court, your will becomes a public record. As a public record your will can be accessed by anyone. If you want to avoid the publicity inherent in probate and protect the financial privacy of your family, then you may want to consider a revocable trust to go the extra mile.
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To promote familial harmony. Your will can reduce arguments among siblings by designating where and how sentimental assets should be distributed.
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To distribute estate assets as you deem appropriate. In some cases, it is appropriate to leave unequal or different portions of the estate to children. Should one child have special needs, perhaps they will need more assets to ensure they have a caretaker. Should one child be taking over the family business, perhaps other assets need to be adjusted. Or one child may have become more affluent than another.
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To provide for contingencies. For younger parents, naming the guardian for their children or a trust for those minor children. For older adults, creating plans for your pets, and to let family members know who you think the caretaker should be. Perhaps leaving something extra for that person to ensure it is not a financial burden.
Beyond your Will and distribution of your assets there is an intangible inheritance to think about. And that is the story of your life.
Ancestry.com has created compelling clips of celebrities being taken aback exploring their family trees and discovering emotional connections. Two shows in particular are Finding Your Roots and Who Do You Think You Are? These serve as a reminder of all the sacrifices and hardships by ancestors that allowed the miracle of ourselves to be in this world.
When we are involved as executor, we are reminded of all the ways that we are connected to those that leave us beyond the assets they leave that need to be transferred. It is their stories, experience, guidance, and love of family that they share with us during their lifetime that we cherish and try to live up to and pass along.
There are many opportunities to share these stories with your loved ones. Should one be gifting stock, they can provide the reason and origin story for why that stock was initially selected. Should one be divesting sentimental artwork, or a grandchild is visiting and looking at artwork, the acquisition story can be shared there too. Some just need a prompt. Did I ever tell you about my first job? Did I ever tell you about how I met your mother? If they are gone, we can sometimes create our own style of ancestry through relics that we have, such as letters, or military records accessible online.
One way to pass along these stories that might have an impact on future generations is to create a journal. If you are facing writer's block, there are journals you could purchase with prompts on each page to help get started, or you could try a service such as Storyworth. Another approach is to videotape an interview with the ancestor, to collect interesting life moments or observations.
Stories create impact. Financial incentives can create impact too. Sometimes a little push in the right direction can make an outsized impact. For example, an incentive trust can help you to create that little push after you are no longer physically present to do so. We would love to hear your story and help find ways to help you create a lasting legacy.
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ASK GARDEN STATE TRUST COMPANY | |
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As there were no questions this month, we are sharing a question from the Monmouth County Surrogate website.
Q. How is my estate distributed without a will?
The law of intestate succession in New Jersey states that:
- If you die leaving a spouse, a registered domestic partner, or civil union partner and children who are also the children of the spouse or legal partner, the spouse/legal partner receives 100% of the estate and no bond is required to be posted.
- If you die leaving a spouse, registered domestic partner, or civil union partner, and children of a prior marriage, the spouse/legal partner receives the first 25% (but not less than $50,000 nor more than $200,000), plus 1/2 of the balance of the estate. The children of the decedent share the remaining balance of the estate. If a child predeceased the parent and that child produced grandchildren, the grandchildren share the balance that would have been their parent's share.
- If you die leaving a spouse, registered domestic partner, or civil union partner, and no children, but are survived by a parent(s), the spouse receives the first 25% (but not less than $50,000, nor more than $200,000) plus 3/4 of the balance. Surviving parent(s) receive all other assets of the estate.
- If you die leaving a child or children but no spouse, registered domestic partner, or civil union partner, the children will take equally. Grandchildren will take their deceased parent's share.
- If you die leaving no spouse, registered domestic partner, or civil union partner, parent(s) will take all. If no parent survives, brothers and sisters of decedent will take equally. If a sibling predeceased the decedent, then the nieces and nephews will take their deceased parent's share.
- If you die leaving a spouse, registered domestic partner, or civil union partner and children, and the surviving spouse or legal partner has children from a previous relationship, the spouse receives the first 25% (but no less than $50,000 and no more than $200,000). Children of the decedent share the remaining balance of the estate. The stepchildren do not share in the estate.
- If you die leaving a surviving spouse, registered domestic partner, or civil union partner, and only step-children, the surviving spouse or legal partner receives 100% of the estate.
- If you die without a surviving spouse, registered domestic partner, or civil union partner who had children from a previous relationship and you have no other descendants, such as parents, siblings, grandparents, or other direct descendants, the step-children share 100% of the estate.
HAVE A QUESTION ON TRUSTS, WILLS, OR INVESTMENT MANAGEMENT?
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For general informational purposes only. This information does not constitute legal advice. | |
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There is a Cautionary Tale in an Informational Article this month. Writing a new will just before surgery is not a great idea, nor is rewriting it during rehabilitation. In another Informational Article, Your Social Security Benefit Start Date, read about an interesting study on the psychology of claiming benefits.
Lastly, on Groundhog Day Friday, February 2nd, people gathered at Gobbler's Knob in Pennsylvania as members of Punxsutawney Phil's "inner circle" summoned him from his tree stump at dawn to learn if he had seen his shadow. According to folklore, if he sees his shadow there will be six more weeks of winter. If he does not, spring comes early.
Fortunately, the Punxsutawney Groundhog Club announced Phil did not see his shadow, which will usher in early springlike weather. We will gladly accept that prediction.
Sincerely,
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Your Social Security Start Date | |
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In an actuarial sense, it doesn't matter when someone starts to receive their Social Security benefit. An earlier start means a lower monthly benefit, a later start increases the monthly payment at the cost of skipping years of benefits. The two approaches are balanced for those who live to their life expectancy. For every individual, however, there are considerations that go beyond the actuarial, beyond the math. A recent study from the National Bureau of Economic Research explored some of those reasons ["Social Security Claiming Intentions: Psychological Ownership, Loss Aversion, and Information Displays," available online at https://www.nber.org/system/files/working_papers/w31499/w31499.pdf
According to the researchers, more than half of Americans claim their Social Security benefits before reaching their full retirement age. One important reason may be that 40% of Americans age 55 to 64 have no retirement savings at all, and so they need the money. But they might be still better off by staying longer in the paid work force, delaying their retirement, thereby building a larger retirement benefit both by paying more Social Security taxes and avoiding the benefit reduction that comes with an early start. These additional, more emotional factors were identified by the researchers.
Sense of ownership. Although Social Security is a pay-as-you-go system, with payouts largely funded with payroll taxes on current workers, it has always been presented as an earned benefit. It is therefore not surprising that many people in the study agreed that "The Social Security benefits that I receive will come from the money I contributed." Those who had the strongest sense of ownership in their benefits were the most likely to claim their benefits before their full retirement age.
Loss aversion. Many people fear losses more than they value gains, as has been well documented in studies of investor behavior. Among those in this study, those with the highest loss aversion were most likely to start benefits early, to reduce the chance of failing to recoup their tax payments.
Expectations of longevity. On the other hand, those who expected to live a long time tended to start their benefits later, perhaps out of fear of outliving their retirement resources.
Information availability. To give respondents a better sense of what is at stake in the decision, they were provided illustrations of cumulative benefits. For example, a retiree who started receiving $1,339 monthly at age 62 would accumulate total payments of $353,500 if he or she lived to age 85. If the same retiree waited to start collecting $2,395 monthly at age 70, the cumulate total at age 85 would be $402,360.
Such information has been shown to influence people, making them more receptive to annuity purchases for augmenting retirement income. Paradoxically, in this case, the group that was shown the higher total accumulation became more inclined to claim early, giving up the possibility of that higher accumulation.
As interesting as these findings may be, for most people family and financial circumstances will be more important drivers of the retirement start date. We can help you evaluate that decision.
(February 2024)
© 2024 M.A. Co. All rights reserved.
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The Wall Street Journal published a lengthy story on the travails of a family that owns an art trove worth an estimated $1 billion ("The $1 Billion Art Collection That's Tearing a Family Apart," February 3, 2024). The most critical factor concerns execution of a new will under unusual circumstances.
Morton Nuemann became wealthy in the 1920s, and began collecting art. His son Hubert joined the endeavor, and shifted the emphasis in collecting to modern art. Early works by Man Ray, Miro, and Picasso were acquired.
Hubert married Dolores Ormandy in 1954, and the couple had three daughters. They separated in 1989, but never divorced. The couple continued to attend art fairs together, and Dolores insisted on the family celebrating holidays and birthdays together.
In February 2015, Dolores fell and broke her hip in her apartment. It was twenty minutes before a neighbor heard her cries for help, and notified the middle daughter, Belinda. Dolores was rushed to the hospital. According to Belinda, while waiting for her surgery Dolores asked that her estate planner be contacted. The next morning, Belinda called the attorney.
According to later court testimony, Belinda told the attorney that Dolores no longer wanted to treat the three daughters equally, as provided in her earlier will. The attorney spoke to Dolores, who confirmed the change in planning objectives. A new will was drafted that day and brought to Dolores to sign before the surgery. It named Belinda as the sole executor of Dolores' estate.
A week later, while still in rehab, Dolores asked again to meet with her estate planner. She wanted 10% of her estate to pass to her oldest daughter, and $1 million to the youngest daughter. The estate included a painting estimated to be worth more than $30 million. The attorney testified that Dolores characterized Belinda as "financially insecure" and so she needed more from the estate. The attorney admitted that she had no idea Dolores was on painkillers and sedatives during the conversation. Another new will was drafted and signed.
No one but Belinda knew about the new will. The next year Dolores asked her youngest daughter, Melissa, for help in finding a new estate planning attorney. Melissa wrote to an attorney, "My mother says that she signed a will that doesn't reflect her intentions and she asked me to contact you." However, no action was taken, and Dolores died a month later.
The rest of the family learned of the will executed during the rehab from hip surgery only when it was presented for probate. That's when the legal fireworks began. According to the article, 18 lawsuits have been filed so far, and 12 have yet to be decided.
Two observations. Wills should not be executed during highly charged, emotional periods, as surround a medical emergency. Keeping the terms of a will secret from the heirs is a recipe for litigation, especially if the terms vary substantially from their expectations.
(February 2024)
© 2024 M.A. Co. All rights reserved.
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An executive owned shares in an ESOP and had a nonqualified deferred compensation arrangement. After a corporate reorganization and his termination, the executive agreed to accept a payment of $26 million to his IRA in satisfaction of his claims. The transfer was reported on his income tax return as an IRA rollover contribution.
The IRS didn't see it that way, as payments from the deferred comp were not eligible to be rolled over. Some $25 million was held to be an excess IRA contribution, subject to a payment of 6% to the government every year until the amount was disgorged from the IRA to be fully taxed as ordinary income.
Is the 6% payment an additional tax, or is it a penalty for the "bad behavior" of making an excess contribution? The distinction is important, because the taxpayer in this case claimed that the IRS had not followed its own required procedures for imposing penalties. Unfortunately for him, the Tax Court held that the 6% is an excise tax, so those procedures are not required.
(February 2024)
© 2024 M.A. Co. All rights reserved.
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Because of the rapidly changing nature of tax, legal or accounting rules and our reliance on outside sources, Garden State Trust Company makes no warranty or guarantee of the accuracy or reliability of information contained herein nor do we take responsibility for any decision made or action taken by you in reliance upon information provided here or at other sites to which we link. ©2024. All rights reserved. | | | | |
