Make an Estate Plan for Your Digital Assets

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Today, 77 percent of Americans go online every day, according to a recent Pew Research Center survey, and most of us maintain at least some kind of digital data in the cloud. We save emails, post to social media, and store photos in online albums.

All of this digital information has created a new issue for you, your heirs, and the technology firms that hold your assets. The key concern is maintaining your privacy and security and determining who can legally access this information upon your death.

A statute called the Revised Uniform Access to Digital Assets Act provides a legal path for fiduciaries (such as your executor or attorney-in-fact) to manage your digital assets if you die or become incapacitated. But under the law, which has been adopted (often in slightly modified versions) by most states, a fiduciary can access your digital assets if, and only if, you’ve given proper consent.

What are digital assets?
Digital assets include your online accounts, your emails, your social media, online photo storage, personal websites or blogs, URLs you own, and more.

What’s the concern?
Even though many digital assets have no value, you may want some control over what happens to them when you die. Think about whether you want your assets deleted, modified, or distributed to family.

Until the uniform law was enacted, it was difficult to know who had a legal right to access these accounts and files. Some user agreements indicate that these assets are non-transferrable, meaning they are either untouchable or can simply be deleted when you die.

Beyond privacy issues, some digital assets do have value. Frequent flyer points are transferrable after death, credit card points can be redeemed, and URLs may be saleable.

What’s your legal protection?
Under the uniform law, your family members or executor can’t access your digital assets just because of your relationship. Other users, including family members, need express authorization to access your accounts and information.

How can you ensure your executor and/or family have access?

Insert a provision in your will that grants your executor the authority to access digital assets and accounts. If you want someone other than your executor to access your digital assets, you can appoint a special fiduciary for that specific purpose.

Add language that grants your power-of-attorney authority to act on your behalf in terms of digital assets.

Inventory your digital assets and provide your executor with the necessary passwords. Some online password managers can be set up to transfer passwords to a representative on your death.

Designate a digital guardian in any online tools that offer such a feature, such as Facebook’s “legacy contact” and Google’s “account trustee.” This is someone who will look after your account after you’ve died. Be aware, however, that under the uniform law any such settings will override conflicting instructions you leave in your will.

Family dispute illustrates need for long-term care plan

A recent New Jersey court case demonstrates how important it is for families to come up with a long-term care plan before an emergency strikes.

The case involved two brothers who got into a fight over whether to place their mother in a nursing home. R.G. was the primary caregiver for his parents, as well as their agent under powers of attorney. After R.G.’s mother fell ill, R.G. wanted to place her in a nursing home. R.G.’s brother objected, but R.G. went ahead and had his mother admitted to a nursing home without his brother’s consent. R.G.’s brother sent angry and threatening texts and emails to R.G. as well as emails expressing his desire to find a way to care for their parents in their home. Eventually the men got into a physical altercation in which R.G.’s brother shoved R.G.

R.G. went to court to get a restraining order against his brother under New Jersey’s Prevention of Domestic Violence Act. A trial judge ruled that R.G. had been harassed and assaulted and issued the order. But a New Jersey appeals court reversed the trial court, ruling that R.G.’s brother’s actions did not amount to domestic violence. According to the court, there was insufficient evidence that R.G.’s brother purposely acted to harass R.G.

If the brothers had sat down with their parents before either of them needed care to explore options and determine their wishes, this drawn-out and costly dispute might have been avoided. Putting a long-term care plan into place before a crisis develops can help avoid family conflicts like this one. Contact us if we can help you in any way.

Use your will to dictate how to pay your debts

The main purpose of a will is to direct where your assets will go after you die, but it can also be used to instruct your heirs on how to pay your debts. While generally heirs cannot inherit debt, an estate’s debt can reduce what they receive. Spelling out how debt should be paid can help your heirs.

If someone dies with outstanding debt, the executor is responsible for making sure those debts are paid. This may require selling assets that you would have preferred to leave to specific heirs. There are two types of debts you might leave behind:

  • Secured debt is debt that is attached to a piece of property or an asset, such as a car loan or a mortgage.
  • Unsecured debt is any debt that isn’t backed by an underlying asset, such as credit card debt or medical bills.

When you leave an asset that has debt attached to it, to your heirs, the debt stays with the property. Your heirs can either continue to pay on the debt or sell the property to pay off the debt. If you believe this would cause a burden for your heirs, you can leave them assets in your will specifically designated to pay off the debt.

In the case of unsecured debt, although your heirs will not have to pay off the debt personally, the executor will have to pay the debt using estate assets. You can specify in your will which assets to use to pay these debts. For example, suppose you have a valuable collectible that you want one of your heirs to have. You can specify that the executor use assets in your bank account to pay any debts before selling the collectible. If you want to leave certain liquid assets, like a bank account, CD, or stocks, to an heir, you should designate in your will what you would like your executor to use instead to satisfy debts.

Not everyone needs to spell out how to pay debt in a will. If your debt is negligible or your entire estate is going to just one or two people, it may not be necessary, but contact your attorney to formulate a plan.

HUD makes reverse mortgages less attractive

The Department of Housing and Urban Development (HUD) has made changes to the federal reverse mortgage program. Citing the need to put the program on better financial footing, HUD has raised reverse mortgage fees for some borrowers and lowered the amount homeowners can borrow. The changes took effect on October 2, 2017. They affect borrowers who take out new loans, but not existing loans.

A reverse mortgage allows a homeowner who is at least 62 years old to use the equity in his or her home to obtain a loan that does not have to be repaid until the homeowner moves, sells, or dies. In a reverse mortgage, the homeowner receives a sum of money from the lender, usually a bank, based largely on the value of the house, the age of the borrower, and current interest rates. Seniors sometimes use the loans to pay for long-term care.

HUD has changed the mortgage insurance premium fees that homeowners pay in order to obtain a loan. Formerly, homeowners paid 0.5 percent of the value of their home as an upfront mortgage insurance premium on smaller loans, but homeowners who took out a loan that was more than 60 percent of their home’s value paid a 2.5 percent premium. The new rule requires homeowners to pay a standard 2 percent upfront mortgage insurance premium. To offset the upfront costs, the annual mortgage insurance premium rate has been dropped from 1.25 percent to 0.5 percent.

In addition, HUD lowered the amount that homeowners can borrow. The average that a borrower at current interest rates can now borrow is only around 58 percent of the value of his or her home, down from 64 percent.

One of our seasoned attorneys can assist you. Click here to let us know how we can help you!

Should you enroll in two popular Medigap plans while you can?

If you will soon turn 65 and be applying for Medicare, you should carefully consider which “Medigap” policy to enroll in because two of the most popular plans will be ending soon.

Between copayments, deductibles, and coverage exclusions, Medicare does not cover all medical expenses. Medigap (or “supplemental”) plans offered by private insurers are designed to supplement and fill in the “gaps” in Medicare coverage. There are 10 Medigap plans currently being sold, identified by letters. Each plan package offers a different combination of benefits.

Plans F and C are popular Medigap plans in part because they both offer coverage of the Medicare Part B deductible. According to the Kaiser Family Foundation, 53 percent of Medigap enrollees have either plan F or plan C.

But as a result of legislation passed by Congress in 2015, starting in 2020 Medigap insurers will no longer be allowed to offer plans that cover the Medicare Part B deductible — in other words, Plans F and C. The reasoning is that both plans encourage people not to think about the cost of going to the doctor.  However, people currently enrolled in Plans F and C, as well as those who buy policies before 2020, may keep their coverage for the rest of their lives.

Although this appears to offer an incentive to “lock in” these two comprehensive plans while you still can, new Medicare beneficiaries should think carefully before enrolling in Plans F or C.  While the plans are comprehensive, without new enrollees after 2020 experts warn that premiums may go up as the enrollees in Plans F and C age and get sicker. An alternative is Plan G, another comprehensive plan that does not cover the Part B deductible.  But some experts believe that premiums will rise for this plan too, as more beneficiaries in poor health enroll in it.

The choice of Medigap plan is important because once you choose one, it is difficult to switch. Medigap plans cannot consider pre-existing conditions when you enroll during the open enrollment period, which is a six-month period that begins on the first day of the month in which you are 65 or older and enrolled in Medicare Part B. But if you don’t enroll during the open enrollment period, there is no guarantee that the insurance company won’t charge you more for a pre-existing condition.

For questions, contact our seasoned attorneys today.

What happens when a nursing home closes?

The expansion of alternatives to nursing homes, such as assisted living and community care, has been financially challenging for the nursing home industry, and every year a small percentage of facilities close their doors. The state or federal government may also shutter a facility for safety issues.

Moving into a nursing home can be a stressful experience by itself. If that nursing home closes, residents can experience symptoms that include depression, agitation, and withdrawn behavior, according to The Consumer Voice, a long-term care consumer advocacy group. While there may not be much that can be done to prevent a closure, residents do have some rights.

When a nursing home is closing, it must provide notice to the state and any residents at least 60 days before the closure.

The notice must include the following:

  • The date of the closure and the reason for closing.
  • Information on the plan to relocate residents, including assurances that the nursing home will transfer residents to the most appropriate facility in terms of quality, services, and location, taking into consideration the needs, choice, and best interests of each resident.
  • Information about the residents’ appeal rights.
  • The name and address of the state’s long-term care ombudsman.

In addition, the nursing home must provide information to the receiving facility, including:

  • Contact information for the doctor responsible for each resident.
  • Information on each resident’s representative.
  • Information about any advance directives.
  • Any special instructions or precautions for ongoing care and any care plan goals.

Once a nursing home announces it is closing, it cannot admit any new patients. The facility must also provide orientation to residents to ensure a safe and orderly transfer.

For more information from The Consumer Voice on what is required when a nursing home closes, see: http://theconsumervoice.org/uploads/files/issues/1_-_Nursing_Home_Closure_Issue_Brief_5-15-2017.pdf and please feel free to contact us at your earliest convenience.

How to reverse Medicare surcharges when your income changes

Are you a high-income Medicare beneficiary who is paying a surcharge on your premiums but who has experienced a drop in income or is anticipating one? If your circumstances change, you can reverse those surcharges.

Higher-income Medicare beneficiaries (individuals who earn more than $85,000) pay higher Part B and prescription drug benefit premiums than do Medicare beneficiaries with lower incomes. The extra amount the beneficiary owes increases in stages as the beneficiary’s income increases. The Social Security Administration uses income reported two years ago to determine a beneficiary’s premiums. So the income reported on a beneficiary’s 2016 tax return is used to determine whether the beneficiary must pay a higher monthly premium in 2018.

But a lot can happen in two years. If your income decreases significantly due to certain circumstances, you can request that the Social Security Administration recalculate your benefits. For example, if you earned $90,000 in 2016 but your income dropped to $50,000 in 2017, you can request an income review and your premium surcharges for 2018 could be eliminated. Income is calculated by taking a beneficiary’s adjusted gross income and adding back in some normally excluded income, such as tax-exempt interest, U.S. savings bond interest used to pay tuition, and certain income from foreign sources.

You can request a review of your income if any of the following circumstances occurred:

  • You married, divorced, or became widowed.
  • You or your spouse stopped working or reduced your work hours.
  • You or your spouse lost income-producing property because of a disaster or other event beyond your control.
  • You or your spouse experienced a scheduled cessation, termination, or reorganization of an employer’s pension plan.
  • You or your spouse received a settlement from an employer or former employer because of the employer’s closure, bankruptcy, or reorganization.

If your income changed due to any of the above reasons, you can submit documentation verifying the change in income — including tax documents, a letter from your employer, or a death certificate — to the Social Security Administration. If the change is approved, it will be retroactive to January of the year you made the request.  Here is a link to the SSA’s Life-Changing Event form: https://www.ssa.gov/forms/ssa-44.pdf For questions, contact our seasoned attorneys today.

 

Three reasons why giving your house to your kids isn’t the best way to protect it from Medicaid

Are you afraid of losing your home if you have to enter a nursing home and apply for Medicaid? While this fear is well-founded, transferring the home to your children is usually not the best way to protect it.

Although a home generally does not have to be sold in order to qualify for Medicaid coverage of nursing home care, the state could file a claim against the house after you die. If you get help from Medicaid to pay for the nursing home, the state must attempt to recoup from your estate whatever benefits it paid for your care. This is called “estate recovery.” If you want to protect your home from this recovery, you may be tempted to give it to your children. Here are three reasons not to:

  1. Medicaid ineligibility.Transferring your house to your children (or someone else) may make you ineligible for Medicaid for a period of time. The state Medicaid agency looks at any transfers made within five years of the Medicaid application. If you made a transfer for less than market value within that time period, the state will impose a penalty period during which you will not be eligible for benefits. Depending on the house’s value, the period of Medicaid ineligibility could stretch on for years and not end until the Medicaid applicant is almost completely out of money.

There are circumstances under which you can transfer a home without penalty, however, so consult with your attorney before making any transfers. You may freely transfer your home to the following individuals without incurring a transfer penalty:

  • Your spouse
  • A child who is under age 21 or who is blind or disabled
  • A trust for the sole benefit of a disabled individual under age 65 (even if the trust is for the benefit of the Medicaid applicant, under certain circumstances)
  • A sibling who has lived in the home during the year preceding the applicant’s institutionalization and who already holds an equity interest in the home
  • A “caretaker child,” who is defined as a child of the applicant who lived in the house for at least two years prior to the applicant’s institutionalization and who during that period provided care that allowed the applicant to avoid a nursing home stay.
  1. Loss of control.Transferring your house to your children means that you will no longer own the house, which means you will not have control of it. Your children can do what they want with it. In addition, if your children are sued or get divorced, the house will be at risk.
  2. Adverse tax consequences.Inherited property receives a “step up” in basis when you die, which means the basis is the current value of the property. However, when you give property to a child, the tax basis  is the same price that you purchased the property for. If your child sells the house after you die, he or she would have to pay capital gains taxes on the difference between the tax basis and the selling price. The only way to avoid some or all of the tax is for the child to live in the house for at least two years before selling it. In that case, the child can exclude up to $250,000 ($500,000 for a couple) of capital gains from taxes.

There are other ways to protect a house from Medicaid estate recovery, including putting the home in a trust. To find out the best option in your circumstances, consult with your attorney.

Tax reform may impact charitable giving

As the tax reform measures were unveiled, members of the charitable community expressed alarm that the new rules could create a disincentive to donate.With the larger standard income tax deduction ($12,000 for an individual filer and $24,000 for a married couple), fewer people will realize the benefits of itemizing. Some charities fear that, absent the tax write-off, fewer people will give. Yet others argue a household’s higher net income will be a boon to non-profits.How the tax reform changes will actually impact giving remains to be seen. Here’s a summary of some ways the law might impact annual giving, as well as long-term planned gifts:

Higher AGI limits: The new law retains the income tax charitable deduction, but the limits are higher. In any given year, you may deduct charitable contributions worth up to 60% of your adjusted gross income (up from 50 percent). However, AGI limits on certain gifts of appreciated property remain at 30 percent. You will still be able to carry forward contributions that exceed your AGI limits for up to five years.

Athletic seating: The law repeals the 80 percent charitable deduction for gifts made in exchange for athletic event seating.

Itemizing threshold: Some would-be donors may use charitable giving to boost them over the new itemizing threshold. That could be particularly relevant for donors with larger mortgages (and therefore higher mortgage interest deductions) or in high-tax states. The $10,000 cap on state and local mortgages, combined with $10,000 of mortgage interest, for example, could spur some households to make a $4,000 charitable gift to put them over the new standard deduction.

Unlimited estate tax deduction: The unlimited estate tax deduction for charitable gifts remains. In a sense, that makes paying the federal estate tax voluntary, as you may elect to allocate anything above your estate exemption limits to charity. Higher exemption limits under the new law (roughly $11.2 million per individual or $22.4 million for a married couple) may encourage more families to give away the excess to causes they care about rather than letting funds go to government coffers.

New tax on certain college endowments: The tax law imposes a new 1.4 percent excise tax on the investment income of private colleges with at least 500 students and assets valued at $500,000 or more per student. Endowment funds may be excluded if they are used to carry out a college’s tax-exempt purpose, but the bill does not define which funds are subject to that exclusion. Some donors may reevaluate gifts until the interpretation becomes clear.

New excise tax on highly compensated nonprofit employees. The tax reform bill now levies a 21 percent excise tax on nonprofit employers for salaries over $1 million. Analysis by the Wall Street Journal suggests that 2,700 nonprofit employees were paid more than $1 million in 2014, mainly at hospitals and universities (think presidents, football coaches and endowment managers). Again, this may cause donors to reconsider their gifts.

There are more tax-advantaged ways to give to charity beyond those listed above. Given the tax benefits, consider whether it would make sense to increase the amount you give or to make gifts sooner than anticipated. Don’t learn these lessons the hard way, contact one of our seasoned attorneys to discuss your estate planning needs.

Evaluating generation-skipping tax transfers

Your current financial plan may include wealth transfers to grandchildren, great-grandchildren or other descendants, and these gifts may be subject to a generation-skipping tax (GST). The GST was created to prevent families from essentially “skipping” a generation’s worth of estate taxes as wealth is passed down.

In 2017, the GST exemption (the amount that can be transferred to grandchildren without incurring a federal GST tax) was $5.45 million adjusted for inflation. Now, under the new tax reform law, the GST exemption is doubled to roughly $11.2 million. In 2026, however, the exemptions revert back to pre-2018 levels.

Doubling the exemption presents an opportunity for families to increase wealth transfer plans without incurring taxes. Individuals may want to take advantage of the increased GST exemption to create GST-exempt trusts. Meanwhile, those with existing trusts subject to the GST tax may want to consider early distributions to take advantage of the higher exemption.

Check for unintended consequences

The higher exemption may create complications for individuals with plans funded according to the exemption limits effective on the date of their death. Those plans should be reviewed quickly, as the changes could have a significant, and unintended, impact.

Assume, for example, your plan is written to max out your GST exemption. Under the old law, your grandchildren would have gotten about $5.6 million. Under the new law, they’d get roughly $11.2 million — possibly leaving your surviving spouse without sufficient resources.

Other considerations:

  • If your children have a sizable estate, it might make sense to put some or all of your estate into a GST trust to be given to the grandchildren. That avoids increasing your children’s taxable estate.
  • Some wills and trusts contain a clause that states that amounts exceeding the available GST exemptions are to be allocated to charity. Given the changes in the law, you may need to reevaluate your giving plans accordingly.

Don’t learn these lessons the hard way, contact one of our seasoned attorneys to discuss your estate planning needs.