Wills, Trusts & Estates Prof Blog

HSAs: Understanding The Health Savings And Estate Planning Benefits

Health Savings Accounts (HSAs) are a great way to reduce health care care costs. Also, HSAs can positively affect your estate plan because its funds grown on a tax-deferred basis. An HSA is similar to a traditional IRA or 401(k) plan as it is a tax-advantaged savings account funded with pretax dollars. Funds can be withdrawn tax-free to pay for a variety of qualified medical expenses. 

In order to receive these benefits, an HSA must be paired with a high-deductible health plan (HDHP). In the wake of COVID-19, a recent benefit of the HDHP has emerged; that benefit being that they can cover the costs of coronavirus testing and treatment before deductible are met without risking the plan's status as an HDHP. Further, plan participants who have HSAs may continue contributing to their existing accounts. 

In order to make HSA contributions, you may not be enrolled in Medicare or covered by any non-HDHP insurance. If you enroll in Medicare, you will no longer be eligible for an HSA, but you may still make contributions for the time you were eligible before going to Medicare.

There are two ways that HSAs can lower health care costs: by reducing your insurance expense as HDHP premiums are substantially lower than those of other plans, and allowing you to pay qualified expenses with pretax dollars. Also, any funds remaining in an HSA may be carried over from year-to-year. 

Except for funds used to pay medical expenses, an HSAs account balance continues to grown on a tax-deferred basis indefinitely, providing additional assets for your heirs. However, the tax implications of inheriting an HSA differ substantially depending on who the beneficiary, so it is important to consider your beneficiary designation. 

Opening and contributing to an HSA offers great tax-advantaged options that (1) reduce cost and (2) provide estate planning benefits. If an HSA sounds appealing to you, you should speak with your estate planning advisor for more information. 

See Joseph R. Marion, III & David T. Riedel, HSAs: Understanding The Health Savings And Estate Planning Benefits, Adler Pollock & Sheehan P.C., June 22, 2020. 

Special thanks to Jim Hillhouse (Professional Legal Marketing (PLM, Inc.)) for bringing this article to my attention.

Bonnie Kraham: Passing Values with an Ethical Will

An ethical will is your written words that convey who you are and what you stand for. A will is not a legal document and you do not have to have one. A will may not be for everyone. When we leave this earth, an ethical will leaves behind proof of our essence. It provides a snapshot of our hearts and souls. 

If there are any words of wisdom or advice that you would love to pass on to your children, grandchildren, other family members and loved ones, an ethics will may be for you. 

There are two other wills that are typically used in event planning: A "last will and testament" that states where assets go upon death. This is the type of will you are likely most familiar with. The second, a "Living will", which is a medial directive that states end of life wishes such as resuscitation and other heroic means of lifesaving treatments in case you're incapacitated. Essentially, a will is a statement of the creator's intent. 

Ethical wills have been around for centuries and have historically been used to leave a legacy of "moral assets" when people had little control over owning material assets or the disposition of assets on death. This type of will was especially proper among women due to the laws and norms that prevented them from owning property or signing legal documents. 

If you are thinking about writing an ethical will you may start with a few questions: Have you had a meaningful life? Have you fulfilled your purpose? How will you be remembered? How do you want to be remembered?

The ethical will should be a treasure from the heart with tellings of the past, present, and the future. 

See Bonnie Kraham, Bonnie Kraham: Passing Values with an Ethical Will, Times-Herald Record, June 20, 2020.

Special thanks to Jim Hillhouse (Professional Legal Marketing (PLM, Inc.)) for bringing this article to my attention.

Hawaii Supreme Court: Terms of Trust Do Not Override The Law

In June 2020, the Hawaii Supreme Court ruled on the case of In Re Elaine Emma Short Revocable Living Trust Agreement, which had a complicated fact pattern. There were a couple of clear takeaways from the case: make sure there are findings of fact in any order entered in a contested probate proceeding, and the terms of a trust will not supersede Hawaii statutory law. 

The facts of the case are as follows:

Elaine created the Elaine Emma Short Trust Agreement. The Trust had been amended several times, and upon her death provided that the trustee could only distribute income, and not principal, from her sons' (David and William's) respective subtrusts as necessary to meet their needs for "health, education, support, and maintenance," as determined by the trustee in its sole discretion. 

In August 2015, First Hawaiian Bank (FHB), the trustee of the trust, filed a petition for instructions regarding distribution and termination and for modification of the Trust in Hawaii probate court. Specifically, FHB asked the Hawaii probate court to modify the terms of the trust to permit discretionary distributions of principal to David. The Cooks (Elaine's brother's children) were identified as contingent beneficiaries in FHB's petition. 

The Cooks opposed the proposed modification arguing that the language of Elaine's trust was not ambiguous and that FHB's attempt to change the language should be rejected as improper. The Cooks then requested information regarding the accounts of the trust. FHB objected, arguing that the Cooks were not yet in a position to receive income and were contingent remainder beneficiaries not entitled to the requested information pursuant to the terms of the trust. 

The Hawaii Probate Court granted FHB's petition, modifying Elaine's trust. The probate court's order contained no findings of fact as to whether Elaine's Trust contained ambiguity regarding distribution of principal. The court also concluded that FHB did not have to provide records to the Cooks. 

The Hawaii Supreme Court stated that the Probate Court should include findings of fact in orders in contested trust cases to avoid abuse of discretion and to further assist appellate review. Further, the Court held that the terms of a trust that are inconsistent with a rule of law do not prevail over the law. 

See, Hawaii Supreme Court: Terms of Trust Do Not Override The Law, Probate Stars, June 26, 2020. 

Provident 1031 Offers Accredited Investors Delaware Statutory Trust Properties For 1031 Exchange

Land and commercial property sellers across the US know how to defer tax when selling property using a 1031 Exchange and today investors have more options than ever. One of these options is the Delaware State Trust (DST). 

A DST is a unique investment opportunity that allows an investor to invest in partial ownership in large institutional grade commercial properties and earn monthly tax favored cash flow without the headaches of managing property. Also, investors reap the benefits of differing taxes by using a 1031 Exchange and can preserve the widely favored step up in basis at death. 

DST's now qualify as "like kind" properties according to third party qualified Intermediaries (QI's) who act as escrow agents and facilitators for test exchanges. These opportunities can offer life changing benefits to owners of real estate who are aging and no longer want to or are able to manage/own properties. 

Provident 1031's website helps commercial property sellers of multifamily, hotels, retail spaces, raw land, rental homes, or industrial complexes to identify DST properties and the accompanied use of the 1031 Exchange.

This also allows sellers of property to save/defer taxes, protect their step up in basis, generate monthly income, and gain freedom from tenants, loans, personal liability, cash calls and most of the generated headaches and risks that go along with investment properties. 

See, Provident 1031 Offers Accredited Investors Delaware Statutory Trust Properties For 1031 Exchange, Digital Journal, June 19, 2020.

Special thanks to Jim Hillhouse (Professional Legal Marketing (PLM, Inc.)) for bringing this article to my attention.

‘They Just Dumped Him Like Trash’: Nursing Homes Evict Vulnerable Residents

Nursing homes across the country are kicking out old and disabled residents and sending them to homeless shelters and rundown motels. 

On a cold afternoon in April, Los Angeles police found an old and disoriented man crumpled on a Koreatown sidewalk. RC Kendrick, an 88-year-old with dementia, was living at Lakeview Terrace, a nursing home with a history of regulatory problems. His family had placed him there to make sure he got round-the-clock care after his condition deteriorated and he began disappearing for days at a time.

However, on April 6, the nursing home placed Kendrick at an unregulated boarding house, without informing his family. Less than 24 hours later, Kendrick was wandering the streets alone.

More than any other institution in America, nursing homes have come to symbolize the deadly destruction of the coronavirus crisis. More than 51,000 residents and employees of nursing homes and long-term care facilities have died, representing more than 40 percent of the total death toll in the United States.

A Lakeview official said the company’s evictions were appropriate and weren’t an attempt to free space for Covid-19 patients. Yet, similar things are happening at nursing homes across the country. They are just dumping old and disabled residents, who are among the most vulnerable to the virus, in homeless shelters, rundown motels, unregulated boarding houses, and even the streets. 

Many of the evictions, known as involuntary discharges, appear to violate federal rules that require nursing homes to place residents in safe locations and to provide them with at least 30 days’ notice before forcing them to leave.

The pandemic has intensified the situation.

With nursing homes not allowing visitors, there is less outside scrutiny of their practices. Fifteen state-funded ombudsmen said in interviews that some homes appear to be taking advantage of that void to evict vulnerable residents.

Many nursing homes are struggling financially as post-surgery rehab has withered away due to the non-essential restrictions placed on facilities. Therefore, treating COVID-19 patients quickly has become a popular way to fill that void. 

Keep an eye on your loved ones!

See Jessica Silver-Greenberg & Amy Julia Harris, ‘They Just Dumped Him Like Trash’: Nursing Homes Evict Vulnerable Residents, N.Y. Times, June 23, 2020. 

Special thanks to Lewis Saret (Attorney, Washington, D.C.) for bringing this article to my attention.  

XXXTentacion's Mom Sued for $11M by Half Bro, Claims She Stole from Trust

It has been two years since XXXTentacion's (XXX) passing, but the drama storm continues to brew, as his half-brother is suing XXX's mother, claiming she stole from his Trust. Jodi Kavney, the mother of XXX's half-brother, Corey Pack, claims that Cleopatra Bernard, created a plan to siphon off millions of dollars from her own son's trust—money that the rapper set aside for Corey. 

Jodi, who's suing on behalf of Corey, says in docs, XXX left behind assets in excess of $50 million ... including a trust that lists Corey as 1 of 3 beneficiaries. In the lawsuit, Jodi claims Cleopatra cut a deal with XXX's baby mama which helped her cut Corey out of his portion of the estate. Jodi's now seeking to recover assets she claims were "improperly and surreptitiously transferred" by Cleopatra to herself.

Jodi's suing for $11 million in damages and may try to triple that amount ... if she can prove this was intentionally done. She also claims Corey's entitled to ownership rights to XXX's record label, Bad Vibe Entities.

In a recent update in the case, Bernard's attorney, Michael Simon, told TMZ that the lawsuit that was filed was completely without merit as a court has already determined that Corey Pack is entitled to nothing from XXX's estate or trust. 

Cleopatra has not only paid Corey’s living expenses and purchased him a car, but she has gifted to him and his mother, Jodi Kavney, a mortgage free home and paid the current year’s real estate taxes.

See XXXTentacion's Mom Sued for $11M by Half Bro, Claims She Stole from Trust, TMZ, June 19, 2020. 

Special thanks to Laura Galvan (Attorney, San Antonio, Texas) for bringing this article to my attention.  

Article on Proposed Technical Corrections for Cash-Flow Relief Provisions of the Cares Act for Individuals with Savings or Retirement Benefits

Albert Feuer recently published an Article entitled, Proposed Technical Corrections for Cash-Flow Relief Provisions of the Cares Act for Individuals with Savings or Retirement Benefits, Wills, Trusts, & Estates Law eJournal (2020). Provided below is the abstract to the Article:

The CARES Act provides cash-flow relief for individuals who want to access their savings and retirement plan benefits without adverse tax consequences. There are significant outstanding issues with those provisions. The article discusses and proposes technical corrections to address three such issues.

• Is there a single certification procedure to determine who is eligible to access their own savings and retirement benefits? The HEROES Act, the multi-trillion-dollar proposal to supplement the CARES Act that the House of Representatives approved in mid-May, addresses this issue differently than both the IRS guidance and the article’s proposal.

• Are those eligible to so obtain their own benefits defined sufficiently broadly? The HEROES Act broadens the eligibility for the Covid-19 enhanced family and medical care leave relief. The Act does not address the far narrower CARES Act eligibility criteria for individuals who wish to access their own savings and retirement benefits.

• Is there an unambiguous and intuitive method to determine the new amortization schedule for an eligible individual who wishes to take advantage of the CARE Act deferral of 2020 due dates for plan loans? The HEROES Act, again, does not address this issue.

The article also proposes a state law change to prevent adverse state and local personal income tax consequences for plans, participants, and beneficiaries who wish to take advantage of the cash-flow relief of the CARES Act to access their own savings and retirement benefits. For example, the CARES Act permits in-service distributions that would otherwise cause savings and retirement plans to lose their tax-exemption. State and local tax laws that are not coupled with the Internal Revenue Code may tax plans that decide to provide such cash-flow relief, and also prevent participants and beneficiaries from deferring tax on their plan benefits. The article therefore presents a technical correction to state and local personal income tax laws that conformed to the Code before the enactment of the CARES Act, such as those of New York State, to assure that those laws conform to the Code provisions changed by these relief provisions and only those provisions.

Probate: 10 Things You Need to Know

Below is a summary of a UK article that offers a few tips on sorting out financial affairs during the global pandemic. 

Unfortunately, the pandemic means that many people that have agreed to be named as executor on a friend or family member's will years ago, will have to step up and do their duty and apply for probate. 

Financial Times asked their readers to tell them about their experiences navigating the Probate system and from that put a list of 10 things that should be considered when going through probate.

Here are the 10 things you should know about Probate:

1.  Don’t leave your executors in the dark

If you are named as an executor on a family member or friends will, speak with them about their financial situation while they are still alive.

2. Record every detail

Keep a detailed record of everything you know about the financial situation to ensure a smooth transition.

3. Be prepared for delays

Be ready for any hiccups that may occur throughout the process so that you are not caught by surprise and put in a bind.

4. Get lots of death certificates

You're going to need these, as almost everyone you have to go through (banks, etc.) will likely ask for one.

5. Lasting Power of Attorney

Be aware that a Lasting Power of Attorney (LPA) only remains valid during the person’s lifetime.

6. The seven-year glitch

Several readers found they needed at least seven years of bank statements to check for gifts made before death.

7. Inheritance tax deadlines

The deadline for any payment of inheritance tax due is six months from the end of the month of death

8. Negotiate legal costs

Many readers stressed that deals can be done and that relatives should not be afraid of negotiating with solicitors or estate agents.

9. Valuing assets can be costly

It is also worth challenging the cost of asset valuations.

10. Protecting the estate after death

Any valuable assets need to be removed and the property needs to be maintained so that it is not obvious that it is empty.

See Lindsay Cook, Probate: 10 Things You Need to Know , Financial Times, June 19, 2020.

Special thanks to Joel C. Dobris (Professor of Law, UC Davis School of Law) for bringing this article to my attention.

Article on The Pension Trust: Fit for Purpose?

M. Scott Donald recently published an Article entitled, The Pension Trust: Fit for Purpose?, Wills, Trusts, & Estates Law eJournal (2020). Provided below is the abstract to the Article:

The law of trusts plays an integral and multi‐faceted role in the regulatory scheme shaping the occupational pensions arena in Australia and the United Kingdom. It facilitates the operation of private law modalities, such as innovation and competition. However, that openness also renders members’ interests vulnerable and the lack of transparency and emaciated accountability mechanisms within trust law undermine the powerful normative force exerted by the language in which trust doctrine is so often couched. That said, the regulatory regimes buttress, and rely upon, the protections offered by trust law. The result is a compelling illustration of the nuanced way in which private law is employed in a modern regulatory state.

 

Opportunities Abound for Wealth Transfer

Due to COVID-19, it has been a rough year for investments. Further, the first-quarter pullback in the stock market created continued volatility which has added insult to portfolios. 

However, the gloomy climate has opened up some rare opportunities in another area of wealth planning: wealth transfer. The low interest rates and reduced asset prices combined with the ultrahigh estate tax exemption that was enacted under the Tax Cuts and Jobs Act in 2018 create a perfect storm for maximizing the amount you can pass to beneficiaries while avoiding or minimizing a tax hit.

“If you’ve been wanting to transfer a bunch of securities or interest in your company or real estate, well, now’s the time to do it,” says Bryan Kirk, director of financial and estate planning at Fiduciary Trust International.

For those worried about estate tax, you can push more assets out of your estate under the exemption when values are low, Kirk says, adding that large assets are typically transferred to a generic irrevocable trust to ensure they’re managed properly and protected from creditors or spendthrift heirs.

Further, even families who aren’t concerned with the estate tax can benefit from low-value asset transfers. One way to do this is a grantor retained annuity trust (GRAT), which returns the value of the assets to you when the trust expires but leaves appreciation to your beneficiaries.You transfer assets to a GRAT and receive an annuity payment over the trust’s term that’s equal to the amount you put in, plus appreciation up to an IRS interest rate. At the end of the trust’s term, any appreciation over the IRS rate—called the 7520 rate—goes to heirs.

See Karen Hube, Opportunities Abound for Wealth Transfer, Barron's, June 18, 2020. 

Special thanks to Jim Hillhouse (Professional Legal Marketing (PLM, Inc.)) for bringing this article to my attention.