Wills, Trusts & Estates Prof Blog

Editor: Gerry W. Beyer
Texas Tech Univ. School of Law

Tuesday, May 21, 2019

Which Retirement Account Comes First, the 401(k) or the IRA?

RetirementThe average client who is not familiar with the detailed rules concerning the funding of 401(k)s and IRAs may believe that they are interchangeable. The Internal Revenue Service imposes restrictions on which clients are eligible to fund various types of accounts, and the rules vary both the plan contribution limits and the benefits associated with funding.

This year, eligible clients can contribute up to $6,000 to their IRA (an additional $1,000 for those 50 or older) and $19,000 to their 401(k) (with an additional $6,000 catch-up option). Then things can get a bit confusing. The “active participant” rules limit IRA contributions for taxpayers who have contributed to a 401(k) to those clients whose income has not exceeded certain thresholds. In 2019, IRA contributions are phased out for single taxpayers with modified adjusted gross income of between $64,000 and $74,000 and for joint returns between $103,000 to $123,000. If married and one spouse is an active participant, the threshold increase to between $193,000 and $203,000 for the other spouse.

Which account should be funded first? If an employer provides a matching 401(k) contribution, this should be thoroughly exploited to take advantage of the match. After that, many clients will consider diversifying between types of accounts to take advantage of a Roth feature, whether it be a Roth 401(k) option or Roth IRA, to provide for tax-free income during retirement.

Looking at the bigger picture and examining all relevant issues will serve to increase the odds that the client will maximize limited retirement savings dollars over the long-term.

See William H. Byrnes and Robert Bloink, Which Retirement Account Comes First, the 401(k) or the IRA?, Think Advisor, May 1, 2019.

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

May 21, 2019 in Current Affairs, Estate Planning - Generally, Income Tax | Permalink | Comments (0)

Note on No Good Deed Goes Unpunished: How the New Hampshire Probate Court Has Strengthened the Power of the Attorney General in Charitable Trust Suits

TrustsAngelina M. Spilios, recently published a Note entitled, No Good Deed Goes Unpunished: How the New Hampshire Probate Court Has Strengthened the Power of the Attorney General in Charitable Trust Suits, 17 U.N.H. L. Rev. 379-408 (2019). Provided below is an abstract of the Note.

As Americans increasingly use estate planning tools to provide for their favorite charities, the charitable trust is an important instrument that fits uniquely into general trust law. While charitable trusts are similar to private trusts to a great extent, there are also some critical differences between the two vehicles, especially regarding their enforcement. Specifically, state attorneys general play a special role in the enforcement of charitable trusts. This Note examines this special role of the state attorney general—namely, how trustees interact with the attorney general, arguments for why the role of the attorney general needs to be reformed or eliminated, and arguments in support of letting the attorney general maintain his or her power in these charitable trust cases.

After considering the historical background on charitable trusts, this Note analyzes a recent New Hampshire case, In re Nashua Center for the Arts, as an example of how the New Hampshire Probate Court affirmed the power of the state Attorney General in this charitable trust setting. In that case, several groups of concerned citizens tried to intervene when the trust for Nashua Center for the Arts, part of the Edith Carter estate, announced it would relocate its funds to the Currier Museum of Art in Manchester, New Hampshire. The court denied their motions to intervene because only the state Attorney General has the power to represent them—the parties did not have standing to intervene on their own. The Note then explores other New Hampshire cases, Massachusetts cases, and legal disputes in other states to provide additional perspectives.

This Note concludes that while the court’s decision in In re Nashua Center for the Arts initially seems like a harsh injustice for the nonprofits in Nashua that felt entitled to make use of the funds from Edith Carter’s estate, the court correctly applied the existing law. The outcome of the case should remind nonprofits and citizens in New Hampshire that, while the state has held itself out as one of the most progressive states for trust law, the significant powers held by the state Attorney General will not be limited any time soon.

May 21, 2019 in Articles, Current Affairs, Estate Administration, Estate Planning - Generally, New Legislation, Trusts | Permalink | Comments (0)

Monday, May 20, 2019

Article on Long-Term Care and the Tax Code: a Feminist Perspective on Elder Care

ElderlawNancy E. Shurtz published an Article entitled, Long-Term Care and the Tax Code: a Feminist Perspective on Elder Care, 20 Geo. J. Gender & L. 107-194 (2018). Provided below is an abstract of the Article.

Elder care is an increasingly important sector in the comprehensive health care matrix in the United States. It is a realm of particular import to women: women live longer, develop degenerative conditions at higher rates than men, and are more likely to receive and provide care. Women earn less income, possess less net wealth, and are far more likely to live in poverty. Public policies regarding elder care add to the increasing strain on women by systematically rejecting home-based caregiving labor as “legitimate” economic activity, rendering it unworthy of subsidized support. As a result, a secondary policy bias develops, favoring institutional (market) elder care over home-based options, which creates demonstrably poor health and life-quality results and adds substantial monetary costs to both affected individuals and taxpayers. This Article examines the state of elder care—especially in the long-term context—and its impact on the lives of women as both care recipients and caregivers. Employing various strains of feminist thought, this Article establishes elder care as an integral component of feminist concern and examines current policy approaches that incorporate tax-based and non-tax-based reforms to stimulate improvements to the elder care industry, raise life quality outcomes, expand elder care choices, and encourage higher participation in caregiving labors in an area of vital need.

May 20, 2019 in Articles, Current Affairs, Disability Planning - Health Care, Elder Law, Estate Planning - Generally | Permalink | Comments (0)

Sunday, May 19, 2019

Legal-Ease: What to do When Facing a Nursing Home Decision

NursinghomeThe decision whether to place an aging parent in a nursing home, provide in-home care, or move them in with their adult children can be an extremely difficult one. This decision can be prompted by illness, injury, or a series of absentmindedness. The tight-knit nature of the families in the Midwest can motivate people to try to care for their loved ones themselves. But even for a medical professional, the toll of being a caretaker for a loved one usually becomes too mentally and physically overwhelming.

There are three steps that should be undertaken as soon as possible to determine if the correct path should be a nursing home, assisted living or professional in-home healthcare.

  • First, ensure that the loved one has updated his or her powers of attorney and living will (advanced directives). These legal documents are necessary for another person to make financial and/or medical decision for another individual.
  • Second, develop a financial plan under the advice of an attorney. This should include an analysis of all assets, liabilities, monthly income and monthly expenses. Investigate Medicaid's five-year lookback rule to determine eligibility for the program.
  • Third, work closely with the attorney so that the agent does not become personally liable for the long-term care bills of the aging individual and asset transfers can be accommodated at the proper times. This can ensure that applications for Medicaid and other programs are not done too soon nor too late.

See Lee R. Schroeder, Legal-Ease: What to do When Facing a Nursing Home Decision, Lima Ohio, May 11, 2019.

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

May 19, 2019 in Current Affairs, Disability Planning - Health Care, Disability Planning - Property Management, Elder Law, Estate Planning - Generally | Permalink | Comments (0)

Saturday, May 18, 2019

Article on Tracing Commingled Funds in Asset Forfeiture

CommingledSean Michael Welsh recently published an Article entitled, Tracing Commingled Funds in Asset Forfeiture, 88 Miss. L.J. 179-253 (2019). Provided below is an abstract to the Article.

In order to forfeit the proceeds of some crimes, the Government must prove the property is traceable to the underlying offense. While in most cases this is easily accomplished, courts are divided over whether tracing can occur when illicit funds are commingled with untainted funds. The Second Circuit in Banco Cafetero held that the Government can use accounting methods, including either the "lowest intermediate balance rule," which assumes that the illicit funds remain in the account, despite withdrawals, or the "drugs-in, first-out" rule, which assumes the illicit funds exit the account first through any withdrawal. The Third Circuit in Voigt rejected this approach and held that when funds are commingled, tracing becomes impossible because the Government can seek substitute assets in criminal forfeitures.

Different courts have followed Banco Cafetero and Voigt and developed arguments for and against each approach. This Article finds that neither approach is completely correct and looks to the law of tracing in money laundering and trust law for reasonable principles. This Article recommends that courts adopt the "Single Presumption Method" which states that, while accounting methods are permissible in forfeitures, the Government should be limited to applying a single accounting method when seeking any given asset. This method gives effect to the substitute assets provision in forfeiture, provides for greater certainty when tracing, and respects the risk of uncertainty the Government bears when tracing commingled funds.

May 18, 2019 in Articles, Current Affairs, Estate Administration, Estate Planning - Generally | Permalink | Comments (0)

Friday, May 17, 2019

Being Rich in America Depends on Where You Live

DenverA large influencer on how to answer the question of "How much money does it take to be considered wealthy?" is where the person asking the question resides. Being wealthy in Denver does not mean nearly the same thing as being wealthy in San Francisco, or in New York City for that matter. To be rich in the San Francisco Bay Area, a person needs to be worth $4 million, but if you ask baby boomers rather than the Average Joe, the number jumps to $5.1 million, according to Charles Schwab’s Modern Wealth Survey.

Almost everyone has heard that housing in San Francisco is hard to come by, and even then it is notoriously expensive. A ranking by housing website Trulia of the 100 largest metro areas found that, in late 2018, 81% of homes in the metro San Francisco area were worth $1 million or more. Across the entire country, only 3.6% homes were worth that much. Trulia reported that the percentage of homes worth $1 million or more in New York City and Washington, D.C. were 10.3% and 4.9%, respectively, far below that of the Bay Area.

Denver, far away from both coasts, had the lowest average dollar figure for what it would take to be thought of as wealthy, coming in at $2 million. 75% of people surveyed in Denver said that feeling personally wealthy is more about how they live their lives than about a particular dollar amount.

Better to be rich in Denver than average in San Francisco.

See Suzanne Woolley, Being Rich in America Depends on Where You Live, Financial Advisor, May 15, 2019.

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

May 17, 2019 in Current Affairs, Estate Planning - Generally, Humor, Income Tax | Permalink | Comments (0)

Thursday, May 16, 2019

Article on Essay Response to 'Asymmetries in the Generation and Transmission of Wealth'

RainmoneyReid K. Weisbord recently published an Article entitled, Essay Response to 'Asymmetries in the Generation and Transmission of Wealth', Elder Law eJournal (2018). Provided below is an abstract of the Article.

What role should wealth transfer law play in reducing economic inequality? In “Asymmetries in the Generation and Transmission of Wealth,” Professor Felix Chang proposes thoughtful reforms to reduce economic inequality by altering the rules of wealth transmission. The current state of wealth inequality in the U.S. may, indeed, justify regulatory intervention, but this is a complex, subjective question. Consider, for example, a recent social policy experiment in which Yale Law School students self-identified as politically progressive but exhibited self-interested distribution preferences that favored efficiency over equality. Nonetheless, objective economic indicators published by French economist Thomas Piketty show that wealth inequality in the U.S. has, in fact, increased in recent years. That trend lends support for Chang’s normative claim of asymmetry between the regulation of wealth generation and transmission. In response to Chang’s call for redistributive reforms, this Essay proposes repackaging the federal wealth transfer tax structure and applying it to a postmortem system of “means testing” for federal entitlements, such as Social Security and Medicare. This system would recapture federal entitlement benefits from wealthy decedent estates, but to protect the vested interests of aging current beneficiaries, postmortem means testing would have to be phased-in gradually by exempting anyone currently over the age of fifty.

May 16, 2019 in Articles, Current Affairs, Estate Administration, Estate Planning - Generally, Trusts, Wills | Permalink | Comments (0)

Has Granny Signed a Pre-Nup?

PrenupThe number of people getting married aged 65 and over rose by 46% between 2004 and 2004 according to the latest Office for National Statistics marriage data. During that same time period, older divorces were also on the rise. 92% of those that were getting married over the age of 65 had already been married once before, either being widows/widowers or divorcees.

Even so, people are waiting until their thirties to get married for the first time. During that time, even before their first go around, brides and grooms may have already accumulated enough assets to call for a prenuptial agreement to safeguard their possessions. Sarah Balfour, a partner at Irwin Mitchell who spoke at the Later Life Planning Conference in London last month, says she had seen a considerable increase in the demand for prenuptial and occasionally for postnuptial agreements to assign assets after marriage. “One of the largest areas concerns second- or third-generation wealth. Grandparents ask their grandchildren to enter into a pre-nup." In the United Kingdom, prenuptial agreements do not carry statutory weight so it is questionable whether they would survive a divorce.

The Supreme Court in the UK said in a landmark case in 2010 that if the evidence was strong, prenuptial agreements could have decisive or compelling weight. Lawyers and legal scholars perceive the case as test of whether certain prenuptial agreements will stand up in court in England and Wales. But to have any true weight, they must be fair to all parties involved.

See Lindsay Cook, Has Granny Signed a Pre-Nup?, Financial Times, May 15, 2019.

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

May 16, 2019 in Current Affairs, Elder Law, Estate Administration, Estate Planning - Generally, New Cases, Trusts, Wills | Permalink | Comments (0)

Wednesday, May 15, 2019

Article on Alpha Duties: The Search for Excess Returns and Appropriate Fiduciary Duties

AlphaIan Ayres and Edward Fox recently published an Article entitled, Alpha Duties: The Search for Excess Returns and Appropriate Fiduciary Duties, 97 Tex. L. Rev. 448 (2019). Provided below is an abstract of the Article. 

Modern finance theory and investment practice have shifted toward "passive investing." The current consensus is that most savers should invest in mutual funds or ETFs that are (i) well-diversified, (ii) low-cost, and (iii) expose their portfolios to age-appropriate stock market risk. The law governing trustees, investment advisers, broker-dealers, 401(k) plan managers, and other investment fiduciaries has evolved to push them gently toward this consensus. But these laws still provide broad scope for fiduciaries to recommend that clients invest instead in specific assets that they believe will produce "alpha" by outperforming the market. Seeking alpha comes at a cost, however, in giving up some of the benefits of the well-diversified, low-cost, appropriate-risk baseline. Too little attention has been given in fiduciary law to this tradeoff and, thus, to when seeking alpha is prudent and beneficial for savers, and when it is not.

This Article begins to fill that gap by making two contributions. First, we provide the first benchmark estimates of how much alpha is required before ordinary investors would be better off departing from the consensus. For example, we estimate that a person of average risk aversion would annually need to beat the market by (i.e., obtain alpha of) between 6% and 15% before being willing to entirely forego the benefits of diversification and hold an individual stock (and that during a financial crisis such a person would need an annual alpha between 9% and 18%). Second, we consider the implications of our results for the various branches of law governing investment fiduciaries. We propose generally that fiduciaries should prudently weigh these alpha tradeoffs, and then should explain them to their clients before recommending (or executing) investments that deviate from the low-cost, well-diversified, age-appropriate exposure standard. We argue that through new technology, this kind of information can be given to retirement savers and others at quite low cost. Our results also have a variety of more specific applications. For example, our work shows that the value of diversification increases during periods of market upheaval, and therefore the duty of trustees to diversify personal trusts and employee retirement plans should likewise strengthen during such periods.

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

May 15, 2019 in Articles, Current Affairs, Current Events, Estate Administration, Estate Planning - Generally, Trusts | Permalink | Comments (0)

What Should I Do With My Inheritance?

CypresThe coming $30 trillion wealth transfer from baby boomers to the next generation has been presented in many pieces, and has a number of people thinking about their potential inheritance. As a prudent planner, an individual should have already planned for certain aspects of their retirement without the expectation of an inheritance. But how can you adjust your plan if you are almost positive that you will be getting a good to decent sized inheritance?

There are certain variables that make it difficult to account for an inheritance, such as families being against talking about it, investments may change, and people are living longer than before. The morbid truth is that with people living longer they tend to use up what would be the next generation's inheritance on living costs and long term care for themselves. Have an in-depth conversation with grandparents about possibly helping out now with the youngest generation - the grandkids - rather than waiting to pass on their estate in bulk on their deathbed.

See Ben Carlson, What Should I Do With My Inheritance?, A Wealth of Common Sense, May 14, 2019.

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

May 15, 2019 in Current Affairs, Disability Planning - Health Care, Disability Planning - Property Management, Estate Administration, Estate Planning - Generally, Trusts, Wills | Permalink | Comments (0)