Why Won’t IRS and Social Security Like My Power of Attorney?

The IRS and the Social Security Administration (SSA) don’t recognize traditional powers of attorneys (POAs). Forbes’s recent article entitled “Two Times When Your Power of Attorney Isn’t Going to Work” explains why.

The IRS says that you must use Form 2848, “Power of Attorney and Declaration of Representative” to allow anyone to act on your behalf. This form requires you to state the tax matters and years for which the agent is authorized to act. That’s different from a traditional POA for financial matters, which usually has blanket statements allowing the agent to take any or a broad range of actions on your behalf in certain matters.

A married couple that files joint tax returns must also have each spouse separately complete and sign a form. There is no joint form.

Technically, the IRS might accept other Power of Attorney as the instructions to Form 2848 indicate this. However, the POA must meet the requirements of Form 2848 to be accepted as a substitute. That can be a tall order.

The Social Security Administration is similar. It says on its web site that it doesn’t recognize a Power of Attorney. When you need someone to manage your Social Security benefits, you contact the SSA and make an advance designation of a representative payee.

A 2018 law created this feature that lets you name one or more individuals to manage your Social Security benefits. The Social Security Administration must usually work with the named individual or individuals. You can rank up to three people as advance designees. Therefore, if the first one isn’t available or is unable to perform the role, the SSA will move to the next person on your list.

Someone who already is receiving Social Security benefits can designate an advance designee at any point, and a person claiming benefits for the first time can name the designee during the claiming process. The designation can be made using your “my Social Security” account on the Social Security web site or by contacting the Social Security Administration by phone (800-772-1213) or at the local field office. A designee can also be named through the mail by using Form SSA-4547 – Advance Designation of Representative Payee.

Representative payees generally must be individuals, but it also can be a social service agency, nursing home, or one of a number of other organizations recognized by the SSA to serve as payees. If you don’t name any representatives, the SSA will name a representative payee for you, if it decides you need help managing your money. A relative or friend can apply to be representative payees, or the SSA can make the selection.

Reference: Forbes (Jan. 28, 2021) “Two Times When Your Power Of Attorney Isn’t Going To Work”

 

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Does My Family have to Pay My Credit Card Debt when I Die?

Market Realist’s recent article entitled “What Happens to Credit Card Debt When You Die?” says that the short answer is that the deceased’s estate pays off any credit cards they have left behind. Credit card  and other debts can pass on to others in some cases, which is a big reason why estate planning is so important.

When a person dies, their assets are frozen until his or her will is verified, their obligations are settled and their beneficiaries are identified in the probate process.

Then, the state will order that the deceased’s remaining assets (such as leftover cash and property with cash value) be used to pay off the credit card. However, retirement accounts, eligible brokerage accounts, and life insurance payouts are usually protected from this debt reconciliation. Once the debts are settled, the beneficiaries get their inheritance.

The obligations are paid off until they’re all settled, or until the estate runs out of money. Unsecured debts, like credit cards, are usually paid off after secured debts, administrative fees and attorney fees.

There are some circumstances in which another person is legally obligated to pay the deceased’s debt.

Typically, no one is legally required to pay off a deceased individual’s debts, but there are some exceptions:

  • Co-signers must pay loans
  • Joint account holders must pay credit card accounts
  • Spouses have to pay particular types of debt in some states; and
  • Executors of an estate must pay outstanding bills out of property jointly owned by the surviving and deceased spouses in some states.

In addition, surviving spouses may be required to use community property to pay their deceased spouse’s debt in certain states.

The community property states are Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin. Alaska would also be included in this list, if a special agreement is in place.

If there was no joint account, co-signer, or other exception, only the estate of the deceased person owes.

Reference: Market Realist (Feb. 11, 2021) “What Happens to Credit Card Debt When You Die?”

 

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How Does Home Ownership Transfer after a Parent Dies?

In most cases, the home is owned by a couple as “joint tenants with rights of survivorship” or as “tenants by the entirety.” The latter is less common. The first thing you’ll need to know about selling a home after the death of a parent, is how your parents held title, or owned, the home, begins the recent article “Home ownership after the death of a spouse” from nwi.com.

Tenancy by the entirety is a form of ownership available only to married people in a limited number of states and offers several advantages to the owners. It creates an ownership interest where the spouses own property jointly and not as individuals. It also creates the rights of survivorship, so that the surviving spouse owns the property by law when the first spouse dies.

Joint tenancy with rights of survivorship is similar to tenants by the entirety, in that they both convey rights of survivorship. However, joint tenancy does not treat the owners as a single unit. If you own entireties property with a spouse, you may not transfer your interest without your spouse’s permission because you own it as a unit.

In joint tenants, if one of the tenants want to transfer their interest in the property, he or she may do so at any time—and do not need the permission of the other tenant. This has led to some sticky situations, which is why tenants by the entirety is preferred in many situations.

If your parents own their home as tenants by the entireties or as joint tenants with rights of survivorship, the surviving spouse owns the home as a matter of law, and legally, ownership begins at the moment that first spouse dies.

Different states record this change of ownership differently, so you’ll need to speak with an estate planning attorney in your community (or the state where your parents lived, if it was different than where you live).

To notify the recorder’s office of the death, some state laws require the submission of a surviving spouse affidavit, which puts the recorder and the community on notice that one of the owners has died and the survivor now owns the home individually. Here again, an estate planning attorney will know the laws that apply in your situation.

There was a time when people recorded a death certificate, but this does not occur often. The affidavit makes a number of recitals that are important, and the recorded document proves the change of title.

In most cases, there is no need for a new deed, since the surviving spouse owns the property at the time of death, and the affidavit itself demonstrates proof of the transfer of title in lieu of a deed.

Reference: nwi.com (March 14, 2021) “Home ownership after the death of a spouse”

 

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If My Estate Is the Beneficiary of My IRA , How Is It Taxed?

The named beneficiary of an IRA can have important tax consequences, says nj.com’s recent article entitled “How is tax paid when an estate is the beneficiary of an IRA?”

If an estate is the beneficiary of an IRA, or if there’s no designated beneficiary, the estate is usually designated beneficiary by default. In that case, the IRA must be paid to the estate. As a result, the account owner’s will or the state law (if there was no will and the owner died intestate) would determine who’d inherit the IRA.

An individual retirement account or “IRA” is a tax-advantaged account that people can use to save and invest for retirement.

There are several types of IRAs—Traditional IRAs, Roth IRAs, SEP IRAs and SIMPLE IRAs. Each one of these has its own distinct rules regarding eligibility, taxation and withdrawals. However, with any, if you withdraw money from an IRA before age 59½, you’re usually subject to an early-withdrawal penalty of 10%.

A designated beneficiary is an individual who inherits the balance of an individual retirement account (IRA) or after the death of the asset’s owner.

However, if a “non-individual” is the beneficiary of an IRA, the funds must be distributed within five years, if the account owner died before his/her required beginning date for distributions, which was changed to age 72 last year when Congress passed the SECURE Act.

If the owner dies after his/her required beginning date, the account must then be distributed over his/her remaining single life expectancy.

The income tax on these distributions is payable by the estate. A compressed tax bracket is used.

As such, the highest tax rate of 37% is paid on this income when total income of the estate reaches $12,950.

For individuals, the 37% tax bracket isn’t reached until income is above $518,400 or $622,050 if filing as married.

Therefore, you can see why it’s not wise to leave your IRA to your estate. It’s not tax-efficient and generally should be avoided.

Reference: nj.com (Feb. 26, 2021) “How is tax paid when an estate is the beneficiary of an IRA?”

 

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What Is in Rush Limbaugh ’s Estate?

A year after announcing he had terminal cancer, Rush Limbaugh is dead. It also looks like he left a lot of money behind.

Wealth Advisor’s recent article entitled, “Rush Limbaugh’s Secret Estate Plan” reports that some estimates put his net worth above $600 million, which may be only his career earnings and not a real net figure. However, it gives you an idea about the amount of cash flowing into his operation over the years.

Rush Limbaugh’s “Southern Command” in Palm Beach alone can be worth up $50 million to his estate.

However, unless he made a whole lot more effort to look out for his posterity than anyone but the tabloids suggests his widow is in charge now. They didn’t have children, so she inherits it all.

Limbaugh’s attorneys structured his plans, but he hated taxes and protected his privacy. However, that privacy wasn’t perfect: the commercial rights to his show and auxiliary businesses were held in an LLC named after his widow Kathryn and himself. Kathryn Adams Rush Hudson Limbaugh = KARHL. KARHL Holdings LLC was formed in 2010, when they got married. The business has two employees, Kathryn and Rush. It shares an address with a charitable foundation the couple set up in their names.

The foundation is fairly modest by billionaire standards, but a few million dollars a year have moved in and then out to Rush-friendly organizations. Perhaps it will inherit his stake in KARHL and start making huge grants. No matter what, Kathryn will make those decisions. Now that Rush is dead, she and her aged mother are the only two officers of record, and if she inherits his interest in the LLC, the benefit goes to her.

Some of the tabloids reported that Rush hated Kathryn toward the end and tried to cut her out of his will. However, realistically, if he hated her, he would have liquidated the holding company and wound down the foundation. That didn’t happen.

With his diagnosis, Rush Limbaugh had a year to consider his mortality. There may have been a prenuptial contract, but her name is on all the organizations with his, and these organizations were set up after the marriage.

It looks like he intended for Kathryn to assume control of his assets.

The big question is who inherits his desk and his microphone?

Reference: Wealth Advisor (Feb. 18, 2021) “Rush Limbaugh’s Secret Estate Plan”

 

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Is Cardiovascular Disease in Mid-Life Linked to Alzheimer’s Disease as We Age?

A new study published in the Journal of the American College of Cardiology suggests that cardiovascular disease in mid-life is linked to Alzheimer’s Disease decline in senior years.

New Atlas’ recent article entitled “Poor mid-life heart health linked to dementia in later years” reports that the research found subjects in their 50s with mild hypertension displayed evidence of impaired brain metabolism in areas associated with Alzheimer’s and dementia.  The research was led by a team of Spanish researchers.

The article explains that atherosclerosis is a common cause of cardiovascular disease, involving the slow build-up of cholesterol and fats on artery walls. It can remain asymptomatic for a long time, progressively narrowing a person’s arteries over the course of years, before any clinical signs show up. Atherosclerosis is, therefore, similar to Alzheimer’s disease and other neurodegenerative conditions, where it takes many years before dementia-like symptoms appear.

Scientists have seen a consistent association between heart disease and cognitive decline in senior citizens for several years. However, the new study is the first to consider the earliest stages of both conditions. Juan Domingo Gispert, joint first author on the study, said his goal is to better understand how these two seemingly disparate conditions may be connected.

“…there is abundant evidence linking cardiovascular risk factors and Alzheimer’s disease,” says Gispert. “If we can gain a more precise understanding of this relationship at asymptomatic disease stages, we will be in a position of design new strategies to prevent Alzheimer’s, matching the success of current strategies to prevent cardiovascular disease.”

The study reviewed PET scans from 547 subjects. The average age of subjects in the cohort was 50, and everyone in the group was diagnosed with subclinical signs of atherosclerosis.

“We found that a higher cardiovascular risk in apparently healthy middle-aged individuals was associated with lower brain metabolism in parietotemporal regions involved in spatial and semantic memory and various types of learning,” explains Marta Cortés Canteli, joint first author on the study.

These specific brain areas that exhibit lower levels of metabolism are the same ones known to be impacted by neurodegenerative diseases, such as Alzheimer’s. A lead author on the study, Valentin Fuster, believes that a possible causal link exists between this early stage of heart disease and dementia in later life.

“We think that cardiovascular risk factors the affect the large vessels carrying blood from the heart to the brain also affect the small vessels in the brain,” says Fuster.

Critics note that the new study doesn’t provide any longitudinal data—it merely suggests is a link between subclinical atherosclerosis and impaired metabolism in certain brain areas. As a result, it’s impossible at this point to determine if this association plays a part in any subsequent onset of Alzheimer’s disease. Cortés Canteli suggests this particular question is one they hope to answer, but it will take years of work.

“The next step will be to determine whether individuals with subclinical atherosclerosis in the carotid arteries and low brain metabolism at the age of 50 go on to experience cognitive decline 10 years later,” says Cortés Canteli.

“…although everybody knows about the importance of caring for ourselves and controlling cardiovascular risk factors in order to avoid a heart attack, the association of these same risk factors with cognitive decline may increase awareness of the need to acquire healthy habits from the earliest stages of life,” Fuster noted.

Reference: New Atlas (Feb. 15, 2021) “Poor mid-life heart health linked to dementia in later years”

 

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Does Estate of ‘ Erin Brockovich ’ Lawyer Owe Money?

Years after the environment contamination case made famous by the 2000 film “ Erin Brockovich ” concluded, after attorney Ed Masry’s death, his law firm filed for bankruptcy and transferred its files to Tom Girardi and his law firm, Girardi Keese. In a July 2020 court filing in the bankruptcy case of Masry’s law firm, Masry’s estate claimed that Girardi has yet to turn over settlement funds from nine of those cases, according to law.com’s recent article entitled “The Estate of Ed Masry, of Erin Brockovich Fame, Says Tom Girardi Owes Them Money.”

“Each of the unaccounted for cases appears to have settled, but no disbursements from the settlement funds have been made to the Masry Estate,” wrote an attorney for the estate, Douglas Harris, an associate at Alston & Bird in Los Angeles.

Harris also wrote that “The Masry Estate had yet to receive money under the confirmed plan since November 2018, although there are a number of remaining pending cases and possibly undistributed settlement funds, which should have been distributed pursuant to the confirmed plan.”

The estate asked Bankruptcy Judge Maureen Tighe, Chief Judge of the Central District of California, for an order that Girardi’s law firm produce documents connected with the payment and distribution of those funds. Judge Tighe granted that request and ordered Girardi Keese to provide the documents. It’s not known if Tom Girardi’s firm complied with the order. Leonard Pena, a Pasadena, California lawyer who’s representing Tom’s brother, Robert Girardi, has asked a bankruptcy judge to appoint him “next friend” guardian ad litem for his brother.

The filings come as Girardi and his law firm were due to provide a list of creditors this week to federal bankruptcy Judge Barry Russell, who ordered both of them into Chapter 7 bankruptcy proceedings. Girardi’s creditors filed involuntary bankruptcy petitions when a federal judge issued a $2 million contempt judgment against both Girardi and his firm for failing to pay four clients in settlements over Boeing’s 2018 crash of the Lion Air 610 aircraft in Indonesia.

Girardi has a number of lawsuits still pending. Trustees are examining his cases, especially settlements that could wind up awarding fees, as potential assets for the bankruptcy estates. These cases could generate $10 million in fees, but some clients already are looking to find new counsel.

Several litigation funders have also filed claims. One of these is California Attorney Lending II, which obtained a $6.2 million judgment against Girardi and his firm in October. California Attorney Lending is a secured creditor in the 2009 bankruptcy of Masry’s firm, Masry & Vititoe.

Richard Labowe, a lawyer for California Attorney Lending, told The National Law Journal that his client at one point had a “claim in excess of $10 million” in the Masry firm bankruptcy. “Unsecured creditors did get some payments along the way in the early days,” said Labowe. “And then, arguably, things dried up.”

Girardi worked on the “ Erin Brockovich ” case with Masry and represented residents of Hinkley, California, who sued Pacific Gas & Electric Co. over contaminated drinking water. Masry hired Erin Brockovich as a legal clerk. The firm reached a $333 million settlement in 1996.

“Here, a significant amount of time has lapsed since the Masry Estate received a disbursement from the cases under the confirmed plan, even though each of the unaccounted-for cases appears to have settled,” Harris wrote. “These documents will provide information as to whether there are any amounts from the unaccounted-for cases that must be disbursed and paid to the Masry Estate and whether Girardi Keese is complying with, or violating, the terms of the plan.”

Reference: law.com (Jan. 21, 2021) “The Estate of Ed Masry, of Erin Brockovich Fame, Says Tom Girardi Owes Them Money”

 

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Can Unmarried Couples have an Estate Plan?

For unmarried couples, having an estate plan might be even more important than for married couples, especially if there are children in the family. The unmarried couple does not enjoy all of the legal protection afforded by marriage, but many of these protections can be had through a well-prepared estate plan.

A recent article “Planning for unmarried couples” from nwi.com explains that in states that do not recognize common law marriages, like Indiana, the state will not recognize the couple as being married. However, even if you learn that your state does recognize a common law marriage, you still want to have an estate plan.

A will is the starting point of an estate plan, and for an unmarried couple, having it professionally prepared by an experienced estate planning attorney is very important. An agreement between two people as to how they want their assets distributed after death sounds simple, but there are many laws. Each state has its own laws, and if the document is not prepared correctly, it could very easily be invalid. That would make the couple’s agreement useless.

There are also things that need to be prepared, so an unmarried couple can take care of each other while they are living, which they cannot legally do without being married.

A cohabitating couple has no right to direct medical care for each other, including speaking with the healthcare provider or even seeing their partner as a visitor in a healthcare facility. If a decision needs to be made by one partner because the other partner is incapacitated, their partner will not have the legal right to make any medical decisions or even speak with a healthcare provider.

If the couple owns vehicles separately, the vehicles have their own titles (i.e., the legal document establishing ownership). If they want to add their partner’s name to the vehicle, the title needs to be reissued by the state to reflect that change.

If the couple owns a home together, they need to confirm how the home is titled. If they are joint tenants with rights of survivorship or tenants in common, that might be appropriate for their circumstances. However, if one person bought the home before they lived together or was solely responsible for paying the mortgage and for upkeep, they will need to make sure the title and their will establishes ownership and what the owner wants to happen with they die.

If the wish is for the surviving partner to remain in the home, that needs to be properly and legally documented. An estate planning attorney will help the couple create a plan that addresses this large asset and reflect the couple’s wishes for the future.

Unmarried cohabitating adults need to protect each other while they are living and after they pass. A local estate planning attorney will be able to help accomplish this.

Reference: nwi.com (Jan. 24, 2021) “Planning for unmarried couples”

 

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Divorce, Death and Details: Missteps can Create Estate Planning Disasters

This estate battle from a divorced couple shows how small details can become huge headaches. Four courts and several years after this estate battle began, a family won a case that could have been easily prevented, as reported in The Dallas Morning News article “The way out of the ERISA trap: A tale of divorce, death and money.”

A couple married and then divorced. The divorce decree clearly stated that Mike was awarded all of his employee benefits, including his life insurance. However, when Mike logged into his employer’s benefits systems, it would not allow him to delete his ex-wife as the beneficiary of his life insurance. It may have been programmed that way. There are laws concerning removing spouses from employee benefits. Or it was a glitch. However, Mike did not pursue it.

When Mike died, he was survived by his parents, who claimed his estate, but the $377,000 life insurance policy was not part of his estate because his ex-wife was still the beneficiary.

His parents filed a claim with the insurance company for the proceeds of the insurance policy.

The first court they filed in was the probate court, so they could be properly recognized as Mike’s heirs. The probate court found in their favor and named Mike’s dad as the independent administrator of his estate.

The second court was federal court. That’s because employee benefits are governed by a federal law ERISA—the Employee Retirement Income Security Act—that controls employee benefits, including employer-provided life insurance. These matters can only be dealt with by a federal court.

The federal court ruled that because Mike’s ex was on the beneficiary form, she was the rightful owner.

However, Wendy had waived her rights to the insurance benefits when she signed off on the divorce decree. Mike’s parents were determined to win this battle.

Their legal team took the argument next to court three—the original divorce court. Mike’s dad, in the position of the estate administrator, argued that while Wendy did have a right to receive the money under ERISA, she did not have a right under state law to keep it. She had waived that right in the divorce decree. The divorce court agreed and found that Mike’s estate owned the proceeds. The money was to be turned over to Mike’s parents.

Court number four came when Wendy petitioned the state appellate court to overturn the award. She lost.

What were the factors that allowed Mike’s parents to win this case? The divorce decree contained clear language regarding the life insurance policy. If it had been poorly drafted, the results could have been different. Mike’s parents went through all the correct procedural courts—establishing heirship, then probate, then divorce enforcement case.

One step could have been added: a restraining order so that the ex could not squander the money between the time that she received the proceeds and when the final judgement was rendered.

Reference: The Dallas Morning News (Jan. 24, 2021) “The way out of the ERISA trap: A tale of divorce, death and money”

 

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Does a Will Supersede a Beneficiary Form ?

It’s a simple question: do you know who your retirement account beneficiaries are? These tax-deferred accounts are complex, with significant tax implications for heirs that become more challenging if key information is missing on beneficiary forms, which is often the case. According to this recent article from The Street, “Secure your IRA—Review Your Beneficiary Forms Now,” the SECURE Act was the biggest retirement law change in decades. As a result, there has never been a more important time to review beneficiary forms.

Start by requesting a copy of your beneficiary designation forms from all of the institutions that hold your IRAs, 401(k)s, 403(b)s, and any tax deferred savings accounts to check for errors and accuracy. Most people fill these forms out when the accounts are opened and never give them a second thought.

The courts see many cases where family dynamics changed, but beneficiary forms were never updated. The cost and stress of estranged or divorced spouses receiving a lifetime of retirement savings because no one thought to update the form cannot be overstated.

It is pretty easy for most of us to locate our wills, trusts and life insurance policies, but we tend not to keep copies of our retirement account beneficiary forms. This makes no sense, as these are the accounts where most people have saved the bulk of their wealth.

Account owners are generally unaware of how important the beneficiary document is, or the consequences of the information being out of date. These documents are more powerful than the will.

These assets pass outside of the will. No matter what your will says, the assets in the accounts pass to whoever is named on the beneficiary form.

If there is no beneficiary named on the form, the asset will likely be paid to your estate. When this happens, the account must be fully distributed within five years of the account owner’s death, if they died before their required beginning date of distributions. If there are no named beneficiaries and the account owner dies on or after the required beginning date, there may be less of a negative impact. An estate planning attorney will be able to help you and your heirs plan for this event.

The SECURE Act made this harder for anyone who dies after 2019. For retirement accounts inherited after December 31, 2019, there are classes of beneficiaries and each has their own distribution rules.

Many trusts named as beneficiaries of IRAs/retirement plans no longer work as planned. If your estate plan named a trust as a beneficiary for a tax-deferred account, speak with your estate planning attorney to make any necessary changes.

The SECURE Act eliminated the use of the “Stretch” IRA for most non-spouse beneficiaries. This means that most heirs will need to empty any inherited accounts within ten years of the death of the owner, rather than stretch the distributions over their own lifetimes. Failure to do so could lead to a 50% penalty of the amount not distributed plus taxes.

Your estate planning attorney may be able to create alternatives to the stretch IRA, but the first step to address this issue is to obtain your beneficiary forms. Once you have them in hand, you can make the necessary changes and begin to plan for the optimal distribution of your assets.

Reference: The Street (Dec. 28, 2020) “Secure your IRA—Review Your Beneficiary Forms Now”

 

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