Susan went through a very hard time when her husband, Steven, died.  Not only was she grieving the loss of her husband, but she had to deal with so many other things – making funeral arrangements, contacting Steven’s employer, the life insurance company, their lawyer, the bank.  And on and on it went.  And then, in the middle of all this, Susan started getting calls from a debt collection agency.  Her husband had a credit card under his own name.  But the collection agency was pressuring Susan, insisting that she must pay off Steven’s credit card debt.  The agency was relentless, calling repeatedly, demanding payment.  Susan just didn’t know what to do.

Fortunately for her, Susan had an attorney shepherding her through the whole estate probate process.

The attorney informed Susan that she was not personally responsible for paying off her husband’s debt.

1. When a deceased person dies, his personal assets become his “estate.”  Generally speaking, debts are paid out of the estate.  If there isn’t enough money in the estate, creditors (and their debt collectors) are out of luck.

2. Susan’s husband designated her as the beneficiary of his $100,000 life insurance policy.  Since life insurance left to a designated beneficiary is not included in the probate estate, the insurance money Susan inherited was not subject to creditors’ claims.

3. Susan’s husband also designated Susan as the beneficiary to his 401K.  Retirement accounts left to a designated beneficiary, such as 401Ks and IRAs, are usually protected from the decedent’s creditors.  This was the case for Susan, and it meant that the 401K money she inherited was also not subject to creditors’ claims.

4. Susan and Steven resided in New Jersey, which is not a “Community Property State.”  Consequently, Susan’s home, which she owned jointly with her husband, was also outside the reach of Steven’s creditors.

5. Finally, Susan had not jointly applied with her husband for the credit card; she had not co-signed the application.  Since the card was only in Steven’s name, Susan was under no legal obligation to pay his credit card bill.

Given the circumstances, Susan did not pay the collection agency.  However, this is a cautionary tale.  When faced with a deceased loved one’s debt, there are so many different circumstances and corresponding legal considerations.  It’s best to consult with an expert.  Don’t be intimidated by debt collection agencies.  Gathering information and speaking with reputable experts is the way to go before you do anything else!

Getting Legal Help:

Experienced Estate Planning Attorney, Elga A. Goodman, can advise you regarding your deceased loved one’s debts and your obligations.  Contact us today at 973-841-5111.

The information contained herein is for informational purposes only and should not be construed as legal or tax advice.  The persons and situation discussed are fictional.  Any resemblance to real persons or to real life examples is purely coincidental.


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Alex, a 30-year old man with Down syndrome, has cause to celebrate today.  As a Special Needs individual, Alex receives Medicaid and Supplemental Security Income (SSI).  However, these federally funded benefits have been attached to some very restrictive rules.  Specifically, up until now, Alex has been prohibited from having more than $2,000 in savings.  If he exceeds that amount he loses government funding.

Given this minuscule savings limit, Alex has never been able to improve his life beyond what the government was willing to fund.  So, Alex could never dream of living in his own apartment, or going to college, or having discretionary funds available for enhanced medical treatments.  But that may soon change!  Congress voted to enact the “Achieving A Better Life Experience (ABLE) Act on December 16, 2014.  The President is expected to sign the bill.

Under the ABLE Act, a disabled person may have up to $100,000 in personal savings in a 529A savings account without losing major federal means-tested benefits.  Specifics are as follows:

– Special needs children and adults diagnosed before age 26 are eligible for 529A accounts.

– Only one 529A account per disabled individual is permitted.

– These accounts may be funded by the individual, his family, or anyone else who wishes to do so.  Total annual deposits may equal the annual gift tax exemption (currently $14,000 per year).

– Qualified disability expenses that may be paid with 529A funds include among other things: education, housing, transportation, employment training, personal support services, and health.

– 529A plans function in a manner similar to the very popular 529B college savings plans with associated tax benefits.

– 529A’s will be administered by the individual states.

Soon a new day will dawn for Alex.  One that makes him more financially independent; one that gives him more control over his own life.

Getting Legal Help:

Experienced Estate Planning Attorney, Elga A Goodman, can help you understand the new law.  She can work with you on all your Special Needs and Estate Planning issues.  Contact us today at 973-841-5111.

 

 

 

 

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When his 75-year-old father died, forty-year-old John inherited his father’s $1 million traditional Individual Retirement Account (IRA).  John wasn’t sure what to do with all that money.  So, he contacted the financial institution managing his father’s IRA and asked them to send him a check for the full amount.  He figured that once he got the money, he’d put it in his savings account and give himself a little time to decide what he would ultimately do.  After all, he knew that with his own traditional IRA he could take the money and roll it into another IRA within 60 days without penalty.

But that’s not the way it works with inherited IRAs.  Unfortunately, John didn’t wait to find out the rules.  And so, because he received that lump sum distribution, he lost out on the opportunity to stretch out the growth and tax benefits of that money over years, possibly decades!  Instead, the $1 million was included as income the year he received it, placing him in the highest tax bracket!  With a combined Federal and NJ state marginal income tax rate of 45%, John paid $450,000 in taxes on that $1 million distribution!

So let’s examine this:

–   As noted above, John requested the lump sum payout before he knew what rules applied to his inherited IRA. He should not have done this!

–   Under the IRA beneficiary rules, John could not roll over the $1 million to his personal IRA.  However, there’s a strong likelihood that he could have rolled over the $1 million via a direct trustee to trustee transfer into an inherited IRA account.

–   Usually, under the terms of an inherited IRA account, John would have been able to withdraw a minimum amount each year over his expected lifetime (as calculated by a specific formula).  Or, if he preferred fewer distributions (for example, over 10 years), he could have requested that, receiving an annual payout of $100,000 for each of those years.  In either case, that would have left money in the account to appreciate, income tax deferred, for an extended period of time.

–    And, John’s yearly income taxes for the annual withdrawal from this IRA would have been significantly less burdensome than the income taxes on the $1 million he received in a lump sum!

Getting Help:

The rules for inherited IRAs are very complicated.  Depending on the circumstances, different rules may apply.  If the rules are not properly followed, the IRA beneficiary may end up paying higher taxes or penalties along with forfeiting opportunities for future tax-advantaged growth.   Given the potential pitfalls all along the way, it is best to contact an expert, such as an estate attorney or financial advisor, to help insure that you are managing your IRA inheritance in a way that meets your needs and minimizes annual income taxes while optimizing long-term financial growth.

Experienced Estate Planning Attorney, Elga A. Goodman, can help you successfully navigate through the maze of rules and regulations associated with inherited IRAs.  Contact us today at 973-841-5111.

The information contained herein is for informational purposes only and should not be construed as legal or tax advice.  The persons and situation discussed are fictional.  Any resemblance to real persons or to real life examples is purely coincidental.

 

 

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In our last post, we discussed problems that may arise if a person dies intestate (without leaving a Will).  In this post, we discuss the process for administering and distributing the assets of someone who dies intestate:

What you should know:

1. The Surrogate’s Court (in the county where the deceased resided) has judicial oversight over how the estate is administered.

2. Typically, upon an individual’s death, the surviving spouse, or, if there is no spouse, an adult child or other close relative petitions the Surrogate’s Court to be appointed administrator for the estate.  When no relative is willing to serve, or none is available, a non-family member may seek the appointment.

Note: If the spouse applies to serve as administrator, the other heirs are not required to give consent.  However, if someone other than the  spouse seeks to serve, then the other heirs must consent by completing “renunciation forms.”   If the heirs cannot agree on who should serve, then the court selects the administrator.

3. The administrator is responsible for collecting and preserving the assets, paying all outstanding bills, federal and state taxes, and funeral expenses, and distributing the remaining assets to the beneficiaries.

Note:  The administrator must post bond for a specified amount of money as determined by the court.  If the administrator fails to successfully fulfill his/her duties, then the bond will be used to offset the resulting financial damages or losses.

4. Because there is no Will, assets that would normally pass through a Will are distributed in accordance with the state’s “intestate succession” laws.  These laws designate the rightful heirs and specify the estate distribution amounts.

So, for example, if the deceased was married and

-  had children from this marriage only, the entire estate would go to the surviving spouse.

-  had children from this marriage and from a prior marriage, then the surviving spouse would receive the majority of the estate (over 50%) with the children inheriting everything else.

- had surviving parents, but no children, then the surviving spouse would receive the majority of the estate, with the parents inheriting everything else.

5.  Some assets are not bequeathed through a Will, and, therefore, are not subject to intestate succession laws.  For example, the deceased may have left the following:

-life insurance proceeds, IRAs, 401Ks, and other retirement accounts for which beneficiary designation forms were completed

- payable-on-death bank accounts

- property transferred to a living trust

- property owned jointly with someone else.

Such assets pass directly to the named beneficiaries or to the surviving co-owners.  In these cases, there is no ambiguity regarding who the beneficiaries are, or what they should inherit.

Getting Legal Help

Losing a loved one is hard enough.  But, when someone dies without a Will, identifying what must be done, and how to navigate through the courts, can be very stressful and confusing.  Experienced Estate Planning Attorney, Elga A. Goodman, can help you meet this challenge and successfully work through the process. Contact us today at 973-841-5111.

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When There’s No Will, Problems May Arise

October 21, 2014

A critical part of estate planning involves preparing your Will.  Doing so helps ensure that your estate will be distributed to your heirs according to your wishes. Unfortunately, many people neglect to prepare a Will.  The reasons are many.  But the bottom line is that once you’re gone, and there’s no Will, things get more […]

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Estate Planning – Questions About Tangible Personal Property

October 21, 2014

Preparing a Will enables you to direct how and to whom your estate will be distributed once you’re gone.  Your estate is comprised of your  intangible personal property (including cash, IRA’s, 401Ks, bank accounts, insurance policies, etc.), real estate, and  “tangible personal property.”  Many times people wish to be very specific regarding how their tangible personal […]

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Estate Planning: Telling your Children What You’re Planning and Why

October 7, 2014

A critical part of estate planning involves identifying your beneficiaries, and specifying what they will inherit.  Parents (particularly those who are widowed or divorced) often designate their children as beneficiaries.  However, problems may arise among the kids depending on how those assets are divided.  Examples abound, but here are just a few: You have three […]

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The Perils of Inconsistencies Between Divorce Decrees and Beneficiary Designations.

August 28, 2014

The standard language in divorce decrees regarding each party’s obligation to maintain life insurance for the children of the marriage is, in many instances, not sufficient to protect the intended beneficiaries.  To avoid such pitfalls, it is recommended that the two parties negotiate the beneficiary designation language to help insure that the divorce decree accurately […]

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If You Do Not Want Your Executor to Receive a Commission, Put It In Writing!

August 1, 2014

Unfortunately, when a loved one dies, arguments may arise among the heirs to the estate (also known as the beneficiaries).  One potential area of dispute may involve a commission due the Executor for serving in that capacity.  The following is a brief overview of the Executor’s role, and an example of the type of problem that may […]

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My Authority Under the The Power of Attorney Ended?

July 1, 2014

One important aspect of estate planning involves the Power of Attorney (POA).  Much confusion abounds regarding when POAs stop being in effect. We hope the following discussion will help clarify this issue. Generally speaking, the POA is a legal document whereby one person (the principal) authorizes another person (the agent) to act on the principal’s […]

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