Blogs from February, 2020

What do Tupac Shakur, Jimi Hendrix, Kurt Cobain, Amy Winehouse, Bob Marley, Steve McNair, Martin Luther King Jr., Stieg Larsson, Abraham Lincoln, Prince, Barry White, Sonny Bono, Howard Hughes, and Pablo Picasso have in common? They all died without a will, trust, or any estate plan in place.

• Tupac Shakur (25 years old) rap artist and actor
• Jimi Hendrix (27 years old) rock guitarist, singer, and songwriter
• Kurt Cobain (27 years old) singer/songwriter and frontman for Nirvana
• Amy Winehouse (27 years old) singer/songwriter
• Bob Marley (36 years old) singer/songwriter
• Steve McNair (36 years old) former NFL quarterback and Pro Bowler
• Martin Luther King Jr. (39 years old) civil rights leader and activist
• Stieg Larsson (50 years old) famous author
• Abraham Lincoln (56 years old)  one of the most famous lawyers of our time and the sixteenth president of the United States
• Prince (57 years old)  singer/songwriter
• Barry White (58 years old) entertainer
• Sonny Bono (62 years old) entertainer turned U.S. Congressman
• Howard Hughes (70 years old) entrepreneur and billionaire
• Pablo Picasso (91 years old) famous artist

Even though we know that we need to have estate planning in place, many people procrastinate and wait to do it “later” because we always think we have more time. But we really don’t know. We don’t know when we will die. We don’t like to think about or talk about death or what will happen to our families, loved ones, and assets after they are gone. The subject can be difficult and at times may seem confusing and depressing to discuss and dwell upon. However, establishing an individually tailored and comprehensive plan not only provides instructions stating who you want to receive your assets when you die, but also provides specific details about what they are to receive and when they are to receive it. An effective plan is comprehensive and will include these provisions while ensuring that the least amount of money is paid in taxes, legal fees, and court expenses while reducing to the greatest extent possible, the potential for court proceedings and delay.

If someone you know needs to talk with estate planning experts, forward this email to them! We would be happy to schedule a complimentary consultation with them to talk more about their unique situation. 

Part of an estate planning attorney’s job is to play devil’s advocate and ask the question “what if?”

• What if you can’t sign your own name?
• What if your mental capacity is diminished and you need a guardian?
• What if you can’t make your own medical decisions?

Let me tell you a story. Last Thanksgiving week, I had a very upsetting phone conversation with a worried daughter. The daughter lived in another state but was here in DFW for a week to see her dad. Unfortunately, Dad was in hospice in the final stages of a terminal illness. He was expected to pass away soon, so she was calling to try to get help accessing his bank accounts to pay for final expenses. She’d been to the bank and told them that she was his only daughter, but they wouldn’t even tell her how much money was in his accounts.

I asked her if she had power of attorney, but she said that he didn’t have any power of attorney documents. She was also concerned that he wasn’t receiving the type of care that he would want. I asked her if she had medical power of attorney documents or a medical directive from him, but she said that he didn’t have those either.

So, I told her that I could create those documents for him if he could sign them. She told me that the illness and the medication caused him to, essentially, be in a coma that he wasn’t expected to wake up from.

I told her that it was possible to get a temporary, emergency guardianship so that she could take care of some things with court approval, but it would likely take a few weeks and she would likely have to stay in Texas to appear before the court. It was then she told me that she couldn’t stay in Texas and had to get back home.

This is the point where I had to finally say, “I’m sorry. I can’t help you.”

For me, the best part about being an attorney is when I can help people take care of something that they were unable to take care of themselves. Having to tell her that I couldn’t help absolutely broke my heart.

Not only did I have to tell her that there was nothing I could do while he was still alive, I also had to break some bad news to her about taking care of his affairs after he passed away. Because he did not have a will or trust, court proceedings to put her in charge of his affairs would take at least nine months if everyone else in the family agreed and there were no other complications or surprises. I had to tell her that she would have to pay for his final expenses and an attorney out of her own pocket and then, hopefully, get reimbursed for it later.

Please, don’t let this happen to your friends and loved ones. Please, share this email with your friends and family who might not know how important power of attorney documents are! A Durable Statutory Power of Attorney, a Combination Medical Directive/Medical Power of Attorney and HIPPA Release, and a Declaration of Guardian in Advance will allow you to help a friend or family member who is in a crisis situation. Schedule a complimentary consultation with one of our attorneys today so that your loved ones can take care of you if the time comes that you can’t take care of yourself.

After our initial post about the SECURE Act, we began to receive questions, and in response have created a list of FAQs. Each of you is in a unique situation and as such the below questions are general in nature. Reach out to a trusted advisor for a review of your specific investments.

Does A Surviving Spouse Have To Distribute IRA Funds Inherited From Their Deceased Spouse Within 10 Years?

No. There are a few exceptions to the new 10-year distribution rule. One of the exceptions is that a surviving spouse can continue to stretch out distributions just like before the SECURE Act was in effect.

What Are The Other Exceptions To The 10-Year Distribution?

As with most laws, the SECURE Act has some exceptions. The exceptions to the SECURE Act are beneficiaries that fall under the category called the “eligible designated beneficiary” (EDB). The following are eligible designated beneficiaries:

• A minor child
  • A minor child does not have to adhere to the 10-year timeline until he or she reaches the age of majority (18 years old in Texas). Upon reaching majority, the beneficiary must comply with the 10-year timeline.
• A disabled individual
  • As defined by Section 72(m)(7) of the Internal Revenue Code “an individual shall be considered to be disabled if he or she is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or to be of long-continued and indefinite duration. An individual shall not be considered to be disabled unless he furnishes proof of the existence thereof in such form and manner as the Secretary may require.”
• A chronically ill individual
  • As defined by Section 7702b(c)(2) of the Internal Revenue Code “any individual who has been certified by a licensed health care practitioner as – being unable to perform (without substantial assistance from another individual) at least 2 activities of daily living for a period of at least 90 days due to a loss of functional capacity, having a level of disability similar (as determined under regulations prescribed by the Secretary in consultation with the Secretary of Health and Human Services) to the level of disability described in clause (i), or requiring substantial supervision to protect such individual from threats to health and safety due to severe cognitive impairment.”
• A person not more than 10 years younger than the decedent account owner.
  • For example, if you pass away when you are 89 and your beneficiary is 79 years old or older (not more than 10 years younger than you at time of death) then your beneficiary does not have to abide by the 10-year timeline.

What If I Am Already Taking Distributions Under The Old “Stretch IRA” Rules? Do I Have To Distribute Everything Within 10 Years Now?

No. The provisions of the SECURE Act only apply to distributions for account owners who die after December 31, 2019. If you inherited a retirement account from someone who died on or before December 31, 2019 – you may continue to take distributions under a stretch IRA distribution arrangement.

Does The SECURE Act Impact ROTH IRAs?

Yes. Roth IRAs and traditional IRAs both will be required to be distributed with 10 years of the death of the original IRA owner. However, ROTH IRAs don’t have tax consequences at the time of distribution because the taxes were paid upfront and the growth of Roth accounts is tax-free. It is interesting to note that the requirement for withdrawal of funds is 10 years from the date of death of the original IRA owner, so in the instance where taxes won’t be owed on Roth IRA distributions, a Roth IRA beneficiary could wait to take their entire distribution on the last day before 10 years with the same result as making distributions equally over the 10-year required period.

What If I’m 70 Years Old In 2020, Do I take Required Distributions At 70 1/2 Like I was Expecting, Or Can I Wait Until I’m 72 Years Old? How Does The SECURE ACT Affect Required Minimum Distributions (RMDs)?

The effective date for the new law was December 31, 2019.

• If you were already taking required minimum distributions under the old law on December 31, 2019, you will continue to do so as normal.
• If you were younger than 70 1/2 on December 31, 2019 – you are not required to take distributions until you are 72 years old and must take your first distribution by April 1st of the year following the year you turned 72 years old
• If you were 70 1/2 on December 31, 2019 – you are required to take distributions under the old law and must take your first distribution by April 1st of 2020.

Note that if you don’t comply with the laws regarding required minimum distributions, you will be assessed a 50% penalty of the amount you were supposed to withdraw. For example, if you were supposed to withdraw $20,000 in 2020 and you fail to do so, you will be penalized $10,000 for failing to follow the rule on required minimum distributions.