Make Sure Your Beneficiary Designations Match Your Estate Plan – Lexington, KY

Make Sure Your Beneficiary Designations Match Your Estate Plan – Lexington, KY

Many types of property and investments pass outside of probate and allow you to designate who will receive them after your death. It is important that these designations are kept up to date and are consistent with the rest of your estate plan.  When you open up an investment account or retirement plan or buy life insurance, the company encourages you to name beneficiaries who will inherit the property on your death. The choice you made at the time may not have taken your estate plan into consideration. To review your beneficiaries, get a copy of all of your beneficiary designation forms. Check to make sure that your beneficiaries are consistent with the rest of your estate plan or, if they are different, that the difference is intentional. If you made these designations online, print a copy of the page so that you also have a paper record. Once you have collected all of these forms, put them in a folder with your other estate-planning documents so that you and your heirs can quickly and easily find them in the future.  In determining how to make your beneficiary designations, the following are the considerations for each type of account: Bank and investment accounts. If you have a revocable trust as part of your estate plan, you can make the trust the owner of all of your bank and investment accounts. This way you avoid the need to name anyone as beneficiary and you still avoid probate. Then, all of the protections provided in the trust–for instance, that children do not receive their inheritance until a certain age or provisions for who receives the funds if a beneficiary predeceases you–will apply to the accounts. If you’re not using a revocable trust, simply name those who will receive your estate under the terms of your will. Or you have the option to name no one. If you do not designate a beneficiary, the account will pass according to the terms of your will and, while you won’t avoid probate, you’ll make sure that the people you want will receive the assets, that your personal representative will be in charge, and that any changes you make in the future–such as disinheriting your wayward nephew– will apply to the accounts. Life insurance. Unlike bank and investment accounts, the ownership of many life insurance policies–especially those that come as an employment benefit–cannot be transferred to your revocable trust. And there is really no benefit to doing so in any case (although there might be some tax and long-term care planning reasons to transfer property to irrevocable trusts). Instead, the beneficiary designation is the most important decision. If you have a revocable trust, you may name it as the beneficiary for the reasons mentioned above. Or you can name particular individuals. The beneficiary designation form will permit you to name alternates in the event that the first person or people you name predecease you. Retirement plans. First, don’t transfer your retirement plans to your revocable trust. The only way to do so is to liquidate the plan first, which would be a taxable event. Second, don’t name your revocable trust as a beneficiary of your retirement funds without consulting your lawyer. In most instances, if your spouse is not the beneficiary, the retirement plan will have to be...

read more

A Modest Social Security Increase for 2021

A Modest Social Security Increase for 2021

Tax Information and Answers in Lexington, KY The Social Security Administration has announced a 1.3 percent rise in benefits in 2021, an increase even smaller than last year’s.  Cost-of-living increases are tied to the consumer price index, and a modest upturn in inflation rates and gas prices means Social Security recipients will get only a slight boost in 2021. The 1.3 percent increase is similar to last year’s 1.6 percent increase, but much smaller than the 2.8 percent rise in 2019. The average monthly benefit of $1,523 in 2020 will go up by $20 a month to $1,543 a month for an individual beneficiary, or $240 yearly.  The cost-of-living change also affects the maximum amount of earnings subject to the Social Security tax, which will grow from $137,700 to $142,800. For 2021, the monthly federal Supplemental Security Income (SSI) payment standard will be $794 for an individual and $1,191 for a couple. Some years a small increase means that additional income will be entirely eaten up by higher Medicare Part B premiums. But this year, that shouldn’t be the case. The standard monthly premium for Medicare Part B enrollees is forecast to rise $8.70 a month to $153.30. However, due to the coronavirus pandemic, under the terms of the short-term spending bill the increase for 2021 will be limited to 25 percent of what it would otherwise have been. Most beneficiaries will be able to find out their specific cost-of-living adjustment online by logging on to my Social Security in December 2020. While you can still receive your increase notice by mail, you have the option to choose whether to receive your notice online instead of on paper. For more on the 2021 Social Security benefit levels, click here. To give local help and answers to your Social Security questions, call Gayheart Law at (859)...

read more

IRS Issues Long-Term Care Premium Deductibility Limits for 2021

IRS Issues Long-Term Care Premium Deductibility Limits for 2021

Tax Help and Answers in Lexington, KY The Internal Revenue Service (IRS) has announced the amount taxpayers can deduct from their 2021 income as a result of buying long-term care insurance. Premiums for “qualified” long-term care insurance policies (see explanation below) are tax deductible to the extent that they, along with other unreimbursed medical expenses (including Medicare premiums), exceed 10 percent of the insured’s adjusted gross income in 2021 (the threshold is 7.5 percent for the 2020 tax year).  These premiums — what the policyholder pays the insurance company to keep the policy in force — are deductible for the taxpayer, his or her spouse and other dependents. (If you are self-employed, the tax-deductibility rules are a little different: You can take the amount of the premium as a deduction as long as you made a net profit; your medical expenses do not have to exceed a certain percentage of your income.)  Additionally, these tax deductions allowed by the IRS for long-term care insurance premiums are generally not available with so-called hybrid policies, such as life insurance and annuity policies with a long-term care benefit.  However, there is a limit on how large a premium can be deducted, depending on the age of the taxpayer at the end of the year. Following are the deductibility limits for tax year 2021. Any premium amounts for the year above these limits are not considered to be a medical expense. Attained age before the close of the taxable year Maximum deduction for year 40 or less $450 More than 40 but not more than 50 $850 More than 50 but not more than 60 $1,690 More than 60 but not more than 70 $4,520 More than 70 $5,640 Another change announced by the IRS involves benefits from per diem or indemnity policies, which pay a predetermined amount each day. These benefits are not included in income except amounts that exceed the beneficiary’s total qualified long-term care expenses or $400 per day, whichever is greater. For these and other inflation adjustments from the IRS, click here. For tax year 2020 deductibility limits, click here.   What Is a “Qualified” Policy? To be “qualified,” policies issued on or after January 1, 1997, must adhere to certain requirements, among them that the policy must offer the consumer the options of “inflation” and “nonforfeiture” protection, although the consumer can choose not to purchase these features. Policies purchased before January 1, 1997, will be grandfathered and treated as “qualified” as long as they have been approved by the insurance commissioner of the state in which they are sold. For more on the “qualified” definition, click here. Call Gayheart Law today for any tax questions or help: (859)...

read more

Do You Pay Capital Gains Taxes on Property You Inherit? – Lexington, KY

Do You Pay Capital Gains Taxes on Property You Inherit? – Lexington, KY

When you inherit property, such as a house or stocks, the property is usually worth more than it was when the original owner purchased it. If you were to sell the property, there could be huge capital gains taxes. Fortunately, when you inherit property, the property’s tax basis is “stepped up,” which means the basis would be the current value of the property. For example, suppose you inherit a house that was purchased years ago for $150,000 and it is now worth $350,000. You will receive a step up from the original cost basis from $150,000 to $350,000. If you sell the property right away, you will not owe any capital gains taxes. If you hold on to the property and sell it for $400,000 in a few years, you will owe capital gains on $50,000 (the difference between the sale value and the stepped-up basis). On the other hand, if you were given the same property, as opposed to receiving it upon the owner’s death, the tax basis would be $150,000. If you sold the house, you would have to pay capital gains taxes on the difference between $150,000 and the selling price. The only way to avoid the taxes is for you to live in the house for at least two years before selling it. In that case, you can exclude up to $250,000 ($500,000 for a couple) of your capital gains from taxes. Call Gayheart Law today for your capital gains questions: (859)...

read more

The Hazards of Do-it-Yourself Estate Planning – Lexington, KY

The Hazards of Do-it-Yourself Estate Planning – Lexington, KY

Many websites offer customized, do-it-yourself wills and other estate planning documents.  Although such products are convenient, using them could create serious and expensive legal problems for heirs.  These digital services appear to offer a cost-effective and easy alternative to visiting an estate planning or elder law attorney. But is online estate planning worth the convenience and initial savings? While online services might work fine if you have little or no property, small savings or investments, and a traditional family tree, anyone whose needs are not simple should not try to create an estate plan without the help of an attorney.  And you’ll likely need a lawyer to definitively determine whether or not your needs are indeed simple. Do you have an estate that is taxable under state or federal law? Do you own significant amounts of tax-deferred retirement plans? Do you know how to fund a revocable trust? Is there anything about your estate that is unusual, such as having children from a previous marriage or a disabled child? If you have any questions about your estate plan, you need to see a professional.  The following are some examples of what can happen if you try to create an estate plan without the help of an attorney: Using an online generic will, a Florida woman listed several possessions and bank accounts that she intended to go to her brother. After writing the will, the woman inherited additional money and property. However, the woman did not have a “residuary clause” in the original will to say where additional assets should go, and she never revised the will to account for this new property. After she died, her brother argued he should be entitled to her entire estate, but her nieces argued the estate should pass intestate (under the laws of her state as if she had died without a will). The court ruled that because the will had no residuary clause or general bequests that could include the inherited property, the after-acquired property would pass under Florida’s laws of intestacy. This meant the brother was not the sole beneficiary. Aldrich v. Basile (Fla., No. SC11-2147, March 27, 2014)A Massachusetts man used a pre-packaged will form to leave his home to his wife and his four grown children, the product of an earlier marriage. The problem was that the will didn’t give the wife the option to remain in the house for the rest of her life.  A court case ensued because the children, who possessed the majority interest in the property, could have legally forced the wife to move.  A Pennsylvania man wanted his estate to go to only two of his five children. He wrote his own will, giving his pickup truck to his daughter and his summer house to his son. He also wrote in the will that he was intentionally leaving out his other three children. The problem was that the man did not specify what to do with the remainder of his estate. He died leaving an estate of $217,000. While he probably intended for that money to go to the two children he didn’t disinherit, because the will had no residuary clause, the remainder of the man’s estate passed under the state law that specifies who inherits when there is no will. This meant the estate...

read more