Total Counsel Law Group

Should I Roll A 401(k) into My Annuity?

“Many annuities cannot be passed on to a beneficiary; any money left in them when you die goes to the insurance company.”

We’d all like to have guaranteed income after retirement, but there are a few risks to think about before you roll a 401(k) into an annuity. There may also be major fees incurred by annuitants, because you risk losing part of your investment if you die prematurely. You may not be able to pass the rest of the annuity on to your beneficiaries.

Investopedia’s recent article asks “What Are the Risks of Rolling My 401(k) Into an Annuity?” The article says many insurance companies advertise the tax benefits of annuities, but a traditional 401(k) is already tax sheltered. A delayed rollover could mean more taxes.

Extra Fees. The big benefit of annuities is that they give you guaranteed income. However, there are some important differences between the income generated by fixed compared to variable annuities. Most annuity investments are made by people looking to ensure that they are provided for in later life. However, you’re likely to see some major expenses if you own an annuity, in addition to your capital investment. The types of fees from your insurance company will vary, depending on the type of investment you select.

Variable annuities usually have higher fees than fixed annuities, because they require a more active, engaged management style. Annuities that protect your principal or guarantee your balance can’t decrease, but have even higher fees. There also may be one-time up-front costs, like a sales commission or a contract fee.

If you decide to withdraw your initial investment early, you’ll be hit with a big surrender charge, starting at 7% and gradually decreasing over the first seven to ten years of account ownership.

Risk of Loss. If you pass away before you use up your 401(k) savings, your named beneficiary will inherit the account. However, if you die before you get the full benefits from your annuity, the insurance company may keep the rest of your savings. Many annuities have the option of having the contract pay over the course of your life and then transfer to your spouse if you die first. Of course, there may be a fee for this. Ask questions and read the fine print.

Tax Trade-Offs. A financial advisor may recommend annuities, because your investment grows tax deferred. That means you pay no income tax on your gains, until they’re withdrawn. However, if your investment capital is already in a traditional 401(k) or IRA account, a rollover to an annuity gives you no additional tax benefits. Earnings on 401(k) funds are already tax deferred, just like your original contributions. As with an annuity, you don’t pay income tax on your contributions or interest until you withdraw those funds after you retire.

Short Time Limits. Another issue to review when rolling over your 401(k) into an annuity, are the tax implications of the rollover itself. While the IRS permits tax-free rollovers from qualified retirement plans, you must complete the transaction within 60 days. Otherwise, you may lose 20% of your balance. Any amount you don’t roll over is taxable as ordinary income, which can substantially increase your tax liability for the year. If you have a direct rollover from trustee to trustee, you can avoid this.

Reference: Investopedia (July 15, 2019) “What Are the Risks of Rolling My 401(k) Into an Annuity?”

What Will Anderson Cooper Inherit From his Mother Gloria Vanderbilt?

“Anderson Cooper broke the news that his mother Gloria Vanderbilt has died at age 95 of stomach cancer. He's already said he isn't looking forward to a trust fund. The question, then, is where her legacy ends up.”

The 95-year-old Gloria Vanderbilt was “a vestige of another era, reminiscent of Brooke Astor in her longevity and tangible connection to the Gilded Age of railroad and oil barons, who left their mark on New York society,” said Trust Advisor in its recent article, “Does A Long Island Landscaper (And Not Anderson Cooper) Inherit Gloria Vanderbilt's Fortune?”

However, unlike Brooke Astor, Vanderbilt was born in the limelight. Her long life started in the center of dynastic politics that got both messy and public. She and her trust fund became commodities in her parents' divorce.

It’s reported that she had to sell off a few houses to pay the tax bills. Anything left behind is well-hidden in some estate planning documents. With her family fortune dwindling over time, Vanderbilt’s fashion empire came and went. However, the distributions kept coming to fill the holes. The old Vanderbilt fortune may be gone.

Her children and grandchildren built the careers they wanted, investing their inheritances into passion projects, with little or no immediate payday. Some are novelists, filmmakers and TV journalists. Gloria built a fashion empire of her own.

As the baby, Anderson was closest to his mother. He has probably accumulated the most personal wealth after years on CNN, so he doesn't need his mom’s money. Her oldest son Stan probably doesn't need the money either.

Stan has a successful landscaping business in Long Island. Any Vanderbilt money he inherited along the way, is probably well invested.

There's also a third son, Stan's brother Chris. He walked out years ago and never really came back, at least publicly. It’s assumed that he was disinherited at the time. Now, no one is sure if Gloria wrote him out of the will. She may have written him back in. There was allegedly a bit of a thaw in the last few years.

Reference: Trust Advisor (June 17, 2019) “Does A Long Island Landscaper (And Not Anderson Cooper) Inherit Gloria Vanderbilt's Fortune?”

How Do You Fight Financial Elder Abuse?

“Being a celebrity has to be the best gig in the world, right? It comes with money, property, prestige, constant attention and a gang of admirers. However, as the recent news stories about the late legendary Marvel comic book creator Stan Lee and ‘60s psychedelic artist Peter Max show, older celebrities can be just as prone and vulnerable to elder abuse as others.”

Next Avenue’s recent story, “Stan Lee and Peter Max: What to Learn From Their Elder Abuse Cases” notes that the Lee and Max stories have some striking similarities: both seniors look to have been taken advantage of by people close to them. Lee’s former business partner and caretaker Keya Morgan was arrested for elder abuse, false imprisonment and grand theft of an elder dependent adult.

The New York Times recently published a chilling story that Max’s estranged son Adam virtually kidnapped him, as he increasingly became incapacitated. Max’s second wife Mary had to fight for the right to bring him back home. However, Adam alleged that she tried to hire a hit man to damage the artist’s painting hand, and household employees accused her of neglecting her husband. Mary Max died of what is thought to have been suicide in New York City in June.

In recent years, the article said that Max was alleged to have been exploited by his family and associates, who had him signing canvases that others had painted in his trademark style. These bogus paintings were then sold at auctions, as if they were his original artwork.

Elder abuse occurs to one in 10 adults over 60, according to the National Council on Aging, and 60% of elder abuse is perpetrated by family members. About two-thirds of those perpetrators are adult children or spouses. One of the most common forms of elder abuse is financial elder abuse. That’s the misuse or withholding of an older adult’s resources by another. Here are three preventive measures:

1. Don’t let your parent be isolated. Seniors who are mostly alone can become vulnerable to a “gateway” caregiver. That’s a person claiming to be looking out for the person, but instead they may get a power of attorney and transfer that person’s property and financial assets into his or her own name. Help fight this, by having your parent spend time with friends and family.
2. Help your parent with proper legal documents for her financial assets. This will ensure that the senior’s assets don’t fall into the wrong hands. Ask an estate planning attorney about a will, a living trust and a power of attorney. A power of attorney allows a trusted agent to manage your parent’s finances, if he or she can’t.
3. Increase communication with siblings. Everyone in an older person’s life can be the eyes needed to report abuse at the first hint of a problem. This puts a vulnerable senior on the “radar” for these agencies to follow up on for further issues.

Reference: Next Avenue (June 14, 2019) “Stan Lee and Peter Max: What to Learn From Their Elder Abuse Cases”

What’s the Latest on George Michael’s Estate?

“George Michael’s former lover Fadi Fawaz plans to contest the singer’s will, after he and Kenny Goss were cut out of his £98million fortune, a source has claimed.”

The majority of the late singer George Michael’s £98M estate will go to his sisters Melanie and Yioda. Some smaller portions are going to his father Kyriacos and his close friends and former staff.

“George was devoted to his dad and sisters, they were always going to be looked after,” a source told The Sun.

Other beneficiaries named in the will are Michael’s long-time publicist Connie Filippello, his producer David Austin, his cousin Alex Georgiou, his former personal assistant Michelle May and model friend Kay Beckenham.

However, Infosuhoy’s recent article, “George Michael’s former lover Fadi Fawaz ‘plans to contest the singer’s will,’” says that Fadi Fawaz—Michael’s former lover—has said he thinks his exclusion was “completely unfair.”

Fawaz is still living in the Wham! singer’s multi-million-dollar home in London’s Regent Park and he’s reportedly looking into ways he can contest the will.

The 53-year-old Michael passed away at his home in Goring-on-Thames, Oxfordshire, on Christmas Day 2016. Court filings say his estate can now be divided, two years after his death.

His sister Yioda will decide which of the singer’s friends receive what parts of the will, it states.

Former bandmate Andrew Ridgeley was mentioned in the will, but his ex-girlfriend and former Wham! backup singer Shirlie Kemp received a share. However, Michael’s long-term partner, Kenny Goss, and Fawaz are not included in the will. Fawaz dated George from 2012 until his death and found his body.

Fawaz has been squatting in Michael’s home, after ignoring legal letters telling him to vacate the premises.

A substantial portion of the singer’s possessions, including a piano once owned by John Lennon, were donated to The Mill Charitable Trust in his will.

Michael was a long-term supporter of a number of charities, such as Childline, the Terrence Higgins Trust and Macmillan Cancer Support, each of which could also be bequeathed large sums.

Reference: Infosuhoy (June 15, 2019) “George Michael’s former lover Fadi Fawaz ‘plans to contest the singer’s will’”

How Did a Taxi Driver Inherit a Passenger’s Estate?

“A taxi driver who inherited a passenger’s entire estate has been slapped with a huge legal bill after the will was overturned following a bitter legal battle.”

A cabbie who inherited his passenger’s entire estate has been hit with a big legal bill, when the will was overturned after a contentious legal battle.

The New York Post’s recent article, “Cab driver slapped with massive legal fees after inheriting passenger’s estate,” explains that the bizarre story began years ago, when British taxi driver Dean Hughes agreed to transport 348-pound Gary Mendez to various pubs. Many other cabbies refused to take him because of his great size.

Over the years, the two men struck up a friendship. Then, in February 2016, Mendez allegedly phoned Hughes and told him he wanted to leave his entire estate to him in his will, including his home. The two met (where else?) at a pub to sign the legal documents. However, this disinherited Mendez’s long-term partner Hermes Rodrigues. The couple had been in a relationship since 2001. Gary had originally left everything to Rodrigues in an earlier will, that was drawn up in 2013. Rodrigues decided to contest the later will and won, after a judge ruled that Gary had been too affected by alcohol and ill health to fully understand his actions.

At Central London County Court, Judge Eaton Turner stated, “I have great doubts whether Gary had a proper understanding of the contents and effect of the 2016 will. In my judgment, Gary, by this time, no longer had a balanced view of the claims and, in particular, had lost sight of his previous promise to leave the house to Hermes.”

The judge declared the will invalid, so Rodrigues will now inherit the house.

Hughes was also been ordered to pay 85% of the court costs associated with the legal battle, estimated to be more than $63,000. The judge dismissed claims that the cab driver placed his customer under “undue pressure” to change the will. However, he found that Rodrigues “made a substantial contribution to Gary’s welfare over a significant period of his life.”

During the trial, Rodrigues said Mendez had promised to leave his home to him.

“He told me that it would always be my home whatever happened, even if our relationship broke down,” Rodrigues said.

Reference: New York Post (June 11, 2019) “Cab driver slapped with massive legal fees after inheriting passenger’s estate”

What Do I Need to Know About Special Needs Trusts?

“Anyone with a child with special needs understands the need to prepare for the future. A trust is always a good place to start and figuring out a savings goal for that trust is a key part to your planning.”

One of the hardest issues in planning for a child with special needs, is trying to calculate how much money it’s going to cost to provide for the child, both while the parents are alive, and after the parents die.

A recent Kiplinger’s article asks “How Much Should Go into Your Special Needs Trust?” As the article explains, a special needs trust, when properly established and managed, lets someone with a disability continue getting certain public benefits.

Even if the child isn’t getting benefits, families may still want the money protected from the child’s financial choices or those who may try to take advantage of them. A trustee can help manage the assets and make distributions to the child with special needs to supplement his lifestyle beyond what public program benefits provide.

A child with special needs can have multiple expenses, and the amount will depend on the needs and lifestyle of the family and the child's capabilities. One of the biggest unknowns is the cost of housing. If the plan is for the child to live in a private group home-type situation, there are options. Some involve the purchase of a condo in a building with services for those with special needs. Many families also add into the budget eating out once a week, computers and phones and other items.

When the parents pass away, this budget will need to increase, because what the parents did for their child must be monetized.

Fortunately, public benefits can usually offset many of the basic costs for a child with special needs. For example, the child may be eligible for Supplemental Security Income (SSI), as well as a Section 8 housing voucher and SNAP food assistance. When the parents retire, SSI is typically replaced with Social Security Disability Insurance (SSDI), which is one-half the parent's payment.

When the parent dies, this payment becomes three-quarters of that amount. Adult Family/Foster Care may be available. That will depend on the group housing situation.

The child may also be working and bringing in additional income (minus whatever benefits may be offset by this income).

It’s vital to do a complete analysis of the future costs to provide for a child with special needs, so parents can start saving and making adjustments in their planning right away.

The laws on this planning may vary from state to state, so be sure to contact an experienced elder law attorney.

Reference: Kiplinger (June 10, 2019) “How Much Should Go into Your Special Needs Trust?”

Did the Queen of Soul Leave a Will?

“Three handwritten wills have been found in one of the homes of the late Queen of Soul Aretha Franklin, all with a theme of providing for her four sons and even commentary involving others she felt were insincere or ‘grossly inefficient,’ according to the documents.”

Legendary vocalist Aretha Franklin passed away last August of pancreatic cancer. It was believed that she died intestate—without a will, even though she was survived by four adult sons.

The Detroit News’s recent article, “Handwritten wills found in Aretha Franklin home favor her four sons” reports that three handwritten wills have been discovered in one of her homes.

These documents suggest that Aretha had been considering what she wanted to leave to her heirs, if indeed the wills are found to have been written in her hand. Two of the wills discovered in a locked cabinet were dated 2010, eight years prior to her death.

Legal documents were filed by attorneys David J. Bennett and Kevin M. Check, who were hired by the personal representative of the estate, Franklin’s niece, Sabrina Garrett Owens. Bennett has been Franklin's lawyer for more than 40 years.

According to the documents, Owens discovered a key to a locked cabinet that she previously couldn’t open. She found two holographic wills inside that were dated June 21, 2010 and October 20, 2010. Owens also found a spiral notebook with another purported holographic will dated March 31, 2014, under the cushions of a living room couch.

The court filing says that the heirs and their counsel “have been unable to reach a resolution with each other over the admission, validity and dispositive provisions of the purported Holographic Wills.”

Unlike traditional wills, the signing of holographic wills aren’t witnessed and are probated in several states, providing they’re authenticated by other means, such as by verifying the handwriting and the intended wishes they contain. Michigan recognizes holographic wills.

Owens has asked for direction from County Probate Judge Jennifer S. Callaghan on how to continue as personal representative in the matter. A hearing is scheduled for this summer.

“She remains neutral and wishes that all parties involved make wise choices on behalf of their mother, her rich legacy, the family and the Aretha Franklin estate,” a statement said of Garrett Owens, according to the Associated Press.

The new wills certainly add confusion to the probating of Franklin’s estate. The handwritten wills are hard to read and may be a bit embarrassing. If they were personally written by Franklin, some sections contain comments about relatives, attorneys, and even a “Ha, Ha, Ha” and “BS” when describing someone. In an another aside, she said that one attorney had been “grossly inefficient.”

Each document starts with “being in sound mind and physical health” pronouncement—one noted “with the exception of high blood pressure, a mass on the pancreas, diabetes …”

A common theme of these wills is that Aretha clearly wanted to care for her sons: she wanted her automobiles and property to be supervised by one son; and all of her artwork, copyrights, and future royalties from her music to be shared equally by all her boys. She also wanted them to have her personal papers, awards and gold records.

One statement said that she wanted two of her sons to “take business administration classes and get a certificate or degree.” She specifically directed that her grandchildren are also to be gifted.

The only dollar figure listed in the paperwork is a $1.6 million bank account. However, Aretha’s total worth from her various properties, jewelry, royalties and other assets have been estimated at roughly $80 million.

The IRS says that Franklin owed more than $6.3 million in back taxes. However, Bennett says that Franklin paid all her debts, including several million dollars in federal taxes.

Reference: The Detroit News (May 20, 2019) “Handwritten wills found in Aretha Franklin home favor her four sons”

Is There a Market for My Long-Term Care Insurance Policy?

“Some people have life insurance policies that have long-term care riders that allow them to access up to the death benefit for long-term care needs. These might be able to be sold through a life settlement.”

There is a market to sell life insurance through what is known as a life settlement. However, there’s no such market for long-term care policies.

A life settlement is the sale of a life insurance policy to a third party. Usually the owner of the policy receives an amount that’s valued at more than the policy's cash surrender value, but less than its face value or death benefit.

nj.com’s recent article asks, “Can I sell my long-term care insurance policy?” The article explains that HMOs typically don’t include the costs of long-term care or skilled nursing care.

However, some people purchase life insurance policies that contain long-term care riders. This type of policy lets the owner tap into the death benefit for long-term care needs. The policy owner may be able to sell this insurance through a life settlement.

When contemplating the sale of your life insurance policy, you should be certain that you don’t need the life insurance for legacy, estate planning needs or income needs.

Remember that HMOs don’t cover any potential needs for skilled nursing care. A person who moves along the continuum of care to an assisted living facility will need the long-term care insurance.

Be sure to look over the policy details. Long-term care insurance policies, once they’re employed, usually no longer require you to pay the premium.

According to the Genworth Cost of Care annual report, the costs for assisted living facilities in New Jersey, for example, can average over $6,000 a month, while nursing homes average $10,600 per month. This is a significant ongoing expense.

Only a long-term care insurance policy is going to cover the skilled assistance a person will need when she’s not able to do daily living activities, like bathing, toileting, transferring, eating, continence and getting dressed.

Medicare will only pay for up to 100 days in a skilled facility after a hospital stay.

Reference: nj.com (May 21, 2019) “Can I sell my long-term care insurance policy?”

What States Rank the Highest for Elder Fraud in Total Losses?

“Georgia is fifth in the country for elder fraud in total losses, an online publication, Comparitech, reported this month.”

The four states that have higher losses than Georgia are California, Florida, Texas, and Arizona. Georgia’s losses in 2018 totaled $1.5 billion, according to The Augusta (GA) Chronicle’s recent article, “$1.5 billion lost to elder fraud in Georgia last year.”

The article reports that these types of cases have seen an uptick over the past several years, but Georgia hasn’t seen one type of elder fraud that occurs more often than others.

“We have it a good bit,” said Jefferson County Chief Deputy Col. Tim Moore. “We work multiple cases where people have been defrauded. It’s an ever-changing threat.”

Common scams that defraud the elderly include phone calls where the scammer says that he is a law enforcement officer, a representative of the IRS or another agency, or of a business such as a utility company.

Law enforcement provides advice for the public:

• No one should give out any personal information, such as Social Security numbers, bank account numbers, or credit card information. Don’t make payments or make any agreements over the phone.
• Officials also warn that if the caller disconnects in the middle of the conversation, don’t call back because they will charge you for the call.
• Remember that state and federal agencies won’t call and threaten citizens with a warrant over the phone.

In addition, if you get a suspicious email, don’t open its attachments and don’t click on any links that may be in the email. You should contact the agency whose name appears as the sender and verify that is who actually sent the email.

Comparitech explains that the vast majority of elder fraud cases in the U.S. go unreported, and they estimate five million cases of elder fraud occur in the country annually, resulting in $27.4 billion in losses.

Reference: Augusta (GA) Chronicle (May 20, 2019) “$1.5 billion lost to elder fraud in Georgia last year”

What Should I Keep in Mind in Estate Planning as a Single Parent?

“For single parents with a minor child, the stakes are perhaps even higher.”

Every estate planning conversation eventually comes to center upon the children, regardless of whether they’re still young or adults.

Talk to a qualified estate planning attorney and let him or her know your overall perspective about your children, and what you see as their capabilities and limitations. This information can frequently determine whether you restrict their access to funds and how long those limitations should be in place, in the event you’re no longer around.

Kiplinger’s recent article, “Estate Planning for Single Parents” explains that when one parent dies, the children typically don’t have to leave their home, school and community. However, when a single parent passes, a child may be required to move from that location to live with a relative or ex-spouse.

After looking at your children’s situation with your estate planning attorney to understand your approach to those relationships, you should then discuss your support network to see if there’s anyone who could serve in a formal capacity, if necessary. A big factor in planning decisions is the parent’s relationship with their ex. Most people think that their child’s other parent is the best person to take over full custody, in the event of incapacity or death. For others, this isn’t the case. As a result, their estate plan must be designed with great care. These parents should have a supportive network ready to advocate for the child.

Your estate planning attorney may suggest a trust with a trustee. This fund can accept funds from your estate, a retirement plan, IRA and life insurance settlement. This trust should be set up, so that any court that may be involved will have sound instructions to determine your wishes and expectations for your kids. The trust tells the court who you want to carry out your wishes and who should continue to be an advocate and influence in your child’s life.

Your will should also designate the child’s intended guardian, as well as an alternate, in case the surviving parent can’t serve for some reason. The trust should detail how funds should be spent, as well as the amount of discretion the child may be given and when, and who should be involved in the child’s life.

Your trust should state who has authorized visitation rights, including the right to keep the child for extended visits or for vacation. It should also name the persons who are permitted to advise or consent on major decisions in the child’s life, on issues about education, healthcare and activities.

A trust can be drafted in many ways, but a single parent should discuss all of their questions with an estate planning attorney.

Reference: Kiplinger (May 20, 2019) “Estate Planning for Single Parents”