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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?”

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”

How Do a Prenup and a Postnup Vary?

“What is the difference between a prenup and a postnup? Do you need one? And if so, which is the right fit for your marriage?”

Investopedia recently published an article, “Prenup vs. Postnup: How Are They Different?” It explains that if you or your spouse is wealthy, anticipating a big inheritance, or getting married for the second, third, or fourth time, divorce or death could result in serious financial trouble. In death, these issues are greater, if the spouse leaves children from a previous marriage. That’s why more couples are choosing to sign a prenuptial or postnuptial agreement.

As prenuptial agreement is made prior to the marriage, where the couple determines how they’ll divide their assets should the marriage end.

Although negotiating a prenuptial agreement before your wedding may seem unromantic, these agreements can save a lot of heartache and money in the event of divorce—especially when it's not a first marriage. When a couple decides to divorce, prenups can prevent nasty, drawn-out, excessively expensive litigation. A prenup details everything, so everyone knows exactly who gets what and there’s no room for argument. These agreements also can dictate financial distributions in case of a spouse's death, which is especially important for couples with children from previous marriages.

Prenuptial (before a marriage) and postnuptial (after a marriage) agreements detail how a couple will divide their assets if the marriage ends. Prenups are useful if one spouse has substantial assets, a large estate, or anticipates getting a large inheritance or distribution from a family trust. A prenup can protect each spouse’s premarital assets, as property and income in a marriage would otherwise be deemed community property.

Have an attorney draft one of these agreements, because tax law can create complications.

A prenup can have terms that state how much your spouse will receive of your estate, if you get divorced or die. This is critical if you have a significant estate and children from a previous marriage to whom you want to leave some of your estate. If you don’t sign a prenuptial agreement that states this, most states will automatically give your surviving spouse a share of your estate at your death. With a prenup, you can predetermine a specific alimony amount or even eliminate this.

Postnuptial agreements are almost identical to prenups. The big difference is that postnuptial agreements are made after the wedding. You will decide how to divide marital assets, as well as any future earnings, in your postnuptial agreement.

Reference: Investopedia (April 25, 2019) “Prenup vs. Postnup: How Are They Different?”

What Happens to the “Stretch IRA” with the New Law?

“New legislation that aims to give workers greater opportunities to save for retirement, may put the kibosh on a strategy for passing large individual retirement accounts to heirs.”

Congress’ House Ways and Means Committee has passed a bill known as the Secure Act. This bill would require employers with a 401(k) plan to allow long-term part-time workers to participate. It would also create a $500 tax credit for small companies that start retirement plans with automatic enrollment.

CNBC reports, in its recent article “Congress may gut the 'stretch IRA' that wealthy people love,” that the bill includes a provision that would force non-spouse beneficiaries to draw down inherited retirement accounts within 10 years of the original owner's death.

This provision could discourage the use of a "stretch IRA." This strategy allows younger heirs to take required minimum distributions (RMDs) from the inherited account, based on their own much longer life expectancy. They receive the advantage of "stretching" the IRA's tax-deferred growth over many years, while taking smaller RMDs.

If you inherit an IRA from someone who is not your spouse, you're now generally required to begin taking RMDs based on your life expectancy by December 31, after the year the original account owner died. However, the House version of the bill would force a distribution of the account's value within 10 years. The Senate version would distribute the account in five years, if the beneficiary isn’t a spouse and if the account value exceeds $400,000 as of the date of death.

Both versions of the legislation have an exception, if the beneficiary is the surviving spouse, a disabled or chronically ill person, an individual who is no more than 10 years younger than the account owner, or the minor child of the account owner.

The stretch IRA is most attractive to young heirs of larger accounts. They have years of tax-deferred growth ahead of them, and they must only take a small distribution each year. However, an accelerated distribution over a much shorter period of time, would mean a big tax liability.

There are a few alternative strategies that IRA owners might look into to minimize taxes, while passing on the account to a non-spouse heir, if the bill passes. A charitable remainder trust lets investors leave assets to a charitable organization and to a beneficiary. The beneficiary would get income from the assets for a specified time, and then the charity would get whatever’s left. You’d have to name the trust as the beneficiary of the IRA, which can cause tax issues, if done incorrectly. Be sure to work with an estate planning attorney, if you're considering this.

With life insurance, you could get more money tax-free without any RMD or complexity, and just bypass the whole system. The death benefit of a life insurance policy is typically excluded from the recipient's gross income, and your premium dollar also goes further.

Reference: CNBC (April 11, 2019) “Congress may gut the 'stretch IRA' that wealthy people love”

Why Do I Need a Prenup for my Second Marriage After 50?

“When you marry in your 20s or 30s, you might not be thinking about getting a prenup, since your assets aren’t large and your life is pretty simple. However, if you’ll be entering a second marriage in your 50s or 60s, a prenup is something you may very well want to get.”

Many older people who remarry have significant assets—like pensions, retirement funds, homes, and maybe businesses and children from their prior marriage. The financial consequences could be significant, if their second marriage doesn’t last. Forbes’ recent article, “All About Prenups For Second Marriages,” says that a prenuptial agreement can address these issues:

• Supporting the new spouse through retirement;
• Paying expenses and accumulation of marital property, if the spouses have retired;
• Leaving assets to children, if the new marriage is ongoing at the time of death;
• Balancing the needs of the new spouse with helping their own children;
• Making accurate financial results, if the marriage fails; and
• Ensuring a peaceful divorce process, if the marriage fails.

In a prenup, the couple can decide how they will support themselves during the marriage and can create a plan for withdrawing retirement assets, depending on their relative wealth.

An issue with prenups for second marriages, comes from the distinction between “separate property” and “marital property.” Separate property is typically the property brought into the marriage and all past and future inherited property. Marital property are those assets that are built up through the efforts of the spouses, usually by lifetime earnings in the workplace.

However, what if the couple is retired, there is no opportunity to accumulate marital property and one of the spouses doesn’t have adequate separate property to provide for his or her retirement? That spouse may then feel vulnerable, if they divorce. This can foster bad feelings that fester during the marriage. A prenuptial agreement can alter this dynamic and provide a fair and easier result, if the marriage fails or if a wealthier spouse predeceases a less-moneyed spouse.

In a second marriage after 50, many people like to leave money to their children when they die and provide for their new spouse. A prenup can detail that an estate plan be created after the couple marries, to get the result they desire. The assets of the deceased spouse can eventually be distributed to the surviving spouse and the deceased spouse’s children. Some assets can be placed in a trust to benefit the surviving spouse during his or her lifetime. The rest can go to the children of the first spouse, after the death of the surviving spouse. In a second-marriage prenup, a couple can also decide that way in which they might assist their children financially during the couple’s lifetime.

A nice benefit of a prenup for a second marriage, is that it can specify the legal process to use if the couple divorces. For example, a prenup can require alternative dispute resolution, if there’s a divorce or if there is a disagreement between the heirs of a spouse and the surviving spouse.

However, sometimes, a prenup can even cause issues, typically in the process of negotiating one. Some couples even break off their engagements as a consequence. Talk to an attorney about creating an equitable prenup.

Reference: Forbes (February 13, 2019) “All About Prenups For Second Marriages”

How Do I Do Estate Planning for My Coin Collection?

“People who bother about estate planning, often have a tendency to collect interesting and often valuable items, from art and antiques, watches to jewelry, to firearms and baseball cards to numismatic or bullion coins.”

Forbes’ recent article, “Astute Estate Planning For Art, Antiques And Valuable Collectibles,” says that personal property items, like a coin collection or artwork, can pose an added degree of estate planning complexity, for several reasons.

Tracking. Personal property items are easily “lost” or misplaced. Use inventory software or keep copious records. You should also retain receipts, appraisals and other imprimaturs and bona fides of provenance.

Assignment and Transfer. Since personal property can “walk off,” it’s smart to make certain that all applicable parties, such as heirs, are informed of inventory lists or other tracking methods, with clear instructions on who gets what. You can even add in your will an addendum “Exhibits A-Z,” to make sure that nothing gets lost. Photographs, serial numbers, and other identifying data can be added for more fungible items, like firearms.

Security and Insurance. Use precautions like safes, safety deposit boxes and alarm systems because transportable valuables present greater risks of theft and of fire/disaster. There can be different insurance rules based on the item. You may need separate deductibles, endorsements, riders and proofs of location and ownership to have proper insurance coverage.

Documentation. Particularly for art and important antiques, it is vital to have documentation that supports authenticity and records provenance. This can include certificates of authenticity, bills of sale, condition reports, artists’ notes and photographs, along with appraisals and insurance reports. A gap in documentation can result in challenges in establishing provenance and authenticity.

Valuation. Most personal property is in a very illiquid market, and the price is very much whatever the market will bear. Specialized knowledge may be needed to arrive at a fair price.

Estate Tax Issues. Retain accurate inventories to make certain that all value is properly accounted for, if an estate tax return is due. It’s not uncommon for these items to be “forgotten” at tax time since, unlike securities, bank accounts and real estate, the IRS can’t easily track estate ownership of the assets, whether or not they’re taken by members of the family.

Reference: Forbes (April 8, 2019) “Astute Estate Planning For Art, Antiques And Valuable Collectibles”

Why is This the Golden Age of Tax-Free Gift Giving?

“If you have a lot of wealth, now is the time to take advantage of giving some of it away to loved ones, charity or anything else dear to you. If they inherit your estate, they get another benefit. Reason: The new tax law has given a big break to such top-dollar wealth transfers.”

There's a time limit on this opportunity for tax-free giving. It expires after tax year 2025 (unless Congress alters the expiration date). The sooner you exploit this, the more you can give—plus, the more you give away, the smaller your estate gets. It means there is less chance that your estate will have to write a check to the IRS.

The Street’s recent article, “This Is the Golden Age of Tax-Free Gift Giving,” says the federal government has taxed estates since 1924, and as recently as 2001, the threshold when taxes kicked in was $675,000. This exemption level from taxation has been increased ever since. However, a big increase came from the Tax Cuts and Jobs Act, which took effect in 2018. The Act doubled the exemption level and indexed it to inflation. Anything above the new limits is taxed at 40%. It’s $11.4 million for singles and $22.8 million for married couples in 2019.

Although the exemption for estates is sky-high for now, it never hurts to reduce your estate with gifts to your loved ones. While this is nice for them, it’s also good just-in-case planning. If you were to die in 2026, just after President Elizabeth Warren lowers the exemption to $100,000, your heirs would be pretty upset and would see some hefty estate taxes. However, right now, a spouse can get the entire estate tax-free, regardless of its size. Inheritances are also generally not taxable income for beneficiaries. There’s also the portability of the exemption level between spouses.

As far as the "annual exclusion," the tax-free gift you can give amounts to $15,000. While you can't carry over an unused portion to the next year, there is a multiplier effect for couples with several beneficiaries. For example, both spouses could each give the maximum to a child, or $30,000 total. In addition, they could then do the same thing for the child's own spouse, for another $30,000.

A smart gifting strategy is to place the gift in a trust, so the funds are protected from the beneficiary's creditors (even a former spouse). The givers can also maintain some control over the uses of the money.

For the very generous, the donor could put the proceeds into a "donor" trust (also known as a "grantor" trust), where he or she is responsible for any taxes on income that the gift generates.

However you look at it, right now is the golden age of estate planning and gift giving. Talk with your estate planning attorney to learn how you can make the most of it for your family.

Reference: The Street (February 7, 2019) “This Is the Golden Age of Tax-Free Gift Giving”

What Does the Tax Cuts and Jobs Act Mean for My Estate Plan?

“The Tax Cuts and Jobs Act signed into law in December 2017 could have a big impact, not only on estate tax planning but also on income taxes derived from unrealized estate tax consequences.”

If you haven’t reexamined your estate plan in light of the changes in the Tax Cuts and Jobs Act, do so now, says The Kansas City Star in its article “Talk to estate attorney about impacts of Tax Cuts and Jobs Act.”

A big change in the tax law is the doubling of the federal estate tax exemption from $5.49 million per person in 2017 to $11.18 million per person in 2018 (or $22.36 million per couple). In 2019, the federal estate tax exemption is $11.4 million per person (or $22.8 million per couple).

You should review any wills or trusts drafted prior to the passing of the 2017 legislation. If the trusts use formulas tied to the federal estate tax exemption, then there could be unintended ramifications because of the new larger exemption amount.

You should also look at trusts drafted prior to 2011, when portability was introduced. This legislation allows for “portability” of the deceased spouse’s unused estate exemption. Therefore, the surviving spouse’s estate can now use any exemption amount that wasn’t used by the first deceased spouse’s estate.

The Tax Cuts and Jobs Act didn’t change the step-up of basis. However, the unintended effects of this “non-event” are potentially more significant now. When the decedent dies, the heir’s cost basis of many assets becomes the value of the asset on the date of their death. Thus, highly appreciated assets that avoided income taxes to the decedent, could also avoid or minimize income taxes to the heirs.

Maintaining the ability for assets to receive a step-up in basis is a more important part of estate planning now, because of the larger federal estate tax exemption. However, note that beneficiaries who inherit assets from a bypass or credit shelter trust upon the surviving spouse’s death don’t benefit from a “second” step-up of basis. Instead, the basis of the heir’s inheritance would be the original basis on the first spouse’s death.

As a result, bypass trusts are much less useful than in the past and could have negative income tax impacts for the heirs. This is particularly true, if the assets appreciated significantly after the first spouse’s death or if there was a relatively long amount of time between spouses’ deaths. If your current trust establishes a bypass trust at your death, you might want to ask your estate attorney about restructuring how the bypass trust is funded for the larger federal estate tax exemption.

If you haven’t looked at your estate planning documents with an estate attorney recently, do it in 2019.

Reference: The Kansas City Star (February 7, 2019) “Talk to estate attorney about impacts of Tax Cuts and Jobs Act”

Should I Put My Firearms in a “Gun Trust”?

“Make a mistake when inheriting an IRA and you might face tax consequences. Make a mistake when inheriting a gun collection, and there's a chance you could face felony charges. Therefore, anyone who owns a gun, may want to consider adding a gun trust to their estate plan.”

If you’re a gun collector, while you likely have heard the term “gun trust,” you may not know what it is, how it works or how it can be of use in an estate plan.

Kiplinger’s recent article, “Own a Gun? Careful: You Might Need a Gun Trust,” explains that a gun trust is the common name for a revocable or irrevocable management trust, that’s created to take title to firearms.

Revocable trusts are used more often, because they can be changed during the lifetime of the grantor.

While it’s true that any legally owned weapon can be placed into a gun trust, these trusts are specifically used for weapons that are classified under the National Firearms Act (NFA) Title II of the Gun Control Act of 1968. These include Title II weapons, such as a fully automatic machine gun, a short-barreled shotgun and a suppressor (“silencer”).

 What is an important reason why a gun trust may be a component of an estate plan? When the grantor owns Title II weapons, the transport and transfer of ownership of such heavily regulated firearms can easily be a felony, without the owner or heir even realizing he or she is breaking the law.

A gun trust provides for an orderly transfer of the weapon upon the death of the grantor to a family member or other heir. However, that transferee is required to submit to a background check and identification process, before taking possession of the firearm.

An NFA Title II weapon, like a suppressor, can only be used by the person to whom it’s registered. Therefore, allowing a friend or family member to fire a few rounds with a Title II weapon at the local range is a felony! A gun trust can be used to allow for the use of the Title II weapon by multiple parties. Each party who will have access to and use of the weapon, should be a co-trustee of the gun trust and must go through the same required background check and identification requirements.

An owner of a large collection of firearms may find it easier to transfer ownership of his or her weapons to a gun trust, even if the person doesn’t own any Title II weapons. There are several benefits to doing this, such as protecting your privacy, allowing for the disposition of your collection and addressing the possibility of incapacitation. A gun trust can also ease the process for your heirs. You don’t want to run afoul of the complex laws regarding the use and ownership of firearms, especially Title II firearms. Leaving a large collection of Title I weapons—or even a single Title II weapon—in an estate to be dealt with by an executor or trustee, can be extremely troublesome. Fortunately, it’s avoidable with the use of a gun trust.

Speak to an estate planning attorney who has experience and understands the federal and state laws on the ownership and transfer requirements of all firearms.

Reference: Kiplinger (February 6, 2019) “Own a Gun? Careful: You Might Need a Gun Trust”