12. At the End: Caring for Elders and Planning Your Estate
Aging and death—such happy topics. It’s no wonder most of us put off thinking about them as long as we can. (You think it’s a coincidence that this is the last chapter in the book?)
But it doesn’t take much exposure to the problems of the elderly, and the messes people can make of their estates, to realize that a little planning often can alleviate a lot of misery. Even when you can’t avoid trouble, plenty of resources can help you deal—if you know where to find them.
Helping an Indigent Parent Navigate “the System”
Q: Our mother just turned 64, and our father is divorcing her. She hasn’t worked in years because of significant physical and mental health issues. My sister and I have been trying to figure out how she’s going to survive on $750 a month, which is the equivalent of half his Social Security. She has always had serious issues with money management, which is why she has no retirement savings or a house. We are about to embark on the maze of social service benefits that an older woman below the poverty line can receive, partly so we can decide whether she’s better off staying put where she is in Arkansas, moving to my sister’s in Texas, moving to be near me in Maryland, or moving to her childhood home of Chicago, where most of her friends are. For a lot of complicated reasons (mostly related to the mental health issues), we are trying to avoid having her live with either of us full time, and she expresses no desire to do so. We have to figure out the ins and outs of Medicaid, food stamps, subsidized senior housing and anything else in four different states and then try to explain it to her. If you have any hints about helping an indi-gent and somewhat incapacitated mother access services, we would love to hear them. We feel a little overwhelmed at the moment and aren’t even sure whom to call in each place.
A: It’s understandable that you feel overwhelmed. You have a huge task in front of you.
You can start with the Eldercare Locator, a free service offered by the U.S. Administration on Aging that can connect you to services for older adults and their families. You’ll find it at www.eldercare.gov, or you can call (800) 677-1116.
Another resource you might want to consider is a geriatric care manager. These are professionals who help family members care for elderly relatives. The care manager can evaluate your mom, review her options, and make recommendations. Their services aren’t cheap, but they can be especially helpful in managing a long-distance situation. You can find referrals at the National Association of Geriatric Care Managers’ site, www.caregiver.org. And speaking of distance, it might be easier to help your mom if she lives closer to one of you or to a trustworthy friend who can check in on her and let you know how things are going.
You also should check with an Arkansas family law attorney, since your mother may be eligible for some kind of spousal support and possibly a property division that could help her financially.
Finally, if your father dies before your mother, she still will be eligible for survivor benefits that could bump her Social Security check up to 100% of what your father was receiving. Many people don’t realize that ex-spouses can qualify for survivors’ benefits as long as the marriage lasted ten years and the person applying for benefits didn’t remarry until after age 60.
Son-in-Law Badgers Elderly Couple for Money
Q: I am 84, and my husband is 88. We have two daughters, the elder of whom is married to a very controlling man. In the past, we lent them money and were paid back. But starting in 2009, his small business began to do poorly. They borrowed nearly $100,000 from us. Then in 2010, he begged us to get a home equity loan on our home, which was paid for.
They now owe us $300,000. We make the home equity payments of $800 a month because they are not able to pay that amount. He said he planned to sell a parcel of land to pay us back. Now he wants to borrow from my individual retirement account. He is telling our daughter to go after us and giving her instructions. So I told my daughter and her husband, no more!
We are so sad. We didn’t expect to have money problems at this age. We wanted to divide our estate equally between our daughters. But we’re wondering whether we should make a new living trust to reflect the debt owed to us. Should we consult a lawyer?
A: You absolutely need a lawyer—not just to draw up a new trust, but to stand between you and the financial predator you call a son-in-law.
Badgering people in their 80s for money could be considered a form of elder abuse, and the amount he’s squeezed out of you is horrific. If either of you died or became incapacitated, he could swoop in to clean you out completely.
An elder law attorney can help you protect your finances and figure out what to do about this debt. It certainly would be understandable if you wanted to deduct the money you’re owed from your elder daughter’s inheritance, but you can expect this bully to cause misery regardless of what you decide.
Not that you need more to worry about, but what you’re calling a home equity loan may well be a home equity line of credit. Although home equity loans come with fixed rates, lines of credit do not—which means the payments that are difficult for you to make now will be more expensive when interest rates rise. In any case, you might want to ask the attorney about the feasibility of a reverse mortgage, which could allow you to pay off the loan without having to make further payments.
You can get referrals to the National Academy of Elder Law Attorneys at www.naela.org. If your other daughter is trustworthy, please enlist her help in looking for and speaking with an attorney. She needs to know what’s going on so she can help in your efforts to protect yourselves from this man.
Protecting a Parent from Financial Opportunists
Q: I liked your answer to the elderly couple who were being badgered for money by their daughter and her husband. I agree that involving the other daughter can help.
I managed to combat the tendency of family and caregivers to pester my 90-something mom for money by convincing her to give me electronic access to her bank accounts. We did this so that I could pay her bills if she got sick unexpectedly. The other benefit is that I see the small larcenies as they begin to happen. Then I can quickly step in and stop them before they escalate. Having a conversation with someone who has sleazed $100 from her is much easier than dealing with the $5,000 theft that motivated me to set this in motion.
My mother is deeply grateful that she doesn’t have to be the heavy with the people she loves and depends on. You can’t make greed disappear, but you can manage it. I continue to be amazed by how easy it is for people to think that her money (which gives her a sublime sense of security in the midst of physical frailty) is their money because they need it and she is too kind (and dithery) to say no.
A: Installing a trusted gatekeeper can be an effective way to keep elderly people from being financially abused. The elderly person can refer all requests for money to the gatekeeper, which, in itself, is likely to reduce the begging. If a relative can’t perform this function, sometimes an advisor can. Ideally, the advisor would have a fiduciary relationship with the client, meaning that the advisor is legally obligated to put the client’s needs ahead of his or her own. Attorneys and CPAs are fiduciaries, and some financial planners are willing to be as well.
Daily Money Managers Can Help Pay the Bills
Q: I read with interest your answers about older people who need a trusted gatekeeper to keep others from taking financial advantage. I want to let you know there’s great help out there for seniors: the American Association of Daily Money Managers. We daily money managers provide assistance to people who have difficulty managing their personal bill-paying responsibilities and associated personal paperwork. This service offers a cost-effective way for clients to get assistance with organizing, paying bills, balancing checkbooks, and reviewing statements from a trusted source. A daily money manager does not replace the services of other professionals—such as CPAs, banks, financial planners, and attorneys—but instead assists clients with daily affairs and helps maintain records and information that is essential for these professionals. People can find more information at the association’s Web site, www.aadmm.com.
A: Thanks for pointing out this resource. Many older Americans have trouble with household money management. They may forget to pay bills or keep track of their account balances, leading to bounced checks. Organizing their paperwork and collecting information for tax returns can become an ordeal. Some people have trusted family members who have the time to take over. For others, daily money managers can be the answer.
Daily money managers are distinct from conservators or guardians, however. They aren’t supervised by the courts, so potential clients need to take care in hiring one. In addition to the AADMM’s Web site, people may be able to get referrals from financial professionals such as a lawyer, financial planner, or accountant. The daily money manager should be insured and willing to work with those professionals.
Daily money managers aren’t limited to helping only seniors. They also can help busy executives, travelers, and people with attention deficit disorders who have trouble keeping up with daily financial details.
A Reverse Mortgage Could Keep Mom in Her Home
Q: My healthy and active 82-year-old mother is faced with having to sell her home this year because she’s running out of money. She has lived a minimal lifestyle for many years as her savings dwindled, and her income is now basically Social Security. She owes $25,000 on a home worth more than $700,000 in a top school district. We don’t know if we are jumping the gun with this sale. I could move in with her and pay rent for a year or two, although that would mean a longer commute for me and would just put off the day she has to sell. The house needs some upkeep, and her being cash-poor puts her in a crunch. My brother will help pay for minor sprucing up, depending on what the real estate agent says we need to do to make the house presentable, but if Mom remains in the home, other things to be done. We are assuming that we should sell it and find an apartment for her to rent until she needs more assisted living at a later age. Are we right to take action now?
A: Your family needs to take action, but setting your mother up for not just one, but possibly two future moves probably isn’t the best course. Moving is terribly disruptive, and AARP surveys show that the vast majority of older people prefer to “age in place” rather than leave their homes.
Investigate reverse mortgages as one option. With a reverse mortgage, your mom could pay off her small mortgage and tap the substantial equity in her home. She could get a lump sum, a stream of monthly checks, or a line of credit that could allow her to fix up her home and live more comfortably. She wouldn’t have to make payments or pay income taxes on this loan, and it wouldn’t have to be paid off until she dies or moves out.
Reverse mortgages can be expensive because of the fees involved, although a new version of the federal Home Equity Conversion Mortgage offers lower upfront fees, and some lenders will waive or reduce their fees. You’ll want to do plenty of research and shop around to make sure you get the best deal. The AARP and U.S. Housing and Urban Development Web sites have a lot of information about reverse mortgages.
If your mom decides she’d rather sell, she should consider a move directly to a senior community that offers assisted living as an option. She will have the most choices if she’s healthy when she moves in. Although she may never need the assisted living option, many people start to need some kind of help with daily activities by the time they reach their mid-80s.
Asset Transfer Could Delay Medicaid Eligibility
Q: My mom has stock in one company. Currently, she is moving toward applying for Medicaid to pay for nursing home expenses, and I was advised to put the stock in my name. Now I am watching her stock (and savings) plummet. It’s gone from a $100,000 savings to about $40,000. Do I take it out, or do you think it will come back and I should leave it alone?
A: You may want to cash out at least some of the stock to hire a good elder law attorney who can advise you about the Medicaid look-back rules.
These rules are designed to prevent what you seem to be doing, which is trying to hide assets from the government by transferring them away from the potential Medicaid recipient. Medicaid is the government-run health care program for the poor, and recipients are supposed to have exhausted their assets before they apply. Any transfers made within five years of applying for Medicaid will delay eligibility.
As for your original question, having more than 10% of one’s assets in a single stock is extremely unwise, and you shouldn’t have any money invested in stocks if you’re likely to need it within the next ten years. After you’ve consulted with an elder law attorney (you can get referrals from the National Academy of Elder Law Attorneys, at www.naela.org), you might also want to make appointments with a tax pro and a financial planner so your mom can better manage what she has left.
Incapacitated Parent? Tread Carefully
Q: My father-in-law was diagnosed with Parkinson’s disease a few years back, and his condition has steadily worsened. He can no longer write checks or keep track of due dates. My mother-in-law now must step in to maintain the family’s books, which she has never done before. I hope to work with her to develop a basic budget, but therein lies another problem. My father-in-law has made a very decent living, and until he became sick, neither of them needed to worry about basic daily expenses or even small luxuries. As the medical bills mount, she is concerned that expenses are outpacing income, but he is reluctant to economize. Developing a budget would mean confronting his illness head-on, something he has managed to avoid for almost four years. Do you have any advice on handling this process of ceding financial control from an ill spouse to the partner?
A: Incapacity is hard for everyone involved, but failing to acknowledge the new reality could leave your in-laws in dire financial straits.
Involving a trusted third party who is not a family member often helps. Your father-in-law may well resent your intrusion into their finances but may be willing to work with an accountant or a financial planner, particularly if it’s framed as a way to help his wife deal with her new responsibilities.
Your in-laws also should consult an attorney experienced in estate planning and elder care issues. At some point, paying for long-term care is likely to be an issue, and an attorney knowledgeable in this area can make appropriate recommendations.
Whatever you do, do it with respect and sensitivity. You don’t have this disease and can’t know how he feels—or how she feels, for that matter. Offer to help, give your support, and research and recommend appropriate resources, but try not to judge or impose your idea of a solution on this couple. This is their path to walk, not yours.
Father’s Living Trust Is Missing
Q: My 82-year-old father, who is in a nursing home in California after multiple strokes, had always told me that he set up a revocable living trust for himself and my mom. I’ve been going through his papers and can find only unsigned copies of his trust.
My dad now suffers from some dementia, and my mom knows nothing about where he might have put a copy of the trust. I do not think a lawyer was involved.
I am worried about what will happen when my dad dies. Are revocable living trusts recorded somewhere? If so, how do I find his? Can my mom set up a new trust? They don’t have a lot of assets—just a house and a car—so am I worrying needlessly?
A: Your dad can’t sign the copies or have a new trust created if he’s not mentally competent—and with the strokes and the dementia, he’s probably not, although you’ll likely want to consult a lawyer. Without a durable power of attorney, no one else can have estate documents created for him, either.
You can check with the county assessor to see if their home was transferred into the trust and with his bank to see if accounts are in the name of the trust.
But living trusts aren’t recorded in any courthouse. If you can’t find a copy of it, and if assets such as the house weren’t transferred into the name of the trust, you can’t use the unsigned copies to avoid probate, said Burton Mitchell, a Los Angeles estate planning attorney with Jeffer, Mangels, Butler & Marmaro. “This is like the tree falling in the forest [with no one to hear it],” Mitchell says. “If no one can find a living trust, I guess it doesn’t exist.”
You may want to expand your search. Check your dad’s papers for any bank he may have done business with, and find out whether he had a safe deposit box there. If he didn’t trust a bank with the document, it may be hidden somewhere in the house. Estate appraiser Julie Hall, author of The Boomer Burden: Dealing With Your Parents’ Lifetime Accumulation of Stuff (Thomas Nelson, 2008), says heirs have found documents hidden in freezers, taped to attic rafters, tucked under mattresses, and slipped behind the mats of framed pictures, among other places.
Review your dad’s checkbook around the period when the documents were created, if possible. If he made out a check to an attorney during that time, the signed document may have been filed with him or her.
It’s worth putting some effort into this search. A house in California can be a considerable asset. Unfortunately, probate in California is expensive and slow. That’s why many people with even modest assets opt for a living trust: to bypass probate and save their heirs money.
The house may be able to avoid probate if it’s titled in joint tenancy, Mitchell says. In that case, if your father dies first, your mom will inherit it and then could create a living trust of her own.
The Documents You Need but Probably Don’t Have
Q: Good news! I wrote to you recently about being unable to find my elderly father’s signed living trust. However, just by luck (or maybe it was prayers to St. Anthony), the original copy of the trust has turned up! So that’s one problem solved. Now I hope you’ll tell people how important it is to be sure your parents have filled out durable powers of attorney for finances and for health care. We had a health care power of attorney for him, but my dad never filled out the other kind, which has made it extremely difficult to handle his finances now that he’s had a stroke and is in a nursing home. Our only option may be to get a court to appoint a conservator of his estate, but it sounds like that would be complicated and costly, and probably take a long time.
A: Every adult who cares about his or her family should have durable powers of attorney for health care and for finances. As you’ve discovered, the lack of these documents can cause huge problems, forcing families to go to court to get authority to make decisions.
Many people assume incorrectly that their spouses can just take over. In reality, without a durable power of attorney a spouse may not have the legal authority to transactions involving real estate, investments, and other assets, even if they’re jointly held. If the spouse is also incapacitated or dies first, getting anything done—down to paying the light bill—can become impossible.
Your father’s living trust may have language that allows the successor trustee (the person who would manage his assets after his death) to make decisions regarding the assets in case of your father’s incapacity. But he still needed a durable power of attorney for finances so that someone else had legal authority to make decisions about assets held outside the trust and to pay bills.
Who Needs an Estate Plan?
Q: My wife and I, ages 58 and 60, respectively, are both retired and collecting $3,500 a month in pensions. We have about $375,000 in two 401(k) accounts and owe about $75,000 on our home. Should we be thinking about estate planning? If so, who does this work and how much do they charge?
A: Unless your home is quite valuable, you probably don’t have to worry about the federal estate tax, which currently affects only estates worth more than $5 million or more. After 2012, the limit is scheduled to drop to $1 million.
But you still need an estate plan. Most important, you need legal documents that can help others take over for you if you become incapacitated. Powers of attorney for health care and finances can allow someone you trust to pay your bills, make medical decisions, and otherwise handle your affairs. Spouses typically name each other as their preferred agents, but you also need to name back-ups in case one of you dies or you’re both injured in the same accident, for example.
You also probably need a will to say who gets what when you die, and you may want to consider a living trust if the probate process in your state is particularly lengthy or expensive (as it tends to be in California). You can create all these documents yourself using software products such as Quicken WillMaker or Nolo’s Online Living Trust.
The do-it-yourself approach can work when your situation is straightforward, but consider consulting an attorney if your estate ever gets big enough to worry about estate taxes or if complications (such as children or contentious relatives) become a factor.
If you want a little more guidance—and many people do—look for an attorney who specializes in estate planning. A simple will with powers of attorney will cost a few hundred dollars, whereas a living trust typically costs $2,000 or more.
Why Estate Plan?
Q: I don’t have a question, but I want to share a personal experience that may help illustrate why people should make an estate plan.
My father died in 1982 and left my mother quite well off. Two years later, my mother remarried, sold the family farm, and used the cash to build a nice home in a resort area. Two years after that, she died and my stepfather inherited her entire estate, including the nice new house.
I don’t believe either my father or my mother would have wanted this man to inherit everything instead of their children. I hope my experience may help parents do much more diligent planning on behalf of their children, and perhaps even help children ask important questions before it’s too late.
A: Each state has rules that govern how estates are divided when there is no will or living trust. Typically, those rules would dictate that your stepfather share a good portion of the estate (often half) with you and your siblings. Your stepfather may have found a way around those rules, or he may have lied to you about what you were due. If the estate was substantial, you may want to hire an attorney to battle this out.
DIY Wills and Trusts Can Backfire
Q: I wanted to thank you for urging people not to be cheap when doing their estate planning. I am an estate planning and elder law attorney in Los Angeles, and every do-it-yourself trust or will I’ve seen makes it compulsory to leave income and assets to the spouse. This is a huge mistake, in many cases. That’s because such a transfer disqualifies the spouse from receiving government aid from Medicaid (which is called Medi-Cal in California). The result could mean losing hundreds of thousands of dollars. This area of law is extremely complicated, and only a knowledgeable elder law and estate planning attorney should be advising people about it.
A: Medicaid planning is a controversial topic, since the federal program is designed to help the indigent, not those trying to preserve assets. That’s why the programs have look-back periods (typically, five years) to discourage people from transferring assets just to qualify.
But your point is well taken that estate planning and elder law issues are too complicated for do-it-yourself solutions
Can the Guardian of Your Kids Change His Mind?
Q: When you create a will and appoint someone to be the guardian of your children, must that person be present to sign legal documents accepting the job? And can that person later change his or her mind?
A: The person you name to be the guardian of your children does not have to be present when you create your will or other estate planning documents. But you’d better make darn sure that you have the potential guardian’s willing consent.
Taking care of someone else’s children is a huge responsibility, not one that should be taken—or given—lightly. You’ll want to have a full and frank discussion with this person in advance, including what financial arrangements you’re making to take care of your children if you die while they’re minors.
Even if the person consents, understand that nothing is written in stone. If you die, the person still could change his or her mind and decline the job. That is one of the reasons you’ll want to name at least one back-up person, in case your first choice can’t or won’t serve.
Also, many attorneys would advise you to name one partner in a couple as primary guardian instead of naming both parties. If the couple later splits up or one dies, you don’t want any confusion about who you wanted to take care of your kids.
As difficult as these discussions and choices can be, you should make the effort. If you don’t name a guardian, your kids could wind up at the center of a bitter court battle or in foster care. They deserve better.
Are Unequal Bequests a Good Idea, or Are They a Disaster in the Making?
Q: We have been giving our daughter financial assistance that we have not given our sons because we don’t feel they need it. Our daughter is in her mid-20s and has a learning disability. Our sons know that we have been helping, but they don’t know the exact nature or value of the assistance.
We want to ensure that our daughter gets a larger inheritance, to compensate for her disability, but how do we do that while being fair to the others? Our attorney helped us set up a family trust in which our three children will receive equal shares of the bulk of our estate.
At his suggestion, the special assistance will go to our daughter by naming her a sole beneficiary of one or more of our retirement accounts. Does this sound like a good plan?
A: Tread very, very carefully here. There’s a fundamental difference between doling out assistance unequally while you’re alive and doing so after you’re dead.
While you’re alive, your sons are paying the “success tax”: not getting as much from you because they’re doing well. Many grown children in this position are able to accept the disparity because there’s an unspoken understanding that you would help them, too, if they fell on hard times.
After you’re gone, though, there are no more opportunities for help. How you bequeath your estate is pretty much the last word, and your kids may very well see in your distributions a reflection of your love for them.
That’s why even minor inequalities in estate distribution can set off nasty, hugely emotional battles among heirs. Unfortunately, these bad feelings can translate into lifetime estrangements, which is surely not an outcome you’d want.
Of course, if your daughter’s disability is severe and will clearly affect her lifetime earning potential, an unequal distribution may well be justified. You shouldn’t necessarily assume, however, that her disability will translate into failure. Plenty of successful people have overcome learning disabilities, including Virgin Atlantic Airways founder Richard Branson, inventor Thomas Edison, actress Whoopi Goldberg, and artist Pablo Picasso.
You also can’t assume that your sons’ success will continue unabated. Accident, illness, and business reversal can affect anyone, so the child who seems like a high flier now could be the one who needs the most help in the future.
If you do decide on an unequal distribution, consider discussing your estate plans with your children. This is probably a talk you’d rather avoid, but openness now will avoid an unpleasant shock later and give all concerned a chance to discuss their feelings about the situation. You may or may not hear something in this discussion to change your mind, but at least you’ve given your heirs a chance to be heard—an opportunity that’s obviously lost once you’re gone.
Credit Cards Must Be Paid Before Estate Is Distributed
Q: My oldest sister died recently. She owed a fair amount of credit card debt. She willed her condominium and the rest of her estate to my brother. Must my brother pay my sister’s debts from what he receives after he sells the condo, or are those debts considered closed?
A: Creditors typically must be paid before the remainder of an estate can be distributed to any heirs. That’s true even if specific items or dollar amounts are willed to specific people—they get what’s left only after the creditors get their share. If the estate doesn’t have enough money to pay the creditors in full, the executor of the estate is responsible for arranging settlements, and the heirs typically get nothing.
Since it sounds as if your brother is also the executor, he would be wise to consult an attorney at this point. Executors can be held personally responsible—and sued—for any mistakes made in settling an estate.
Executor Won’t Have to Pay Mother’s Debts out of Pocket
Q: I was concerned about something you wrote recently about the responsibilities of an executor—that he or she can be held personally responsible for settling an estate. I am listed as executor of my mother’s estate. She lives with my sister, has no assets other than a car she owes money on, and has an $11,000 credit card debt. Would I have to pay this balance if she dies owing it?
A: You misunderstood. An executor can be held personally responsible for mistakes made in settling an estate. But if you follow the procedures your state’s probate court has established, you shouldn’t have a problem.
When your mother dies, you’ll be required to make an inventory of her assets (the car) and her debts (the car loan and the credit card balance). Any assets must first be used to pay her creditors, with the order determined by state law. If her car loan is worth less than her car, for example, the car typically would be sold, the car loan paid off, and any remaining equity used first to pay the costs of settling her estate and her funeral expenses. If money is left over, it would be used to pay as much as possible of the credit card balance (assuming there are no other debts that would take priority, such as federal or state tax debt).
If there isn’t any money left to pay creditors, on the other hand, you simply inform them of that fact, and they have to write off the balance as bad debt. You aren’t personally responsible for paying your mother’s debts, unless you cosigned on a loan or are a joint account holder on a credit card.
Where you might run into trouble is if you ignore your state’s laws, sell the car, and pocket the difference or distribute it to other heirs. You also run into trouble by paying one creditor ahead of another in violation of state law. Because you can be held personally responsible for mistakes made in settling the estate, it would be smart to get an attorney’s help.
Dad Died Without a Will. What Now?
Q: My father recently died and did not have a will or living trust. He has a joint mortgage with my mother and two car loans under his name only. Can we just keep paying all the loans even though he is no longer around? And if we do, when the debts are paid, who gets ownership? Lastly, should we call all of his creditors and let them know he has died? Please help—we are in dire need of advice.
A: Every state has rules that determine who gets what if someone dies intestate—that is, without a will or trust. The court process where this is sorted out is called probate, and the surviving spouse is typically the executor or person responsible for settling debts and distributing assets. Mortgages and car loans stay with the property that secures them, which means whoever inherits the asset inherits the debt, according to attorney Mary Randolph, author of The Executor’s Guide: Settling a Loved One’s Estate or Trust (Nolo Press, 2012).
If your dad’s estate was small (less than $500,000), you or your mother may be able to handle the probate process with the help of an accountant. If his estate was larger or you feel you need more help, contact a probate attorney, who can help you get the process started and advise you about your state’s laws. And yes, your mom will need to notify creditors, as well as any sources of income your dad may have had, such as employers, Social Security, or a pension.
A Guide for Executors
Q: An unlimited number of books and seminars seem to be concerned with establishing a family revocable trust or living trust, but there also seems to be a shortage of information on the steps a person would take to settle and distribute the proceeds of the trust when the last trust creator dies. Lawyers seem reluctant to reveal the legal steps required. Are you aware of a good publication with a minimum of legalese?
A: The book you’re looking for is The Executor’s Guide: Settling a Loved One’s Estate or Trust (Nolo Press, 2012), by attorney Mary Randolph. The book, currently in its fourth edition, outlines the duties of someone who settles an estate or trust, offering a week-by-week and step-by-step guide. You’ll find the book in regular bookstores, in online bookstores, and at Nolo’s site, at www.nolo.com, both in physical form and as an e-book.
The job can be complex, and you could be liable for any mistakes, which is why many people choose a lawyer’s help. Such help is all but a necessity if you’re dealing with a large estate (more than $1 million) or with contentious relatives. Even then Randolph’s book can give you a clearer idea of what’s involved.
What’s the Best Thing to Do with an Inherited IRA?
Q: I just inherited about $70,000 in IRAs and checking accounts. I would like to eventually invest it in my next home (upgrade to a bigger home), but I want to wait a little until I feel more certain about my job. What is the best thing to do with this money in the interim? Certificates of deposit? Money market?
A: If you expect to use the money within a few years, you’ll want to keep it safe and accessible. These days, that usually means in an FDIC-insured savings account, since yields on money market funds are pretty miserable.
You’ll typically find the best rates at online banks or your local credit union. You also can consider boosting your yields a bit by laddering some CDs. That just means breaking your money into chunks and investing those chunks in CDs with different maturities. If you arrange your ladder so that some money comes due every three months or so, you can take advantage of rising rates while protecting the bulk of your cash from falling rates. Just make sure that your money isn’t locked up past the point when you’re likely to need it.
But you may want to reconsider your goal for this money. Unless the retirement money you inherited was in a Roth IRA, you will pay income taxes on your withdrawals. You may be better off in the long run by delaying those taxes as much as possible.
That would require putting the IRA money into a new account, called an inherited IRA, that you open for this purpose. You would be required to take minimum distributions each year, but those would be based on your life expectancy. The bulk of your inheritance would be left alone to grow tax-deferred for many, many years.
Another option, if the original account owner died before age 70½, is to use the five-year rule. That basically means you could leave the money in the inherited IRA for up to five years. You could withdraw any amount at any time and pay taxes on it, but you must withdraw everything within five years. That would give you the benefit of at least some tax deferral.
Either way, you would need to establish the inherited IRA by December 31 of the year after the original IRA owner’s death.
Social Security Benefits Don’t Last Forever
Q: Can you clear up something for me regarding Social Security survivors benefits? The yearly summaries I get tell me my family will receive payments if I die. But it’s not clear to me how long these last and whether they expire when my children are no longer minors. Do payments continue to be made to my surviving spouse as well, and if so, for how long?
A: Your unmarried children can receive Social Security survivors’ benefits until they turn 18, or 19 if they are still attending high school full time. Your kids can get benefits at any age if they were disabled before age 22 and remain disabled.
Your spouse can get benefits as long as he or she takes care of a child receiving your survivor benefits until that child turns 16. (There’s no age limit if the child is disabled and receives benefits based on your work record.) Your spouse also can receive survivors benefits as early as age 60 (or 50, if she is disabled).
The amount of the benefit depends on your average lifetime earnings and is estimated on the annual Social Security statement you get. The more money you make before you die, the greater the benefit.
For more information, SSA Publication No. 05-10084 is available on the Social Security Administration Web site, at www.ssa.gov, or by calling (800) 772-1213.
What Happens to Personal Loans After Lender Dies?
Q: My mother passed away last year. She lent several thousand dollars to a woman who now says that she doesn’t have to repay because my mother is dead. I have the contract the woman signed to get the money, but this person told me, “Tough luck.” Can she get away with this?
A: Only if you let her. The money is still owed to your mother’s estate, unless she specifically wrote in the loan document that the balance would be erased upon her death or she forgave the debt in her will or living trust, says Burton Mitchell, a Los Angeles estate planning attorney with Jeffer, Mangels, Butler & Marmaro. It doesn’t sound like that was the case, so the loan is considered an asset of the estate like any other asset. “Tell the borrower, ‘Good try,’” Mitchell says.
You should write a letter to the debtor explaining that the loan is still valid and demand payment. If the woman refuses to honor her commitment, you can consider a variety of options, including hiring a collection agency or suing her in court for repayment. (If the amount is small enough, you may be able to pursue the case yourself in small claims court; otherwise, you probably should hire an attorney for help.)
But don’t delay. Each state has a time limit on how long a borrower can be sued over a debt, and you don’t want that limitation to expire before you have a chance to collect the money.