J.S. Burton Blog
Monday, December 19, 2016
Veterans’ Non-Service Connected Pension Benefits
The Veterans’ Administration’s non-service connected pension program can help supplement the income of elderly or disabled veterans. The VA deems any veteran age 65 or older to be permanently and totally disabled. This “disabled” classification entitles senior citizens who are veterans, or their widows, to tax-free pension payments regardless of their actual physical condition, provided they meet the needs-based criteria.
One significant advantage of this program is that, unlike a traditional service-connected pension, there is no requirement that your injury or disability be tied to your time in service. On the other hand, this is a needs-based assistance program, so many veterans may not qualify for benefits.
To qualify for benefits under the program, you must have served on active duty for at least 90 days, and at least one of those days must have been during a time of war. Additionally, you must not have had a dishonorable discharge from the military.
Periods of war time are determined by the U.S. Congress as follows:
Mexican Border Period: May 9, 1916 through April 5, 1917, only if you served in Mexico, on its borders or in adjacent waters
World War I: April 6th, 1917 through November 11, 1918, or through April 1, 1920 if you served in Russia
World War II: December 7, 1941 through December 31, 1946
Korean Conflict: June 27, 1950 through January 31, 1955
Vietnam Era: August 5, 1964 through May 7, 1965, or beginning February 28, 1961 you served in Vietnam
Persian Gulf War: August 2, 1990 through the present
Once qualifying military service is established, you must also pass the income and asset tests. The VA must determine that your net worth is not enough to adequately support you during your lifetime. Your vehicle and primary residence are not counted when determining your net worth. The VA generally caps net worth, exclusive of your car and primary residence, at $80,000 for a married veteran, or $40,000 for a single person.
Additionally, your countable income must be lower than the available pension amount. Fortunately, countable income is offset by your unreimbursed, recurring health care costs, including prescriptions, insurance premiums or assisted living expenses.
Monday, December 12, 2016
Preserving and Protecting Documents Is Part of Healthy Estate Planning
In the unsettled time after a loved one’s death, imagine the added stress on the family if the loved one died without a will or any instructions on distributing his or her assets. Now, imagine the even greater stress to grieving survivors if they know a will exists but they cannot find it! It is not enough to prepare a will and other estate planning documents like trusts, health care directives and powers of attorney. To ensure that your family clearly understands your wishes after death, you must also take good care to preserve and protect all of your estate planning documents.
Did you know that the original, signed version of your will is the only valid version? If your original signed will cannot be found, the probate court may assume that you intended to revoke your will. If the probate court makes that decision, then your assets will be distributed as if you never had a will in the first place.
Where should you keep your original signed will? There are several safe options – the best choice for you depends on your personal circumstances.
You can keep your will at home, in a fireproof safe. This is the lowest-cost option, since all you need to do is purchase a well-constructed fireproof document safe. Also, keeping your will at home gives you easy access in case you want to make changes to the document. There are two main disadvantages to keeping your will at home:
You may neglect to return your will to the safe after reviewing it at home, which increases the risk it will be destroyed by fire, flood, or someone’s intentional or accidental actions.
Your will could be difficult to find in the event of your death, unless you give clear instructions to several people on how to find it, which then creates a risk of privacy invasion.
You can keep your will in a safety deposit box. Most banks have safety deposit boxes of various sizes available to rent for a monthly fee. Banks, of course, tend to be more secure than private homes, which is one primary advantage. Also, if you keep your will in a safety deposit box, then after your death, only the Executor of your estate may access the original will. Thus, the will is strongly protected against alteration or destruction, because family members may have access to a copy but only the Executor will have access to the all-important original.
If you do keep your will and other estate planning documents in a safety deposit box, try to do so at the same bank where you keep your accounts and inform your executor of its location. This will streamline the financial accounting process.
You can also keep your original will and other estate planning documents at your lawyer’s office. Law firms often have systems for long-term document storage. However, keep in mind that the law firm may dissolve before the willmaker’s death, which can make it difficult to track down your will.
You may also be able to store your will and other documents online. Many large financial institutions have begun offering long-term digital storage of important documents. However, any electronic version of your original will is – by definition – a copy, not the original. So, you still must find a safe place to store the original, signed and witnessed will. Online storage “safes” may be an excellent back-up, but you must still find a secure place to store the paper originals.
Monday, December 5, 2016
What are the powers and responsibilities of an executor?
An executor is responsible for the administration of an estate. The executor’s signature carries the same weight of the person whose estate is being administered. He or she must pay the deceased’s debts and then distribute the remaining assets of the estate. If any of the assets of the estate earn money, an executor must manage those assets responsibly. The process of doing so can be intimidating for an individual who has never done so before.
After a person passes away, the executor must locate the will and file it with the local probate office. Copies of the death certificate should be obtained and sent to banks, creditors, and relevant government agencies like social security. He or she should set up a new bank account in the name of the estate. All income received for the deceased, such as remaining paychecks, rents from investment properties, and the collection of outstanding loans receivable, should go into this separate bank account. Bills that need to be paid, like mortgage payments or tax bills, can be paid from this account. Assets should be maintained for the benefit of the estate’s heirs. An executor is under no obligation to contribute to an estate’s assets to pay the estate’s expenses.
An inventory of assets should be compiled and maintained by the executor at all times. An accounting of the estate’s assets, debts, income, and expenses should also be available upon request. If probate is not necessary to distribute the assets of an estate, the executor can elect not to enter probate. Assets may need to be sold in order to be distributed to the heirs. Only the executor can transfer title on behalf of an estate. If an estate becomes insolvent, the executor must declare bankruptcy on behalf of the estate. After debts are paid and assets are distributed, an executor must dispose of any property remaining. He or she may be required to hire an attorney and appear in court on behalf of the estate if the will is challenged. For all of this trouble, an executor is permitted to take a fee from the estate’s assets. However, because the executor of an estate is usually a close family member, it is not uncommon for the executor to waive this fee. If any of these responsibilities are overwhelming for an executor, he or she may elect not to accept the position, or, if he or she has already accepted, may resign at any time.
Monday, November 28, 2016
Although we are moving toward being a paperless society, there are still a few key documents that every person needs to hold on to for the future. Things like social security cards, birth certificates, and the titles to vehicles aren’t something you use on a day to day basis, but it is sure a hassle to get a replacement if you somehow misplace these documents.
In order to keep these documents safe, many people store them in their safe deposit box at the bank, or in a fire-proof safe in their homes.Read more . . .
Monday, November 28, 2016
Overview: Buy-Sell Agreements and Your Small Business
If you co-own a business, you need a buy-sell agreement. Also called a buyout agreement, this document is essentially the business world’s equivalent of a prenup. An effective buy-sell agreement helps prevent conflict between the company’s owners, while also preserving the company’s closely held status. Any business with more than one owner should address this issue upfront, before problems arise.
With a proper buy-sell agreement, all business owners are protected in the event one of the owners wishes to leave the company. The buy-sell agreement establishes clear procedures that must be followed if an owner retires, sells his or her shares, divorces his or her spouse, becomes disabled, or dies. The agreement will establish the price and terms of a buyout, ensuring the company continues in the absence of the departing owner.
A properly drafted buy-sell agreement takes into consideration exactly what the owners wish to happen if one owner departs, whether voluntarily or involuntarily. Do the owners want to permit a new, unknown partner, should the departing owner wish to sell to an uninvolved third party? What happens if an owner’s spouse is involved in the business and that owner gets a divorce or passes away? How are interests valued when a triggering event occurs?
In crafting your buy-sell agreement, consider the following issues:
Triggering Events - What events trigger the provisions of the agreement? These normally include death, disability, bankruptcy, divorce and retirement.
Business Valuation - How will the value of shares being transferred be determined? Owners may determine the value of shares annually, by agreement, appraisal or formula. The agreement may require that the appraisal be performed by a business valuation expert at the time of the triggering event. Some agreements may also include a “shotgun provision” in which one party proposes a price, giving the other party the obligation to accept or counter with a new offer.
Funding - How will the departing owner be paid? Many business owners will obtain insurance coverage, including life, disability, or business continuation insurance on the life or disability of the other owners. With respect to life insurance, the agreement may provide that the company redeem the departing owner’s shares (“redemption”). Alternatively, each of the owners may purchase life insurance on the lives of the other owners to provide the liquidity needed to purchase the departing owner’s shares (“cross purchase agreement”). The agreement may also authorize the company to use it’s cash reserves to buy-out the departing owners.
Saturday, November 26, 2016
There is a reason people make jokes about having someone clear their browser history when they die. Nobody wants their friends and family to know just exactly how much time they have wasted watching cat videos on YouTube, or what other embarrassing content they looked at online. Despite joking about it, however, few people have made plans about what should be done with their digital estate after they die.Read more . . .
Tuesday, November 22, 2016
How Much of Your Estate Will Be Left Out of Your Will? (It’s Probably More Than You Think)
You’ve hired an attorney to draft your will, inventoried all of your assets, and have given copies of important documents to your loved ones. But your estate planning shouldn’t stop there. Regardless of how well your will is drafted, if you do not take certain steps regarding your non-probate assets, you run the risk of unintentionally disinheriting your chosen beneficiaries from a significant portion of your estate.
A will has no effect on the distribution of certain types of property after your death. Such assets, known as “non-probate” assets are typically transferred upon your death either as a beneficiary designation or automatically, by operation of law.
For example, if your 401(k) plan indicates your spouse as a designated beneficiary, he or she automatically inherits the account upon you passing. In fact, by law, your spouse is entitled to inherit the funds in your 401(k) account. If you wish to leave your 401(k) retirement account to someone other than a surviving spouse, you must obtain a signed waiver from your spouse indicating her agreement to waive her rights to the assets in that account.
Other types of retirement accounts also transfer to your beneficiaries outside of a probate proceeding, and therefore are not subject to the provisions of your will. An Individual Retirement Account (IRA) does not automatically transfer to your spouse by operation of law as is the case with 401(k) plans, so you must complete the IRA’s beneficiary designation form, naming the heirs you want to inherit the account upon your death. Your will has no effect on who inherits your IRA; the beneficiary designation on file with the financial institution controls who will receive your property.
Similarly, you must name a beneficiary on your life insurance policy. Upon your death, the insurance proceeds are not subject to the terms of a will and will be paid directly to your named beneficiary.
Probate avoidance is a noble goal, saving your loved ones both time and money as they close your estate. In addition to the assets listed above, which must be handled through beneficiary designations, there are other types of assets that may be disposed of using a similar procedure. These include assets such as bank accounts and brokerage accounts, including stocks and bonds, in which you have named a pay-on-death (POD) or transfer-on-death (TOD) beneficiary; upon your passing, the asset will be transferred directly to the named beneficiary, regardless of what provisions are in your will. Depending on the state, vehicles may also be titled with a TOD beneficiary.
To make these arrangements, submit a beneficiary designation form to the applicable financial institution or motor vehicle department. Be sure to keep the beneficiary designations current, and provide instructions to your executor listing which assets are to be transferred in this manner. Most such designations also allow for listing of alternate beneficiaries in case they predecease you.
Another common non-probate asset is real estate that is co-owned with someone else where the deed has a survivorship provision in it. For example, many deeds to real property owned by married couples are owned jointly by both husband and wife, with right of survivorship. Upon the passing of either spouse, the interest of the passing spouse immediately passes to the surviving spouse by operation of law, irrespective of any conflicting instructions in your will. Keep in mind that you need not be married for such a provision to be in effect; joint ownership of real property with right of survivorship can exist among any group of co-owners. If you want your will to be controlling with regard to disposition of such property, you need to have a new deed prepared (and recorded) that does not have a right of survivorship provision among the co-owners.
You’ve spent a lifetime of hard work to accumulate your assets and it’s important that you take all necessary steps to ensure that your wishes regarding who will get your assets will be honored as you intend. Carve a few hours out of your busy schedule, several times a year, to review all of your deeds and beneficiary designations to make certain that they remain consistent with your objectives.
Friday, November 18, 2016
Do Heirs Have to Pay Off Their Loved One’s Debts?
The recent economic recession, and staggering increases in health care costs have left millions of Americans facing incredible losses and mounting debt in their final years. Are you concerned that, rather than inheriting wealth from your parents, you will instead inherit bills? The good news is, you probably won’t have to pay them.
As you are dealing with the emotional loss, while also wrapping up your loved one’s affairs and closing the estate, the last thing you need to worry about is whether you will be on the hook for the debts your parents leave behind. Generally, heirs are not responsible for their parents’ outstanding bills. Creditors can go after the assets within the estate in an effort to satisfy the debt, but they cannot come after you personally. Nevertheless, assets within the estate may have to be sold to cover the decedent’s debts, or to provide for the living expenses of a surviving spouse or other dependents.
Heirs are not responsible for a decedent’s unsecured debts, such as credit cards, medical bills or personal loans, and many of these go unpaid or are settled for pennies on the dollar. However, there are some circumstances in which you may share liability for an unsecured debt, and therefore are fully responsible for future payments. For example, if you were a co-signer on a loan with the decedent, or if you were a joint account holder, you will bear ultimate financial responsibility for the debt.
Unsecured debts which were solely held by the deceased parent do not require you to satisfy the outstanding obligation. Regardless, many aggressive collection agencies continue to pursue collection even after death, often implying that you are ultimately responsible to repay your loved one’s debts, or that you are morally obligated to do so. Both of these assertions are entirely untrue.
Secured debts, on the other hand, must be repaid or the lender can repossess the underlying asset. Common secured debts include home mortgages and vehicle loans. If your parents had any equity in their house or car, you should consider doing whatever is necessary to keep the payments current, so the equity is preserved until the property can be sold or transferred. But this must be weighed within the context of the overall estate.
Executors and estate administrators have a duty to locate and inventory all of the decedent’s assets and debts, and must notify creditors and financial institutions of the death. Avoid making the mistake of automatically paying off all of your loved one’s bills right away. If you rush to pay off debts, without a clear picture of your parents’ overall financial situation, you run the risk of coming up short on cash, within the estate, to cover higher priority bills, such as medical expenses, funeral costs or legal fees required to settle the estate.
Wednesday, November 16, 2016
C-Corporation Vs. S-Corporation: Which Structure Provides the Best Tax Advantages for Your Business?
The difference between a C-Corporation and an S-Corporation is in the way each is taxed. Under the law, a corporation is considered to be an artificial person. Shareholders who work for the corporation are employees; they are not “self-employed” as far as the tax authorities are concerned.
In theory, before a C-corporation distributes profits to shareholders, it must pay tax on the income at the corporate rate. Then, leftover profits are distributed to the shareholders as dividends, which are then treated as investment income and taxed to the shareholder. This is the “double taxation” you may have heard about.
C-Corporations enjoy many tax-related advantages :
Income splitting is the division of income between the corporation and its shareholders in a way that lowers overall taxes, and can avoid or significantly reduce the potential impact of “double taxation.” By working with a knowledgeable tax advisor, you can determine exactly how much money the corporation should pay you as an employee to ensure the lowest tax bill at the end of the year.
C-Corporations enjoy a wider range of deductible expenses such as those for healthcare and education.
A shareholder can borrow up to $10,000 from a C-Corporation, interest-free. Tax-free loans are not available to sole proprietors, partners, LLC members or S-Corporation shareholders.
S-Corporations pass income through to their shareholders who pay tax on it according to their individual income tax rates. To qualify for S-Corporation status, the corporation must have less than 100 shareholders; all shareholders must be individual U.S. citizens, resident aliens, other S-Corporations, or an electing small business trust; the corporation may have only one class of stock; and all shareholders must consent in writing to the S-Corporation status.
Depending on your situation, an S-Corporation may be more advantageous:
Electing S-Corporation tax treatment eliminates any possibility of the “double taxation” referenced above. S-Corporations pay no federal corporate income tax, but must file annual tax returns. Because losses also flow through, shareholders who are active in the business can take most business operating losses on their individual tax returns.
S-Corporations must still file and pay employment taxes on employees, as with a C-Corporation. An S-Corporation may not retain earnings for future growth without the shareholders paying tax on them. The taxable profits of an S-Corporation pass through to the shareholders in the year they are earned.
S-Corporations cannot provide the full range of fringe benefits that a C-Corporation can.
Monday, October 31, 2016
Year End Gifts
If you’re like most people, you want to make sure you and your loved ones pay the least amount of tax possible. Many use year-end gift giving as a way to transfer wealth to younger generations and also reduce the overall potential estate tax that will be due upon their death. Below are some steps you can take to make gifts to your heirs without triggering any gift tax liability. Some of these techniques may also reduce your own income tax liability.
A combination of estate and gift tax exemptions can be used to significantly reduce the overall tax liability of your estate. Upon your death, federal estate tax may be owed. A portion of your estate is exempt from the tax. That exemption amount is set by Congress and can change from year to year.
Many taxpayers make annual gifts to loved ones during their lifetimes, to reduce the overall value of the estate so that it does not exceed the exemption amount in effect at the time of death. It is important to consider that gifts made during your lifetime are subject to a gift tax (equal to the estate tax). However, certain gifts or transfers are not subject to the gift tax, enabling you to make tax-free gifts that benefit your loved ones and reduce the overall taxable value of your estate upon your death.
The annual gift tax exclusion allows each individual to make annual gifts of up to $14,000 to each recipient. There is no limit to the number of recipients who may each receive up to $14,000 totally tax-free. Married couples may gift up to $28,000 to each recipient without triggering any tax liability. This annual exclusion expires on December 31 of each year, and larger gifts may be made by splitting it up into two payments. By making a payment in December and one the following January, you can take advantage of the gift tax exclusion for both years. Keeping annual gifts below $14,000 per recipient ensures that no gift tax return must be filed, and that there is no reduction in the estate tax exemption amount available upon your death.
Annual gifts may also be made in the form of contributions to a §529 College Savings Plan. These, too, are subject to the $14,000 annual gift tax exclusion. Additionally, such contributions may afford the giver with a state tax deduction.
Payment of a beneficiary’s medical expenses is also excluded from the gift tax. There is no limit to the amount of medical expense payments that may be excluded from tax. To qualify, the payment must be made directly to the health care provider and must be the type of expenses that would qualify for an income tax deduction.
If you have a large estate that may be subject to taxes upon your death, making annual gifts during your lifetime can be a simple way to reduce the size of your estate while avoiding negative tax consequences.
Saturday, October 29, 2016
When Tammy Wynette first sang about it, divorce was a taboo topic. Today, nearly everyone has a close friend or relative that has ended a marriage. In fact, divorce is so common that many people do not stop and think about what it means for their estate plan.Read more . . .