What every boomer needs to know continues
Editor’s Note: This is part four of a continuing series.In the first three parts of this series we took a look at Social Security, “delayed retirement credits,” “representative payees,” Supplemental Security Income(“SSI”), reverse mortgages, senior health care issues and health benefits, and some aspects of “forward planning,” including wills, living wills, and powers of attorney. You can find the first three articles on line at http://www.vaildaily.com under the “archives” section, drop down, “columnists,” keyword “Robbins.”In this part of the series we sneak a peak at other “forward planning” matters, among them a few estate planning devices, inheritance taxes, financial planning and investment, and certain other money matters.As visited before in the last column, when I employ the term “forward planning,” as Dr. Seuss once observed, “I meant what I said and I said what I meant.” Forward planning means looking ahead and doing something about it – making plans. Onward (oops, forward), then.One estate planning device is known by the mouthful name of a “revocable living trust.” Revocable because you can cancel or revoke it, “living” because it appertains during the lifetime of the trustor and “trust”, well, because it’s a “trust.” A quick diversion here. A trust is a right of property held by one party for the benefit of another. Let that sink in for a sec. I’ll wait. Okay, then, a trust is an instrument whereby one party holds property for the benefit of another. Say I have property in my hot little hands which I invest for your sake or benefit; that’s a trust. The party who holds the property for the other (in this case, me) is known as the “trustee.” The beneficiary of a trust is referred to by the fancy and admittedly archaic term of the “cestui que trust.” In modern practice, though, the beneficiary is simply called “the beneficiary” (see, law doesn’t always have to be complicated!). The party creating the trust, that is to say the party funding the trust, is generally known as the trustor (or, sometimes, the grantor).In a revocable living trust, your assets (or some of them) are placed into trust during your lifetime and transferred to your beneficiaries (yes, there can be multiple beneficiaries) when you die. You can (and most people do) name themselves as the trustee who manages the assets. Accordingly, you can be both the trustor and trustee of a living trust (by the way, living trusts can also be irrevocable but, if they are, as the name implies, they are set in stone and cannot be revoked). One advantage of a living trust is that the assets do not go through probate and are usually distributed to the beneficiaries more quickly.A revocable living trust does not eliminate the need for a will. You will generally still need a will (know as a “pour-over” will) to cover assets not included in the trust. In considering a living trust, you should first consult with an estate planning attorney to make sure that the structure will work for you and is appropriate to your circumstances.The two inevitables in life are, as you know, death and taxes and with “inheritance,” “estate” or “death” taxes (all different names for the same Medusa’s head of extra vivos – or after lifetime taxes – “after life time,” not “afterlife”, so far as I know neither hell nor heaven being bastions of continuing taxation; well, heaven at least! ), the two merge into one chilling, covetous, avaricious unity. Whether or not your beneficiaries will be taxed on their inheritance depends upon the particular circumstances. Speaking generally, property left to your spouse or to charity will not be subject to estate tax. That portion of your estate left to anyone else – even your beloved kids – will be subject to tax, but only if your total assets amount to $2 million or more (if you were to die between 2006 and 2008. In 2006, the first $3.5 million will be exempt from tax, in 2010, the estate tax will disappear and, in 2011, unless Congress passes an extension, the exemption will revert back to what it was before the Bush administration’s intervention, $1 million). This, or course, makes planning a bit dicey.Under federal law you can give away (or “gift”) $12,000 per year (up to $1 million in your lifetime) to each of your children (or whomever else you please) without incurring a “gift tax.” Gift more than that per year per person, and you’ll end up owing Uncle Sam for the privilege of giving away your stuff. Additionally, you can pay for a grandchild’s college tuition or medical insurance premiums (or, for that matter, anyone’s tuition or medical bills) free of gift tax,; provided, however, that payment must be made directly to the educational institution or medical provider.What if you just leave your money in a bank account? Well, be careful here. Dormant accounts (usually accounts which have had no activity – no deposits or withdrawals – unless the bank is contacted), may be turned over the state (depending on the state) after three years. The same generally applies to safe deposit boxes. This would typically not apply, however, if you hold another account at that financial institution which has not been dormant during that period of time. Before a state may seize your “abandoned” assets, the bank must first give notice and, even if the assets are ultimately seized, there are some means and mechanisms to get them back.You should also know that F.D.I.C. (Federal Deposit Insurance Corporation)-insured banks may only insure up to $100,000 of your money. Certain retirement accounts are insured up to $250,000). If you have more than $100,000 in bank savings, it may be wise to spread the wealth and open accounts with several F.D.I.C.-insured banks.In the next part of this series, in considering the long, strange trip of life, we’ll take a look at issues surrounding debt and how to deal with it, working past retirement age, and elder abuse. In Part VI, we’ll delve into a variety of scams targeted at seniors, and in the final part of this series (okay, allow me a little wiggle room it if takes two), we’ll consider nursing care, the possibility of raising grandkids and divorce and remarriage.Rohn K. Robbins is an attorney licensed before the Bars of Colorado and California who practices in the Vail Valley. He is a member of the Colorado State Bar Association Legal Ethics Committee and is a former adjunct professor of law. Robbins lectures for Continuing Legal Education for attorneys in the areas of real estate, business law and legal ethics. He may be heard on Wednesday nights at 7:00 p.m. on KZYR radio (97.7 FM) as host of “Community Focus.” Robbins may be reached at 926-4461 or e-mail email@example.com.Vail, Colorado
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