SSB
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In This Issue
Message from the Partners
Five Important Steps to Take After a Loved One Dies
Supreme Court Rules Inherited IRAs Not Protected from the Reach of Creditors in Bankruptcy
Searching for Guaranteed Income: Where to Look and How to Evaluate
Trustee Workshops
Whats New?
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Quick Links
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To Contact Us
Samuel Sayward & Baler 
 
 858 Washington Street, Suite 202 
Dedham, MA 02026

 
Phone: (781) 461-1020 
Fax: (781) 461-0916
 
News from  
Samuel, Sayward & Baler LLC

July 2014

Attorneys Suzanne Sayward, Maria Baler, and Steven Joshua Samuel


 

Message from the Partners

 

Dear Clients and Friends,

 

We hope you are enjoying your summer!  In this issue, we feature Attorney Baler's article about steps that need to be taken when someone passes away.  The article highlights some of the time-sensitive tasks that may need to be completed (income and estate tax filings, minimum distributions, etc.) and the associated deadlines.  Although the passing of a loved one is a difficult time, it is important to get timely legal advice and take the appropriate steps to ensure title to assets is transferred appropriately and in accordance with the deceased's wishes, and that tax requirements are met. 

 

We have been highlighting the responsibilities of the Personal Representative of the Will and the Trustee of a Trust following a death in our client workshops on the Role of the Fiduciary.  Many of you have attended these workshops, and we know there are many more of you that would like to attend.  See below for an update on these workshops and our future plans.

 

In his financial article, Attorney Samuel discusses guaranteed income investments and looks at the pros and cons of two popular investments which offer guaranteed income - immediate annuities vs. government bonds.

 

Finally, Attorney Sayward discusses an important recent bankruptcy court case on inherited IRAs, which reduces the asset protection those accounts had previously enjoyed from the claims of the beneficiary's creditors.  If you are concerned about protecting retirement accounts that your children may inherit from the claims of their creditors, this is an important case to know about.

 

In our What's News section, we congratulate Jennifer Poles on her new position and our office manager Christina Sheehan on her newest grandchild!

 

Thank you for reading another issue of News from SSB. If you have an idea for a topic you would like us to address in a future issue, please contact our office. We also welcome new subscribers so please feel free to send us email addresses or forward this newsletter to friends and family members!

 

Enjoy the remainder of the summer!

 

Steven Joshua Samuel

Suzanne R. Sayward

Maria C. Baler 
Five Important Steps to Take After a Loved One Dies

 

By Attorney Maria C. Baler

 

The death of a loved one is an emotional and difficult event.  Oftentimes the grieving process and uncertainty as to what to do next lead to a period of inaction that can last for months.  Although there are few cases in which immediate legal action is required after a person dies, in general it is a good idea to consult with an attorney within a month or so after a death to determine what steps need to be taken and when. 

 

 

Here are five things to keep in mind following a person's death and related time considerations.

 

1.    Determine Assets and Debts

 

The starting point for administering the estate of a deceased person is to compile a list of the assets owned by the deceased (individually, jointly, in trust), the value of those assets, and the debts owed by the deceased at the time of his or her death.  Depending on how organized the deceased was, this task can be easy or difficult.  The deceased's mail and prior year's income tax returns are the most important source of information about assets and debts.  It is vital to collect the deceased's mail and keep it together in a safe place so it can be reviewed and acted upon as needed.

 

2.    Gain Access to Assets

 

A person may own assets in his or her individual name, including bank accounts, stock, life insurance policies, and retirement accounts.  Some of these assets (i.e. life insurance policies and retirement accounts) are likely to have one or more beneficiaries named to receive the assets at the owner's death.  When that is the case, the beneficiary must contact the company and file the appropriate forms to claim the assets in the account.

 

Other assets (i.e. real estate, bank accounts, stock) that do not have a beneficiary designated cannot be accessed until a Personal Representative (PR), formerly called "executor," is appointed by the court.  The appointment of a PR is necessary, whether or not the deceased had a Will.  It is a court process that requires the person seeking appointment as PR to complete and file certain forms with the probate court, send notice to interested parties, publish notice of the petition in a local newspaper, and await the court's approval of the petition appointing the PR.  Only when this process is complete can the appointed PR gain access to assets owned by the deceased.  In Massachusetts, the appointment of a PR can take anywhere from three to 12 weeks, depending on the county where the deceased lived and the type of probate proceeding required.  It is important to be aware of the time involved in securing the appointment of a PR and to begin this process as soon as possible, especially if assets may be needed to pay final expenses or support the deceased's family.

 

3.    Be Aware of the Process for and Timing of Distribution of Assets

 

Even after the PR is appointed and gains access to the deceased's assets, bills should not be paid or assets distributed without the advice of an attorney experienced in the administration of estates.  Certain creditors have priority over others in terms of payment, and the deceased's creditors generally have one year after death to make a claim for payment.  If assets are distributed to the estate beneficiaries too soon or before all debts are known and funds set aside to pay them, the PR can be personally liable if the estate does not have sufficient assets to pay those debts and if the assets cannot be recovered from the beneficiaries (which they generally cannot be).  It is also important to have receipts and releases signed by the beneficiaries for each distribution received.  Finally, it is important that distributions are made precisely in accordance with the terms of the Will, which can be complicated if a beneficiary named in the Will has died before the deceased.

 

4.    Income Tax Considerations

 

Depending on the timing of the deceased's death, it may be necessary to act quickly to meet income tax deadlines and avoid penalties. For example, if the deceased died in the first quarter of the year, it is important to ensure that income tax returns for the prior year are filed or that income tax is paid and requests for an extension are filed in a timely manner.  If the deceased died at the end of the year, it is important to determine whether minimum distributions from retirement accounts have been taken, and if not, whether they must be taken before year's end and by whom.

 

5.    Estate taxes

 

If all of the assets in which the deceased had an interest exceed $1 million, it is likely an estate tax return must be filed by the deceased's estate with the Commonwealth of Massachusetts (and with the federal government if the estate exceeds $5.34 million in 2014).  Estate tax returns must be filed and any amounts owed must be paid nine months after death.  Preparing an estate tax return and compiling the information necessary to prepare the return is a complex process -- one that requires sufficient time to make sure it is done correctly.  If real estate, business interests, or valuable personal property such as artwork or antiques were owned by the deceased, appraisals of those assets may be necessary.  If beneficiaries of the estate have large estates of their own, the possibility of a disclaimer should be considered, and care must be taken that the beneficiary not exercise ownership or control over an inherited asset if a disclaimer is being considered. 

 

The settlement of an estate is a process that involves many considerations of timing, tax implications, and liability to the PR.  If a family member or loved one has died, it is important to contact an attorney experienced in the administration of estates as soon as possible after death to determine the steps that must be taken and to start the estate settlement process.

 

Attorney Maria Baler is an estate planning and elder law attorney and a partner with the Dedham law firm of Samuel, Sayward & Baler LLC. She is also a director of the Massachusetts Chapter of the National Academy of Elder Law Attorneys (MassNAELA). For more information, visit www.ssbllc.com or call (781) 461-1020.  This article is not intended to provide legal advice or create or imply an attorney-client relationship. No information contained herein is a substitute for a personal consultation with an attorney.

Supreme Court Rules Inherited IRAs Not Protected from the Reach of Creditors in Bankruptcy

 

By: Attorney Suzanne R. Sayward

 

This year has seen a flurry of decisions from the Supreme Court of the United States which could have a direct and immediate impact on everyday citizens.  The Court's unanimous decision in Clark v. Rameker on June 12, 2014, is one of these. 

 

The Bankruptcy Code provides that 'retirement funds' owned by individuals who file for bankruptcy protection are not includable as assets available to creditors.  The term 'retirement funds' includes IRAs.  An 'inherited IRA' is an IRA that has passed to a beneficiary at the death of the original owner of the IRA. 

 

The beneficiary of an inherited IRA must begin taking distributions from the inherited IRA by the end of the year following the death of the owner even if the person who inherited the IRA is under age 70 ˝ or still working.   In addition, the recipient of an inherited IRA may withdraw as much as he wants from the inherited IRA without any penalty at any time.  This is different from the rules governing traditional IRAs which allow deferral of withdrawals until the owner has reached age 70 ˝ and which impose a 10% penalty on withdrawals made prior to the owner reaching age 59 ˝ (unless the withdrawal falls under one of the exceptions to the rule).

 

The Supreme Court focused on these differences and concluded that funds in an inherited IRA are not 'retirement funds' within the meaning of the Bankruptcy Code.  The Court reasoned that while the provision of the Code exempting retirement funds from the bankrupt's estate was intended to give the debtor a 'fresh start', granting inherited IRAs the same exempt status would giving debtors a 'free pass.'

 

If you are concerned with protecting the funds in your retirement accounts from the claims of your beneficiaries' creditors you should speak with your estate planning attorney.

Searching for Guaranteed Income:  Where to Look and How to Evaluate

 

By Steven Joshua Samuel JD, MBA, AIF®

 

Active, healthy baby boomers are entering retirement in large numbers every day. Understandably concerned about their savings lasting for potentially very long lifetimes, boomers seem more interested than ever in investments that provide guarantees. Insurance company annuities are one source of guaranteed income investments. Annuities come in many forms and can be quite complex. In this article, we'll look at the pros and cons of one of the more easy-to-understand annuities, the immediate annuity, and compare it with a US government guarantee.

 

Immediate Annuity

 

Purchasing an immediate annuity means giving money to an insurance company and in return receiving monthly payments guaranteed by the insurance company for your lifetime. The monthly amount consists partly of some of the money originally given to the insurance company along with interest. For example,  according to the Wall Street Journal  (July 5-6, 2014 p. B8), a 65 year old man who invests $100,000 today would receive about $565 monthly and a woman $535 because women live longer on average. A man and a woman, both aged 65, and who purchase a joint annuity would receive $475 monthly for as long as either is alive. The $100,000 belongs to the insurance company and the payments end on death whenever it occurs. You may purchase an annuity that pays a "cash refund" at death to your heirs but this comes at the cost of reducing monthly payments during your lifetime by 10% or more.

 

Receiving guaranteed payments of $475/month or $5,700/yr. can be an attractive way for a couple to ensure that some essential monthly living expenses will be covered for life no matter what. Especially if the $100,000 amount invested to produce the $475 monthly payment is not required to meet inheritance or other goals and if access to the $100,000 is not important. Also, because the monthly payments are partly return of your own money, the income tax on annuity payments is less than on most other interest paying investments.

 

So what can you do if you want guaranteed income but you don't like the idea of:

  1. Giving up access to your $100,000
  2. Risking that you might not live a long life and you don't even get your own money back (unless you took reduced payments)
  3. Seeing 3% annual inflation reduce the purchasing power of your $475 in 20 years to $263, because the payments stay the same but they buy less every year

Government Bonds

 

The US government offers guaranteed income investments too. You may not like or believe everything the US government does, but the US Treasury guarantee is the most desired in the world. One example is the 30 Year Treasury bond that pays a fixed rate of interest for 30 years. If you hold it until it matures in 30 years it returns all of originally invested money to you or your heirs. The interest rate does vary depending on when you purchase the bond, in the 1980s between 7.5%- 15%; 1990s 4.7% - 8.4% and 2000s 2.5% - 6%. Currently, the 30 Year Treasury offers a historically low rate of 3.4%. The interest rate is unlikely to stay this low for very long.

 

If instead of giving $100,000 to an insurance company in exchange for a fixed annuity, you might consider "laddered" purchases of 30 Year US Treasury bonds. This means dividing the $100,000 into several units, say of $10-20,000 each and purchasing bonds over time as rates go up. To match the annuity payout of $475 monthly for a person age 65 to 100, the average interest rate for the next 30 years will have to be about 4.5 - 5% even considering the slight tax advantage of the annuity. That isn't a bad bet. Of course, if interest rates rise you could also "ladder" purchases of annuities which will also offer higher rates, but the Treasury bond allows you access to your money (you can sell it before it matures  if you really need the money) and your heirs will inherit it instead of an insurance company being your heir.

 

Understand what you are buying before purchasing annuities or government bonds. Consult a trusted financial professional before investing.  If you don't have one yet, find one who is a fiduciary (puts your interests first).

 

Government bonds are guaranteed only as to timely payment of principal and interest, and, if held to maturity, they offer a fixed rate of return and fixed principal value. Government bonds do not eliminate market risk. The purchase of bonds is subject to availability and market conditions. There is an inverse relationship between the price of bonds and the yield: when price goes up, yield goes down, and vice versa. Market risk is a consideration if sold or redeemed prior to maturity. Some bonds have call features that may affect income.

 

Samuel Financial LLC is located at 858 Washington Street, Dedham, MA 02026 and can be reached at 781.461.6886.  Securities and advisory services offered through Commonwealth Financial Network, member FINRA/SIPC, a registered investment adviser.  

 

Trustee Workshops

 

As many of you know, we have been offering free seminars at our office for our clients and their family members on the Role of the Fiduciary - what do you have to do if you are named as Executor/Personal Representative or Trustee? These sessions have been very popular and we know many of you have been disappointed when you were unable to attend because all available spots were filled. We purposely have only a small number of people attending each seminar to make it easier for the attendees to participate and ask questions. We will continue to run these seminars periodically, so look for our email notice when the next one is scheduled. We hope to see you soon!

 

What's New?

 

Congratulations Jennifer!

Jennifer Poles has recently moved to a new position as the firm's legal assistant. She still handles all of the scheduling for the office, but has taken on the additional responsibilities of assisting the paralegals with trust funding and finalizing estate plan documents, along with a variety of other tasks. For those of you who have become accustomed to her cheerful voice when you call, not to fear, she is still here! You can reach Jennifer at poles@ssbllc.com or 781/461-1020 ext. 212.

 

Congratulations Chris!

We offer our heartfelt congratulations to our long-time office manager Christina Sheehan on the birth of her grandson, born to Chris' daughter Courtney (who also worked at SSB many years ago).  He will soon learn he has a grandmother second to none!