01    Estate Planning and Probate

What is Estate planning and what does it have to do with Probate?
02    Social Security

What is Social Security?  How are my benefits calculated.  Can I collect more than one benefit from Social Security?
03    Estate Taxes

The old adage that the only sure things in life are death and taxes holds true, and even in death, there are taxes--for now, at least.


04    Understanding Intestacy

What happens if I were to die without a will?
05    Tax Cutting Tools

Three valuable Estate Planning and Tax Cutting tools.
06    A Vested Retirement

What does it mean to be "vested" in my retirement plan?
07    Medicare

What is Medicare and how does it work?
08    Living Wills

Ten things to know about Living Wills.
09    Durable Attorney

How does a durable power of attorney work?
10    Final Ceremonies

Why should I leave written instructions about my final ceremonies and the disposition of my body?
11    Living Wills

What is a Living Will?
12    Retirement Plan Terms

Glossary of Retirement Plan terms.
13    Pain and End of Life

Controlling your Pain and End of Life options.
 


 

 

 

Estates, Probate, Wills, and Trusts

What are the advantages and disadvantages of having a trust instead of a will?
Trusts enable the trustor to determine who receives the money, when they receive it, and what conditions must be met. The pros and cons of trusts depend on whether it is a living trust or a testamentary trust. A living trust is set up during the trustor's life, while a testamentary trust takes effect upon the trustor's death. A living trust can be either revocable (trustor has power to revest title in himself/herself) or irrevocable (trustor did not reserve the power to revoke the trust). Note that a revocable trust generally becomes irrevocable upon the death of the trustor.

The most-touted advantage of a living trust is a substantial tax benefit to the trustor. Assets placed in an irrevocable living trust are not attributable to the trustor, although the trust itself may be taxed. Estate taxes also may be avoided. Revocable living trusts are sometimes used to help eliminate the issue that arises when certain entities (such as title insurance companies in some states) will only recognize Durable Powers of Attorney for a limited period of time after they are executed. Other advantages cover both revocable and irrevocable living trusts. If a living trust covers all of the trustor's assets, then he or she may not even need a will. Many people wish to spare their relatives from going through probate, and living trust assets are not subject to probate. Because there is no probate, survivors do not have to reveal the extent of the living trust's assets through a public filing as happens with probate. If the trustor holds real estate in more than one state, a living trust covering that property may allow survivors to avoid probate in those states. Aside from the advantages for the survivors, a living trust can help a trustor manage his or her financial affairs because a trustee takes over the administration of the trust's assets. Some people are particularly concerned about how their finances will be managed if they should fall ill. A living trust may provide peace of mind because a trustee can continue to manage the trust's funds in the event the trustor becomes mentally or physically incapacitated.

In some cases, a disadvantage of a living trust is that this trust becomes effective upon creation instead of at the trustor's death. Although a revocable living trust remains terminable at the will of the trustor, while the trust is in effect, the terms of the trust control.

The major advantage of a testamentary trust is that the trustor retains control over his or her assets. Because a testamentary trust becomes effective only upon the trustor's death, the trustor may make changes to its terms any time before death. For many people, retaining control of their property is an important goal that testamentary trusts help them achieve. Retaining control can have its disadvantages, though. If the trustor becomes incapacitated prior to death, the trustee cannot take charge of the trust assets in order to manage the trustor's finances during that time. A guardianship may be required for such incapacitated trustors. Another drawback is that survivors must probate the testamentary trust.

 

How can a person change a will?
If a will is valid, it is effective until it is changed, revoked, destroyed, or invalidated by the writing of a new will. Changes or additions to an otherwise acceptable will can be most easily accomplished by adding a codicil. A codicil is a document amending the original will, with equally binding effect. Therefore, a codicil must be executed in compliance with applicable law, using the same formality as the original will. Wills cannot be changed by simply crossing out existing language or adding new provisions, because those changes do not comply with the formal requirements of will execution.

Changes to an individual's personal property may prompt a change to an existing will. To avoid frequent changes as property is acquired, a will can specify that personal property (property other than money and real estate) is to be distributed in accordance with instructions provided in a separate document. Many states provide for such a document, which can be updated as often as needed without requiring a formal codicil or revised will. A personal property instruction should be kept with the will to which it relates, and should describe each item in detail to avoid later confusion or hard feelings.

An outdated will may not achieve its original goals because its underlying assumptions have changed. Additionally, changes in probate and tax law may change the effectiveness of certain provisions. If a will is based on outmoded circumstances, for example if a chosen devisee has died or has alienated the testator, the probate period may be extended as the court determines how to construe the old provisions. Wills should be reviewed at least every two years, as well as upon major life changes such as births, deaths, marriages or divorces, and major shifts in a testator's property. Because state law governs wills, if a testator moves to another state, the will should be reviewed for compliance with the new state's laws.

As long as the testator is mentally competent, his or her will can be revoked entirely without replacement by a new document. A testator can revoke a will by intentionally destroying, obliterating, burning, or tearing the will. If the will was executed in multiple originals, or if additional copies exist, those should be treated in the same fashion. If a testator wants to minimize estate taxes and probate, he or she should make validly executed changes to a will or replace the will with a subsequent will, rather than completely revoking the will. If undertaken, however, the testator should have the revocation witnessed and recorded to avoid future contentions that the will is still valid, but has been lost.

 

Is there any way a will would not be given effect after the testator's death?
First, a testator should make certain his or her family and friends know that there is a will, and that it is kept in a safe, secure location known to the personal representative and other people close to the testator. If a will is not presented for probate, the estate will be distributed as intestate. There is no need to file a will with a governmental agency as long as these steps are taken (although some states allow for this procedure).

Assuming that a will is presented for probate, the testator's survivors still may challenge it in court, although such challenges are relatively rare. Challenges cannot be founded on the will being unfair, or because a devisee did not get what he or she wanted; there must be a legal basis for the claim. Sometimes, a will challenge is based on the testator's mental competence at the time he or she made the will. Generally, however, all the estate must show is that the testator was of sound mind and memory when the will was made, which often can be supported by testimony from the will's witnesses. The will's challenger bears the burden to prove otherwise. Another possible challenge asserts that the testator was subjected to fraud, coercion, or undue influence when he or she made the will; these claims usually follow the marriage of an elderly person to a much younger individual of strong personality. Ambiguities in the will's text, and charges that the will presented for probate is a forgery or does not meet statutory requirements are other bases for will challenges.

If the court does find that the challenge is correct, it may choose either to disallow only those portions of the will that were at issue, or to throw out the entire document. If the entire will is disallowed, property either will be distributed as an intestate estate, or the court will revert to the testator's last previous otherwise valid will, if one exists. This decision will be based on the relevant laws and the particular situation.

Certain provisions in an outdated will may be voided in probate. For example, many states provide that divorce automatically removes the ex-spouses from each other's wills; in other states, divorce revokes the ex-spouses' wills in their entirety. A law executed under the laws of one state may contain provisions that are not enforceable after a testator moves to another jurisdiction. Laws of this sort underline the importance of keeping wills updated and synchronized with current law.

In some cases, a person will try to make a will verbally or in his or her own handwriting. So-called oral and holographic wills have extremely limited validity in a few jurisdictions. An oral will is usually only valid if made by a person in the military or the merchant marine who is in active service at the time the will is made, and does not have time to make a written will. Therefore, an oral will should not be relied upon unless subsequently transferred into a valid written form. Holographic wills are only recognized in about twenty-five states, and many of these laws still require certain formalities such as a witnessed signature or inclusion of certain provisions. Therefore, oral and handwritten wills are to be avoided, and would-be testators should make reference to the formal statutory requirements for wills to ensure validity.

 

What is a community property state and how does it affect estate planning?
Some states use a community property model to attribute ownership of the property of married individuals. The community property system of ownership segregates property an individual owned before marriage, as well as property received individually as an inheritance or gift, as that individual's separate property. Other property gathered during the marriage, such as wages and items purchased jointly or by either spouse individually, is community property considered to be half-owned by each spouse. The important distinction of the system is that each spouse is considered to own half of the community property regardless of his or her contribution to the marital assets. Neither spouse can sell or give away part of the community property during the marriage unless the other spouse agrees. Each community property state uses certain variations on the concept, but the basics are the same. Upon death without a will, community property either goes to the surviving spouse, or in some states, the late spouse's share is given to his or her descendants. If one spouse dies with a will, that document can dispose of separate property and his or her half of the community property, but not the surviving spouse's half of the community property.

Nine states have a community property system: Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin. The remaining states and the District of Columbia use a common property system, which allows a surviving spouse to make a legal marital share claim on a portion of the late spouse's estate, regardless of whether that property was gained prior to or during the marriage, or by what means.

 

What are some common issues connected with nursing home care?
Nursing home care raises many understandable emotions and concerns. Many elderly persons worry that they will be forced to go into a nursing home. Except in emergency situations, no one can be involuntarily committed to an institution unless a court authorizes the action after a hearing. At the hearing, the court must determine whether an individual is mentally ill, unable to care for himself or herself, or a danger to himself or herself or others. A person subject to a hearing has the right to be represented by an attorney.

Another concern is how to finance a nursing home stay. Medicare only covers skilled nursing home care ordered by a doctor, involving daily skilled nursing activities or rehabilitation services that can only be provided in a residential setting. Medicare does not cover custodial care to assist with daily living tasks and needs if no skilled services are necessary. Medicaid may cover nursing home custodial care if income and asset requirements are met, but would-be residents cannot transfer their assets simply in order to qualify for this assistance. Other financing options such as state programs and reverse mortgages may be available. If a child or other relative pays for nursing home care, that person may be able to deduct the expenses on his or her taxes.

Once a person moves to a nursing home, he or she may have concerns about the level of care and the maintenance of his or her personal rights. Relatives may worry about whether their elderly family member will be comfortable and stable in the new setting. Violations of a nursing home resident's rights are a form of elder abuse, which all states prohibit. Definitions of elder abuse most commonly include physical, psychological, and financial abuse, as well as neglect. Many states have adult protective services agencies that enforce compliance with their elder abuse laws. Violators of elder abuse laws generally are subject to criminal and financial penalties.

Once a resident has settled in, he or she cannot be moved legally without proper consent unless the resident endangers the safety or health of other residents, develops medical needs that can no longer be met by the home, recovers to the point that residential care is no longer necessary, fails to pay for services, or must leave because the facility is closing. Other rare situations may prompt a move, including a staff strike or loss of license, but in these cases alternative housing is usually provided. When a transfer is imminent, a resident must receive a thirty-day written notice citing the reason for the transfer and how to challenge the proposed change. A resident may have a right to a hearing regarding the change.

Nursing homes are highly regulated by both the state and federal governments, which require licenses, inspections, complaint procedures, and penalties for non-compliance. Residents and their families have many mechanisms for resolving disputes. The complaint procedure at the facility is a resident's first recourse, followed by governmental watchdog organizations and regulatory agencies. Residents also can sue their nursing homes on a large number of legal grounds.

 

What is probate and how does it work?
When an individual dies owning property in his or her name, that property generally must go through probate. Probate is a legal procedure that establishes ownership of property in others. The probate system is designed to ensure the validity of a will, to give notice to all possible claimants of property and to resolve ownership disputes and rights. Probate courts also distribute property not covered by a will (intestate estates) according to legal defaults. Some property does not require probate to change hands: joint tenancy property and contractual arrangements such as insurance policies and retirement accounts generally go directly to the surviving joint tenant or named beneficiary without probate oversight. Probate also is not required for assets held in trust.

The probate court first establishes whether the deceased left a valid will. If so, the probate process guides the division of property in accordance with the will's provisions. If the estate is intestate or if a will is found to be invalid, the probate division applies state laws to divide up the estate. The probate court signs off on the final accounting of the distribution, thereby finalizing the transfers of ownership.

There are two levels of probate:

Informal probate covers estates that require no court supervision or adjudication due to their clear, undisputed nature and simplicity. This procedure allows the personal representative to accept full responsibility for promptly, completely, and legally probating the estate with only minimal court oversight. Typically, the personal representative can act more quickly to divide the property under this process, with the probate court giving final approval once the estate is fully distributed. Personal representatives may apply for informal probate, but should be aware of the possible legal liability for mistakes that their acceptance of the procedure involves.

Formal probate applies to more complex or contested estates, and involves court supervision of distribution. The probate court supervises the personal representative on each legal step he or she takes to administer the estate, adding substantial time to the process. The personal representative may post a bond to guarantee his or her performance and to protect the estate's creditors. The court may need to hear and resolve conflicting claims to the estate assets, or even find heirs when they are not apparent. The court scrutinizes each distribution. While this procedure takes far more time, it is indispensable when disputes and complex issues are involved.
Most personal representatives hire a lawyer to help them with at least some of their duties, even in informal probates. While making a will does not prevent the need for probate, a carefully drafted will minimizes the time a personal representative spends in court and speeds up the distribution of property to survivors.

 

What are some of the tax consequences of estate planning?
Many state and federal tax regulations impact estate planning, but a carefully crafted estate plan can reduce the tax burden on an estate and survivors. Both state and federal rules and regulations are extremely complex, and the advice of an estate planning attorney to maximize tax savings is highly recommended, particularly if an estate is likely to be substantial.

Some states have inheritance taxes that devisees to a will must pay; recipients under a will or trust also may face state and federal income tax consequences. In 2001 Congress enacted a law that raises the exemption amount for federal estate taxes with the intent of eliminating all estate taxes by the year 2010. Until then, if an Estate's worth exceeds the exemption amount, (which begins at $1 million in 2002 and rises to $3.5 million in the law's last year) it must file federal tax returns, and state tax returns in most states, and may be subject to federal and state estate taxes. The federal gift tax augments estate and inheritance taxes by regulating gifts to individuals while living; gifts exceeding $11,000 per recipient per year are taxable. This provision prevents people from giving away their assets in order to avoid estate or inheritance tax.

Some gifts from a will do not require tax payments. Current federal tax laws allow testators to leave up to $1,000,000 tax-free to one or more individuals other than a surviving spouse. The surviving spouse may receive an unlimited amount without taxes; however, if the estate is quite large and the entire estate is left to the surviving spouse, that surviving spouse may lose the option of subsequently leaving the same amount to his or her chosen devisees without taxes. Estate planning specialists can assist people with potentially large estates to create trusts that may allow transfers without any or limited tax consequences.

None of these taxes form a substantial source of revenue for state or federal government. Most estates are not affected substantially by the various tax rules because they do not exceed taxable minimums.

 

How does a trustor choose a trustee?
The choice of a trustee is extremely important. The trustee owes beneficiaries a fiduciary duty to act in their best interests and usually receives compensation for trust management activities, so the trustor usually wants to make this decision personally. Many trustors choose family members or close friends due to personal confidence in those individuals, but others prefer professional trustee institutions because of staff expertise. A trustor should consider the burden posed by the trust's administration, the compensation required by a trustee, and the particular needs of the trust. If a trustee is not specified in the trust document, then a court will appoint one, possibly choosing a trustee the trustor would not have chosen freely.

A trustee can be any person or institution capable of taking legal title to property. In order to make the trustee fully effective, however, the trustee also should be able to convey property. For example, minors and certain corporate entities can receive ownership but may not pass it on. Conveying ownership is necessary when distributing the trust property.

Legally, it is not necessary to notify the trustee prior to creating a trust, but a trustee may decline his or her appointment. Therefore, the trustor should choose someone who is willing to take on the required responsibilities. It is advisable to choose an alternate trustee in the event the original choice is unable or unwilling to accept the trust obligations when the trust commences. Successor trustees are also a good idea in case a trustee resigns or is removed by court action.

Trustors may choose multiple trustees to act together in managing trusts. Co-trustees must act unanimously unless the trust expressly allows division of responsibilities. Even when responsibilities are divided, each trustee retains complete individual legal liability for the entire trust.

A trustor should avoid possible conflicts of interest when choosing a trustee. The trustee's fiduciary responsibilities prohibit actions not in the beneficiary's best interests under the terms of the trust. A conflict of interests may raise a concern over whether the trustee is performing up to this standard, or may make a breach of fiduciary duties more likely.

A trustor may name himself or herself as trustee during his or her life. Additionally, a trustor may name one of the trust's beneficiaries as a trustee. The only impermissible combination is naming the same person as sole trustee and sole beneficiary, because this arrangement merges the legal ownership with the property benefits as in regular property ownership.

 

How can a person leave property to minor children?
Generally, the law requires that adults manage children's inheritances until the children turn eighteen. If a testator wants to leave property to children, it makes sense to name an adult to manage that property. Otherwise, a court will name someone to safeguard the property, a procedure that may delay speedy transfer of assets. There are several ways a will can provide for property management while heirs are underage:

Trusts: A will can establish a trust to handle property left to children. A trustee is named to manage the property for the children's benefit, and distribute trust property according to the testator's instructions. A will can either set up an individual trust for each individual child, or a pot trust that covers multiple children. The trustee usually follows instructions to spend trust funds to meet children's needs until they come of age. When the child or youngest child covered by the trust reaches eighteen or another given age, the trust funds usually are distributed amongst the beneficiaries and the trust ends.
Uniform Transfers to Minors Act (UTMA) custodians: The UTMA is a law that exists in almost every state, and gives a testator the ability to choose a custodian to manage property left to a child. If at the testator's death, the child is under eighteen, twenty-one, or twenty-five (depending on the specific version of the state UTMA law), the custodian will manage the property until the child reaches the statutory age. At that age, the child receives whatever is left of the property outright. Unlike a trust, the testator cannot change the age at which the child receives this distribution.
Property guardians: A will can name a property guardian for a child. At the testator's death, if the child is still underage, the probate court will appoint the chosen guardian to manage property for the child. This option is available when a trust or UTMA custodian is not specified.
The option chosen for gifts to children will depend on the testator's goals, the size of the intended gift, and the age and character of the children.

 

What are some of the fiduciary responsibilities owed by a trustee to the beneficiaries?
The trustee has several major duties:

Loyalty: The greatest duty is for the trustee to be loyal to the beneficiaries. The trustee must administer the trust solely for the benefit of the beneficiaries, and provide full disclosure of his or her dealings. The trustee must deal fairly with the beneficiaries, and not manage the trust to profit his or her own financial interests (i.e., by buying stock in a company the trustee owns).
Administration: The trustee has a positive obligation to do what is necessary for the good of the trust.
Productivity: If the purpose of the trust is to maximize assets over time, the trustee owes a duty to make productive investments.
Earmark: The trustee must keep trust assets separate from all other assets, including those of the trustee, and must clearly identify those assets belonging to the trust in all dealings.
Account: The trustee must provide financial statements regarding the state of the trust.
Nondelegation: Because the trustee holds legal title, only the trustee may manage the trust.
Diversification: If the trust involves investment of assets, the trustee must diversify the trust's holdings as a prudent investor would do with his or her own money.
Impartiality: The trustee must act for the benefit of the trust as a whole, and not favor one beneficiary's interests over another's.
If a trustee breaches his or her duties under the trust, the beneficiaries may sue him or her for any damages to their interests.

 

Learn More: Estate Planning
Planning for the future raises complicated worries and even fears about the unknown. Often, emotions run high when people contemplate the distribution of their possessions after death. However, estate planning includes more than deciding "who gets what." A good estate plan provides a sense of security and comfort that one's desires about many future contingencies will be met. Estate planning not only defines a person's wishes to be carried out after death regarding his or her estate (all the property owned), but also sets out the means for personal well being far into the future. To reach this goal, estate planning encompasses several connected legal areas and techniques.

Elder law is defined by the client rather than by specific legal distinctions. Elder law attorneys specialize in the legal issues facing older people, which may include issues almost as diverse as the entire legal spectrum. The main issues addressed, however, involve advance planning. As they age, many people become concerned about distributing their estates, establishing alternative decision makers in case of mental or physical incapacity, investigating possible long-term care needs (including the type of care and how to finance it), and otherwise ensuring a comfortable retirement. Often, people seek legal techniques for achieving these goals.

Guardianships and conservatorships are established for people who need representatives to oversee their own personal affairs or finances. A child or a person incapacitated by health problems may come under the care of a legal guardian or conservator. This relationship is often established by court order when a child loses a caregiver or an adult becomes unable to deal with personal affairs, but in some instances a guardian may be elected in a will or by the individual directly concerned. Often an individual has both a guardian and a conservator, and the two must coordinate their efforts to give the protected person the best result.

Living will is the popular name for a document providing advance directives on an individual's health care preferences in case of terminal illness or permanent unconsciousness. Many people hold strong opinions about heroic measures and life-support machines, and living wills offer an opportunity to formalize their wishes. Laws on living wills vary widely from state to state, so it is important to comply with local laws to ensure one's preferences will be honored.

A power of attorney and a power of appointment allow someone to select an individual for responsibilities or benefits. A power of attorney allows a person to appoint another (called the attorney-in-fact, although the person is not required to be an attorney at law) to act as his or her agent in specified situations. For example, an elderly person may delegate all the powers and responsibilities of a guardian and conservator to a designated individual, using a power of attorney, so that if the person becomes incapacitated the attorney-in-fact quickly can begin making decisions. In contrast, a power of appointment is an individual's ability to designate an owner or recipient of property. For example, in a will or trust, the owner of property can appoint another to manage or distribute property; the designated person has a power of appointment to choose who receives what property from the will or trust.

Trusts include a variety of arrangements in which a property owner (the grantor or trustor) separates the benefits from the burdens of ownership and gives them to different people. The owner of a vacation cabin enjoys the ready get-away, but must pay for its upkeep; if the cabin is put in trust, the trustee manages any repairs and financial obligations for the property, while the beneficiary receives the benefit of its use. A grantor may choose a trust in order to ensure a continuing benefit to the beneficiary as opposed to making a one-time gift. Additionally, a trust may provide tax benefits to the grantor or to his or her estate.

A will is a legal document specifying how a person's property and assets should be handled after death. A testator (the person making the will) can give instructions on how the property should be divided, who should receive what portions or specific items, and even who will take care of any surviving minor children. A will can establish a trust or make gifts to charity. Without a will, the government determines how property will be distributed, and may impose a substantial tax burden on the estate. Wills must meet state legal requirements to be effective, so professional guidance is important.

 


 

 

 

Social Security

What is Social Security?
Social Security refers to a number of programs that provide workers and their families with some money when their income decreases because of retirement, disability, or death.

Are all workers covered by Social Security?
No. Certain workers in American have not paid into the Social Security system and are therefore not entitled to its benefits. Other workers may not have a sufficient number of years of "covered employment" (i.e., work credits) to qualify for Social Security.

How are my retirement benefits calculated?
The Social Security Administration (SSA) calculates retirement benefits on income earned during a lifetime of work under the Social Security system. According to the SSA, for current and future retirees, it averages the worker's thirty-five highest years of earnings.

What is the average Social Security retirement benefit?
According to statistics maintained by the SSA, in 2002 more than 29 million people received Social Security retirement benefits that averaged about $895 per month.

How do I know what my benefit will be?
You can check on your earnings by contacting the SSA. It keeps a running record of your earnings and work credits by tracking through your Social Security number. In addition, the SSA annually mails a Personal Earnings and Benefit Estimate Statement to everyone who is not currently receiving Social Security.

Can I collect more than one benefit from Social Security?
No. You can collect only one type of Social Security benefit even though you may qualify for more. For example, you might be entitled to benefits based on your retirement as well as that of your spouse. You can collect whichever of these benefits is higher, but not both.

When can I start collecting Social Security?
You can start collecting retirement benefits from Social Security at age 62. If you wait to collect your benefit, it will increase for each year you wait up to age 70.

How do I collect benefits when I turn 62?
While you will be eligible for benefits in the month you turn 62, most benefits do not begin until the following month. To receive benefits, you must be 62 for the entire month. You should file a claim with the SSA three months before the birthday on which you become eligible for benefits. This will give SSA time to process your claim and enable you to receive your benefits on time. Be aware that if you file a claim later, you will not get benefits retroactively for months in which you were eligible but before you applied for benefits.

How do I file for benefits?
Contact your local Social Security office or call the SSA at 800-772-1213. Social Security workers should be able to answer general questions about benefits and how to obtain them. They should be able to tell you what paperwork must be completed and what documentation is required. You may also apply for benefits online, using the SSA's website at www.ssa.gov.

Can I work and still receive Social Security retirement benefits?
Yes. Moreover, the trend is for more and more retirees to work at least part time. If you have reached the full retirement age under Social Security, you can work and earn any amount without losing any of your Social Security benefit.

If I am 62, can I work and still receive Social Security retirement benefits?
Yes, but $1 in benefits will be deducted for each $2 you earn above a limit which is set annually. The limit for 2005 is $12,000. In the year that you reach full retirement age, $1 in benefits will be deducted for each $3 you earn above a certain limit (set at $31,800 for the year 2005). Only the earnings you receive before the month in which you reach full retirement age will be subject to this deduction. In the month you reach full retirement age, you will get your full benefit without any limit on your earnings.

If I work and receive Social Security retirement benefits, will my earnings be subject to Social Security and Medicare taxes?
Yes. Your extra earnings, however, could increase your benefits.

Will my Social Security benefit be reduced by any pension I receive?
Your pension from work will not affect your Social Security benefit as long as the work was covered by Social Security, i.e., you paid Social Security taxes.

Can the SSA assist me with my financial planning?
No.

 

 

 

 

 

Estate Taxes

The old adage that the only sure things in life are death and taxes holds true, and even in death, there are taxes--for now, at least.

In 2001, Congress passed a law that made sweeping changes to the existing estate taxation scheme. Over the next several years, the estate tax is being phased out and as of 2010, it is eliminated! However, under this law, the estate tax is re-instated in 2011. Between now and 2011, Congress will likely make some further changes to this plan.

The "probate estate" includes the property of the person dying whose titles are in the name of the person dying or his or her estate (such as houses, cars, or bank accounts that are only in the name of the person dying). The title to these probate assets has to be changed to someone other than the deceased -- this is the purpose of probate. The size of the probate estate has nothing to do with the size of the federal taxable estate. The probate estate generally is smaller than the federal taxable estate. The taxable estate includes all property owned by you or by a trust you control outright, or by a trust to which you have significant "strings attached," qualified retirement plan proceeds, and life insurance proceeds, if the policy is owned by the deceased.

In 2005, persons dying may "shelter" $1,500,000 that is not subject to the federal estate tax, so if your taxable estate is less than this amount, your estate won't owe any federal estate taxes! This amount increases to $3,500,000 in 2009 (and then the estate tax is eliminated in 2010 for one year only). The exemption goes back to $1,000,000 in 2011. It is important to note that lifetime gifts made by the deceased may use up some of this shelter amount.

Estates whose assets exceed the shelter amount ($1,500,000 in 2005) must pay estate tax -- the tax rate spans up to a highest rate of 49% in 2003!

You may make annual lifetime gifts of $11,000 to an unlimited number of recipients. These gifts are not included in the federal taxable estate (unless they are made within three years of your death) and they do not use up any of your "shelter" amount. (For example, Bob may give $11,000 to his daughter, Lisa, in 2005, and $11,000 to his son, Tom, also in 2005, and these amounts are not deducted from the "shelter" amount.) There is a separate federal gift tax for lifetime gifts, but annual gifts of $11,000 or less are excluded, and there is a $1,000,000 exemption before gift taxes begin to accrue on lifetime gifts. (The 2001 legislation changing the estate tax exemption left the gift tax exemption at $1,000,000.)

A spouse may leave his or her entire estate to the surviving spouse without the estate being subject to the federal estate tax. However, the estate will be subject to the federal estate tax upon the death of the surviving spouse.

Using a trust to keep property out of the taxable estate will only work if you give up control of the trust. It must be an irrevocable trust!

It is better to make lifetime gifts of property that is expected to go up in value in the future because the increase in value will escape estate taxation or delays taxation for another generation. Conversely, it is better to give property that has already significantly increased in value through a will because the person receiving the property gets a "stepped-up basis" equal to the property's value at the time of your death and if the property is sold, capital gains taxes will be the difference between the value at your death and the price obtained rather than the amount you paid for it and the price obtained. However, the rules for "stepped-up basis" were changed by the 2001 Act. If the estate tax is repealed in 2009 and not re-instated, the Act calls for a "carry-over basis," where the individual receiving the property gets a basis equal to the amount the deceased paid rather than the value of the property at death. (There are exceptions and modifications to this rule, though.)

A final United States income tax return must be filed on behalf of the deceased.

A federal estate tax return must be filed for every estate where the estate exceeds the applicable exclusion, or "shelter" amount ($1,000,000 in 2003).

It is important to determine if your state has a state inheritance or estate tax to consider.

An accountant and a tax attorney can assist you in preparing federal and state tax returns for the deceased, as well as helping you prepare the many other documents that are necessary to close out the deceased's estate.

 

 

 

 

 

Understanding Intestacy: When You Die Without a Will
Studies indicate that many persons who have accumulated wealth during their lifetime die without a valid will. When this happens, the decedent's property passes by intestate succession to the decedent's heirs at law according to law. In other words, if you don't have a will, the state will make one for you. All fifty states have laws of this sort.

The purpose of intestate succession statutes is to distribute the decedent's wealth in a manner that closely represents how the average person would have designed his or her estate plan had that person had a will. However, this default can differ dramatically from what the person really would have wanted. Even where is it is known what the person intended, no exceptions are made where no valid will exists. Nor are there any exceptions made based on need or special circumstances.

1990 Uniform Probate Code
The 1990 Uniform Probate Code (the Code), which serves as the starting point for many states' laws, represents the best reference for a general discussion. However, it should be kept in mind that the laws of different states vary greatly from each other and from the Code itself.

Under the Code, close relatives take priority over more distant relatives. The classes of relatives whose members receive property under the Code include the decedent's surviving spouse, descendents (children, grandchildren, etc.), parents, descendents of decedent's parents (siblings, nieces and nephews), grandparents, and descendents of grandparents (aunts and uncles and cousins). Adopted descendents are treated the same as biological descendents. If none of the above-named classes of relatives include any persons qualified to take the estate, the property "escheats" (goes by default) to the state.

Share Of Surviving Spouse
Under the Code, a surviving spouse is either entitled to the entire estate (after the expenses and taxes of the decedent are paid) or a substantial part of it.

The surviving spouse is entitled to the entire net estate if the decedent is also survived by children who are all children of the decedent and the surviving spouse.

The surviving spouse is also entitled to the entire net estate if the decedent is not survived by descendents and parents.

If parents survive but no descendents survive, a surviving spouse takes the first $200,000 of the net estate plus 3/4 of anything exceeding that amount.

If the decedent is survived by descendents who are also the descendents of the surviving spouse, and by descendents who are not descendents of the surviving spouse, the surviving spouse takes the first $150,00 of the net estate plus 1/2 of anything exceeding that amount.

If the decedent is not survived by any descendents who are also descendent of the surviving spouse but is survived by descendents who are not descendents of the surviving spouse, the surviving spouse takes the first $100,000 of the net estate plus 1/2 of anything exceeding that amount.

Under alternative provisions for community property states, the above statements apply to the decedent's separate property. As to community property, the 1/2 of the estate belonging to the decendent passes to surviving spouse.

Share of Descendents
Under the Code, if no spouse survives but descendents of the decedent survive, the descendents take the entire net estate by "representation." (See discussion of "Representation," below.)

Share of Parents
Under the Code, if a decedent is not survived by a spouse or descendents, the entire net estate passes to the decedent's parents equally or, if only one survives, to the survivor.

Share of Other Relatives
Under the Code, if a decedent is not survived by a spouse, descendents, or parents, the entire net estate passes to the decedent's parent's descendents (siblings of the decedent). If there are no siblings or descendents of siblings, the net estate goes to the decedent's grandparents or their descendents.

Net Estate
The "Net Estate" is the amount left for distribution to heirs after all debts, family protections, taxes, and administrative expenses have been paid. "Family protections" include homestead allowances, family allowances, and exempt property allowances. Under the Code the surviving spouse or minor child(ren) is entitled to a $15,000 homestead allowance, a family allowance in a reasonable amount to support the family during the administration of the estate, and a $10,000 exempt-property allowance (ordinarily charged against household furniture, automobiles, furnishings, appliances, and personal effects).

Representation
If a decedent's intestate estate or a part thereof passes "by representation" to the decedent's descendants, the estate or part thereof is divided into as many equal shares as there are (i) surviving descendants in the generation nearest to the decedent which contains one or more surviving descendants and (ii) deceased descendants in the same generation who left surviving descendants, if any. Each surviving descendant in the nearest generation is allocated one share. The remaining shares, if any, are combined and then divided in the same manner among the surviving descendants of the deceased descendants as if the surviving descendants who were allocated a share and their surviving descendants had predeceased the decedent. Similar rules apply where the estate passes "by representation" to descendents of parents or grandparents.

 

 

 

 

 

Three Valuable Estate Planning and Tax Cutting Tools
When preparing an estate plan, an estate planner may suggest a number of ways to minimize taxes for yourself and for your beneficiaries now and after your death. Below are some of the estate planning tools that may be available to you.

1. Charitable Trusts
A charitable remainder trust (CRT) is a good tool for a person who has charitable motives and also desires an immediate, substantial tax deduction. A CRT is especially good for people who wish to donate property to charity but don't want to give up all the benefits of the property prior to their death. Although a CRT is irrevocable, the grantor may reserve a fixed dollar amount or a percentage value of the trust and receive those benefits until his or her death. Not only does the grantor receive an immediate federal income tax deduction, the grantor also removes property from his or her estate that would be subject to the estate tax upon death. If a grantor contributes property that has appreciated in value to the trust, the grantor avoids paying the capital gains tax that would result if the grantor had sold the property and then contributed the proceeds into the trust. This is a great tool for anybody who is considering leaving a portion of his or her estate to a charity. It is also valuable for people who have no heirs or beneficiaries, and would like an immediate tax savings. If you have beneficiaries, you may consider a charitable lead trust (CLT) that allows you to discount the value of the gift and keep the property in the family. You may name your own charitable foundation as the charitable recipient. The tax rules applicable to charitable trusts are highly complex, and generally require the assistance of a professional estate planner to achieve the maximum benefits.

2. Family Limited Partnerships
Family business owners often create a family limited partnership (FLP). Several states have adopted limited liability limited partnership (LLLP) statutes. In these states, an FLP may elect LLLP status. Usually, a parent serves in the role of general partner and maintains complete control of the partnership (which consists of the family business). The parent/general partner is shielded from personal liability in the same way that the limited partners are protected. The limited partners are the children who have no control of the partnership and no liability for the partnership debts and obligations beyond whatever they may have contributed to the partnership. An FLP is a good way for parents to make gifts to their children, obtain significant tax benefits, and structure the gift in such a way that the children are prevented from selling the business without the parent/general partner's consent. Another key benefit of forming an FLP is that upon your death, your interest in the partnership may be valued, for tax purposes, significantly less than it is worth. However, before setting up an FLP, remember that the Internal Revenue Service requires that FLPs have a legitimate purpose.

3. Generation Skipping Transfer
You and your spouse may each be able to use your full generation skipping transfer (GST) exemption. By doing so, you may realize considerable savings in taxes in the course of a single generation. Through the use of trusts, you skip the payment of taxes but you do not skip the benefits for the next generation. Your beneficiaries may serve as their own trustees, and by giving them powers of appointment, they will control the investments and make the decisions regarding the final disposition of assets. Savings are enhanced when the trust continues for the maximum period allowed by law, and the trust is funded with discounted partnership interests or the remainder interest in a charitable lead trust. Due to changes in the tax laws made in 2001, care needs to be taken when making gifts to irrevocable trusts to assure that the GST exemption is allocated as intended.

Under The Economic Growth & Tax Relief Reconciliation Act of 2001, the GST tax exemption began tracking the applicable exclusion amount for estate tax purposes beginning in 2004. Under the 2001 legislation, the GST exemption is $1.5 million for 2004-2005, $2 million for 2006-2008, and $3.5 million for 2009. The GST tax and the estate tax are scheduled to be repealed in 2010 only to return in 2011 to the law of 2001, under which there was a $1 million exemption.

 

 

 

 

 

What does it mean to be "vested" in my retirement plan?
If you are vested in your retirement plan, you can take it with you when you leave the company. If you are 50% vested, you can take 50% of it with you when you go. In the case of a 401(k) plan, you are always 100% vested in the salary you defer into the plan.

Is an IRA a retirement plan?
An IRA, or Individual Retirement Account, is indeed a retirement plan. However, it's not a qualified plan. Instead, IRAs are described in Section 408 of the Tax Code and have their own set of rules. One significant difference between qualified plans and IRAs is that qualified plans are established by businesses, while certain types of IRAs -- traditional or Roth IRAs -- are established by individuals. That means you can set up a traditional or Roth IRA for yourself, whether or not your employer has established a qualified plan for you at work.

Other types of IRAs, known as SEPs and SIMPLE IRAs, are for businesses and must be established by an employer. For example, the employer might be a corporation, a sole proprietor or a partnership. SEPs and SIMPLE IRAs permit larger tax deductions than do traditional or Roth IRAs.

I work for a company and also have a small business of my own. Can I set up a retirement plan for my business even if I'm covered by a plan at work?
Generally, yes. The restrictions on contributions you can make to a retirement plan are applied to each employer separately. If you work for a company, the company is an employer. If you are self-employed, you are a separate employer, and can have a separate retirement plan for your business. But be careful. If both you and your employer establish some type of salary reduction plan, you might run up against an overall limit on contributions.

The most common types of salary reduction plans are 401(k) plans, tax-deferred annuity or 403(b) plans (these generally cover university professors and public school teachers), and 457 plans (sponsored by state and local governments and other tax-exempt organizations). A SIMPLE IRA is also a salary reduction plan.

Although the amount of your salary or compensation you can defer into each of these plans is limited, the law also puts a limit on the total amount you can defer into all such plans, if you happen to be covered by more than one. The overall limit depends on the type of plan you participate in.

 

 

 

 

 

What is Medicare?
Medicare is a federal government program that helps older folks and some disabled people pay their medical bills. The program is divided into two parts: Part A and Part B. Part A is called hospital insurance and covers most hospital stay costs, as well as some follow-up costs. Part B, medical insurance, pays some doctor and outpatient medical care costs.

What kinds of costs does Medicare Part B cover?
Part B medical insurance is intended to help pay doctor bills for treatment in or out of the hospital. It also covers many medical expenses you incur when you are not in the hospital, such as the costs of necessary medical equipment and tests and services provided by clinics and laboratories.

The lists of services specifically covered and not covered are long, and do not always make a lot of common sense, but making the effort to learn what is and is not covered can be important. You may get the most benefits by fitting your medical treatments into the covered categories whenever possible.

Part B insurance pays for:

  • doctor services (including surgery) provided at a hospital, a doctor's office, or your home
  • mammograms, pelvic exams, bone density tests, and PAP smears for women
  • an annual flu shot
  • a one-time physical exam (called a "wellness exam") done within six months of when you enroll in Medicare Part B
  • medical services provided by nurses, surgical assistants, or laboratory or X-ray technicians
  • outpatient hospital treatment, such as emergency room or clinic charges, X-rays, injections, and lab work
  • an ambulance, if required for a trip to or from a hospital or skilled nursing facility
  • drugs or other medicine administered to you at a hospital or doctor's office (for other drugs, Medicare currently offers drug discount cards, until 2006 when it will begin providing partial drug coverage)
  • medical equipment and supplies, such as splints, casts, prosthetic devices, body braces, heart pacemakers, corrective lenses after a cataract operation, glucose monitoring equipment, and therapeutic shoes for diabetics, and equipment such as ventilators, wheelchairs, and hospital beds
  • some kinds of oral surgery
  • some of the cost of outpatient physical and speech therapy
  • a limited number of services by podiatrists and optometrists
  • some care and counseling by psychologists, social workers, and daycare personnel
  • some preventative screening exams, such as for cancer, glaucoma, and osteoporosis; as well as diabetes and heart disease, but only if your doctor says you're at risk for them
  • manual manipulation of out-of-place vertebrae by a chiropractor
  • Alzheimer's-related treatments
  • scientifically proven obesity therapies and treatments
  • part-time skilled nursing care, physical therapy, and speech therapy provided in your home.

How much of my bill will Medicare Part B pay?
When all of your medical bills are added up, you will see that Medicare pays, on average, only about half the total. There are three major reasons why it pays so little.

First, Medicare does not cover a number of major medical expenses, such as routine physical examinations, medications, glasses, hearing aids, dentures, and a number of other costly medical services.

Second, Medicare pays only a portion of what it decides is the proper amount -- called the approved charges -- for medical services. When Medicare decides that a particular service is covered, it determines the approved charges for it. Part B medical insurance then usually pays only 80% of those approved charges; you are responsible for the remaining 20%.

Note, however, that there are now several types of treatments and medical providers for which Medicare Part B pays 100% of the approved charges rather than the usual 80%. These categories of care include home health care, clinical laboratory services, and flu and pneumonia vaccines.

Finally, the approved amount may seem reasonable to Medicare, but it is often considerably less than what doctors actually charge. If your doctor or other medical provider does not accept assignment of the Medicare charges, you are personally responsible for the difference.

 

 

 

 

 

Ten Things to Know About: Living Wills

  1. A living will is a legal document that declares your wishes regarding the use of life-sustaining treatment should you become incapacitated from a terminal illness or a persistent/permanent vegetative state.

  2. A living will, in most cases, only becomes effective when you are permanently unconscious or terminally ill and unable to communicate your wishes regarding life-sustaining treatment.

  3. A living will cannot be revoked by anybody but you, and you can change it anytime while you have mental-competency/capacity.

  4. Most states have laws providing that a living will's directives may not be followed if you are pregnant.

  5. A living will authorizes doctors to follow the instructions contained in the document once a determination of incapacity is made.

  6. Each state has specific laws dictating how a living will is to be executed. Most states provide that any competent person eighteen years of age or older can make a living will by signing it in front of two or more witnesses (who also sign the document attesting that the document was signed in their presence). Usually the witnesses cannot be related to you, and they should not be beneficiaries of your estate or have financial responsibilities for your medical care.

  7. A living will generally only avoids treatment when it is determined that recovery is hopeless and any treatment would only prolong the dying process. Your doctor must first determine if your prognosis fits those criteria before your living will has any effect on medical decisions.

  8. Because it is difficult to anticipate every medical condition you may face, it is often a good idea to designate an agent to act as a substitute healthcare decision-maker for you. A Health Care Power of Attorney is a document that designates an agent to make healthcare decisions for an individual. It is different from a living will in that a living will does not appoint anyone to make medical decisions for you. A living will is only a partial safety net in the event there is nobody to assume the duties of making medical decisions on your behalf under your Health Care Power of Attorney.

  9. Many states have laws that protect healthcare providers when they use good faith in following stipulations in a valid living will. Some statutes impose criminal penalties on those who act in bad faith.

  10. A living will is a simple form that may be purchased in most office supply stores. Nevertheless, as part of developing an overall estate plan, you should have your attorney review this document. Failing to properly execute a living will means that it will not be recognized and your wishes will not be carried out.

 

 

 

 

 

How does a durable power of attorney work?
When you create and sign a power of attorney, you give another person legal authority to act on your behalf. This person is called your "attorney-in-fact" or, sometimes, your "agent." The word "attorney" here means anyone authorized to act on another's behalf; it's most definitely not restricted to lawyers.

A "durable" power of attorney stays valid even if you become unable to handle your own affairs (incapacitated). If you don't specify that you want your power of attorney to be durable, it will automatically end if you later become incapacitated.

When does a durable power of attorney take effect?
A durable power of attorney can be drafted so that it goes into effect as soon as you sign it. But, you can also specify that the durable power of attorney does not go into effect unless a doctor certifies that you have become incapacitated. This is called a "springing" durable power of attorney. It allows you to keep control over your affairs unless and until you become incapacitated, when it springs into effect.

What does an attorney-in-fact do?
Commonly, people give an attorney-in-fact broad power over their finances. But you can give your attorney-in-fact as much or as little power as you wish. You may want to give your attorney-in-fact authority to do some or all of the following:

use your assets to pay your everyday expenses and those of your family
buy, sell, maintain, pay taxes on and mortgage real estate and other property
collect benefits from Social Security, Medicare or other government programs or civil or military service
invest your money in stocks, bonds and mutual funds
handle transactions with banks and other financial institutions
buy and sell insurance policies and annuities for you
file and pay your taxes
operate your small business
claim property you inherit or are otherwise entitled to
hire someone to represent you in court, and
manage your retirement accounts.
Whatever powers you give the attorney-in-fact, the attorney-in-fact must act in your best interests, keep accurate records, keep your property separate from his or hers and avoid conflicts of interest.

I have a living trust. Do I still need a durable power of attorney for finances?
A revocable living trust can be useful if you become incapable of taking care of your financial affairs. That's because the person who will distribute trust property after your death (the successor trustee) can also, in most cases, take over management of the trust property if you become incapacitated.

Few people, however, transfer all their property to a living trust, and the successor trustee has no authority over property that the trust doesn't own. So a living trust isn't a complete substitute for a durable power of attorney for finances.

 

 

 

 

 

Why should I leave written instructions about my final ceremonies and the disposition of my body?
Letting your survivors know your wishes saves them the difficulties of making these decisions at a painful time. And many family members and friends find that discussing these matters ahead of time is great relief -- especially if a person is elderly or in poor health and death is expected soon.

Planning some of these details in advance can also help save money. For many people, death goods and services cost more than anything they bought during their lives except homes and cars. Some wise comparison shopping in advance can help ensure that costs will be controlled or kept to a minimum.

Why not leave these instructions in my will?
A will is not a good place to express your death and burial preferences for one simple reason: your will probably won't be located and read until several weeks after you die -- long after decisions must be made.

A will should be reserved for directions on how to divide and distribute your property and, if applicable, who should get care and custody of your children if you die while they're still young.

What happens if I don't leave written instructions?
If you die without leaving written instructions about your preferences, state law will determine who will have the right to decide how your remains will be handled. In most states, the right -- and the responsibility to pay for the reasonable costs of disposing of remains -- rests with the following people, in order:

  • spouse
  • child or children
  • parent or parents
  • the next of kin
  • a public administrator, who is appointed by a court

Disputes may arise if two or more people -- the deceased person's children, for example -- share responsibility for a fundamental decision, such as whether the body of a parent should be buried or cremated. But such disputes can be avoided if you are willing to do some planning and to put your wishes in writing.

 

 

 

 

 

What is a living will?
A living will, known in most states as a Directive to Physicians or Healthcare Directive, sets out your wishes about what extended medical treatment should be withheld or provided if you become unable to communicate those wishes. The directive creates a contract with the attending doctor. Once the doctor receives a properly signed and witnessed directive, he or she is under a duty either to honor its instructions or to make sure you are transferred to the care of another doctor who will.

Many people mistakenly believe that healthcare directives are used only to instruct doctors to withhold life prolonging treatments. In fact, some people want to reinforce that they would like to receive all medical treatment that is available -- and a healthcare directive is the proper place to say so.

What is a durable power of attorney for healthcare? Doesn't that do the same thing as a living will?
A durable power of attorney for healthcare -- called a healthcare proxy in some states -- gives another person authority to make medical decisions for you if you are unable to make them for yourself. Unlike a healthcare directive, this document doesn't necessarily state what type of treatment you want to receive. You can leave those decisions to your proxy if you feel comfortable doing so. Ideally, however, the two documents will work together. For example, your healthcare directive may contain a clause appointing a proxy (sometimes called an attorney-in-fact, agent or representative) to be certain your wishes are carried out as you've directed. Or you may create two separate documents, a directive explaining the treatment you wish to receive and a durable power of attorney appointing someone to oversee your directive.

If you do not know anyone you trust to name as your healthcare proxy, it is still important to complete and finalize a healthcare directive recording your wishes. That way, your doctors will still be obligated to give you the medical care you want.

What happens if I don't have any healthcare documents?
If you have not completed either a formal document such as a healthcare directive to express your wishes, or a durable power of attorney to appoint someone to make healthcare decisions on your behalf, the doctors who attend you will use their own discretion in deciding what kind of medical care you will receive.

When a question arises about whether surgery or some other serious procedure is authorized, doctors may turn for consent to a close relative -- spouse, parent or adult child. Friends and unmarried partners, although they may be most familiar with your wishes for your medical treatment, are rarely consulted, or are purposefully left out of the decision-making process.

Problems arise where partners and family members disagree about what treatment is proper. In the most complicated scenarios, these battles over medical care wind up in court, where a judge, who usually has little medical knowledge and no familiarity with you, is called upon to decide the future of your treatment. Such legal battles -- which are costly, time-consuming and usually painful to those involved -- are unnecessary if you have the care and foresight to use a formal document to express your wishes for your healthcare.

 

 

 

 

 

Glossary of Retirement Plan Terms
401(k) Plan: This is a retirement plan where an employee defers part of his or her current income into a tax shelter where it grows tax-free until the employee withdraws it. The employer has the discretion to match the employee's contributions. Contributions of employer and employee are limited to the lesser of 25 percent of salary or $30,000. The plan allows an employee to save for retirement and simultaneously reduce his or her current income tax bill. Employees are often allowed to make decisions as to the investment of these funds.

Defined Benefit Pension Plan: This is traditional pension plan that pays workers a specific monthly benefit at retirement. These plans either state the promised benefit as an exact dollar amount or specify a formula for calculating the benefit. Generally, a company funds the pension plan, and a professional money manager invests the assets of the fund.

Individual Retirement Account (Traditional): This is not a qualified retirement plan; it is described under a different section of the Tax Code. An individual, not a company, establishes an IRA. Under this plan, an individual can deposit up to $3,000 for age 49 and below for the years 2002-2004 and $3,500 for age 50 and above for the years 2002-2004, of earned income a year into an IRA. For the year 2005, contribution limits for age 49 and below will be $4,000, and $4,500 for age 50 and above. For years 2006 and 2007, the amount for age 49 and below will stay the same ($4,000), but increase to $5,000 for age 50 and above. For age 49 and below in the year 2008, the limit will be $5,000, and $6,000 for age 50 and above. After 2008, the contribution limit is scheduled to raise in increments of $500 depending on the inflation level. If an individual is not eligible to participate in a pension, profit sharing, or 401(k) plan at work, the contributions to the IRA are deductible irrespective of the person's income. If the individual is covered by a company retirement plan, he or she loses his or her right to the IRA deduction as his or her adjusted gross income exceeds certain levels. Traditional IRA earnings are taxed when they are withdrawn.

Keogh Plan: This is a qualified retirement plan for self-employed individuals. Contributions to this plan are tax-deductible. The individual can direct the investment of the funds that are put into a Keogh, e.g., stocks, bonds, or mutual funds.

Qualified Retirement Plan: A qualified plan is one that is described in Section 401(a) of the Tax Code. A qualified retirement plan is established by a business. The most common types of plans are profit sharing plans, defined benefit plans, and money purchase pension plans. Your contributions to a qualified plan are not taxed until you withdraw the money. In addition, any contributions made to the plan on your behalf by your employer are tax deductible.

Roth Individual Retirement Account: This is similar to the traditional IRA except the contributions to a Roth IRA are nondeductible. When you withdraw money from a Roth IRA in retirement, it will be tax-free.

 

 

 

 

 

Controlling Pain & End-Of-Life Options
Death does not always come suddenly or unexpectedly. Rather, it can be the result of a long-term or painful illness. Following are discussions of several options a person might have when facing the end of life.

Physician-Assisted Suicide: As of January 1, 2001, Oregon was the only state that had a statute permitting doctor-assisted/physician-assisted suicide (DAS/PAS) for a terminally ill patient. Other states have recently held referendums on this issue and narrowly defeated DAS/PAS measures. In November 2000, Maine's PAS ballot measure was defeated with just 51% of the vote (332,280 no; 315,031 yes). Most states have statutes that expressly prohibit DAS/PAS and a few states have used common law to prohibit DAS/PAS. The debate over DAS/PAS began early in the 20th century when Ohio legislators' drafted the first euthanasia bill. In 1973 the American Hospital Association created the Patient Bill of Rights, which includes "informed consent" and "the right to refuse treatment." In 1976 California passed a "Natural Death Act" which gave legal standing to living wills and protected physicians from being sued for failing to treat incurable illnesses. Now all fifty states and the District of Columbia recognize either living wills, health care powers of attorney, or both. Recent surveys have found that doctors disregard most advance directives (powers of attorney and living wills). Although Oregon passed its Death with Dignity Act in 1994, it wasn't until 1998 that the first publicly acknowledged doctor-assisted suicide took place. So although a patient is free to request his or her doctor to assist with the patient's suicide, it is unlikely to happen-even in Oregon.

Palliative Care: A palliative care specialist is a hospice trained doctor, a cancer or HIV/AIDS specialist, or other specialist who frequently cares for dying patients. Palliative care consultants are used as second opinions outside of the primary doctor-patient relationship to assess the decision-making capacity of the dying patient and provide an understanding of the ethics of end-of-life decision-making.

Terminal Sedation: When suffering cannot be controlled by ordinary means, a patient may be sedated to unconsciousness. The medications used to relieve pain and sedate the person may be administered in a hospital or home setting. The patient enters a coma-like state that is maintained through the delivery of continuous medication. During terminal sedation, all fluids and nutrition are withheld. This is most easily accomplished if the patient has a health care power of attorney that authorizes the withholding of nutrition and hydration. During terminal sedation, the family may stay with the patient until death. The usual cause of death is pneumonia.