Protection for Seniors in new Financial Reform Act

The new sweeping Dodd-Frank Wall Street Reform and Consumer Protection Act  signed into law on July 21 promises to be greatest change to the United States financial system since the Great Depression.  With the press covering how the changes will impact Wall Street firms and advisors, not much notice has been given to some very specific provisions effecting seniors.

Eisner, LLP put out a summary this week of the new law, that included the foll lowing about new protections for seniors.

With regard to older investors, the Act directs the SEC to establish a program of grants to states to (1) investigate and prosecute misleading and fraudulent marketing practices and/or (2) develop educational materials and training to reduce misleading and fraudulent marketing of financial products.

Of course, the question will be how will such a program be funded and effectively carried out.

Your Online Afterlife

What happens to your Facebook chats, Flickr photos,LinkedIn connections, and Twitter witticisms when you die. Will your friends and family have access to your "digital memory"?

The short answer: "No".  in fact, getting friends and family access to your passwords, and thereby your social media identity, is most likely strictly forbidden in the privacy policies of the social media venues you frequent. While you're Personal Representative (executor, trustee, administrator) it may be able to access this information, it may also require a court order to do so.

So what can be done to safeguard your online persona? KATU out of Seattle to reports today that "Digital death coverage is a growing business. There are websites that help you bequeath your accounts to others and inform your online friends that you’re dead."

One such website has the the warm and fuzzy name of  Apparently the site will continuously since you an e-mail, and if you don't respond within a certain period of time, carry out your "final instructions". I didn't put a link in, because when I went to the site, it crashed my browser.  This highlights the problems with any kind of "online vault". Who's running it? What are they doing with the information you're putting in there? Are you putting your online passwords in one place, that could then be accessed by other parties for malicious purposes?

A better solution?  Treat your online persona with the same amount of care that you treat your online financial records.  I previously posted You Die - Your Passwords And User Names Die With You (way back in 2007), but the advice holds true today.

The best way to address concerns raised by virtual assets in the electronic age from an estate planning and estate administration perspective is to employ some practical advice:

  • Create a spreadsheet of login and password information
  • Update the spreadsheet WHENEVER a change is made
  • Save the spreadsheet to a removable media format (CD, DVD-R, USB Flash-Drive, etc).
  • Store the removable media format in a safe location that your spouse, power of attorney, key adult child(ren) and attorney are aware of (safe deposit box, fireproof vault, drawer in the house where the important stuff is).
  • If you password protect the file, make sure that your spouse, power of attorney, key adult child(ren) and attorney are aware of the password
  • MOST IMPORTANT - Update the spreadsheet whenever a change is made

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Holographic Wills and Undue Influence - Watcha talkin about Willis?

Actor Gary Coleman's life and death were tragic in many ways.  Unfortunately, some of circus that engulfed his life followed after death due to confusing estate planning, as an article by Jun Li  at Celebrity Justice highlights (quoting yours truly).  

Coleman prepared a Will in 2007 using an attorney, leaving everything to ex-girlfriend Anna Grey..  In 2007 he  purportedly hand wrote out a new will (a "holographic will') that left his estate to his then wife, Shannon Price.  He and Price divorced in 2008 but Price claims that had a common-law marriage after that point.  And you thought his exploits during life were confusing.

In some states, such as Utah (where Coleman died) and New Jersey holographic wills are legal, so long as they adhere to certain requirements (all in the person's own handwriting, witnessed by 2 persons being common requirements).  

An issue that often arises with holographic wills, especially those made when someone is ill, is undue influence.  There are very limited grounds to overturn a person's Last Will and Testament.  One of those grounds in undue influence, which is to say that a person had undue authority over another when they were making out their will which may have lead a person to name them as a beneficiary our of fear instead of desire.  This issue can arise frequently when a senior has made a handwritten will disproportionately favoring a caregiver child during a period of illness.  

For those who do wish to make a disproportionate distribution to a caregiver child, be aware that a holographic will may not stand up under scrutiny.  This may be an instance where an attorney should be involved to make sure that your wishes are fully enforced after you are gone.

Opposing Views on the Estate Tax / Death Tax

USA Today has two stories running today - one Our view on death and taxes: Loopy estate tax policy highlights D.C. dysfunction, and the other Opposing view on death and taxes: End the 'death tax'.  Both totally miss the point that there is a tax as a result of death no matter which way you lean - an estate tax would be assessed immediately, or there will be capital gains taxes to pay for decades to come.

In the first article, they quote a US Senator: "Sen. Jim Bunning, R-Ky., bluntly put it, [George] Steinbrenner "was smart enough to die in 2010."  Really?   Smart enough to die this year?  I am sure Mr. Steinbrenner's family and friends appreciate your comments on their loss.  USA Today then describes why there is no estate tax in 2010, including the recent political battles, and supports an estate tax by saying:

It makes sense to tax inherited wealth, derived simply by having the right parents, at a higher rate than money acquired through hard work or investment. Advocates of repeal rarely say where else they'd get the money to make up the lost revenue, because the inevitable answer is it would come from taxpayers of lesser means.

Ahh, the famous "he who has more must share" argument.

On the flip side, in the second article Rep. Louie Gohmert, R-Texas, takes the position "[t]ime to end the death tax permanently.":

For anyone to reach his hand into a deceased person's pocket and steal is despicable. But, when someone dies and the government steals from the deceased, our laws legalize the theft.

He goes on to tell the story of the family farm that had to be sold to pay taxes.  

Ahh, the famous "how dare they" argument.

How how about a few actual facts to consider.

  • The estate tax impacts around 2% or less of the entire US population (for in depth factual information about who pays the estate tax and how generated look at  the Tax Policy Center "Tax Policy Briefing Book" chapter on Wealth Transfer Taxes).  So for the other 98% of US taxpayers, consider the estate tax  a source of revenue to the federal government that you don't actually have to contribute to. 
  • In 2009, an estimated less than 100 estates with family farms and small businesses were subject to tax - just 1.9% of all taxable estates.  There are current laws to defer taxation of farms and better ones have been proposed (see Family Farms to be Exempted from Estate Tax?)
  • Estate taxes were estimate to generate $13.8 billion in 2009.  The federal government spends $x each year - if estate taxes don't generate part of the income, other taxes will.
  • For more facts, look at Truths about the Estate Tax - Debunking the Popular Myths

And the most important, and most glaringly overlooked fact of all in BOTH USA Today articles - if there is no estate tax there is STILL a tax on inherited wealth.  That tax is the capital gains tax. Let's thing - if there is no estate tax all that appreciation on assets that has disappeared for 98% US taxpayers on a person's death will now potentially be subject to tax on the sale of assets.  An while an estate tax may seem harsh in light of the death of a loved one, consider the nightmare of finding proof of cost basis for assets purchased decades earlier.  For more information about the real realities of no federal estate tax, look at Federal Estate Tax "Death" in 2010 Creates Capital Gains Trap.

A thought - let's abandon rhetoric and look at creating good tax policy.

NJ Division of Taxation has a New Acting Director

The State recently announced that Michael H. Bryan will be the new Acting Director of the New Jersey Division of Taxation. Per the press release, Bryan is to lead the Division of Taxation in the direction of enhanced communication and support with taxpayers.

The Division of Taxation could use an internal audit on practices and procedures to act more effectively.  While I don't usually find a problem with written communications, it takes several weeks for them to get from the mail room to the person's desk.  My other issue is on phone coverage - when  I call I am often left to a phone that rings and rings with no answer.  

As Bryan is coming from the private sector (Comcast to be precise) hopefully he will bring some ideas oriented at efficient customer service with him.

Montclair State University Planned Giving Advisory Council

I am delighted to have been asked to serve on the Montclair State University Planned Giving Advisory Council. Through some of my sons activities I have had the opportunity to spend numerous hours on the beautiful campus of this hidden gem of New Jersey.  Although not an MSU Alum, by volunteering for this position I hope to support the Planned Giving Department in educating their alumni base about the value of donations to the university, as well as how to leverage that value by creating tax savings for the donors and their families.

You can find out more here.


Reverse Mortgages getting more competitive IF you are a savvy shopper

The Wall Street Journal recently ran "Reverse Mortgages Look Better" with the premise that the consumers position has changed from learning about reverse mortgages to shopping for the best product for them.  

Upfront fees on reverse mortgages have fallen substantially in recent months, giving homeowners interested in this product a new challenge: how to compare offers to find the best one.

"Quite a few of the lenders now have reduced the origination fees," says Barbara Stucki, vice president of home-equity initiatives for the National Council on Aging. "Some of them are getting rid of the origination fees. Some are willing to pay some of the mortgage-insurance premium fees upfront."

In my prior post "Reverse Mortgage Basics - A Tool to be Reconsidered" I pointed out the amount of the mortgage does not change from company to company - the amount you can get is fixed based on your age, interest rates, and the appraised value of the house.

What you can shop for is how much getting the mortgage is going to cost you.  This is where can you save huge dollars.  If you are considering a reverse mortgage, meet with brokers from at least 3 different companies.  Some of the questions to ask include "What are the fees, in detail".  For more information, AARP has a Reverse Mortgage Guide.

Thanks to Denis Ciklic at Bank of America for bringing the article to my attention.

 Image: jscreationzs /