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GRAY MATTERS: Estate Planning

SaulFriedman75x75 Pulitzer Prize-winning journalist Saul Friedman (bio) writes the weekly Gray Matters column which appears here each Saturday. Links to past Gray Matters columns can be found here. Saul's Reflections column, in which he comments on news, politics and social issues from his perspective as one of the younger members of the greatest generation, also appears at Time Goes By twice each month.

[NOTE: This cancer they say I have is isolated in my stomach, has not spread and is slow growing. I begin taking pills (xoloda) for chemotherapy in a week or so. Otherwise I feel OK.]

The dozens of books on aging that come to me from publishers and authors are mostly useless. One reason: There is no such thing as an instruction book on aging, although Aging for Dummies, would be appropriate since most of us take it and learn one day at a time.

My complaint is that most of the advice is rather obvious, as in The Complete Idiot’s Guide to Secrets of Longevity. “How do you live, sleep, eat and play to live a long, healthy life? Adopting a longevity lifestyle. Quitting smoking is the single most important lifestyle measure you can do to increase your overall longevity.” Really?

I don’t mean to poke fun, but for those of us who have achieved a certain age, we don’t need to be told what we already know. Aging is not necessarily “golden,” as one book has it. (My late sister-in-law had a throw-pillow which said, “Screw the Golden Years.”)

This column was designed as a survival guide, for as most of us have learned, our older years, rather than becoming simpler, have become more complicated – from learning to negotiate the thickets of Medicare to conserving and protecting your home and savings, your estate.

Thus I am partial to books like Estate Planning Smarts ($19.95) by Deborah Jacobs, a lawyer and financial journalist, because it takes on a subject that we need to know about, and that provides solid, useful information. As I told her, this book is a keeper for those of us who need help riding the unpredictable currents of the economy and surviving with our estates intact.

The notion of an “estate” may seem overblown for many of us. But if you have some savings, a house, a pension, some bonds, insurance policies, a car and maybe an IRA, you have an estate to protect and care for. Estates are not just for the rich. As Jacobs writes,

“Estate planning is, above all, a way to take care of yourself and the people you love. It can minimize the hardships of your old age and ensure that less of what you leave behind goes to taxes...”

And keeping up with contemporary issues can help you make intelligent and money-saving decisions.

For example, financial advisers these days, leaping on the latest commission-making fad, are trying to sell clients on converting their traditional IRAs to the more recently created Roth IRAs. For the first time this year, there are no restrictions on one’s income in order to be eligible for a Roth.

The big advantage over a traditional IRA: There are no requirements that the owner must take required minimum distributions after age 70-1/2, which means the assets can grow tax free as long as the markets are kind. And after five years you may withdraw some of the converted funds, tax free. Non-converted funds are taxable.

It sounds great, but Jacobs, who has devoted a chapter to the Roth says, “they are a wonderful tool for some people but not right for everyone.”

The biggest problem, which your financial adviser may minimize, is the cost of conversion, for if you’re rolling over $100,000 from a traditional IRA to a Roth, that $100,000 is deemed income on which you must pay income tax.

If you convert, this year only, says Jacobs, you can delay the tax payment until next year and take two years to pay. But raising your income by, say, $100,000 may have complicating consequences for means-tested Medicare premiums and other benefits pegged to income.

In a neatly summed up table on page 106, Jacobs’ bottom line: If you can’t afford to pay taxes on the amount converted and you won’t recoup that money anytime soon, don’t do a Roth. If you don’t or won’t need the money in the IRA for household expenses (or emergencies) and you want to leave as much as possible to heirs, a Roth can build your estate, tax free, which is as close you can legally get to money growing on trees.

On a more mundane level, many readers have puzzled over whether a simple will is enough to leave behind. That depends on the will, the size and value of the estate and the probate laws and issues in your state.

Wills are subject to probate, a court-ordered process, which seeks to determine whether the estate has left debts to be settled and whether there are contesting heirs. Probate can take time and it could be expensive, so except for the most modest estates, probate should be avoided.

Enter the living trust.

Simply stated in an AARP paper, “...just like a will, a revocable living trust is a written document that lets you direct how your property will pass after your death.” But “unlike a will, it also directs how you want your property managed during disability.” When creating a living trust, the creator may name himself or herself as trustee, with a loved one as co-trustee. That means you maintain control over the property during your lifetime.

The trust does not take effect until the creator transfers ownership of the property, such as the home, to the trust. That’s called “funding the trust.” For example, you transfer ownership of the home to the trust and you become the owner-trustee. IRAs need not be transferred because the beneficiaries are designated.

A living trust may not be necessary if the estate is small and probate is not problem, but it’s a handy device for avoiding probate in many states and allowing the co-trustee to manage the estate and divide the assets among heirs.

As Jacobs points out, while a will is a public document, a trust is private. One caveat: A living trust won’t help you escape estate taxes. But it can help save on those taxes on properties that appreciate in value after they’ve been put into the trust. And because you, the living person, has control of the trust, a spendthrift nephew can be prevented from stealing from it.

Trusts may also be used to transfer funds from older persons as part of what has become known as “Medicaid planning,” divesting one’s self of assets to qualify for Medicaid, which will pay for long term nursing care for persons with few assets. But be careful, Congress during the last eight years has imposed restrictions on such transfers and Medicaid funds are being slashed in every state.

Here, in sum, is Jacobs list of documents you ought to have:

  • Will

  • Living revocable trust

  • Durable power of attorney given to a trusted family member, friend or adviser

  • Health care proxy (some states won’t recognize the right of a spouse or child to make decisions)

  • Explicitly written living will or advance directive

For more information, visit Deborah Jacobs' Estate Planning Smarts website.

Questions? Write


Saul: our lawyer advised against a living revocable trust because he said it would cost us $1500 & because probate in our county is up to speed for those of us whose assets are all in this state. Other family members have been through probate with minimal delay. We do have all other documents. However, it's good to keep in mind that in most hospital emergency rooms, drs. & staff will mostly ignore a living will & proceed to recussitate anyone who presents at the door with a life threatening emergency. It's best to discuss this with your doctor who may be willing to advise.

So good to see you back here with good news. You know we elders don't like change so it was not good with you away & our routines interrputed.:)Dee

I am so happy that you are back, Saul, and I hope chemo zaps that nasty cancer in a hurry.

As for an estate, I am afraid I am going to be like that old bumper sticker 'Being of sound mind and body, I spent it all.'

I need to keep chipping away at it to keep an old house and an old body going. Such are the joys of the 'golden years.'

Welcome back. May the pill just be one more without bothersome consequences. Hold fast ... and thank your for the tweaks.

Glad to have you back -- so enjoy your astute words. -- barbara

Glad you're back. We did all the things you recommend for our mother in law but haven't done them for ourselves. Denial, I believe they call it.
This is good heads-up for us.

A quick PS - everybody should choose a health care proxy and tell that person what your wishes are if you're unable to speak for yourself. Just because your state designates a hierarchy of relatives to speak for you (spouse, parent, child, sibling), it doesn't necessarily follow that the designee will know what you want, be willing/able to do it, or be close enough and available to do it on short notice. More info on:

Glad to know the news of your cancer. It's good to read about simple estate planning. In my family, trusts have been the bane of our existence. I'll think about that one.

Saul, welcome back...I agree with Darlene...just so long as my funeral is pre-paid...I can rest easy...I hope. Keep your spirits up and here's hoping a complete recovery is on the way.

Glad your back, Saul! This topic is really pertinent. I appreciate all the info, references and links you've provided. Be good to yourself.

Hi Saul,
Thanks for this helpful post. I'm glad you're back at your computer--hope the drugs, which it sounds like you began taking this week, or will soon, have limited side effects and do their job without creating too much discomfort for you.

FYI ... my father did a living trust and it did indeed help our family get through the process when he passed in 1995.

I'm glad to know about Ms. Jacobs' book. Thanks for demystifying some of the most important bits.

Wishing you well ...

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