Financial Lessons From the Series The White Lotus

I suspect some of you have been intrigued by the HBO comedy/drama television series called The White Lotus. For those of you who haven’t watched it, it’s a series that follows the exploits of both guests and staff who spend a week at a global luxury resort chain called “The White Lotus”. Season 3 was filmed in Thailand and the cinematography was quite something. It’s basically a “who done it” with eccentric characters.

There is lots to digest every season, but the $5 million hush money payment in Season 3 was particularly interesting. In a nutshell, two of the characters in Season 3 were also in Season 2. One of them was a prime suspect in the murder of his wife and the other, while not a witness to the murder, was aware of the unusual circumstances surrounding the death. Suffice to say in Season 3 it becomes very obvious to the prime suspect, who has moved to Thailand to avoid investigation, that the person aware of his background knows who he is, what he did, and the fact that he is now hiding in Thailand and living the life of luxury (his deceased wife was wealthy).

In the end, the witness agrees to take $5 million to keep things quiet. She gives her account number and routing number to the suspect and, a few days later when she confirms that the $5 million has been wired to her account, she fades off into obscurity as part of the deal. Just for fun, let’s break down this $5 million hush money payment:

• Will this transaction be reported by the bank? Probably not, because the money was wired to the account instead of being deposited in cash. Banks are only required to report cash transactions exceeding $10,000 via a Currency Transaction Report to the IRS. This transaction would likely not be flagged by the bank.
• Is the transaction taxable? Yes, under a Supreme Court ruling in the 1950s, extortion payments are considered taxable income to the recipient. If this transaction occurred in real life the witness would have to report the proceeds as taxable income. This would not be considered a gift because legally a gift must be made clearly with donative intent and free of any expectation of anything in return. The witness’ silence is the quid pro quo here.
• Is the payment deductible? No. The suspect cannot consider this an ordinary and necessary business expense. This is a hush money payment under personal and non-business circumstances.

While the hush money payment in The White Lotus was purely fictional, it does raise some interesting questions that everyone needs to consider if they received a windfall, inheritance, intended gift, or in this case some kind of hush money payment. As for The White Lotus, I’m looking forward to Season 4. I’m told the setting might be Australia.

Fun Fact: For those of you intrigued by high-end luxury hotels, The Burj Al Arab in Dubai is the world’s first “seven-star hotel” i.e. the most luxurious hotel in the world. It includes a “pillow menu” with seventeen options, six high-end restaurants, a rooftop helipad, and a Rolls-Royce shuttle service from the airport. Each guest is given a 24-karat gold iPad upon arrival that is programmed to include access to all guest services and hotel information.

Don’t Put That 1040 Client Copy Tax Return Away Just Yet

I suspect that most of you have completed your 2024 taxes by now. Tax time is a hassle and most people have the urge to quickly file away the paperwork once their accountant tells them the taxes have been completed.

I think it’s a good idea to take a few minutes to go through the various schedules on the 1040 to confirm all of the assets and liabilities that make up your estate. You can use that review to make sure that you have your assets protected from probate. The 1040 is your opportunity to do an annual review of all of your assets and to update your annual asset list (You do have an asset list that you update annually, don’t you??).

Equally important is your opportunity to review the 1040 of a friend or loved one who is or will be relying upon you to handle their affairs after they pass on. Reviewing that person’s 1040 will allow you to have a snapshot of all their sources of income so that you can make sure they are properly protected from probate. You may find a bank account or a brokerage account that they’ve never talked about and maybe even forgot about.

Your 1040 is only about 2 pages long, but attached to it are various schedules that give details about income and liabilities. The four schedules listed below are important for confirming sources of income. Income comes from an asset and the asset has an owner which is probably the person whose 1040 you are reviewing. Upon death, that asset needs to be co-owned with someone else, held in a trust, or designated with a beneficiary. Otherwise, you risk probate at death. Here are the four schedules to look at carefully:

• Schedule B: “Interest and Ordinary Dividends”: This schedule applies if you have over $1,500 in taxable interest or ordinary income. It’s where bank accounts, CDs and stocks, bonds and mutual funds will be found. Make sure you match up each source of income so you know what you own. If you find a bank or stock that you didn’t know about, now is the time to dig deeper.

• Schedule D: “Capital Gains and Losses”: This schedule addresses transactions related to after-tax investments like brokerage accounts and individual stocks. Go through each entry and make sure you know how the asset is owned and whether it has a beneficiary or it could be subject to probate.

• Schedule E: “Supplemental Income and Loss”: This is where income or loss related to a probate estate, trust, rental real estate or other business arrangements are listed. This is a good place to figure out if someone is a beneficiary on a decedent’s trust or estate.

• Schedule 1: “Additional Income and Adjustments to Income” has two parts: Part One: This is where all sorts of “unique” income shows up, including unemployment, alimony, business income. Gambling winnings and prizes and awards also show up here. Part Two: This has adjustments to income and, for an elderly loved one, check to see if there was any penalty on early withdrawal of savings (e.g. cashing a CD in before maturity). This could be a tipoff that the person doesn’t fully understand the ramifications of their transactions.

Before you file your 1040 away, take a minute to use this as a checklist for assets.

Fun fact: Easter is upon us. When it comes to the largest Easter Egg, the record was set in 2011 in Italy where an Easter Egg measuring 34’ 1.05” was crowned the largest ever chocolate egg at the Le Acciaierie Shopping Centre. The chocolate egg weighed 15,873lbs and had a circumference of 64’ 3.65” at its widest point.

Five Things to Know About Creditors When Someone Dies

The death of a loved one brings forth a lot of emotions. While grieving can last a long time, at some point someone has to take a look at the financial affairs of the decedent. One big concern is debt, which can come in many forms: mortgage, credit card, personal loan, back taxes due, just to name a few. Understanding the basic rules can put your mind at ease if you take on the responsibility of estate/trust administrator. Here are some things to consider:

1. The first thing to understand is that taking on the responsibility of trustee or personal representative does not in any way make you personally liable for the decedent’s debts. Some collection agencies might try to coax you into thinking you have to pay from your own pocket, but it’s just not so. As long as you don’t personally guarantee a debt and you don’t try to hide the debt or do something illegal, you are never personally responsible.
2. Many, but not all debts are negotiable. This holds true for credit card debt in particular. Once the credit card company finds out the card holder has died, they typically sell the debt (at a very reduced rate) to a collection agency. If they contact you, it is appropriate for you to try to negotiate down the balance owed. I’ve seen the final negotiated bill be as little as one-third of the original bill, but there is no standard rule. Debt negotiation is an art form, and the more experience you have, the better chance you have to get the debt down. Your leverage increases if there is no need for probate (e.g. a living trust holds all assets). That’s because the collection agency then has to open a probate case themselves if they want to collect and that is time consuming and expensive for them. A quick settlement on the phone makes much more sense to them in that situation.
3. An outstanding mortgage is much less negotiable. The mortgage company has collateral they can get at — i.e. the home. By definition, a mortgage is simply a loan that is secured by real estate. Two things to know with a mortgage: First, you can call the mortgage company, and they are typically very flexible when it comes to mortgage payments. They will usually be compassionate and accommodating, but in the end, they will need their debt paid. Second, if the house is worth less than the outstanding mortgage, they will work with you because it is costly for them to try to recoup more than they can get for the house sale.
4. If the decedent had a trust or some of the estate was probated, then you are required to file a Notice to Creditors in a county legal newspaper. That is a good thing because in Michigan a 4-month deadline starts for unknown creditors to contact you. The deadline runs from the date the Notice to Creditors was first published and once the 4-month time period is up, even a creditor with a valid bill is out of luck – You don’t have to pay. I’ve used this effectively many times for medical bills that first show up after the 4-month period expires. Note that this legal debt cut-off only applies to bills you first learned of after the 4-month deadline.
5. Tax debt is different. The IRS is powerful, and the laws play in their favor. Take the initiative to make sure there is no outstanding tax debt before fully distributing the estate. The Notice to Creditors won’t protect you here either so check with the decedent’s tax preparer to make sure things are correct.
   It’s never easy to deal with the affairs of a deceased loved one. I hope the information above makes it a little more tolerable.

Fun Fact: After driving to and from Florida recently I got to wondering about our roadway system. I found it surprising that the United States has 3.9 million miles of roadway, of which 3 million miles are rural roads. The Interstate System accounts for only 1.2% of total mileage but carries 24.1% of total travel. I think most of those interstate travelers were congregated around Atlanta and Tampa when I was driving home last week!

COVID-19 PREPAREDNESS AND RESPONSE PLAN Prepared: May 22, 2020

Jeffrey R. Saunders, P.C./Saunders Financial, LLC COVID-19 Preparedness and Response Plan

In accordance with Executive Order 2020-59, Jeffrey R. Saunders, P.C./Saunders Financial, LLC (“Company”) institutes this COVID-19 Preparedness and Response Plan (“Plan”) which is on file and available for members and clients.

Jeffrey R. Saunders is hereby designated as the person responsible for implementing, monitoring, and reporting on COVID-19 control strategies, including training members as to workplace infection control practices and the proper use of personal protective equipment (PPE).

Company is continually monitoring guidance from local, state, and federal health officials and implementing workplace and Plan modifications where appropriate.

1.   Prevention Efforts and Workplace Controls

a.   Cleanliness and Social Distancing

Members of Jeffrey R. Saunders, P.C./Saunders Financial, LLC will whenever feasible, perform their essential duties remotely.
Company provides members with, at a minimum, non-medical grade face coverings.

In addition, Company is instituting the following cleanliness measures:

• Performing routine environmental cleaning and disinfection of workspaces;
• Requesting that the landlord disinfect all common areas frequently and regularly; and
• Where available, providing hand sanitizer.

Members will minimize COVID-19 exposure by:

• Frequently washing hands with soap and water for at least 20 seconds;
• Utilizing hand sanitizer when soap and water are unavailable;
• Avoiding touching their face with unwashed hands;
• Avoiding handshakes or other physical contact;
• Avoiding all contact with sick people;
• Practicing respiratory etiquette, including covering coughs and sneezes;
• Seeking medical attention and/or following medical advice if experiencing COVID-19 symptoms; and
• Complying with self-isolation or quarantine orders.

b.   Supplemental Measures Upon Notification of COVID-19 Diagnosis and/or Symptoms

A member with a COVID-19 diagnosis or who displays symptoms consistent with COVID-19 will self-isolate for at least 14 days and until symptoms are resolved.

c.   Member’s Self-Monitoring

Members will not report to the office work site if they:

• Display COVID-19 symptoms, such as fever, cough, shortness of breath, sore throat, new loss of smell or taste, and/or gastrointestinal problems, including nausea, diarrhea, and vomiting, whether or not accompanied by a formal COVID-19 diagnosis;
• In the last 14 days, have had close contact with and/or live with any person having a confirmed COVID-19 diagnosis; and
• Who, in the last 14 days, have had close contact with and/or live with any person displaying COVID-19 symptoms, such as fever, cough, shortness of breath, sore throat, new loss of smell or taste, and/or gastrointestinal problems, including nausea, diarrhea, and vomiting.

Such members may only resume in-person work upon meeting all return-to-work requirements, defined below.

d.   Return-to-Work Requirements

Members who were themselves diagnosed with COVID-19 may only return to work upon confirmation of the cessation of symptoms and contagiousness, proof of which may be acquired via the test-based strategy or the non-test-based strategy.

The test-based strategy is preferred but relies upon the availability of testing supplies and laboratory capacity. Under this strategy, members may discontinue isolation and return to work upon achieving the following conditions:

• Resolution of fever without the use of fever-reducing medications;
• Improvement in respiratory symptoms (e.g., cough, shortness of breath); and
• Negative results of an FDA Emergency Use Authorized molecular assay for COVID-19 from two consecutive nasopharyngeal swab specimens collected at least 24 hours apart.

Under the non-test-based strategy, members may discontinue isolation and return to work upon achieving the following conditions:

• At least 3 days (72 hours) have passed since recovery defined as resolution of fever without the use of fever-reducing medications;
• Improvement in respiratory symptoms (e.g., cough, shortness of breath); and
• At least 7 days have passed since symptoms first appeared.

Members who came into close contact with, or live with, an individual with a confirmed diagnosis or symptoms may return to work after either 14 days have passed since the last close contact with the diagnosed/symptomatic individual, or the diagnosed/symptomatic individual receives a negative COVID-19 test.

2.   Conduct of Office Meetings

When working on-site at the physical office, Company abides by the recommended social distancing and other safety measures and establishes the following:

• All meetings will be limited to six persons maximum;
• Everyone is required to maintain physical distance no less than six feet apart; and,
• Everyone is required to wear a non-medical grade face covering.

3.   Plan Updates and Expiration

This Plan responds to the COVID-19 outbreak. As this pandemic progresses, Company will update this Plan and its corresponding processes.

This Plan will expire upon conclusion of its need, as determined by Company and in accordance with guidance from local, state, and federal health officials.

FDIC/NCUA Insurance for Revocable Living Trust Accounts at Banks and Credit Unions

Created after the 1929 market crash, the Federal Deposit Insurance Corporation (FDIC) insures bank deposit accounts like checking, savings, and CDs in case of bank failure. The basic insurance amount is currently $250,000 per customer account. If a bank becomes insolvent, the FDIC steps in and pays on insured accounts up to the account limit set forth above.

What FDIC insurance does cover:

• All types of savings, checking, money market and CD deposits.
• Cashiers checks and certified checks.

What FDIC insurance does not cover:

• Investment accounts like stock, bond or mutual funds.
• Annuities
• Life insurance
• Safe deposit boxes.
• Credit unions. BUT NOTE: Credit unions have separate but similar insurance coverage though the National Credit Union Association and thus have NCUA insurance with the same limits as FDIC insured accounts.
• Robberies and thefts. Banks and credit unions have separate “blanket bond” insurance to cover things like robbery, embezzlement, fire or flood.

People who have large amounts of cash in bank or credit union accounts sometimes become concerned if the amount they have on deposit is greater than the $250,000 insurance limit. Utilizing a living trust-based estate plan can substantially increase FDIC or NCUA insurance coverage.

When a revocable living trust is named as either the owner or the pay on death (POD) beneficiary of a checking, savings or CD account at an FDIC or NCUA insured institution, then calculating the amount of insurance coverage is determined by the number of beneficiaries the trust creator(s) named in the trust. If the trust creator(s) named 5 or fewer beneficiaries, then the insurance coverage is determined by multiplying $250,000 times the number of beneficiaries named. So, for example, if Bill and Mary Jones have a joint revocable living trust that names their 3 children as beneficiaries, any FDIC or NCUA insured account that is either owned by that trust or names that trust as the POD beneficiary has 3 x $250,000= $750,000 of FDIC or NCUA coverage.

If the trust names 6 or more beneficiaries, then the insurance amount might be calculated differently. If all the beneficiaries are entitled to an equal share, then the same calculation applies: Multiply the number of beneficiaries by $250,000. However, if the shares are not equal, the insurance is the greater of either (1) the sum each beneficiary’s interest up to $250,000 for each beneficiary, or (2) at least $1,250,000.

Utilizing a revocable living trust for estate planning purposes not only avoids probate but can also have the advantage of maximizing your bank account or credit union account protection in case of financial institution insolvency.

How the SECURE Act Affects Your Retirement

The SECURE Act stands for Setting Every Community Up for Retirement Enhancement Act of 2019. It was signed into law on December 20, 2019 by President Trump. The intended goal of the act is to increase access to tax-advantaged accounts and prevent older Americans from outliving their assets.

As traditional defined benefit pensions leave the workplace and are replaced by defined contribution plans such as 401ks, employees are increasingly required to plan for and fund their own retirement. Unfortunately, many people at or near retirement have not saved enough to supplement their Social Security benefit so they can maintain an adequate retirement lifestyle. According to a recent Vanguard study, the median 401k balance for those age 65 or older is less than $60,000.  The SECURE Act encourages employers who formerly found the establishment of a 401k for their employees to be too burdensome to revisit the idea.

Here are some things the SECURE Act does:

•  Makes it easier for small businesses to enroll employees in automatic contribution arrangements by increasing the contribution limit from 10% to 15% after the first year of plan participation.
• Provides a $500 annual tax credit for employers who create 401ks or SIMPLE IRAs with automatic plan enrollment.
• Encourages retirement plan sponsors to include annuities in plan options by reducing liability on insurers.
• Pushes back the age for required minimum distributions (RMDs) from 70 1/2 to 72 for those who are not 70 1/2 by December 31, 2019.
• Allows the use of 529 college savings plans for qualified student loan repayments (up to $10,000 annually).
• Removes the age limit of 70 1/2 to contribute to an IRA. Now anyone at any age to contribute to an IRA as long as they have earned income.

One significant down side of the SECURE Act is the removal of stretch IRAs, which allowed non-spouse beneficiaries inheriting an IRA or 401k to stretch out taxable distributions over their lifetime. The act now requires full payout from the inherited IRA within 10 years of the death of the original owner.  This change amounts to a tax increase and it is estimated the rule with bring in an additional $15.7 billion in tax revenue. NOTE: Beneficiaries who inherited IRAs from account holders who died on or before December 31, 2019 are subject to the old rules and can still stretch out the IRA distributions over their lifetime.

The broad changes found in the SECURE Act should be the impetus for a review of your estate and financial plan. Anyone who has utilized sophisticated IRA “conduit” trusts to provide supervision over IRA distributions to beneficiaries must now revisit the effectiveness of that type of planning and explore options, including the switch to an IRA “accumulation” trust.

Caution Required in Naming Beneficiaries on Tax-Deferred Retirement Accounts

March 27, 2019

Millions of Americans save for retirement by contributing pre-tax income into tax-deferred accounts such as IRAs, 401ks, TSAs and 403bs.  Systematic contributions to a tax-deferred retirement account over a career can result in a substantial pre-tax balance at the time of retirement.

Eventually, money in tax-deferred retirement accounts must be withdrawn and taxed.  Typically, a required minimum annual withdrawal begins when the account owner reaches age 70 1/2 and continues until death.  If an account balance remains at the account owner’s death then that account balance passes to those persons and/or entities named as beneficiaries by the account owner.  The potential then exists for those beneficiaries to continue a substantial portion of tax deferral over many more years, commonly called a “stretch out” of the taxable distributions.

Beneficiaries must be designated very carefully on tax-deferred accounts so that the stretch out of taxable distributions is not compromised.  An improper or incomplete beneficiary selection can accelerate taxable distributions from the account thereby severely reducing the potential account value over the lifetime of the beneficiary.

The ability to stretch out taxable distributions over many years is only allowed for what the IRS calls “designated beneficiaries.”  Most individuals satisfy the requirements to be considered “designated beneficiaries” but trusts and other entities may not satisfy the requirements.

Before naming a trust or entity such as a charity as a beneficiary on your tax-deferred retirement plan it is strongly advised that you meet with an estate planning attorney to review such a selection and to make sure you are not jeopardizing the tax-deferred benefits you worked so hard to achieve.

October 1, 2018

VA Establishes Asset Limits and Transfer Penalties for Needs-Based Benefits that Take Effect October 18, 2018

Some very important Veterans benefits such as Aid and Attendance are needs-based. For years there has been some ambiguity in terms of the specifics on establishing sufficient need for eligibility. In an effort to provide clarity, the Department of Veterans Affairs (VA) has finalized new rules that establish an asset limit, a look-back period, and asset transfer penalties for claimants applying for VA needs-based benefits. This is a change from current regulations, which do not contain a prohibition on transferring assets prior to applying for benefits.

In order to qualify for benefits under the new VA regulations, an applicant for needs-based benefits must have a net worth equal to or less than the prevailing maximum community spouse resource allowance (CSRA) for Medicaid ($123,600 in 2018). Net worth includes the applicant’s assets and income. For example, if an applicant’s assets total $110,000 and annual income is $16,000, the applicant’s net worth is $126,000. The net worth limit will be increased every year by the same percentage that Social Security is increased. The veteran’s primary residence (even if the veteran lives in a nursing home) and the veteran’s personal effects are not considered assets under the new regulations.  However, if the veteran’s residence is sold, the proceeds are considered assets unless a new residence is purchased within the same calendar year.

The VA has also established a 36-month look-back period and a penalty period of up to five years for those who transfer assets for less than market value to qualify for a VA pension. The look-back period means the 36-month period immediately before the date on which the VA receives either an original pension claim or a new pension claim after a period of non-entitlement. There are some exceptions, including transfers to a trust for a child who is not able to self-support.

The penalty period will be calculated based on the total assets transferred during the look-back period if those assets would have put the applicant over the net worth limit.

Any penalty period would begin the first day of the month that follows the last asset transfer, and the divisor would be the applicable maximum annual pension rate for a veteran in need of aid and attendance with one dependent that is in effect as of the date of the pension claim. The penalty period cannot exceed five years, a change from the 10-year maximum in the proposed regulations.

The VA also clarified what it considers to be a deductible medical expense for all of its needs-based benefits. Medical expenses are defined as payments for items or services that are medically necessary; that improve a disabled individual’s functioning; or that prevent, slow, or ease an individual’s functional decline. Examples of medical expenses include: care by a health care provider, medications and medical equipment, adaptive equipment, transportation expenses, health insurance premiums, products to help quit smoking, and institutional forms of care.

These new rules take effect October 18, 2018

Life After Your Death? Here’s Why You Should Have a Trust

By Elizabeth Olson

• March 22, 2018

Everyone needs a will, but, increasingly, estate planners say people also could benefit from setting up a trust while they are alive. That step would help assure that their assets are distributed more quickly, their bills paid promptly and continuously and personal information about property and other assets be kept out of the public eye.

In February 2009, the stock market was down around 50% from its high, and everyone seemed to feel like the sky was falling. I was familiar with this state of panic because my relationship to the financial markets was that I didn’t trust them.

They were always going up and down in ways no one could predict, and I couldn’t trust those folks who said that they could anticipate what was going to happen. So when the market went down, I went down with it—sinking into a depression, knowing there was nothing I could do.

What a difference nine years make. I haven’t changed because the stock market rebounded. I changed because I learned that there was a different way to think about investing. I was right not to trust those people who thought they could predict what was going to happen in the markets, but I was wrong in thinking that there was nothing to do. I’ve learned that I can have a great investment experience if I just accept a few simple truths.

I have to understand the uncertainty of the market. The stock market, as measured by the S&P 500 Index, has returned about 10% per year over the last 90 years,¹ but there are very few individual years in which it has ever actually returned that amount. In fact, how many of those 90 years do you think the S&P 500 was up more than 20% or down more than 20% for that year? The answer is 40. Astounding, right? I wish somebody had explained that to me decades ago. Then I would have known to look at stock market returns in terms of decades—not years, months, days, or hours. I would understand that so many of those articles and cable news pieces are just noise, designed to keep an audience obsessed and unsettled.

There’s no way I could’ve done this without a financial advisor. I needed someone who could not just talk me through what my asset allocation should be, but also help me work through how I felt about investing and what exactly I could do to change my perspective.

I was a mess nine years ago. Now, my outlook is totally different. The markets haven’t changed; they still go up and down. The difference is, I don’t anymore.

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1. S&P data © 2018 S&P Dow Jones Indices LLC, a division of S&P Global. All rights reserved.
Past performance is not a guarantee of future results. Indices are not available for direct investment; therefore, their performance does not reflect the expenses associated with the management of an actual portfolio.
Investing risks include loss of principal and fluctuating value. There is no guarantee an investing strategy will be successful.
Dimensional Fund Advisors LP pays Dave Goetsch for consulting services. Dimensional Fund Advisors LP does not endorse, recommend, or guarantee the services of any advisor. The experience of the author may not be representative of the experiences of other individuals. All expressions of opinion are those of the author and are subject to change. This content is distributed for informational purposes, and it is not to be construed as an offer, solicitation, recommendation, or endorsement of any particular security, products, or services.
Dimensional Fund Advisors LP is an investment advisor registered with the Securities and Exchange Commission.

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IMPORTANT DISCLOSURES
Advisory Services offered through Saunders Financial, LLC, a Registered Investment Advisor. We cannot accept trade orders or other investment account transaction requests by voicemail, fax or email. Trade orders or account transaction requests, important letters or documents, emails, or fax messages regarding your investments must be confirmed or conveyed by speaking directly to your investment advisor representative.
Broadridge Investo Communication Solutions, Inc. does not provide investment, tax, legal, or retirement advice or recommendations. The information presented here is not specific to any individual’s personal circumstances.
To the extent that this material concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law. Each taxpayer should seek independent advice from a tax professional based on his or her individual circumstances.
These materials are provided for general information and educational purposes based upon publicly available information from sources believed to be reliable — we cannot assure the accuracy or completeness of these materials. The information in these materials may change at any time and without notice.
Prepared by Broadridge Investor Communication Solutions, Inc. Copyright 2017.