The First Tee Beckons

I’ve counseled thousands of clients on issues concerning estate planning and elder law. Counseling in those areas is a big part of what I do. This weekend, the tables will turn. When you read this on Friday it’s likely I will be sitting at the kitchen table in the home of my 90-year-old father in Phoenix, Arizona. Also at the table will be my father who is still fairly mentally capable, my brother who is a physician in Florida, my stepmother who while substantially younger than my father, suffers from short-term memory problems, and last but not least, my half-brother who is 25 years younger than me, is a gregarious bartender in Phoenix, and has surely had his share of personal life challenges.

This meeting was triggered by a fall my father recently had in his backyard. He could not get up and his calls for help went unanswered. Eventually, he dragged himself into the house. That event scared him a great deal, which prompted his call to me asking that I come out to discuss his final wishes, review his estate plan and go to the bank to be put on his safe-deposit box. That might sound straightforward but looks (or sounds) can be deceiving. Just like it is for my clients, there is a lifetime of events and relationships that will swirl around this weekend in Phoenix.

I think that I am very good at identifying and addressing issues that arise for families confronting end of life issues. Lord knows I’ve had plenty of practice. But there is a great saying that golfers committed to the game know: “It’s a long walk from the practice tee to the first tee.” Golf swings seem effortless when they have no personal consequences. That’s the practice tee. But once you stand on the first tee and play for something, then every swing counts and things change substantially.

Counseling clients is kind of like the practice tee for me – I stay logical and draw on my experiences and knowledge of the rules. Sitting down in a personal family meeting is like the first tee – emotions, history and family dynamics take up residence in my lawyer’s mind—and try as I might, they’re not going anywhere.

Nonetheless, I will make every effort to stay committed and offer value to enhance my father’s quality of life moving forward. Here are my “pre-meeting” goals. I share them so that you can see if they might be relevant now or in the future in your own situation.

1. Make sure important documents are accessible. This can get complicated when you live out of state. We will need to go through my dad’s house so I know where he keeps his important documents, and we will likely need to go to the bank so that I can get my name on his safe-deposit box. He thinks he can get my name on the box on his own, but I know that I will most likely need to sign the signature card to have access. I also need to know where his “second” and maybe “third” hiding places are. There’s never just one.
2. Discuss any changes that need to be made to his plan. Despite being 90, my dad is recently remarried (back to his second of three wives – ah…family dynamics). His current estate plan was created before this remarriage and I suspect and hope that he will want to change his plan to provide more for his current wife. Two big issues arise there: First, telling the family what he’d like to do is one thing but having it put into a legally valid written estate plan is quite another. We will try to find the time to go to his attorney to get that process started. Second, my dad needs to revisit his decision-makers. I doubt seriously that my father’s wife will be able to manage assets on her own after his death. We need to have a long hard discussion about the best person to take on that role. My half-brother (who happens to be her son) is the obvious choice since he lives nearby and is a 40-year-old adult. However, he has not always shown himself to be responsible during times of challenge. This topic will not be easy to resolve.
3. Discuss living arrangements. My father has lived a long time for many reasons, including that he finds age to be just a number. He recently bought a convertible Mustang on a whim and lives in a 3,000 plus square foot home on the outskirts of Phoenix. Several factors come into play here. First, despite appearances my father is not a wealthy individual and maintaining all of his “stuff”, even while healthy, is going to continue to be an increasing financial challenge. Secondly, at any moment his whole situation could change, and his living arrangement may be unsustainable. I have arranged for tours of two high quality multistage senior living communities. They have everything from individual apartments to full nursing care as the situation changes. While my father has told me he’s interested in seeing the places, I hear through the grapevine that he really has no interest in moving. This is yet another topic that will get interesting, I’m sure.
4. The unexpected. As this section suggests, I have no idea what to expect, but I’ve known my dad all my life and I have no doubt that he will raise some topic, issue, and/or concern that neither I nor anyone else in the room will have anticipated. All I can say is it will be interesting, because…it always is with my dad.

It’s easy for me to sit in my office at my desk with no emotional attachment and address all sorts of issues like the ones above with my clients. I believe that I provide clarity and objective analysis that helps my clients wade through these difficult situations. The feedback I get seems to suggest that I’m right. However, this weekend I will be far from my office desk and sport coat. The person at the table won’t view me as his attorney, but instead as his son. I will make every effort to stay neutral, compassionate and understanding. Also seated silently at the table will be memories of our family history and relationships, both the good and the bad.

I hope that my topic today lets you know you’re not alone when you deal with these unique family issues. Further, I hope that if I survive this trip (LOL) I will be a better estate planning and elder law advisor for you going forward. I’m sure I will learn a lot during this trip.

I’m about to step onto the first tee. I hope I play well.

Fun fact: Phoenix is known as the “Valley of the Sun” and is consistently one of the hottest cities in the US. The average high in the month of July is 103°. My dad would tell you that it’s a dry heat. I would tell you that my body doesn’t recognize the difference between a dry and wet heat when I open a car that’s been sitting in the sun.

Understanding Your Life Insurance Policy

People who own life insurance typically get an Annual Statement summarizing the policy and its benefits. Unfortunately, many of them don’t understand the information provided, especially if the policy is very old and their memory of the initial purchase has faded. You really should take a minute to carefully review your Annual Statement. Here’s some information that might help you to understand what it says:

1. First, be aware that you were given the actual life insurance policy when you purchased the insurance. The “policy” is simply a contract between you and the insurance company with terms and conditions related to your premium payment and the death benefit. It’s good to try to dig out that policy because it will tell you who you named as beneficiaries and other important details of the policy. The Annual Statement is just an updated summary based on that initial contract.
2. Policy owner/insured. In most cases the policy owner is also the person whose life is insured. However, that does not have to be the case, and you should carefully check to see if the insured and policy owner are the same. The policy owner is the only one with authority to change beneficiaries and cash in the policy. The policy insured is the person whose death triggers the death benefit payout.
3. Your policy is one of two types: term coverage or permanent insurance.
   • Term coverage typically provides a guaranteed premium and death benefit for a term of years. If you have “15-year term” then you have a guaranteed death benefit at a guaranteed premium for 15 years from the date you purchased the policy. Once you hit the end of that 15-year term, the policy typically doesn’t terminate but the premium is no longer capped and most people get rid of the policy because of the substantial premium increase at that point.
   • Permanent insurance has a death benefit and typically a cash value. It’s called “permanent” because it is intended to last for your lifetime. For insurance to be permanent, the amount you pay into the policy is greater than the premium requirement for the death benefit. The amount you pay over the premium requirement is kept in a separate account that gets a fixed interest rate (whole life) or is invested in the stock market (variable life). If you have a whole life policy, you will be able to see your minimum guaranteed interest rate and current interest rate. If you have a variable life policy you will be able to see your investment subaccounts (similar to mutual funds).
4. Death benefit (sometimes referred to as Face Value) is just as it sounds, the amount that will be paid to your beneficiaries at your death.
5. Beneficiaries. Many, but not all, Annual Statements will indicate who your current beneficiary is on the policy. If it’s not listed, it’s a good idea to contact the company to ask what they have on record. Insurance companies get purchased by other insurance companies and sometimes the beneficiary designations don’t completely make it to the new company. If the beneficiary designation is missing or incorrect, request a change of beneficiary form to complete and send back to the insurance company.
6. Riders and endorsements. This is where things get complicated. Your policy might have an assortment of “bells and whistles”. Perhaps it has a terminal illness benefit that accelerates the death benefit for your use before the end of your life. It may also offer an accelerated benefit if you are confined to a nursing home. It’s a good idea to call your agent or the insurance company if you see a rider or endorsement to review the details of the benefit and (equally important) what you’re paying for the benefit. Every added benefit on an insurance policy has a cost and it’s good to review the likelihood that you will use that benefit and compare it to the cost of the benefit. You can save some money if you decide that a rider is no longer needed.
7. Some policies have the premium paid from the cash value or investment value. If your policy is doing that, you need to carefully review the cash value each year to see if it is rising or dropping based on the deduction of premium and costs. If it’s going down, then you need to estimate when the cash value will be used up because at that point the insurance company will contact you about how you want to cover the premium payment which can be very large later in life. If you don’t pay it, your policy ends (“crashes”) and that can be a big surprise. You can call the insurance company and ask them for a report on how long the premiums will be covered by the policy value.

Fun fact: I don’t know how fun it really is but it’s important to know. Millions of dollars of insurance policies go unclaimed simply because the beneficiaries didn’t know they exist. The National Association of Insurance Commissioners (NAIC) has a website available for anyone who believes they might be a beneficiary for an unclaimed insurance policy. To use the website you have to have the policyholder’s legal name, Social Security number and date of birth and date of death. Here is the link: Life Insurance Policy Locator

Gifts Can Have Consequences

People make small gifts to friends for Christmas, birthdays, anniversaries, and the like without thinking twice.  Bigger gifts need to be thought through more carefully. Maybe it’s to help someone finance the purchase of a home, or to buy a car. Perhaps your estate is large enough that you would prefer to pass some of it on before you die to minimize estate taxes. Regardless of the reason, many people don’t understand all the rules associated with making a relatively large gift to a friend or family member. Here are some points to remember:

1. According to the IRS, a gift is any transfer to an individual for less than fair market value in return. No gift occurs if I sell my car to my son for the fair market value Kelly Blue Book price. However, if I simply transfer the title to him for free, or sell the car to him for far less than the fair market value, then I have made a gift of the difference between the fair market value and what I received in return. Similarly, if I loan my son $100,000 and he signs a promissory note to pay it back and I subsequently forgive the loan, then I made a gift of the outstanding loan value.
2. Know that there can be a tax on making gifts. It doesn’t come up that often because there is a gift tax exemption, which for 2025 is $19,000 per person. If you are married, then one spouse can use both spouses’ exemptions for a total of $38,000 without any gift tax consequences. This is referred to as a “split gift”. Once you get over the threshold of $19,000 for an individual or $38,000 for a married couple, then the IRS imposes a “gift tax.” The exemption runs to each gift receiver so a single person can make lots of gifts to different people without any tax as long as no individual person receives more than $19,000.
3. You can make certain gifts over and above the annual exemption listed above without incurring a tax. Tuition or medical expenses, gifts to spouses and even gifts to political organizations do not have an annual exclusion limit. The same is true for gifts to qualifying charities. However, those gifts must be made directly to the educational institution or medical provider. You can’t give the gift to your loved one as reimbursement for what they already paid for tuition or medical expenses.
4. If there is any gift tax to pay, it’s not paid by the receiver of the gift (donee) but instead is paid by the giver of the gift (donor). A gift of a new car to my son (fat chance) does not trigger any income tax for him.
5. Gifts to friends and family are not tax deductible by the giver (donor). Gifts to charitable organizations might be tax deductible depending on the status of the organization.
6. How does the IRS know if you made a taxable gift over the annual exclusion? The onus is on the giver of the gift who is required to file a gift tax return Form 709. It’s been said that gifts over the annual exclusion are one of the most underreported tax transactions in the United States.
7. One of the most misunderstood elements of the gift tax is just exactly how it’s paid. Making a “taxable” gift does not increase your income taxes for the year of the gift. Instead, your “taxable” gift simply eats away at your lifetime estate/gift tax exemption. Currently, for a single person the exemption is almost $14 million so if you make a gift of say $29,000 in 2025, then you are $10,000 over the gift tax exclusion and the result is that your estate/gift tax exemption at the time of your death moves down from $14 million to $13,990,000 (I rounded it to make it easier to understand but you get the idea). This is not that big a deal unless the gift you give is large and your estate is also really large. The only possible way you would pay a tax in the year you made a gift is if you had already made so many gifts that you ate up your total $14 million estate tax exemption. For most people it’s a nonissue.
8. As I’ve indicated in prior posts, you should understand the capital gains consequences of making a gift of appreciated property. Writing a check for $10,000 as a gift to someone has no capital gains tax consequences because it’s cash. But if you give someone $10,000 worth of Apple stock that you bought years ago for $1,000, then the receiver of that Apple stock gift is treated as though they bought the Apple stock for $1,000. That’s called their basis in the stock, and if they immediately sell it for $10,000, then they have $9,000 of capital gains. However, if instead of giving the Apple stock while you are alive you create an estate plan that gives $10,000 of Apple stock to someone after your death, then the receiver of that gift at your death is treated as though they bought the Apple stock for $10,000, not $1,000. They get a step-up in basis. Death transfers wipe out capital gains while lifetime gifts do not. As a result, it’s almost always better to give cash rather than appreciated stock or real estate if you intend to make a lifetime gift.

If you intend on making a large gift you must be aware of the basic rules regarding exemptions and tax filings. You should also be aware of the capital gains tax issues as well. Hopefully the information above will give you more confidence in exploring your options for making gifts.

Fun fact: Speaking of gifts, the word “philanthropy” literally means “the love of humanity.” George Peabody is considered the father of modern philanthropy. He was born into poverty in South Danvers, Massachusetts, and rose to tremendous wealth. He subsequently gave almost all of his fortune away so as to set an example to other wealthy people in the mid-1800s. As a result, they renamed the town in which he was born to Peabody in honor of his generosity.