Pennsylvania Trusts and Estates Blog

What, in the end, do we leave behind? Money? A house? Investments? All these are but fleeting and will come to nought. The only thing that lasts is the wisdom of a life - values, beliefs, lessons learned from life, dreams, and hopes for future generations. These things should be left to your children too - in an ethical will.

We all want to be remembered. And surely we will be, whether we leave a writing behind or not. Yet what will be remembered and for how long? How often do you search your memory for some saying of your grandfather's? Or try to remember how your Uncle described his experience in the coal mines? Or in World War II? Don't you wish you could read their words and tell their stories to your own children and grandchildren?

Psychologists point out that writing down your values also helps you to clarify them. It helps you to focus on what you value the most, how to cultivate it and preserve it for future generations. You learn a lot about yourself when you write an ethical will. You must subject you life to self-examination and face up to failures as well as successes. As Rabbi Rammer, editor of So That Your Values Live On puts it: "I have learned that ethical wills have the power to make people confront the ultimate choices that they must make in their lives. They can make people who are usually too preoccupied with earning a living stop and consider what they are living for."

While ethical wills have gained wide popularity in recent years, they were originally a Jewish tradition, with roots in early Biblical times. Recall Moses' address to the people before he died; Joseph's blessings of his sons where he described their respective characters and their futures; and King David's prayers for his son. Perhaps the most famous of ancient ethical wills is Moshe Nachmanides' (Ramban's) letter to his son called Letter for the Ages. There is also the letter of the Vilna Gaon written at age 27 giving his wife and mother instructions for the education of the children.

How do you go about writing an ethical will yourself? There are many useful books on the subject. One of the best known volumes is Ethical Wills: Putting Your Values on Paper by Barry K. Baines. The author is a physician and hospice director. Baines defines an ethical will as "a vehicle for clarifying and communicating the meaning in our lives to our families and communities." Baines discusses the history of the practice of leaving an ethical will, its enormous benefits to the dying and to their families, and how to make them.

Other resources are So That Your Values Live on: Ethical Wills and How to Prepare Them by Jack Rammer and Nathaniel Stampfer, and Women's Lives, Women's Legacies: Passing Your Beliefs and Blessings to Future Generations: Creating Your Own Spiritual-Ethical Will, by Rachael Freed.

Some legal scholars have objected to calling such a personal statement a "will" lest it confuse people and they think they do not need to write a real will which disposes of their property. Instead, some refer to it as a "Personal Legacy Statement," but the term "Ethical Will" seems to have stuck.

Here's a partial list of common themes seen in more modern ethical wills which are listed at www.ethicalwill.com: Important personal values and beliefs, important spiritual values, hopes and blessings for future generations, life's lessons, love, forgiving others and asking for forgiveness.

Humorist Sam Levenson wrote an "Ethical Will and Testament to His Grandchildren and to Children Everywhere". Here it is as reprinted in So That Your Values Live on: Ethical Wills and How to Prepare Them by Jack Rammer and Nathaniel Stampfer:

I leave you my unpaid debts. They are my greatest assets. Everything I own -- I owe:

1. To America I owe a debt for the opportunity it gave me to be free and to be me.
2. To my parents I owe America. They gave it to me, and I leave it to you. Take good care of it.
3. To the biblical tradition I owe the belief that man does not live by bread alone, nor does he live alone at all. This is also the democratic tradition. Preserve it.
4. To the 6 million of my people and to the 30 million other humans who died because of man's inhumanity to man, I owe a vow that it must never happen again.
5. I leave you not everything I never had, but everything I had in my lifetime: a good family, respect for learning, compassion for my fellow man, and some four-letter words for all occasions: words like help, give, care, feel, and love.
Love, my dear grandchildren, is easier to recommend than to define. I can tell you only that like those who came before you, you will surely know when love ain't; you will also know when mercy ain't and brotherhood ain't.
The millennium will come when all the ain'ts shall become ises and all the ises shall be for all, even for those you don't like.
Finally, I leave you the years I should like to have lived so that I might possibly see whether your generation will bring more love and peace to the world than ours did. I not only hope that you will. I pray that you will.

An ethical will may be the most cherished and meaningful gift you can give to your family.

Read this article listing common misconceptions about estate planning.

Hat tip to Greg Herman-Giddens at North Carolina Estate Planning Blog and author credit to Freya Shoffner.

When the Roth IRA conversion law was enacted in 1997, taxpayers with adjusted gross incomes over $100,000 could not convert. No more. On January 1, 2010, every IRA owner will qualify for a Roth IRA conversion - there will be no income limitation.

When a traditional IRA is converted to a Roth, all before-tax contributions made to the IRA become taxable. But once the money is in the Roth IRA, it grows tax-free; and you can make tax-free withdrawals at any time provided that five years has passed. For a Roth IRA, there are no minimum required distributions after you attain age 70-1/2.

For Roth conversions in 2010, there is an additional benefit. The amount withdrawn does not have to be reported as part of your 2010 income. One-half can be added to income in 2011 and one-half in 2012. Conversions in 2011 and thereafter are included in income during the tax year in which the conversion is completed.

Since most IRAs took a beating in the market in 2007 and 2008 and still haven't recovered, the taxes on a conversion will be less than they could have been. Even if the additional income due to the conversion pushes you into a higher tax bracket, it may be worth it if you would have to pay higher taxes on later minimum required distributions or if income tax rates go up. If income rates go up in the future, tax-free Roth IRA income will be more valuable.

Roth conversion is not all or nothing. You may choose to convert part of your traditional IRA to a Roth (although if you have multiple IRAs you must convert each of them proportionally).
If you convert and then decide you made a mistake, you have until October 15 of the year following the year of the conversion to recharacterize and go back to a traditional IRA.

Should you convert to a Roth? The short answer is that if you can afford to pay the tax out of non-IRA assets, you are unlikely to be hurt and may do very well. So go ahead and convert. If you need to make additional withdrawals from the IRA in order to pay the taxes on the conversion, don't do it. The money you have to withdraw to pay the tax will be subject to income tax and penalties, and it will be gone - in the government's coffers - not compounding tax-free in your Roth.

The question is more than can you "afford" to pay the tax out of non-IRA assets. It's also, do you "want" to pay the taxes. Many people have a psychological aversion to paying any tax a minute before they absolutely have to. And in truth, many of these people have been proven correct. As we know, the tax law changes all the time. Wouldn't it make you feel silly to have paid the tax on a Roth conversion and 15 years from now find that the law is changed in such a way that no tax on your IRA would ever be due?

The long answer is that you must consider a number of factors: the value of the IRA, the tax rate on conversion, when you think withdrawals will be needed, when you plan to retire, what your age and health is, what future income tax rates will be (that is a huge unknown) and other imponderables. Then do projections based on these variables and different assumed rates of return. Lots of planners will make money trying to crunch these numbers using software to generate and sell reports consisting of pages and pages of projections. My advice: skip all that and go back to the short answer.

If you want to convert to a Roth, do it as early as possible in 2010 on the theory that the assets may grow as the market recovers and the sooner you convert, the less the tax will be. It makes sense to start planning for the transaction now. Let the custodian of your IRA, the bank, mutual fund company, or other financial institution that holds your account know your intentions. Ask for the proper forms if they are already available, decide how you want your converted assets invested, determine whether you will pay the taxes in 2010 or take the 2-year deferment deal, decide whether you will pay the taxes yourself or whether you want the custodian to withhold taxes, and name a beneficiary for the Roth on your death.

The opportunity to have assets grow tax-free inside the Roth and be withdrawn with no tax is a valuable one. Albert Einstein said "The most powerful force in the universe is compound interest." He was close, but not quite right. The most powerful force in the universe is the tax-free compounding of interest.

We read a lot about Social Security, Medicare and Medicaid, but what about Veterans' Benefits?

In addition to Disability Compensation for service-related disabilities, there is also a Disability Pension for non-service related disabilities. There are three levels of pension benefits:

1. Basic - Disabled Veteran unable to work
2. Housebound Disabled Veteran or surviving spouse
3. Disabled Veteran or surviving spouse who needs aid and attendance

Pension benefits are not dependent upon service-related injuries. To be eligible the applicant must have an honorable discharge, be a war-time veteran with 90 days of active duty, one day beginning or ending in a period ofWar, and be disabled, blind, or in need of care. A surviving spouse of such a person can also apply.

Periods of War that have been determined by Congress to include:

• World War II: December 7, 1941 through December 31, 1946, extended to July 25,
1947, if veteran was on active duty on or before December 31, 1946
• Korean Conflict: June 27, 1950 through January 31, 1955
• Vietnam Era: August 5, 1964 through May 7, 1975, however, February 28, 1961 through May 7, 1975 for a veteran who served in the Republic of Vietnam during that period
• Persian Gulf War: August 2, 1990 through a date to be prescribed by Presidential
Proclamation

The veteran need not have served in a combat zone or even overseas but simply served in the armed forces for the required time during one of the designated war-time periods.

Let's focus on the Aid & Attendance ("A&A") Special Pension. This is a benefit that is often overlooked by veterans who have disabilities that are not connected with their active duty service or their surviving spouses who have disabilities. The Veterans' Administration considers the program one of the department's most underutilized offerings. Most veterans do not know about it or how to apply.

Many elderly vets or their surviving spouses whose income is too high to qualify for the basic pension, may qualify for A&A benefits. Aid & Attendance can help pay for care in the home, nursing home or assisted living facility. A veteran is eligible for up to $1,632 per month, while a surviving spouse is eligible for up to $1,055 per month. A couple is eligible for up to $1,949 per month.

A&A provides benefits to veterans and surviving spouses of veterans who require the regular attendance of another person to assist them with eating, bathing, dressing, or toileting. The claimant doesn't have to need help in all of these areas, but there must be sufficient evidence that he or she can't function alone. It is also available for those who are blind or a vet who is in a nursing home because of mental or physical incapacity. Care in an assisted living facility also qualifies.

The pension program is needs tested, meaning there are limitations on income and net worth in order to qualify for benefits. An applicant must have limited assets - as a general rule, less than $80,000 in assets excluding a home, a vehicle, and personal belongings. (The VA has discretion to increase limits to avoid hardship for the veteran and spouse.) If it appears that the veteran may outlive his or her assets, it is likely the VA will determine the veteran to be eligible. For A&A the income limit is $19,736. Some kinds of income, like SSI, don't count toward the income limit.

Where there are long term care costs involved, there are special rules where available income can be reduced by 12 months worth of future, recurring medical expenses. For example, a veteran with $6,000 per month of income could still qualify for A&A if paying $4,500 to $6,000 monthly for home care, assisted living, or nursing home costs.

Here are some resources for more information and application information:

▸ Contact the Director of Lancaster County's Office of Veterans Affairs, Mr. Daniel Tooth, Veterans Affairs, 150 North Queen Street, Suite 101, Lancaster, PA 17603 (717) 299-7920. Mr. Tooth's e-mail address is Dtooth@co.lancaster.pa.us. website: click here.

▸ You can get more information about the pension program and A&A, in particular, at the Department of Veterans Affairs website or by calling 1- 800-827-1000 to locate a Veterans' Service Officer near you.

▸ The Pennsylvania Department of Military and Veterans Affairs is a source for information: Their website states: "Seeking benefits from the USDVA without proper representation can be difficult to say the least. Understanding the complex rules, laws and evidence requirements can be very technical and confusing. We strongly recommend that no veteran attempt to navigate this system without proper representation and assistance of an accredited representative or organization.

Veteran Service Officers serve as the veterans' assigned representative at no cost to the veteran. They help identify what evidence is required in the claim process. They monitor the process of the claim through the adjudication process and intercede on the veteran's behalf if problems arise. They review decisions made by the USDVA to ensure veterans receive the full benefits for which entitled."

▸ Many Veterans Service Organizations provide Veterans Service Officer Representatives who prepare, present and prosecute claims for benefits on behalf of veterans. These include the American Legion, AMVETS, Disabled American Veterans, Military Order of the Purple Heart, Veterans of Foreign Wars, United Spinal Association, Vietnam Veterans of America, and Jewish War Veterans. Usually you do not have to be a member of the organization to get help.

▸ Pennsylvania operates its own Veterans Service Organization with three field offices in Philadelphia, Pittsburgh, and Fort Indiantown Gap. Here is the contact information for Indiantown Gap: Office of the Deputy Adjutant General for Veterans Affairs, Bldg S-0-47, FTIG, Annville, PA 17003, Phone: 1-800-547-2838, Email: jamebutler@state.pa.us
Website: click here.

▸ These websites provide valuable information: www.veteransaidbenefit.org, www.veteranaid.org, and www.vetassist.org.

Many commentators complain that the VA provides very little info about A&A and the pensions program generally. The application process takes a long time and much perseverance and pushing on the part of the applicant. Keep at it. Receiving A&A may allow a veteran to pay for assisted living or other long term care without needing to dip into assets. If a VA employee is unfamiliar with or states you don't qualify for A&A benefits because your disability is not service related, ask to talk to a supervisor. Benefits, when approved, are retroactive to the application date.