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Category: Social Security

There are pros and cons to charitable trusts

SECURE Act has Changed Special Needs Planning

The SECURE Act has changed Special Needs Planning. The SECURE Act eliminated the life expectancy payout for inherited IRAs for most people, but it also preserved the life expectancy option for five classes of eligible beneficiaries, referred to as “EDBs” in a recent article from Morningstar.com titled “Providing for Disabled Beneficiaries After the SECURE Act.” Two categories that are considered EDBs are disabled individuals and chronically ill individuals. Estate planning needs to be structured to take advantage of this option.

The first step is to determine if the individual would be considered disabled or chronically ill within the specific definition of the SECURE Act, which uses almost the same definition as that used by the Social Security Administration to determine eligibility for SS disability benefits.

A person is deemed to be “chronically ill” if they are unable to perform at least two activities of daily living or if they require substantial supervision because of cognitive impairment. A licensed healthcare practitioner certifies this status, typically used when a person enters a nursing home and files a long-term health insurance claim.

However, if the disabled or ill person receives any kind of medical care, subsidized housing or benefits under Medicaid or any government programs that are means-tested, an inheritance will disqualify them from receiving these benefits. They will typically need to spend down the inheritance (or have a court authorized trust created to hold the inheritance), which is likely not what the IRA owner had in mind.

Typically, a family member wishing to leave an inheritance to a disabled person leaves the inheritance to a Supplemental Needs Trust or SNT. This allows the individual to continue to receive benefits but can pay for things not covered by the programs, like eyeglasses, dental care, or vacations. However, does the SNT receive the same life expectancy payout treatment as an IRA?

Thanks to a special provision in the SECURE Act that applies only to the disabled and the chronically ill, a SNT that pays nothing to anyone other than the EDB can use the life expectancy payout. The SECURE Act calls this trust an “Applicable Multi-Beneficiary Trust,” or AMBT.

For other types of EDB, like a surviving spouse, the individual must be named either as the sole beneficiary or, if a trust is used, must be the sole beneficiary of a conduit trust to qualify for the life expectancy payout. Under a conduit trust, all distributions from the inherited IRA or other retirement plan must be paid out to the individual more or less as received during their lifetime. However, the SECURE Act removes that requirement for trusts created for the disabled or chronically ill.

However, not all of the SECURE Act’s impact on special needs planning is smooth sailing. The AMBT must provide that nothing may be paid from the trust to anyone but the disabled individual while they are living. What if the required minimum distribution from the inheritance is higher than what the beneficiary needs for any given year? Let’s say the trustee must withdraw an RMD of $60,000, but the disabled person’s needs are only $20,000? The trust is left with $40,000 of gross income, and there is nowhere for the balance of the gross income to go.

In the past, SNTs included a provision that allowed the trustee to pass excess income to other family members and deduct the amount as distributable net income, shifting the tax liability to family members who might be in a lower tax bracket than the trust.

The SECURE Act has changed Special Needs Planning, but these changes can be addressed by an experienced estate planning attorney.

If you would like to learn more about the SECURE Act, please visit our previous posts. 

Reference: Morningstar.com (Dec. 9, 2020) “Providing for Disabled Beneficiaries After the SECURE Act”

 

There are pros and cons to charitable trusts

Retirement Myths Could Do Real Harm

While you’re busy planning to retire, chances are good you’ll run into more than a few retirement myths, things that people who otherwise seem sincere and sensible are certain of. However, don’t get waylaid because any one of these retirement myths could do real harm to your plans for an enjoyable retirement. That’s the lesson from a recent article titled “Let’s Leave These 3 Retirement Myths in 2020’s Dust” from Auburn.pub.

You can keep working as long as you want. It’s easy to say this when you are healthy and have a secure job but counting on a delayed retirement strategy leaves you open to many pitfalls. Nearly 40% of current retirees report having retired earlier than planned, according to a study from the Aegon Center for Longevity and Retirement. Job losses and health issues are the reasons most people gave for their change of plans. A mere 15% of those surveyed who left the workplace before they had planned on retiring, said they did so because their finances made it possible.

Decades before you plan to retire, you should have a clear understanding of how much of a nest egg you need to retire, while living comfortably during your senior years—which may last for one, two, three or even four decades. If your current plan is far from hitting that target, don’t expect working longer to make up for the shortfall. You might have no control over when you retire, so saving as much as you can right now to prepare is the best defense.

Medicare will cover all of your medical care. Medicare will cover some of costs, but it doesn’t pay for everything. Original Medicare (Parts A and B) covers hospital visits and outpatient care but doesn’t cover vision and dental care. It also doesn’t cover prescription drug costs. Most people do not budget enough in their retirement income plans to cover the costs of medical care, from wellness visits to long-term care. Medicare Advantage plans can provide more extensive coverage, but they often come with higher premiums. The average out-of-pocket healthcare cost for most people is $300,000 throughout retirement.

Social Security is going to disappear. Nearly 90% of Americans depend upon Social Security to fund at least a part of their retirement, according to a Gallup poll, making this federal program a lifeline for Americans. Social Security does have some financial challenges. Since the early 1980s, the program took in more money in payroll taxes than it paid out in benefits, and the surplus went into a trust fund. However, the enormous number of Baby Boomers retiring made 2020, saw the first year the program paid out more money than it took in.

To compensate, it has had to make up the difference with withdrawals from the trust funds. As the number of retirees continues to rise, the surplus may be depleted by 2034. At that point, the Social Security Administration will rely on payroll taxes for retiree benefits. However, that’s if Congress doesn’t figure out a solution before 2034. Benefits may be reduced, but they aren’t going away.

Retirement myths could do real harm, but focusing on the facts will help you remain focused on retirement goals, and not ghost stories. Your retirement planning should also include preparing and maintaining your estate plan. If you would like to learn more about retirement planning, please visit our previous posts.

Reference: Auburn.pub (Dec. 13, 2020) “Let’s Leave These 3 Retirement Myths in 2020’s Dust”

 

There are pros and cons to charitable trusts

Benefit from a Roth IRA and Social Security

When originally created, Social Security was designed to prevent the elderly and infirm from sinking into dire poverty. When most working Americans enjoyed a pension from their employer, Social Security was an additional source of income and made for a comfortable retirement. However, with an average monthly benefit just over $1,500 and few pensions, today’s Social Security is not enough money for most Americans to maintain a middle-class standard of living, says the article “3 Reasons a Roth IRA Is a Perfect Supplement to Social Security” from Tuscon.com. It’s important to plan for additional income streams and one to consider is the Roth IRA. So how do you benefit from a Roth IRA and Social Security?

Roth IRAs can be funded at any age. Many seniors today are continuing to work to generate income or to continue a fulfilling life. Their earnings can be put into a Roth IRA, regardless of age. If you are still working but don’t need the paycheck, that’s a perfect way to fund the Roth IRA.

Withdrawals from a Roth won’t trigger taxes on Social Security benefits. If your only income is Social Security, you probably won’t have to worry about federal taxes. However, if you are working while you are collecting benefits, once your earnings reach a certain level, those benefits will be taxed.

To calculate taxes on Social Security benefits, you’ll need to determine your provisional income, which is the non-Social Security income plus half of your early benefit. If you earn between $25,000 and $44,000 as a single tax filer or between $32,000 and $44,000 as a married couple, you could be taxed as much as 50% of your Social Security benefits. If your single income goes past $34,000 and married income goes past $44,000, you could be taxed on up to 85% of your benefits.

If you put money into a Roth IRA, withdrawals don’t count towards your provisional income. That could leave you with more money from Social Security.

A Roth IRA is flexible. The Roth IRA is the only tax-advantaged retirement savings plan that does not impose Required Minimum Distributions or RMDs. That’s because you’ve already paid taxes when funds went into the account. However, the flexibility is worth it. You can leave the money in the account for as long as you want, so savings continue to grow tax-free. You can also leave money to your heirs.

While you don’t have to put your savings into a Roth IRA, doing so throughout your career—or starting at any age—will allow you to benefit from a Roth IRA and Social Security throughout retirement.

If you would like to learn more about Social Security and retirement accounts, please visit our previous posts. 

Reference: Tuscon.com (Oct. 5, 2020) “3 Reasons a Roth IRA Is a Perfect Supplement to Social Security”

 

There are pros and cons to charitable trusts

Two different types of Durable Power of Attorney

There are two different types of durable power of attorney, and they have very different purposes, as explained in the article that asks “Does your estate plan use the right type of Power of Attorney for you?” from Next Avenue. Less than a third of retirees have a financial power of attorney, according to a study done by the Transamerica Center for Retirement Studies. Most people don’t even understand what these documents do, which is critically important, especially during this Covid-19 pandemic.

There are two different types of Durable Power of Attorney for Finance. The power of attorney for finance can be “springing” or “immediate.” The Durable POA refers to the fact that this POA will endure after you have lost mental or physical capacity, whether the condition is permanent or temporary. It lists when the powers are to be granted to the person of your choosing and the power ends upon your death.

The “immediate” Durable POA is effective the moment you sign the document. The “springing” Durable POA does not become effective, unless two physicians examine you and both determine that you cannot manage independently anymore. In the case of the “springing” POA, the person you name cannot do anything on your behalf without two doctors providing letters saying you lack legal capacity.

You might prefer the springing document because you are concerned that the person you have named to be your agent might take advantage of you. They could legally go to your bank and add their name to your accounts without your permission or even awareness. Some people decide to name their spouse as their immediate agent, and if anything happens to the spouse, the successor agents are the ones who need to get doctors’ letters. If you need doctors’ letters before the person you name can help you, ask your estate planning attorney for guidance.

The type of impairment that requires the use of a Durable POA for finance can happen unexpectedly. It could include you and your spouse at the same time. If you were both exposed to Covid-19 and became sick, or if you were both in a serious car accident, this kind of planning would be helpful for your family.

It’s also important to choose the right person to be your POA. Ask yourself this question: If you gave this person your checkbook and asked them to pay your bills on time for a few months, would you expect that they would be able to do the job without any issues? If you feel any sense of incompetence or even mistrust, you should consider another person to be your representative.

If you should recover from your incapacity, your Durable POA is required to turn everything back to you when you ask. If you are concerned this person won’t do this, you need to consider another person.

Broad powers are granted by a Durable POA. They allow your representative to buy property on your behalf and sell your property, including your home, manage your debt and Social Security benefits, file tax returns and handle any assets not named in a trust, such as your retirement accounts.

The executor of your will, your trustee, and Durable POA are often the same person. They have the responsibility to manage all of your assets, so they need to know where all of your important records can be found. They need to know that you have given them this role and you need to be sure they are prepared and willing to accept the responsibilities involved.

Your advance directive documents are only as good as the individuals you name to implement them. Family members or trusted friends who have no experience managing money or assets may not be the right choice. Your estate planning attorney will be able to guide you to make a good decision.

If you would like to learn more about powers of attorney and their role in estate planning, please visit our previous posts. 

Reference: Market Watch (Oct. 5, 2020) “Does your estate plan use the right type of Power of Attorney for you?”

 

There are pros and cons to charitable trusts

What Needs to Happen after a Spouse Dies?

What needs to happen after a spouse dies? Making funeral arrangements, paying medical bills and closing down accounts are just the start of the tasks that a surviving spouse must take charge of, advises the recent article “Checklist for Handling the Death of a Spouse” from U.S. News & World Report. It can be overwhelming, especially with the intense emotions that come with such a large loss.

Having a checklist of specific tasks after a spouse dies may make this difficult time less stressful. This is because you will be able to see what has been accomplished, and what is yet to come.

Start by getting organized. Make a list of what you need to do and add to it as you think of new tasks. You should also track what you are doing, using a notebook to keep a record of who you spoke with and when. If you need help, don’t be afraid to ask a family member or trusted friend. Being organized is a big help, when there are so many things that need to be done during such a hard time.

Review your spouse’s will and estate plan. Gather all the documents, from their last will and testament to insurance policies, trust paperwork and related documents. Call your estate planning attorney, since she can help you with settling the estate.

Identify the executor. If you are the executor, then you are the person in charge of managing the estate, including distributing assets. If someone else has been named, contact the person and be sure they are still willing and able to undertake the responsibilities.

Obtain original death certificates. All of the financial, legal and property matters will require an original death certificate, with a raised seal. It’s easier to have more than you need, so order ten to fifteen.

Talk with other professionals. The financial advisor, CP, and insurance broker, in addition to the estate planning attorney, will need to know that your spouse has passed. You will also need to notify the Social Security Administration. If your spouse was receiving benefits, depending upon when in the month they died, you may need to return money.

Avoid any big decisions. This is not the time to sell the house, move to another state or make any other large decisions, unless you must for financial reasons.

Carry out your spouse’s wishes. There is comfort in carrying out your loved one’s wishes. Giving money to a charity as per the will’s direction or handing a prized possession to a family member who will treasure it can be heartwarming, since it reminds you of the values that your spouse held dear.

Take time for yourself and your loved ones. Mourning and healing from loss are not easy times. Take the time to process the loss and grieve with other family members. Find comfort from those you love.

If you would like to learn more about how to handle an estate after a loved one dies, please visit our previous posts.

Reference: U.S. News & World Report (Aug. 28, 2020) “Checklist for Handling the Death of a Spouse”

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There are pros and cons to charitable trusts

Finding The Right Elder Law Attorney

Elder law attorneys specialize in legal affairs that uniquely concern seniors and their adult children, says Explosion’s recent article entitled “The Complete Guide to Elder Law” Finding the right elder law attorney can be a big task. However, with the right tips, you can find an experienced elder law attorney who is knowledgeable, has the right connections and fits your budget.

While, technically, a general practice attorney will be able to handle your retirement, Medicaid and even your estate planning, an elder law lawyer is deeply entrenched in elder law. This means he or she will have extensive knowledge and experience to handle any case within the scope of elder law, like the following:

  • Retirement planning
  • Long-term care planning and insurance
  • Medicaid
  • Estate planning
  • Social Security
  • Veterans’ benefits; and
  • Other related areas of law.

While a general practice lawyer may be able to help you with one or two of these areas, a competent elder law lawyer knows that there’s no single formula in elder law that applies across the board. That’s why you’ll need a lawyer with a high level of specialization and understanding to handle your specific circumstances. An elder law attorney is best suited for your specific needs.

A referral from someone you trust is a great place to start. When conducting your elder law lawyer search, stay away from attorneys who charge for their services by the hour. For example, if you need an elder law attorney to work on a Medicaid issue, they should be able to give you an estimate of the charges after reviewing your case. That one-time flat fee will cover everything, including any legal costs, phone calls, meetings and court fees.

When it comes to elder law attorneys, nothing says more than experience. An experienced elder law lawyer has handled many cases similar to yours and understands how to proceed. Reviewing the lawyer’s credentials at the state bar website is a great place to start to make sure the lawyer in question is licensed. The website also has information on any previous ethical violations.

In your search for an elder law attorney, look for a good fit and a high level of comfort. Elder law is a complex area of law that requires knowledge and experience. To learn more about Elder law issues, please visit our previous posts. 

Reference: Explosion (Aug. 19, 2020) “The Complete Guide to Elder Law”

 

There are pros and cons to charitable trusts

Make the Most of Your Social Security Benefits

Famous motivational speaker Zig Zigler reportedly said “If you want to earn more, learn more.” That’s true for careers and investments. It is also true for Social Security. The more you know how it works, the more likely you’ll be able to make the most of your Social Security benefits, says the article “Social Security tips: 10 ways to get more money in benefits” from USA Today.

1—Check your Social Security work record for errors. Create an account for yourself at the “My Social Security” page on the Social Security Administration’s website. You’ll be able to see your entire income history. Check it against your tax returns to be sure that the numbers are right. If you see mistakes, call the SSA and have them fixed now.

2—Work for at least 35 years. The SSA uses a formula to calculate benefits based on 35 years of earnings (adjusted for inflation). If you’re thinking about working for 28 years, your benefits are going to be lower. If you can keep working to reach the 35-year mark, you’ll increase your benefits.

3—Boost your earnings. Bigger paychecks equal bigger benefits. If it’s too late for a career change, adding a part-time job could boost your lifetime income. You could also just work a few more years—it makes a difference. The annual statement from SSA on the website will show you just how much.

4—Wait until age 70 to start collecting. For every year after your full retirement age, your benefits grow by about 8%. If you are able to tap other sources of income before you turn 70, you can maximize this benefit.

5—You can also start collecting benefits at age 62. Your checks will be smaller, but if you have had a job loss and need the money, you are now eligible to take them. There will be many more checks now, than if you waited until age 70. If your health is poor, or your family history does not include longevity, there’s no benefit in waiting.

6—Understand how spousal benefits work. For non-working spouses, Social Security allows a spouse to collect a benefit based on their spouse’s earnings record – up to one half (50%) of the spouse’s benefits.

7—Can you delay a divorce? You might be able to collect benefits based on your former spouse’s earnings record, if you meet the requirements. You need to have been married for at least ten years. If it’s been nine years, and if your not-soon-enough ex has significantly higher earnings than you, consider delaying until the ten year mark. Not everyone can do this, but if you can, it could make a big difference.

8—Keep your income lower, while collecting Social Security. If you plan on working while collecting benefits, understand that some of your benefit dollars will be withheld. For someone who is younger than their Full Retirement Age in 2020, for every $2 earned over $18,240, $1 dollar will be deducted. If you reach Full Retirement Age in 2020, the SSA will deduct $1 for every $3 you earn above $48,500, until the month you do reach full retirement age. Be mindful of the “cost” of your working on your benefits.

9—Find out if you qualify for survivor or disability benefits. There are Social Security benefits for spouses, ex-spouses, the disabled and survivors. Other programs with benefits include Social Security Disability Insurance (SSDI) and Supplemental Security Income (SSI).  If your spouse dies after working long enough to qualify for Social Security, the surviving spouse and children under age 17 may also be able to collect survivor benefits.

10—Think strategically about Social Security. If your spouse has a stronger earnings history than you, they might delay collecting benefits to age 70 to maximize the size of their benefit checks. If they die before you, as a surviving spouse you may collect either their benefit amount or your own—whichever is larger.

Reference: USA Today (July 28, 2020) “Social Security tips: 10 ways to get more money in benefits”

 

There are pros and cons to charitable trusts

Legislation to Prevent Medicare Mistakes

More older workers are remaining in the workplace. In 2016, about 60% of 65-year-olds were receiving Social Security benefits, compared to 92% in 2002. Consumer advocates expect that change to result in a growing number of older people making expensive mistakes, when they enroll in basic Medicare, says the article “Bipartisan bill to prevent costly Medicare mistakes advances in the house” from CNBC.com. The hope is that the bill will make Medicare a little easier to understand. The legislation to prevent costly Medicare mistakes cleared a House committee as part of a group of bipartisan health-care bills. Next up would be a vote by the full chamber.

There’s a companion bill in the Senate, but it’s stuck in the Finance Committee. The House bill, known as the BENES Act, has several goals. One is to eliminate delays between the time that someone signs up and the time that they are covered by Medicare. Another is to offer more outreach and information about Medicare to people, as they get closer to being eligible at 65.

About 62.4 million Americans—most of whom are 65 or older—are enrolled in Medicare. Most people do end up tapping their Social Security benefits before that time, and they are automatically enrolled, but today many more people are delaying their benefits beyond that age. As a result, the expectation is that many more people are going to make expensive mistakes, when they do go to enroll in basic Medicare. That includes Part A, for hospital coverage and Part B, for outpatient care and medical equipment. There are no late-enrollment penalties for Part A but coming late to Part B can lead to a world of trouble.

The penalty for enrolling late to Part B is 10% of the standard premium for each 12-month period that the person should have been enrolled but wasn’t and worse, it can increase each year as the premium adjusts. Sixty-five-year-olds who fit into the exception category—that is, they have group health insurance at work—are allowed to delay enrolling. However, once they leave that group, they face deadlines.

Last year, as many as 764,000 people paid the Part B late-enrollment penalty, which on average pushed their premiums up by 28%. Based on the 2020 standard Part B premium, that would mean an additional $40 per month (although some pay more or less than the standard).

There is also a serious coverage delay for those who sign up during the general enrollment period (that’s January 1 to March 31), if they missed their initial signup window, which means they aren’t covered until July 1. You could sign up on January 2 and not have health coverage until July!

The legislation also requires that the Health and Human Services Secretary submit a report on how to most effectively align the early year general enrollment period for Parts A and B with the annual fall open enrollment period, which is for enrollment for different parts of Medicare: Part C Advantage Plans and Part D prescription drug plans.

Reference: CNBC.com (July 16, 2020) “Bipartisan bill to prevent costly Medicare mistakes advances in the house”