Estate Planning: Funding A Special Needs Trust For Your Child
How to fund a special needs trust for your child.

Estate Planning: Funding A Special Needs Trust For Your Child

One of the toughest things about planning for a child with special needs is trying to calculate the amount of money it’s going to take to provide both while the parents are alive and after the parents pass away.

Kiplinger’s recent article asks “How Much Should Go into Your Special Needs Trust?” The article explains that it’s not uncommon for folks to have done some estate planning but not necessarily special needs estate planning. And they haven’t thought about how much money they should earmark to fund that trust someday and which assets would be the best to use.

Special needs estate planning involves creating a special needs trust that allows a person with a disability continue to receive certain public benefits. Typically, ownership of assets more than $2,000 would make the individual ineligible for certain public benefits. Assets held in a special needs trust don’t count toward this amount.

A child with special needs can generate multiple expenses. The precise amount will be based on the needs and lifestyle of the family and the child’s capabilities.

When the parents die, this budget must be increased because the things the parents did must be monetized.

A special needs trust usually isn’t funded until the parents’ death. Then, the trust would need to file a tax return each year and pay taxes.

There are also legal and trust administration expenses to think about. Public program benefits can in many cases offset many of the above-mentioned costs.

It’s vital to conduct a complete analysis of the future costs to provide for a child with special needs so that parents can start saving and making adjustments in their planning.

Speak with an elder law or estate planning attorney about special needs trusts.

Reference: Kiplinger (June 10, 2019) “How Much Should Go into Your Special Needs Trust?”

 

What Should You Do When You Turn 59½?
What should you do when you turn 591/2?

What Should You Do When You Turn 59½?

Minor stuff aside, there are some real financial benefits to reaching age 59½, says Kiplinger in the article “What Should You Do When You Turn 59½?” Here are some important tasks to accomplish when you turn 59½ that will help you explore new opportunities and build a strong foundation for your future retirement.

Review Your 401(k). At age 59½, you reach the magic age when you can start taking money out of your retirement accounts without penalty. That’s not to say it’s time to drain your accounts, but it does give you more options.

Create a Safety Net. Hopefully you know about the benefits of having an emergency fund. Having a “rainy day” fund can give you peace of mind.

Until now, your only real options to beef up such a fund were a savings or money market account that couldn’t even keep up with inflation. Now that you’re 59½ and the withdrawal penalty is no longer applicable, you can actually use your 401(k) as a readily accessible, tax-deferred safety net. Plus, in a retirement account, you can invest some of the funds for growth. Still, you should keep a bit of cash for emergencies. In addition, withdrawals from retirement accounts will be taxable because you’ve never paid taxes on that money.

Take Advantage of Catch-Up Contributions. The IRS lets folks age 50 and older contribute extra to their retirement accounts—both IRAs and employer-sponsored accounts. This not only builds your retirement savings, it can decrease your taxable income. A lower income can keep you in a lower tax bracket and make you eligible for more tax deductions. That saves money on taxes.

Look into an In-Service Rollover. The major complaint with 401(k) plans is the lack of investment options available within a given plan. The average 401(k) plan has fewer than a dozen options, according to FINRA. Compare that with the variety of options available on the open market. Once you hit 59½, you may be eligible for an in-service rollover, which lets you to move 401(k) funds into an IRA without penalty while still working at the same job. It’s a unique opportunity to access better investments that’s not available to most workers. There are more investment options within an IRA and greater flexibility and control.

Monitor Your Spending. One of the tough things about retirement planning when you’re younger is that you have almost no idea what your retirement needs will be. However, at 59½, it’s near enough that you should have a better sense of what your needs will be.

Start tracking your spending to create a retirement budget. This will help you decide when to retire because you’ll be able to see the trade-offs between working longer and the lifestyle you’ll be able to afford in retirement.

Remember Health Care. Start to consider your health care. A common mistake people make when retiring early is to neglect health insurance. While you can access your money penalty-free now, you don’t have access to Medicare until age 65. If you’re playing with the notion of retiring before 65, start looking into your health care options now and make certain that you have coverage until you reach Medicare eligibility.

Reference: Kiplinger (June 28, 2019) “What Should You Do When You Turn 59½?”

 

Don’t Have A Will? Arizona Has One For You
Don't have a will? Arizona has one for you.

Don’t Have A Will? Arizona Has One For You

Drafting a will is an essential part of estate planning. Even though it’s vitally important, a recent survey from AARP revealed that two out of five Americans over the age of 45 don’t have one.

The Reflector’s recent article, “Things people should know about creating wills,” says that writing your wishes down on paper helps avoid unnecessary work and stress when you die. Signing a will allows heirs to act with the decedent’s wishes in mind and also will make certain that assets and possessions go to the right people. What might you need in addition to a will? Read more here.

Estate planning can be complicated, and that’s the reason why many folks turn to estate planning attorneys to make sure this important task is done correctly and legally. Here are some of the estate planning topics to discuss with your lawyer:

List of Your Assets. Create a list of your assets and determine the ones covered by the will and those that will have to be passed through joint tenancy on a deed or a living trust. For instance, life insurance policies or retirement plan proceeds will be distributed by the beneficiaries you named in each account. Remember that your will can list other assets, like memorabilia, antiques, cars, and jewelry.

Naming a Guardian. Parents with minor children should definitely designate the person or persons whom they want to become guardians if they were to die unexpectedly. They can also use their will to name a person who will be in charge of the finances for the children.

Remembering Your Pets. It’s common for pet owners to use their will to detail guardianship for their pets and to leave money or property to defray the cost of their care. But remember that pets don’t have the legal capacity to own property, so don’t leave money directly to pets in a will. A pet trust is legal in most states and is the best way to leave money and name a caretaker for your pets.

Stating Your Funeral Instructions. Settling probate won’t occur until after the funeral. As a result, any funeral wishes in a will frequently aren’t read until after the fact.

Designate an Executor. This is a trusted individual who will execute the terms of the will. He or she should be willing to serve and be capable of executing the will.

Those who die without a valid will become intestate. This will result in their estate being settled based on the laws of where that person lived. A court-appointed administrator will have the authority to transfer the assets and property. This administrator is bound by the state’s intestacy laws and may make decisions that go against the decedent’s wishes.  This is incredibly difficult for the heirs and causes families to be torn apart. To avoid this, work with an experienced estate planning attorney to draft a will and other estate planning documents.  Elisabeth can help! Book a call today.

Reference: The Reflector (July 15, 2019) “Things people should know about creating wills”

 

Finding Mom and Dad’s Important Documents
Finding mom and dad's important documents.

Finding Mom and Dad’s Important Documents

If you are serving as a caregiver for an aging relative, you know the job involves more paperwork than you ever imagined before taking on the responsibility. The task of caregiving is even more challenging when your loved one cannot find her essential documents. You might need a copy of your parents’ wedding license from 1950 so your mom can get her spousal retirement benefits. Your dad might need his military service records to enroll in veterans’ benefits programs.

Before you start pulling out your hair trying to find these papers, it is good to have a plan. For example, the first three places in the house you will check, people you can call who might have useful information about where the documents might be stored, and a list of the banks where your mom or dad might have rented a safe deposit box. It also helps to know how you will go about getting replacement copies of the documents you cannot find. Here are some tips on how to locate or get copies of your aging relative’s important documents.

Let the Scavenger Hunt Begin

Before you rifle through all of his personal belongings, ask your loved one where he keeps his important papers. You might be amazed at some of the bizarre places that people put their documents. It would take you a month of Sundays to find the papers if the person had not told you where to look. A hollowed-out book, a cigar box, and a coffee can often hold treasure troves of paperwork. Some people keep valuable documents in the freezer, hidden in a closet, under a floorboard, or under the bed.

Make it easy on yourself and ask Dad where he keeps his papers. Explain why you need a particular document, and you would like to organize the rest of his papers so you can easily find things you need to help take care of him.

If he cannot remember or the papers are no longer where he thought they were, check the desk drawers, the family bible, a file cabinet, the attic, the basement, and shelves. If he put the documents in a safe deposit box, you will have to take him and the key, along with his government-issued photo identification to the bank. After you inventory the contents of the box, keep the list and have him add you to the safe deposit box so you can access the documents in the event of his death. Never leave funeral instructions or documents in the box.

When You Cannot Find It, Get a Replacement Copy

It can take weeks or longer to get replacement documents, and it is best to start this process well before you need the papers. You can contact the applicable state’s or county’s vital records office to get certified copies of certificates of birth, death, marriage, and divorce. Make sure you have your loved one’s Social Security card, driver’s license or state identification card, Medicare and Medicaid cards, and military records. If any of these are missing, contact the appropriate government agency to get replacement copies.

References: AARP. “Find or Replace Your Loved One’s Missing Documents.” (accessed July 22, 2019) https://www.aarp.org/caregiving/financial-legal/info-2018/replacing-important-documents.html?intcmp=AE-CAR-LEG-EOA1

 

Life Insurance As Part Of Your Estate Plan
Life insurance as income replacement in retirement plan.

Life Insurance As Part Of Your Estate Plan

You’re not alone if you don’t fully understand the value and benefits that life insurance can give you as part of a retirement plan. Kiplinger’s recent article, “Don’t Overlook Advantages of Making Insurance Part of Your Retirement Plan,” says many folks see life insurance as a way to protect a family from the loss of income in the event a breadwinner passes away during his or her working years.

If that’s your primary purpose in buying a life insurance policy, it’s a solid one. However, that income-replacement function doesn’t have to stop in retirement.

When a spouse passes away during retirement, the surviving spouse frequently struggles financially. Some living expenses might be less when there’s just one person in a household, but the reduction in costs rarely makes up for the drop in income. One of the two Social Security checks the couple was getting goes away, and a pension payment may also be lost or reduced 50% or 75%. Life insurance can be leveraged to make certain there’s sufficient cash to compensate for that missing income. This lets the surviving spouse maintain his or her standard of living in retirement.

There are several sections of the tax laws that give life insurance income tax and transfer tax benefits. For example, death benefits typically are paid income-tax-free to beneficiaries and may also be free from estate taxes, provided the estate stays under the taxable limit. Also, any benefits paid prior to the insured’s death because of chronic or terminal illness also are tax-free. This is called an accelerated death benefit (ADB) and is a pretty new option. If your insurance doesn’t have this coverage, it can probably be added as a rider.

Finally, cash values can grow within a permanent life insurance policy without being subject to income tax. Any cash values more than the policy owner’s tax basis can be borrowed income-tax-free as long as the policy stays in effect. But if you were to pass away prior to paying back your policy loan, the loan balance plus interest accrued is deducted from the death benefit given to the beneficiaries. This may be an issue if your beneficiaries require the entire amount of the intended benefit. When the loan remains unpaid, the interest that accrues is added to the principal balance of the loan. If the loan balance increases above the amount of the cash value, your policy could lapse. That means you could you risk termination by the insurance carrier. If a policy lapses or is surrendered, the loan balance plus interest is considered taxable, and the taxes owed could be pretty hefty based on the initial loan and interest accrued.

There are fees that can includes sales charges, administrative expenses, and surrender charges. That’s in addition to the cost of the insurance, which grows as you age.

Just because you’re retired doesn’t mean you don’t still need the protections and benefits life insurance can offer you and your family.

Reference: Kiplinger (July 10, 2019) “Don’t Overlook Advantages of Making Insurance Part of Your Retirement Plan”

 

How Transfer on Death Accounts Work
How transfer on death accounts work

How Transfer on Death Accounts Work

Even estates with wills usually do go to probate court. This is not a major issue in some states and an expensive headache in others. Learn more about probate here. By changing some accounts to transfer on death (TOD), you can avoid some assets going through probate, says Yahoo! Finance in the article “Transfer on Death (TOD) Accounts for Estate Planning.”

Here’s how it works:

A TOD account automatically transfers the assets to a named beneficiary, when the account holder dies. Let’s say you have a savings account with $100,000 in it. Your son is the beneficiary for the TOD account. When you die, the account’s assets transfer to him.

A more formal definition: a TOD is a provision of an account that allows the assets to pass directly to an intended beneficiary, the equivalent of a beneficiary designation. Note that the laws that govern estate planning vary from state to state, but most banks, investment accounts and even real estate deeds can become TOD accounts. If you own part of a TOD property, only your ownership share transfers.

TOD account holders can name multiple beneficiaries and split up assets any way they wish. You can open a TOD account to be split between two children, for instance, and they’ll each receive 50% of the holdings, when you pass.

One thing to bear in mind: the beneficiaries have no right or access to the TOD account, while the owner is living. The beneficiaries can change at any time, as long as the TOD account owner is mentally competent. Just as assets in a will can’t be accessed by heirs until you die, beneficiaries on a TOD account have no rights or access to a TOD account, until the original owner dies.

Simplicity is one reason why people like to use the TOD account. When you have a properly prepared will and estate plan, the process is far easier for your family members and beneficiaries. The will includes an executor, who is the person who takes care of distributing your assets and a guardian to take care of any minor children. Absent a will, the probate court will determine who the next of kin is and distribute your property, according to the laws of your state.

A TOD account usually requires only that a death certificate be sent to an agent at the account’s bank or brokerage house. The account is then re-registered in the beneficiary’s name.

Whatever is in your will does not impact the TOD account. If your will instructs your executor to give all of your money to your sister, but the TOD account names your brother as a beneficiary, any money in the account is going to your brother. Your sister will get any other assets.

Speak with an estate planning attorney about how a TOD account might be useful for your purposes.

Reference: Yahoo! Finance (June 26, 2019) “Transfer on Death (TOD) Accounts for Estate Planning”

 

How Dads and Moms Can Make Sure Their Families are Protected
Dads can protect their family with proper estate planning.

How Dads and Moms Can Make Sure Their Families are Protected

Forbes’ recent article, “How Fathers Can Make Sure Their Families Are Financially Protected” suggests that fathers consider taking the following steps to ensure their families are protected. The same advice applies to mothers too.

Do you have enough life insurance? Be sure you’re adequately insured, so your family won’t struggle to pay the bills without your income. Many employees only have enough life insurance from work to cover a year’s worth of salary, which may be enough for some families. However, if your spouse can’t make the mortgage payment on their own, and if they would be unwilling or unable to sell the home, you might want to at least make sure you have enough life insurance to pay off the mortgage. Once you know how much you need, buy a low-cost term policy for the maximum length of time you might need the coverage.

Are your beneficiaries updated on retirement accounts, annuities and life insurance policies? This is an often overlooked issue. An outdated beneficiary designation could result in your ex-spouse inheriting most of your assets, your latest child being disinherited, or your family having to pay higher taxes and probate fees than is necessary. Read more here.

Can you add a “payable on death” or a “transfer on death” form on any accounts? You can generally add beneficiaries to bank and investment accounts, saving your family from the time and cost of probate. In some states, you can add beneficiaries to your home and vehicles. Ask your bank for a “payable on death” form and your investment company for a “transfer on death” form.

Is your will drafted?  You need a will to name a guardian for your minor children in most states. It’s a good idea to have a qualified estate planning attorney help you.

Are you organized? Keep a record of where everything and everyone is. You can draft an “In Case of Emergency” folder that has copies of your will, revocable trust, life insurance policy and a summary of brokerage and bank accounts. Let your family know where to find it. You should also share your passwords to your digital accounts.

As a parent, you have an obligation to care for the financial well-being of your family. Part of this is making sure they’ll be protected, even if you’re not around.

Reference: Forbes (June 16, 2019) “How Fathers Can Make Sure Their Families Are Financially Protected”

 

Can We Talk About Death and Dying Or Nah?
Let's talk about death and dying.

Can We Talk About Death and Dying Or Nah?

Evolutionary psychologists think there’s an innate reason for people not wanting to discuss death and estate planning. They say our brains haven’t evolved much past a Stone Age mentality, where survival was our main concern. As a result, it makes sense that we would avoid any threatening situations and defend our existence.

Insurance News Net’s recent article, “What Human Behavior Tells Us About Estate Planning,” says that when people think of estate planning, they think about death, which is the ultimate threat. Because we’re programmed to secure our survival, thinking about our demise is counterintuitive. With this in mind, you can begin to see why more than half of Americans don’t have essential estate documents in place.

Some say that we have to be able to see and identify it, be motivated to act by pain or some negative stimulus and believe we can do something about it without feeling dumb in the process. However, estate planning hasn’t met any of these criteria. The need for estate planning feels remote, and, therefore, it isn’t visible or painful. Sometimes estate planning can be complicated and overwhelming, which can leave people feeling incapable and inept. The need to create an estate plan also feels chronic—a nagging problem people don’t want to address and want to avoid.

However, in the digital age, estate planning has become about more than just the systematic disposition of assets upon one’s death. With bank and email accounts, social media and other digital assets scattered throughout cyberspace, it has become necessary to find a way to connect our assets to us. There’s an immediate upside to spending time on organizing our financial lives: the peace of mind of knowing everything we have is accounted for. It’s intrinsically satisfying when we can bring our assets together under one virtual roof. Read more about estate planning in the digital world.

With comprehensive planning, we can benefit from being able to monitor every account with ease, giving us a full financial picture at a glance.

In addition, today we can capture stories and memories to create a living, breathing legacy. Remember, your legacy is about more than the money left behind—it’s also about sharing the values and valuables with the right people at the right time.

When we think about legacy planning as part of our lives, we change the narrative and estate planning becomes visible, solvable and non-chronic. It becomes something people embrace rather than avoid. Therefore, think of estate planning that way and speak with an experienced estate planning attorney to be certain your plan is comprehensive and up to date.

Reference: Insurance News Net (May 9, 2019) “What Human Behavior Tells Us About Estate Planning”

 

Prevent Problems Before They Happen
Proper estate planning prevents problems before they happen

Prevent Problems Before They Happen

Creating an estate plan, with the help of an experienced estate planning attorney, can help prevent problems before they happen.  People gain clarity on larger issues, like who should inherit the family home, and small details, like what to do with the personal items that none of the children want. Until you go through the process of mapping out a plan, these questions can remain unanswered. However, according the East Idaho Business Journal, “Estate plans can help you answer questions about the future.”

Let’s look at some of these questions:

What will happen to my children when I die? You hope that you’ll live a long and happy life, and that you’ll get to see your children grow up and have families of their own. However, what if you don’t? A will is used to name a guardian to take care of your children, if their parents are not alive. Some people also use their wills to name a “conservator.” That’s the person who is responsible for the assets that any minor children might inherit.

Will my family fight over their inheritance? Without an estate plan, that’s a distinct possibility. Without a will, the entire estate goes through probate, which is a public process. Relatives and creditors can both gain access to your records and could challenge your will. Many people use and “fund” revocable living trusts to place assets outside of the will and to avoid the probate process entirely.

Who will take care of my finances, if I’m too sick? Estate planning includes documents like a durable power of attorney, which allows a person you name (before becoming incapacitated) to take charge of your financial affairs. Speak with your estate planning attorney about also having a medical power of attorney. This lets someone else handle health care decisions on your behalf.

Should I be generous to charities, or leave all my assets to my family? That’s a very personal question. Unless you have significant wealth, chances are you will leave most of your assets to family members. However, giving to charity could be a part of your legacy, whether you are giving a large or small amount. It may give your children a valuable lesson about what should happen to a lifetime of work and saving.

One way of giving, is to establish a charitable lead trust. This provides financial support to a charity (or charities) of choice for a period of time, with the remaining assets eventually going to family members. There is also the charitable remainder trust, which provides a steady stream of income for family members for a certain term of the trust. The remaining assets are then transferred to one or more charitable organizations.

Careful estate planning can help answer many worrisome questions. Just keep in mind that these are complex issues that are best addressed with the help of an experienced estate planning attorney. Read more here.

Reference: East Idaho Business Journal (June 25, 2019) “Estate plans can help you answer questions about the future.”

 

Family Fights over Personal Items or Artwork
How to avoid conflict when leaving personal items

Family Fights over Personal Items or Artwork

A few years after her death in 2014, Joan Rivers’ family put hundreds of her personal items up for auction at Christie’s in New York.

As The Financial Times reported in “Why an art collector’s estate needs tight planning,” a silver Tiffany bowl, engraved with her dog’s name, Spike, made headlines when it sold for thirty times its estimated price.

This shows how an auction house can generate a buzz around the estate of a late collector, creating demand for items that, had they been sold separately, might have failed to attract as much attention.

A problem for some art and collectible owners is that their heirs may feel much less passionately about the works, than the person who collected them.

A collector can either gift, donate or sell in their lifetime. He or she can also wait until they pass away and then gift, donate, or sell posthumously.

The way a collector can make certain his or her wishes are carried out or eliminate family conflicts after their death, is to take the decision out of the hands of the family, by placing an art collection in trust. Read more about trusts here.

The trust will have the collector’s wishes added into the agreement, and the trustees are appointed from the family and from independent advisers with no interest in a transaction taking place.

Many collectors like to seal their legacy, by making a permanent loan or gift of art works to a museum.However, their children can renege on these agreements, if they’re not adequately protected by trusts or other legal safeguards after a collector’s death.

Even with a trust or other legal structure put in place to preserve a legacy, the key to avoiding a fight over personal items after the death of the collector, is to have frank discussions about estate planning with the family well before the reading of the will. This can ensure that their wishes are respected.

Reference: Financial Times (June 20, 2019) “Why an art collector’s estate needs tight planning”