Estate Planning When You’re Single

October 24, 2024

Estate planning when you’re single can be daunting when there is no one to assist you. For one woman, the wake-up call arrived when listening to a friend explain all the tasks she needed to perform for her 91-year-old mother, whose needs were increasing rapidly. Solo agers, people who are growing older without spouses, adult children, or other family members, are now a significant part of the older population, says the article “Going Solo: How to Plan for Retirement When You’re on Your Own” from The New York Times.

Seniors who are married or have adult children have many of the same retirement planning issues as their solo ager counterparts. However, figuring out the answers requires different solutions. Managing future healthcare issues, where to live and how to ensure that retirement savings lasts needs a different approach.

Options must be addressed sooner rather than later. Estate planning is a core part of the plan. While you can’t plan everything, you can anticipate and prepare for certain events.

Determining who you can count on in a healthcare crisis and to handle your financial and legal issues is key. This is challenging when no obvious answers exist. However, it should not be avoided. You’ll need an estate plan with advance directives to convey your wishes for medical treatment and end-of-life care.

An estate planning attorney will help draw up a Power of Attorney, so someone of your choice can step in to make legal and financial issues if you become incapacitated. You’ll also want a Healthcare Proxy to name a person who can make medical decisions on your behalf if you can’t communicate your wishes. While it’s comfortable to name a trusted friend, what would happen if they aren’t able to serve? A younger person you know and trust is a better choice for this role.

A Last Will and Testament is needed to establish your wishes for distributing property. Your will is also used to name an executor who administers the will. Think about people you trust who are a generation or two younger than you, like a niece or nephew or the adult child of someone you know well. You’ll need to talk with them about taking on this role; don’t spring it on them after you’ve passed. Just because someone is named an executor doesn’t mean they have to accept the role.

Where you age matters. From safety and socialization standpoints, aging alone in a single-family home may not be the best option. Having a strong network of friends is important for the solo ager. Moving to a planned community with various support systems may be better than aging in place. Explore other housing options while you are still able to live on your own, so you can make an informed choice if and when the time comes for community living.

Estate planning when you’re single doesn’t have to be a headache. A combination of professional help will make the solo aging journey better. An experienced estate planning attorney, financial advisor and health insurance source can help you navigate the legal and business side of your life. Check with your town’s senior center for available social services and activities resources. If you would like to learn more about planning as a single person, please visit our previous posts.

Reference: The New York Times (Sept. 21, 2024) “Going Solo: How to Plan for Retirement When You’re on Your Own”

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Uncovering a Life Insurance Policy for a Deceased Loved One

September 5, 2024

Losing a loved one is challenging, and managing their financial affairs can add to the burden. Amidst the grief and emotional turmoil, you also need to learn if your deceased parent or spouse had a life insurance policy. Uncovering a life insurance policy for a deceased loved one can provide valuable financial support, settling debts and funeral expenses in this difficult time. While the process can be daunting, a skilled estate planning attorney can help you get started.

A life insurance policy can sometimes go unclaimed, if the insurance company isn’t aware that the policyholder has passed away or can’t find the beneficiaries. This can make the process of claiming insurance more challenging. However, you just need to know where to start looking for the policy.

According to USA Today, the first place to look is through your loved one’s personal files and documents. Some common places where you might find life insurance policy documentation include safe deposit boxes at banks or bank statements that include premium payments. At home, search filing cabinets, desk drawers and incoming or outgoing mail that may include correspondence from the insurance company or a life insurance agent.

If you can’t find the policy documentation, consider reaching out to professionals who may have helped your parents or spouse with their financial or legal matters. These professionals might include financial advisors, estate planners and lawyers. You can also check with insurance companies where your parents had other policies, such as homeowners or auto insurance.

The National Association of Insurance Commissioners (NAIC) offers an online life insurance policy locator service. By submitting a request, you can have participating insurance companies search their records for policies in your parent or spouse’s name. You’ll need to provide some basic information, such as the deceased’s full name, Social Security number, date of birth, date of death and your relationship to them.

If you’re still having trouble locating a policy, private search services are available for a fee. These services will contact insurance companies on your behalf to find out if your loved one had any policies.

Once you locate a policy, the next step is to determine if you’re the beneficiary. You’ll need to contact the life insurance company directly. If you are listed as a beneficiary, the insurer will likely ask for proof of your identity, such as your driver’s license or Social Security number.

When you’re ready to file a claim, you’ll need to provide the insurance company with specific information, including the insured’s full name (including their maiden name, if applicable), the insured’s Social Security number, the insured’s death certificate and proof of your identity and relationship to the policyholder.

Some companies allow you to file claims online, while others may require contacting them directly.

There are two main types of life insurance policies: term life insurance and permanent life insurance. Term life insurance provides coverage for a set period. The beneficiaries receive the death benefit if the policyholder dies within this term. Permanent life insurance offers lifelong coverage if the premiums are paid. This includes whole life insurance, variable life insurance and universal life insurance.

Uncovering a life insurance policy for a deceased loved one can provide financial relief during a difficult time. If you need help navigating this process, the death of a loved one, or want to ensure that your own affairs are in order, consider reaching out to an experienced probate and trust administration attorney. If you would like to learn more about the role of life insurance in estate planning, please visit our previous posts.

Reference: USAToday (Sep. 21, 2023) “How To Find Life Insurance Policies of a Deceased Parent”

Managing a Big Age Gap in Estate Planning

June 12, 2024

Even if it was never an issue in the past, managing a big age gap in your estate planning can present challenges. When one partner is ten or more years younger than the other, assets need to last longer, and the impact of poor planning or mistakes can be far more complex. The article in Barron’s “Big Age Gap With Your Spouse? What You Need to Know” explains several vital issues.

Examine healthcare coverage and income needs. Health insurance can become a significant issue, especially if one partner is old enough for Medicare and the other does not yet qualify. How will the couple ensure health insurance if the older partner retires and the younger depends on the older partner for healthcare? The younger partner must buy independent healthcare coverage, which can be a budget-buster.

Be strategic about Social Security. Experts advise having the older spouse delay taking Social Security benefits if they are the higher-income partner. If the older spouse passes, the younger spouse can get the bigger of the two Social Security benefits. Delaying benefits means the benefits will be higher.

Planning for RMDs—Required Minimum Distributions. Roth conversions may be a great option for couples with a significant age gap. Large traditional tax-deferred individual IRAs come with large RMDs. When one spouse dies, the surviving spouse is taxed as a single person, which means they’ll hit high tax brackets sooner. However, if the couple converted their IRAs to Roths, the surviving spouse could withdraw without taxes.

Estate planning becomes trickier with a significant age gap, especially if the spouses have been married before. Provisions in their estate plan need to be made for both the surviving spouse and children from prior marriages. An estate planning attorney should be consulted to discuss how trusts can protect the surviving spouse, so no one is disinherited. Beneficiary accounts also need to be checked for beneficiary designations.

Couples with a significant age gap need to address their own mortality. A younger partner who is financially dependent on an older partner needs to be involved in estate and finance planning, so they know what assets and debts exist. Life has a way of throwing curve balls, so both partners need to be prepared for incapacity and death.

Managing a big age gap in your estate planning really requires careful and consistent review of your planning. Plans should be reviewed more often than for couples in the same generation. A lot can happen in six months, especially if one or both partners have health issues. If you would like to learn more about estate planning issues for older couples, please visit our previous posts.

Reference: Barron’s (May 19, 2024) “Big Age Gap With Your Spouse? What You Need to Know.”

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Essential steps for Gen Xers caring for Aging Parents

April 15, 2024

Raising children is expensive. Adding medical or living costs for aging parents is enough to strain even a healthy family budget. The additional expenses of caring for an aging parent or parents can take a turn if a parent passes away or is incapacitated without a will or estate plan to guide the family. An estate plan or other legal documents, such as an advance medical directive and powers of attorney, enable trusted representatives to decide and act according to a parent’s wishes. A proactive estate plan can help alleviate financial burdens and smooth aging parents’ path into retirement for both generations. Here are six essential steps for Gen Xers caring for their aging parents:

Based on Kiplinger’s article, “What Gen X Needs to Know About Their Aging Parents’ Finances,” this article outlines steps in estate planning for your parents’ financial future through retirement and their quality of life as they age.

Understand your parents’ financial landscape. Identify their assets, including retirement accounts, investments, real estate and bank accounts. List their debts, from home mortgages to credit card balances—a comprehensive view of their financial health aids in planning their future needs. Consider guidance from an estate planning attorney for a more customized approach.

Familiarize yourself with your parents’ income sources, such as Social Security, pensions and additional retirement income streams. Know their financial inflows, gauge their ability to cover expenses and plan for any shortfalls effectively.

Ask your parents if they have an estate plan, including wills, trusts and other legal documents outlining their wishes for beneficiaries and asset distribution. If they do, is it comprehensive enough for long-term care, medical decisions if they are incapacitated and Medicaid? Address these topics early and facilitate additional planning, so their wishes are honored.

Anticipate future healthcare expenses and discuss potential long-term care needs with your parents. Do they have health issues and medication costs to save money for? Develop strategies to cover these costs through insurance, savings, or income-producing investments. Planning can mitigate financial stress and provide access to quality care in retirement. Consult an attorney to discuss Medicaid planning and avoid delays in the application process.

Family members worry more about scammers and the misuse of an older adult’s money today than in previous generations. Protect your parents from financial exploitation. Consider living trusts or powers of attorney, authorizing trusted family members to act and decide in your parents’ best interests, if necessary.

Seek guidance from a financial adviser and an estate planning attorney for retirement planning and intergenerational wealth transfer strategies. Collaborate with them to develop comprehensive strategies that address your parents’ financial needs, while safeguarding your retirement savings.

Proactive Gen Xers caring for aging parents can use these essentials steps to alleviate financial burdens and provide peace of mind for both generations. They can support aging parents as they plan for the family’s financial needs and future. If you would like to learn more about caring for aging parents, please visit our previous posts.

Reference: Kiplinger (June 5, 2023) “What Gen X Needs to Know About Their Aging Parents’ Finances.”

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Understanding how the Retirement Earnings Test works

January 17, 2024

It’s tempting to increase income once a wage earner is eligible for Social Security—at age 62—by taking benefits early. However, those benefits are likely to be temporarily reduced because of earned income. The “retirement earnings test” is poorly understood by the public, as reported in an article from CNBC, “Social Security rule for beneficiaries who keep working is ‘poorly understood,’ report finds. This is from a study conducted by the Social Security Advisory Board, a bipartisan, independent federal agency. It helps provide an understanding of how the retirement earnings test works.

According to the study, between 20% and 50% of pre-retirees don’t know their monthly benefits may be lowered if they claim Social Security and keep working.

Even wage earners who know their benefits might be reduced don’t know this is a temporary reduction. As few as 30% to 40% understand the reductions will eventually be added back to their benefits when they reach their full retirement age (FRA).

Here’s how the retirement earnings test works. It applies to Social Security beneficiaries under FRA, generally between ages 66 and 67, depending on their date of birth. A beneficiary under FRA who continues to work will have their benefits cut by $1 for every $2 earned in 2024. The rule applies to income over $22,320.

The rule differs for the year a beneficiary reaches their full retirement age when $1 is deducted for every $3 earned over a separate limit. In 2024, this applies to earnings over $59,520 only for the months before a beneficiary reaches full retirement age.

Today’s wage earners are more likely to remain in or move in and out of the workforce before fully retiring, so this rule will likely impact more people.

The Social Security Administration’s policy directs the field office staff to discuss the retirement earnings test with all applicants. However, this doesn’t always happen, according to the Society Security Advisory Board. These conversations also don’t always happen with prospective beneficiaries who have stopped working.

The report recommends making the information on the Social Security website more accessible and doing the same for related tools on the website.

Misunderstanding the retirement earnings test often influences workers to delay claiming benefits until full retirement age. Waiting to claim at full retirement age means workers receive all the benefits they earned, while those who claim earlier have permanently reduced benefits.

For most people affected by the retirement earnings test, there’s no effect on the amount of their lifetime benefits, but not understanding the rules may keep them from enjoying more income in their senior years.

As beneficiaries continue to work, they also pay Social Security payroll taxes. This could increase their benefits if the earnings fall within their highest earnings years.

Beneficiaries must properly report wages, as the IRS reports wages to the SSA. If it is determined benefits have been overpaid, the SSA will withhold benefits until the sum is recouped. This is a situation to avoid. If you are nearing retirement age, or are considering taking social security early, understanding how the retirement earnings test works can be the difference between paying the bills and being in debt. If you would like to learn more about retirement planning, please visit our previous posts.

Reference: CNBC (Dec. 20, 2023) “Social Security rule for beneficiaries who keep working is ‘poorly understood,’ report finds

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Retirement Planning Mistakes to Avoid

November 21, 2023

Planning for your golden years is no small feat. A robust retirement plan is a treasure map to comfort and security in your later life. However, the road to a stress-free retirement is often littered with potential mistakes. Identifying common retirement planning mistakes and knowing the mistakes to avoid can save future retirees from headaches and financial instability.

Are You Underestimating Health Care Expenses When Your Retire?

One retirement mistake made often is underestimating health care costs. It’s easy to overlook long-term care and other health expenses, especially if you’re currently in good health. However, healthcare expenses can deplete your retirement savings faster than anticipated.

As you age, healthcare becomes an integral part of your expenses. Considering potential needs like long-term care, which Medicare does not usually cover, is crucial. Working with a financial planner can help you factor these costs into your retirement plan, ensuring your nest egg is equipped to handle future medical expenses.

Is Your Investment Portfolio Too Aggressive or Conservative?

Your investment strategy plays a pivotal role in your financial security. One of the common retirement mistakes is maintaining an inappropriate investment risk level. As you approach retirement, financial advisors often recommend gradually shifting towards more conservative investments to preserve capital. However, being overly cautious can also impede the growth of your retirement savings.

Discussing your risk tolerance and retirement timeline with a financial advisor is essential. They can help rebalance your portfolio to protect your assets, while still capitalizing on market opportunities.

Have You Neglected Tax Planning?

Tax planning is often overlooked in retirement planning, which can lead to unexpected tax burdens on your retirement income. Without proper planning, everything from social security benefits to withdrawals from your retirement account could be taxed, significantly shrinking your usable income.

Strategies like investing in Roth IRAs, where qualified withdrawals are tax-free, or setting aside funds to handle tax obligations, can be beneficial. It’s advisable to consult with a financial advisor or someone who can provide tax or legal advice to optimize your retirement plan for tax efficiency.

Do You Rely Solely on Social Security Benefits at Full Retirement Age?

A common mistake is assuming that social security benefits will be sufficient as your sole source of income. However, these benefits are designed to supplement your retirement savings account and usually don’t suffice for a comfortable retirement on their own.

It’s essential to have additional sources of income. Strategies like investing, setting up annuities, or continuing part-time work can help ensure a steady income flow throughout retirement, enhancing your financial security.

Are You Withdrawing Too Much, Too Soon?

Careful planning for how much you withdraw in the early years of retirement ensures that you don’t outlive your savings. Retirees sometimes start by withdrawing larger amounts. However, this approach can compromise their financial health in the later stages of retirement.

Setting a sustainable withdrawal rate as part of your retirement plan, considering factors like life expectancy and inflation, is prudent. Financial planners recommend the “4% rule” as a starting point, adjusting as necessary based on individual circumstances and market conditions.

Have You Failed to Consider Inflation?

Inflation can erode the purchasing power of your retirement savings over time, a reality that retirees cannot afford to ignore. A common retirement mistake is failing to factor inflation into retirement planning.

Investing in inflation-protected securities or assets that tend to increase in value over time can help your savings grow in step with or outpace inflation. Regular consultations with your financial advisor can help adjust your strategies to mitigate inflation’s impact.

Did You Forget to Plan Your Estate?

Beyond securing your lifestyle post-retirement, it is also essential to consider how your assets will be distributed upon your death. Without an estate plan, your heirs may not receive the assets you intend to leave them, and legal complications could arise.

Estate planning involves setting up wills, trusts and designating beneficiaries, ensuring that your wishes are honored. Discussing your desires with an experienced estate planning attorney will help ensure that your estate plan is comprehensive and legally sound.

Summary: Key Takeaways to Remember

To wrap up, here are the essential points to remember to avoid these common retirement planning mistakes:

Plan for health care costs: Factor in expenses like long-term care and unexpected medical bills.
Balance your investment portfolio: Ensure your investments align with your risk tolerance and retirement timeline.
Don’t neglect tax planning: Understand potential tax obligations on your retirement income.
Supplement social security benefits: Identify additional income sources to bolster your social security income.
Adopt a sustainable withdrawal rate: Use strategies like the “4% rule” to avoid depleting your savings prematurely.
Protect against inflation: Invest in assets that can counteract the rising cost of living.
Establish an estate plan: Prepare the legal mechanisms for asset distribution after your death.

Incorporating these strategies can help you avoid these common mistakes as you plan for retirement and set you on a path to a comfortable and secure retirement. If you would like to learn more about retirement planning, please visit our previous posts.

Beware of Social Security Scams using AI

November 8, 2023

Beware of Social Security scams using AI. Seniors now need to be extra careful about Social Security scams since fraudsters have embraced AI (Artificial Intelligence) to manipulate people into revealing secure information, says a recent article from U.S. News & World Report, “AI and the Risks of Social Security Fraud.” The schemes are sophisticated and appear entirely legitimate, making them harder to discern from real messages from the Social Security Administration.

The Office of the Inspector General recently launched a task force to investigate the use of AI and deter AI-related Social Security scams. The OIG recognizes the risk of criminals using AI to make their schemes easier and faster to execute and the deceptions more credible and realistic.

You’ll want to know about AI risks if you receive Social Security benefits. Here are some guidelines to keep both your identity and finances safe.

Criminals commonly use robocalls or chatbots. The messages sound as if they come from legitimate government representatives and trick seniors into disclosing personal information or even making fraudulent payments using voice synthesis and natural language processing. This can also happen on a website, with an AI-generated video of the U.S. president or an official with the Social Security Administration announcing a new Social Security benefit and encouraging retirees to sign up by following a link on the video. The link takes the user to a fraudulent website, where they are asked to provide essential information, including their Social Security number and other details. Once the information is provided, thieves can re-route the monthly benefit to an unauthorized account.

Be wary if you receive an email from a source you don’t recognize. Don’t respond to text messages from people or organizations you don’t know. If you receive a suspicious phone call, hang up. If someone claims to be calling from Social Security, hang up, call the local Social Security office yourself, and explain what happened.

If you haven’t already, set up a my Social Security account online at ssa.gov. That’s where you’ll indicate the bank account to receive your benefit, and you can tell SSA not to change it unless you appear in person at the local SSA office.

The SSA doesn’t initiate contact with recipients by email, text, or phone. Anyone saying they are from the SSA using these methods is a scammer. Even if your phone displays the call is coming from the SSA, know that it’s very easy for criminals to manipulate caller ID to make the call appear to come from whomever and whatever number they want.

Thieves now use digital technology to trick seniors into revealing personal information. As technology changes, so do the means of stealing. Beware of Social Security scams using AI. Stay current on common scams and protect your retirement benefits and finances from AI-driven fraud. If you would like to learn more about social security benefits, please visit our previous posts.

Reference: U.S. News & World Report (Sep. 29, 2023) “AI and the Risks of Social Security Fraud”

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Checklist Helps Put Affairs in Order

August 15, 2023

As the Baby Boomer generation ages, so too come the very real conversations around end-of-life planning. It can be a daunting and emotionally difficult subject. A checklist helps put your affairs in order and provides you and your loved ones with some peace of mind. National Institute on Aging’s recent article, “Getting Your Affairs in Order Checklist: Documents to Prepare for the Future,” has some steps to consider when getting your affairs in order.

Plan for your estate and finances. Common documents include a will and a power of attorney. A will states how your property, money and other assets will be distributed and managed when you die. A power of attorney for finances names someone who will make financial decisions for you when you are unable.
Plan for your future health care. Many people choose to prepare advance directives, which are legal documents that provide instructions for medical care and only go into effect if you can’t communicate your wishes due to disease or severe injury. A living will tells doctors how you want to be treated if you can’t make your own decisions about emergency treatment. A power of attorney for health care names your health care proxy. This individual can make health care decisions for you if you cannot communicate these yourself.
Put your important papers and copies of legal documents in one place. You can set up a file, put everything in a desk or dresser drawer, or list the information and location of papers in a notebook. Consider getting a fireproof and waterproof safe to store your documents for added security.
Tell someone you know and trust the location of your important papers. Someone you trust should know where to find your documents in case of an emergency.
Talk to your family and physician about advance care planning. A doctor can help you understand future health decisions and plan the kinds of care or treatment you may want. Discussing this with your doctor is free through Medicare during your annual wellness visit, and private health insurance may also cover this. Share your decisions with your loved ones to help avoid any surprises about your wishes.
Give permission in advance to discuss your condition with your caregiver. You can give your caregiver permission to talk with your doctor, lawyer, insurance provider, credit card company, or bank. This is different from naming a health care proxy. A health care proxy can only make decisions if you cannot communicate them.
Review your plans regularly. Look over your plans at least once yearly and when any major life event occurs, like a divorce, move, or major change in your health.

A checklist helps put your affairs in order and gives you and your loved ones a roadmap to address any changes or issues that come up in the future. If you would like to learn more about end-of-life planning, please visit our previous posts.

Reference: National Institute on Aging (July 25, 2023) “Getting Your Affairs in Order Checklist: Documents to Prepare for the Future”

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Costly Social Security Mistakes to Avoid

August 2, 2023

Social security was created to do just what it’s title intends – to help bring some financial security to seniors beyond retirement age. With so many ways to claim benefits, especially if you are married or were divorced at some point in your life, small mistakes can add up to a big difference in the amount of Social Security benefits you receive, says a recent article, “11 Social Security Mistakes That Can Cost You a Fortune” from Nasdaq. With so many Americans relying on social security benefits to help supplement their lives, there are some costly social security mistakes to avoid.

Not checking your earnings record during your working life can add up to significant losses. Even if you’re decades away from claiming, you should check your earnings record annually since this is what Social Security benefits are based on. Common mistakes include employers recording incorrect earnings or earnings not showing up because you changed your name and the name change wasn’t processed correctly.

Check your statement annually to avoid losing the right number of benefits because of earnings record mistakes. If you see an error, send proof of your earnings to the Social Security Administration. You might submit your W-2 form if you’re a salaried employee or your tax return if you are self-employed. Once the SSA verifies your claim, your record will be corrected. This is a “sooner is better than later” task because you may not have a paper trail going back 30 years.

Another mistake people make is not working long enough. To qualify for Social Security, you need at least 40 work credits. Taxpayers earn up to four credits each year based on earnings. For example, in 2023, you must earn $1,640 to earn one credit or $6,560 to earn four credits. Benefits are calculated based on the average of the 35 highest earning years. If you haven’t worked for 35 years, $0 will be averaged for each year you don’t have earnings.

It’s wise to do the calculations for Social Security before retiring. As you approach your retirement date, check your earnings statement first to be sure you have enough credits to qualify for Social Security. If you don’t have 35 years, consider working another year or two. If you worked at a job where you weren’t paying into Social Security, adding another year of work could ensure you qualify and may also boost your monthly benefit amount.

Taking Social Security too early can take a big bite out of benefits. While everyone eligible can start taking benefits at age 62, for everyone born after 1959, the reduction for benefits at age 62 is 30%. This lower benefit is permanent and won’t increase until you reach Full Retirement Age (FRA). It’s best to wait at least until FRA. If you can wait past FRA, your benefits could increase by as much as 8% per year up to age 70.

Another mistake is waiting too long to claim benefits. If you live to the average life expectancy, it won’t matter if you claim benefits too early or late. The amount of the benefit reduction for claiming early and the increase in delaying a claim evens out. But if you are in poor health or have cash flow trouble, a benefit check at a younger age could be the right move.

If you file for Social Security benefits solely on your earnings record, you might miss out on a larger benefit. Let’s say you were a stay-at-home parent while your spouse worked. You may not have enough work credits to qualify, or your benefits may be small. However, you could still qualify for benefits under your spouse’s work record. Check to see how much you would be eligible to receive under your spouse’s work record before deciding how to claim benefits.

If divorced, you might claim benefits under your ex-spouse’s earnings record if you meet all the requirements. Suppose the marriage lasted at least ten years. In that case, you are 62 or older, unmarried, and your ex-spouse is eligible to receive Social Security retirement or disability benefits. Your benefit from your work is less than what you would receive under your ex-spouse’s earnings record; it’s worth exploring this option.

If you are married, it’s best to coordinate claiming strategies with your spouse. A low-earning spouse could start claiming benefits based on the higher-earning spouse’s income at full retirement age. Meanwhile, the higher-earning spouse delays benefits to increase retirement credits.

Finally, remember that up to 85% of Social Security benefits could be subject to federal income taxes if you earn substantial income from wages or dividends. The percentage of benefits subject to income taxes depends on the couple’s combined income, which includes the household Adjusted Gross Income (AGI), any nontaxable interest income, and half of your Social Security benefits. The best way to avoid these costly social security mistakes it to make sure you are working closely with your estate planning attorney and financial advisor or CPA. If you would like to learn more about social security benefits and estate planning, please visit our previous posts.

Reference: Nasdaq (July 2, 2023) “11 Social Security Mistakes That Can Cost You a Fortune”

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SNT can be a Vital Tool for Families

July 5, 2023

A special needs trust, or SNT, can be a vital tool for families. It is an important part of planning for the financial security and lifestyle of a family member with special needs. A special needs trust can allow the trust’s beneficiary to receive financial support from the family for supplemental needs without losing public benefits, such as SSI (Supplemental Security Income) and Medicaid. A recent article from The Westerly Sun, “Special needs trust could ease families’ stress,” explains how this works.

A parent typically has the special needs trust created. As the grantor, the parent establishes the trust and names a trustee who will be responsible for managing the trust. The trust may be funded with gifts throughout the parent’s lifetime or from other sources, such as a court settlement or an inheritance.

Life insurance proceeds are often used as the funding mechanism. The trust purchases a life insurance policy on the life of one or both parents of a special needs individual. Government benefits are protected as long as the trust is named the policy beneficiary.

The role of a trustee is important in a special needs trust. They must manage the funds within the trust and ensure that they are only used to supplement SSI and Medicaid, the two government programs that typically cover the costs of housing, food, and medical care. The special needs trust can be used for other qualified expenses, including transportation, travel, education, entertainment, professional services, and personal items.

The parent could serve as a trustee, or a trusted friend or relative may be named. Whoever is chosen as the trustee should be familiar with the family and the needs of the family member with disabilities. You also want to name a person who is competent at managing finances and can be trusted to stay current regarding SSI and Medicaid regulations.

Another option is to hire a professional trust company to manage the special needs trust. This type of company is experienced in both asset management and government regulations and would provide parents with strict recordkeeping of all financial transactions associated with the trust.

Parents should also be familiar with areas of concern about special needs trusts. The trustee controls how and when funds are distributed, which can frustrate beneficiaries if requests for funds are denied.

While third-party special needs trusts are funded by someone other than the beneficiary, the beneficiary’s own assets fund first-party special needs trusts. The trust must pay back Medicaid for money used for the beneficiary after the beneficiary’s death. This repayment could deplete the trust, depriving secondary beneficiaries of any funds they might otherwise receive. Third-party trusts do not require Medicaid repayment.

An SNT can be a vital tool for families, but only if it is properly structured. Speak with an experienced estate planning attorney before establishing a special needs trust to be sure that this is the right solution for your family’s situation. If you would like to learn more about special needs and elder law planning, please visit our previous posts.

Reference: The Westerly Sun (June 10, 2023) “Special needs trust could ease families’ stress”

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Category: Social Security

SNT can be a Vital Tool for Families

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