What Factors Impact Social Security Check? – Annapolis and Towson Estate Planning

The amount of your Social Security retirement check and how much can you keep are the subjects of Money Talks News’ recent article entitled “9 Factors That Impact the Size of Your Social Security Check.” It examines the deciding factors behind the size of your check and how much goes into your pocket.

  1. Your work history. As far as Social Security, your retirement age isn’t when you quit work but when you start taking Social Security benefits. To calculate the size of your monthly benefit check, the Social Security Administration (SSA) uses a formula that takes into account your 35 highest-earning years and when you start receiving Social Security benefits.
  2. Your earning history. The size of your Social Security checks also depends on the amount you earned in each of those 35 top-earning years. The formula measures earnings, not work. If you don’t have 35 years’ worth of earnings, Social Security assigns a $0 value for each non-earning year. The $0 years lower your benefit amount. However, working more than 35 years can’t hurt this calculation. In fact, you can grow your monthly retirement check if: (i) you add earning years to replace zero-earning years; and (ii) you replace lower-income years with higher-earning years.
  3. When you were born. The year of your birth determines your “full retirement age,” which is a benchmark for your benefits set by the Social Security Administration. For those born between 1943 and 1954, full retirement age is 66. If you were born in 1960 or later, your full retirement age is 67.
  4. Your age when you claim. Social Security allows retirees to claim benefits and receive retirement checks as soon as 62. However, you can’t earn the full amount you are due at that time. You have to wait until your full retirement age. Claiming sooner permanently lowers your monthly benefit amount. If you wait even longer than your full retirement age, you can increase your Social Security benefit, which is also permanent. You increase your monthly benefit for each month you delay claiming until 70. The most your monthly benefit can grow is 8%. You’ll get that by waiting for your 70th birthday before claiming benefits. The increases stop at that age.
  5. A spouse who worked. There’s a “spousal benefit.” If your spouse earned more than you (and is receiving benefits), you might be eligible for a higher payout. It’s up to half of your spouse’s “primary insurance amount,” depending on what age she or he claimed Social Security. Usually, you must be at least 62 to do this. The benefit increases if you delay claiming until your full retirement age.
  6. The state of the economy. Once you’re getting Social Security, your monthly benefit is typically fixed. However, inflation affects those on fixed incomes. As a result, Social Security law tries to compensate with automatic cost-of-living (COLA) adjustments (a boost to the monthly benefit). These are based on the national rate of inflation.
  7. Whether you keep working. This is an exception to the rule of thumb that Social Security payments are fixed after you claim benefits. Working after you start collecting benefits can increase your Social Security payment. Your benefit formula is recalculated once a year to include your new earnings, and if your latest year of earnings is one of your highest years, the SSA recalculates your benefit and pays you any increase due. With each year of higher earnings, Social Security replaces a lower-earning year in the formula. However, if you’re younger than full retirement age, you could end up temporarily lowering your benefit if you earn too much at work. When you reach your full retirement age, the penalty stops, and your benefit amount is adjusted to compensate you for the period benefits were withheld.
  8. Whether you have other income. If your income is under $25,000 for a single filer or under $32,000 for a couple filing jointly, you don’t pay federal income tax on your benefit checks. If not, your benefit is taxed on up to 50% or 85% of the total amount.
  9. Your location. If you live in one of the 12 states that tax Social Security benefits, you may also owe state income tax on your benefit check.

Reference: Money Talks News (Sep. 19, 2022) “9 Factors That Impact the Size of Your Social Security Check”

Sims & Campbell, LLC – Annapolis and Towson Estate Planning Attorneys

Can a Trust Be Created to Protect a Pet? – Annapolis and Towson Estate Planning

For one woman in the middle of preparing for a no-contest divorce, the idea of a pet trust was a novel one. She was estranged from her sister and didn’t want her ex-husband to gain custody of her seven horses, three cats and five dogs if she died or became incapacitated. Who would care for her beloved animals?

The solution, as described in the article “Create a Pet Estate Plan for Your Fur Family” from AARP, was to form a pet trust, a legally sanctioned arrangement providing for the care and maintenance of companion animals in the event of a person’s disability or death.

Creating a pet trust and establishing a long-term plan requires state-specific paperwork and funding mechanisms, which are different from leaving property and assets to human family members. An experienced estate planning attorney is needed to ensure that the protections in place will work.

Shelters nationally are seeing a big increase in animals being surrendered because of COVID or people who are simply not able to take care of their pets. Suddenly, a companion pet accustomed to being near its human owner 24/7 is left alone in a shelter cage.

When pet parents have not made plans for their pets, more often than not these pets end up in shelters. However, not all animal shelters are no-kill shelters. In 2021, data from Best Friends Animal Society shows an increase in the number of pets euthanized in shelters for the first time in five years.

For pet owners who can’t identify a caregiver for their companions, the best option may be to find an animal sanctuary or a shelter providing perpetual care.

The woman described above had a pet trust created and funded it with a long-term care and life insurance policy. The trust was designed with a board of three trustees to check and balance one another to determine how the money will be allocated and what will happen to her assets. Her horse property could be sold, or a long-term student or trainer could be brought in to run her barn.

It is not legally possible to leave money directly to an animal, so setting up a trust with one trustee or a board is the best way to ensure that care will be given until the animals themselves pass away.

The stand-alone pet trust (which is a living trust) exists from the moment it is created. A dedicated bank account may be set up in the name of the pet trust or it could be named as the beneficiary of a life insurance or retirement plan.

A pet trust can also be set up within a larger trust, like a drawer within a dresser. The trust won’t kick in until death. These plans prevent the type of delays typical with probate but is problematic if the person becomes incapacitated.

If a trust is created as part of another trust, there can still be delays in accessing the money, if the pet trust is getting money from the larger trust.

With costlier animals likes horses and exotic birds, any delay in funding could be catastrophic.

How long will your pet live? A parrot could live for 80 years, which would need an endowment to invest assets and earn income over decades. A long-living pet also needs a succession of caregivers, as a tortoise with a 150-year lifespan will outlive more than one caregiver.

Contact us to speak with one of our experienced estate planning attorneys about setting up a trust for your pets.

Reference: AARP (Sep. 14, 2022) “Create a Pet Estate Plan for Your Fur Family”

Sims & Campbell, LLC – Annapolis and Towson Estate Planning Attorneys

Ask Mom if She has a Will – Annapolis and Towson Estate Planning

The family was baffled. Not only was the will out of date, but it was also unsigned, and the person named as executor had died a decade before their mother died. Grandchildren born after the will was created were not mentioned and personal possessions left to some people in the will had been given away years ago.

This scenario, as described in the article “Mom, Do You Have a Will?” from Next Avenue, is not unusual because many older adults and their children are equally reticent to discuss death. It’s a hard topic to address, but without these conversations, how can you make sure the transition after they pass is smooth?

Who needs a will? Pretty much everyone does. If your parents don’t have a will, here are some talking points to remind them of why it matters:

  • If you are part of a blended family, estate planning avoids either a full or partial disinheritance of a surviving spouse or their children.
  • If there are minor children or adult children with special needs, a will is used to appoint guardians. With no will, the court makes decisions about who raises children or cares for a special needs individual.
  • If yours is a fighting family (you know who you are), and if you want certain things to go to certain people, there needs to be an updated will.

Single people need a plan for their assets, especially if they are in a committed relationship but not married. Many state inheritance laws make no provision for a domestic partner. If a relationship is recognized before a loved one dies the remaining partner can access their right to property or benefits.

When someone dies without a will or a living trust, known as intestate succession, assets may be distributed according to rules set out in state law, which vary state to state and may not be what they would have wanted.

When asked if there is a will, some may say they are prepared. However, as in the example, this may or may not be true. Their will may be old, no longer relevant to their situation or may not have been signed.

Clarifying the status of an older adult’s will is important to a smoother transition of assets and needs to be addressed when they are of sound mind and able to make their own decision about their estate.

When preparing to have a discussion with someone who is active and healthy, the conversation is easier. Ask if they have a will and what their wishes are after they have passed. You can explain how these steps are essential to creating their legacy and protect their family from estate taxes and expensive court oversight.

When a person is seriously ill, this is admittedly a harder conversation. Acknowledge the difficulty and let them know they can stop the discussion if necessary. It may take more than a few conversations to get to everything. Discuss these issues with respect and empathy. Offer ideas and options and steer clear of any ultimatums.

Contact us to talk with one of our experienced estate planning attorneys who will explain what you need for your specific family.

Reference: Next Avenue (Sep. 14, 2022) “Mom, Do You Have a Will?”

Sims & Campbell, LLC – Annapolis and Towson Estate Planning Attorneys

What Should I Know About Long-Term Care? – Annapolis and Towson Estate Planning

Long-term care insurance is a specialty type of insurance that helps pay for costs that are typically connected with long-term care. This can include items such as care given in a hospital, nursing home services, medical services provided in your home and treatment for dementia.

WGN’s recent article entitled “10 Crucial Things to Know about Long-Term Care“ looks at these important items.

  1. The Biggest Financial Threat. The most significant threat to your financial nest egg is long-term care. About 70% of people over 65 will need some kind of long-term care during their life. The national average for home health care services is $16,743 per month. However, there are ways to manage this without buying a traditional long-term care insurance policy where “you use it or lose it.”
  2. Long-Term Care Insurance is Really “Lifestyle” Insurance. It’s NOT nursing home insurance.
  3. Reverse Mortgages. These have become a popular and accepted way of paying for expenses, including the cost of long-term care. Reverse mortgages are designed to keep seniors at home longer. A reverse mortgage can pay for in-home care, home repair, home modification and other needs.
  4. Using Medicaid to Pay for Long-Term Care. This should be a last resort to pay for long-term care, but it also may be the only way to protect family assets. Medicaid will pay for long-term care, but certain criteria must be satisfied. Talk to an elder law attorney before applying for Medicaid.
  5. Important Considerations When Selecting a Long-Term Care Plan. Four things to consider: (i) go with a company with an AM BEST rating of A+ or better; (ii) the assets of the insurance company should be in the billions; (iii) some long-term care insurers will allow for group discounts through employers, or “affinity” group discounts through a local organization; and (iv) the tax advantages for tax-qualified long-term care insurance plans. At the federal level, premiums for long-term care insurance fall into the “medical expense” category. On the state level, 26 states offer some form of deduction or tax credit for long-term care insurance premiums.
  6. The Annuity-Based Long-Term Care & The Pension Protection Act. In 2006, this law was enacted to permit those with annuity contracts to have long-term care riders with special tax advantages. The Act allows the cash value of annuity contracts to be used to pay premiums on long-term care contracts.
  7. Asset-Based Long-Term Care Solutions. The best planning approach for those who choose to self-insure is to “invest” some of their legacy assets so the assets can be worth as much as possible whenever they may be needed to pay for care. If unneeded, the money would then pass to the intended heirs, with no “use it or lose it” issues as with conventional long-term care insurance.
  8. Long-Term Care Strategy Using IRA Money. Most people use their IRA to supplement retirement. However, sometimes waiting until age 72 when mandatory required minimum distribution rules apply, some people have instead opted to take a portion of their IRA and fund an IRA-based annuity which then systematically funds a 20-pay life insurance plan with long-term care features. This type of IRA-based long-term care policy is unique in the sense that it starts out as an IRA annuity policy, also known as a tax-qualified annuity, and then over a 20-year period makes equal distribution internally to the insurance carrier and funds the life insurance.
  9. Important Documents for Long-Term Care Planning. Contact us to ask one of our experienced estate planning attorneys about a power of attorney for health care and financial power of attorney, as well as an advance directive or living will.
  10. Using Veterans Benefits to Pay for Long-Term Care. The VA offers a special pension: the Aid and Attendance (A&A) Benefit. This is a “pension benefit” and is not dependent upon service-related injuries for compensation.

Reference: WGN (2022) “10 Crucial Things to Know about Long-Term Care“

Sims & Campbell, LLC – Annapolis and Towson Estate Planning Attorneys

How to Manage Aging Parent’s Finances – Annapolis and Towson Estate Planning

A day will come when age begins to catch up with your parents and they will need help with their finances. Even if your parents don’t want to feel dependent, when you think they need your assistance, you can approach the issue with sensitivity and extend your support for the management of their finances, says Real Daily’s recent article entitled “5 Tips to Manage an Aging Parent’s Finances.” Here are some tips:

  1. Start the conversation early. Your parents may not need your help with the handling of their financial matters right away. However, it is smart to begin the conversation early. Approach the issue of who will manage the financial responsibilities when they’re no longer able to do it. Parents should select a trusted family member by providing their advance written consent. This will let you to talk about your parents’ financial issues with financial advisors, doctors and Medicare representatives and carry out timely financial planning.
  2. Create a list of all pertinent legal and financial documents. Prepare a list of your parents’ important contacts, bank account details and locations of any stored documents, like wills, property deeds, insurance policies and birth certificates. Make certain all information and documentation is accurate and up to date. If information needs to be modified because of a change of circumstances, this is time to apprise them of it and help them do what’s needed.
  3. Consider executing a power of attorney. A competent adult can sign a power of attorney to authorize another person to make decisions on their behalf. A power of attorney for a specific purpose may cover medical, financial, or other decisions, and it may be designed to give limited or more sweeping powers. When your parents sign a power of attorney with you named as their attorney in fact, it will legally empower you to make key decisions when they can’t. An elder law attorney can help you draft an appropriate power of attorney according to your situation.
  4. Document your actions and keep others in the know. Transparent communication will help you avoid misunderstandings or controversy within your family. Keep your parents, siblings and any other loved ones involved with your family informed about your actions. No matter how noble your intentions may be, if others are kept in the dark, it can raise questions about your motives. Managing the finances of aging parents is a lot of work, and you can ask for the support of family members or at least keep the lines of communication open.
  5. Don’t comingle your finances with your parents’ plans. While it may look to be a convenient or cost-effective thing to do, it’s never a good idea to combine your parents’ finances with your own. Keep them separate. Using your parents’ money for your purposes or your own money to help them out is usually a slippery slope that should be avoided. Don’t forget about your own financial goals and retirement savings while you focus on helping your parents.

Reference: Real Daily (Sep. 9, 2022) “5 Tips to Manage an Aging Parent’s Finances”

Sims & Campbell, LLC – Annapolis and Towson Estate Planning Attorneys

The Difference between Revocable and Irrevocable Trust – Annapolis and Towson Estate Planning

A living trust can be revocable or irrevocable, says Yahoo Finance’s recent article entitled “Revocable vs. Irrevocable Trusts: Which Is Better?” And not everyone needs a trust. For some, a will may be enough. However, if you have substantial assets you plan to pass on to family members or to charity, a trust can make this much easier.

There are many different types of trusts you can establish, and a revocable trust is a trust that can be changed or terminated at any time during the lifetime of the grantor (i.e., the person making the trust). This means you could:

  • Add or remove beneficiaries at any time;
  • Transfer new assets into the trust or remove ones that are in it;
  • Change the terms of the trust concerning how assets should be managed or distributed to beneficiaries; and
  • Terminate or end the trust completely.

When you die, a revocable trust automatically becomes irrevocable, and no further changes can be made to its terms. An irrevocable trust is permanent. If you create an irrevocable trust during your lifetime, any assets you transfer to the trust must stay in the trust. You can’t add or remove beneficiaries or change the terms of the trust.

The big advantage of choosing a revocable trust is flexibility. A revocable trust allows you to make changes, and an irrevocable trust doesn’t. Revocable trusts can also allow your heirs to avoid probate when you die. However, a revocable trust doesn’t offer the same type of protection against creditors as an irrevocable trust. If you’re sued, creditors could still try to attach trust assets to satisfy a judgment. The assets in a revocable trust are part of your taxable estate and subject to federal estate taxes when you die.

In addition to protecting assets from creditors, irrevocable trusts can also help in managing estate tax obligations. The assets are owned by the trust (not you), so estate taxes are avoided. Holding assets in an irrevocable trust can also be useful if you’re trying to qualify for Medicaid to help pay for long-term care and want to avoid having to spend down assets.

But again, you can’t change this type of trust and you can’t act as your own trustee. Once the trust is set up and the assets are transferred, you no longer have control over them.

Contact us to speak with one of our experienced estate planning attorneys to see if a revocable or an irrevocable trust is best or whether you even need a trust at all.

Reference: Yahoo Finance (Sep. 10, 2022) “Revocable vs. Irrevocable Trusts: Which Is Better?”

Sims & Campbell, LLC – Annapolis and Towson Estate Planning Attorneys

What Penalties Hurt Retirement Accounts? – Annapolis and Towson Estate Planning

Money Talks News’ recent article entitled “3 Tax Penalties That Can Ding Your Retirement Accounts” says make one wrong move, and Uncle Sam may ask for some explanations. Let’s review the three biggest mistakes people make.

Excess IRA contribution penalty. Contributing too much to an individual retirement account (IRA) can mean a penalty from the IRS. You can do this if you contribute more than the applicable annual contribution limit for your IRA or improperly rolling over money into an IRA. The IRS states, “Excess contributions are taxed at 6% per year as long as the excess amounts remain in the IRA. The tax can’t be more than 6% of the combined value of all your IRAs as of the end of the tax year.”

The IRS lets you remedy your mistake before any penalties will be applied. You must withdraw the excess contributions — and any income earned on those contributions — by the due date of your federal income tax return for that year.

Taking money out too soon from a retirement account. If you withdraw funds from your IRA before the age of 59½, you might be subject to paying income taxes on the money, plus an additional 10% penalty. However, there are several exceptions when you’re permitted to take early IRA withdrawals without penalties: if you lose your employment, you’re allowed to tap your IRA early to pay for health insurance premiums.

The same penalties apply to early withdrawals from retirement plans like 401(k)s, but again, there are exceptions to the rule that allow you to make early withdrawals without penalty. The exceptions that let you make early retirement plan withdrawals without penalty may differ from the exceptions that allow you to make early IRA withdrawals without penalty.

Missed RMD penalty. Taxpayers were previously obligated to take required minimum distributions — also known as RMDs — from most types of retirement accounts beginning the year they turn 70½. However, the Secure Act of 2019 bumped up that age to 72.

The consequences of not making these mandatory withdrawals still apply. If you fail to take your RMDs starting the year you turn 72, you face harsh penalties. The IRS says that if you don’t take any distributions, or if the distributions aren’t large enough, you may have to pay a 50% excise tax on the amount not distributed as required.

Reference: Money Talks News (March 1, 2022) “3 Tax Penalties That Can Ding Your Retirement Accounts”

Sims & Campbell, LLC – Annapolis and Towson Estate Planning Attorneys

Problems Created When No Will Is Available – Annapolis and Towson Estate Planning

Ask any estate planning attorney how much material they have for a book, or a movie based on the drama they see from family squabbles when someone dies without a will. There’s plenty—but a legal requirement of confidentiality and professionalism keeps those stories from circulating as widely as they might. This may be why more people aren’t as aware as they should be of how badly things go for loved ones when there’s no will, or the will is improperly drafted.

Disputes range from one parent favoring one child or children engaged in fierce fighting over personal possessions when there’s no will specifying who should get what, or providing a system for distribution, according to a recent article titled “Estate planning: 68% of Americans lack a will” from New Orleans City Business.

People don’t consider estate planning as an urgent matter. The pace of life has become so hectic as to push estate planning appointments to the next week, and the next. They also don’t believe their estates have enough value to need to have a will, but without a will, a modest estate could evaporate far faster than if an estate plan were in place.

The number of people having a will has actually decreased in the last twenty years. A few sources report the number keeps dipping from 50% in 2005, 44% in 2016 and 32% in 2022. In 2020, more Americans searched the term “online will” than in any other time since 2011.

Younger people seem to be making changes. Before the pandemic, only 16% of Americans ages 18-34 had a will. Today caring.com reports 24% of these young adults have a will. Maybe they know something their elders don’t!

One thing to be considered when having a will drafted is the “no contest clause.” Anyone who challenges the will is immediately cut out of the will. While this may not deter the person who is bound and determined to fight, it presents a reason to think twice before engaging in litigation.

Many people don’t know they can include trust provisions in their wills to manage family inheritances. Trusts are not just for super wealthy families but are good planning tools used to protect assets. They are used to control distributions, including setting terms and conditions for when heirs receive bequests.

Today’s will must also address digital assets. The transfer and administration of digital assets includes emails, electronic access to bank accounts, retirement accounts, credit cards, cryptocurrency, reward program accounts, streaming services and more. Even if the executor has access to log-in information, they may be precluded from accessing digital accounts because of federal or state laws. Wills are evolving to address these concerns and plan for the practicalities of digital assets.

Contact us to design your estate plan with one our experienced estate planning attorneys today.

Reference: New Orleans City Business (Sep. 8, 2022) “Estate planning: 68% of Americans lack a will”

Sims & Campbell, LLC – Annapolis and Towson Estate Planning Attorneys

There are Less Restrictive Alternatives than Guardianship – Annapolis and Towson Estate Planning

The benefit of restrictive alternatives to guardianships is that they don’t require court approval or judicial oversight. They are also much easier to set up and end.

The standard for establishing incapacity is also less rigorous than the standard required for a guardianship, says Kiplinger’s recent article entitled “Guardianships Should Be a Last Resort – Consider These Less Draconian Options First.”

Limited guardianships. A guardianship takes away an individual’s right to make decisions, just as full guardianships do, but they are specific to only some aspects of the person’s life. A limited guardianship can be established to manage an individual’s finances and estate or to control medical and health care decisions. These types of guardianships still require court approval and must be supported by a showing of incapacity.

Powers of attorney. Powers of attorney can be established for medical or for financial decisions. A second set of eyes ensures that financial decisions are well-considered and not harmful to the individual or his or her estate. A medical power of attorney can allow an agent to get an injunction to protect the health and well-being of the subject, including by seeking a determination of mental incapacity. A durable power of attorney for health care matters gives the agent the right to make medical decisions on behalf of the subject if or when they are unable to do so for themselves. Unlike a guardianship, powers of attorney can be canceled when they are no longer needed.

Assisted decision-making. This agreement establishes a surrogate decision-maker who has visibility to financial transactions. The bank is informed of the arrangement and alerts the surrogate when it identifies an unusual or suspicious transaction. While this arrangement doesn’t completely replace the primary account holder’s authority, it creates a safety mechanism to prevent exploitation or fraud. The bank is on notice that a second approval is required before an uncommon transaction can be completed.

Wills and trusts. These estate planning documents let people map out what will happen in the event they become incapacitated or otherwise incapable of managing their affairs. Trusts can avoid guardianship by appointing a friend or relative to manage money and other assets. A contingent trust will let the executor manage assets if necessary. For seniors, it may be wise to name a co-trustee who can oversee matters and step in should the trustor lose the capacity to make good decisions.

Reference: Kiplinger (July 7, 2022) “Guardianships Should Be a Last Resort – Consider These Less Draconian Options First”

Sims & Campbell, LLC – Annapolis and Towson Estate Planning Attorneys

What’s a ‘Pot Trust’? – Annapolis and Towson Estate Planning

A pot trust is a type of trust that names the children as beneficiaries and the trustee is given discretion to decide how the trust assets should be spent. This trust lets the grantor create a single pool of assets to be used for the benefit of multiple children. A pot trust can offer more flexibility as to how trust assets are used if you plan to leave your entire estate to your children, says Yahoo Finance’s recent article entitled “How Does a Pot Trust Work?”

If you create a family pot trust for your three children and one of them experiences a medical emergency, the trustee would be able to authorize the use of trust funds or assets to cover those costs.

Flexibility is a key element of family pot trusts. Assets are distributed based on the children’s needs, rather than setting specific distribution rules as to who gets what. You might consider this type of trust over other types of trusts if:

  • You have two or more children;
  • At least one of those children is a minor; and
  • You plan to leave your entire estate to your children when you pass away.

Pot trusts can be created for children when you plan to leave all of your assets to them. Generally, a pot trust ends when the youngest included as a beneficiary reaches a certain age. As long as the trust is in place, the trustee can use his or her discretion to determine the way in which trust assets may be used to provide for the beneficiaries’ well-being. The aim is to satisfy the financial needs of individual children as they arise.

However, pot trusts don’t ensure an equal distribution of assets among multiple children. And a family pot trust can also put an increased burden on the trustee. In effect, the trustee has to take on a parental role for financial decision-making. That’s instead of adhering to predetermined directions from the trust grantor. And children may also not like at having to wait until the youngest child comes of age for the trust to terminate and assets to be distributed.

Setting up a pot trust isn’t that different from setting up any other type of trust. Contact us as our experienced estate planning attorneys are here to help you.

Reference: Yahoo Finance (Aug. 30, 2021) “How Does a Pot Trust Work?”

Sims & Campbell, LLC – Annapolis and Towson Estate Planning Attorneys