What Do I Need to Know About ABLE Accounts? – Annapolis and Towson Estate Planning

Millions of Americans with disabilities and their families depend on public benefits to help provide income, health care, food and housing assistance. Eligibility for assistance through Supplemental Security Income, SNAP and Medicaid is based upon a resource test, so disabled individuals seeking benefits are typically limited to no more than $2,000 in savings or assets. This can present a difficult problem.

The Achieving a Better Life Experience Act (ABLE) was created as a way to create a tax-advantaged savings tool for individuals with disabilities and their families.

nj.com’s article, “ABLE accounts–A tax advantaged tool for special needs planning,” advises that when used correctly, this overlooked savings account may allow families to build a small nest egg, without affecting eligibility for public program benefits.

An ABLE 529 account is designed to be a savings or investment account to supplement public benefits. It can be a powerful strategy for individuals, who previously were unable to build supplemental funds outside of a trust for their needs. An ABLE account is funded with after-tax contributions that can grow tax-free, when used for a qualified disability expense. The account owner is also the beneficiary and contributions can be made from any person including the account beneficiary, friends, and family.

The ABLE account is available to individuals with significant disabilities, whose age of onset of disability was before they turned 26. A person could be over the age of 26 but must have had an age of onset before their 26th birthday.

Contributions are restricted to $15,000 per year. Because the ABLE account is connected to the 529 plan for education, the total contribution limit is based upon the individual state’s limit for 529 plans. Individuals can have up to $100,000 in an ABLE account, without impacting SSI eligibility. The first $100,000 also does not count toward the $2,000 resource restriction.

A frequently asked question is whether to use an ABLE account or a Special Needs Trust for planning purposes. ABLE are subject to certain limitations that make it impossible, or at least ill advised, to use them instead of a Special Needs Trust. Remember that ABLE accounts can only receive $15,000 in deposits each year, but, in most cases, Special Needs Trusts can receive much larger contributions in a year, once they are funded. This is an important difference for parents who want to leave more substantial assets to their child when they die but don’t want to jeopardize the child’s eligibility for critical services. In that situation, a Special Needs Trust may be more desirable.

When the beneficiary of the ABLE account passes away, any leftover funds in the account are typically reimbursed to the state to defray the costs of providing services during the beneficiary’s life. However, that’s different than a properly drafted Special Needs Trust.

In 2019, ABLE account owners who work but don’t have an employer-sponsored retirement account, can now save up to $12,140 in additional savings from their earnings.

Ask your estate planning attorney about possibly coordinating an ABLE account with a Special Needs Trust.

Reference: nj.com (April 20, 2019) “ABLE accounts – A tax advantaged tool for special needs planning”

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

Are Your Company Benefit Plan Designations Up-to-Date? – Annapolis and Towson Estate Planning

On the first day of your new job, you probably talked to the Human Resources Director, who had you complete a huge stack of forms. You needed to sign off that you understood all the corporate policies and received the company handbook. You probably took a stab at how many exemptions to claim for payroll tax withholding and also completed Form I-9 affirming your eligibility to work. In the stack was most likely a form to choose a medical plan, as well as a form to designate your beneficiaries for employee benefit plans. This might include life insurance, stock purchase plans and your company’s 401(k) plan.

Forbes’s recent article, “Company Benefit Plan Designations Can Lead To A Huge Estate Planning Blunder,” says that now, you should fast-forward to when you met with your estate planning attorney to sign your estate documents. After a few meetings, you probably felt good that this was checked off your to do list.

However, assets that have a form of joint or survivor ownership, or have named beneficiaries, pass on to heirs by law and aren’t part of your probated estate. This usually applies to homes, bank and investment accounts, life insurance, retirement plans and corporate asset accumulation plans. In other words, these are all the plans and accounts where you originally named beneficiaries, but probably haven’t changed those beneficiaries since your first day of work.

When you started your job, you probably named your spouse as your primary beneficiary. If you named a contingency beneficiary, it was probably your children. The secondary designation is probably not something to which you gave a lot of thought. However, if your spouse predeceases you and if your plans designated your children as contingent beneficiaries, they would inherit all your company benefit plans at once, or upon reaching majority of age 18 or 21.

If that’s not what you want to happen, you need to review your work beneficiary designations. Chances are, you’d prefer to pass assets to your children in stages at, say, ages 25, 30, and 35. If you don’t make any changes, one of your largest bequests derived from employee stock plans and life insurance may not pass the way you want.

Talk to a qualified estate planning attorney for help concerning how your company’s benefits should be titled. The process of revising your beneficiary designations only takes a few minutes.

Reference: Forbes (April 22, 2019) “Company Benefit Plan Designations Can Lead To A Huge Estate Planning Blunder”

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

An Estate Plan Directs Assets According to Your Wishes – Annapolis and Towson Estate Planning

Anyone who has any assets they want distributed should have an estate plan, regardless of the size of their estate.

Having a will and an estate plan created by an experienced attorney is the easiest place to start, says the Observer-Reporter in the article “Set up an estate plan so your assets go where you want.” Without a will, the state will decide what happens to your assets and it may not be what you wanted.

If your will was done more than four years ago and was never updated, it may lead to some unwanted results. If people you named as beneficiaries or executors have died or if there were divorces in your family, these are examples of changes that should be addressed in the estate plan.

Many people don’t know that insurance policies, annuities, 401(k), or IRA accounts that have a designated beneficiary are going to the designated beneficiary, regardless of what is in the will. If the will says everything in the estate should be divided equally between children, but one child was named the beneficiary on the life insurance policy, then only the named child will inherit the insurance policy.

Another part of an estate plan that is needed to ensure that your wishes are followed, is a financial power of attorney and a health care power of attorney. The financial power of attorney gives the person you name the legal ability to make financial decisions for you, if you are incapacitated. The health care power of attorney, similarly, gives the person you name the power to make health care decisions for you if you cannot do so for yourself. A living will is another part of planning for incapacity that is a part of a comprehensive estate plan. The living will lets your wishes for end of life care be known to others.

Assets that pass to heirs through beneficiary designations do not go through the probate process. However, assets distributed through your will do so. Probate administration of an estate takes some time to complete depending upon where you live. In some states, probate is more involved and time consuming than in others.

Another reason why people like to avoid probate is that documents, including your will, are filed with the court and become part of the public record. That’s why many people who lose a family member find themselves receiving direct mail and phone calls about buying insurance policy or selling their home.

There are ways to minimize the number of assets that pass through probate, which your estate planning attorney will be able to explain. Trusts are used for this purpose. There are a variety of trusts that can be used depending upon your circumstances. Some are used to protect inheritances if a person has an opiate addiction or cannot manage her own affairs. Others are used so individuals with special needs do not receive inheritances that would make them ineligible for government benefits.

An estate planning attorney can advise you in creating an estate plan that fits your unique circumstances.

Reference: Observer-Reporter (April 19, 2019) “Set up an estate plan so your assets go where you want”

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

How are Financial Advisors Trying to Prevent Financial Exploitation? – Annapolis and Towson Estate Planning

The next time you see your financial adviser, you may be asked to provide a trusted point of contact, such as a relative or friend to call, if the adviser has a reasonable belief that you might be a victim of financial exploitation.

Kiplinger’s recent article, “New Rules Battle Financial Scams, Elder Abuse” says that your adviser could place a temporary hold on a suspicious disbursement request from you, so your money is protected until the concern is investigated. Once money leaves an account, it’s hard to get it back.

Changes include several new laws that protect seniors and their money. For older adults, financial exploitation is a growing problem. One in five older Americans are the victim of financial exploitation each year, resulting in the loss of $3 billion annually.

Mild cognitive impairment can result in older adults not seeing red flags for fraud, says Michael Pieciak, president of the North American Securities Administrators Association (NASAA), which represents state securities regulators. The ability to judge risk may be diminished. He noted that social isolation plays a part, with vulnerable seniors home during the day and apt to answer the phone when a fraudster calls.

Federal and state lawmakers, along with the financial services industry, have initiated new rules to help safeguard seniors and their assets. The idea is that financial institutions and professionals are on the front lines of spotting elder financial abuse. The changes are designed to protect seniors and to shield financial professionals from liability for reporting possible exploitation.

Congress passed the Senior Safe Act in 2018. This law protects financial services professionals from being sued over privacy and other violations for reporting suspected elder financial abuse to law enforcement, provided they’ve been trained. If a bank teller notices that a senior seems confused about withdrawing money or making puzzling transactions, the teller could tell a superior, who could contact authorities, if necessary.

Nineteen states have enacted some version of a NASAA model act that provides registered investment advisers and broker-dealers with guidance on telling a trusted point of contact and putting a temporary hold on a client’s account to investigate financial fraud.

Reference: Kiplinger (April 3, 2019) “New Rules Battle Financial Scams, Elder Abuse”

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

Figuring Out A Parent’s Financial Life, When They Cannot – Annapolis and Towson Estate Planning

Imagine that your parent has had a minor stroke and is no longer able to manage their financial or legal affairs. For years your parent has been living independently, waiving off offers of help or having someone come in to clean. It seemed as if it would go on that way forever. What happens, asks the Daily Times, when you are confronted with this scenario in the aptly-titled article “Senior Life: What a nightmare! Untangling a loved one’s finances”?

After the health crisis is over, it’s time to get busy. Open the door to the home and start looking. Where’s the will, where are the bank statements and where’s the information about Social Security benefits? When you start making calls or going online, you run into a bigger problem than figuring out where the papers are kept, because no one will talk with you. You are not legally authorized, even though you are a direct descendant.

This happens all the time.

Statistically speaking, it is extremely likely that your parent will end up, at some point, in a nursing home or a rehabilitation center for an extended period of time. Most people have no idea what their parent’s financial situation is, where and how they keep their financial and legal records and what they would need to do in an emergency.

It’s not that difficult to fix, but you and your hopefully healthy parent or parents need to start by planning for the future. That means sitting down with an estate planning attorney and making sure to have some key documents, most importantly, a Power of Attorney.

A Power of Attorney (POA) is a legal document that gives you permission to act on another person’s behalf as their agent. It must be properly prepared for your state’s laws.  It allows you to pay bills and make decisions on behalf of a loved one while they are alive. Without it, you’ll need to go to court to be appointed as legal guardian. That takes time and is much more expensive than having a POA created and properly executed.

If you have downloaded a Power of Attorney and are hoping it works, be warned: chances are good it won’t. Many financial institutions insist that the only POA they will accept are the ones that they issue.

Once you have a POA in place, it’s time to get organized. You’ll need to go through all the important papers, and set up a system so you can see what bills need to be paid, how many bank accounts or investment accounts exist and review her financial status.

Next, it’s time to consolidate. If your parent was a child of the Depression, chances are they have money in many different places. This gave them a sense of security but will give you a headache. Consolidate four different checking accounts into one. The same should be done for any CDs, investment accounts and credit cards. Have Social Security payments and any pension checks deposited into one account.

If you need help, and you might, don’t hesitate to ask for it. The stress of organizing decades of a loved one’s home, plus caring for them and managing the winding down of a home can be overwhelming. Your estate planning attorney will be able to connect you with a number of resources in your area.

Reference: Daily Times (April 9, 2019) “Senior Life: What a nightmare! Untangling a loved one’s finances”

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

Passing the Family Business to the Next Generation – Annapolis and Towson Estate Planning

Creating a succession plan for a family business needs awareness of more than just spreadsheets, says the article “How to plan for a smooth transition of your family business” from North Bay Business Journal.

Family owned vineyards or farms face challenges, when one or two children have chosen to work in the business. Sometimes there is preferential treatment, either with economics or voting and control of the business.

Estate planning attorneys can serve as sounding boards in creating a balance between what will be best for the business and what will work to maintain peace and cohesiveness in the family. With experience in guiding families through this process, they are able to provide an unbiased view and can be helpful, when hard decisions need to be made.

Another part of the plan is having the family and the estate planning attorney meet with other professionals, such as a wealth manager and CPAs. This is especially helpful when the owners are reluctant to talk about what is happening in the business with their children, before clarifying their own thoughts about the business.

Taking time to step back and gain some perspective before holding a family meeting where decisions are made will give the owners more clarity.

A succession plan often starts a business plan. Once there is a plan for the future of the business, it’s an easier transition to financial and estate planning. Taking these steps can help the business be successful. Any business will run better when the numbers and projections for future growth are in place. Banks and other lenders look favorably on a company that has its financial reports in place.

This also permits tax planning to be done properly. In some cases, transferring a business or other asset while the owner is still living can be beneficial in the long run, even with today’s higher federal estate tax exemptions.

Lifetime gifts can be a way to reduce estate taxes because making a gift today, before there has been substantial appreciation, is one way to leverage the gift and estate tax exemption. Let’s say an asset is valued at $1 million, but at the time of your death it may be valued at $8 million. By giving it today, you can use less of your lifetime exemption.

To transfer the business to one or more children and give them an opportunity to succeed on their own, through their own efforts, consider bringing them in as a responsible manager with some ownership.

A gradual approach in transferring control of a business is a wise move, say experts. One family put their real estate holdings into an entity that gave some ownership interests to each of their children, but one of them was appointed as the manager.

Reference: North Bay Business Journal (April 9, 2019) “How to plan for a smooth transition of your family business”

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

What Happens Next, When You’ve Become a Widow? – Annapolis and Towson Estate Planning

The loss of a spouse after decades of marriage is crushing enough, but then comes a tsunami of decisions about finances and tasks that demand attention when we are least able to manage it. Even highly successful business owners can find themselves overwhelmed, says The New York Times in the article “You’re a Widow, Now What?”

Most couples tend to divide up financial tasks, where one handles investments and the other pays the bills.  However, moving from a team effort to a solo one is not easy. For one widow, the task was made even harder by the fact that her husband opted to keep his portfolio in paper certificates, which he kept in his desk. His widow had to hire a financial advisor and a bookkeeper, and it took nearly a year to determine the value of the nearly 120 certificates. That was just one of many issues.

She had to settle the affairs of the estate, deal with insurance companies, and handle banks and credit cards that had to be cancelled. Her husband was also a partner in a business, which added another layer of complexity.

She decided to approach the chaos as if it were a business. She worked on it six to eight hours a day for many months, starting with organizing all the paperwork. That meant a filing system. A grief therapist advised her to get up, get dressed as if she was going to work and to make sure she ate regular meals. This often falls by the wayside when the structure of a life is gone.

This widow opened a consulting business to advise other widows on handling the practical aspects of settling an estate and also wrote a book about it.

A spouse’s death is one of the most emotionally wrenching events in a person’s life. Women live longer statistically, so they are more likely than men to lose a spouse and have to get their financial lives organized. The loss of a key breadwinner’s income can be a big blow for those who have never lived on their own. The tasks come fast and furious in a terribly emotional time.

Widows may not realize how vulnerable they are after the death of their long-time spouse. They should hold off on any big decisions and attack their to-do list in stages. The first tasks are to contact the Social Security administration, call the life insurance company and pay important bills, like utilities and property insurance premiums. If your husband was working, contact his employer for any unpaid salary, accrued vacation days and retirement plan benefits.

Next, name your adult children, trusted family members, or friends as agents for your financial and health care power of attorney.

How to take the proceeds from any life insurance policies depends upon your immediate cash needs and whether you can earn more from the payout by investing the lump sum. Make this decision part of your overall financial strategy, ideally after talking with a trusted financial advisor.

Determining a Social Security claiming strategy comes next. Depending on your age and income level, you may be able to increase your benefit. If you wait until your full retirement, you can claim the full survivor benefit, which is 100% of the spouse’s benefit. You could claim a survivor benefit at age 60, but it will be reduced for each month you claim before your full retirement age. If both spouses are at least 70 when the husband dies, a widow should switch to taking a survivor benefit if her benefit is smaller than her husband’s.

Expect it to be a while until you feel like you are on solid ground. If you were working when your spouse passed, consider continuing to work to keep yourself out and about in a familiar world. Anything that you can do to maintain your old life, like staying in the family home, if finances permit, will help as you go through the grief process.

Reference: The New York Times (April 11, 2019) “You’re a Widow, Now What?”

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

Big Mistakes Add Up Big Time for Retirement – Annapolis and Towson Estate Planning

Retirement is a theoretical event happening way off in the future — until you celebrate your 55th birthday, when it starts to become all too real. When that lightening bolt strikes, says The Street, some mistakes may become obvious, as described in the article “Avoid These Big Mistakes in Your Retirement Planning.”

The biggest, most obvious and perhaps least followed lesson: do as much of the planning in advance as possible. Don’t wait until you wake up on your first day of retirement to figure it out.

Here are the top four mistakes people make:

Overlooking the impact of healthcare costs. Inflation in healthcare is more than three times the Consumer Price Index’s annual increase. Medical inflation hit an average of 6.8% in 2018, and it’s not likely going down any time soon. Medicare covers hospitalization (Part A) and doctor visits (Part B) but it does not cover many other critical costs. You’ll need to pay for long-term care, vision, dental, co-pays and deductibles.

As we age, our healthcare costs go up. When you are in the early stages of retirement, active, busy and healthy, it rises around 5%. But as you age, if you are lucky enough to do so, your health insurance costs could leap by 15% annually.

Planning for Medicare is very important.  It is where many retirees make big mistakes. You’ll need Medigap insurance to cover areas that Medicare does not. You’ll also want Part D to cover prescriptions.

The bigger Medicare mistake is failing to enroll at age 65. If you miss it, you’ll have to pay a penalty just to get enrolled in the program. It’s not easy to figure it out, and the instruction book is 130 pages long. The website is also confusing. However, you have to do it and do it right.

Neglecting to save. Really save. It’s next to impossible if you are twenty-something, have enormous student loans and have not gotten your career on track, to even think about retirement. It’s not easy and it’s not the first thing younger people are thinking about. However, the sooner you start putting money away for retirement, the more time you have for the money to grow. If your company offers a retirement plan, start putting something away, even if it’s a small amount. Over time, that company retirement account will grow, your income will grow and you will be better positioned for retirement. Automatic deductions will make this more likely to happen. If your parents are nagging you about retirement, make them happy: sign up for the plan at work and go for the auto deductions. It’s one less thing for them — and you — to worry about.

Poor investments. People who take a do-it-yourself approach to their investment portfolio vary in levels of success. Some devote a lot of time to it, including educating themselves about industry sectors and market performance, and others follow the ‘brother-in-law’ school, which usually tanks. That’s when your brother-in-law boasts about how much money he made in a particular stock. However, he neglects to tell you about how many losses he’s taken along the way. A team approach of an educated investor with a professional financial advisor is a better way to go.

Thinking you know it all. Overconfidence has sunk many retirements. People who are highly successful in life think that career success will automatically translate into retirement and financial planning. It’s also very hard for these types of people to accept that there’s something they do not know and cannot control. It is even harder for them to ask for help.

Failing to plan includes the failure to work with an experienced estate planning attorney in creating an estate plan that addresses tax planning, incapacity, transferring wealth to the next generation and asset distribution. Just like early savings make a big difference, having an estate plan created early in your life and updating as you go through life will help protect you and your loved ones.

Reference: The Street (April 11, 2019) “Avoid These Big Mistakes in Your Retirement Planning.”

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

Sims & Campbell Attorneys Present at Anne Arundel Estate Planning Council Event – Annapolis and Towson Estate Planning

On May 9, 2019, Sims & Campbell attorneys Christia A. Pritts and Jennifer McManus were the featured presenters at the Anne Arundel Estate Planning Council’s May Event. Their topic, Trust Busting: Methods for Modifying Irrevocable Trusts, drew a large crowd of attorneys, financial advisors, CPAs, insurance agents, and trust officers to the event.  The hot topic detailed how many clients have irrevocable trusts with outdated or inadequate provisions which may be due to various reasons such as drafting errors, unforeseen changes in family circumstances, or changes in the law. Although a trust may be irrevocable on its face, Attorneys Pritts and McManus discussed the various methods for terminating an irrevocable trust or modifying the terms of an irrevocable trust to bring the terms more in line with the client’s goals and present circumstances.

The mission of the Anne Arundel Estate Planning Council is to provide opportunities for wealth planning professionals from various disciplines to interact, share ideas and build relationships that will allow them to better serve their clients and the community. The Council provides quarterly educational programs and networking events for professional advisors. Sims & Campbell attorney Michael E. Lehr is the chair of the Executive Committee (Board) for the Anne Arundel Estate Planning Council.

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

Gen Xers Are the New Sandwich Generation – Annapolis and Towson Estate Planning

Balancing careers, children, college funds and aging parents present the same-old scenario, but this time to a new generation with a different value system.

Members of Generation X, who straddle a fairly wide age range, from late 30s to early 50s, are feeling the crunch of being responsible for their children and their parent’s needs. How will they ever get a handle on their savings for retirement?

U.S. News & World Report reminds us in its article “Essential Strategies for Generation X” that with the right strategies, Gen Xers can find a money-life balance.

Keep in mind that Gen X has been financially devastated twice: when the tech bubble burst and again during the financial crisis. This makes these individuals dubious about the future.

Let’s look at three strategies for those in the new sandwich generation to help make certain that the financial needs of their aging parents and children are met, and at the same time, ensuring that they don’t sacrifice their own financial future.

For You. Determine your financial health by calculating your net worth. This includes your savings, personal investment accounts, retirement plan accounts, and real estate, minus credit card debts, your mortgage and miscellaneous debt. Take off any items that won’t appreciate or be consumed in retirement, like a car or jewelry. Then review investments to be sure they’re performing consistently with your needs and expectations. Develop a plan to tackle debt and identify existing and projected expenses. Once you have all this information, use a basic retirement calculator to see if you’re on track to meet your retirement spending needs.

A basic calculator probably won’t let you input different scenarios or make detailed assumptions. Most will assume that you will need 70-80% of your current salary in retirement, but this may not be the case if you’re a big saver.

Create a contingency plan for premature death and disability. Ask an attorney to draft your will and other estate planning documents. Make sure that your will includes naming a guardian for your minor children so that you get to name the person who raises them. Have the attorney create powers of attorney and powers of attorney for health care so that you and your partner are prepared for incapacity.

For Your Children. Look at the resources available to fund your children’s education. Don’t put your retirement plan in jeopardy by paying for an expense you can’t afford, including your children’s college. Be open minded about state schools, or having your kids attend a local college for two years, then transfer to another college for a “brand name” diploma.

For Your Parents. See where your parents are financially because you may need to factor unexpected expenses into your plan if your parents need financial assistance. This will save time in the future if you know where to track down this information. Ask if they have an estate plan, and if they do not, have them meet with your estate planning attorney to have a plan created. Find out what kind of long-term care insurance they have in place.

With their somewhat pessimistic outlook—which is not undeserved—many Gen Xers are more focused on a work-life balance than amassing wealth. That’s good, but they need to develop good financial habits on a realistic scale.

Reference: U.S. News & World Report (March 28, 2019) “Essential Strategies for Generation X”

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