Klitzman Law Group, PLLC

Protecting Adult Children with Disabilities

“Adults with disabilities are living much longer than in the past, which means their aging parents must plan for the day when their dependent children outlive them.”

One in four Americans has some kind of disability, and an increasing number of children are being diagnosed with some form of autism. The life expectancy for people with Down syndrome has increased from living to age 12 in the 1940s to nearly 60 today. Most children born with cerebral palsy live into their thirties. For parents of these children, it is more important than ever to create a plan and a community, says the article “How to build support system for adult children with disabilities” from The San Diego Union-Tribune.

Financial resources and support services need to be put into place, for when parents are no longer able to provide care. Here are the key points to address:

Preserving the child’s eligibility for government assistance programs, including Supplemental Security Income (SSI) and Medicaid, through the use of a Special Needs trust. Any amount of money can be placed in the trust, and the funds don’t count when determining eligibility. If parents leave money directly to a child, they will lose their ability to get SSI and Medicaid benefits.

Start early. A Third-Party Special Needs trust should be set up before the child turns 18. It doesn’t need to be funded, but it needs to be created.

Be a stickler for the rules. If the child receives SSI, money from the trust may not be used for food and housing, but it can be used for other costs, like therapies that are not covered by Medicaid, or even extras, like a cellphone or vacation. An experienced elder law attorney will be able to help the family with planning and learning the intricacies of these rules.

Name a trustee and a successor trustee. Selecting someone to manage the trust on behalf of the child is a critical decision, and not always an easy one. The trustee should be someone responsible who cares about your child’s well-being. It could be a sibling, if the relationship is good, or a family member. The person should be younger than the parents, so they will be around after the parents have passed.

Open an ABLE Account—Achieving a Better Life Experience account. These are accounts that work in much the same way as a 529 account. They can be established for a disabled person at any time, but the child must have the qualifying disability before age 26. Money from a Special Needs trust can be moved into an ABLE account, and the beneficiary can use it for any qualified disability expense.

Prepare a letter of intent or guidance. This is not a legally binding document, but rather a way of sharing information with others about your child: their preferences, routines, comfort levels and wishes. It can also be used to provide information about caregivers, medical providers and others who are a good fit with your child. You may also wish to share information about what and who they don’t like. Update the letter every year or two.

Power of Attorney. Having a power of attorney for a disabled individual is far more flexible and less costly than a conservatorship or guardianship.

Housing options. Where will your child live? That depends on what kind of disability the child has and the family’s financial resources. Ideally, the child can transition from the family home to another place while the parents are still living. If feasible, the parents could leave the family home to the child in the Special Needs trust, but they’ll also need to leave enough money for ongoing expenses and maintenance of the house. Some disabled adults live in group home settings, where counselors and other staffers help residents live on their own.

An elder care lawyer will be able to connect the family with many different resources and help with creating a Special Needs trust.

Reference: The San Diego Union Tribune (Jan. 9, 2020) “How to build support system for adult children with disabilities”

Business Owners Should Start End-Game Planning Now

“Running and owning a business is just like raising a child: Both are investments in the future and both require a lot of time, resources and effort to raise successfully.”

Most parents understand that the ultimate goal of child-rearing is to help a child become an independent adult. For the business owner, this means building a business that would continue after they have retired or passed away. However, when it comes to estate planning, says the article “Why Business Owners Should Think About Estate Planning Sooner Than Later,” from Forbes, many business owners think only about their personal assets and their children.

For a successful business owner who wants to see their business continue long after they have moved on to the next chapter in their lives, the best time to start succession planning is now.

Succession and estate planning should not be something you wait to do until the end of your life. Most people make this mistake. They don’t want to think about their own mortality or what will happen after they’ve died. Very rarely do people realize the value of estate planning and succession planning when they are engaged in a start-up or when their companies are just getting solid footing. They are too busy with the day-to-day concerns of running a business than they are with developing a succession plan.

However, any estate planning attorney who has been practicing for more than a few years knows that this is a big mistake. Securing assets and business planning sooner, not later, is a far better way to go.

Business continuity is the first concern for entrepreneurs. It’s not an easy topic. It’s far better to have this addressed when the owner is well and the business is flourishing. Therefore, the business owner is making decisions and not others, who may be emotionally invested but not knowledgeable about the business.

A living trust and will can put in place certain parameters that a trustee can carry out. This should include naming the individuals who are trusted to make decisions. Having those names and decisions made will minimize the amount of arguing between recipients of assets. Let them be mad at you for your choices, rather than squabbling between each other.

Create a business succession plan that designates successor trustees who will be in charge of managing the business, in the event of the owner’s incapacity or death. A power of attorney document is used to nominate a fiduciary agent to act on your behalf if you should become incapacitated, but a trust should be considered to provide for a smoother transition of the business to successor trustees.

By transferring a business to a trust, the inconvenience and costs of probate may be avoided and assets will be passed along to chosen beneficiaries. Timely planning also preserves business assets, since they can take advantage of advanced tax planning strategies.

Estate and succession planning is usually not top-of-mind for young business owners, but it is essential planning. Talk with an experienced estate planning attorney to get yourself and your business ahead of the game.

Reference: Forbes (Dec. 30, 2019) “Why Business Owners Should Think About Estate Planning Sooner Than Later”

SECURE Act Means It’s Time for an Estate Plan Review

“Congress passed an important retirement-savings law called Setting Every Community Up for Retirement Enhancement, or the SECURE Act of 2019.”

The most significant legislation affecting retirement was signed into law on Friday, Dec. 20, 2019. After stalling for months, Congress suddenly passed several bills, as attachments to budget appropriations, as reported by Advisor News’ article “SECURE Act, Signed by Trump, A Game-Changer For Retirement Plans.”

Here are some of the key points that retirees and those planning their retirements need to know:

Changes to Age Limits for IRA and 401(k) Accounts. The age for taking Required Minimum Distributions (RMDs) has increased from 70½ to 72 years. Adding a year and a half for investors to put away money for retirement gives a little more time to prepare for longer lifespans. The change recognizes the prior limits were arbitrary, and that Americans need to save more.

However, the SECURE Act also brought about the demise of the “stretch” IRA. Americans who inherit an IRA must now withdraw the money within 10 years of the account owner’s death, along with paying taxes. Surviving spouses and minor children are still exempt. The exempt heirs can still spend down inherited IRA accounts over their lifetime, which is an estate planning strategy known as the “stretch.”

Small Business 401(k)s. The SECURE Act expands access to Multiple Employer Plans, known as MEPs, so that employers can pool resources and share the costs of retirement plans for employees. This will cut administration and management costs and ideally, will allow more small businesses to offer higher-quality plans available to their employees.

The law also enhances automatic enrollment and auto-escalation, letting companies automatically enroll employees into a retirement plan at a rate of 6%, instead of 3%. Employers can now raise employee contributions to a maximum of 15% of their annual pay, although workers can opt out of these plans at any time.

Annuities Options. The SECURE Act now allows 401(k) plans to offer annuities as a retirement plan option. Experts have mixed opinions on this. Annuities are a type of life insurance that convert retirement savings into lifetime income. However, fees are often high, and if the insurance company closes its doors, those lifetime income payments may vanish. Under the new law, employers also have what’s called a “safe harbor” from being sued, if annuity providers go out of business or stop making payments to annuity purchasers. Being freed from liability may make employers more likely to offer annuities, but that may put 401(k) investors at more risk, say consumer advocates.

529 Plans and Saving for Children. The new law expands 529 accounts to cover many more types of education, from registered apprenticeships, homeschooling, private elementary, secondary or religious schools. Up to $10,000 can be used for qualified student loan repayments, including for siblings.

Reference: Advisor News (December 23, 2019) “SECURE Act, Signed by Trump, A Game-Changer For Retirement Plans”

What Is an Advance Care Directive?

“Among the greatest gifts you can give your family is completing a medical power of attorney to help guide them, legal and other professionals say, and they note the start of the year is a good time to make this a priority.”

People start out with good intentions at the start of the year, and then fail to follow through.  This makes difficult situations even worse for their family. The process begins with discussions about your care wishes, explains the Chicago Tribune’s Daily Southdown in the article “Talk to your family now about advance care directives.”

That conversation should include who you would trust as a health care agent. This person would be named in the medical power of attorney, an advance directive legal document that gives that person the power to make medical and care decisions on your behalf if you are not able to.

That person needs to know, from you, what’s important to you when it comes to quality of life, or length of life.

This is a very important document, as the person has the power to make life and death decisions on your behalf.

It also covers whether you want to be an organ donor. If an unexpected accident occurred and your organs were still healthy and working, would you want to give them to someone who needs a kidney or a heart? If that would be your goal, you need to make your wishes known to your health care proxy and health care providers, as well as to your family.

A living will is also important to have in place. This is used in cases of incurable or irreversible injury, disease, or illness. It expresses your wishes for end-of life care. It gives you the ability to refuse any death-delaying treatment and allow you to die naturally.

These are family matters that should be discussed, but often are not. The topics are hard, as they are centered on our mortality, the mortality of those we love and the reality of death. However, when family members know what their loved one’s wishes are, it provides the family with a tremendous relief.

Without a medical power of attorney or living will, the family may end up fighting over what each member thinks their loved ones wanted. Without clear direction from the family and the correct legal documents, the health care provider must take steps to prolong life, even if that is not what the person wanted.

When naming a health care agent, think about someone who you trust completely. That person will have access to your medical records and be able to approve who else sees them. They may also authorize tests and treatment, decide where you will receive care, which physicians will provide care and whether to accept, withdraw or decline treatment.

Reference: Chicago Tribune’s Daily Southdown (Dec. 30, 2019) “Talk to your family now about advance care directives”

Five Estate Planning Mistakes to Avoid

“Five of the most common mistakes are easy to avoid with the right information and support, as well as a little creativity.”

While it’s true that no estate is completely bulletproof, there are mistakes that people make that are big enough to walk through, while others are more like a slow drip, draining retirement finances in a slow but steady process. There are mistakes that can be easily avoided, reports Comstock Magazine in the article “Five Mistakes to Avoid When Planning Your Estate.”

1. Misunderstanding Estate Law. Some people are so thrown by the idea of an estate plan, that they can’t get past the word “estate.” You don’t need a mansion to have an estate. The term is actually used to refer to any and all property that a person owns. Even modest people need a plan to help beneficiaries avoid unnecessary costs and stress. Talk with an estate planning attorney to learn what your needs are, from a will to trusts. Make sure that this is the attorney’s key practice area. A real estate or personal injury attorney won’t have the same knowledge and experience.
2. Getting Bad Advice. It takes a team to create a strong estate plan. That means an estate planning attorney, a financial advisor and an accountant. Just buying an insurance policy or an annuity is not an estate plan.
3. Naming Yourself as a Sole Trustee. Naming yourself as a sole trustee puts you and your estate in a precarious position. What if you develop Alzheimer’s or are injured in an accident? A trusted individual, a family member, a longstanding friend or even a professional trustee, needs to be named to protect your interests, if you should become incapacitated.
4. Losing Track of Assets. Without a complete list of all assets, it’s nearly impossible for someone to know what you own and who your heirs may be. Some assets, including retirement funds, life insurance policies, or investment accounts, have named beneficiaries. Those people will inherit these assets, regardless of what is in your will. If your heirs can’t find the assets, they may be lost. If you don’t update your beneficiaries, they may go to unintended heirs—like ex-spouses.
5. Deciding on Options Without Being Fully Informed. When it comes to estate planning, the natural tendency is to go with what we think is the right thing. However, unless you are an estate planning attorney, chances are you don’t know what the right thing is. For tax reasons, for instance, it may make sense to transfer assets, while you are still living. However, that might also be a terrible idea, if you choose the wrong person to hold your assets or don’t put them in the right kind of trust.

Estate planning is still a highly personal process that depends upon every person’s unique experience. Your family situation is different than anyone else’s. An experienced estate planning attorney will be able to create a plan and help you to avoid the big, most commonly made mistakes.

Reference: Comstock Magazine (Dec. 2019) “Five Mistakes to Avoid When Planning Your Estate”

Preparing for the Inevitable: The Loss of a Spouse

“According to the U.S. Census Bureau, the average age of widowhood in the United States is a surprisingly young 59.”

Becoming a widow at a relatively young age, puts many people in a tough financial position, says the article “Preparing for the Unexpected Death of a Spouse” from Next Avenue. At this point in their lives, they are too young to draw Social Security benefits. There is no best time, but this is a hard time to lose the prime breadwinner in the household.

Women are more likely than men to lose a spouse, and they are typically left in a worse financial position than if their spouse dies before they are old enough to take retirement benefits.

One of the best ways to plan for this event, is for both spouses to have life insurance. This can replace income, and term life insurance, if purchased early in life, can be relatively affordable. The earlier a policy is purchased, the better. This can become a safety net to pay bills and maintain a lifestyle.

Another key component for surviving early widowhood, is being sure that both members of the couple understand the couple’s finances, including how household bills are paid. Usually what happens is that one person takes over the finances, and the other is left hoping that things are being done properly. That also includes knowing the accounts, the log in and password information and what bills need to be paid at what dates.

Having that conversation with a spouse is not easy, but necessary. There are costs that you may not be aware of, without a thorough knowledge of how the household works. For instance, if the husband has done all of the repairs around the house, maintaining the yard and taking care of the cars, those tasks still need to be done. Either the widow will become proficient or will have to pay others.

Couples should work with an estate planning attorney and a financial advisor, as well as an accountant, to be sure that they are prepared for the unexpected. What survivor’s benefits might the surviving spouse be eligible to receive? If there are children at home age 16 or under, there may be Social Security benefits available for the child’s support.

Discuss what debt, if any, either spouse has taken on without the other’s knowledge. Any outstanding medical bills should also be discussed. The last thing a loved one should have to cope with when a spouse passes, is a tangle of debt. However, this often happens.

If the spouse was a veteran, the surviving spouse might be eligible for benefits from the Veterans Administration. Find out what information will be needed to apply for benefits.

Talk with your estate planning attorney to make sure that all proper documents have been prepared. This includes a last will and testament, power of attorney, health care proxy and any trusts.

Reference: Next Avenue (Dec. 18, 2019) “Preparing for the Unexpected Death of a Spouse”

What Does the Movie “Knives Out” Teach Us About Estate Planning?

“One of the most dramatic scenes in the movie, is the gathering of the Thrombey Family at their father’s estate to hear the reading of the will.”

One of the recent surprise hit movies has been the murder mystery Knives Out, with a star-studded cast that includes Jamie Lee Curtis, Daniel Craig and Chris Evans.

Forbes’s recent article “What The Movie ‘Knives Out’ Gets Right (And Wrong) About Estate Planning,” says that the crux of the story is a topic most Americans wouldn’t find exciting–the world of estate planning, unless the estate planning involves the wealthy. Spoiler Alert: there are spoilers below!

In the movie, the patriarch of a wealthy family, Harlan Thrombey (Christopher Plummer) is found dead. Just before his death, he changed his estate plan. The movie takes viewers through some twists and turns to see who might be responsible for his death. However, there are also some key scenes that address estate planning concepts, such as contesting a will, undue influence and the slayer statute. These are issues moviegoers might want to know about for their own estate plans.

One of the most dramatic scenes in the movie is the gathering of the family at their father’s home for the reading of the will. In a library, the attorney sits behind the patriarch’s desk and reads the document. The importance of this scene is highlighted, when Daniel Craig’s character explains that the will reading is really a performance of “a tax return by a community theater.”

However, the filmmakers have taken some liberties because the “reading of the will” doesn’t actually happen in real life. It’s a dramatic and pivotal scene in the movie, but don’t expect it when someone dies. Although the reading of the will is also more fiction than fact, there are some things are very real in the estate planning world.

When things don’t go well for the Thrombey children in their father’s estate plan, the family immediately thinks about contesting the will. This has become increasingly common because of an increased willingness by people to challenge estate plans. This is due in part to us living longer.  Frequently estate plans aren’t updated to address changes in the family. In cases where the testator has dementia or is otherwise incapacitated, there is also a chance of undue influence. The usual result of a contested will is some type of settlement.

Again, a common claim in a will challenge is for undue influence. In the movie, when Marta the caretaker becomes the sole beneficiary, this concept is bandied about by the Thrombeys when talking about a will contest. Undue influence is a legal concept that can be used to invalidate a will, trust, or legal instrument. It occurs when a vulnerable individual is persuaded to change his or her estate plan, and the persuasion and influence rise to the level where the victim is unable to freely exercise his or her independent will.

In the film when undue influence fails, the Thrombey family turns to the concept of the “slayer statute.” This law stipulates that a person can’t inherit, if they intentionally killed the deceased. While this concept makes for good filmmaking, it’s an actual premise in estate law.

The movie Knives Out gets a lot right about estate planning correct, such as will contests, undue influence and slayer statutes. So, enjoy the picture!

Reference: Forbes (December 18, 2019) “What The Movie ‘Knives Out’ Gets Right (And Wrong) About Estate Planning”

Start the New Year with Estate Planning To-Do’s

“Every estate plan should bring you peace of mind, but much more than that, an estate plan is one of the best gifts you can give your loved ones.”

Families who wish their loved ones had not created an estate plan are far and few between. However, the number of families who have had to experience extra pain, unnecessary expenses and even family battles because of a lack of estate planning are many. While there are a number of aspects to an estate plan that take some time to accomplish, The Daily Sentinel recommends that readers tackle these tasks in the article “Consider These Items As Part of Your Year-End Plan.”

Review and update any beneficiary designations. This is one of the simplest parts of any estate plan to fix. Most people think that what’s in their will controls how all of their assets are distributed, but this is not true. Accounts with beneficiary designations—like life insurance policies, retirement accounts, and some bank accounts—are controlled by the beneficiary designation and not the will.

Proceeds from these assets are based on the instructions you have given to the institution, and not what your will or a trust directs. This is also true for real estate that is held in JTWROS (Joint Tenancy with Right of Survivorship) and any real property transferred through the use of a beneficiary deed. The start of a new year is the time to make sure that any assets with a beneficiary designation are aligned with your estate plan.

Take some time to speak with the people you have named as your agent, personal representative or successor trustee. These people will be managing all or a portion of your estate. Make sure they remember that they agreed to take on this responsibility. Make sure they have a copy of any relevant documents and ask if they have any questions.

Locate your original estate planning documents. When was the last time they were reviewed? New laws, and most recently the SECURE Act, may require a revision of many wills, especially if you own a large IRA. You’ll also want to let your executor know where your original will can be found. The probate court, which will review your will, prefers an original. A will can be probated without the original, but there will be more costs involved and it may require a few additional steps. Your will should be kept in a secure, fire and water-safe location. If you keep copies at home, make a note on the document as to where the original can be found.

Create an inventory of your online accounts and login data for each one. Most people open a new account practically every month, so keep track. That should include email, personal photos, social media and any financial accounts. This information also needs to be stored in a safe place. Your estate planning document file would be the logical place for this information but remember to update it when changing any information, like your password.

If you have a medical power of attorney and advance directive, ask your primary care physician if they have a means of keeping these documents, and explain how you wish the instructions on the documents to be carried out. If you don’t have these documents, make them part of your estate plan review process.

A cover letter to your executor and family that contains complete contact information for the various professionals—legal, financial, and medical—will be a help in the case of an unexpected event.

Remember that life is always changing, and the same estate plan that worked so well ten years ago, may be out of date now. Speak with an experienced estate planning attorney in your state who can help you create a plan to protect yourself and your loved ones.

Reference: The Daily Sentinel (Dec. 28, 2019) “Consider These Items As Part of Your Year-End Plan”

If You Plan to Retire This Year, Be Prepared

“Many people are looking forward to 2020, simply because it's the start of a new decade. However, if you plan to retire in 2020, then you clearly have your own set of reasons to get excited for the year ahead.”

If you’re sure that you are going to leave the working world and start your retirement life in 2020, better not put in your notice at work until you’ve done your homework. The Motley Fool article “Retiring in 2020? 3 Things You Need to Know” covers three important steps.

If you were born in 1958, then this is the year you celebrate your 62^nd birthday—which means you are eligible to collect Social Security. However, if you do, your benefits will be reduced as you have not yet reached your “Full Retirement Age” or FRA. People born in 1958 need to be 66 and eight months to reach that important milestone. At that point, you can collect your full benefit. Collect earlier, and your monthly benefit is reduced for the rest of your life.

Born in 1954 or earlier? Full retirement age for you is 66, if you were born between 1943 and 1954. If if you were born at the tail end of this range, then you can collect your full Social Security benefit this year. However, it still may pay to hold off on claiming benefits.

The longer you can delay tapping your Social Security benefits, the better. From the time you reach your FRA until age 70, your monthly benefit grows by about 8% each year. Few investments today have that kind of guaranteed yield. Some advisors recommend tapping retirement accounts first and delaying Social Security benefits as long as possible. It’s worth taking a closer look to see how this can be of benefit.

If you are planning to retire, but you’re not 65, you’ll need to find and pay for health insurance until you celebrate your 65^th birthday. You can enroll in Medicare a few months before your 65^th birthday, but if you’re 62, then you have a three-year health insurance gap. Private health insurance is extremely expensive, there’s no way around it. Before putting in that letter to HR that you’re retiring, get some real numbers on this cost. If your employer will consider having you work part-time so that you can maintain your employer-covered health insurance, it may be a good idea.

If you’re closer to age 65, then COBRA is a consideration, although it may still be expensive. Typically, COBRA allows you to retain your existing health coverage if you change jobs, or are fired, for a certain amount of time. However, you have to pay for the full cost of health coverage.

If your gap is only three months, then COBRA might make sense. However, if your gap is a year or more, then you need to be realistic about health coverage options. Pre-existing conditions and a limited marketplace for individual coverage may make this the reason you keep working until 65. You should also check the rules of going from COBRA to Medicare—they may not be the same as going from an employee plan to Medicare.

The more prepared you are for retirement, the more you’ll be able to relax and enjoy this new phase of your life. If these three points have made it clear that you’re not yet able to retire, understand that it is better to work a little longer to reach your eventual goal of retirement, then to find yourself struggling to pay bills and jeopardize a lifetime of savings because of unexpected expenses.

Reference: The Motley Fool (Dec. 28, 2019) “Retiring in 2020? 3 Things You Need to Know”

Retirement and Estate Planning Work Better Together

“Even if you and your spouse have worked out the kinks in your day-to-day money habits, it’s important to reexamine the big picture.”

So, you’ve been married for a while, and you’re both comfortable with which bank accounts, credit cards and investment accounts are shared and which other accounts are kept separate. However, where the big picture is concerned—like coordinating retirement plans, health coverage and tax planning—you both need to take an active role in planning and making good decisions. In fact, says the article “Couples and Money: When Together is Better” from Kiplinger, the decisions that work well for you as individuals may not be so hot, when they are looked at from a couple’s perspective.

Here’s an example. A man is working at a firm that doesn’t offer a match for his 401(k) contributions, but his wife’s employer does. Instead of contributing to his 401(k) plan, he uses the money to pay off a HELOC (Home Equity Line of Credit) that the couple had taken together to do some upgrades on their home. She contributes enough to her own 401(k) to get her company’s match every year. The goal is to cut their debt and save as much as possible. This worked at that time in the couple’s life.

Ten years later, they are both maxing out their 401(k) savings and working to build short-term savings to send kids to college through the use of 529 College Savings Accounts.

Retirement accounts can never be jointly owned. However, some couples fall into a trap of saving for themselves without considering the overall household. Dual earning couples often run into trouble, when one has a workplace plan and the other does not. The spouse with the workplace plan isn’t thinking that he or she needs to save enough for two people to retire. With two incomes, you might think that both are making retirement a savings priority, but without a 401(k) plan, it’s possible that only one person is saving and only saving enough for themselves.

A general recommendation is that both members of a couple save between 10-15% of their household earnings, rather than their personal earnings, in retirement accounts. Couples should review their respective retirement plans together and plan together. If one has a more generous match, access to a Roth option, or better investment opportunities, they should consider how much the person with the better plan should save.

Couples also need to examine other financial aspects of their lives. Coordinating retirement benefits, reviewing life insurance policies, planning a coordinated strategy for taking Social Security and making informed choices about health care coverage can make a big difference in the family’s financial well-being.

Equally important: making sure that an estate plan is in place. That includes a will that names a guardian for any minor children, a health care proxy and a financial power of attorney. Depending upon the family’s circumstances, that may include trusts or other wealth transfer strategies.

Reference: Kiplinger (Dec. 23, 2019) “Couples and Money: When Together is Better”