Estate Planning Blog Articles

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Does New COVID Relief Bill have an Impact on Seniors?

Money Talk News’ recent article entitled “6 Ways the New COVID-19 Relief Law Affects Retirees” provides a look at some of the changes retirees can expect from the new legislation.

  1. Stimulus payments for dependent adults. A first noticeable way in which the third round of stimulus payments is different from the first two is that dependents of all ages can qualify. Therefore, a household that supports a disabled senior will receive an additional $1,400 payment for that senior, if the household claims the person as a dependent on their federal income tax.
  2. Funding for ailing pension plans. The American Rescue Plan Act includes several terms concerning pension plans, one of which calls for the Treasury Department to transfer funds to the Pension Benefit Guaranty Corp. so that certain financially troubled multiemployer pensions can continue to pay out full benefits. That will help more than one million Americans. The PBGC operates insurance programs for single-employer and multiemployer pensions.
  3. Eligibility for the earned income credit for 2021. One of several changes the legislation made to the earned income tax credit — which is for working taxpayers with low to moderate incomes — is striking the maximum age of 64 for the 2021 tax year. As a result, seniors who work may be eligible to claim the earned income credit, when they file their taxes in 2022. The usual eligibility requirements for the credit require you to have at least one qualifying child or, if you don’t have a qualifying child, you must be between 25 and 65.
  4. Higher taxes for some gig workers. However, this COVID-19 relief law isn’t all good news for all taxpayers. Retirees (and anyone else) who earn some extra money with gig work might face more taxes in the future. This will help offset the cost of the American Rescue Plan Act, generating an estimated $8.4 billion in additional tax revenue for the federal government through fiscal year 2031. Companies with gig workers may report more payments than in the past, so the IRS will have a better idea of who is earning income from gig-economy jobs. This change may come as a surprise for some who’ve underreported income in the past.
  5. Tax relief for forgiven student loans. Under the Act, student loan debt that’s forgiven in 2021 through 2025 can be excluded from the debtor’s gross income. That will shield the canceled debt from federal taxation. Prior to this, such canceled debt generally was considered taxable income by the IRS. This will apply to student loan debtors of all ages. However, that group includes a growing number of retirees, as 20% of all student loan debt — around $290 billion — is owed by people age 50 and older, according to a 2019 AARP report. That’s five times more since 2004.
  6. New or expanded tax credits for health premiums. Retirees who aren’t yet 65 and as a result don’t have Medicare health insurance, might benefit from tax credits in the Act that help eligible individuals with two other types of health insurance. The law creates a refundable, advanceable tax credit for COBRA continuation coverage premiums. It is for people who are eligible for COBRA from when the Act was signed into law (March 11) and Sept. 30, 2021.

Reference: Money Talk News (March 16, 2021) “6 Ways the New COVID-19 Relief Law Affects Retirees”

delay claiming social security

Should I Delay in Claiming Social Security?

Kiplinger’s recent article entitled “Waiting to File for Social Security Benefits Is Hard, but Payoff Is Sweet” asks you to imagine if, when you were a child, your mom baked your favorite pie and made you an offer. She could serve you a piece of pie right then and let you eat it. Alternatively, if you waited until after dinner, you’d get a bigger slice. Or, if you could wait until bedtime, your piece would be even larger. And not just that day, but for the rest of your life.

Every time you had pie for dessert, the size of your piece would be based on the decision you made that one day.

There are many justifications for taking the smaller piece of pie right away, when offered. Many people want to begin their retirement as soon as possible, and they want or need the Social Security income to do so. Some want to claim their benefits and invest the money to further grow their nest egg. Many people are concerned that the Social Security trust fund will be depleted before they get their share. Finally, there are some who just aren’t aware of how much bigger their monthly payment could be if they waited.

While you can get your benefits as early as 62, that choice, can mean a permanent reduction in benefits of up to 30% less than what you could receive by filing at your full retirement age (FRA). Retirees who file after their FRA receive a delayed retirement credit of 8% per year until they turn 70.

Admittedly, eight years (from 62 to 70) is a long time to wait to tap into this significant income stream. Most seniors would jump at the chance for more money, particularly as many baby boomers face these challenges that could put even the best-laid income plans to the test in retirement:

Longevity. The longer you live, the greater the chance that your savings will have to endure multiple financial storms, such as increased taxes, inflation and costly health care issues as you get older. The Social Security Administration estimates that the average 62-year-old woman born in 1958 can expect to live another 23½ years, and a man with the same birthdate can expect to live another 20⅔ years. That’s a long time to have to make your money last. However, if you maximize your Social Security benefits by earning delayed retirement credits, you’ll always have that guaranteed income.

Low interest rates. In the current low-interest environment, the return on “safe” investments, such as CDs, bonds, and money market accounts, won’t protect you from inflation. Thus, one of the best investments that retirees can make right now isn’t really an investment at all, but rather it’s growing their Social Security payments by delaying to take them.

Decline in employer pensions. The retirement savings system in the United States traditionally has been built on three pillars: Social Security, a workplace pension and individual savings. However, over the past two decades, many employers have stopped offering pensions. As a result, the full responsibility for retirement investing has been shifting to employees with defined contribution plans. However, 40.2% of older Americans now depend on Social Security alone for income in retirement. Only 6.8% receive income from a defined benefit pension, a defined contribution plan, and Social Security. Fidelity Investments also reports that the median 401(k) balance in the first half of 2019 was $62,000 for savers in the 60 to 69 age group.

Ask an elder law attorney who practices in Social Security matters to help you make some calculations to determine your “break-even” age, which is when you’d come out ahead by waiting instead of claiming early. If you haven’t already, sign up with the Social Security Administration to get an estimate of your retirement benefits at 62, 67, and 70, using their online benefits calculator.

If your objective is to land the biggest possible piece of pie — and you can manage it — waiting is the name of the game.

Reference: Kiplinger (Oct. 21, 2020) “Waiting to File for Social Security Benefits Is Hard, but Payoff Is Sweet”

estate plan audit

Does My Estate Plan Need an Audit?

You should have an estate plan because every state has statutes that describe how your assets are managed, and who benefits if you don’t have a will. Most people want to have more say about who and how their assets are managed, so they draft estate planning documents that match their objectives.

Forbes’ recent article entitled “Auditing Your Estate Plan” says the first question is what are your estate planning objectives? Almost everyone wants to have financial security and the satisfaction of knowing how their assets will be properly managed. Therefore, these are often the most common objectives. However, some people also want to also promote the financial and personal growth of their families, provide for social and cultural objectives by giving to charity and other goals. To help you with deciding on your objectives and priorities, here are some of the most common objectives:

  • Making sure a surviving spouse or family is financially OK
  • Providing for others
  • Providing now for your children and later
  • Saving now on income taxes
  • Saving on estate and gift taxes in the future
  • Donating to charity
  • Having a trusted agency manage my assets, if I am incapacitated
  • Having money for my children’s education
  • Having retirement income; and
  • Shielding my assets from creditors.

Speak with an experienced estate planning attorney about the way in which you should handle your assets. If your plan doesn’t meet your objectives, your estate plan should be revised. This will include a review of your will, trusts, powers of attorney, healthcare proxies, beneficiary designation forms and real property titles.

Note that joint accounts, pay on death (POD) accounts, retirement accounts, life insurance policies, annuities and other assets will transfer to your heirs by the way you designate your beneficiaries on those accounts. Any assets in a trust won’t go through probate. “Irrevocable” trusts may protect assets from the claims of creditors and possibly long-term care costs, if properly drafted and funded.

Another question is what happens in the event you become mentally or physically incapacitated and who will see to your financial and medical affairs. Use a power of attorney to name a person to act as your agent in these situations.

If, after your audit, you find that your plans need to be revised, follow these steps:

  1. Work with an experienced estate planning attorney to create a plan based on your objectives
  2. Draft and execute a will and other estate planning documents customized to your plan
  3. Correctly title your assets and complete your beneficiary designations
  4. Create and fund trusts
  5. Draft and sign powers of attorney, in the event of your incapacity
  6. Draft and sign documents for ownership interest in businesses, intellectual property, artwork and real estate
  7. Discuss the consequences of implementing your plan with an experienced estate planning attorney; and
  8. Review your plan regularly.

Reference: Forbes (Sep. 23, 2020) “Auditing Your Estate Plan”

early retirement

Should I Take the Early Retirement Package Offered at My Job?

As tempting as an early retirement package sounds, it’s a decision that should be made only after analyzing it carefully. What the early retirement decision boils down to is: “Can I afford to do it?”

AARP’s recent article entitled “What to Consider When You’re Offered an Early Retirement Package” explains that many early retirement packages include salary severance (such as receiving one or two weeks’ pay for each year of service); extended health insurance coverage and a pension-related payout.

However, just because you’re offered an early retirement package, it doesn’t mean you have to retire if you take it.

The first question is whether you’d consider working after taking your company’s early retirement offer. Taking a voluntary buyout when you plan to keep working is a different decision, than if you’re considering retirement. If you have a new job and will still be collecting a paycheck after the buyout, you might save some of that cash.

The analysis is more difficult when your future job prospects are poor, or you’re planning on using the voluntary buyout as retirement funds.

The older you are — and the nearer that the offer is to your planned retirement date — the better. If you are 63½ when you get a buyout offer, if you have enough savings, a well-stocked 401(k) or IRA retirement plan and no large debts, you’d be “within the window” to take the buyout. The reason is that you’re only 18 months from being eligible for Medicare health insurance at age 65. The Consolidated Omnibus Budget Reconciliation Act (COBRA) allows workers to continue their employer-based health coverage for up to 18 months. This applies even if the termination is involuntary. Most early retirement packages offer COBRA benefits. You’ll have to pay for COBRA, but it will be a bridge to age 65 when your Medicare coverage begins. See if you can get coverage by joining your spouse’s plan, if he or she is employed and has a plan at work. You can also shop for your own private plan through the federal government-run Health Insurance Marketplace. However, don’t attempt to go without health care because you’ll need it.

You’ll need money in retirement to pay your monthly bills. Therefore, you should do an expense audit and figure out what your monthly costs are now and what they’ll be in the future. Based on the expense audit, see if you’ve got enough income or assets to cover your budget.

Look at whether the buyout terms are attractive enough to let you to leave your job and bridge the income gap, until retirement age of 65 or you get a new job. If it doesn’t, you might be better off not taking it. A severance payment of six months to a year might give you enough time to find a new job, but for most, a month or two of severance won’t be enough.

Reference: AARP (Aug. 28, 2020) “What to Consider When You’re Offered an Early Retirement Package”

covid death without a will

What If Grandma Didn’t Have a Will and Died from COVID-19?

The latest report shows about 1.87 million reported cases and at least 108,000 COVID-19-related deaths were reported in the U.S., according to data released by Johns Hopkins University and Medicine.

Here’s a question that is being asked a lot these days: What happens if someone dies “intestate,” or without having established a will or estate plans?

If you die without a will in California and many other states, your assets will go to your closest relatives under state “intestate succession” statutes.

Yahoo Finance’s recent article entitled “My loved one died without a will – now what?” explains that there are laws in each state that will dictate what happens, if you die without a will.

In Pennsylvania, the laws list the order of who receives upon your death, if you die without a will: your spouse, your children, and then your parents (if still alive), your siblings, and then on down the line to cousins, aunts and uncles, and the like. Typically, first on every state’s list is the spouse and the children.

You may also have some valuable assets that will not pass via your will and aren’t affected by your state’s intestate succession laws. Here are some of the common ones:

  • Any property that you’ve transferred to a living trust
  • Your life insurance proceeds
  • Funds in an IRA, 401(k), or other retirement accounts
  • Any securities held in a transfer-on-death account
  • A payable-on-death bank account
  • Your vehicles held by transfer-on-death registration; or
  • Property you own with someone else in joint tenancy or as community property with the right of survivorship.

These types of assets will pass to the surviving co-owner or to the beneficiary you named, whether or not you have a will.

It’s quite unusual for the government to claim a deceased person’s estate. While it might be allowed in some states, it’s considered a last resort. Typically, we all have some relatives.

If you have a loved one who has died without a will, speak with an experienced estate planning attorney about your next steps.

Reference: Yahoo Finance (June 1, 2020) “My loved one died without a will – now what?

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