Salt Lake City Estate Planning

Look at ABLE Accounts for Those with Special Needs

Parents of children with special needs can anticipate a seven-figure bill to cover the cost of lifetime care. It’s not impossible to come up with that cash, if families know how to plan.

CNBC’s recent article, “It can take millions to care for your special needs child. Here's how to do it,” explains how one family needed $3 million to cover the cost of lifetime care for their 23-year-old son who has autism. The family drafted a special needs trust and funded it with life insurance to ensure that they’d provide for him after they’re gone. That's one strategy for families to help cover the cost of  supporting their kids, while preserving benefits from Supplemental Security Income (SSI) and Medicaid.

Another option is an ABLE account. It’s a tax-advantaged savings account for disabled individuals created in 2014 as part of the Achieving a Better Life Experience (ABLE) Act. A plan can include both a special needs trust and an ABLE account.

SSI and Medicaid are critical in special needs planning. However, disabled individuals are subject to "means testing" to receive those benefits. Individuals with more than $2,000 in assets and couples with more than $3,000 don't qualify for the SSI program. A special needs trust can help them work with this requirement. A third-party special needs trust or a “supplemental needs trust” is created by family members and funded with assets that aren't owned by the disabled person. This can be life insurance and other property. These assets don't belong to the beneficiary, so they can go to other family members or to charity after his or her death, instead of going toward Medicaid reimbursement.

An experienced lawyer who is knowledgeable about Special Needs planning should draft this and other related documents. You’ll also need a trustee to administer the funds and an accountant or tax attorney to file the trust's income tax return.

ABLE accounts let families save money for a beneficiary and have it grow on a tax-deferred basis. Distributions are tax-free, if they’re used for qualified disability expenses. Beneficiaries must have been diagnosed with a qualifying disability by age 26.

ABLE accounts can receive up to $14,000 a year in total annual contributions, but for the beneficiary to remain qualified for government benefits, the ABLE account's balance can’t exceed $100,000.

When the beneficiary dies, Medicaid can file a claim for repayment of benefits.  However, before that, the remaining balance of the account can be used by the estate to pay for any outstanding qualified expenses, like funeral and burial costs.

Accounts through ABLEnow (a savings plan offered in Virginia) don't have an enrollment fee and aren't subject to minimum contribution requirements. Savers with less than $10,000 in the account will have a monthly service fee of $3.25 through ABLEnow. There are asset-based fees from 0.37 to 0.40% that apply, if you choose investments.

Reference: CNBC (June 2, 2017) “It can take millions to care for your special needs child. Here's how to do it”

For questions about Special Need Trusts or ABLE Accounts, contact our office through our website, or at 801-438-7120 to set up a free consultation.

 

Do-It-Yourself Estate Planning is a Recipe for Disaster

We’re all looking for a deal. No one wants to pay retail. After all, that’s why there are so many big box hardware stores and YouTube videos that try to teach you how to do things for yourself. You save the expense of hiring a professional to do the job for you. Many folks think the same can be said for estate planning.

They may have a broad idea of estate planning and are intent on doing it for themselves without paying for legal services. However, this usually is a bad idea. A teacher or a firefighter won’t have the background and knowledge required to draft the documents that cover their specific circumstances and the requirements of current probate and tax laws.

The Sabetha Herald notes in its recent article, “Estate Planning pitfalls,” that a DIY-er can make many mistakes. The article points out several of them.

The first issue is having an outdated estate plan, especially a will that has not be updated to reflect that your children are now married and have children of their own. Perhaps you’ve divorced and remarried. Review your estate plan regularly, at least every four years. If you want to revise your will, you can’t just cross out a part of an old will or simply add information and initial the document. You need to go through the same validation process as a new will.

Another mistake is not coordinating a will and a trust. They should be aligned, so your wishes will be carried out. Along the same lines, many people don’t title their assets correctly and don’t update beneficiary designations on IRAs, 401(k)s, company plans and other accounts.

Failing to name successor or contingent beneficiaries is a common mistake. If you name just one beneficiary on an account and he or she dies, then there’d be no successor to receive the account’s assets. The assets could then go to a person you didn’t want to have them, or they could end up in your probate estate.

A major mistake is not designating an individual to make your healthcare decisions, in the event you become incapacitated. These are known as living wills, medical directives, health care proxies or advance health care directives. A related mistake is relying on an outdated financial power of attorney. Your circumstances or your relationship with that person may have changed, since you signed the document.

Many people don’t think about Medicaid. They wait too long to plan for the costs of nursing home or other long-term care, and then try to apply for Medicaid. This should be addressed long before a person nears the time when such care may be needed.

Finally, many people think that estate taxes won’t apply to them.  However, many states have their own estate taxes with lower thresholds than the federal estate tax.

To consult with an experienced estate planning attorney to minimize state taxes, ensure that your assets are titled correctly and to be certain you have a complete estate plan in place for your heirs, contact us through our website or at 801-438-7120.

Reference: Sabetha (KS) Herald (June 2, 2017) “Estate Planning pitfalls”

Broaching the Pre-Nup Discussion

While there are many things to worry about when your wedding approaches, a conversation about a pre-nup may be the most stressful. Who wants to talk about how you'll divide your assets, if you divorce while planning a joyous occasion?

Brides magazine recently posted an article, “Here's How to Start That Prenup Conversation,” that provides some tips to help get that conversation started.

It’s best to try to have a productive conversation about a pre-nup, by positioning it in the right light. There’s so much negative emotional energy surrounding the idea of a premarital agreement. However, you can begin by asking your fiancé about how you'll address your finances in marriage, like investing and joint banking accounts. This can put it all in a more positive light. Think of a premarital agreement as a financial planning tool to help you have discussions about what your finances will be like during your marriage.

With that in mind, you can approach it as working to prevent a divorce, not preparing for what things will look like when you get divorced. Talk about a pre-nup in terms of fears and goals, so that when you and your fiancé understand the rationales of the request for a pre-nup, it’s generally more accepted and less emotional.

You should also talk with an experienced estate planning attorney and see how your state law applies to your marriage in the event of a divorce. A pre-nup allows you to discuss and draft an agreement that’s focused on both spouses. Find out from your attorney what protections you’d have under state law, and make sure that they're included.

Don’t treat a pre-nup as an ultimatum—telling your fiancé that he or she must sign or you won't get married is not the way to start a marriage.  You should instead begin your discussions with your attorneys many months before your wedding, which will allow time for negotiation and reflection. Your attorney can help you understand the document and explain why it can be valuable. This can create transparency concerning how you’ll handle future finances, accounts, home ownership and investments.

It best to begin discussions early, instead of waiting until you're frenzied or just plain too busy with wedding planning.

Reference: Brides (June 2, 2017) “Here's How to Start That Prenup Conversation”

Are you getting married and need a pre-nup? Contact our office through our website or at 801-438-7120 for a free consultation.

Estate Planning Issues for Marriage #2

When you are married a second time, the complications and challenges of blended families can really grow, says Forbes’ recent article, “Second Marriage and Estate Planning: 5 Things You May Not Have Considered.” That story provides some financial, legal, and estate planning issues to consider, including:

Expenses and ownership. Commingled income and assets may be at risk,  since many remarried couples set up joint accounts to pay for living expenses. Keeping money separate may be crucial, if you’re still financially entangled with your ex. Remember that divorce decrees do not necessarily bind creditors. As a result, an ex’s default could leave you responsible for an old debt.

Community Property and Common Law. Make sure that you understand the implications if you reside in a community property state. In those jurisdictions, the assets you bring to the marriage or receive individually will stay yours. However, what you earn or acquire during the marriage is owned equally by both spouses. This can be compared with a common law state. In those states, titles, registrations, or ownership documents control ownership. If you have property in another state, you may need to consider both scenarios. These differences in state property laws show how important it is to work with an experienced estate planning attorney.

Remarriage. If your spouse gets remarried after you pass away, the assets can become commingled. A good option in this situation is a trust to protect assets for each spouse's children, if that is your wish.

Inheritance. Consider what would happen to inheritances for the children of the first spouse to die. Would they be required to wait for the second spouse to die? The best answer is a trust that can give specific instructions in that scenario. If you die before your new spouse, and you own assets jointly, it may effectively disinherit your children from a prior marriage. It may not be your intent, but your new spouse will have the authority to decide who inherits any jointly-owned assets.

Use of the home. When you are in a blended family, you must determine whether the surviving spouse will be allowed to live in the home and for how long. One option is to place the home in a trust for the benefit of the surviving spouse.

Finally, if you created your estate plan before your second marriage, be sure to modify that plan to account for your new family. An estate planning attorney will be able to help you determine the best way to protect your new spouse and your children from any prior marriages.

Reference: Forbes (June 2, 2017) “Second Marriage and Estate Planning: 5 Things You May Not Have Considered”

For assistance with Second Marriage and Estate Planning, including drafting of prenuptial agreements, contact our office through our website or at 801-438-7120. 

Estate Planning 101: The Basics

Estate planning is a process in which a person details how their money and other assets should be managed during life and after their death.

WMUR’s recent article, “Money Matters: Importance of estate planning,” starts with some basics. An estate includes all of the property that you own.  It is the outright ownership or ownership you share with someone else, like your home, bank accounts, investments and heirlooms. Managing these assets through all of your life events is the objective. Even if you’re incapacitated, you have a plan in place so your finances are supervised. Along those lines, is determining the type of medical care you want to receive, if you can’t communicate those wishes. This is done with a healthcare directive.

Here are a few other items that you need to consider with the help of a qualified estate planning attorney:

Financial plan. You should have a firm grasp of your finances and your family situation.

Will. The key document that all plans should contain. A will spells out the property you wish to leave to family, friends, and organizations. You should also name a personal representative to manage the probate process.

Guardianship. Your will should also designate guardians for your minor children, so you can say who will rear your children, if you and your spouse both die.

Directives. This includes durable powers of attorney for finances and health care. You can name individuals who you trust to take handle your finances and make health care decisions, if you’re unable to do so. Without these documents in place, the court will appoint someone to manage your finances. This could be someone who is unfamiliar with you and your situation.

Trusts. A trust lets funds be managed by a person or group for the benefit of others, pursuant to the instructions in the trust document. Blended families, families that include children with special needs, and situations where control over the funds for an extended period is needed, are all potential scenarios for a trust.

Beneficiary Designations. Life insurance proceeds and retirement accounts will pass via beneficiary designations, so these should be current and aligned with your estate plan.

Funeral plans. You can leave specific instructions about your final arrangements, such as being buried or cremated, as well as electing to donate your organs.

Creating an estate plan can give you peace of mind. Your family will also be relieved of the stress that comes with making choices when they don’t know your wishes. If you fail to create an estate plan and have no documents, the state will provide a plan for you.  However, it might something you would not like.

Review your plans periodically and work with a qualified estate planning attorney.

Reference: WMUR (June 1, 2017 “Money Matters: Importance of estate planning”

Our office specializes in estate planning and we would be happy to help you design yours. Contact us at 801-438-7120 or through our website to set up a free consultation.

Which Type of IRA Should I Choose?

A big decision for retirement savers is whether to invest with a traditional IRA or a Roth IRA. Both have pluses and minuses, and both can play a feature role in your overall retirement planning. Motley Fool’s recent article asks “Which IRA Is Best for Me -- Traditional or Roth?” It recommends that you review these factors to figure out which IRA is better for you.

The most significant difference between traditional IRAs and Roth IRAs is how they are taxed. Traditional IRAs typically tax up-front with a deduction on the amount contributed. This means that there is an immediate tax savings in the year in which you make the traditional IRA contribution. Roth IRAs don't have an up-front tax deduction, so you must use after-tax money to make your contributions.

However, in retirement, the tax benefits are flipped: traditional IRAs aren't as great in retirement, because you have to add any withdrawals to your taxable income when you take them. But Roth IRA withdrawals are usually tax-free, creating no impact on your taxes in retirement.

Forced withdrawals in retirement. Another difference is how they address required minimum distributions (RMDs). Traditional IRAs typically require withdrawals as soon as you reach age 70½, with the amount based on your life expectancy. If you don't take these withdrawals, you'll owe the IRS a penalty of 50% of the amount you should’ve withdrawn! Roth IRAs don't have this requirement, so you can keep money in the Roth as long as you’d like. That can be useful if you're using your retirement account assets for estate planning. Stretch IRA strategies can extend the tax-free treatment of Roth IRAs for generations after your death.

Income prevents you from having the IRA you want. Income limits prevent taxpayers from making contributions to a Roth IRA, and a phase-out exists in which you can contribute only a portion of the maximum that most savers can contribute. In 2017, it’s $5,500 for those under age 50 or $6,500 for those 50 or older. Here are the income limits.

Filing Status	Contributions are reduced if income is above this amount...	…and contributions are not allowed if income exceeds this amount…
Single, head of household, or married filing separately if you didn't live with your spouse during the year	$118,000	$133,000
Married filing jointly or qualifying widow or widower	$186,000	$196,000
Married filing separately if you lived with your spouse at any point during the year	$0	$10,000

Source: IRS.

There's no income limit on contributions for traditional IRAs, so you can deposit the full contribution amount. But you may not be able to deduct your contributions from your taxable income, if you or your spouse is covered by an employer-sponsored retirement plan at work. Here are the income limits:

Filing Status	Limits If You're Covered	Limits if Your Spouse is Covered but You're Not Covered
Single or Head of Household	$62,000 to $72,000	N/A
Married Filing Jointly	$99,000 to $119,000	$186,000 to $196,000
Married Filing Separately	$0 to $10,000	$0 to $10,000

Source: IRS.

To pay the least amount of tax possible, try to see if your current tax rate is higher or lower than what your tax rate will be in retirement. It’s not easy to guess, especially if retirement is years away.

Those in low tax brackets now should look at Roths, because the deduction from a traditional IRA isn't worth much for low-bracket taxpayers. On the other hand, people in high brackets can benefit from a deduction now and should look more closely at traditional IRAs.

Reference:  Motley Fool (May 29, 2017) “Which IRA Is Best for Me -- Traditional or Roth?”

For Tax-Planning Questions or for a referral to a financial advisor, contact our office at 801-438-7120.

The Three P’s of Estate Planning

With the change of seasons after Memorial Day, it’s the unofficial day that kicks off the beginning of summer. We all like to spend time outdoors, but a recent article from the Middletown, NY Times Herald-Record, “After Memorial Day, think about your estate plan,” says it’s important to think about these “what if” scenarios:

What if you die unexpectedly?

How will he be remembered?

Will she be memorialized by her family?

What about future generations?

Will they know the legacy of their grandparents?

Many folks, regrettably, do little or nothing about their estate plan. We can group these individuals’ excuses into three common reasons called “Three Ps:” Procrastination, Pitfalls and Paralysis.

Procrastination

That’s the practice of delaying until tomorrow what needs to be done today. This is especially common when we’re talking about thinking about and planning for your own death. It’s easier to say to yourself, “There’ll be plenty of time to do it later.”

Pitfalls

These are the issues and obstacles that keep you from moving ahead. This includes thinking that estate planning is just for the very wealthy and that the main reason for creating an estate plan is to reduce your estate taxes. This is not true. Estate planning provides an organized transfer of your assets to your loved ones and heirs.

Paralysis

This happens when we’re confused. We don’t even try to figure out what needs to be done. For example, young couples can’t decide who to name as the guardian for their children, if they were to die. Therefore, they do nothing. Nothing is the wrong option in estate planning, especially when it involves the future of your children.

Did you see yourself in any of the Three P’s? If you do, contact an experienced estate planning attorney to discuss your situation.

Reference: (Middletown, NY) Times Herald-Record (May 27, 2017) “After Memorial Day, think about your estate plan”

Don’t Let Your Tax Shelter Become a Tax Nightmare

“Your 401(k), 403(b) and IRA: Tax Shelter or Tax Nightmare?” This is the title of a recent Kiplinger article that looks at the fiscal challenges facing our country. Since last year,  nearly every tax dollar that comes into the U.S. Treasury goes to pay for just four programs: Social Security, Medicare, Medicaid and interest on the national debt.

With more Baby Boomers retiring every day, they won’t be putting money into Social Security and Medicare. Instead, they’ll start taking money out. When they do, the costs for these four programs will skyrocket.

In the last several years, the percentage of tax dollars going to Medicare and Medicaid has increased. In 2016, 29.1% of every tax dollar went to cover health programs (such as Medicare and Medicaid), as opposed to just 20% of every tax dollar in 2012. Let’s look at where you may see changes and need to plan ahead.

Tax-Deferred Savings. Many retirees and pre-retirees have the majority of their savings in 401(k) and IRAs. Traditional accounts typically haven’t paid taxes. If you have the majority of your savings in one of those retirement accounts, remember that not all of that money is yours. The federal government can increase its share and reduce yours with new legislation in the tax code. Here are a few other things that the withdrawals from your 401(k), 403(b) and IRA accounts can impact:

• The government will tax every dollar that comes out at your highest tax bracket;
• Each distribution has the potential to move you into the higher tax bracket;
• Every dollar you withdraw may increase the tax you pay on your Social Security; and
• Each distribution can increase your exposure to the 3.8% surtax on investment income.

This means that you may need to include more of your Social Security benefits as taxable income, and your Medicare Part B premiums can increase. You also will have required minimum distributions, or RMDs, that begin at 70½. There are major penalties if you forget to withdraw funds.

Roth IRA Conversion as a Tax-Reduction Strategy. If you convert to a Roth IRA, you may protect your savings from a future tax increase by paying tax at today’s rates. With a Roth IRA, the distributions in retirement are tax-free (if you’re at least 59½ and have held your Roth account for at least five years). Therefore, they typically won’t impact other things tied to your income, such as taxable Social Security income and your Medicare Part B premiums or health insurance subsidies.

Roth IRAs also don’t have required minimum distributions during your lifetime. In retirement, you can take as much or as little as you want—you’re not forced to take anything at 70½ like with traditional IRAs or 401(k) plans. Your Roth IRA can continue to grow, tax-free, for your heirs. This a great vehicle for estate planning.

Reference: Kiplinger (May 2017) “Your 401(k), 403(b) and IRA: Tax Shelter or Tax Nightmare?”

For assistance with tax planning contact our office at 801-438-7120 for a consultation or a referral to a financial advisor.

How Much Will an Attorney Charge Me for a Trust?

NJ.com’s recent post asks “What does it cost to create a trust?” The article goes on to explain that there are too many factors involved with each person’s specific situation to provide a general answer about the cost of creating a trust. The attorney will need to know more about the type of trust a client wants and why they want it, before they can give an estimated cost.

The state Rules of Professional Conduct typically say that attorney fees must be reasonable—when taking into account factors such as the time and labor required, the novelty and difficulty of the issues involved and the skill required to perform the services. Attorneys may charge for estate planning services by the hour or a flat fee, again considering the specific client various factors. The fees aren’t determined by or related to the total value of the assets in the trust.

Those interested in a trust should ask the attorney about and understand the fee arrangement before signing an engagement letter to retain him or her. The written engagement letter will lay out how the fee for services is determined.

Creating a trust is complex, and it should be created to match the specific needs of the settlor (the individual who creates the trust) and beneficiaries (those who benefit from the trust).

A revocable trust can be amended or ended for whatever reason, but an irrevocable trust is more rigid and is difficult to amend or terminate. That trust must be prepared to allow for unforeseen circumstances and maximum flexibility.

Another type of trust is a testamentary trust. This trust is created in your will and is effective upon death for the benefit of a surviving spouse or minor children. It may be less expensive to establish than an intervivos trust, which is a trust created and effective during your lifetime, for a specific purpose or with more specific terms.

Trusts that are created to protect the beneficiaries who are receiving governmental assistance, such as a special needs trust or a Medicaid trust, must have exact language prepared by experienced attorneys in trust and estates law. As a result, a special needs trust may cost more to have prepared.

Given all the variables, it’s hard to have even a “ballpark” figure for the cost of a trust without knowing many details. An experienced estate planning attorney can provide you with a ballpark estimate after you relay some general information and prior to hiring him or her.

Reference: NJ.com (May 26, 2017) “What does it cost to create a trust?”

While the cost of estate planning varies, our consultation is free. Give us a call at 801-438-7120.

 

Common Mistakes in Legacy Planning

We’re all going to die one day. The legacy that you leave can either simplify the process of dealing with your personal and financial property, or it can be a tiresome burden for your loved ones.

Legacy planning is as crucial as your final wishes. Kiplinger’s recent offering, “Some of the Biggest Estate-Planning Mistakes People Make,” notes that it’s often the smallest things that can come back to haunt you. Here’s what you should discuss with an experienced estate planning attorney to help create and maintain your legacy and some of the common mistakes people make when planning (or not planning!) for their estates, when they die.

No see-through provision in a trust. A “see-through trust” is a trust that satisfies certain legal requirements and serves as the named beneficiary of an IRA. Thus, the IRS will “see through” the trust and treat the trust’s beneficiaries as if they were the IRA’s direct beneficiaries, and their life expectancies will be used to calculate the IRA’s required minimum distributions. A see-through provision also allows these distributions to be taxed at the individual beneficiary’s tax rate instead of that of the trust.

A schedule that’s blank or incomplete. These are attachments to the trust document that have crucial details about the trust, like the inventory sheet of the trust. This will spell out what assets have been transferred into the trust. All schedules must be complete and accurate—never blank! Work with your attorney to see that your trust actually owns the assets you intend for it to own.

POD/TOD accounts. POD is “payable on death,” and TOD means “transfer on death.” These designations permit the beneficiary to receive assets without probate. Bank accounts, including checking, money market, savings, and CDs should have POD and TOD instructions.

Too many accounts. The FDIC imposes a limit of $250,000 per depositor, per bank on the amount that it’ll insure, so you may want to consolidate your bank accounts if you have more than you actually need, so that you’re protected. If not, you may make your estate overly complex.

No inventory of assets. Even with a meticulous system with all the right documents, it’s to no avail if no one knows where they’re located when you die. Give your family a checklist that says where they can find your birth certificate, Social Security card, marriage license, pre-nuptial agreement, military records, estate planning documents, burial instructions, bank and credit documents, mortgage papers, personal financial documents and safe deposit box and keys.

Your legacy should leave a lasting impression of care and organization, so that your family doesn’t have to figure out a puzzle, creating more stress in an already demanding situation.

Reference: Kiplinger (May 2017) “Some of the Biggest Estate-Planning Mistakes People Make”

To avoid making these, or other mistakes with your planning, contact our office at 801-438-7120 for a free consultation.