Salt Lake City Estate Planning

How to Tackle RMDs in Your IRA

 

RMD season is in full swing, with the Dec. 31 deadline approaching for those who are 70½ and have IRA money that they have to withdraw or else face the 50% IRS penalty.

Kiplinger’s recent article, “3 Tax-Planning Ideas to Help Take the Bite Out of RMDs,” says that before making that withdrawal, review these three tax-planning possibilities:

1. Gifting the RMDs to a qualified charity. If you’re over age 70½, a RMD isn’t counted as taxable income for federal income tax purposes, if it’s paid directly to a qualified charity. That’s referred to as a qualified charitable distribution (QCD). Currently, the limit is $100,000 per taxpayer annually.

This may be a big help to those who want to keep their adjusted gross incomes (AGIs) lower, because the withdrawal is not counted toward their AGI. That’s important because AGI impacts your ability to take itemized deductions, eligibility for Roth IRA contributions and taxes on Social Security, as well as Medicare premiums and more. IRA owners with pretax contributions receive the QCD treatment, but the non-deductible contributions aren’t eligible for the QCD. Optimally, the charity should receive the cash by Dec. 31.

2. Qualified Longevity Annuity Contracts. Buying a QLAC in an IRA means that money used to purchase the annuity is excluded from the RMD calculation until age 85. Therefore, if an IRA owner has total assets of $500,000 and buys a QLAC for the maximum $125,000, that QLAC is excluded from the RMD calculation.

In that example, the RMD calculation is based on $375,000, not on the full value of the IRA at $500K. Using the Uniform Lifetime Table, the RMD for a 70 ½-year-old with a $500,000 IRA is $18,248, vs. $13,686 for the IRA with the QLAC. That’s an RMD savings of about $5K.

Thus, with this strategy you’re putting off paying income tax on a portion of your IRA money. Though the return rates on QLACs are low right now, this strategy may make sense as part of a diversified portfolio.

3. Use IRA RMDs to buy life insurance. If you don’t have a current need for an IRA RMD, rather than reinvesting the withdrawal, you may think about expanding the distribution for your heirs by buying a life insurance policy.

These three ideas can help reduce the burden of required minimum distributions.

Reference: Kiplinger (November 2017) “3 Tax-Planning Ideas to Help Take the Bite Out of RMDs”

If you would like more information, please give our office a call for a free consultation 801.438.7120! 

Buffalo Gets New Smartphone App to Help Stop Elder Abuse

Dozens of providers and advocates recently spent a day learning how to use the new Legal Risk Detector App.

WIVB recently posted an article, “New App Aims to Prevent Elder Abuse,” that explains how the Center for Elder Law & Justice teamed up with the Erie County District Attorney’s Office and the Erie County Office of Senior Services in the Buffalo, NY metro area to introduce the app to those who work closely with elderly members of the community.

“This app is designed for Meals on Wheels people, home health aides, senior services workers and people who would be kind of the front line staff,” explained Karen Nicolson, Chief Executive Officer of the Center for Elder Law & Justice.

Those providers are sometimes the only individuals with whom home-bound seniors interact on a regular basis. Therefore, they can be the only people who recognize potential housing, consumer, financial exploitation or healthcare issues, provided they know the right questions to ask. That’s where the new app can help. The app is a comprehensive list of questions to ask elderly clients to help identify potential abuse. The questions are about everything from whether someone has been pressuring a senior to make changes to their power of attorney, to whether someone has been stopping them from accessing their money or health services.

The app also lets providers upload photos and documents, which are added to the report generated by the seniors’ responses. A report will give the referrals that the provider may need to help the senior.  It is automatically sent to the Center for Elder Law & Justice, when any legal risk red flags are identified.

The Erie County District Attorney said his office has seen a number of cases of financial and physical elder abuse this year, which he attributes to the fact that many seniors don’t have their children living nearby to monitor them. He hopes that awareness spreads about the app and its ability to help identify problems, so would-be abusers will reconsider taking advantage of elderly victims.

The app that was unveiled is only intended for use by providers and advocates who work with the elderly in the community. However, with a national grant, another risk detector app is in development that will be available to the public.

Reference: WIVB (October 30, 2017) “New App Aims to Prevent Elder Abuse”

If you want more information, please give our office a call for a free consultation, 801-438-7120. 

How Will You Fill the Gap in Medicare Coverage?

Many people believe that most of their health care costs will be covered by Medicare after they turn 65. Not so! Seniors are on the hook for a lot. Most likely will still have to pay some out-of-pocket costs. How much can you expect to pay for health care in retirement, and is there anything you can do to lower those costs?

Kiplinger’s recent article asks, “How Much Will You Spend on Health Care in Retirement?” According to the article, even though Medicare covers the majority of a person’s health care costs after they turn 65, there still may be a lot of out-of-pocket expenses. A new study by Fidelity Investments found that the average 65-year-old couple retiring this year will need $275,000 to pay for medical expenses during retirement. This includes Medicare premiums, co-payments and deductibles (or a policy to fill coverage gaps). They will also need Medicare Part D prescription-drug coverage, plus out-of-pocket drug costs over the next 20 years for the man and 22 years for the woman. That number doesn’t include the potential costs of long-term care.

Medicare premiums can be as much as several thousand dollars a year. Medicare Part A, which covers hospitalization, is free for most people.  However, you'll pay a monthly premium for Part B (doctor visits and outpatient care). Those who sign up for Medicare in 2017 will pay about $134 per month for Part B, while individuals who have had Medicare premiums deducted from their Social Security benefits in previous years pay less.

If your adjusted gross income plus tax-exempt interest income is more than $85,000 for singles or $170,000 for married people filing jointly, you'll have to pay even more. The monthly premiums can range from $187.50 to $428.60 per person per month in 2017.

Remember that, along with these numbers, Medicare will leave gaps. You will need to pay deductibles and co-payments for hospitalization, doctors' visits, procedures and other medical care. Medicare also doesn't cover prescription drugs. Some fill in these gaps with retiree health care coverage from a former employer. However, that is not that common today. Instead, you'll need to buy a Medigap policy to cover these out-of-pocket expenses, as well as a Part D prescription drug policy to cover drugs, or purchase a Medicare Advantage plan to pay both medical and drug expenses.

You can reduce these extra costs by implementing these strategies:

Shop for a Medigap policy, when you're first eligible. You have six months after signing up for Medicare Part B to choose any Medigap plan. Insurers can charge more or deny coverage because of preexisting conditions. Plans with the same letter provide the same coverage, but the price can vary significantly by insurer.

Select the best Part D policy. This can vary every year, because your prescriptions change, and insurers revise their coverage. You can change Part D prescription drug policies every year during open enrollment from October 15th to December 7th for coverage starting on January 1st.

Look at your Medicare Advantage plans every year. If you choose a Medicare Advantage plan, you can also shop for a policy every year during open enrollment. Use the Medicare Plan Finder to compare the cost for drugs and health care for plans in your area.

Medicare surcharges. Your Part B and Part D premiums will be higher if your income is higher (more than $85,000 if single or $170,000 if married filing jointly). The Social Security Administration uses your most recent tax return to figure the premium. However, if your income has dropped since that time because of certain life-changing situations, like divorce, death of a spouse, or retirement, then you can substitute your more recent income.

Use generics or cheaper treatments. With Part D prescription-drug coverage, you will still have some out-of-pocket costs for your medications. You could also pay thousands of dollars for your share of the cost of expensive specialty drugs. Ask your doctor if there are cheaper generic drugs, or if there are therapeutic alternatives to treat the same condition for less.  You should also check if you can save money by using a preferred pharmacy or a mail-order pharmacy.

Use your tax-free health savings account. You can't contribute to an HSA after you enroll in Medicare.  However, the money you’ve accumulated in the account can be withdrawn tax-free to pay medical expenses. After age 65, you can also use the money to pay premiums for Medicare Part B, Part D, and Medicare Advantage plans, but not for Medigap.

Reference: Kiplinger (September 20, 2017) “How Much Will You Spend on Health Care in Retirement?”

If you need have any additional questions about medicare or how to best cover yourself, please call our office for a free consultation, 801-438-7120!

Retirement Planning Takes More Than Guesswork

Even if you’ve saved, invested and paid down debts, if you’re using traditional strategies, you still might find yourself coming up short in retirement.

Kiplinger’s recent article, “1 Critical Mistake to Avoid When You Retire,” explains that preparing for your financial future means thinking about things that aren’t always within your control. While it’s not that difficult to choose your target retirement date or to budget what you’ll need for monthly income, projecting portfolio returns, life expectancy, taxes, inflation and health care needs requires some strategic guesswork. The thing that creates the most problems is the assumed average rate of return on your investments.

Some financial plans will create a false picture in relying on average rates of return. A solid plan needs to take into account market volatility. Your retirement strategy is most sensitive to market swings during the five years before and after your target retirement date. That’s because your savings are at their height and most susceptible to a market correction. If you take on losses near your target retirement date, it can have significant consequences. Even though people are aware of this fact, they will still rely on “age-appropriate” mixes of stocks and bonds to attempt to mitigate this risk.  However, this solution, which is designed to deliver an average target rate of return over time, may not be effective if the market doesn’t follow your projection and delivers an actual negative return when timing is crucial.

Market volatility can be a consequence based almost exclusively on timing. If you’re working, a market drop can be an issue, but you don’t need that money immediately. You have the time to ride it out, and your contributions will help your recovery. But when you’re close to or in retirement, it’s different. A market drop directly impacts your primary sources of income, and you’re not adding to those accounts. You’re using them to pay for living expenses.

A wise retirement plan needs to be designed to withstand volatility and to provide desired income when needed, regardless of market conditions. Mitigating this volatility risk is a must to keep your plan on track and on time.

There’s no need to exit the market entirely, but you should consider allocating some of your portfolio to assets that are linked less to the market, like bonds.

Look at the potential impact that a market reversal may have on your plan, and determine the rate of return your portfolio needs to provide sustainable income during retirement. That’ll help you see how much risk exposure is necessary to achieve that goal.

Reference: Kiplinger (August 2017) “1 Critical Mistake to Avoid When You Retire”

If you want help preparing for retirement, give our office a call for a Free Consultation, 801-438-7120 

A Guide to Charitable Giving with Potential Tax Reform Looming

 

There are many reasons that motivate charitable giving. They include a moral obligation, religious tithing, a desire to improve the world, or to create a legacy. One other factor is the tax benefits for giving. This may soon change, if Congress is successful with tax reform legislation.

While few people donate just for the tax breaks and are unlikely to stop giving altogether, the Congressional Budget Office and other analysts say tax incentives increase how much you donate, both in life or at death.

CNN Money recently reported in the story, “How tax reform could hit charitable giving,” that Republicans are proposing to reduce or eliminate key tax breaks for giving, which some note has worried charitable organizations.

Republicans have proposed to nearly double the standard deduction, lower income tax rates and repeal the estate tax. Most believe the charitable deduction would remain, but an increase in the standard deduction would result in fewer people itemizing deductions and being able to claim the break. Lowering tax rates also would make the deduction less worthwhile for those who still take it.

The double impact of doubling the standard deduction and decreasing the highest tax bracket to 35% from 39.6% could reduce giving by between $5 billion and $13 billion a year, or up to 4.6%, according to research by Indiana University.

An increase in the standard deduction would have the greatest negative impact because it would reduce those who itemize to just 5% of filers, compared to about 30% currently. This is because the main reason to itemize, is when your deductions are more than the standard deduction.

The 25% who used to itemize will probably give, but maybe less.

Many charity groups have asked Congress to make the charitable deduction "universal," so that everyone can take it even if they don’t itemize. Lawmakers say they are considering this, but a universal deduction would cost the federal government between $191 billion and $515 billion in lost revenue over ten years.

Reference: CNN Money (August 6, 2017) “How tax reform could hit charitable giving”

If you would like help with you Charitable giving taxes, give our office a call for a free consultation, 801-438-7120 

Minnesota’s Governor Asks Legislature to Review Elder Abuse Law

Minnesota Governor Mark Dayton has asked the state legislature to look at a law that critics say restricts the families of vulnerable adults from receiving information about cases of abuse and neglect. KARE 11 TV says it its recent report, “Governor wants review of elder abuse secrecy issue,” that the governor wants lawmakers to examine how state regulators balance the needs of families with the need to protect whistleblowers. The governor said, “I am very concerned that current state law prevents family members from knowing that their loved ones may be facing unsafe living conditions in an assisted care facility.”

The case of Suzanne Edwards brings the issue into focus. The report highlights secretly recorded cell phone videos that appear to show two aides at an assisted living facility taunting and demeaning Suzanne. “Go to bed,” an aide screams at Suzanne in one video. In another video, both women taunt Suzanne, singing “I’m going to live longer than you,” and “I can wipe my own ass.” The two aides are heard laughing at Suzanne in an audio recording, because she’s not wearing underwear. They call it “disgusting,” and tell her she smells.

The two aides were criminally charged with Stalking and Criminal Abuse of a Vulnerable Adult, as a result of the incident. Both pleaded not guilty. The charges allege that the two also put a lighter flame near Suzanne’s face, made multiple threats against her and pulled her nightgown up exposing the 70-year-old patient’s nude body. However, Suzanne Edwards’ son Kent said he didn’t learn any of this for months. The assisted living facility notified police and state regulators, but Edwards—who’s his mother’s health agent—says he was blocked when he called the Department of Health trying to locate a copy of the report.

 The state law is currently aimed at encouraging whistleblowers and protects the identities of people who report abuse. State officials also say they can’t even share details of the alleged abuse with victims or their families, until they conduct a full investigation. But the issue is that, according to the Minnesota Department of Health’s own statistics, they only do full investigations in 1% of the cases reported by facilities.

The governor expressed his concern about balancing the needs of families and those who report abuse. He noted that “their need for information must be weighed carefully against protection for the people who report those incidents.” The Governor said he “will encourage the State Legislature to review this law in the next Legislative Session.”

State Senator Karin Housley, (R-Stillwater) also wants to investigate the issue, noting “The system is definitely not working as it should,” she told KARE 11. “That’s a law that needs to change.”

Reference: KARE 11 TV (August 18, 2017) “Governor wants review of elder abuse secrecy issue”

If you want help protecting you elders, please give our office a call for a free consultation 801-438-7120

New Law in New Jersey to Aid Facility Workers in Reporting Suspected Elder Abuse or Exploitation

McKnight’s Senior Living recently published an article, “NJ law increases requirements, decreases some fines in reporting of suspected abuse cases” that explains how “Peggy's Law” was created and named for a former assisted living resident.

The law requires caregivers, social workers, physicians, nurses and other assisted care facility workers to report suspected abuse or exploitation of residents to local law enforcement and the state ombudsman. The law imposes time limits based on the type of suspected abuse.

The law is named for Peggy Marzolla. In 2010, Peggy was a 93-year-old resident of a facility in New Jersey. She was taken to the hospital after the senior living community's staff reported that she’d slipped on powder. Her injuries reportedly included bruises and several broken bones. She died two months later.

Her daughter, Maureen, didn't believe the explanation given by the facility and began a campaign to tighten state laws against elder abuse. A lawsuit filed by Maureen against the care facility was settled out of court.

Long-term care facilities, skilled nursing care centers and assisted living communities must report incidents to the state’s Department of Health, and crimes must also be reported to law enforcement, especially when the potential for harm or actual serious bodily injury occurs.

Law enforcement must be notified of serious injuries within two hours and other crimes within 24 hours. Facilities where reporting doesn’t happen on time, are subject to a maximum fine of $2,500 under the new law.

Senators Jim Holzapfel and Diane Allen are two of the bill's seven primary sponsors.

However, elder advocates are concerned that the maximum penalty for individuals who don’t report suspected abuse or exploitation is decreased. The old law subjected them to a potential $5,000 fine, but the new law was amended to reduce it to a maximum of $500.

Reference: McKnight’s Senior Living (August 8, 2017) “NJ law increases requirements, decreases some fines in reporting of suspected abuse cases”

If you want help protecting those who you love, call our office for a free consultation 801-438-7120

Estate Planning Includes Your Digital Assets

It would be great if your parents would maintain a notebook with all of their online account passwords. If they don’t, get ready to spend a long time searching and holding up important estate and financial planning tasks. This is the message from Kiplinger in its article, “Leaving Your Digital Legacy.

Most of us live at least some of our lives online. We have email and social media accounts, and we make purchases of digital books and music. We also pay our bills and conduct our banking online.

Unfortunately, much of our virtual property can’t be left to our heirs through a will. That’s because we don’t actually own them—we just have licenses to use those services. Even online accounts like email and social media sites aren’t ours either. Those providers control what happens when our contracts end at death.

Here’s what you can do to prepare to leave your digital legacies: make a list all your online accounts, which might include email accounts, financial accounts and utilities, banking accounts, retirement accounts, mortgages and insurance. Don’t forget any music, photos, or books stored online; any websites, blogs, or licensed domain names, merchants like eBay or Amazon and online communities or listservs where you’ve been active.

Consider what you’d want to have happen to those accounts. Would you want a loved one to have access to your music library or to your photos? What about your emails? Do you want your emails saved or deleted? The same thing is true with your social media accounts. They can be deleted or turned into “memorial” accounts, in some cases. On some sites, you can also have someone post a final status update after your death. With that in mind, you should consider nominating a “digital executor.”

You can allow your digital executor to know where you keep your passwords. Discuss your accounts with your digital executor and leave him or her detailed directions on where and how to find passwords, user names and other essential information.

 You should also speak with your estate planning attorney about leaving virtual items you actually own, such as photographs that you took or purchased music, to people in your will. Be sure your executor has the access information so they can be downloaded. Another option is to “vault” your digital items with a company that will place all of your digital information (including passwords) on one online platform.

Your digital legacy is important, so be certain that your heirs can get to these assets.

Reference: Kiplinger (August 2017) “Leaving Your Digital Legacy”

If you need help saving your digital legacy, please give our office a call for a free consultation, 801-438-7120 

Special Needs Planning

Do you have a family member with special needs? If yes, then leaving your estate without proper planning can mean serious consequences for that loved one

The Middletown Transcript’s article, “Caring for family member with special needs requires planning,” begins with a child born with a lifelong condition.

The hardest thing is the 24/7 aspect of a job that you love doing. It is important to understand, however, that it’ll wear you out. Parents must find support and breaks for the care, but also must determine what to do when they pass away.

There is usually state agency help or aid from a government program.  However, the aid is always at the whim of politicians, so you must plan for the child’s inheritance. That means a type of estate planning to preserve certain benefits for your child and allow any funds you’ve saved for them to supplement their lifestyle.

Another type of special needs is for those family members with substance abuse issues. This type of condition leaves parents knowing that any day could be ‘the’ day. However, similar to special needs from birth, this loved one must be protected from having access to large sums of money.

Over the long term, the issues are similar to a traditional special needs scenario.  However, there’s always a chance of a full recovery. That hope often turns to despair, but it doesn’t mean a family wants to stop supporting their loved one.

Another type of special needs are those conditions that are the result of medical conditions that may or may not be terminal, such as a stroke, paralysis, or blindness. These conditions and diseases may be sustained for a long time in a permanently disabled state. When these conditions occur, you need to update your estate plan.

Plan ahead and address your issues now with the help of an experienced estate planning attorney.

Reference: Middletown (DE) Transcript (August 1, 2017) “Caring for family member with special needs requires planning”

If you need help developing a Special Needs Plan please contact our office for a free consultation 801-438-7120. 

 

What Do I Tackle First: Estate Planning or Exit Planning?

The recent article from Wilmington Insights titled “Which Comes First - Estate Planning Or Exit Planning?” notes that a successful business exit plan accomplishes three important goals

• Financial security, where the business sale or transfer provides the income the owner and her family need after her exit;
• A successor selected by the owner, such as children, key employees, co-owners or a third-party; and
• Income tax minimization, giving the owner more cash in her pocket.

 A successful estate plan also achieves three important personal goals:

• Financial security for the decedent’s heirs and family;
• Control by the decedent to choose who receives her estate assets; and
• Estate tax minimization to reduce the government’s share and give more to the decedent’s heirs.

If you look at exit planning and estate planning together, you can ask relevant questions in order to see the big picture:

• If you fail to exit the business as planned, how do you provide your family with the same income they’d have enjoyed if you had?
• Can you be sure your business retains its previously determined value?
• Does your estate plan reflect and implement your wishes, if you don’t survive after the exit?
• If you die before exiting the business, will your family still receive the full value of the business?

Business owners should determine if their estate plans address these issues.

Another goal is minimizing creditor risk for you and your heirs, which can be done with both exit and estate plans.

Remember: estate taxes are easier to avoid than income taxes, and estate planning can frequently involve funding from life insurance proceeds, which pay in cash upon death.  However, exit planning often involves the owner’s own accumulated assets. There no correct answer to the estate or exit planning question. You need to do both. Failure to act in either case, brings about lasting problems for you, your business and your family.

Reference: Wilmington Insights (August 1, 2017) “Which Comes First - Estate Planning Or Exit Planning?” 

If you would like more information on how to develop the best plan for you, please give us a call for your free consultation, 801-438-7120