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Estate Planning Basics for Difficult Times

Most people who contract COVID-19 experience mild symptoms, but it does not hurt to be prepared just in case you need to be hospitalized, explains the article “A Guide to Estate Planning During the Coronavirus Pandemic” from HuffPost.com. It is scary to think about being so sick that you aren’t able to make decisions for yourself. However, that’s the point of an estate plan: to ease your fears. You’ll feel better knowing you’ve made health and financial decisions in advance and your loved ones won’t have to guess about your wishes.

Even without a global pandemic, everyone should have an estate plan. If you don’t have one, now is the time to get it done, even if you are single and have limited wealth. An estate plan includes documents like a revocable trust, financial powers of attorney (FPOA), health care powers of attorney (HCPOA) and more.

Right now, the medical and financial powers of attorney are on everyone’s mind. These two documents allow a person you name to do your banking, pay your bills and make medical decisions, if you are quarantined at home, admitted to the hospital, or become incapacitated. If you don’t have a financial power of attorney, a family member will need to request the probate court to appoint a guardian. This will be expensive and time-consuming. The same goes for the health care power of attorney. If a decision needs to be made in an emergency situation, the family will not have the ability to enforce your wishes.

A living will, known in some states as an advance health care directive, lets you be specific about what end-of-life treatment you do or do not want to receive, if you become terminally ill or permanently unconscious. Without a living will, the decision to remove life support must be made by loved ones, without knowing what you want.

A HIPAA waiver permits your loved ones to access medical information. Even when there is a health care power of attorney, there are some institutions that will refuse access to medical information without a standalone HIPAA waiver.

The last will and testament is the legal document that is used to direct distribution of property at the time of death, appoint an executor who will oversee the distribution of assets, and, if you have minor children, name a guardian for them. Without a last will, the court will rely on state laws to determine who inherits your property and who will raise your children.

A living trust is a legal contract that creates an entity to hold your assets. If it is a revocable trust, you control it and you can make changes to it anytime you wish. If you become incapacitated or unable to manage your estate, the living trust avoids the need for a court-appointed conservatorship. When you create the living trust, you appoint a successor trustee who will step in when you are unable to manage your affairs. The living trust creates privacy, since the assets in the trust do not go through probate, which is a public process.

Once you have an estate plan, make sure that the documents are safe and the right people can access them. Some estate planning attorneys store documents for their clients. Copies of relevant documents should be given to your treating physician, financial advisor, family members and any trustees or agents. Keep high quality scanned copies on your computer, and label them, so that they can be identified. Don’t name them “Scan1” and “Scan2.” Label them accurately and include the date the documents were signed.

Speak with your estate planning attorney to ensure that you have all of the necessary documents to protect yourself, your loved ones and your property.

Reference: HuffPost.com (April 7, 2020) “A Guide to Estate Planning During the Coronavirus Pandemic”

∗ For more information about this and other similar topics, please visit: www.LambrosLawLLC.com or call us at: (401) 383-9899

Should You Cut Retirement Savings Efforts During the Pandemic?

As the coronavirus spreads across the US, most of our lives have come to a halt. Some Americans are already out of work and millions may end up losing their jobs during a potential recession, says CNBC in the article “Financial planner: Here’s when you should temporarily stop saving for retirement during the pandemic.” What’s the best course of action for these uncertain times?

Financial advisors typically set a goal of a small portion of household income, usually 10-15%, to be set aside for retirement. Based on your situation, now might be a time to scale that back or stop contributing to retirement accounts, if you don’t have cash savings to fall back on in the short term.

If you don’t have three to six months of emergency funds available—which most Americans do not—then now is one of the only times that the financial professionals are advising putting a temporary halt on contributing to retirement accounts.

What to do with that money? Take the money you would normally be putting aside for retirement and put it in an account for emergencies, if you are able to do so. This is not an ideal time, but hopefully it is a short-term change. Make a commitment to yourself and your retirement to start contributing once you are back on normal financial footing.

Having an emergency fund right now is critical. Legislation to help is being passed, but how much help will be available for individuals, and when it will be available, is anyone’s guess. If you or the family’s main breadwinner becomes ill and can’t work, or if your job is among those lost because of the coronavirus, having a cash cushion of any kind will be important.

Every news cycle brings more things to worry about, so having an emergency fund also can provide some peace of mind. When we are worried on a chronic basis about paying for unexpected expenses, the stress can take a toll on our physical well-being.

In addition to moving retirement funds to an emergency fund, now is the time to back off of non-essentials, like subscriptions or memberships that are not being used. Make a list of everything you are paying for that is not essential—recognizing what you and your family really need, versus what you want—and send those savings to your emergency fund. The cuts may be temporary, but they will add up faster than you expect.

The charges you are not adding to credit cards now for things like dining out, going to the movies, etc., may start showing up as smaller credit card bills. However, don’t rush to spend any discretionary income. Rather than apply that money somewhere else, like increased online shopping because you are bored, also put that extra money into your emergency fund.

These are unprecedented times, when the margin for careless spending has become very slim. Be proactive about protecting your financial well-being, so you are able to weather this storm.

Reference: CNBC (March 18, 2020) “Financial planner: Here’s when you should temporarily stop saving for retirement during the pandemic”

∗ For more information about this and other similar topics, please visit: www.LambrosLawLLC.com or call us at: (401) 383-9899

Financial Elder Abuse Is Growing

Financial elder abuse is defined as the “fraudulent or otherwise illegal, unauthorized or improper act or process of an individual, including a caregiver or fiduciary, that uses the resources of an older individual for monetary or personal benefit, profit or gain, that results in depriving an older individual of rightful access to, or use of, benefits, resources, belongings or assets.” That’s from The Older Americans Act of 2006.

Consumers Digest estimates that there are at least five million cases of financial elder abuse in America every year. An article titled “Population ages, financial abuse rises” from the Reading Eagle wisely notes that seniors are not just being targeted, they are the bull’s eye.

One of the reasons is because many older Americans live in isolation. A person who spends most of their time alone will welcome any simple human interaction, including talking to anyone who calls on the phone, unknown neighbors introducing themselves, marketing mail or interactions on the internet. This desire for company makes seniors more likely to ignore warning signs and to hand over money and control of their assets.

Do you wonder what kind of person would hand over their power of attorney to a stranger? The plain truth is that most financial elder abuse is committed by people who are closest to the senior. Family members are far more likely to prey on seniors than a stranger.

One financial advisor notes an instance where a scammer forged a check for $25,000 in a senior’s name, then kept doing it until she had stolen up to $75,000. She did it repeatedly, because she knew that she could get away with it.

The key to prevention is planning. First, seniors should simplify their financial and legal matters. Surrounding yourself with trusted advisors and family members who serve as checks and balances for each other is a good idea. It’s sometimes hard to know who to trust sometimes, especially family members. An estate planning attorney should be part of your team, and everyone should work together.

If you become suspicious that financial fraud is happening to you or a loved one, you may want to reach out to the Adult Protective Services office in your community. They will be able to advocate on behalf of the senior.

Treat everything and everyone with a degree of suspicion. If someone knocks on the front door and says they can offer you a discount on tree removal or roof repair because they are in the neighborhood, don’t believe them. You should also have an estate plan in place that protects your assets, so they are less vulnerable to a scammer.

Reference: Reading Eagle (Feb. 9, 2020) “Population ages, financial abuse rises”

∗ For more information about this and other similar topics, please visit: www.LambrosLawLLC.com or call us at: (401) 383-9899

Financial Infidelity that Appears after One Spouse Dies

When one member of a couple handles all the finances and dies, the surviving spouse is often left with a serious problem. Locating investment accounts, passwords to online accounts and other important information becomes an overwhelming problem, according to the article “Why smart people don’t recognize financial infidelity” from The Mercury. It’s a relatively new term, but not a new problem.

Take the case of a recently widowed or divorced person who has met a new person who appears to be the new love of their lives. The person is kind to them, supportive, and well, perfect. It’s hard to believe that such a seemingly wonderful person could have a dark side. However, whenever a new friend, hobby, or investment idea starts having a major impact on the person’s financial life, or if they have simply been careless with their financial affairs, the impact can become catastrophic.

People who are not confident in their ability to manage money or investments often hand off that responsibility willingly to their partner. If in a prior life, your spouse managed all of the household money and you did not learn how to handle the tasks that are required to run a home or manage an investment portfolio (or work with advisors), you might be a little too willing to pass that job on to a new partner.

You may fall into the traditional role of one person being responsible for the outside bills and investments and the other handling all of the household tasks.

Financial infidelity also includes things like having accounts that are not known to the other spouse or taking out credit cards without the other person’s knowledge. The same goes for one spouse suddenly putting a lifetime of savings into a single investment, or someone who knows little about markets spending a great deal of time day trading with the family’s savings. Gambling or excessive spending can also be financial infidelity.

What can you do? Here are a few tips.

Don’t give up control of finances. It’s not uncommon for people to combine finances when they are first married. However, if you are heading into a second marriage, you may want to keep your money separate at first. Not paying attention to what’s going on with your money at any stage of life, can lead to problems.

Educate yourself about money. If one of you is better at money management, that’s fine—but the one who is not needs to get up to speed. There are classes in personal finance at the local high school or college, so cost should not be an issue.

Speak up. If one person is made to feel like they can’t talk with their partner about money, there’s a problem. There may be accusations of trust—but trust is not granted automatically. Trust is built between a couple through experience. Financial transparency between partners is a sign of respect.

Read and understand documents before you sign anything. If you have questions, don’t sign anything until you have a full understanding. You should not be pressured into making decisions or commitments until you are completely comfortable with all of the information. If you don’t get a satisfactory answer, don’t sign.

Part of your protection from financial infidelity is an estate plan. Speak with an estate planning attorney about creating a plan to protect your assets after you pass and while you are living. An estate plan needs to include a will, powers of attorney, power of attorney for healthcare and may include trusts, living wills, and other documents, depending upon your situation.

Reference: The Mercury (Jan. 29, 2020) “Why smart people don’t recognize financial infidelity”

∗ For more information about this and other similar topics, please visit: www.LambrosLawLLC.com or call us at: (401) 383-9899

The High Cost of Medicare Mistakes

A 68-year-old woman knew that she had to sign up at age 65 for Medicare Part A for hospital care and Part B for outpatient care, since she did not have employer provided health insurance from an employer with 20 or more employees. She knew also that if she did not have health insurance from an employer and didn’t sign up immediately, she’d face a penalty with higher Part B and Part D premiums for the rest of her life when eventually she did sign up, reports Forbes in the article “Beware Medicare’s Part B Premium Penalty And Surcharge Traps.”

Here’s where it got sticky: she thought that Medicare provided an eight-month special enrollment period after one job ended to apply penalty free. She is employed on a sporadic basis, so she thought she had a window of time. Between the ages of 65 and 68, she had several jobs with large employers, and was never out of work for more than eight months.

She was out of work for 25 months total between ages 65 and 68, when she was not enrolled in Medicare. She thought that since she was never out of work for more than eight months, she didn’t have to sign up until she officially stopped working and would then enroll penalty free in traditional Medicare Parts A, B, and D.

She had read information on the Medicare website and her interpretation of the information was wrong. It was a costly mistake.

In determining whether you need to permanently pay a Medicare Part B penalty, Medicare counts up all the months between age 65 and the month you first enroll in Part B, even if you have a job with a large employer with no gaps in employment for more than eight months.

She got hit with a 20% lifetime Medicare Part B premium penalty. For every 12 months that you’re not covered by Medicare B after reaching 65 and before you enroll, the penalty is an additional 10%. And making things worse, she was hit with a Medicare Part B penalty based on the cumulative (not consecutive, which is an important difference) 25 months that she went without credible prescription drug coverage.

This is the sort of problem that does not self-resolve or get better over time. In this case, another mistake in timing is going to hurt her. She sold some assets and realized a capital gain in 2018, which increased her Modified Adjusted Gross Income (MAGI). In 2020, she’s going to have to pay the Income Related Monthly Adjustment Amount (IRMAA). If your MAGI, two years before the current year, is less than $87,000, you are exempt from IRMAA in the current year. Her cost: $1,735.20 more this year. Had she instead realized those capital gains over the course of several years, her 2018 MAGI might not have crossed the $87,000 threshold. Most people are not aware of the IRMAA and take capital gains in larger amounts than they need.

This is a harsh lesson to learn, at a time in life when there’s not a lot of flexibility or time to catch up. Talking with an estate planning lawyer about Medicare and about tax planning, as well as having an estate plan created, would have spared this woman, and countless others, from the harsh consequences of her mistakes.

Reference: Forbes (Jan. 29, 2020) “Beware Medicare’s Part B Premium Penalty And Surcharge Traps”

∗ For more information about this and other similar topics, please visit: www.LambrosLawLLC.com or call us at: (401) 383-9899

How Should I Prepare for My Child’s Future?

It’s been a common path for millennials and their predecessors to go to a four-year college and get a job. If they were short on funds, they’d take out some loans. However, there have been some signals that this norm is changing.

With worries about a student debt crisis and with the experience of recent graduates, new college-age students are increasingly turning to alternatives to the established route to create their own debt-free future.

Kiplinger’s recent article entitled “How to Stay Flexible in Saving for Your Child's Future” says that student debt is leading to obstacles, when it comes to achieving major milestones of financial freedom. Of the young millennials surveyed, nearly half (47%) said they delayed purchasing a home because of  their debt, 40% delayed saving for retirement and 31% waited to move out of their parents’ home. A total of 28% of parents said they delayed saving for their own retirement, to pay for their children’s education.

Saving for a child’s future now looks different than when these 18-year-olds were born.  It certainly will be the case, when they leave the nest. As a result, it’s critical for parents to try to give them help, by learning how to adapt to the changing times.

With the gig economy and digitally enabled side jobs, parents have more flexibility to maintain their financial goals, while preserving their personal lives.

When considering flexibility, especially when saving for a child’s education, it’s actually one of the big benefits of a 529 plan. Although you’re responsible if you make a withdrawal that isn’t for a qualified education expense, the penalties aren’t too steep. Federal income tax is imposed on the plan’s growth, plus a 10% penalty on the growth. Therefore, depending on the amount withdrawn, the penalty may be very little.

Nonetheless, the tax penalties may worry parents enough that even when their goal is to save for their child’s education, they want to spread their savings into multiple accounts. This has some clear advantages, when the child decides not to go to college after high school. The good news is that there are plenty of options to account for both possibilities.

• Other investment accounts: You could also create a brokerage account with money earmarked for a child. This gives parents complete flexibility in how the money is used. The money can be used for expenses other than education, but the downside is not having the tax benefits of the 529 plan (tax deferral and potential tax-free growth).
• Trusts: a trust allows parents to keep complete control over the funds and lets parents provide instructions to the trustee, on how the trust can be used.
• Custodial accounts: These accounts are managed by a guardian (or custodian), until the child is an adult. These accounts are pretty easy to set up but don’t have the restrictions that can be placed on trust funds.

The digital world has changed everything, including how we plan for our children and their future. Be flexible and make your plans accordingly.

Reference: Kiplinger (Dec. 27, 2019) “How to Stay Flexible in Saving for Your Child's Future”

∗ For more information about this and other similar topics, please visit: www.LambrosLawLLC.com or call us at: (401) 383-9899

Is It a Call from Social Security or a Scam?

If you get a call allegedly from the Social Security Administration, the chances are good that it’s a scam. Prior to disclosing any information or money, there are some steps you want to take.

CNBC’s recent article entitled “Social Security scams have caused millions of dollars in losses in 2019 alone. How you can avoid becoming a victim” explains that it’s common for an unknown caller to say that your Social Security number has been suspended or canceled.

This is the latest version of a robocall scam that the IRS warned people about in early 2019.

Other criminals attempt to convince people to pay up with cash or gift cards, in order to avoid getting arrested.

In the first six months of 2019, people filed 73,000 reports about Social Security fraud, according to the Federal Trade Commission. The losses from these calls was more than $17 million.

However, Congress is trying to stop these practices.

The House of Representatives passed a bill in early December to restrict robocalls by requiring carriers to block the numbers, without charging consumers extra money. The Senate passed a similar bill earlier this year.

Several lawmakers also asked the Social Security Administration to review scam calls purporting to come from the agency.

“While SSA has taken steps in recent months to prevent and raise public awareness about these imposter calls, we are alarmed that the scams continue to be widespread and severe,” the congressmen wrote in a letter to Andrew Saul, commissioner of the Social Security Administration.

The Social Security Administration also won’t send you an email with a “click here” link.

It is important to limit when you give out your Social Security number. You should think twice before revealing that information on healthcare forms, for example, where that information is usually unnecessary.

Reference: CNBC (Dec. 16, 2019) “Social Security scams have caused millions of dollars in losses in 2019 alone. How you can avoid becoming a victim”

∗ For more information about this and other similar topics, please visit: www.LambrosLawLLC.com or call us at: (401) 383-9899

What’s the Best Time to Take Social Security Benefits?

With the near disappearance of traditional pensions and longer life expectancies, Social Security benefits have become more important than ever to retirees. For many, Social Security benefits are the biggest asset they have. Strategically planning how and when you take these benefits, can have a big impact on your overall retirement finances. That includes coordinating benefit claims with a spouse, if you have one, knowing your full retirement age and making a conscious decision about when to take these benefits.

Kiplinger’s recent article, “Time Claims to Maximize Social Security Benefits,” says that with more baby boomers becoming eligible for Social Security benefits, some strategies for how to claim the benefits are going away. Full retirement age is also going up, and there’s the threat of curbs to future benefits.

However, the rules for claiming retirement benefits have become a little simpler. Under a law passed in 2015, those born on or after January 2, 1954 are presumed to be applying for the highest benefit for which they qualify—regardless of whether it’s their own benefit or a spousal benefit—no matter what their age is when they claim. The law also phases out the restriction on an application for spousal benefits, which could boost a couple’s total payout by tens of thousands of dollars. However, a small group of boomers still may be eligible to use it.

These important moves can help you maximize your lifetime benefits—and help your nest egg go much further. Full retirement age (FRA)—calculated by your birth year—is on a gradual slope upward from age 66 to age 67. Social Security benefits increase monthly by a small percentage from age 62 to your full retirement age. As a result, if you err and claim at age 66 when your full retirement age is really 66½, the loss won’t be significant, but it could be permanent, decreasing your benefits for a lifetime.

The rising full retirement age for Social Security means that those who claim early will see a larger benefit reduction. For those with a full retirement age of 66, claiming at 62 permanently reduces their benefits by 25%. However, for those with a full retirement age of 67, the reduction is 30%. A higher full retirement age also decreases the bonus for people who wait to claim until age 70. Those with a full retirement age of 66 can earn up to 32% extra—or 8% a year in delayed retirement credits up to age 70. People with a full retirement age of 67 can earn up to 24% extra.

Know your exact full retirement age to understand how your benefit will be affected by claiming at different ages. All the cost-of-living adjustments are also calculated on that higher amount, so you receive the benefit of compounding.

Your FRA is also important, if you’re still working when you claim. Retiring and taking Social Security benefits are two separate decisions. You can do one without doing the other. However, if you apply for benefits before your FRA while still working, your benefits will be subject to the earnings test. Early claimers will temporarily lose $1 of benefits for every $2 of earnings above $17,640 in 2019. In the year you hit FRA, the threshold is higher—in 2019, you’d temporarily forfeit $1 of benefits for every $3 of earnings above $46,920.

Here's a piece of good news: the month you reach your full retirement age, that earnings test goes away. If your plan for retirement includes continuing to work in any fashion, wait until at least after your full retirement age, or later if you can, to claim benefits.

Reference: Kiplinger (July 29, 2019) “Time Claims to Maximize Social Security Benefits”

∗ For more information about this and other similar topics, please visit: www.LambrosLawLLC.com or call us at: (401) 383-9899

How Does a “Senior Freeze” Work?

In some families, a decision is made to transfer the parent’s home to their children through the use of a life estate. It’s used to help parents become eligible for certain government benefits, among other estate planning purposes. However, this could cause parents to lose their ability to receive the Senior Freeze, which reimburses eligible seniors and disabled people for increases to property tax or mobile home park site fees.

As far as property with a life estate, nj.com’s recent article, “Will I get the Senior Freeze if I have a life estate for my home?” explains that it’s important to determine who remains the owner of the property. The article says that the Senior Freeze program is a bit of a misnomer, because the benefit doesn’t actually “freeze” property taxes. The program actually reimburses eligible individuals for any property tax increases incurred, once an individual qualifies for the benefit.

An eligible person gets the difference between the property tax amount in the first year of eligibility—the “base year”—and the current year’s property tax amount, presuming it is higher. For example, in New Jersey, a person has to have two consecutive years of eligibility before applying and satisfy the following requirements:

• The applicant or his/her spouse are at least 65 or receiving Social Security disability benefits;
• The applicant lived in the state continuously since Dec. 31, 2007, or earlier, as a homeowner or renter;
• The applicant owned and lived in his/her home since Dec. 14, 2014 or earlier (and still owns and lives in the home);
• He or she has paid the full amount of the property taxes due; and
• The applicant meets the income limit (currently $89,013 in NJ).

The program typically doesn’t apply to vacation homes, second homes, rental properties, or properties that have more than four units.

It’s not uncommon for seniors to transfer a home to a trust for a variety of purposes, including government benefit planning. However, conveying your home entirely may disqualify you from the Senior Freeze program. An applicant is considered the owner of the property, if she retains a life estate in the property, which must be evidenced in the deed or other legal document showing the applicant’s right to occupy the property.

Before transferring any real estate or making any large gifts, talk with an estate planning elder law attorney. While the retention of a life estate may let an applicant qualify for the Senior Freeze if other qualifications are met, it may have a bigger impact on other benefits.

Reference: nj.com (December 11, 2019) “Will I get the Senior Freeze if I have a life estate for my home?”

∗ For more information about this and other similar topics, please visit: www.LambrosLawLLC.com or call us at: (401) 383-9899

Why Minors Should Not be Named as Beneficiaries

Selecting beneficiaries for your estate plan can sometimes revolve around their ages at the time that the estate plan is created. While there are many different kinds of assets, from real estate to cars to investment accounts, there are some assets that are better suited to minors than others.

Investopedia’s recent article, “Designating a Minor as an IRA Beneficiary,” explains that there are several reasons why someone might want to give an IRA to a beneficiary who is not yet an adult. One of the most obvious is that IRAs can provide much greater flexibility and potential for long-term growth than, for example, savings bonds. IRAs also don’t have to be used for higher education or any other specific purpose in order to avoid taxation. Young beneficiaries also get the benefit of a lower required minimum distribution (RMD) over their lifetimes, as the beneficiary’s life expectancy is used when calculating their RMDs.

For example, if you died and left $100,000 of IRA money to a one-year-old granddaughter this year, her current life expectancy would be 81.6 years. Assuming that the funds in the account grow at 8% to 10% per year, she could withdraw several million dollars from the account during her lifetime. If the money were in a Roth IRA, she’d probably also save at least a million dollars in taxes.

If you leave an IRA to a minor, there must be an appointment of a guardian to manage the account until the child reaches adulthood. Minors can’t own legal property of any kind in their name. Instead, you can appoint a guardian to manage the property on their behalf, until they reach the age of majority (18 or 21, depending on the state). If you do not do this, the court will appoint one for you—and that could be a person who may have very different thoughts about how the account should be managed and invested.

The law prohibits IRA custodians from dealing directly with minors in any capacity. A will doesn’t solve the problem because wills only deal with probate assets, and IRAs are exempt from probate. The minor’s parents or another relative can petition the court for guardianship, if you fail to make an appointment However, this can be expensive, time-consuming and really unnecessary.

There are a couple of different ways that your beneficiary can receive the IRA. One option is to put the distributions inside a custodial account, like an UGMA or UTMA account. However, there could be adverse tax consequences for the minor’s parents (or whoever claims the minor as a dependent on a tax return) if the minor’s income is above a certain threshold. That’s because the parent or guardian must pay tax on the excess at their top marginal tax rate. This also gives the minor sole custody of the property at the age of majority, but she may not be prepared at that time to handle a large sum of money.

Another possibility is to put the money into a 529 plan. This will let the assets grow tax free, until they’re used to pay for qualified higher education expenses.

A revocable living trust is a good option for leaving a minor an IRA. You are able to provide very specific directions as to how you want the beneficiary to receive distributions, and the guardian can serve as the trustee.

As you can see, there are many different options. Speak with an estate planning attorney to determine what the best solution is for your family and to ensure that the plan for this asset works with the rest of your estate plan.

Reference: Investopedia (September 7, 2019) “Designating a Minor as an IRA Beneficiary”

∗ For more information about this and other similar topics, please visit: www.LambrosLawLLC.com or call us at: (401) 383-9899