social security

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Helping clients plan for their family's future, by creating an efficient, thoughtful and comprehensive estate plan that preserves their legacy and gives them peace of mind.

The SECURE Act

The SECURE Act eliminated the life expectancy payout for inherited IRAs for most people, but it also preserved the life expectancy option for five classes of eligible beneficiaries, referred to as “EDBs” in a recent article from Morningstar.com titled “Providing for Disabled Beneficiaries After the SECURE Act.” Two categories that are considered EDBs are disabled individuals and chronically ill individuals. Estate planning needs to be structured to take advantage of this option.

The first step is to determine if the individual would be considered disabled or chronically ill within the specific definition of the SECURE Act, which uses almost the same definition as that used by the Social Security Administration to determine eligibility for SS disability benefits.

A person is deemed to be “chronically ill” if they are unable to perform at least two activities of daily living or if they require substantial supervision because of cognitive impairment. A licensed healthcare practitioner certifies this status, typically used when a person enters a nursing home and files a long-term health insurance claim.

However, if the disabled or ill person receives any kind of medical care, subsidized housing or benefits under Medicaid or any government programs that are means-tested, an inheritance will disqualify them from receiving these benefits. They will typically need to spend down the inheritance (or have a court authorized trust created to hold the inheritance), which is likely not what the IRA owner had in mind.

Typically, a family member wishing to leave an inheritance to a disabled person leaves the inheritance to a Supplemental Needs Trust or SNT. This allows the individual to continue to receive benefits but can pay for things not covered by the programs, like eyeglasses, dental care, or vacations. However, does the SNT receive the same life expectancy payout treatment as an IRA?

Thanks to a special provision in the SECURE Act that applies only to the disabled and the chronically ill, a SNT that pays nothing to anyone other than the EDB can use the life expectancy payout. The SECURE Act calls this trust an “Applicable Multi-Beneficiary Trust,” or AMBT.

For other types of EDB, like a surviving spouse, the individual must be named either as the sole beneficiary or, if a trust is used, must be the sole beneficiary of a conduit trust to qualify for the life expectancy payout. Under a conduit trust, all distributions from the inherited IRA or other retirement plan must be paid out to the individual more or less as received during their lifetime. However, the SECURE Act removes that requirement for trusts created for the disabled or chronically ill.

However, not all of the SECURE Act’s impact on special needs planning is smooth sailing. The AMBT must provide that nothing may be paid from the trust to anyone but the disabled individual while they are living. What if the required minimum distribution from the inheritance is higher than what the beneficiary needs for any given year? Let’s say the trustee must withdraw an RMD of $60,000, but the disabled person’s needs are only $20,000? The trust is left with $40,000 of gross income, and there is nowhere for the balance of the gross income to go.

In the past, SNTs included a provision that allowed the trustee to pass excess income to other family members and deduct the amount as distributable net income, shifting the tax liability to family members who might be in a lower tax bracket than the trust.

Special Needs Planning under the SECURE Act has raised this and other issues, which can be addressed by an experienced estate planning attorney.

Reference: Morningstar.com (Dec. 9, 2020) “Providing for Disabled Beneficiaries After the SECURE Act”

 

Social Security Death Benefits

When to take Social Security benefits is a decision that has major consequences for not only the worker but their spouse. There are a few mistakes the people make that end up costing their loved ones, advises the recent article “If You Love Your Spouse, Don’t Make This Social Security Mistake” from NASDAQ. The most common mistake concerns deciding when to start taking Social Security benefits.

By starting to claim benefits at age 62, you’ll get a reduced amount compared to what you would receive at your full retirement age. If you can wait until age 70 to claim Social Security, you and your spouse will benefit from the delayed retirement credits.

Most retirees base their Social Security benefit decision on how long they expect to live and their financial needs. People who expect to live a long time will get more money if they can wait until age 70, when their monthly benefits will be larger. People who don’t expect to live very long past retirement, usually take their benefits early.

However, when you decide to take your Social Security benefits has an impact on your surviving spouse. When both members have worked and earned their benefits, it’s not as big of an issue. However, for a spouse who does not have a work history of their own or whose earnings are significantly lower, this can have a big financial impact.

The issue is survivor benefits. You are entitled to receive a survivor benefit when your spouse dies, and that benefit is based on their work history. If the surviving spouse claims benefits earlier than full retirement age, there will be a reduction.

However, if the deceased spouse claimed Social Security benefits early, the surviving spouse will receive a reduced survivor benefit.

Here’s an example. Let’s say a married person, age 62, would get a retirement benefit of $1,500, if they retired at age 66 and 8 months. The person has a terminal illness and will not live more than a few more months. The spouse is also 62. Some people in this situation would start taking their Social Security benefits immediately. The reduced monthly payment would be $1,075. It’s less than the $1,500, but it’s better than nothing.

The issue is that the surviving spouse would only be eligible to receive $1,075 per month. That payment would only be if the surviving spouse waited until full retirement age. If a claim were made before full retirement age, the monthly benefit would be $884.

If the terminally ill person chose not to claim Social Security at all, the surviving spouse would be entitled to a survivor benefit of $1,500, again if they waited until full retirement age.

That $350 difference may not feel big on paper, but when there is only one income, it adds up. Waiting to take Social Security benefits could make all the difference in the quality of life your spouse enjoys for the rest of their life.

Let us help you.

Reference: NASDAQ (Nov. 14, 2020) “If You Love Your Spouse, Don’t Make This Social Security Mistake”

 

Social Security in 2021

Issues for Social Security in 2021 include the annual cost-of-living adjustment (COLA) for benefits to be 1.3%, which is a small but significant increase for millions of beneficiaries. They’ll see a raise in their monthly payments beginning in January 2021. However, the benefits increase isn’t the only change coming next year, according to AARP’s October article entitled “Biggest Social Security Changes for 2021.” Some of the biggest changes affecting Social Security recipients in 2021, including the average monthly benefits in 2021 (+ difference from 2020):

  • Retired worker: $1,543 (+$20)
  • Retired couple: $2,596 (+$33)
  • Widow or widower: $1,453 (+$19)
  • Widow with two children: $3,001 (+$39)
  • Disabled worker: $1,277 (+$16)
  • Disabled worker w/ spouse, children: $2,224 (+$29)
  • SSI for individual: $794 (+$11)
  • SSI for couple: $1,191 (+$16)

The 1.3% COLA that starts in January was calculated based on the year-over-year rate of inflation. It’s the difference between the Consumer Price Index for Urban Wage Earners (CPI-W), a government measurement of prices typically paid for a basket of goods and services, in the third quarter of 2019 and the third quarter of 2020. The modest increase signals the relatively low rate of inflation over the past year. When there’s no change in the index, or if prices have fallen year over year, there’s no COLA.

For the average retired worker, the monthly Social Security in 2021 benefit will go up by $20 to $1,543 in January from $1,523 this year. For the average retired couple who both collect benefits, the payment will rise by $33 to $2,596, up from $2,563, and for the average disabled worker, monthly benefits will increase by $16 to $1,277 from $1,261. The maximum Social Security check for a person retiring at full retirement age will rise to $3,148 a month in 2021 from $3,011 — an increase of $137.

The payroll tax that funds Social Security in 2021 is set at 12.4% on eligible wages. Employees pay 6.2%, and employers pay the other half. Self-employed workers pay the whole 12.4%. The money paid in by today’s workers goes to cover current benefits, with any excess going into the Social Security trust fund.

A recent change in law states that the new Medicare premium will be less than previously projected, which preserves part of the COLA for most beneficiaries. Initially, higher emergency Medicare spending due to COVID-19 was expected to lead to very high Medicare premiums in 2021. Most beneficiaries would have seen their COLA wiped out by Part B premium increases, if the law hadn’t been changed.

Those who get Supplemental Security Income (SSI) that helps some individuals with little or no income meet basic living needs, will also see a 1.3% rise in their monthly benefits. For the average individual, that means $11 more a month, to $794 from $783. The average couple gets $16 more a month, to $1,191 from $1,175. SSI is funded by general tax revenue, not Social Security payroll taxes.  These are just a few of the changes for Social Security in 2021.

Let us help you with your estate planning.

Reference: AARP (Oct. 28, 2020) “Biggest Social Security Changes for 2021”

Suggested Key Terms: Disability, Social Security, Supplemental Security Income, Social Security Disability Insurance

Special Needs Trusts

The most frequently used tool to protect and care for children with special needs after both parents has passed is a special needs trust (SNT), says Forbes in its article entitled “Making Trusts for Special Needs Children.” An SNT is a legal instrument used to provide benefits to an individual with special needs, while also maintaining that person’s ability to receive state or federal benefits assistance. The trust is usually created by a parent or guardian, with the special needs child as the beneficiary.

A third-party trustee is often appointed. That person or institution has authority to make disbursements from the assets in the trust on behalf of the beneficiary. This trust lets parents make sure that their child with special needs has his or her needs met after the parents pass away.

Some government benefits used by a person with special needs—such as Supplemental Security Income (SSI) and Medicaid are “means tested.” That means they are only available to those who themselves have limited income or assets. If a parent wants to provide support to a child with special needs after the parent’s death, those assets must pass correctly to ensure that the assets don’t cause that child to directly own the assets and thereby lose their government eligibility for the benefits.

Again, any assets left directly to the beneficiary without use of an SNT could disrupt the beneficiary’s receipt of benefits, taking money and support away from the beneficiary.

The most common of these trusts is a third-party SNT. This trust is funded by family members of the beneficiary to make certain that there are specific assets set aside for the beneficiary’s utility bills, education, entertainment, or most other regular expenses.

There are also first-party trusts, where the trust is established with the assets owned directly by the child with special needs. This can result when the child with special needs receives an inheritance, life insurance payout, or personal injury settlement directly, which may impact their existing benefits.

There are also pooled trusts, which are trusts that are managed by a nonprofit organization. With a pooled trust, the grantor doesn’t have to name a trustee, especially one who may not have experience in managing trust assets. Consequently, the assets are held for the benefit of the child with special needs, but they are managed by an organization with expertise in doing just that.

An ABLE account is another option. They’re not trusts, but they allow up to $15,000 a year to be earmarked for the benefit of a person with special needs. The distribution rules are similar to those of a SNT.

There is significant complexity with the laws surrounding SNTs, so you should work with an experienced estate planning attorney or elder law attorney.  Let us help you design a special needs trust.

Reference: Forbes (Sep. 10, 2020) “Making Trusts for Special Needs Children”

 

The Death of a Spouse

It probably is the last thing on your mind, but there are tasks that must be accomplished after the death of a spouse. You might want to ask for help and advice from a trusted family member, friend, or adviser to sort things out and provide you with emotional guidance.

Kiplinger’s recent article entitled “Checklist: Steps to Take after Your Spouse Dies” provides a checklist to help guide you through the most important tasks you need to complete:

Don’t make any big decisions. It’s not a good time to make any consequential financial decisions. You may wish to sell a home or other property that reminds you of your spouse, but you should wait. You should also refrain from making any additional investments or large purchases—especially if you weren’t actively involved in your family’s finances before the death.

Get certified copies of the death certificate. You’ll need certified copies of your spouse’s death certificate for any benefit claims or to switch over accounts into your name. Ask the funeral home for no fewer than 12 copies. You also may need certified marriage certificates to prove you were married to your late spouse.

Talk to your spouse’s employer. If your spouse was working when he or she passed, contact the employer to see if there are any benefits to which you are entitled, such as a 401(k) or employer-based insurance policy. If you and your dependents’ medical insurance was through your spouse’s job, find out how long the coverage will be in effect and begin making other arrangements.

Contact your spouse’s insurance company and file a claim.  After the death of a spouse, get the documentation in order prior to contacting the insurance company and make certain that you understand the benefit options to claim a life insurance benefit.

Probate the estate. Get a hold of the will. Contact the attorney for help in settling the estate. If your spouse didn’t have a will, it will be more complicated.  However, the death of a spouse may reveal that many if not all assets are held as tenants by the entireties which has rights of survivorship and doesn’t require probate. Reach out to an experienced estate planning attorney or elder law attorney for advice in this situation.

Collect all financial records. Begin collecting financial records, including bank records, bills, credit card statements, tax returns, insurance policies, mortgages, loans and retirement accounts. If your spouse wasn’t organized, this might take some time. You may be required to contact companies directly and provide proof of the death of a spouse, before being able to gain access to the accounts.

Transfer accounts and cancel credit cards. If your spouse was the only name on an account, like a utility, change the name if you want to keep the service or close the account. Get a copy of your spouse’s credit reports, so you’ll know of any debts in your spouse’s name. Request to have a notification in the credit report that says “Deceased — do not issue credit.” That way new credit won’t be taken out in the spouse’s name.

Contact government offices. Have your spouse’s Social Security number available and call the Social Security Administration office to determine what’s required to get survivor benefits. Do this as soon as possible to avoid long delays before you get your next Social Security payment. You may also qualify for a one-time death benefit of $255. If your spouse served in the armed forces, you may be eligible for additional benefits from the Department of Veterans Affairs. Therefore, contact your local office.

Change your emergency contact information. Change any of your or your family members’ emergency contact info that had your spouse’s name or number listed as someone else’s primary point of contact.

This checklist is a good way to help with the pressing tasks. You can also contact an estate planning attorney or elder law attorney for help.

Reference: Kiplinger (Aug. 27, 2020) “Checklist: Steps to Take after Your Spouse Dies”

 

Planning for Social Security Benefits

Planning for Social Security benefits can save you a lot of money.  You’re entitled to your full monthly Social Security benefit based on your earnings history when you hit your full retirement age (“FRA”).

Your FRA is either 66, 67, or somewhere in between, depending on when you were born. However, you can enroll in Social Security as early as age 62.

However, for each month you claim benefits ahead of FRA, it reduces the amount for the rest of your life.

Motley Fool’s recent article entitled “3 Reasons to Claim Social Security Benefits Early” says it may pay to enroll early, if one of these situations applies to you.

  1. You need cash ASAP. It’s not uncommon for seniors to lose their jobs and have a hard time securing employment again. Others are forced to stop working due to health issues (either theirs or that of a family member).

If you require money immediately, then you might not have the option of weighing whether claiming Social Security early is a good idea. You’ll just have to go ahead to get by.

It’s better to claim your benefits early at a lower rate, than adding costly debt to survive.

  1. Your health is a concern. Social Security is supposed to pay you the same total lifetime benefit. As a result, filing early will give you less money each month, but more years of benefits. This, in effect, simply means stretching that total payout for a longer time period. If you delay, it will have the opposite effect. You get a bigger monthly benefit but over fewer years.

This formula is designed so you break even, if you live an average lifespan. However, if your health isn’t good, and you don’t expect to live all that long, then filing for benefits early could be the right move. This could ensure that Social Security ultimately pays you the largest amount of money.

  1. You want to have fun in retirement, while you’re younger. Filing for benefits before your FRA may let you really enjoy travel and other experiences, while your health permits. However, if you don’t have a lot of retirement savings, you may need to wait on filing for benefits to avoid financial difficulties later on. However, with a good-size nest egg, it pays to claim your money when it will do you the most good.

Take the time to consider your options for claiming your benefits. Planning for Social Security benefits will help you to avoid regretting your choice. Consult with a financial advisor with expertise and experience in retirement planning.  Let us help you plan.

Reference: Motley Fool  (Oct. 6, 2020) “3 Reasons to Claim Social Security Benefits Early”

 

What Needs to Happen after a Spouse Dies?

Making funeral arrangements, paying medical bills and closing down accounts are just the start of the tasks that a surviving spouse must take charge of, advises the recent article “Checklist for Handling the Death of a Spouse” from U.S. News & World Report. It can be overwhelming, especially with the intense emotions that come with such a large loss.

Having a checklist of specific tasks may make this difficult time less stressful. This is because you will be able to see what has been accomplished, and what is yet to come.

Start by getting organized. Make a list of what you need to do and add to it as you think of new tasks. You should also track what you are doing, using a notebook to keep a record of who you spoke with and when. If you need help, don’t be afraid to ask a family member or trusted friend. Being organized is a big help, when there are so many things that need to be done during such a hard time.

Review your spouse’s will and estate plan. Gather all the documents, from their last will and testament to insurance policies, trust paperwork and related documents. Call your estate planning attorney, since she can help you with settling the estate.

Identify the personal representative. If you are the personal representative, then you are the person in charge of managing the estate, including distributing assets. If someone else has been named, contact the person and be sure they are still willing and able to undertake the responsibilities.

Obtain original death certificates. All of the financial, legal and property matters will require an original death certificate, with a raised seal. It’s easier to have more than you need, so order ten to fifteen.

Talk with other professionals. The financial advisor, CP, and insurance broker, in addition to the estate planning attorney, will need to know that your spouse has passed. You will also need to notify the Social Security Administration. If your spouse was receiving benefits, depending upon when in the month they died, you may need to return money.

Avoid any big decisions. This is not the time to sell the house, move to another state or make any other large decisions, unless you must for financial reasons.

Carry out your spouse’s wishes. There is comfort in carrying out your loved one’s wishes. Giving money to a charity as per the will’s direction or handing a prized possession to a family member who will treasure it can be heartwarming, since it reminds you of the values that your spouse held dear.

Take time for yourself and your loved ones. Mourning and healing from loss are not easy times. Take the time to process the loss and grieve with other family members. Find comfort from those you love.

Reference: U.S. News & World Report (Aug. 28, 2020) “Checklist for Handling the Death of a Spouse”

Suggested Key Terms: Funeral Arrangements, Surviving Spouse, Executor, Estate Planning Attorney, Social Security, Mourning, Trusts, Last Will and Testament

Why Not Claim Social Security at 62?

If you’re getting close to age 62 and thinking about filing for benefits, there are a few things you need to know before you act, so you don’t later regret your choice.

Motley Fool’s recent article entitled “3 Reasons Retirees May Regret Claiming Social Security at 62” explains that there are three reasons why you may regret getting your checks when you turned 62.

1.You outlive your life expectancy. Social Security is designed in theory for you to get the same income over your lifetime, no matter if you begin getting benefits early, claim them late, or start them on time. Early filers receive more but smaller checks, because of early filing penalties. Late claimers get fewer and bigger checks, because they don’t claim them until they’re older. However, everyone dies on schedule, and if you outlive your projected lifespan and you claimed Social Security at 62, each month you live beyond your life expectancy, is a month in which you miss out on extra income. Your total lifetime benefits could end up much larger, if you receive a lot of checks beyond the point when you would’ve broken even for delaying benefits.

  1. Your medical care is too expensive. Medical care is very expensive for many retirees. There is out-of-pocket spending for Medicare premiums and prescription drug costs that aren’t covered. Many of these substantial healthcare costs are incurred late in retirement, when your health has started to decline. Unfortunately, for many, their investment account balances are low at this point after years of withdrawals. If you find that your savings are running short and you can’t afford costly care, you may regret that you claimed your money early and minimized the amount of your Social Security checks.
  2. Your spouse winds up with lower survivor benefits. If you’re the higher-earning spouse, taking your Social Security benefit may potentially result in leaving your spouse in a pinch, if you die first. That’s because filing at 62 would mean lower survivor benefits. You should think about the effect on your spouse, if you file benefits ahead of schedule.

Ask an attorney to work the numbers for you. In some cases, for married couples, it’s frequently best for a lower earner to begin their benefits early, if the money is needed for household income.  The higher earner can then wait to claim benefits as long as possible—ideally to age 70—to maximize the survivor benefits.

Take your time and think carefully about when to claim benefits. You don’t want to regret your choice, especially if it’s at 62.

Once you claim your Social Security benefits early, your income is going to be smaller for the rest of your life, unless you can undo your claim. You don’t want to look back and wish you’d waited or regret not considering all of the ramifications of starting benefits at 62. Even so, you may determine that claiming right away at age 62 still makes sense. However, understand the negatives before you make this choice.

Reference: Motley Fool (Aug. 17, 2020) “3 Reasons Retirees May Regret Claiming Social Security at 62”

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