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How to Keep Your Estate Plan from Jeopardizing a Disabled Heirâs Benefits
Estate planning is not a requirement. No one can force you to make your will, create a power of attorney or to own your property in a way to avoid probate. As a result, people too often let common estate planning excuses stand in their way.
For those who fail to plan, states have default laws for managing the transfer of their property and assets at death or for controlling their property if they lose this ability because theyâre critically injured or at an advanced age.
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However, these laws should be viewed as a backup plan, not an ideal arrangement â especially if you have a family member with a disability. By relying solely on the default laws in the probate or guardianship code of your state without considering your heirsâ current or potential eligibility for certain benefits, you might unintentionally disqualify your disabled child or grandchild from receiving public benefits, or these benefits may be substantially reduced. Thoughtful planning on your part can create additional benefits for your heirs by preserving resources made available through private or public sources.
A person with a physical or cognitive disability may qualify for taxpayer-sponsored public benefits or privately funded benefits to support his or her living expenses, since he or she may be unable to work or to gain full employment due to a disability. These public benefits, called Supplemental Security Income (SSI) are âmeans tested,â meaning that to apply (or re-apply) for them, a person must utilize, or âspend down,â most of their savings or funds that are available without restriction.
Grandpaâs problematic old estate plan
I was recently introduced to a widower who has five grandchildren. His grandson suffered a severe head injury and compound fractures to his leg in an automobile accident when he was 16. He will have difficulty with fine motor skills for the remainder of this life and canât stand for extended periods. He is now 22 and qualifies for SSI to supplement his earned income. His grandparents had a typical estate plan created before the accident. It provided that at the death of the first spouse, the balance of that personâs estate would pass to the surviving spouse. Upon the surviving spouseâs death, the balance of the remaining joint estate would be divided, leaving shares directly to their surviving children and grandchildren.
This plan would have caused an unintended consequence for this grandfatherâs disabled grandson. Since his grandson would receive this inheritance directly, the Department of Human Services in his state would have considered his inheritance an available resource, disqualifying him from continuing to receive full governmental benefits, including Medicaid health insurance, until these funds were fully used. His problems would have been compounded if his father wasnât living at his grandfatherâs death, because he would have also been entitled to the share set aside for his father.
Thankfully, the grandfather updated his estate plan (described in detail below). Had he not, it still would have been possible for his grandson to continue receiving public benefits, but this would have required the state to be reimbursed for the benefits paid during his lifetime before any remaining funds could be distributed to other family members. The grandfather was resolute in his decision to change his estate plan when he became aware of the likelihood that the state would be paid a portion, if not all, of his legacy.
How supplemental needs trusts work
After collaborating with an estate planning attorney experienced in the complicated arena of public benefits planning, we explained to the grandfather that funds can be held in a trust that wonât reduce his grandsonâs present benefits or disqualify him or other heirs from future benefits. These trusts are known as supplemental needs trusts or special needs trusts (SNT).Â
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An SNT can be either a first-party trust created by a parent, grandparent, guardian or a court using the beneficiaryâs own funds or a third-party trust funded with assets belonging to the trustâs creator. Because the beneficiaryâs assets are used, a first-party SNT requires that the state benefits provider be reimbursed for lifetime benefits paid by it on behalf of the beneficiary. A first-party SNT could have been created by the court had the grandfather not changed his original plan, but state reimbursement would have been required.
The grandfatherâs new plan created a third-party SNT for the primary benefit of his grandson that will supplement, but not supplant, his public benefits. Upon his grandsonâs death, the remaining balance of the trust will be distributed to his grandsonâs descendants or his other grandchildren.
Since the trust is funded with the grandfatherâs money, and not his grandsonâs, there is no need to reimburse any state for public benefits received. The grandfather also made similar provisions for any of his other children or grandchildren who are not presently receiving public benefits but may qualify in the future.
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Alternatives to special needs trusts
Special needs trusts are one of several solutions that can be used to plan for descendants who currently receive disability benefits or may in the future. Choosing an experienced trustee to oversee a special needs trust for his grandsonâs benefit was a good solution for this client, based upon the overall size of his estate and the nature of his assets. Under different circumstances, he may have considered other alternatives, such as an ABLE account, a pooled trust or purchasing exempt resources (such as a car or house) for his grandson.
ABLE accounts
ABLE accounts were created with the passage of the Stephen Beck Jr. Achieving a Better Life Experience Act of 2014. An ABLE account is a savings accounts for individuals with disabilities. They are like 529 education savings accounts with similar tax advantages. There is a limited amount that can be held in an ABLE account, but the balance will not be considered an available resource. The maximum amount that can be contributed to an ABLE account annually is set by the federal government and is adjusted for inflation each year. In 2022 this amount was increased to $16,000. The balance held in ABLE accounts can increase from year to year as long as it doesnât exceed the maximum amount permitted in the state where the disabled person resides. This limit currently ranges from $235,000 to $550,000, with many states allowing more than $500,000 to be held in an ABLE account.
Pooled trusts
A pooled trust can be a first-party or third-party special needs trust. This type of trust is managed by a nonprofit organization and is often a cost-effective solution, because the funds of many beneficiaries are combined into one master trust for administrative and investment purposes. Sub-accounts are then created for each beneficiary, with the disabled personâs account receiving a proportionate share of the entire fundâs earnings.
Distributions may be made by the nonprofit trustee from the beneficiaryâs share and used for his needs. One important thing to note: Pooled trust providers typically canât hold a house for a disabled beneficiary, unlike a trust created for a single beneficiary.
Purchasing exempt resources
When determining a disabled personâs resources in calculating his or her benefits, the value of personal property and household goods, one automobile and a home occupied by the person will not be counted. Purchasing exempt resources, such as an automobile or residence, can be an effective strategy for some people, particularly when combined with a pooled trust or ABLE account.
It is a good idea for everyone to review their estate plan from time to time, particularly because beneficiariesâ personal circumstances can change or there might be developments in state laws that could be advantageous to them or their beneficiaries. The time you take to carefully plan with a qualified estate and benefits planning attorney can improve your beneficiariesâ quality of life and provide additional public resources for a disabled child, grandchild or other family member.
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14 Places to Buy Cheap Books Online to Meet Your Reading Goals
Did you vow to to read more books in 2022, possibly shamed into it by all those people on social media claiming to have read a book a week in 2021? Book lovers, you can always save your dollars by using your local library and apps like Libby, but thereâs something satisfying about having a [â¦]
This was originally published on The Penny Hoarder, which helps millions of readers worldwide earn and save money by sharing unique job opportunities, personal stories, freebies and more. The Inc. 5000 ranked The Penny Hoarder as the fastest-growing private media company in the U.S. in 2017.
How to Write a First Job Resume + A Downloadable Template for 2022
Selling yourself and your skills to an employer can be difficult, especially when you don’t have enough experience under your belt. Whether you’re writing a first job resume or struggling to find a job out of college, this guide will…
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The post How to Write a First Job Resume + A Downloadable Template for 2022 appeared first on MintLife Blog.
Dear Penny: Do I Have to Pay Mom’s Debt With My $1M Life Insurance Payout?
Dear Penny, My mom passed away last year with lots of debt in her estate. This debt includes a mortgage, IRS tax liens, credit card debts and other heirs who would need to be notified of her estate. The estate appears to be in debt just below $200,000 with no other assets available to pay [â¦]
This was originally published on The Penny Hoarder, which helps millions of readers worldwide earn and save money by sharing unique job opportunities, personal stories, freebies and more. The Inc. 5000 ranked The Penny Hoarder as the fastest-growing private media company in the U.S. in 2017.
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Enjoy Your 7-Day Weekends: A 3-Step Plan for Retirement
Saving for retirement is one of the most popular topics that clients want to discuss with their financial advisers. In fact, Boston Private’s recent WHY of Wealth Survey found that preparing for a comfortable retirement was the most important factor driving the wealth planning efforts for nearly a third of all high-net-worth respondents.
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But how do you begin planning for such an important financial milestone like retirement? Itâs a question I hear quite often. And while thereâs no magic formula or right number that works for everyone, I have found that the following three steps can help almost any individual build a successful plan for what I like to call the âseven-day weekendsâ of retirement.
1. Begin with organizing your financial life
Though not the most exciting, this is an absolutely crucial step. Before you can plan a future, youâll need to understand the full financial picture of your life today. The easiest way to start is by creating a net worth statement that details all of your assets and liabilities.
As youâre taking note of your assets, be sure youâre reviewing how your financial accounts and other assets are owned and invested. What is the interest rate on your cash balance? How are your retirement accounts invested? As you review your mortgages and other liabilities, make note of the loan terms in addition to the balances. Do you have a 15- or 30-year mortgage? Whatâs the interest rate on your credit cards? How long do you have left before you are debt free? Donât forget to include other assets, such as real estate, collectibles and life insurance.
As you prepare your net worth statement, this is also a great time to review all of your accounts with beneficiary designations to make sure the correct person is listed.
Once you have a full view of your current financial picture, make a list of the income sources you might be eligible for in retirement. This might include pension income from your employer, or perhaps you own rental real estate. For most individuals this would include Social Security benefits.
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The easiest way to find out how much your Social Security payment will be is to obtain a copy of your Social Security statement. You can download copy of your statement from the Social Security Administration at www.ssa.gov. Your official statement will show your projected Social Security benefit at retirement and your entire work history. An important note: If you spot any inaccuracies in this statement, be sure to clear them up now.
One question I often receive as clients review their potential income streams is: âHow should I factor in a potential inheritance?â Unless you know the particulars of this potential benefactorâs financial situation and legacy wishes and the inheritance is imminent, I typically recommend not including an inheritance in your projections because it is never a sure thing. If it happens, then great! You will be that much better off financially. However, you donât want to bet your long-term financial security on something that doesnât materialize.
2. Get an idea of how much money youâll need
One of the most common questions I receive is: âHow much do I need to retire?â Because everyoneâs circumstances are unique, my answer is always, âWell, it depends.â
Even though answering this question might feel like aiming at a moving target, these guiding questions will help you arrive at a best guess, which is critical to building your plan:
- How much are you spending now? Sometimes the easiest place to start is with what your lifestyle looks like today and think about how it might change once you retire. Review and categorize your spending over the last year. If you spend a lot of money on dining out, will that budget increase once you have more time on your hands? If you spend a lot of money on clothing and dry cleaning, will that budget decline in retirement? Try to quantify these things as best as you can.
- What are your most important goals in retirement? Now is the time to dream big! What do you want your retirement to look like? Gardening is going to require a much different budget than traveling the world, so make sure you factor in these goals as well. Try to get as specific as possible. An annual round-the-world cruise with your spouse, children and grandchildren is going to cost a lot more than visiting a few national parks in an RV each year.
- When do you want to retire? Required minimum distributions from retirement accounts must begin at age 72, but you have the ability to begin some distributions sooner. Your Social Security benefit will change depending on when you begin collecting. If you collect early your benefits will be reduced, but if you delay collecting your Social Security benefit it will increase by 8% each year you wait until age 70. When it comes to planning your cash flow, itâs important to understand all of your options so that you maximize your income over the course of your retirement.
- How healthy are you? Longevity is one of the most important variables when planning for retirement. Itâs best to overestimate here as underestimating can mean your nest egg runs dry prematurely.
- Will you have health insurance when you retire? If you retire early, make sure you factor in the cost of obtaining health insurance. Some individuals mistakenly think that once you turn 65 Medicare covers all of your medical costs. You will still need to plan for supplemental policy premiums, deductibles and other out-of-pocket costs. Additionally, Medicare does not cover long-term care. If youâll need long-term care, you should factor in the costs of self-insuring for these costs or consider a long-term care insurance policy.
- Where do you plan on retiring? The cost of living and tax environments of different states and municipalities can have a significant impact on how much youâll need and how far your savings can go.
3. Donât forget to take taxes into consideration
Now that you have a better understanding of how much money youâll need and where it will be coming from, itâs equally as important to understand how much of that money will need to be paid to the government. Each asset and income source has its own tax treatment, so itâs important to understand the rules that apply to each. For example, if you plan on taking portfolio withdrawals from a brokerage account, you will most likely need to pay capital gains taxes as you sell investments to raise cash.
Each retirement investment vehicle and benefit plan has its own unique tax structure and rules, so make sure to understand the differences and requirements of each. For example, while distributions from traditional IRAs, 401(k)s, 403(b)s and Social Security benefits are all taxed as ordinary income, how much of your Social Security is taxed is dependent on how much other income you have. If you take distributions from a Roth IRA, those distributions are not taxable as long as you meet certain conditions.
Going through this exercise often helps illuminate changes that may need to be made in your current savings plan. Many individuals know that itâs important to diversify your investments, but fewer understand the importance of diversifying their savings from a tax perspective. If all of your retirement nest egg is held in your 401(k), for example, you might want to build up your savings outside of your 401(k) so you can lean on this account to help you decrease your taxable income in retirement.
By following the three steps above and asking yourself all the right questions, youâll be well on your way to creating the life you want to live during your seven-day weekends. And if you remember nothing else, remember that the best time to start planning for retirement is now.
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The 7 Best Cloud Stocks to Buy for 2022
The cloud computing market is growing at a massive pace â with the ongoing pandemic only spurring demand for cloud solutions and services. This, in turn, has investors turning to cloud stocks as a potential source for profits.
Cloud computing as an industry is only 15 years old, and can be traced back to when Eric Schmidt, then-CEO of Google, introduced the term at an industry conference.
Of course, a lot has changed since 2006.Â
Today, cloud computing is a $445.3 billion industry, according to market data firm ReportLinker. And it’s expected to grow to $947.3 billion by 2026. That works out to a compound annual growth rate (CAGR) of 16.3%. And when it comes to an industry of that size, it’s no surprise many investors are looking to get exposure to it via cloud stocks.
Additionally, many of these cloud computing companies are innovating â bypassing a global semiconductor shortage by making their own chips, according to The Wall Street Journal. This means, of course, that cloud stocks might have even more to offer investors as the years go on.
With plenty to look forward to in this high-growth industry, here are seven of the best cloud stocks to buy for 2022. Included on this list are some of the biggest users and providers of cloud services, as well as some relative newcomers. And all of the names featured here are well-liked by the analyst community.
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Share prices and other market data as of Feb. 3. Analysts’ estimates, recommendations and price targets as of Dec. 20, 2021, courtesy of Koyfin.
Am I Responsible for My Spouse’s Debt?
Marriage is a huge step for most people. It signifies some major life changes â including to your finances. Even as you celebrate, you might have some questions about exactly what marriage means for your financial future. Is their debt now yours? What is your liability when it comes to student loans, credit cards, and […]
The post Am I Responsible for My Spouse’s Debt? appeared first on SoFi.