Tagged: aging

New Social Security Rules Coming in May 2016 « Estate Planning …

New Social Security Rules Coming in May 2016 « Estate Planning …

People approaching retirement age rely in part on Social Security (SS) to maximize their retirement income, but they also face a labyrinth of confusing laws and regulations. The dilemma: at what age is it best for you (or your spouse) to start collecting so you get the most retirement dollars? There are no easy answers to that question, and the questions just got more difficult.

New Budget Bill Surprise! Congress just enacted and the President signed into law a bipartisan budget bill designed, in part, to avoid another government shut-down. Effective May 1, 2016, the new law makes major changes to the rules about when and how retirees can claim their SS benefits, and eliminates several planning strategies previously available to them to get more benefit dollars.

The Basics Stay the Same Some basic rules stay the same. In general, you can begin collecting SS as early as age 62, but your monthly payment will be much lower than if you delayed collecting until your full retirement age, which is between ages 66 and 67 (depending on the year you were born). Once you start collecting then, your monthly payment amount is locked in, and will never increase (except for annual cost-of-living increases).

But if you further delayed collecting past your full retirement age, and wait until age 70 to collect, your monthly payment increases about 8% a year . File-and Suspend, or Having Your Cake and Eating It Too is Kaput One lucrative planning strategy no longer available after May was called file-and-suspend. Say Tom and Jane both reached their full retirement age of 66, Tom intends to keep working until at least age 70, but Jane wants to retire now.

Each could start collecting on their own SS, Tom at $1500/month and Jane at $600/month, or $2,100/month. Instead, Tom would file immediately to collect on his SS, but then suspend his right to collect. Why?

If Tom waited to collect his own SS until age 70, his monthly payment amount would increase about 8% over the next 4 years, and at age 70, he would be able to collect $1980/month, rather than $1500. Once Tom filed and suspended, Jane had the right as his spouse to collect on Tom s SS account, and she immediately started collecting one-half of what Tom would have collected, or about $750/month. Meanwhile, because she is not touching her own SS ($600/month), it would increase to $792/month by the time she reached 70.

At age, Jane would have collected about $36,000 on Tom s suspended claim, and then Tom and Jane both would start collecting on their own SS, for a combined monthly income of $2,772, instead of only $2,100. The new law eliminates your ability to maximize benefits under this file and suspend by requiring that Tom actually start collecting on his SS at age 66 before Jane can claim her one-half spousal benefit on his SS account. The new law made several other changes that tighten up the filing rules.

What You Need to Know or Do Why is it important that you know about these changes in the law. First, since it doesn t take effect until May 2016, there is a brief window for those who are at least 66 (or who will turn 66 by April 30) to get grandfathered in to the old rules. Also, your financial advisor may have projected your estimated retirement income based on the old rules, and you may want to discuss the implication of these changes in the law.

SS was intended only to supplement other sources of retirement income, such as 401(k)s and IRAs, and you may have to adjust your planned use of 401(k)s and IRAs to offset the lost SS income.

You and your advisor also may have to reconsider whether it makes more sense or less for you to delay collecting SS until you reach age 70, when you will receive the maximum monthly SS payment.

Conveniently located in North Attleborough, we serve clients from Massachusetts and Rhode Island, especially the communities of Taunton, Attleboro, North Attleborough, Norton, Norton, Foxboro, Wrentham, Rehoboth, Plainville, Franklin, Mansfield, Seekonk, Pawtucket, Providence, Woonsocket, Cumberland, and Lincoln.

April 15 a Good Reminder to Avoid the Estate Tax Trap « Estate …

April 15 a Good Reminder to Avoid the Estate Tax Trap « Estate …

During tax season, I m reminded of Ben Franklin s old saw: nothing is certain in life but death and taxes. As we approach the dreaded April 15, many of us are focused on our income tax returns. Still, many people also wonder or worry about whether, upon their deaths, estate tax will be due.

What is the Estate Tax? When we hear the words estate tax, we might think they can t possibly apply to us, but only to very wealthy people, like Warren Buffett. Not necessarily.

The government imposes a tax on the transfer of your wealth at death. Estate tax is the amount that your estate will owe the government, and is calculated by the value of all the property you owned at your death. Right now, the federal government s estate tax does not apply unless you own at least 5.45 million at death.

Relatively few of us have to worry about this. Massachusetts Separate Estate Tax The bad news is that Massachusetts is one of the states which impose its own separate estate tax, which is imposed if you die owning $1 million or more. The graduated tax rate can run as high as 16%, which can be a significant sum that you will not be leaving to your family.

Massachusetts seniors with taxable estates often migrate to Florida, not only for the warmer weather, but because Florida has no state estate tax. Who Pays? Your Taxable Estate Some people ignore the issue of estate tax because they don t think of themselves as a millionaire .

But remember that this tax is imposed on your taxable estate , which includes your home and/or vacation home, death benefits payable on any life insurance policies you own ( i.e. , not the cash surrender value), and any balances paid out of your retirement accounts ( e.g. , IRAs, 401ks) when you die. If you total up these assets, or project their future value, you may easily exceed the $1 million threshold for paying estate tax, even though we don t feel like millionaires. So do the math.

Ways to Reduce your Taxable Estate If you think you exceed, or will exceed, the threshold, there are ways to avoid or minimize paying estate tax, but you have to plan ahead. You can t just give away large assets to your family during your lifetime so they won t be included in your taxable estate. But the government will allow you to make many small gifts ($14,000, or $28,000 for spouses) every year , and you can give that amount to as many people as you want, even to non-family members.

You also can make direct payments to a college or medical provider to pay for someone s tuition or medical expenses, even if the gifts exceed $14,000 . Over time, this repeated annual gifting can reduce your taxable estate dramatically, while still using your property to help your family. If You Don t Plan Married couples can protect up to $2 million from estate tax, provided they use the right estate plan, and not simple wills.

Although you can leave any amount to your spouse tax-free on your death, each spouse has their own $1 million tax exemption coupon, which can shelter that amount of assets from estate tax. Married couples can leave any amount to their spouse tax-free, using the unlimited marital deduction. But if they rely only on the marital deduction, the first spouse dies without using their $1 million coupon, and it was wasted.

The surviving spouse will then own $2 million when he or she dies, but will have only their own $1 million coupon left to use. Estate taxes will be due. Using Bypass Trusts to Eliminate Tax To avoid this result, an estate plan can provide that the coupon of the first spouse to die will be used to shelter $1 million of their assets, which will then be placed tax-free into a bypass trust.

The surviving spouse can still use the money in the bypass trust during their lifetime, but later, the surviving spouse can use their second coupon on the remaining $1 million of assets. Result: no estate tax paid on $2 million! Irrevocable Life Insurance Trusts Finally, your ownership of life insurance policies that will pay out large death benefits to your family may expose you to estate tax.

Who owns the policy is usually not that important. If you create an irrevocable life insurance trust to act as owner of these policies, your family will still get the proceeds without your estate paying estate tax. Although death and taxes may be certain, you can do something proactive to avoid death taxes.

Conveniently located in North Attleborough, we serve clients from Massachusetts and Rhode Island, especially the communities of North Attleborough, Taunton, Attleboro, Norton, Norton, Foxboro, Wrentham, Rehoboth, Plainville, Mansfield, Franklin, Seekonk, Pawtucket, Providence, Woonsocket, Cumberland, and Lincoln.

Aid & Attendance: Caring for our Aging Veterans « Estate Planning …

Aid & Attendance: Caring for our Aging Veterans « Estate Planning …

The high price they paid for us. As a nation, we owe our veterans a huge debt of gratitude for their selfless service and sacrifice for our country. It is truly a debt we can never fully repay.

What we must do is ensure that they receive the respect and dignity they deserve when it comes time for them to receive long-term care at the end of their lives. For that reason, the government offers qualified veterans many forms of financial assistance, such as pensions, home loans, life insurance, and education grants (through the GI Bill). What is Aid & Attendance?

One of the lesser known programs available to some wartime veterans is called Aid and Attendance (A&A), which is administered by the Veterans Administration (VA), and which assists elderly or disabled veterans (or their surviving spouses) pay for the costs of long-term care, whether in-home care or in an assisted living facility or nursing home. A&A provides a veteran up to $1,758 in tax-free benefits per month to a veteran, $1,130 to a surviving spouse, or $2,085 to a couple. Who qualifies?

To qualify for A&A, the veteran s disability need not be service-related. He or she must have served at least 90 days on active duty, one day of which was during a time of war ( i.e. , World War II, the Korean conflict, or the Vietnam or Gulf Wars), and not have received a dishonorable discharge. (Until the President or Congress officially declares an end date, the Gulf War is considered ongoing.) A surviving spouse must have been married to the veteran for at least one year, or had a child together and cohabited until the veteran died. Limits on Assets An applicant must provide a written evaluation from their doctor describing a medical condition which makes them unable to care for themselves ( e.g. , dressing, bathing, cooking, eating, leaving home), and must disclose his or her assets and income.

Unlike Medicaid, which normally requires applicants to have less than $2,000 in assets to qualify for long-term care benefits, A&A has no fixed dollar cut-off for assets. Instead, the question is a subjective one, evaluating whether the applicant has sufficient net worth to pay for his or her own medical expenses for the remainder of their lives. Like Medicaid, A&A does not count the home, a vehicle or personal belongings as assets, but other assets like savings accounts, investments, and retirement accounts are considered.

The VA assesses each application on a case-by-case basis, looking at the applicant s particular circumstances, such as income, other medical and non-medical expenses, and life expectancy. While many elder law attorneys suggest capping your assets at $80,000, the subjective net worth standard makes it difficult to predict whether an A&A application will be approved. If the applicant has too many assets, he or she might be able to transfer them to an irrevocable trust or to your children in order to qualify for A&A.

Note, however, that these transfers might disqualify you from other benefits, such as Medicaid, if you need to enter a nursing home within five years of the transfer. Limits on Income An A&A applicant (or surviving spouse) also must have limted income. A&A limits a veteran to about $21,000 in annual income, $13,500 for a surviving spouse, or $25,000 for a couple.

Countable income includes any earned income (like wages), but also unearned income such as investment income, annuities, pension, and Social Security. You are then allowed to deduct from this gross income amount all unreimbursed medical expenses. These would include the out-of-pocket cost of an assisted living facility or nursing home, home health services, health insurance or Medicare premiums, and the cost of prescriptions.

Approval of an A&A application may take several months, but payments will be made retroactively to the date of application.

Conveniently located in North Attleborough, we serve clients from Massachusetts and Rhode Island, especially the communities of North Attleborough, Taunton, Attleboro, Norton, Norton, Foxboro, Wrentham, Rehoboth, Plainville, Mansfield, Franklin, Seekonk, Pawtucket, Providence, Woonsocket, Cumberland, and Lincoln.