For years people have been worried about Social Security’s future, but what is the actual outlook? According to the federal government, unless Congress acts to intervene, Social Security shortfalls are expected beginning in 2035.

Social Security retirement benefits are financed primarily through dedicated payroll taxes paid by workers and their employers, with employees and employers splitting the tax equally. Employers pay 6.2 percent of an employee’s income into the Social Security system, and the employee kicks in the same. Self-employed individuals pay the entire 12.4 percent Social Security payroll tax. This money is put into a trust fund that is used to pay retiree benefits.

The trustees of the Social Security trust fund have reported that if Congress doesn’t take action, the fund’s balance will reach zero in 2035. This is because more people are retiring than are working, so the program is paying out more in benefits than it is taking in. Additionally, seniors are living longer, so they receive benefits for a longer period of time.

Once the fund runs out of money, it does not mean that benefits stop altogether. Instead, retirees’ benefits would be cut. According to the trustees’ projections, the fund’s income would be sufficient to pay retirees 77 percent of their total benefit.

Congress can act to shore up Social Security before this happens. Some ideas include eliminating the cap on benefits. Right now, workers only pay Social Security tax on the first $137,700 of income (in 2020). That amount can be increased, so that higher-earning workers pay more in taxes. The Social Security tax or the retirement age could also be increased.

Social Security is immensely popular and lawmakers are unlikely to allow steep benefit cuts to take place. The last time the program was in financial trouble and received a major overhaul was in 1983, when President Ronald Reagan and congressional Democrats struck a deal to increase taxes and gradually raise the retirement age from 65 to 67.

For more information about a potential Social Security shortfall, click here and here. Or, contact Amy Stratton or Kristen Prull Moonan.

The growing popularity of cryptocurrency means it is increasingly something that must be considered when planning an estate. If you own cryptocurrency, providing instructions in your will is a must.

Cryptocurrency is virtual money that exists only in digital form. The most popular cryptocurrency is Bitcoin, but there are many different types. Usually the only way to access the funds is through a computer, using a personal passcode.

Unlike a bank account, there is no physical record of the currency, so if you own cryptocurrency it is essential that you declare it in your will and also let the person who will be handling your estate (your fiduciary) know about it. Also, unlike with a bank account, the fiduciary does not have to provide a death certificate or power of attorney in order to access the currency. As long as the fiduciary has your passcode, he or she can take control of the currency. This means you need to be sure that your fiduciary is someone you can trust with this information.

You do not want to put the passcode directly into your estate planning documents, which if they go through probate could become public documents. Instead, simply list the cryptocurrency as an asset in your will and put the instructions on how to access it in a separate document that is also referenced in the will. The instructions should be as specific as possible, and it can be updated as needed. If you lose the passcode to the currency, it may not be possible to recover it, so it is important to store it in a safe place, like a safe deposit box.

Your attorney can help you make a plan for your digital assets. To learn more, contact Amy Stratton or Kristen Prull Moonan.

While estate planning is important for married couples, it is arguably even more necessary for couples that live together without getting married. Without an estate plan unmarried couples won’t be able to make end-of-life decisions or inherit from each other.

Estate planning serves two main functions: determining who can make decisions for you if you become incapacitated and who gets your assets when you die.  There are laws in place to protect spouses in couples that have failed to plan by governing the distribution of property in the event of death. If you do not have a will, property will pass to your spouse and children, or to parents if you die without a spouse or children.

But there are no laws in place to protect unmarried partners. Without a solid estate plan, your partner may be shut out of the decision making and the inheritance. The following are the essential estate planning steps that can help unmarried couples:

• Joint Ownership. One way to make sure property passes to an unmarried partner is to own the property jointly, with right of survivorship. If one joint tenant dies, his or her interest immediately ceases to exist and the remaining joint tenants own the entire property. This is also a good way to avoid probate.
• Beneficiary Designations. Make sure to review the beneficiary designations on bank accounts, retirement funds, and life insurance to make sure your partner is named as the beneficiary (if that is what you want). Your partner will not have access to any of those accounts without a specific beneficiary designation.
• Durable Power of Attorney. This appoints one or more people to act for you on financial and legal matters in the event of your incapacity. Without it, if you become disabled or even unable to manage your affairs for a period of time, your finances could become disordered and your bills not paid, and this would place a greater burden on your partner. Your partner might have to go to court to seek the appointment of a conservator, which takes time and money, all of which can be avoided through a simple document.
• Health Care Proxy. Similar to a durable power of attorney, a health care proxy appoints an agent to make health care decisions for you when you can’t do so for yourself, whether permanently or temporarily. Again, without this document in place, your partner might be shut out by other family members or forced to go to court to be appointed guardian. If it is important for all of your family members to be able to communicate with health care providers, a broad HIPAA release — named for the Health Insurance Portability and Accountability Act (HIPAA) of 1996 — will permit medical personnel to share information with anyone and everyone you name, not limiting this function to your health care agent.
• Will. Your will says who will get your property after your death. However, it’s increasingly irrelevant for this purpose as most property passes outside of probate through joint ownership, beneficiary designations, and trusts. Yet your will is still important for two other reasons. First, if you have minor children, it permits you to name their guardians in the event you are not there to continue your parental role. Second, it allows you to pick your personal representative (also called an executor or executrix) to take care of everything having to do with your estate, including distributing your possessions, paying your final bills, filing your final tax return, and closing out your accounts. It’s best that you choose who serves in this role.
• Revocable Trust. A revocable trust can be especially important for unmarried couples. It permits the person or people you name to manage your financial affairs for you as well as to avoid probate. You can name one or more people to serve as co-trustee with you so that you can work together on your finances. This allows them to seamlessly take over in the event of your incapacity.

Your attorney can help you determine the estate plan that is right for you and your partner. To learn more, contact Amy Stratton or Kristen Prull Moonan.

The basic Medicaid rule for nursing home residents is that they must pay all of their income, minus certain deductions, to the nursing home. The deductions include a $60-a-month personal needs allowance (this amount may be somewhat higher or lower in your state), a deduction for any uncovered medical costs (including medical insurance premiums), and, in the case of a married applicant, an allowance for the spouse who continues to live at home if he or she needs income support. A deduction may also be allowed for a dependent child living at home.

In determining how a Medicaid applicant’s income affects his or her eligibility for nursing home coverage, most states use what is known as the “medically needy” or “spend-down” approach.  These states allow the applicant to spend down their income on their care until they reach the state’s income standard for eligibility, at which point Medicaid will begin covering their care.  In this way, those with incomes that exceed Medicaid’s thresholds can still qualify if they have high medical expenses, assuming they meet Medicaid’s other requirements.

But some states set a hard limit on the income permissible to qualify for Medicaid — no spend-down is allowed.  In these states, known as “income cap” states, eligibility for Medicaid benefits is barred if the nursing home resident’s income exceeds $2,349 a month (for 2020), unless the excess income above this amount is paid into a “(d)(4)(B)” or “Miller” trust. If you live in an income cap state, contact your attorney to set up a trust. The income cap states as of this writing are: Alabama, Alaska, Arizona, Arkansas, Colorado, Delaware, Florida, Georgia, Idaho, Indiana, Iowa, Kentucky, Louisiana, Mississippi, Nevada, New Mexico, New Jersey, Oklahoma, Oregon, South Carolina, South Dakota, Tennessee, Texas, and Wyoming.

For Medicaid applicants who are married, the income of the healthy spouse living in the community (the “community spouse”) is not counted in determining the Medicaid applicant’s eligibility. Only income in the applicant’s name is counted in determining his or her eligibility. Thus, even if the community spouse is still working and earning, say, $5,000 a month, he or she will not have to contribute to the cost of caring for his or her spouse in a nursing home if the spouse is covered by Medicaid.

To learn more, contact Amy Stratton or Kristen Prull Moonan.

Amy Stratton recently authored a guest article which was featured in Providence Business News in February on how small companies innovate, scale and grow via mergers and acquisitions, just like their larger business counterparts.

See the full article here in PBN:

https://pbn.com/mergers-and-acquisitions-for-mom-and-pop/?bypass=5e3c50b22a225

Trusts can be useful tools to protect your assets, save on estate taxes, or set aside money for a family member. But before you commit to adding a trust to your estate plan, make sure you understand the differences between revocable (also called “living”) and irrevocable trusts because each offers advantages and disadvantages, depending on their purpose.

While the two main types of trusts differ in how they are structured and taxed, both types of trusts are tools for setting aside assets and distributing them according to specific wishes and instructions. They can protect one’s property, safeguard a family’s financial future, and provide tax-saving strategies.

Structure
As the name suggests, an irrevocable trust, once established, can’t be canceled or revoked. The person creating the trust, sometimes called the “grantor,” transfers assets into the trust and permanently gives up all claim to them. A trustee is appointed to carry out the instructions spelled out in the trust. No changes to the terms of the trust can be made without the consent of the trust’s beneficiaries.

In contrast, a living trust offers more flexibility. The grantor of a living trust still owns and controls the assets and can make changes at any time. A living trust also has a trustee, someone who would take over management of the trust if the owner is no longer capable of doing so.

Taxes
Both types of trusts offer tax advantages, although these differ in key ways. An irrevocable trust is considered a separate entity and must have its own tax returns filed annually under its tax ID number. Irrevocable trusts can incur additional costs if a CPA is needed for tax preparation. Because it is a trust and not an individual, the irrevocable trust can’t qualify for the various deductions and exemptions that individuals can claim on their returns. Also, higher rates apply at lower income levels. For example, an irrevocable trust is subject to the highest federal tax rate of 37 percent if its income exceeds $12,500, a much lower ceiling than for individuals.

Assets within a living trust are still considered the property of the trust owner. Any income earned from this trust is filed along with the owner’s other income. Also, the assets of the trust belong to the owner’s estate and are taxed accordingly on the owner’s death. For this reason, wealthy families may choose to transfer a portion of their assets into an irrevocable trust to keep the value of their estate below federal and state exemptions.

Protecting Assets in the Future
One key advantage of irrevocable trusts is that their assets are protected from lawsuits and creditors. A living trust offers no such protection, because the trust assets are still part of the owner’s property.

A living trust is an option for someone who doesn’t need all the layers of protection but still wants to set up some provisions for the future.  A living trust works well to set aside assets in the event that the grantor becomes unable to manage his or her finances in the future, due to illness or old age. With a living trust, the grantor controls the property while he or she is competent, but a trustee can take over this function if the grantor loses this capacity.

If there are other considerations, such as estate tax planning, protection from creditors, or providing for a special needs family member, an irrevocable trust might be the better way to go. Your planner will have the best answers for your particular circumstances.

Keep in mind that this is general advice only and that specific situations may be treated differently. Contact your attorney for advice on how your specific situation will be handled using different types of trusts.

Or, contact Amy Stratton and Kristen Prull Moonan for additional information.

No parents want their children to fight among themselves after they are gone. Sadly, conflicts often arise, especially when a parent has gifted or loaned money to one child and not others. However, a few key words in your estate plan can minimize the potential for conflict.

If you give money to one child, the other siblings may claim that the child should receive a reduced share of your estate.  You can forestall such disputes by making your intent clear in your estate planning documents. For example, the document could state that you are not making any adjustments based on gifts. This would make it clear to everyone that no one should receive a reduced share. Alternatively, you could specify the gifts that have been made and explain why one child is receiving a reduced share.

Loans are another problem. These can be addressed in a number of ways, depending on your intent. Verbal loans are difficult to prove, so consider including a provision in your estate planning documents stating that all verbal loans are a gift. If you have any outstanding verbal loans that you don’t want to be a gift, then make sure you put these in writing. If you want the loan to be an advance against inheritance, this can also be specified in your estate planning documents. To avoid a child claiming the loan was forgiven, you can require that the forgiveness be in writing.

The important thing is to make sure your estate planning documents clearly convey your intent. Contact Amy Stratton and Kristen Prull Moonan for additional information and to ensure your documents provide the guidance you want regarding gifts and loans.

As baby boomers age, more and more millennials are becoming caregivers. Many are taking on this role while just getting started in their own lives, leading to difficult decisions about priorities. Proper planning can help them navigate this terrain.

The term “sandwich generation” was coined to refer to baby boomers who were taking care of their parents while also having young children of their own. Now millennials are moving into the sandwich generation at a younger age than their parents did. According to a study by the AARP, one in four family caregivers is part of the millennial generation (generally defined as being born between 1980 and 1996). And a study by Genworth found that the average age of caregivers in 2018 was 47, down from 53 in 2010. Gretchen Alkema, vice president of policy and communications at the SCAN Foundation, told the New York Times that the rise in younger caregivers may be because baby boomers had kids later in life than their predecessors and many are divorced, so they do not have a spouse to provide care.

Younger caregivers have different challenges than older caregivers. They may have younger kids to manage and careers that are just beginning, rather than established. In addition, more millennial men are caregivers compared to previous generations. The AARP study found that millennials spend an average of 21 hours a week on caregiving, and one in four spend more than 20 hours per week. More than half (53 percent) also hold a full-time job in addition to their caregiving duties and 31 percent work part time. Younger caregivers are also less likely to discuss their caregiving duties with their employer than previous generations.

Managing caregiving duties, family, and employment is stressful. Having plans in place can help alleviate some of the stress, and the earlier you plan ahead the better. The following are resources you can use to put together a long-term care plan:

• Long-term care insurance can help lessen some of the costs of caregiving if it is purchased early enough.
• A geriatric care manager can help determine what care is needed and where to find resources.
• An elder law attorney can draft essential documents like a power of attorney and a health care proxy, as well as advise you on available benefits, such as Medicare, Medicaid, or Veteran’s Administration benefits.
• Adult day care can give caregivers a much-needed break.

Having resources in place will help, but you also need to be mindful of when you need help. Recognize when you are being stretched too thin and consider your priorities. If possible, talk to your employer about flexible hours. Consult with other family members and do not be afraid to delegate tasks. Take care of yourself by eating well, exercising, and finding time to relax. For some tips on handling the caregiver/life balance, click here.

For an article on the unique caregiving challenges facing the women of Generation X, click here.

Or, contact Amy Stratton and Kristen Prull Moonan for additional information.

Both workers and retirees may need to rethink some of their estate planning in light of the newest spending bill. The Setting Every Community Up for Retirement Enhancement (SECURE) Act, part of the massive bill, makes major changes to retirement plan rules, including inherited plans.

Passed in December 2019, the SECURE Act changes the law surrounding retirement plans in several ways, but the biggest change eliminates “stretch” IRAs. Under the previous law, if you named anyone other than a spouse as the beneficiary of your IRA (or other tax-favored retirement account, such as a 401(k)), that beneficiary could choose to take required minimum distributions (RMDs) over his or her lifetime and pass what was left on to future generations (called the “stretch” option). The required minimum distributions were calculated based on the beneficiary’s life expectancy. This allowed the money to grow tax-deferred over the course of the beneficiary’s life and to be passed on to his or her own beneficiaries.

The SECURE Act requires that most non-spouse beneficiaries of an IRA withdraw all the money in the IRA within 10 years of the IRA holder’s death. In many cases, these withdrawals would take place during the beneficiary’s highest tax years, meaning that the elimination of the stretch IRA is effectively a tax increase on many Americans. This provision will apply to those who inherit IRAs starting on January 1, 2020.

Spouses who inherit an IRA are still able to treat the IRA as their own (and take distributions over their lifetime), and the following non-spouse beneficiaries are also treated like spouses:
•    Disabled or chronically ill individuals
•    Individuals who are not more than 10 years younger than the account owner
•    Minor children. But once the child reaches the age of majority, he or she has 10 years to withdraw the money from the account.

Given these changes, those with retirement accounts need to immediately reevaluate their estate plans.

Look at Disclaiming 
With regard to estates of certain people who died during 2019, there is a planning option for individuals who are inheriting a large IRA. Beneficiaries of large IRAs have the option of disclaiming them and allowing their beneficiaries to stretch their withdrawals. The disclaimer has to be done within nine months of the IRA owner’s death. Disclaimed property is treated as if the person inheriting it had actually died before the decedent.

For example, assume that Robert died on September 1, 2019, leaving a $1 million IRA to his wife, Stacy. The contingent beneficiaries are their three children. Stacy could choose to disclaim the IRA (or a portion of it) so that it passes directly to her three children. They then could stretch the withdrawals over their life expectancies, postponing the bulk of their withdrawals until they are older and presumably retired and subject to lower tax brackets. Stacy has to execute her disclaimer by March 31st so that it’s within nine months of Robert’s death. The window for this option will continue to narrow until it closes completely on October 1, 2020.

Review Your Conduit Trust 
Your estate plan may have been designed to have your retirement plans pass into trust for the benefit of your spouse, your children, or others. If your spouse is the only beneficiary, your trust is fine because the SECURE Act did not change any of the rules for spouses inheriting IRAs. But the rules did change for just about everyone else in a way that could affect how the trust would work.

Under the previous rules, so-called “conduit” trusts were set up to pay out RMDs to the beneficiaries. Under the new law, RMDs are not required but the IRA must be completely withdrawn by the end of the 10th year after the owner’s death, and if it’s held by a conduit trust, it must be completely distributed to the trust beneficiaries. If you created the trust to protect assets in the event of divorce or bankruptcy, or simply so they will be professionally managed, the new rules could undermine the purpose of the trust by distributing all of the assets out of the trust. If your IRA names a trust as a beneficiary, you should review the trust with your estate planning attorney.

Check Your Special Needs Trust
Special needs trusts, unlike most other trusts, are usually drafted as so-called “accumulation” trusts. Unlike conduit trusts, accumulation trusts do not require that the RMDs be distributed. Instead, they can be retained by the trust and distributed as the trustees deem appropriate. Automatically distributing RMDs could undermine eligibility for public benefits the disabled beneficiary may be receiving.

Under the new law, disabled beneficiaries are deemed “eligible designated beneficiaries” and fall under an exception that permits them to continue to stretch withdrawals under the old inherited IRA age-based schedule. But the trust will only qualify for this treatment if the disabled individual is the only beneficiary of the trust during his or her life. If the trust also permits distributions to a spouse or children, it won’t qualify and the IRA will have to be completely withdrawn under the 10-year rule.

One of the problems with the 10-year rule for accumulation trusts, as opposed to conduit trusts, is that the withdrawn funds if held by the trust will pay taxes at trust tax rates, which are much higher than individual tax rates in most cases. As a result, if your estate plan includes a special needs trust that could be a beneficiary of your retirement plan assets, it’s important to review the trust with your estate planning attorney.

To read the legislation, click here. For more on the new law, click here and here.

Or, contact Amy Stratton and Kristen Prull Moonan for additional information.

Medicaid law provides special protections for the spouses of Medicaid applicants to make sure the spouses have the minimum support needed to continue to live in the community while their husband or wife is receiving long-term care benefits, usually in a nursing home.

The so-called “spousal protections” work this way: if the Medicaid applicant is married, the countable assets of both the community spouse and the institutionalized spouse are totaled as of the date of “institutionalization,” the day on which the ill spouse enters either a hospital or a long-term care facility in which he or she then stays for at least 30 days. (This is sometimes called the “snapshot” date because Medicaid is taking a picture of the couple’s assets as of this date.)

In order to be eligible for Medicaid benefits a nursing home resident may have no more than $2,000 in assets (an amount may be somewhat higher in some states). In general, the community spouse may keep one-half of the couple’s total “countable” assets up to a maximum of $128,640 (in 2020). Called the “community spouse resource allowance,” this is the most that a state may allow a community spouse to retain without a hearing or a court order. The least that a state may allow a community spouse to retain is $25,728 (in 2020).

Example: If a couple has $100,000 in countable assets on the date the applicant enters a nursing home, he or she will be eligible for Medicaid once the couple’s assets have been reduced to a combined figure of $52,000 — $2,000 for the applicant and $50,000 for the community spouse.

Some states, however, are more generous toward the community spouse. In these states, the community spouse may keep up to $128,640 (in 2020), regardless of whether or not this represents half the couple’s assets. For example, if the couple had $100,000 in countable assets on the “snapshot” date, the community spouse could keep the entire amount, instead of being limited to half.

The income of the community spouse is not counted in determining the Medicaid applicant’s eligibility. Only income in the applicant’s name is counted. Thus, even if the community spouse is still working and earning, say, $5,000 a month, she will not have to contribute to the cost of caring for her spouse in a nursing home if he is covered by Medicaid. In some states, however, if the community spouse’s income exceeds certain levels, he or she does have to make a monetary contribution towards the cost of the institutionalized spouse’s care. The community spouse’s income is not considered in determining eligibility, but there is a subsequent contribution requirement.

But what if most of the couple’s income is in the name of the institutionalized spouse and the community spouse’s income is not enough to live on? In such cases, the community spouse is entitled to some or all of the monthly income of the institutionalized spouse. How much the community spouse is entitled to depends on what the Medicaid agency determines to be a minimum income level for the community spouse. This figure, known as the minimum monthly maintenance needs allowance or MMMNA, is calculated for each community spouse according to a complicated formula based on his or her housing costs. The MMMNA may range from a low of $2,113.75 to a high of $3,216 a month (in 2020). If the community spouse’s own income falls below his or her MMMNA, the shortfall is made up from the nursing home spouse’s income.

Example: Joe Smith and his wife Sally Brown have a joint income of $3,000 a month, $1,700 of which is in Mr. Smith’s name and $700 is in Ms. Brown’s name. Mr. Smith enters a nursing home and applies for Medicaid. The Medicaid agency determines that Ms. Brown’s MMMNA is $2,200 (based on her housing costs). Since Ms. Brown’s own income is only $700 a month, the Medicaid agency allocates $1,500 of Mr. Smith’s income to her support. Since Mr. Smith also may keep a $60-a-month personal needs allowance, his obligation to pay the nursing home is only $140 a month ($1,700 – $1,500 – $60 = $140).

In exceptional circumstances, community spouses may seek an increase in their MMMNAs either by appealing to the state Medicaid agency or by obtaining a court order of spousal support.

Contact Amy Stratton and Kristen Prull Moonan for additional information or to find out what you can do to make sure your spouse has enough income to live on.