Take Caution With a 529 College Savings Plan
December 4, 2013
A recent survey shows that 65 percent of parents preparing their children for college expect grandparents to contribute to the educational expenses. Many grandparents use 529 college savings plans to facilitate these gifts. As a recent article explains, however, grandparents should be wary of the potential pitfalls of these plans.
If the 529 account is held in the grandparent’s name, the assets within the account will not impact the initial financial aid calculations for the student prior to any distribution. This is because financial aid calculations do not consider third party accounts intended to provide funds to the student.
Problems begin to arise when the 529 account is distributed to the student. After a distribution is made, the student must report the amount of the distribution as income on financial aid applications made the following year. Student income is assessed at a whopping 50 percent. This means that, should a grandparent distribute $20,000 to a child from a 529 savings account, the grandchild’s financial aid could be reduced by $10,000 the following year.
Fortunately, there are ways to avoid this fate. For example, if a grandparent transfers ownership of the 529 college savings account to the child’s parents, the maximum amount it will be assessed at is 5.64 percent.
Executor Duty May Take Years
November 27, 2013
Serving as the executor of a person’s estate is a thankless task. Even for a modest estate, the average time it takes to settle an estate is between 12 and 18 months. More complicated estates can take years to wind up. A recent article discusses several complications that could mean an estate will take years to settle.
Sometimes unique circumstances complicate the process of administering an estate. For example, the decedent may have written his own will and done a poor job. Estates can also become difficult to settle when there is a blended family with multiple marriages and children from each.
Disputes Over Personal Effects
Personal effects often prove problematic if not specifically provided for in a will. Sometimes, family members help themselves to these items before the estate is distributed. Other times, squabbles over small items stunt the estate planning process for months.
Should I Hire Professionals?
If you are serving as the executor of a loved one’s estate and do not have a legal or financial background, consider hiring a lawyer and accountant. If there are any high value properties or items, hire an appraiser to confirm item value before making distributions.
How to Protect Your Assets
November 20, 2013
Despite how you accumulated your assets protecting them should be of paramount importance. Liability can arise in many forms, some more expected than others. A recent article discusses several ways to protect your assets.
Increase Your Liability Insurance
One of the best and easiest ways to increase your level of asset protection is to increase your liability insurance. Speak with your insurance agent periodically to determine whether you have adequate liability insurance. Most often, this insurance is your first line of defense against litigation and creditors.
Use Business Entities to Shield Assets
Many people do part-time work on the side, without creating a formal business. In these situations, the person is open to personal liability for any claim against the business. In order to shield personal assets from claims against the business, it is vital to create a business entity. Then, only the business assets will be at risk.
Review Jointly Held Accounts
Holding accounts jointly is a great estate planning strategy to avoid probate. However, this may not be a good asset protection maneuver. Importantly, money you put into a joint account is available to the creditors of the joint owners. For example, should the joint owner divorce, his or her spouse may come after the assets in the account.
Retirement Planning for the Self-Employed
November 13, 2013
Those who are self-employed have extra work to do when it comes to retirement planning. A recent article discusses the two major options available for the self-employed workers looking to begin a retirement plan. These options, the SEP-IRA and Solo 401(k), are discussed below.
Simplified Employee Pension Individual Retirement Account (SEP-IRA)
A SEP-IRA is a form of IRA used by the self-employed. These accounts do not have significant administration costs. However, if a self-employed individual has employees, his or her employees must receive the same benefits under a SEP plan. Importantly, these plans may be invested as a regular IRA.
A Solo 401(k) is a traditional 401(k) plan available to self-employed business owners with no employees. A self-employed business owner and his or her spouse may also utilize this tool. Solo 401(k) plans are subject to the same rules and requirements as regular 401(k) plans.
So What is the Difference?
There are many differences between the SEP-IRA and the Solo 401(k). For example, a policy-holder can taka a loan from a Solo 401(k), but not a SEP-IRA. Additionally, there is a Roth feature for the SEP-IRA, which is not available to Solo 401(k). Both can be opened through various custodians such as Charles Schwab and Fidelity.
Planning When You Are Young
November 6, 2013
Estate planning is not scary, it is not so easy you could do it yourself, and it is not for just the old and wealthy. Rather, estate planning is something every mentally competent person should do after he or she turns eighteen years old. A recent article discusses the importance of estate planning.
Estate planning is more than just a will. Rather, it is a comprehensive set of documents that provides for a person’s incapacity, as well as his or her death. Even young adults experience accidents that require another person to make medical decisions and pay bills for a short period of time. Through estate planning, a person can select a person they trust to make these decisions.
As young adults age, they may marry and have children. Estate planning is vital in this stage of life, as well, because it allows individuals to determine who should care for their children should they become unable to do so. Without making this designation in an estate plan, a court will determine who will care for your minor children. This may or may not be a person you trust to do so.
Finally, estate planning is important in the final stages of life, as well. Financial Elder Abuse is reaching epidemic proportions in the United States. Elderly Americans who are concerned that they may be a victim of financial elder abuse can, through estate planning, create a trust to direct that their assets will only be distributed for medical care and other approved purposes.
Medicaid Planning: Start Early
October 30, 2013
Most Americans who reach old age will require end of life care in a skilled-care facility. The cost of this care is staggering, and it will only continue to grow. Therefore, a recent article encourages Americans to begin Medicaid planning early.
Medicaid is a benefit program provided by the American government that can assist in covering the cost of care provided in a nursing home. Importantly, Medicaid is a need-based program. Only Americans with limited incomes and non-exempt assets will apply. Due to this, many people choose to reduce their assets as they approach the age at which they will require care.
Importantly, when Medicaid agents are determining whether a person applies for benefits, they apply a five-year look-back period. Therefore, if a person has given away assets within the five years before applying for Medicaid, he or she may be denied benefits.
If a person is within five years of needing care, there are other estate planning strategies that can be used in order to qualify for Medicaid coverage. For example, a person can put assets into a trust account. A trust removes assets from a person’s estate because the creator gives up control of the assets.
Expect the Best, Plan for the Worst
October 23, 2013
Estate planning is one of the only ways through which a person can plan for the unexpected events that the future holds. As a recent article explains, when estate planning, it is important to expect the best but plan for the worst.
Doris Belland lost her husband at the young age of 32. Although he had cancer for 10 years, he had never completed a will, made a succession plan for his business, or taken out a life insurance policy. Doris was therefore left to pick up the pieces after her husband’s death. As Doris explained, “there was no money to deal with his death. I had to dig myself out of a hole and create a new financial life.”
Unlike Doris, many women who are widowed at a young age are given no warning before their spouse passes away. Stay-at-home mom Kayla lost her husband in a hunting accident when she was only 25 years old. Much like Doris, Kayla didn’t know much about her financial situation.
Kayla was left with no money upon her husband’s death, because their bank accounts were in his name only. The bank accounts were therefore frozen, and Kayla was left with no means through which to pay insurance, mortgages, and bills. After Kayla remarried, her and her husband were sure to complete estate plans and open joint bank accounts.
Using an Irrevocable Funeral Trust as a Medicaid Spend-Down Tool
October 16, 2013
There are many different types of trusts that serve a myriad of purposes. One popular type of trust is the Irrevocable Funeral Trust (“IFT”). This trust is popular among people who are worried about paying the enormous costs of skilled nursing care, but have too many assets to qualify for Medicaid benefits. A recent article discusses how an IFT can be used as part of the Medicaid spend-down process.
Medicaid is a means-tested government program. A Medicaid spend-down, therefore, is the process that a person goes through in order to reduce the value of his or her estate so that he or she can qualify for Medicaid benefits. A person must take great caution when engaging in a Medicaid spend-down, as simple mistakes can often lead to a denial of benefits.
One way to spend down a person’s assets in anticipation of needing Medicaid benefits is through an IFT. An IFT holds money that will be used for the creator’s funeral and burial expenses. Although the assets in the IFT will benefit the creator, they will not be counted as part of his or her estate for the purposes of qualifying for Medicaid.
What if You Don’t Have the Talk?
October 9, 2013
Estate planning attorneys are constantly encouraging clients to discuss the status of their parents’ estate plans with them. This is important because it aids in the eventual orderly administration of the parent’s estate. However, many people simply refuse to discuss estate planning with their children. A recent article discusses what to do when your parent will not have this conversation with you.
Being a person’s child does not automatically grant you authorization to access his or her financial or medical information. If your parent does not want to share this information with you, you will not be able to get it. For example, a confidentiality policy will keep an adult child from being able to call his or her parents’ insurance company and ask about what type of coverage they have.
If your parents named you as their power of attorney, you will be able to seek this information should they become incapacitated. However, if your parents failed to execute a power of attorney, you will first need to be granted a conservatorship by a judge.
Although it is easier to administer your parent’s estate if you have had the talk, it is important to remember that you cannot force a parent to have this discussion with you. In this case, encourage your parents to organize their estate plan as best as they can.
Considerations to Help You Tailor Your Estate Plans to Your Life
October 2, 2013
Estate plans are not one size fits all. Rather, every person’s estate plan should be individually crafted to best meet his or her needs and wishes. A recent article discusses three factors that a person should consider, when planning his or her estate plan, to ensure that his or her plan meets his or her needs.
Consider How Much Protection Your Family Needs
The purpose of an estate plan is to protect yourself and your family. Therefore, it is important to estimate what types of protection your family will require. If you have minor children, for example, this protection will include selecting a guardian and providing adequate income for the children should the unthinkable happen. To protect yourself, complete a health care and financial power of attorney so that, should you become incapacitated, there will be people that you put in place to make important decisions for you.
Remember that Life is in Flux
Importantly, life is constantly changing. In an individual person’s lifetime, he or she may experience many significant life events such as marriage, divorce, and the birth or adoption of a child. After any of these major changes, a person should review and update his or her estate plan.
Invest in a Team of Professionals
Estate planning is important because it is the way through which a person ensures that his or her family is taken care of after his or her death. It is therefore important to get it right before it is too late. In order to create a comprehensive estate plan, consider consulting an estate-planning attorney, financial planner, and business planner if you have a business.