Caring for Aging Parents: Elder Law, Estate Planning and Estate Administration.

Note: Askin & Hooker recorded this webinar presentation of which this is one episode. The webinar presentation is produced and recorded for the ear and it was designed to be either watched live on video or listened to via audio. If you are able to, we strongly recommend listening to/watching this episode which will include emotion and emphasis that isn’t obvious when reading a transcript. Our transcripts are generated using a combination of speech recognition software and humans. They may contain errors. Please check the corresponding audio before quoting in print. This is not meant to be legal advice.

Bill Askin

Good evening, everyone. Thank you for joining us. My name is Bill Askin. I’m a attorney and partner with the law firm of Ascon and hooker, local community focused law firm here in Sussex County. Practice, we have five attorneys and 10, or maybe 11 support staff, depending upon the day of the week, I guess. And we are a full service law firm practicing in multiple areas of the law, basically all types of law except we do not handle divorce. We don’t handle criminal law, bankruptcy or any intellectual property like patents and trademarks. But other than that, we’re we’re pretty much the full service law firm. Personally, my experience and my practice is now limited to real estate matters. And then tonight’s topic, significant amount of Elder Law, estate planning and estate administration. So those are the topics that I will be reviewing tonight. I’ve been practicing law now for more than 30 years. So you might think that qualifies me as an elder law attorney. But rather than reflect a reflection of the age of the attorney, elder law is actually the field of law that addresses the legal needs of people as they age. And I have to assume that’s why most everybody is here tonight. Whether it’s concerns about ourselves, our family, our parents, the aging process is a pretty good process. As far as I’m concerned, it beats the alternative, right. But as we age, additional legal issues and financial issues come to the forefront. So my goal for the seminar tonight is to provide an overview of most all of the legal issues that families face with age, and the decisions that need to be made and issues that need to be addressed. As we plan for things like retirement and the golden years of life, so to speak, when many of us, and or our parents or family or friends potentially become dependent, again, on other family members for for care for support and possibly for decision making, and help with decisions that need to be to be made. So I did a little research. And I’m not quite sure if this type of a seminar has been done before at least, at least not in this area. Because I am approaching 60. And I looked, I looked and really was not able to find anything. So I created a list of topics and issues that have well been on my mind. Perhaps planning tips that may be of interest to you, whether again, they’re for yourself or your parents or other family members, or friends. So this seminar will run about an hour or maybe an hour and a half. If you have any questions about any of the topics, please feel free to type them in the chat box. I think everybody is getting used to zoom these days and the chat feature you see a little chat button somewhere on your screen depending upon the type of computer or handheld device that you’re on. And if you type your questions in there, we will try to review some of them if not all of them at the end of the presentation. Again, the seminar is only meant to be an introduction to the many, many topics. There are far more in depth webinars that we’ve done in the past that are On our website on a couple of the topics that I’m going to touch on tonight, such as we’re going to talk about Medicare, Medicaid and long term planning. I did a webinar on that a few months back. And that webinar is on our website, as is another webinar on estate planning. And this webinar will be on our website sometime shortly after this evening. So in the coming months, I plan to do a deeper dive into some of the other topics that we’re going to briefly touch on tonight. All of our webinars, again, are on our website, www dot Ascon law.com. You’ll see it on the slide here and the web address. And if you look under the Events tab, that’s events. That’s where all the webinars will be located.

 

Bill Askin

Tonight, I should say is Wednesday, March 30 2022. And I want to get that out there in case you’re watching this after this evening’s live presentation. It’ll probably be up on the website for at least a year or two to come and things change. So please make sure that you don’t rely upon anything specific that is said tonight because things especially topics such as taxes and tax laws and tax exemptions and things like that have a habit of changing every every year to some of the topics I’m going to touch on tonight are purely legal in nature, such as estate planning and wills and trusts and estate administration. Other topics are more of a hybrid of legal financial, tax and even insurance issues and topics. And I have to say although I am a licensed attorney in New Jersey, New York and Pennsylvania, I am not a licensed accountant. Nor am I a licensed financial adviser or insurance broker. And to cover myself my required disclaimer. Again, tonight’s merely an introductory discussion of topics relating to aging. Nothing I say should be construed as legal advice, financial tax or insurance advice, I will provide an overview of the multitude of Elder Law and Estate topics. But of course, before taking any action, I must advise that you get personal and professional advice from your elder law or estate attorney, accountants or financial advisor. So with that said, there are many different definitions or interpretations of exactly what Elder Law and Estate Planning mean. In my mind, the way I the way I think of and distinguish the topics is as follows. I look at elder law, as the practice or provision of legal counsel and advice to our clients on planning for long, healthy and hopefully prosperous life and addressing the legal needs of people as they age. It’s not a depressing topic, and it shouldn’t be something that anybody is afraid of, or you try to avoid it. In fact, it’s it’s something that can be very encouraging to to provide legal advice so that people can maximize the opportunities as we go through life and age. That’s as opposed to estate planning which, you know, gets into the more type of specific planning for the legal needs for the potential that, you know, we all have as we age, the potential for incapacity increases. And, as does you know, the the chances of our ultimate demise are passing away someday. So, estate planning addresses those needs for the potential for incapacity and, and eventually preparing for life’s transitions and disposition of assets and appointment of a legal representative of our estate through wills and trusts or in the absence of a will or a trust through the estate administration process. And then finally, you know, the you know, the, the culmination or the end is the estate administration process is the process by which a stat assets are gathered. A state final debts are paid and satisfied. Final income taxes and the estate or inheritance taxes are taxes are paid. And ultimately, the balance of an estate is distributed to the beneficiaries in the most cost effective and time effective manner. Possible. So we’re gonna start tonight with Elder Law, the more positive and optimistic topic. Oops, I skipped the slide there. Here we go.

 

Bill Askin

And elder law again, it’s the planning of for life, right, the planning for hopefully a long and healthy and prosperous life and various topics come up as, as we age, like I said, As I approach 60 These topics are more and more on my mind. And generally those topics are, you think about things you think about in your 60s, right Medicare, Social Security, retirement plans and planning, you know, we’ve been, hopefully been, you know, stashing money into our retirement plans for many, many years now. And now it’s time to think about maximizing those investments and maximizing their shelf life to last throughout our lifetime. And then, if there is a concern or a history in the family, or a concern about our ultimate health in our in our golden years would be long term care planning, right nursing homes, long term care facilities, and especially in light of the COVID environment for the past couple of years, that’s been a concern that people have had at the top of their minds and a topic that comes up often in the counseling I do with with our clients. So first of all, with Medicare, I’m going to touch on some of the basics of Medicare. Whether you know it or not, there’s actually millions of seniors who get their health coverage through Medicare every year. And as you approach your eligibility age, it’s 25. The more you know about the program, the better equipped, hopefully, you’ll be to make the most of your benefits. We’re going to cover just a few key topics, rules and laws that you should be familiar with them and get some good solid legal advice. Advice on so as you might likely know, eligibility eligibility for Medicaid from sorry, Medicare begins at 65. Everyone’s entitled to Medicare as long as you’ve worked for at least 10 years, and paid Medicare taxes through through payroll, you can enroll in Medicare Part A, which is the most common form of Medicare. And that’s the form that covers hospital care. And it’s free if you or your spouse again, if you worked and paid Medicare taxes on your income for at least 10 years of your working life. You can also enroll in Part B of Medicare which covers other than hospital care, things like doctor’s office visits, tests, vaccines, things like that. But Medicare B Medicare Part B comes with a cost attached, which I will discuss here in a minute. Second, you should be aware that there are penalties for signing up late your initial Medicare enrollment window spans for a period of seven months. So you’ve got seven months, within which time you are legally required to sign up for Medicare. The seven month window begins the three months before the month of your 65th birthday. And then it includes the month of your 65th birthday. And then it ends three months after the month of your 65th birthday. So that’s kind of a long and you know, somewhat complex way of staying, stating you have seven months to apply. And if you don’t enroll during that seven month period, then you go too long. Without coverage, you’ll risk lifelong surcharges on your monthly premiums for Medicare Part B, again, which covers outpatient services and things like diagnostics. Specifically, the penalty is 10% of the monthly premium for every year or every 12 month period that you failed to sign up upon being eligible. So if you don’t sign up until you’re 66 years old or 66 birthday, for the rest of your life, you pay a 10% penalty on every month’s premium. If you wait until you’re 70 What’s that five years, you’re looking at a 50% increase in the monthly premium you have to pay for part B so please, please please put that on your calendar. And don’t forget to sign up for Medicare within seven months of your 65th birthday. I said that part B comes with a cost right so there is a premium that you pay for part B it changes from year to year consistently goes up right it rarely, if ever, I don’t think it’s ever come down. Currently it’s about 145 or $50 per month

 

Bill Askin

as a starting point, but if your income exceeds a certain threshold, you’ll be subject to what are known as income I’m related adjustment amounts. And that’s an expense you’ll need to plan for accordingly, right. So for the current year, you’ll face the surcharge if you’re single, and your earnings are above $87,000 as a single tax filer, or if they’re above $174,000, as a married couple filing jointly. So that would increase your premium. And we’ll go over what some of those increases might look might look like here in just a few minutes. Original Medicare is what you know most people begin to learn about. And I think what most people actually select, there’s two types of, of Medicare. You can have Original Medicare or you can have what you’ve probably heard of, or some of you might be on a program called Medicare Advantage. It’s one or the other not both. Original Medicare consists of you may have heard and we discussed Part A and Part B hospital. And then doctors coverage, as well as part D, which covers prescription medications. As opposed to Original Medicare and parts A, B and D. As an alternative, you can sign up for Medicare Advantage plan. And the advantage plans are administered instead of by the government. They’re administered by private insurers. And they are required to offer at least the same level of coverage as Original Medicare. But they often provide a wider scope of coverage. For example, Original Medicare will not pay for cover dental, and it will not pay for a cover eye exams. But many of the Medicare Advantage plans will cover for such things. The downside is whereas Original Medicare gives you access to medical professionals, hospitals and doctors nationwide across the country. In general Medicare Advantage limits you to a specific network of doctors or physicians or hospitals, which some seniors find to be too restrictive. You know, it’s more like maybe like an HMO. And if you’re a perhaps a snowbird and you have winter home in the south, then you summer here in the North, a Medicare Advantage program, you should give careful consideration to the plans, the insurance companies and the limits on the types or the the doctors and hospitals that will be covered under your plan. You can’t have although you cannot have Medicare and Medicare Advantage, it is possible to have Medicare plus continue your private insurance. So if you’re still working at age 65, and have access to a group health plan, through your job through your employer, or you have access to your spouse’s plan, you can retain that coverage and also enroll in Medicare simultaneously. Now, it depends upon the size of your employer, the size of the company that you are your spouse work works for. And it depends upon the exact nature or type of coverage that is provided through your employer as to whether or not you would want to do that and as to whether or not which would be your primary and which would be your secondary insurance. For instance, as an example, if your employer has 20, or 20 or more employees, Medicare in that case would serve as your secondary insurance and your private insurance. If you keep that up your group group health plan would be your primary. But since under Medicare Part A is free, it might pay to enroll in Part A just for backup hospital coverage alone. And that’s I think, in fact, what a lot of people choose to do. Another important topic is health savings accounts. So a lot of a lot of employer sponsored health plans these days are, are what are what is known under the law as High Deductible Health Plans, right? So you have really good insurance, but there’s a really high deductible. And the benefit that comes with most of those plans is what’s called a health savings account or an HSA. In general, Medicare and HSAs do not mix. In general you can’t have Medicare as your primary insurance and also be contributing, contributing to a health savings account.

 

Bill Askin

Health Savings Accounts, however, offer a great opportunity for investors for seniors. If you have one and you go on Medicare, it’s a great backup. It’s a great, potentially almost second Airi insurance plan or nest egg, they offer a great opportunity to enjoy tax benefits in the course of socking away funds for health care expenses. But again, once you enroll in Medicare, you’ll no longer be able to contribute money to an HSA. Which, again, is why some people who are still eligible for employer health coverage at the age of 65 opt to delay Medicare, even though Part A is free, and can serve as a backup insurance by delaying Medicare enrollment, and keeping your private insurance through your employer, you may be able to continue contributing to an HSA which if you’re over 50, I think the maximum contribution for 2022 is $8,300. That’s a lot of money, you could sock away in an HSA account, right. And the even better part of an HSA account is that the HSA accounts come with a significant tax savings, there are there significant tax advantages to these accounts, even better than retirement accounts, right even better than your IRA or your 401 K. The money you put in over the years contributing to a health savings account is pre tax dollars, it’s not taxed, you don’t pay income tax on that money when the year you put it in. And that’s the same as most retirement accounts, right. But unlike qualified retirement accounts, the money you take out, the money you pull out of your health savings account is also tax free. You don’t pay income tax when you take the money out, or when you put it in. And even better, the earnings and appreciation on the money you put into an HSA is without tax. So all the gain that you make on the investments within your HSA over hopefully what may have might have been, you know, a number of years during your life are tax free. So again, if you have that option, if you are employed, and you have an employer sponsored health plan, and you can’t afford it, and you’re going to continue to work it and your plan comes with a health savings account, think twice about applying for Medicare on your 65th birthday, it might might make a great deal of sense to delay that. And in that case, it’s not as big of a concern to actually apply for Medicare at your 65th birthday, or within that seven month period I described as long as you apply within that seven month period of becoming eligible for Medicare, which would be upon your retirement for discontinuing your private employer sponsored health care plan. So good topic, something that is not often discussed. And finally, Medicare, you can enroll in Medicare, actually, before you enroll in Social Security, which is going to really take us to another topic coming up here soon. As I stated earlier, Medicare eligibility begins at 65. You don’t have to take Social Security when you become eligible at 62. You don’t have to take it at 65, or full retirement age, which is almost 67 these days. And while you’re allowed to sign up for Social Security as early as 62, you know, you don’t get your full monthly benefit based on your earnings history until you reach full retirement age. Or I’ll talk about this in a minute here. It’s actually until you’re 70. But full retirement age is either 66 or 67. Right now, depending upon the year that you were born. And as such, you’re absolutely entitled to and you should sign up for Medicare at 65 Even though you don’t begin taking Social Security until a year or two or several years thereafter. On the other hand, if you do start collecting Social Security before you turn 65, like at 62 or 63, you will actually automatically be enrolled in Medicare on your 65th birthday. So I’m sorry, you will automatically be enrolled in Medicare on your 65th birthday through the Social Security Administration. And that will take us to Social Security. Social Security is another federal insurance program that provides income benefits to qualified retired workers, and also disabled people as well as their spouses and potentially children and survivors or surviving spouses.

 

Bill Askin

More than 64 million people today, one in every six Americans collect social security benefits every month. And when should you apply? That’s the topic I just started to get into when talking about Medicare. There may be no one more important decision to make when you get into the retirement years and face those financial decisions. It’s a very, very important decision, a very subjective and a very personal decision about when you should apply and begin taking Social Security benefits. And I’ll explain what I wrote real quickly, I’ll try to do it quickly. Like I said, you can apply and begin receiving Social Security income as early as your 62nd birthday. However, starting at that age means those benefits will be about 30 to 35% less each month, then what you would have received if you delay benefits until you reach what the government considers your full retirement age. And waiting past your full retirement age before you begin to draw Social Security can also mean you’ll receive an even larger monthly benefit. Full Retirement Age, real quickly if you were born 1937, or before it was 65, it’s now 65 years old. If you were born between 37 and 1943, it’s somewhere between 65 and 66. If you were born between 1943 and 1954, your full retirement age is 66. And if you were born between 1955 and 1959. It’s somewhere between the age of 66 and 67. And those of us born 1960 or later, full retirement age is now considered to be 67 years old. Now, if you wait past your full retirement age, like I mentioned, to start collecting Social Security, your monthly benefits will continue to increase by 8%. Every year until you turn 70 years old. Most people are not aware of that, after 70, they don’t increase anymore. So if you wait until you’re 70 to your full retirement age, and your the amount of your monthly check will be frozen as what it was when you were 70. So if 70 is really when you can maximize your monthly income for the rest of your life, why isn’t age 70 referred to as full retirement age, if that’s when you’re eligible for the maximum monthly income benefit? I don’t know the answer to that question. Unfortunately, I would think maybe the government doesn’t want people to get that extra. What is that three years that 8% A year 24% monthly income for the rest of your life that you could potentially get if you wait. And that can obviously be a significant amount of income. Take for example, someone who turns 62 Last year, that person’s full retirement age, now at 62 would be 67 years old, approximately. And let’s say it was at full retirement age at 67. Say their retirement benefit would have been $1,000 a month. The actual amount they will receive based on when they choose to retire varies by hundreds of dollars a month in that situation, which equates to 1000s of dollars per year. And what could be 10s or even hundreds of 1000s of dollars over the remaining lifetime depending upon obviously how long they live. And that’s the big wildcard if, if we all knew how long we were going to live, it would be an easy, easy decision to make.

 

Bill Askin 

So just on that one example, if if at full retirement age of about 67. That person began taking wood at 67 be $1,000 A month instead of waiting at 62 They started collecting, they would get about $700 a month instead of 1000 per month, which 300 ollars a month difference $3,600 A year. If you live 10 years, 36,020 year, 72,030 years 108,000. As you can see it can go on and on and on. But the average Social Security monthly check is more than twice that amount more than twice the amount of $1,000 per month. So obviously the difference over the years adds up to something that could be very, very significant. Again, the decision of when to begin claiming Social Security is an extremely important part of your retirement plan. That’s because it determines the amount you will receive every month for the entire time you’re in the program for the rest of your life. So it would be obviously wise to consider several factors before deciding Knowing when to apply for Social Security benefits. These include what other retirement savings or benefits you have available to you pensions, retirement accounts, IRAs, 401, k’s and then how long obviously you expect to live in retirement? And whether you plan to continue working while drawing Social Security benefits. Now, how do you apply for Social Security, if you’re eligible for Social Security, it’s pretty simple. You can apply online and that is, by far the method that I would, I would recommend, you can also apply by telephone, or by appointment at your local Social Security office for most of us here. And if you’re in Sussex County that’s located at the county administration building in new online, you can do it at the Social Security website, you can Google it, or it’s just ssa.gov s s a dot g o v. There, they allow you to apply for retirement apply for spousal benefits, you can apply for Medicare there, you can even apply for disability benefits on that same site. You can also call one 800 Number. But if you do it that way, you can find the number on Google it’s 1-800-772-1213. But if you do that be ready to be on hold for quite some time. But basically, they say we pack a lunch and an extra cup of coffee, it’s going to be a long quality, try to do it that way. And then finally, in person, the the the Social Services Office does have restrictions on Office Hours, throughout the COVID pandemic. They’re beginning to relax those restrictions. Last I checked in person visits were just opening up in Newton, but you should check with the county social services website to see if you can schedule an appointment. If they are open for in person appointments, generally you can do it on their website on the accounting Social Services website. Social Security if you’re married couple of important things if you are married. It’s a little more complicated because you have the option to potentially base your benefits on your spouse’s salary history. So if you’re married and your spouse has a much larger or qualifies for a much larger social security check than you do, because your spouse maybe worked more years and was a higher wage earner. Maybe you stayed home and and took care of the family and the House and the kids and didn’t work as many hours or as many years or make as much money as your spouse. If if those if your spouse’s earnings if one half of your spouse’s social, social social security check is greater than your potential social security income, you can elect to take half of your spouse’s Social Security income. So if your income you’re qualified for is more than half of your your spouse’s, you’re better off electing to take your own. If it’s less than half half of your spouse’s again, you can elect the option to take half of your spouse’s. On the other hand, if if it’s less you want if your check is more, you want to just go ahead and select to take your own social social security check.

 

Bill Askin 

There’s also a social security benefit for surviving spouses. So if you are a surviving spouse and your spouse was receiving Social Security when they passed away, of course, the death must be reported to the Social Security Administration. typically done by the by the the funeral home or the The Undertaker, if not, you can call Social Security notify them. They are entitled to in fact a very efficient debt, clawing back or taking back the month a deaths Social Security check that they deposited in your spouse’s checking account, for better or worse, it’s the government they’re good at it, they take your money back, obviously prorated to the date of death. But as long as you were living in the same house as your spouse, were you receiving your spouse’s income at the time of death, his social security his or her Social Security income? You’re entitled to two things one, one lump sum, death benefit of get this one time one time lump sum death benefit when your spouse passes away have to $155 generous, but you’re also again entitled to elect potentially, if it makes sense to continue your spouse’s Social Security income if it is greater than yours. So at that point when one spouse passes away, one of the income checks every month is going to go away. But their surviving spouse gets to pick which one to keep. And obviously, you would pick whichever spouse had the greater monthly Social Security income check. Let’s see. So how are Medicare and Social Security related they’re both federal probe federal programs provide insurance to retirees. Medicare is managed by the Centers for Medicare and Medicaid Services. The Social Security Administration administers the Social Security checks. You apply for Medicare through the SSA or Social Security Administration, just like Social Security. And if you’re on both, typically, the premium for your Medicare is taken directly out of your monthly Social Social Security check. So you don’t have to write a check. If you are on Medicare, but not on Social Security, they will send you a bill and you’re required to pay that monthly bill obviously. So. Do you automatically get Medicare with Social Security? Not always, as we discussed before, you can choose to claim Social Security benefits as early as age 62. And if you do when you turn 65, you will automatically be enrolled in Medicare. If you are not collecting Medicare, you must enroll in Medicare within a window of six months of your of your 65th birthday. Social Security Disability. Just an FYI, that’s not really the topic we’re discussing tonight. But in addition to retirement benefits, the Social Security Administration manages to programs that provide benefits to people who are disabled or blind. There’s the Social Security Disability Income program that supports disabled or blind individuals by providing benefits based on their contributions to the Social Security Trust Fund. Your contributions are based on your earnings or your spouse’s or parents earnings, depending upon the relationship while in the workforce. And your dependents may also be eligible for disability benefits if you were to become disabled, while working based on their eligibility would be based on your earnings. The second one is Supplemental Security Income program, again administered by the Social Services Division, Supplemental Security Income program benefits are paid out as cash to as assistance to people with limited incomes and resources who are elderly, blind or disabled.

 

Bill Askin

Um, last couple of things, is Social Security considered taxable income? Well, of course, it is now, it wasn’t before 1983. But since 1983, and I’ll explain that here in a few minutes. Since 1983, it has been considered taxable income. And those who receive Social Security generally pay tax on anywhere between 50 or 85 to 85% of the Social Security income, it’s taxed as ordinary income at current prevailing tax rates. You can still work you can continue to work while you receive Social Security. But there’s a limit on how much you can earn well, not on how much you can earn. But there’s a limit on how much social how much income you can earn while still receiving full benefits. So when you get to a certain amount of income, the benefits begin to be depleted. There’s an earning limit that’s adjusted every year depends upon your age. If you if you earn above that limit, the Social Security will deduct a certain amount of your benefits each month. If you’re under full retirement age, and remember right now it’s full retirement age generally now is 67. If you’re born before 1960, it might be a little bit, a little bit less than 67. But generally, it’s honor about 67 years old. If you’re less than 67 and you’re still working, you’re only allowed to earn the limit is $18,960. After that limit, your Social Security is to deduct $1 from your benefits for every $2 you earn over the limit of $19,000. If you are at full retirement age or above age 67, the earning limit is not 18,009 60. The earning limit goes all the way up to $50,520. So at full retirement age, once you hit 67, you can have $50,520 in income and 20. This was 2021 without having any deduction in your social security income. After that, after 50,005 20. They deduct $1 for every $3, you earn, so not quite as much per dollar only $1 per every three that you earn. Something else to keep in mind if you want to or plan to continue to work after full retirement age, and you’re trying to calculate how you’re going to live and finance your retirement. Final social security topic topics, just two quick little ones on the money. Right. So what is the future of social security? There’s the million dollar question. Probably not necessarily important to us on this webinar tonight, but certainly to our children, and our grandchildren, and the generations to come. Currently, Social Security is expected to run out of cash reserves in about 12 years and 2034. That’s according to the old age and survivors Insurance Trust Fund that manages the Social Security Trust Fund reserves. However, that does not mean that the program would be bank rupt and unable to pay out benefits as of 2034. If Congress does nothing to reform the system by 2034, Social Security would still be able to pay 79% of the promised benefits until 2090, about 70 years from now. So it’s not likely that many of us on this call tonight will be around in 2019. That’s why I say it’s not necessarily a concern for us personally, but certainly for our families and our legacies and the generations to come. You know, with that said, the issue obviously needs to be addressed by our government by the politicians. Social Security has actually run out of cash reserves before that was in the 80s. And I mentioned that 1983, the government started taxing our Social Security income. That’s because they ran out of money in the 80s. The they ran out of the cash reserves and started taxing us, or taxing Social Security income checks in 1983. And they also in the 80s, or 90s, began gradually raising the full retirement age from 65. To now 67, encouraging people not to elect Social Security, the first social security. And the theory is that that would slow the decrease in the value of the trust fund, and funds available to pay out pay out benefits over the years.

 

Bill Askin

And this is finally, how much will you receive. So the Social Security Administration lets you check how much you’ve paid into the system every year that you’ve worked. It’s now all online, there is a written retirement estimator on the website to give you an approximate idea of how much you can expect to receive each month when you retire. And you can even you know, put in different retirement dates, you can see how much you would get at 62 How much your monthly check would be at 65. How much if you wait until full retirement age at 67. And how much if you waited until three years until after full retirement age at age 70. The simulator on the website will give you all three and remember the number that it gives you. That’s the number that lasts for life. I did this this afternoon just because I was going to talk about it tonight. I wanted to make sure that it still works and it does. It’s pretty simple. You just go to again SSA dot g o v and then do that forward slash benefits. So again visit SSA dot g o v forward slash benefits and elect a retirement planning calculator and it’ll help you calculate what your potential social security income will be at different ages of retirement. I was also surprised to learn that it is not going to really come very close to meeting my expected monthly retirement expenses. So gotta keep on working and and work on continuing continuing to contribute to other retirement plans. So if you’re like me, you want Continue to maximize your other investments in retirement plans as well. And that’ll, that’ll go to our next topic under planning for a long, healthy and, and prosperous life and retirement, and that’s maximizing qualified qualified retirement plans. Hopefully it won’t have. These are a form of these, you’ve heard of the number sequences like 401 K or 403, B or IRA or profit sharing plans or individual retirement accounts. Generally, if you withdraw money from a qualified retirement account, before the plans, normal retirement age, or from an IRA before turning 59 and a half years old, it’s a bad decision, right? You pay an additional 10% income tax is the penalty for a an early withdrawal. So one lesson to remember you want to, if you will want to avoid any, any early withdrawals or early withdrawal penalties that come with it. But does that mean you must or you should start taking money out of your retirement accounts at 59 and a half? No, absolutely, absolutely not. Of course, the longer the money or the assets remain in the retirement account. The longer it grows, the larger it grows, and the more taxes that are that are deferred and avoided. But at some point, the IRS wants it wants their money, right? The IRS wants us to pay the taxes that were not paid on the income and all those accounts, taxes that were deferred for potentially, as long as I don’t know, 50 years, you know, if you started working at at 20, sort of, you know, put money into a retirement account at a young age like most of us wish we did, but didn’t do. But if you did it, oh, that’s 50 years, that could be a lot of a lot of taxes that would or could potentially be owed on that money. And again, the longer you defer those, the more the the more the assets grow, and the more taxes that are not paid to the IRS. So what did the IRS do to avoid that, to avoid paying taxes on those accounts forever, ever, ever, ever and ever, they created something called an RMD or a required minimum distribution. That’s the amount of money that is required by the IRS to be withdrawn from an employer sponsored retirement plan or an IRA, by the owner of the IRA a retirement plan when we reach retirement age.

 

Bill Askin

Now again, there’s some some good news in delaying or changing the rules with respect to these accounts. A couple of years ago, in 2020, the age for withdrawing from retirement accounts changed from 70 and a half, which it was for many, many years, it’s 70 and a half, you had to begin taking distributions from your retirement account. Now the age is 72. So after January one to 2020, if you turn 70 and a half. After that date, you do not need to begin taking withdrawals, you get an extra extra year and a half. And then you must begin withdrawing from the retirement accounts no later than April one of the year following the year in which you turn 72 years old. The retiree must then withdraw the RMD or the required minimum distribution amount every year thereafter, based on the then current RMD calculation. So the calculation that required minimum required minimum distribution is the amount that the IRS says you must take out of your account to avoid tax consequences and additional tax consequences and penalties. Retirees can and many do take more than the RMD you just can’t take less. So whatever that number is, you want to make sure you take at least that number out of your retirement accounts every year after you after beginning the year following the year in which you turn 72 years old. If you have multiple retirement accounts like you may have an IRA and a couple legacy 401k from a couple of different jobs during your career. You’ll usually need to calculate the RMD for each account separately, and you may have to take an RMD for each. Sometimes if you have consolidated your retirement accounts or your all the accounts are with one Financial Advisor, they can calculate the RMD for all of your accounts. And then the withdrawal can be taken from just one account. But you should work closely with your financial advisor in in the process of both calculating the RMD. And in deciding what accounts or what account to take it out of each and every year. There’s another another change that occurred in 2020, as a result of what was called the secure act of 2019. And that, unfortunately, changed the distribution rules for some inherited IRAs, effectively eliminating what many of you may have heard about in the past called the stretch IRA. Stretch Ira was an estate planning strategy that extends and it’s still there’s just like different that extends the tax deferral benefits of IRA is to the benefit to the to the beneficiaries of the IRA, after the owner of the IRA has passed away. And we’ll talk about that here in a minute. So the RMD is a kind of like a governmental IRS. Safe safeguard against people, using a retirement account to avoid paying taxes forever. RMDs are determined by dividing the retirement accounts prior year and fair market value. So you take the year end right now would last year with 2021, you take December 3120 21, fair market value of your of your retirement account, or your retirement accounts. And you divide that amount by your period of life expectancy, which is again, a table given to us by the IRS that tells us how many years we get to take that money out of our accounts based on surviving those number of years. And the worksheet that the IRS provides, we’ll help you calculate that amount. Generally, your account custodian your plan administrator, your financial advisor will calculate these numbers and and report them to the IRS so the IRS knows what you’re required to take out. And again, if you don’t take that amount out, you’ll suffer the consequences of tax penalties and interest. And you know, things you don’t want to you don’t want to have to deal with

 

Bill Askin

good news for this year, the IRS has increased their life expectancy tables, that I looked it up again. And it’s quite dramatic this year. If you wait until 72, which you’re entitled to do now before taking any distributions, your RMD will be based on a life expectancy of 27.4 years. So basically 27 and a half years, which takes you to 99 and a half years old. That’s what the calculation of the distributions will be based upon. And that’s an increase of about two years from just last year. Last year, the the life expectancy for somebody 72 years old, was calculated at 25.6 years. This year, it’s going up to 27.4. So if your retirement account had a balance of a million dollars at the end of last year, your RMD this for this year would be a million divided by 27.4 or $36,496.35. Just by way of an example, obviously leaving a substantial portion of the million dollars in tax. And as I mentioned earlier, if you need to, or want to or decide to take out more than the minimum, that is certainly okay. But of course that would increase your tax obligations or tax responsibility for the amounts that you do take out of your retirement account. And again, while you are required to take out the minimum, you can take out more than that, even up to 100%. Every once in a while with clients that say they want to take it all out. It’s possible, not necessarily the best advice, it’s perfectly perfectly legal. But the tax bill could be a bit of a shocker if you if you empty it out all at once. Um, inherited IRAs, I started to talk about that a little bit, the one that has not changed with the new tax law as a spousal IRA rollover. If you are a surviving spouse, you still have the benefit, the really great benefit of rolling over your deceased spouse’s IRA or 401 k into your own name, and then taking RMDs based upon your age, and your expected life expectancy per the IRS table. So if you inherited an IRA, from your spouse, and you’re less than 72 years old, well, you have to take an RMD fee for the year that your spouse passes away based on his life expectancy, and the RMD that he would have, or she would have been retired required to take, beginning the year after that, if you’re less than 72, you’re not required to take any RMD. And if you’re 72 or older, the RMD would be based upon then your life expectancy. So that rule has not changed, the one that has changed if you are the beneficiary of an inherited IRA, or you inherit an IRA from anybody other than a surviving spouse, so if you are the child of the owner of an IRA, and you inherit it when your parent passes away, or you or any other friend or family member, and you are the named successor beneficiary of that IRA, you used to be able to take it over your life expectancy, not the case anymore, it now has to be emptied out, you need to empty out that IRA and take all the money out within 10 years of the date of death. That that timetable is very flexible, like we talked about with RMDs, you can take it all at once right away. Again, that might create a bit of a shocker for the tax that would be due, you can take a little bit every year for 10 years. Or you can let it sit if you don’t need it, and might be smart to just let that IRA sit and only take the money out at the end of year 10 Following the death of the person who left their IRA to you. So those are the options. All has to be taken out though, within 10 years of the date of death. There are a few exceptions to that. If the if the residual or successor beneficiary of that IRA is a minor is a child the 10 years does not begin to accrue or start right away. If the beneficiary is disabled in any way. There are other rules that apply in special circumstances. And obviously, I would recommend and suggest getting some some some very professional tax and legal advice if you meet any of those potential categories to defer the IRA distributions even longer. So the RMD rules can be complex. You know, think about them. Always when you are the recipient of any kind of a of a distribution from an estate or a retirement account or even a life insurance, you should certainly get some good solid tax and and legal advice.

 

Bill Askin

Are RMD distributions tax? Yes, of course, as we talked about earlier, that money was not taxed in general going in unless it was a Roth retirement account. And neither were the accumulations or the earnings in those accounts were not taxed over the years. And they are both taxed when the distributions are made from the retirement accounts. And the only exception is with a Roth 401 K, which is which is tax exempt. If you don’t take the RMDs if you’re over 72, and you choose not to take your RMD there’s a big tax penalty 50%. So the amount not withdrawn if you don’t take anything that total amount that you should have withdrawn is subject to a 50% tax. If you miss calculate the amount that should have been taken and you underestimate it and you take out not as much as you were you were required, the difference is taxed at 50% penalty. So big mistake, make sure that doesn’t happen. And finally, we kind of covered this why does the IRS impose RMDs? Why do they make us take money out because the plans use pre tax dollars and the IRS wants our tax money or their tax money. And they’re there to prevent us from avoiding paying the deferred tax liability on those contributions forever and ever and ever. So with that said next topic. We’ll finish this up within the next 20 to 30 minutes we’re going to talk now about addressing the needs not necessarily for finances and retirement but the needs for the potential for incapacity. incapacity is a is a legal term of art that has a particular and significant legal meaning. It’s a lack of physical or mental abilities that result in a person’s inability to manage his or her own personal care, property or finances. It’s also the standard to demonstrate a lack of ability to understand one’s actions when making a will or other legal documents. So if if somebody hasn’t made a will or other legal document and they become incapacitated, they lack the legal capacity to enter into those types of documents like wills and powers of attorney. And for that reason, it’s important to prepare for the possibility of incapacity. Wow, you are your parents are we are still have in possession of our faculties, so to speak. So if we don’t take the opportunity to appoint a legal representative for ourselves, while we can, in case of or for the potential for our incapacity someday, the only other option for our kids or for somebody else to be appointed, as the legal guardian for us, is for a judge to do it. So either we do it while we’re alive, and competence. And if we don’t, it has to go to court. So failure to prepare for this potential occurrence in later years, would result in the need for somebody to go to court, if there was a sudden, or a slowly developing incapacity or traumatic brain injury or the advancement of any kind of a brain disease, any kind of dementia or an Alzheimer’s condition, you know, all of which, for better or worse, we all know, the chances of those issues coming up increase with our age. If we don’t do it, the court action is known as a guardianship proceeding, someone must actually file a complaint for the judicial determination of incapacity. That’s number one, the judge has to determine that the proposed incapacitated person is indeed incapacitated. How do they do that? affidavits and testimony from two doctors, they can’t they won’t believe you or me, your lawyer or their your accountant or your you know, brother or sister or even your spouse. It has to be proven by testimony from a doctor. And then second, the judge has to evaluate the person that’s applying to be the guardian, make sure that that person understands their role as guardian, the legal responsibilities of being a guardian, the potential liabilities that are attached in serving as a guardian, and solicit not only the person’s approval, but their willingness to serve once they’re fully advised of their obligations. So that process of a guardianship application obviously can be quite time consuming and expensive. And at times contentious, right? It can take a long time. And it could be it could be an emergent situation. And you may be stuck up in court trying to get a guardian appointed. And in the meantime, decisions need to be made and they can’t be

 

Bill Askin

contentious. What if more than one person applies, right? What if What if someone objects to the guardianship? What if the proposed incapacitated person objects? Yes, they have to be put on notice. You have to tell the person that you’re alleging is incapacitated, that you are applying to be their guardian. And depending upon how severe their incapacitation, they may object, they get that opportunity to go to court and tell the judge or convince the judge, they’re not incapacitated. Generally, the person applying to be the guardian needs an attorney to handle the litigation. The complaint, the court will then appoint an attorney, another attorney to represent the alleged incapacitated person. The court will then also appoint a temporary guardian, typically also a lawyer for the alleged incapacitated person. Obviously, again, can be quite time consuming, expensive. And it’s the assets of the alleged incapacitated person that pay for the services of of all those, those attorneys. We had a recent case here in our office where our client was a son. We filed an application or a complaint to have his mother determined to be incapacitated, and to have him appointed as his mother’s guardian. In fact, his mother lived with him. And all seemed to be going well until we put which is required all of his siblings on notice of the application to have them appointed. Well, one of his brothers objected, and his brother got an attorney. So now I have gotten where the attorney for the proposed guardian, another attorney had been appointed for the mother, another attorney had been appointed as the mother’s temporary guardian. And then the brother has another attorney, and we go to court fighting over who’s going to be appointed the guardian. All told, I don’t know the final number, but I can tell you the legal fees in that matter were over $30,000 Well over $30,000 all of which could have and should have been avoided by simply putting together an estate plan to to prepare for the potential for incapacity. So what are the documents that go into a an estate plan to prepare for the potential for an incapacity? They are a power of attorney, right financial general durable power of attorney, giving legal authorization to someone else, usually a spouse first and then an adult? Mature Were responsible child as a backup, to make financial business. Real estate related investment related decisions. If the principal cannot make them for themselves, then nobody would need to go to court to be appointed a guardian to do those things for that person. Next document would be a living will or a health care proxy, similar to a power of attorney but for health care. In that case, you would name somebody to make your health care decisions for you or your your parents or your children. Only if and when you were not able to do so for yourself. And I’m sure everybody’s heard of HIPAA, the patient privacy act and the very seriousness with which doctors and medical providers must pay heed to those restrictions and in fact do and a living will and or healthcare proxy is kind of the end around or it gives the doctors your authority, your legal authority to release what is otherwise confidential, private patient information to somebody other than you. And finally, isn’t is an Advanced Directive, a legal document that spells out medical treatments that you would that perhaps would not want to be used to keep you alive, as well as your preferences for other medical decisions, such as pain management, or being an organ donor. There are a couple of others that are not necessarily estate planning documents, but you may have heard of a DNR Do Not Resuscitate or DNI do not intubate. You don’t you do not need to have an Advanced Directive or a Living Will to have a DNR or a DNI. To establish these you simply tell your doctor about your preferences and he or she will write the orders and put them on your medical record if you’re in the hospital or if you already have a living will that includes your preferences regarding resuscitation and intubation, it’s still a good idea to establish a DNR or DNI if for when you’re admitted to the hospital.

 

Bill Askin

The last is what’s called a pulsed. You may have heard of upholster, a physician’s order for life sustaining treatment. Again, it’s intended for people who have already been diagnosed with a serious illness. It doesn’t replace your other directives. Instead, it serves as a doctor ordered instruction, not unlike a prescription to ensure that in the case of an emergency, you receive the treatment that you prefer. The post itself is actually the post is posted on your hospital bed, so that it is in plain sight. And it may include issues such as resuscitation, mechanical ventilation, tube feeding, use of antibiotics, requests not to be transferred to the emergency room not to be admitted to the hospital, etc. Again, they can only be written and ordered in a hospital setting. And you can’t do them ahead of time. But there are additional documents that may come into play. And then finally, when we’re talking about, you know the needs for potential incapacity, or in competency, I’ll talk briefly about long term care planning. This is a subject like I said earlier of another webinar we did a few months back and it’s on our website. Statistics show that for those fortunate fortunate enough to live to the age of 65, there is a 70% chance that at some point in your life, you will need some form of long term care. Some older adults can rely on family members or other caregivers to perform small assistance tat assistance, tax and provide the needed care that may be needed. But some people without family or perhaps without the local family or people with more severe medical conditions may need to move to a community based long term care facility. Those costs for those 70% that do eventually need long term care, the average costs can be 200 250 260 $270,000 over a lifetime. And in fact, in many cases, depending upon the the facility where you go, and the severity of the needs at the time, it can be more than $250,000 Each and every year while you’re living in a long term care facility. Obviously, the planning aspect that that needs to be addressed as we age is how are you going to pay for that? Right? So the first way real quickly is long term care insurance. If you have that it’s a very valuable asset. If you have that, you know it’s expensive if you don’t have it and you’re looking into it. I would suggest a long term care insurance policy that has a has a life insurance rider. Without that life insurance rider you could end up spending very high monthly premiums for longer One time, that never pay back in the way of a of a benefit. So Long Term Care Insurance is the first way to pay. And if you don’t have the insurance, the second way is you self pay, right? So you’re, you’re paying out of your own assets, and you continue to pay out of your own assets until or less, or until you become eligible for a government, a program called Medicaid, not Medicare. But this is Medicaid, which is a backstop program to provide a last resort for indigent people with very limited income and assets. In fact, the income has to be less than about $2,400 a month, and the assets need to be less than $2,000. Before anybody would qualify for Medicaid to cover the long term care bill. That issue is a topic of a lot of the state and financial planning discussions that we have with clients. Obviously, there are can be competing interests right between between having a nest egg for us to rely on, right in our later years. And on the other hand, wanting to leave a legacy, potentially for our kids or for our heirs. Through conflict, the more money you have, the more likely you’ll be able to get into a nice long term care facility, the less money you have, if eventually you need Medicaid from day one of being admitted to a long term care facility, your options would be very limited. And I’m sure many of us have heard about the options for Medicaid only beds that the less desirable facilities in the state are in the area that are certainly not any place that I would ever even consider having anybody in my family visit. So keep that in mind. You do want to keep assets in your own name not talking about Medicaid planning and transfers and gifting and strategies like that. Unless you’ve got a pretty significant mistake.

 

Bill Askin

And counseling people and evaluate evaluating these options and gifting strategies and Medicaid qualification strategies and perhaps Medicaid planning trusts, all really good in depth conversations and, and legal options. But on the other hand, always remember, you want to keep some assets in your name to enjoy your golden years, first of all, and to guarantee you can get yourself into a nice facility if it’s ever needed. Many people tell me these days, the best plan is to die with the last couple of dollars in your hand. And then everybody lives a long, healthy and happy life. All right. Finally planning for long, healthy and prosperous life estate planning. After Medicare, Social Security, we covered retirement accounts, long term care, we’re left at the end with preparing for life’s transition. So disposition of the assets that are left appointment of a legal representative of our state and state administration and the potential for death taxes. Often people wonder and ask us, you know, I’m so young, is it too early to prepare my estate plan? And my answer is no. There’s really no risk ever of being too early. You’re never too early ever. The only risk is if you’re too late, right? So you don’t want to be late on this one. You want to be early and get ahead of the game and and minimize or eliminate the potential for death taxes minimum, minimize or eliminate the issues involved with the state of New Jersey if you don’t have a will or a trust to dispose of your assets, minimize or eliminate the potential squabbling or, or discord between your heirs or the people that you want to leave your estate to guarantee that your state is left to the people are the entities that you want to be the beneficiaries not who the state says would be the benefit would be the beneficiaries if you die without a will. So I’ll give you a couple quick little just stories was a young man who purchased the home with his mom, just a few years ago here in the county. He and his mom went in on the house together the mom provided all the money paid cash. The son was the sweat equity guy. He was going to fix the house up and live there and then someday if they sold it, they were going to split the profit profits. They were 5050 investors in the house. Unfortunately, the son passed away not too many months or a couple of years after they purchased the house. After the son passed away. His mom didn’t call me. She thought her investment was safe and that the house was now all her house. But the but the lady who the mom thought was his son’s girlfriend called me after he died. But she wasn’t his girlfriend anymore. She was his wife. In fact, they were married just a couple of days before he passed away. A and he didn’t tell his mom Mom was not away or was not aware that that they were married. So I think that was a game changer. Yeah, you bet. As the principal marital residence, even though the wife was not on the deed, half of that property now belonged to her to the young newlywed, could illegal console have avoided that to protect mom’s investment? Yeah, it sure could have, wouldn’t estate plan have likely addressed the issue? How title was held? state planning documents? i Yeah. You know, there’s something that the sun if not the mom could have done to protect that investment for the person who made the investment for for mom. Another example. We saw not this year yet, but a couple cases last year, we see almost every year having to do with second marriages, right. So second marriages with children from different marriages, a lot of times the husband and wife have reciprocal wills, that is to say, First Spouse to pass away leaves everything to the surviving spouse, second spouse passes away. Everything that’s left goes to all the kids in equal shares, right. But can the surviving spouse change his or her will after the first spouse passes away? Yeah, in general, they you can can the surviving spouse change his or her mind and leave nothing to the decedent spouses, children or family? Oh, yeah, they can.

 

Bill Askin

If, however, the state plan was was produced and put together appropriately, with a experienced and skilled estate planning attorney that included trusts to protect each of the spouses, children from their former marriages, could this come out much, much differently and protect the interest of the kids from both the prior marriages? Absolutely. We do it all the time. So other things to think about. It’s not always cookie cookie cutter. It’s not always as simple as and as direct. But it is always always important to get all your ducks in a row and make sure that your plan adequately and thoroughly produces the result that you want to achieve through your estate planning. Another factor concert to consider when doing estate planning is probate versus non probate assets. any assets that are in the descendants name without a co owner or a co account holder or a joint tenant? Pass through the probate process or the estate process. Non probate assets are things like we talked about earlier retirement accounts. In general retirement accounts have a beneficiary and the retirement accounts will pass to the named beneficiary on that retirement account. If there is no named beneficiary, they would then revert back and be payable to the estate and become a probate asset. Other non probate assets would be life insurance right? So please be mindful of that fact. When you do a will and you say and your will that everything goes to your wife then when your wife passes away equally to your five kids. If you have a life insurance policy that says it only goes to one of your children, it will be payable to just that one child. They trump the will non probate assets. Another quick topic is estate administration where there is no will like when the young man passed away without without a will. And we had that issue with his house that’s called passing away intestate. intestate means without a will. In situations like that, the state of New Jersey gets involved and they tell us who the preferred administrator that estate would be or who the preferred legal representative of that estate would be. And they tell us as attorneys and county surrogates how assets should be distributed from that the Seton persons estate who did not have the will. Oftentimes, the statute on intestacy does result in the same distribution plan that the decedent may have wanted. More often it does not more often, it does not reflect what that person would have wanted, but failed to express in their will. death tax is always something to be concerned about. The Federal death taxes is a federal estate tax and the tax rate currently is 40%. So you want to make certain that your plan is prepared to completely avoid that tax, which is certainly possible. The good news is there’s a $12.06 million exemption this year so unless you’re aid is over $12 million. Or if you’re a married couple, unless your estate exceeds $24 million, there would be no federal tax consequences upon you or the both both of the spouses passing away. But like I said at the beginning, that can change. In fact, it does change and that exemption is scheduled to expire or sunset in the next couple of years, and go back to where it was not too long ago, where the exemption was only $3 million. Here in the state of New Jersey, we eliminated the estate tax

 

Bill Askin

several years ago, was it was done in conjunction with when the New Jersey treasury, the government, our politicians increased the gasoline tax a few years ago. So the estate tax New Jersey currently does not exist at all. But be wary, there is a New Jersey inheritance tax, which is roughly 15% of the size of the estate or the gross estate, so 15% inheritance tax. But again, if the beneficiaries are not within a that’s only if the beneficiaries are not within a certain class of beneficiaries that are excluded or exempt from that tax. So in New Jersey, under the inheritance tax laws, spouses, children, grandchildren are all exempt from paying tax. So if you’re leaving your estate to spouses, children, grandchildren, there would not be a New Jersey inheritance tax upon death. However, if you’re leaving assets to anyone else, other than charity, if you’re leaving assets to two siblings, nieces, nephews, step grandchildren stepchildren are exempt, but step grandchildren are not. You’re talking about a roughly a 15% percent tax death tax. Obviously, taxes can be quite intricate. And tax planning can be very important. We are very skilled in creating plans that contain tax advantaged trusts within wills that protect disclaimer trusts and create marital disclaimer trusts if and when needed. And with the right legal planning, those taxes can be avoided or at least greatly, greatly minimized. So that’s the end of my presentation. I’m not sure if we have I’m going to look now I don’t see any any questions yet. I see some old friends on here saying hello. Hello, everybody. Thanks for for joining our presentation. I will stick around for a few minutes and see if any questions pop up or Kathleen is the moderator Kathleen, if you see any questions you can let me know. But if not, again, the The webinars are on our our website at asking low.com at the tab on there for events and you can look forward to additional events webinars in the coming months which will be promoted in the same fashion. This was this was done tonight. So with that I don’t see any questions. Have a great night everyone. Stay healthy and keep in touch if there’s anything we can do. Enjoy. Thanks, everybody. Bye