Oconee Estate Planning Blog

There are Rules for Social Security when Someone Dies

Notifying Social Security about a death is one of a handful of must-do’s shortly after a loved one dies. If this task is not done promptly, says U.S. News & World Report in the recent article titled “How to Report a Death to Social Security,” then there may be problems and extra work in the future.

Here are the four steps that need to take place.

Report the death to the Social Security Administration. The funeral director might offer to do this.  However, it may be best if the family does it, so you don’t have to share the decedent’s Social Security information. You can call the SSA directly or contact the local Social Security office. This cannot be done online. It must be done on the phone. You will need the decedent’s complete date of birth and their Social Security number.

Review Social Security payments. Social Security benefits arrive the month after the month to which they apply. For example, a February benefit will arrive in March, the March benefit arrives in April, and so on. However, the day that a person dies, those benefits stop on that day. There’s no such thing as a grace period or partial payment for the month.

If the person dies during March, they won’t be eligible to get benefits for March. They will receive benefits for February, but not for March. It doesn’t matter if they die on the last day in the month or on the first day.

What if you receive a check for the month the person died? Mail the check back to the Social Security Administration. Keep the person’s bank account open, if the deposit is made directly to the account to allow the SSA to retrieve the last payment.

What about the one-time SS death benefit? Once the death has been reported, there may be a one-time death benefit of $255, sent to the surviving spouse, if they were living with the deceased. If the surviving spouse was living separately but is still eligible for benefits on the deceased’s record, the one-time payment may still be sent. If there is no surviving spouse, the death benefit can be sent to a child who is eligible for benefits based on the deceased’s record.

Arranging benefits for family members from Social Security. Depending upon the circumstances, family members may still be eligible to receive benefits. There will be paperwork. The best advice? Don’t delay, as when you apply will impact when benefits begin. Here are the family members who may be eligible for benefits after a death:

• A disabled widow or widower age 50 and older
• A widow or widower age 60 or older
• A widow or widower of any age caring for a child of the deceased under age 16, who is also disabled.
• An unmarried child of the deceased younger than 18, or 19 if they are a full-time student in elementary or secondary school
• A stepchild, grandchild, step-grandchild or adopted child in certain circumstances
• An unmarried child with a disability that began before age 22
• Parents who were dependent on the deceased for at least half of their support who are at least 62
• A surviving divorced spouse, but only in certain circumstances

The surviving spouse has several options regarding how and when to take which benefits. For instance, the surviving spouse may be able to apply for their own benefit plus a survivor’s benefit, but not at the same time. For instance, it may make sense to take a survivor’s benefit for several years and delay taking your own benefit, and then later take the surviving spouse’s own SS benefits when they are larger.

Reference: U.S. News & World Report (June 9, 2021) “How to Report a Death to Social Security”

Suggested Key Terms: Social Security Administration, Surviving Spouse, Widow, Widower, Death Benefit

What Is the Required Minimum Distribution for 2021?

There have been a number of changes to the requirements for RMDs—Required Minimum Distributions—from traditional retirement accounts, says a recent article titled “2 Essential Strategies for Taking Your RMDs” from Kiplinger. In 2019, the age for RMDs was raised from 70½ to 72. In 2020, they were waived altogether because of the pandemic. Now they’re back, and you want to know how to make good decisions about them.

Most people take the default approach, taking a lump sum of cash at the start or the end of the year. This is not the best approach. Investment markets and your own need for income are better indicators for how and when to take your RMD. If you can at all avoid it, never take an RMD from a declining market.

You can take your RMD anytime during the calendar year, from January 1 to December 31. If it’s the first time you’ve taken an RMD, you get a bonus: you can wait until April 1 of the year after your 72^nd birthday. The RMD is calculated, by dividing the account balance on December 31 of the preceding year by your life expectancy factor, based on your age. You can find it in the IRS’s Uniform Lifetime Table.

2021 distributions will be bigger, and not just because of the market’s 2020 performance. Instead, distributions will be bigger because of how the accounts are designed, with RMDs becoming a larger percentage over time. It starts as a small percentage and eventually becomes the entire account, which is then depleted. Remember, the sole purpose of the RMD is to force retirees to take money out of their retirement accounts and pay taxes on the money.

Many retirees take RMDs because they need the money to live on. Here’s where money management gets tricky. It’s far easier to take smaller amounts of money at regular intervals, kind of like a paycheck, than taking a big amount once a year. We’re creatures of habit and are used to receiving income and managing it that way.

Distributions on a regular basis also fosters a better sense of how much money you have to live on, encouraging you to create and adhere to a budget.

If you don’t need the income, taking money through regular installments also has an advantage. It’s like the opposite of dollar-cost averaging. Instead of putting money into the market in small increments over time to even out market ups and downs, you’re taking money out of the market at regular intervals. You’re not cashing out at the market’s lowest point, or at the highest. And if you’re reinvesting RMDs in a taxable account, this strategy works especially well.

Reference: Kiplinger (June 10, 2021) “2 Essential Strategies for Taking Your RMDs”

Suggested Key Terms: Required Minimum Distributions, RMDs, Retirement Accounts, Retirement, Dollar-Cost Averaging, Distributions, IRS, Life Expectancy Factor

Who Receives an Inherited IRA after the Beneficiary Passes?

Which estate would get the IRA when a non-spouse beneficiary inherits an IRA account but dies before the money is put in her name with no contingent beneficiaries can be complicated, says nj.com in the recent article entitled “Who gets this inherited IRA after the beneficiary dies?”

IRAs are usually transferred by a decedent through a beneficiary designation form.

As a review, a designated beneficiary is an individual who inherits an asset like the balance of an IRA after the death of the asset’s owner. The Setting Every Community Up for Retirement Enhancement (SECURE) Act has restricted the rules for designated beneficiaries for required withdrawals from inherited retirement accounts.

Under the SECURE Act, a designated beneficiary is a person named as a beneficiary on a retirement account and who does not fall into one of five categories of individuals classified as an eligible designated beneficiary. The designated beneficiary must be a living person. While estates, most trusts, and charities can inherit retirement assets, they are considered to be a non-designated beneficiary for the purposes of determining required withdrawals.

Provided there is a named beneficiary, and the named beneficiary survived the owner of the IRA account, the named beneficiary inherits the account.

The executor or administrator of the beneficiary’s estate would be entitled to open an inherited IRA for the beneficiary because the beneficiary did not have the opportunity to open it before he or she passed away.

Next is the question of who would inherit the account from the named beneficiary because she died before naming her own beneficiary.

In that instance, the financial institution’s IRA plan documents would determine the beneficiary when no one is named. These rules usually say that it goes to the spouse or the estate of the deceased beneficiary.

Reference: nj.com (June 1, 2021) “Who gets this inherited IRA after the beneficiary dies?”

Suggested Key Terms: Estate Planning Lawyer, Inheritance, Asset Protection, Probate Attorney, Beneficiary Designations, Life Insurance, Required Minimum Distribution (RMD), Legislation, Tax Planning, Financial Planning, IRA

Can I Create a Stress-free Asset Transfer?

We can all agree that end-of-life planning is a sensitive topic. Nonetheless, taking the time to consider a loved one’s estate and distribution of wealth can set the family at ease and also make certain that there is a smooth transition of assets, without unnecessary legal hurdles or headaches.

MarketWatch’s article entitled “3 tips for navigating estate planning with loved ones” explains that, if you’re thinking about starting the process of estate planning with a close family member, like an elderly parent or a new spouse, read these recommendations:

1. Stress the ultimate benefit of peace of mind. Estate planning helps the transfer of assets in an efficient and less stressful manner. It also minimizes estate tax liability of your assets when you die. Most of all, your loved ones will benefit with the peace of mind.
2. Be as open as you can. Be honest and communicate openly about your loved one’s wishes on how they would like to distribute their estate and wealth either during life or death. Many assumptions can be made about end-of-life financial planning, like parents who assume their children will not fight when dividing their assets. This can put a lot of stress on surviving siblings, so communicate clear expectations during the planning process. It is also important to take some time to consider trustees and executors, and to encourage your parent or spouse to name an executor who is organized and thorough. Once this individual is named, be sure he or she understands the location of all of your loved one’s assets.
3. Use care with beneficiary selections. Naming beneficiaries can have important tax implications. It is common to name a trust as the beneficiary of an IRA account, when your children are young. However, as they grow up, this can be an issue. When an IRA is distributed to a trust, it triggers taxes. The assets will be taxed immediately before being distributed to beneficiaries. Name children as direct beneficiaries of their IRA, so that they have other options available to them. Many of these may provide significant tax savings.

One more thought: using “transfer on death” designations for individual accounts is similar to a beneficiary designation for a retirement account. However, it permits your parent or spouse to name beneficiaries when they pass and prevents their money from going through a lengthy and expensive probate.

The best time to discuss estate planning with your parents is now. Work with an experienced estate planning attorney to guide you through this process.

Reference: MarketWatch (June 5, 2021) “3 tips for navigating estate planning with loved ones”

Suggested Key Terms: Estate Planning Lawyer, Wills, Probate Court, Inheritance, Asset Protection Executor, Personal Representative, Trustee, Beneficiary Designations, Transfer on Death (TOD)

What to Leave In, What to Leave Out with Retirement Assets

Depending on your intentions for retirement accounts, they may need to be managed and used in distinctly different ways to reach the dual goals of enjoying retirement and leaving a legacy. It’s all explained in a helpful article from Kiplinger, “Planning for Retirement Assets in Your Estate Plan”.

Start by identifying goals and dig into the details. Do you want to leave most assets to your children or grandchildren? Has philanthropy always been important for you, and do you plan to leave large contributions to organizations or causes?

This is not a one-and-done matter. If your intentions, beneficiaries, or tax rules change, you’ll need to review everything to make sure your plan still works.

How accounts are titled and how assets will be passed can create efficient tax results or create tax liabilities. This needs to be aligned with your estate plan. Check on beneficiary designations, asset titles and other documents to make sure they all work together.

Review investments and income. If you’ve retired, pensions, annuities, Social Security and other steady sources of income may be supplemented from your taxable investments. Required minimum distributions (RMDs) from tax deferred accounts are also part of the mix. Make sure you have enough income to cover regular and unanticipated medical, long term care or other expenses.

Once your core income has been determined, it may be wise to segregate any excess capital you intend to use for wealth transfer or charitable giving. Without being set apart from other accounts, these assets may not be managed as effectively for taxes and long-term goals.

Establish a plan for taxable assets. Children or individuals can be better off inheriting highly appreciable taxable investment accounts, rather than traditional IRAs. These types of accounts currently qualify for a step-up in cost basis. This step-up allows the beneficiary to sell the appreciated assets they receive as inheritance, without incurring capital gains.

Here’s an example: an heir receives 1,000 shares of a stock with a $20 per share cost basis valued at $120 per share at the time of the owner’s death. They will pay no capital gains taxes on the gain of $100 per share. However, if the same stock was sold while the retiree owner was living, the $100,000 gain in total would have been taxed. The post-death appreciation, if any, on such inherited assets, would be subject to capital gains taxes.

Retirees often try to preserve traditional IRAs and qualified accounts, while spending taxable accounts to take advantage of lower capital gains taxes as they take distributions. However, this sets heirs up for a big tax bill. Another strategy is to convert a portion of those assets to a Roth IRA and pay taxes now, allowing the assets to grow tax free for you and your heirs.

Segregate assets earmarked for charitable donations. If a charity is named as a beneficiary for a traditional IRA, the charity receives the assets tax free and the estate may be eligible for an estate deduction for federal and state estate taxes.

Your estate planning attorney can help you understand how to structure your assets to meet goals for retirement and to create a legacy. Saving your heirs from estate tax bills that could have been avoided with prior planning will add to their memories of you as someone who took care of the family.

Reference: Kiplinger (May 21, 2021) “Planning for Retirement Assets in Your Estate Plan”

Suggested Key Terms: Legacy, Inheritance, Charitable Giving, Step-Up in Basis, Traditional IRA, Estate Planning Attorney, Capital Gains Taxes, Beneficiaries, Required Minimum Distributions, RMDs, Retirement

If I Buy a House, Should I have an Estate Plan?

There’s been an unprecedented surge in home sales during the pandemic. A recent National Association of Realtors report revealed that since July, existing home sales have increased year over year reaching a pandemic high of over 25% in October. Forbes’s recent article entitled “Pandemic Home Buyers: Have You Set Up Your Estate Plan?” asks the important question: How has this past year’s surge in home sales impacted estate planning?

Estate planning is a way to protect your assets and your loved ones, no matter your age or income level. If you place your home into a trust, you ensure that the ownership of your home will be properly and efficiently transferred to a loved one, if anything happens to you unexpectedly. If your home isn’t included in your estate plan, it will go through probate. However, consider the potential pitfalls of a trust:

1. Creating a trust, when you really only need a will. If you have less than $150,000 in assets and you don’t own a home, a trust likely isn’t really needed.
2. Thinking that you automatically have asset protection. A trust can help to avoid probate. So, an irrevocable trust may be the right option for people who really need true asset protection.
3. Not taking trust administration into account. The trustee must do many tasks when the creator of the trust dies. These aren’t much different from what an executor does, but it can be extra work.

If you already have an estate plan, you should review your estate planning documents every three to five years. Moreover, purchasing a home should also make you revisit your documents. When doing a review, take a look at the terms of the trust. Make certain that you have your house referenced by address and that you transfer the house to your spouse by name.

Most mortgages have a “due on sale” clause. This means if you terminate your ownership of your home, you have to immediately pay back the mortgage proceeds to the bank. If you place your home in a revocable trust, it lets you smoothly transfer ownership to your beneficiary. This prevents the bank from demanding payment, and your beneficiary would keep making the mortgage payments after you’re gone. However, it may be prudent to contact the lender in advance of the transfer, if you want to be sure.

If you bought a home in the pandemic and have not placed it in a trust yet, talk to an experienced estate planning attorney sooner rather than later.

Reference: Forbes (June 2, 2021) “Pandemic Home Buyers: Have You Set Up Your Estate Plan?”

Suggested Key Terms: Estate Planning Lawyer, Wills, Probate Court, Inheritance, Asset Protection, Trustee, Revocable Living Trust, Irrevocable Trust, Financial Planning, COVID-19 (coronavirus)

Does a Prenup Make Sense?

Take the time to think about your financial plans before you get married to help set you on the right path. chase.com’s recent article entitled “How to prepare your finances for marriage” explains that a prenuptial agreement sets out each prospective spouse’s rights and responsibilities, if one spouse dies or the couple gets divorced.

This is a guide for dividing and distributing assets. A prenuptial agreement can also be a valuable tool for planning since it will take priority over presumptions about what’s deemed community property, separate property, and marital property. A prenup can also prevent one spouse from being responsible for premarital debts of the other in the event of death or divorce.

A prenup is used frequently when one spouse or one spouse’s family is significantly wealthier than the other; or when one family owns a business and wants to make sure only family members can own and manage it.

Negotiate a prenuptial agreement early. If you know that you want to have your fiancé to sign a prenuptial agreement, do it ASAP because some courts have found a prenup invalid because it was entered into under duress and signed and negotiated right before the wedding.

Examine employee benefits. Make certain that you understand know how marriage will impact your employee benefits, especially if you and your spouse are working. See what would be less expensive, and if one offers significantly better coverage. Marriage almost always is a life event that permits you to modify your benefits elections outside of annual open enrollment.

Review beneficiary designations and estate planning documents. It’s common for young people prior to marriage to name their parents or siblings as beneficiary of accounts, like IRAs, 401(k)s, life insurance and transfer on death (TOD) and payable on death (POD) accounts. Review these designations and accounts and, if needed, change your beneficiary to your new spouse after the wedding. You should also be sure you to update your estate planning documents, including wills, health care designations, powers of attorneys and others, to reflect your new situation.

Communication is critical. Start your marriage with strong communication to help you better face future challenges together.

Reference: chase.com (May 25, 2021) “How to prepare your finances for marriage”

Suggested Key Terms: Estate Planning Lawyer, Wills, Asset Protection, Power of Attorney, Healthcare Directive, Living Will, Probate Attorney, Pre-nuptial Agreement, Beneficiary Designations, Life Insurance, Financial Planning, IRA, 401(k), Pension, Community Property, TOD, Transfer on Death, POD, Payable on Death

Will Vets Get Relief for Toxic Exposure?

The Military Times’ recent article entitled “Millions of vets could get new benefits under toxic exposure legislation. But can it become law?” says that Congress could be headed to another round of legislative fighting and advocacy heartbreak in the attempt to gain full recognition of the danger of burn pit exposure and other military contaminant hazards.

“We know the path ahead still won’t be easy, but with the commitment we’re seeing today, the possibility of passing comprehensive toxic exposure legislation has never been greater,” said Joy Illem, national legislative director for Disabled American Veterans, during a Capitol Hill press conference on Wednesday. “This is long overdue.”

This legislation is thought to be the most ambitious legislation on the topic of military toxic exposure since the Agent Orange Act of 1991, which for the first time granted presumptive disability benefits status to all troops who served in Vietnam because of the widespread use there of the chemical defoliant Agent Orange.

“Toxic exposure is a cost of war,” said committee Chairman Mark Takano, D-Calif. “It’s time America makes good on our promise to care for all veterans exposed to toxic substances.”

The bill adds hypertension to the list of illnesses covered for Vietnam vets. This will potentially grant 150,000 elderly veterans, access to disability payouts. The legislation also includes presumptive status for radiation poisoning for thousands of additional veterans who served in areas where nuclear testing and weaponry was used. However, the most significant part of the bill would be recognition that all troops who served in Iraq and Afghanistan likely suffered some level of poisoning from burn pits used extensively throughout the country (despite the fact that the scientific specifics on the chemical vapors present is still incomplete). The legislation creates a list of 23 cancers and respiratory illnesses believed linked to the toxic smoke, allowing those who served in the countries and later contract the conditions to bypass eligibility and verification processes for VA benefits.

“If we can get those presumptions, that’s a major strategic victory,” said Rep. Raul Ruiz, D-Calif., a former emergency room doctor who has been pushing for burn pit legislation for several years. “This must be the year that we send a bill to the president and turn it into law, and the most important part is the extensive list of presumptions.”

More than 3.5 million veterans could see some benefit change under the scope of the House bill.

Reference: Military Times (May 26, 2021) “Millions of vets could get new benefits under toxic exposure legislation. But can it become law?”

Suggested Key Terms: VA Benefits, Veterans, Military, Legislation

What Financial Actions Can Be Taken if Mom Has Alzheimer’s?

Because of the debilitating impact of Alzheimer’s and related forms of dementia on a senior’s ability to make sound financial decisions, the sooner you can get financial matters in order the better, says The (Florence, AL) Courier Journal’s recent article entitled “4 Financial Steps When Dealing with Alzheimer’s.”

Here are four important steps to take:

1. Watch for signs of unusual financial activity. Discrepancies with money can frequently be a signal of cognitive challenges. Red flags may include difficulty paying a proper amount for an item, leaving bills unpaid, or making odd purchases.
2. Name a power of attorney. Many people are hesitant to give control of their personal finances to another. However, it’s important to have an honest discussion with your family member and discuss looking out for their interests. Identify a person who can be trusted to manage day-to-day money matters, if necessary. This person should be designated as financial power-of-attorney, with the authority to sign checks, pay bills and monitor the senior’s finances.
3. Prepare proper documentation. A senior must be deemed competent to complete or update estate planning documents. It is important to be certain that the named beneficiaries are up-to-date.
4. Examine care expense and how it will be covered. Create a strategy for how the senior will be cared for, if their cognitive abilities deteriorate over time. Make decisions about whether specialized care will be needed (either in the home or in a nursing or assisted living facility). Long-term care insurance should also be considered to help with costs. Speak to an elder law attorney about trusts that can be established to provide for care for the disabled individual, while still protecting the family’s assets.

Delaying for too long to address financial issues after an Alzheimer’s diagnosis can make an already stressful and emotional time even worse.

Take action to address the situation, as soon as you are aware that it could be a problem. Even creating a plan for addressing these issues before a form of dementia is firmly diagnosed makes sense.

See an experienced elder law attorney for guidance on how to manage these challenging times.

Reference: The (Florence, AL) Courier Journal (June 8, 2021) “4 Financial Steps When Dealing with Alzheimer’s”

Suggested Key Terms: Elder Law Attorney, Disability, Elder Care, Power of Attorney, Caregiving, Dementia, Alzheimer’s Disease

Reviewing Estate Plans Matters

If your estate plan or your parent’s estate plan hasn’t been reviewed in the last four years—or the last forty years—it’s time for an estate plan check-up—sooner, not later. Besides the potential for costing a lot to correct, says a recent article in Forbes entitled “5 Reasons To Have Your Parents’ Estate Plan Reviewed,” the documents may no longer work to achieve your parent’s wishes.

Rather than fix a messy situation after death, have an experienced estate planning attorney review the documents now. Here’s why.

Stale documents are anathema to financial institutions. If a power of attorney is more than twenty years old, don’t expect it to be received well by a bank or brokerage house. The financial institution will probably want to get an affidavit from the attorney who originally created the document to attest to its validity. Start with a hunt to find said attorney, and then hope that nothing occurs between the time that you request the affidavit and the time it arrives. For one client, the unexpected death of a parent during this process created all kinds of headaches. A regular review and refresh of estate documents would have prevented this issue.

State laws change. Changes to state laws change how estates are handled. They may be positive changes that could benefit your parents and your family. Let’s say your mother’s will leaves all of the contents of her home to numerous people. Locating all of these people becomes costly, especially if the will needs to be probated. Many states now allow for a separate document that lets personal items be disposed of, without being part of the probated estate. However, if the will has not been reviewed in ten or twenty years, you won’t know about this option.

Languages in estate planning documents change. In addition to changes in the law, there are changes to language that may have a big impact on the estate. Many attorneys have changed the language they use for trusts based on the SECURE Act. If your parent has a retirement account payable to a trust, it is critical that this language be modified, so that it complies with the new law. Lacking these updates, your parent’s estate may be subject to an increase in taxes, fees, or penalties.

Estate laws change over time. Recent years have seen major changes to estate law, from the aforementioned SECURE Act to changes in federal exclusions and gift taxes. Is your parent’s estate plan (or yours) in compliance with the new laws? If assets have changed since the last estate plan was done, there may be tax law changes to be incorporated. Are there enough assets available to pay the taxes from the estate or the trusts? If many accounts pass by beneficiary designation, getting beneficiaries to come up with the cash to pay the tax bill may be problematic.

The decedent’s wishes may not be followed, if documents are not updated. Here’s an example. A man came to an estate planning attorney’s office with his father’s will, which had not been updated. His father died, having been predeceased by the father’s sister. The man was the only living child. He and his father had a mutual understanding that the son would inherit the entire estate on the death of his father. However, his father’s sister had also died, and the will stated that her children would receive the sister’s share. The man had to share his inheritance with estranged nieces and nephews. Had the will been reviewed with an attorney, this mishap could have been prevented very easily.

Reference: Forbes (May 25, 2021) “5 Reasons To Have Your Parents’ Estate Plan Reviewed”

Suggested Key Terms: Decedent, Tax Laws, Estranged, SECURE Act, Fees, Penalties, Beneficiary Designation, Estate Planning Attorney, Probate, Power of Attorney, Personal Items, Affidavit, Will