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big News for trust taxation

Big News for Trust Taxation

Big News for Trust Taxation

authorIcon By Jill Roamer, J.D.

Big News for Trust Taxation. Few of us feel delight when we hear the term “tax code”. However, there has been some recent excitement in the area of trust taxation and administration that we all should direct our attention to. Trust income, like an individual’s income, will be taxed in states with income taxes. The focus of the recent developments concentrates on the taxation of an out-of-state trust’s undistributed income, not what income is actually received by the trust’s beneficiaries. There is no uniform treatment of trust taxation between the states – the process is state specific. Some states have developed statutory schemes that permit the taxation of an out-of-state trust when a future beneficiary happens to reside within its bounds. However, other states have found that such policies violate due process. This circuit split has led to the Supreme Court of the United States (SCOTUS) to accept a case that will determine the constitutionality of such state taxation structures. This case, N. C. Dept. of Revenue. v. Kaestner Family Trust, No. 18-457 (N.C. filed Oct. 9, 2018), will define a benchmark for the taxation of undistributed income on trusts with out-of-state beneficiaries.

Kaestner Questioned

This case involves a North Carolina statute used to tax a New York trust, solely on the fact that a future beneficiary resided within the state of North Carolina. Here, the original trust was created in New York, then split into three separate trusts. The trustee resides in Connecticut and the trust is managed by a company in Massachusetts. There were no assets situated, nor disbursements made, within the state of North Carolina; the only connection between the trust and the state was that the beneficiary resided within the state. The question for the SCOTUS is whether such taxation violates the Due Process Clause of the U.S. Constitution.

Taxing Out-of-State Trusts

Unconstitutional Taxation

This issue has been tackled in various states so far, with differing results. The Minnesota Supreme Court recently decided a case regarding a trust originally created within the state, by a state resident, for the benefit of four beneficiaries (one living within the state). Here, the trust was subsequently managed by an out-of-state trustee with no trust interests in assets within the state in the tax year at issue – and thus, Minnesota’s connections with the trust were eliminated. The court found that taxation of the trust by the state exceeded the scope of constitutional taxation. (Fielding v. Comm’r of Revenue, 916 N.W.2d 323, 2018 WL 2447690 (2018).) The court opined that the historical contacts with the state were not relevant to the current status of the trust in the questioned tax year.

Similar results were found in New Jersey, Illinois, and Pennsylvania. [Residuary Trust A U/W/O Kassner vs. Dir. Div. of Taxation, 28 N.J. 541 (N.J. 2015); Linn v. Department of Revenue, 2 N.E. 3d 1203 (Ill. 2013); Robert L. McNeil, Jr. Trust ex rel. McNeil v. Com., 67 A.3d 185 (Pa. 2013).]

State Taxation Based Upon Beneficiary’s Residence

Eleven states have had laws that would tax trust income based upon a beneficiary’s residence within the state: Alabama, California (challenged and found constitutional), Connecticut (challenged and found constitutional), Georgia, Missouri (challenged and found unconstitutional), Montana, North Carolina (now being questioned), North Dakota, Ohio, Rhode Island, and Tennessee. Kaestner creates major questions in both challenged and unchallenged states. This is Big News for Trust Taxation!


It is now time for the SCOTUS to step in and have the final say. Based on the direction of recent cases, it would be reasonable to expect that our highest court will find that a state attempting to tax out-of-state trusts, based on beneficiary residency, is an unconstitutional overreach. Several of these state opinions have said that trusts are separate entities, like individual citizens. Further, such states would eventually get their piece of the pie once the beneficiary actually receives assets from the trusts. The state is attempting to tax an out-of-state trust even though no increase in wealth is derived within the state. North Carolina is ultimately attempting to tax the income of a trust based on an in-state beneficiary simply because no other state is taxing it.

North Carolina’s reply brief in the Kaestner case does make an interesting argument towards the fairness of taxing the Kaestner trust under the present circumstances. The trust’s provisions indicate that when Kaestner turned 40, the trust would dissolve and the assets would be distributed. Instead of taking the distribution upon Kaestner’s 40th birthday, she opted to shift the assets into another trust. North Carolina argues that these actions were taken to avoid state taxation of the assets that should have been distributed to her during her residency within the state. Additionally, North Carolina argues that prior precedent declares a trust to not be a distinct legal entity, but merely a fiduciary relationship.


It is likely that the SCOTUS will lean towards the unconstitutionality of taxing out-of-state trusts based upon a beneficiary’s residence – but it may be a close call based on North Carolina’s argument pointing out the ultimate unfairness of tax shelters resulting from upholding the Kaestner decision. Allowing taxation based upon a beneficiary’s residency within the state would create a significant complication. What will be the result of taxation upon multiple beneficiaries that reside in separate states? Could this result in another potential Due Process argument that double taxation would result? What would the implications be on “quiet trusts,” in the few states that allow them, where beneficiaries are not even aware of the trust created for their benefit? But, then again, why should states not be able to tax trusts when its beneficiaries benefit from state resources?

Arguments will be heard Tuesday, April 16, 2019. This decision will be monumental in the future of trust creation and management. Trusts and Estates attorneys everywhere will be on pins and needles, eagerly awaiting the SCOTUS’s final judgment. But that is the Big News for Trust Taxation.

Read more related articles at:

2020 year-end tax planning for trusts can yield major savings

Taxation of Estates & Trusts

Also read one of our previous Blogs at:

As a Trust Beneficiary, Am I Required to Pay Taxes?

Click here to check out our On Demand Video about Estate Planning.

house taxes

What are My Taxes on a House I Inherited?

Say your mom transferred the deed of the house over to you in November 2014 with a life estate for her. She dies in 2016. Mom paid about $18,000 for the home in 1960. This is the son’s primary and only residence. He wants to put the house on the market for $375,000. Will he have to pay capital gains tax?

The son probably won’t owe any tax on the sale of the house. Nj.com’s recent article entitled “Will sale of inherited home cause a tax liability?” explains that the profit can be calculated, by subtracting the cost basis from the sales price. That cost basis is the original purchase price plus any capital improvements.

As far as the son’s repairs, he should look at capital improvements, which is somewhat nebulous. The IRS definition is “add to the value of your home, prolong its useful life, or adapt it to new uses.” Any improvements must be evident when you sell. If you replace a few shingles on your roof, it is a repair. However, if you replace the whole roof, that’s a capital improvement. If you don’t have receipts for the capital improvements, you can use reasonable estimates. However, the IRS may not accept them, if you’re audited.

Inherited property receives a “step up” in cost basis to the fair market value as of the date of death. This means that the original purchase price of the property and any capital improvements prior to the date of death are no longer relevant.

If a property is sold after it is inherited, the profit is calculated by deducting the date of death value from the sales price with an adjustment for any capital improvements made to the property after the date of death.

As far as the mom’s life estate in the home, this is a special type of real estate ownership, where the owner retains the exclusive right to live in the property for as long as she’s alive. However, a remainder interest is given to someone else, like a child. This “remainderman” automatically becomes the owner of the property upon the death of the life tenant.

Even with the life estate, the home receives a full step-up in cost basis upon the death of the life estate owner. The first $250,000 of profit on the sale of a primary residence is also exempt from tax, as long as the seller owned the home and lived in the home for two out of the last five years.

As such, the basis of the home will be the fair market value of the home in 2016, when the son inherited it as the remainderman of the life estate deed, plus any capital improvements he made since then.

In this situation, because the son has owned and lived in the house for two out of the last five years, he can exclude up to $250,000 of profit. With estimated sale price of $375,000, he shouldn’t owe any capital gains tax.

Reference: nj.com (Dec. 31, 2020) “Will sale of inherited home cause a tax liability?”

Read more related articles at:

How Taxes Can Affect Your Inheritance

How to Avoid Paying Taxes on Inherited Property

Also, read one of our previous Blogs at:

What Exactly Is the Estate Tax?

Click here to check out our On Demand Video about Estate Planning.

Background checks

Pennsylvania Creating Uniform Background Check Process for Those Working with Older Adults

Pennsylvania Creating Uniform Background Check Process for Those Working with Older Adults

Pennsylvania’s Department of Aging is looking to update the Older Adults Protective Services Act. This law was enacted originally in 1987 to protect older people who are most vulnerable.

WKBN’s recent article entitled “PA working to decrease elder abuse by updating background check process” reports that Carolyn Green, a spokesperson with the Pennsylvania Department of Aging, said when the law was originally drafted it had a section that regulated criminal background checks for employees. However, that part of the law can no longer be enforced.

“The commonwealth court determined that the employment ban provisions in the Older Adults Protective Services Act was unconstitutional, so we are not able to enforce that portion of the act,” she said.

“Right now, facilities are interpreting it the best they can, so updating this act would allow for more uniformity and a clear understanding of what crimes should prohibit people from working with older adults.”

These criminal background checks assist senior care facilities in eliminating the applications of those persons who might commit elder abuse.

Elder abuse is on the rise.

The Pennsylvania Department of Aging says that cases of suspected elder abuse increased 80% over the previous five years.

Most of that, they say, goes unreported.

According to the Pennsylvania Department of Aging’s 2019-2020 annual report, women make up about 64% of victims. Their primary abusers? It’s usually a female caregiver.

“We see a lot of scams happening to older adults but, unfortunately, we do see family members taking advantage or caretakers taking advantage of older adults. Background checks could help eliminate staff that could currently be working with but have committed crimes the facility isn’t aware of,” Green said.

Changes are in the works, Green says.

Reference: WKBN (Feb. 12, 2021) “PA working to decrease elder abuse by updating background check process”

Read more related articles at:

State Requirements for Conducting Background Checks on Home Health Employees


Also, Read one of our previous Blogs at:

Where are the Worst Nursing Homes in America?

Click here to check out our On Demand Video about Estate Planning.


Selling your Life Insurance Policy

Should I Sell My Life Insurance Policy?

Should I Sell My Life Insurance Policy?

It is quite common to buy life insurance. It may have been to protect your family financially or as a vehicle to provide liquidity for estate taxes. As we grow older and laws change, it is critical to determine if your policy has outlived its intended purpose. The traditional strategy of “buy and hold” no longer applies to the ever-changing world. Today, it may be a good idea to consider selling your policy.

Forbes’ recent article entitled “What You Should Know Before Selling Your Old Life Insurance Policy” explains that a lesser-known alternative to abandoning or surrendering a policy is known as a life settlement. This gives the policy owners the chance to get a much bigger cash lump sum, than what is provided by the life insurance carrier’s cash surrender value.

Life settlements are not new. Third-party institutional buyers have now started to acquire ownership of policies, in exchange for paying the owner a lump sum of cash. As a consequence, the policy owner no longer needs to make future premium payments.

The policy buyer then owns the life insurance policy and takes on the responsibility of future premium payments. They also get the full death benefit payable from the life insurance carrier when the insured dies.

Research shows that, on average, the most successful life settlement deals are with policies where the insured is age 65 or older. Those who are younger than 65 usually require a health impairment to receive a life settlement offer.

Knowing what your life insurance policy is worth is important, and its value is based on two primary factors: (i) the future projected premiums of the policy; and (ii) the insured’s current health condition.

Many policy owners don’t have the required experience with technical life expectancies, actuarial tables and medical knowledge to properly evaluate their life settlement value policies. This knowledge gap makes for an imbalance, since inexperienced policy owners may try to negotiate against experienced and sophisticated policy buyers trying to acquire the policy at the lowest possible cost.

To address this imbalance, the policy owner should seek help from an experienced estate planning attorney to help them with the process to sell the policy for the highest possible price.

If you have an old life insurance policy that’s collecting dust, ask an experienced estate planning attorney to review the policy’s importance and purpose in your portfolio. This may be the right time to turn that unneeded life insurance policy into cash.

Reference: Forbes (Jan. 26, 2021) “What You Should Know Before Selling Your Old Life Insurance Policy”

Read more related articles at:

5 Tips for Selling Your Life Insurance

Can you sell your life insurance policy?

Also, Read one of our previous Blogs at :

Is Life Insurance a Good Idea for My Estate Plan?

Click here to check out our On Demand Video about Estate Planning.

2020 deaths

Celebrity Deaths in 2020 — Six Estate Planning Lessons We Can Learn

Celebrity Deaths in 2020 — Six Estate Planning Lessons We Can Learn


As estate planners, we are often shocked to learn about wealthy celebrities who pass away without a will or trust. These wealthy celebrities had the financial resources to implement a comprehensive, up-to-date estate plan yet failed to do so before their deaths. So what went wrong? More importantly, what lessons can we learn from these high profile deaths? In this article, by JDSUPRA.com  we analyze the estate planning mistakes and successes made by famous individuals in an effort to help educate others – famous or not – as to why good estate planning is important for everyone, regardless of your age or current health.

Tony Hsieh (1973-2020): $850 million
Estate Plan Efficacy Rating: 0/10

Tony Hsieh, the founder of Zappos, passed away after a tragic accident at the age of 46.  Worth hundreds of millions of dollars at his death, Tony has become well-known for the critical mistakes he made in his estate planning. Tony’s family filed documents in Nevada probate court alleging that Tony died without a will. Under Nevada law, this means that Tony’s fortune will pass to his parents. The biggest challenge will be valuing Tony’s estate and identifying his assets. Tony left “thousands” of sticky notes representing potential business deals and financial commitments all over his Park City, Utah mansion. Tony also owned numerous properties in different states, often purchasing real estate for friends and family. It is unknown whether these purchases were gifts or personal investments, and the probate court will be tasked with sorting it all out. It will likely take several years before his estate is fully settled.

Kobe Bryant (1978-2020): $600 million
Estate Plan Efficacy Rating: 5/10

Kobe Bryant was not only a famous basketball player, he was a savvy businessman, brand-builder, and investor. It is no surprise that Kobe had a carefully crafted estate plan in place prior to his untimely death at the age of 41. Kobe’s estate plan protected his assets, reduced estate-tax liability, and passed his wealth to his family members. Despite careful planning, Kobe made a tragic oversight. Kobe failed to update his estate plan after the birth of his daughter, Capri Bryant, who was just six months old at the time of his death. Seeking to fix this oversight, the co-trustees of the Kobe Bryant Trust petitioned the court to modify Kobe’s trust to add Capri as a beneficiary, so that she will be eligible to inherit her share of the family estate. This mistake not only requires the trust to expend unnecessary legal fees, it also eliminates the privacy aspect of Kobe’s estate plan because the trust and its terms have become public record.

A second (potential) mistake was Kobe’s failure to leave a gift to his mother-in-law. Kobe’s mother-in-law has alleged that Kobe promised “to take care of her” for the rest of her life. Unfortunately for his mother-in-law, Kobe did not memorialize these promises in his estate plan. Kobe’s widow, who is the primary beneficiary of his estate and a co-trustee of the trust, is refusing to support her mother despite Kobe’s alleged promises. This dispute has drawn widespread public attention and driven a wedge between Kobe’s widow and her own mother.

Eddie Van Halen (1955-2020) $100 million
Estate Plan Efficacy Rating: 7/10

Rock and roll legend Eddie Van Halen passed away from cancer at the age of 65. Little is known about Van Halen’s estate plan, suggesting he likely executed a trust or other estate planning device prior to his death. Nonetheless, Van Halen’s death raises several important reminders about estate planning for individuals with multiple marriages. Van Halen was married twice, and had a son with his first wife, Valerie Bertinelli. Although we do not have details about Van Halen’s estate plan, we can learn a few lessons from his situation. For those who have experienced divorce, children, and remarriage, there are unique estate planning issues to consider. For example, estate planning should account for any alimony (spousal support) that may have been put in place at the time of a divorce. The terms of the divorce and the conclusions regarding property ownership may significantly impact how one plans to distribute his or her property. Additional considerations regarding children from that union should also be addressed. This becomes even more important if more children are brought into the picture during a second marriage.

Justice Ruth Bader Ginsburg (1933-2020) $5-7 million 
Estate Plan Efficacy Rating: 10/10

Known by her initials “RBG,” Justice Ginsberg passed away in September of 2020, leaving a long legacy in her wake. Yet little is known about Justice Ginsburg’s estate. This is not by accident. When a famous individual dies and the estate planning is done properly, there is virtually no media coverage. Justice Ginsberg was a pioneer for gender equality, successfully arguing that men should not have preference over women for appointment as administrator of a decedent’s estate. It would come as no surprise if Justice Ginsburg nominated a women to serve as the administrator of her estate.

Lesson 1. Make an estate plan. Dying without an estate plan means the probate court will divide up your estate pursuant to state law. This may result in your assets being inherited by estranged family members or, even worse, family members who you strongly dislike. Make it a priority to find the time to execute your estate plan. Simple estate plans are affordable. Most estate planners will prepare a simple will for under $1,000. For high net worth individuals, failing to execute an estate plan may expose your estate to the federal estate tax, which could reduce the net value of your estate by up to 40%. Phillip Seymour Hoffman’s estate plan was prepared by his CPA. His estate ended up paying approximately $15 million in estate tax, almost all of which could have been avoided with proper tax planning.

Lesson 2. Update your estate plan. After a divorce or the birth or adoption of a new child, you should always revisit your estate plan. It is not uncommon for a child to be left out of a trust or a will, or for an ex-spouse to be the named beneficiary of an IRA. Many people mistakenly believe that a divorce automatically revokes any gifts to an ex-spouse. Although this is true for gifts left to a spouse in a will, this is not always the case with other gifting devices, such as IRAs. After a divorce, you should contact the financial institutions to verify that your ex-spouse has been removed as the beneficiary.

Lesson 3. Minimize family disputes and honor your promises. The ongoing bitter dispute between Kobe’s widow and her mother may have been avoided if Kobe had included a gift to his mother-in-law in his trust, honoring his alleged promise to take care of her. One of the most common disputes we encounter in probate court is when a family member claims that the deceased person made a verbal promise to that family member, but that promise was never documented in the estate plan. These promises include cash gifts, gifts of sentimental personal property, or forgiveness of loans.

Lesson 4. Avoid unnecessary administrative expenses. The administration of Tony Hsieh’s probate estate will undoubtedly drag on for many years, costing millions of dollars in attorney and other professional fees. This is precisely what happened in the administration of Prince’s estate. Although he did not die in 2020, there is much we can learn from Prince’s untimely death in 2016. Prince died without a Will. As a result, Prince left a large amount of money—approximately $250 million—to his six siblings and half-siblings. Prince’s probate case has dragged on for years. Since 2016, bankers, lawyers, and other professional consultants have been paid millions of dollars to help administer the estate. These extraordinary administrative fees could have been avoided if Prince had a trust or will.

Lesson 5. Honor charitable giving. During his life, Tony Hsieh made generous gifts to several charities and private foundations. By not having an estate plan, not a single dollar of Tony’s estimated $850 million estate will pass to charity. The same is true for Prince. It was well-known in the Minneapolis community that Prince was a generous donor to many charities. Because he failed to implement an estate plan, Prince lost the opportunity to leave a portion of his wealth to his favorite causes.

Lesson 6. No news is good news. When Justice Ginsburg died, the public heard nothing about the administration of her estate. Why? Because she most likely had a comprehensive, up-to-date estate plan in place before her death. Good estate plans minimize family fighting, keep the estate plan private, honor promises, and leave a legacy of good will.

Read more related articles at:

Lessons From The Rich And Famous: Why Estate Planning Should Be Part Of Your Retirement Plan

Notable deaths in 2020

Also, read one of our previous Blogs at:

Which Stars Made the Biggest Estate Planning Blunders?

Click here to check out our On Demand Video about Estate Planning.




How Do You Plan for the Death of a Spouse?

How Do You Plan for the Death of a Spouse?

The COVID pandemic has become a painful lesson in how important it is to having estate plans in order, especially when a spouse becomes sick, incapacitated, or dies unexpectedly. With more than 400,000 Americans dead from the coronavirus, not every one of them had an estate plan and a financial plan in place, leaving loved ones to make sense of their estate while grieving. This recent article from Market Watch titled “How to get your affairs in order if your spouse is dying” offers five things to do before the worst occurs.

Start by gathering information. Make all of your accounts known and put together paperwork about each and every account. Look for documents that will become crucial, including a durable power of attorney, an advanced health care directive and a last will. Gather paperwork for life insurance policies, investment portfolios and retirement accounts. Create a list of contact information for your estate planning attorney, accountant, insurance agent, doctors and financial advisors and share it with the people who will be responsible for managing your life. In addition, call these people, so they have as much information as possible—this could make things easier for a surviving spouse. Consider making introductions, via phone or a video call, especially if you have been the key point person for these matters.

Create a hard copy binder for all of this information or a file, so your loved ones do not have to conduct a scavenger hunt.

If there is an estate plan in place, discuss it with your spouse and family members so everyone is clear about what is going to happen. If your estate plan has not been updated in several years, that needs to be done. There have been many big changes to tax law, and you may be missing important opportunities that will benefit those left behind.

If there is no estate plan, something is better than nothing. A trust can be done to transfer assets, as long as the trust is funded properly and promptly.

Confirm beneficiary designations. Check everything for accuracy. If ex-spouses, girlfriends, or boyfriends are named on accounts that have not been reviewed for decades, there will be a problem for the family. Problems also arise when no one is listed as a beneficiary. Beneficiary designations are used in many different accounts, including retirement accounts, life insurance policies, annuities, stock options, restricted stock and deferred compensation plans.

Many Americans die without a will, known as “intestate.” With no will, the court must rely on the state’s estate laws, which does not always result in the people you wanted receiving your property. Any immediate family or next of kin may become heirs, even if they were people you with whom you were not close or from whom you may even have been estranged. Having no will can lead to estate battles or having strangers claim part of your estate.

If there are minor children and no will to declare who their guardian should be, the court will decide that also. If you have minor children, you must have a will to protect them and a plan for their financial support.

Create a master list of digital assets. These assets range from photographs to financial accounts, utility bills and phone bills to URLs for websites. What would happen to your social media accounts, if you died and no one could access them? Some platforms provide for a legacy contact, but many do not. Prepare what information you can to avoid the loss of digital assets that have financial and sentimental value.

Gathering these materials and having these conversations is difficult, but they are a necessity if a family member receives a serious diagnosis. If there is no estate plan in place, have a conversation with an estate planning attorney who can advise what can be done, even in a limited amount of time.

Reference: Market Watch (Jan. 22, 2021) “How to get your affairs in order if your spouse is dying”

Read more related articles here:

‘When life goes sideways’ – how to prepare for the death of a spouse

Death Of A Spouse Planning Tips

Also, read one of our previous blogs here:

What Do I Need to Do after the Death of My Spouse?

Click here to check out our On Demand Video about Estate Planning.

Living Trusts

Does Living Trust Help with Probate and Inheritance Taxes?

Does Living Trust Help with Probate and Inheritance Taxes?

A living trust is a trust that’s created during a person’s lifetime, explains nj.com’s recent article entitled “Will a living trust help with probate and inheritance taxes?”

For example, New Jersey’s Uniform Trust Code governs the creation and validity of trusts. A real benefit of a trust is that its assets aren’t subject to the probate process. However, the New Jersey probate process is simple, so most people in the Garden State don’t have a need for a living trust.

In Kansas, a living trust can be created if the “settlor” or creator of the trust:

  • Resides in Kansas
  • The trustee lives or works in Kansas; or
  • The trust property is located in the state.

Under Florida law, a revocable living trust is governed by Florida Statute § 736.0402. To create a valid revocable trust in Florida, these elements are required:

  • The settlor must have capacity to create the trust
  • The settlor must indicate an intent to create a trust
  • The trust must have a definite beneficiary
  • The trustee must have duties to perform; and
  • The same person can’t be the sole trustee and sole beneficiary.

Ask an experienced estate planning attorney and he or she will tell you that no matter where you’re residing, the element that most estate planning attorneys concentrate on is the first—the capacity to create the trust. In most states, the capacity to create a revocable trust is the same capacity required to create a last will and testament.

Ask an experienced estate planning attorney about the mental capacity required to make a will in your state. Some state laws say that it’s a significantly lower threshold than the legal standards for other capacity requirements, like making a contract.

However, if a person lacks capacity when making a will, then the validity of the will can be questioned. The person contesting the will has the burden to prove that the testator’s mental capacity impacted the creation of the will.

Note that the assets in a trust may be subject to income tax and may be includable in the grantor’s estate for purposes of determining whether estate or inheritance taxes are owed. State laws differ on this. There are many different types of living trusts that have different tax consequences, so you should talk to an experienced estate planning attorney to see if a living trust is right for your specific situation.

Reference: nj.com (Jan. 11, 2021) “Will a living trust help with probate and inheritance taxes?”

Read more related articles at :

Best Ways to Protect Your Estate and Inheritances From Taxes

Understanding Living Trusts

Also, Read one of our previous Blogs at:

What Should I Know about a Living Trust?

Click here to check out our On Demand Video about Estate Planning.

social Security Surprises

Do You Know These Social Security Surprises?

Do You Know These Social Security Surprises?

If you don’t understand how Social Security works, you may get caught off guard by some of Social Security’s rules and nuances, says Motley Fool’s recent article entitled “Don’t Let These 3 Social Security Surprises Ruin Your Retirement.” Here are some things to keep in mind:

  1. Taxes on benefits. Many assume that Social Security is not taxed, but it may be, depending on your provisional income. Your provisional income is calculated by taking your non-Social Security income plus 50% of your annual benefit payments. If that total is between $25,000 and $34,000 for a single or between $32,000 and $44,000 for a married couple filing jointly, you could be taxed on up to 50% of your benefits. Moreover, if your provisional income is more than $34,000 as a single tax filer, or $44,000 as a joint filer, you may be subject to taxes on up to 85% of your benefits. Typically, if Social Security is your sole retirement income source, you will avoid having your benefits taxed at the federal level. However, there are 13 states that tax Social Security.
  2. Withheld benefits when you still get a paycheck. When you hit your full retirement age (FRA), which is when you are entitled to collect your monthly Social Security benefit in full, you can earn as much money as you would like from a job, without having that income impact your benefit payments. However, if you work and collect benefits at the same time before reaching FRA, you may have some of your benefits withheld if you exceed the annual earnings test limit.

You can earn up to $18,960 in 2021 without losing any benefits. Above that threshold, you will have $1 in Social Security withheld for every $2 you earn. If you will be attaining FRA this year, the earnings test limit is higher, $50,520, and after that you will have $1 in Social Security withheld for every $3 you earn.

These withheld benefits are not lost permanently. They are added onto your monthly benefit once you reach FRA. However, claiming Social Security before FRA will also reduce your monthly benefit for life. Bear that in mind, if you are planning to continue working.

  1. Ultra-low cost-of-living adjustments. Social Security benefits are subject to a cost-of-living adjustment (COLA), which is designed to help seniors keep up with inflation. However, in recent years, it has not. From 2002 to 2011, COLAs averaged 2.43%, but between 2012 and 2021, they averaged only 1.65%. As a result, many seniors on Social Security have had trouble paying their bills. COLAs are tied to fluctuations in the cost of goods and services, but this does not necessarily relate to seniors. Because of this, some lawmakers have been advocating for a better way of calculating them.

If you are planning to depend primarily on Social Security in retirement, be certain that you know the details of the program.

Reference: Motley Fool (Feb. 1, 2021) “Don’t Let These 3 Social Security Surprises Ruin Your Retirement”

Read more related articles at: 

6 Social Security Surprises

Social Security Basics: 12 Things You Must Know About Claiming and Maximizing Your Social Security Benefits

Also, Read one of our previous Blogs at:

Will the Pandemic Affect My Social Security?

Click here to check out our On Demand Video about Estate Planning.

Spring Estate Plan

Spring has Sprung. When Should I Start my Estate Plan? Now!

Spring has Sprung. When Should I Start my Estate Plan? Now!

According to an article by MerchantsBank.com entitled: Guide to Estate Planning by Age, You might think estate planning doesn’t apply to you. You aren’t old enough. You don’t have enough assets. Think again.

“Most people think they don’t need an estate plan until they are older or have more money – but that’s simply not true,” says Martin Oines, CFP ®, CTFA, Trust Officer. “People at every age should put together an estate plan that fits their needs – from something very simple for a 30 year old to a fully funded trust plan for a 60 year old.

Here are the typical estate planning documents and issues to consider by age.

In Your 20s

Once you turn 18, your parents no longer have authority to make healthcare or financial decisions for you. That’s why it’s important to visit with a lawyer and get a:

  • Healthcare Directive – Specifies which actions should be taken regarding your health if you are no longer able to make decisions.
  • Power of Attorney – Names someone to make decisions for you if you can’t. There are several different types, but specifically you’ll want to consider a healthcare Power of Attorney for medical decisions and a financial Power of Attorney for financial decisions.

In Your 30s

Typically by your 30s, you own a home, have started a family, and have some financial assets. To make sure you protect your children and spouse, this is a good time to review – with the help of your lawyer or our Trust team – which legal devices make the most sense for your situation:

  • Will – Specifies who will inherit your assets, who will take care of settling your estate and, if necessary, who will care for your children if you or your spouse are unable to.
  • Trust – Transfers ownership of your assets to someone you choose (called the trustee) and dictates who will manage your assets for the beneficiaries you designate. Trusts can include different kinds of assets, such as real estate and investment accounts. Trusts can also be set up in many different ways. You may have heard of living trusts, revocable trusts or irrevocable trusts. To find out which one is right for you, consult with your lawyer.

In Your 40s

If you have the above documents and decisions in place by your 40s – congratulations! If not, it’s time to catch up.

Now is also the time to talk to your parents about their estate plan. While these conversations can be difficult, understanding your parents’ long-term financial and healthcare wishes is usually best for everyone.

Specifically, check with your parents to make sure they have legal documentation for:

  • Distributing their assets (will, trust and beneficiary designations).
  • How medical decisions will be made if they become incapacitated, including their preferences and who can make the decisions.
  • Long-term care, including where they want to live and how they will pay for it. You parents may even have a long-term care insurance policy. Be sure to ask.

In Your 50s and 60s

If you haven’t done any estate planning by your 50s, you’re not alone. According to AARP, 42% of Baby Boomers do not have estate-planning documents in place.

Now is the time to get proactive and create these legal documents.

In Your 70s and Beyond

At this point, with your estate plan complete, you should focus on reviewing or updating your plan as appropriate. Make sure that your estate plan is as clear as possible and ready to be executed when necessary.

Read more related articles at:

When should I start my estate planning?

Do you need an estate plan?

Also, read one of our previous blogs at:

Estate Planning Needs for Every Stage

Click here to check out our On Demand Video about Estate Planning.

Cremated Remains

Ashes in the Mail — Dealing with the Loss of a Loved One has Changed in the COVID Era

Ashes in the Mail — Dealing with the Loss of a Loved One has Changed in the COVID Era

Jason Oszczakiewicz, a Pennsylvania funeral home director known as “Oz,” has become accustomed to delivering the ashes of recently deceased persons as it has begun to occur about 9 or 10 times a month.

Oz stated, “I seem to be mailing a lot to Georgia, North Carolina, Florida, New York.”

The pandemic has  not only changed how things are done during life, but also in death.

Memorial services have been postponed, eulogies delivered over zoom, and many people are moving towards cremation in order to skip the process of burying bodies. Since out-of-state relatives have been unable to travel and pick up remains, the U.S. Postal Service has become the middle man in delivering ashes to doorsteps.

In order to safeguard the remains, you must send them Priority Express Mail, and they require a signature.

This process has become so popular that the USPS is having a hard time keeping up with their bright orange sticker that reads “CREMATED REMAINS.”

The USPS is struggling to keep up with the demand for its Label 139, a bright orange sticker it requires on these packages that reads “CREMATED REMAINS.” The Postal Service also offers a kit for human ashes that comes with a sealable plastic bag, bubble wrap and cardboard box. The USPS website warns of delays “due to high order volume.”

See Mary Jordan, Ashes in the mail: Dealing with the loss of a loved one has changed in the covid era,
he Washington Post, March 3, 2021.

Read more related articles at: 

Cremate and wait: How COVID-19 is changing the way funeral homes do the business of life and death

Shipping Cremated Remains and Ashes USPS

Also Read one of our Previous blogs at:

What If Grandma Didn’t Have a Will and Died from COVID-19?

Click here to check out our On Demand Video about Estate Planning.

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