Bielski Law Office, Ltd.

Special Needs Estate Planning

Families with members who have special needs that require continuing care have some estate planning options to make sure that care is provided fairly.

When an adult child has special needs that require the help and support of parents it is important to create an estate plan that makes sure that support is provided after the parents pass away. This requires an estate plan that provides for the child's monetary needs in a way that does not disqualify the child from receiving government benefits. It also often requires creating an estate plan that provides those funds in a way that is fair to other children.

Recently, the Wall Street Journal discussed a couple of tools to accomplish these goals in "Estate Planning When You Have a Special-Needs Child."

The tools include:

• Supplemental Needs Trust – These trusts allow parents to leave assets for the care of a child with special needs, but leave those assets under the control of a trusted third-party who can make sure the assets are used appropriately and invested wisely. They also help prevent disqualification from receiving government benefits, which is often the result if a child with special needs is left a large inheritance in one lump-sum.
• Life Insurance – To fund a trust for a child with special needs, parents can take out life insurance policies and make the trust the beneficiaries of the policies. This allows the parents to divide their assets between all of their children equally while providing the extra funds for the child with special needs in a way that other children will not view as unfair.

These are only two of several options for providing for child with special needs in an estate plan.

Speak with an estate planning attorney about the other options and what might be best for your family.

Reference: Wall Street Journal (March 27, 2016) "Estate Planning When You Have a Special-Needs Child."

Social Security Benefits and Inflation

Annual adjustments to Social Security benefits should allow those benefits to keep up with inflation. In reality, the system does not always work well.

Since 1972 Social Security benefits have received annual cost-of-living adjustments. Using information from the Consumer Price Index, annual adjustments are made to benefits. When the index rises, benefit amounts rise accordingly. Benefits do not decrease when the index decreases or remains the same.

By increasing benefits in accordance with the CPI, Social Security payments should theoretically keep up with inflation and provide seniors with the same purchasing power every year. However, the reality is that it does not work that way. In fact, seniors have seen a decrease of 31% of their purchasing power since 2000.

This was the topic of recent My San Antonio article titled "Will Social Security Keep Up With Inflation?"

The problem is that the Consumer Price Index uses a broad range of goods and services to determine the change in cost of living from year to year. Seniors, however, are not equally affected by everything that is measured in the index.

For example, falling gas prices have recently led the CPI to indicate that Social Security benefits should not get an annual increase. Retirees who no longer need to commute to work are not as helped by falling gas prices as much as other demographic groups. Instead, retirees are more affected by the rising costs of health care and prescription medications.

The net effect is that since the year 2000 seniors' living expenses have increased by 84% while Social Security benefits have only increased by 41%. This is obviously a cause of great concern for seniors and elder law advocates.

Reference: My San Antonio (March 27, 2016) "Will Social Security Keep Up With Inflation?"

Should You Be Confident about Your Retirement Plans?

Many Americans who are confident about their plans for retirement might want to reconsider, especially if those plans rely on Social Security or part-time employment.

Recent survey results indicate that almost two-thirds of Americans are at least somewhat confident about their plans for retirement. Experts, however, fear that much of that confidence might be misplaced.

The Deseret News discusses this in "Are Americans feeling too good about their retirement finances?"

As the article notes, the same survey found that 42% of Americans have not even saved $10,000 for their retirements. Instead of saving and investing money, Americans may be relying on Social Security and the possibility of working part-time during their retirement years.

Both are problematic.

While many seniors can and do work part-time after they retire from their regular employment, the option to do so is not available for everyone. Every year approximately half of the people who retire do so earlier than they had anticipated due to their failing health or the health of a spouse. This suggests that many of the people who are planning to work part-time may not be able to do so.

Retirees may also need to compete with younger workers for the part-time employment. Relying on Social Security is also problematic as it is not meant to be a full pension system. Social Security offers benefits that are less than needed to provide as a cushion against elder poverty.

It is important that people adequately plan for retirement without a false sense of security. Retirement plans should be made with the help of experts in coordination with elder law and estate planning attorneys.

Reference: Deseret News (March 27, 2016) "Are Americans feeling too good about their retirement finances?"

It Is Important to Designate a Contingent Beneficiary for Your IRA

A recent IRS private letter ruling highlights why it is important to designate a contingent beneficiary for your IRA in case the primary beneficiary predeceases you.

Individual retirement accounts are an important part of many estate plans. By designating a beneficiary for the account the funds can pass to another person automatically without having to go through probate. However, if the primary beneficiary of your IRA passes away before you do, then the IRA might have to go through your estate. That can cause problems as a recently released private letter ruling by the IRS illustrates.

This was the subject of a recent Wealth Management article titled "The Importance of Naming a Contingent Beneficiary of a Retirement Account."

In this case the primary beneficiary of an IRA and a Roth IRA passed away before the testator. As a consequence the accounts had to go through the estate. As the sole beneficiary of the estate, the IRA and Roth IRA went to the deceased's spouse.

The spouse elected to roll over the IRA and Roth IRA into her own IRA. The IRS determined that she could do that. However, she was only allowed to do so because of the particular facts of this case and some language in the preamble of the regulations, not the body of the regulations.

This is important because the ruling seems to indicate that in other situations the result would not be as favorable. Naming a contingent beneficiary on your IRA can guard against such outcomes. If the primary beneficiary has already passed away, the contingent beneficiary will receive the funds instead.

Reference: Wealth Management (March 21, 2016) "The Importance of Naming a Contingent Beneficiary of a Retirement Account."

Medicare Options

When signing up for Medicare benefits it is important to know your options and how they might interact with your current healthcare coverage.

For most Americans over the age of 65 the benefits of Medicare are obvious. It provides affordable health care coverage at a time when most people are looking to retire and thus in danger of losing employer provided health insurance.

Unfortunately, signing up for Medicare is not as simple as filling out a single form when you are eligible. You need to know your options and how they relate to other health care coverage.

Recently, the Motley Fool discussed some of the options in "Read This Before You Take Medicare Benefits."

The things to consider include:

• Employer Provided Coverage – If you are still working when you become eligible for Medicare, you need to understand how Medicare benefits will interact with your employer provided insurance. There is not a hard and fast rule, but generally if an employer has fewer than 20 employees, then Medicare will be the primary insurer with the employer provided insurance acting as a secondary insurer. The opposite is true for larger companies. It is important to speak to your current insurer to find out for certain and if that insurer has any policies concerning when you must sign up for Medicare.
• Medicare Advantage – You have the option of signing up for traditional Medicare or Medicare Advantage. Traditional Medicare benefits are administered directly through state agencies and allow the option of signing up separately for Part D prescription benefits. Medicare Advantage plans are operated by private insurers and have prescription drug benefits rolled into them. Depending on your needs one or the other may be cheaper or provide better coverage.
• Penalties – If you do not sign up for Medicare when you first become eligible, then you might face penalties when you do start receiving benefits. Those penalties are different for each part of Medicare.

If you are one who likes to do Internet research, then you will find the Medicare official website helpful.

Reference: Motley Fool (March 26, 2016) "Read This Before You Take Medicare Benefits."