Cheryl Chapman Henderson, LLC

IMPORTANT: The Department of Veterans Affairs announced a policy change effective on 10-18-18!

 

THE FOLLOWING MESSAGE IS URGENT!!

 

The Department of Veterans Affairs has announced a policy change that will soon affect all older veterans and their spouses!  Please read on…

 

On October 18, 2018, the VA is instituting rule changes that will make it more difficult for vets to qualify for existing benefits and protect their assets.

 

Vets and their spouses who are 65 or older, served during a period of war, have trouble performing tasks of daily living (bathing, dressing, toileting, etc.), and meet certain financial requirements are eligible to receive up to $26,036 annually in non-service connected benefits through the VA to help pay for long-term care, including home health care and nursing home care.

 

To qualify, most veterans and their spouses will need to work together with their estate planning attorney to create and implement a plan. Proper planning allows the veteran to meet the VA’s income and asset thresholds, without actually forfeiting their assets or being forced to spend down their savings before they could be eligible for benefits.

 

Currently, this type of planning can be done right up to the day the application is submitted…with the VA’s blessing… because they do not have a formal “look-back period” for asset transfers on the books.  But…

 

THIS IS CHANGING AS OF OCTOBER 18^TH!  

 

Starting on October 18, 2018, the Department of Veterans Affairs will begin imposing a three (3) year look-back period on all asset transfers.  Each transfer or gift will cause a penalty period that could last up to five years before you are able to access your benefits.  Other significant changes to the rules are also going into effect.

 

If you don’t have time to wait for benefits or your family could utilize up to $26,036 tax-free to help pay for your care today or in the future, the time to act is NOW.

 

Here is what you must do immediately:

1. If you’ve already done your homework on collecting Aid & Attendance benefits but you’ve yet to move forward with your planning, it’s time to take the final step. Call us at 301-220-4463 and we’ll get you into the office ASAP. Please be advised that spaces are very You must get your planning done before October 18^th to take advantage of opportunities while they still exist before the new rules go into effect. This means that you will need to become a client no later than Monday, October 8^th.
2. If you are an older wartime veteran or spouse and this is the first time you are hearing about Aid and Attendance benefits, please hit REPLY to this email or call the office at 301-220-4463 RIGHT AWAY. We are clearing out spaces on our calendar, but they are limited. We’ll teach you all about this benefit, crunch the numbers to determine how you can qualify, and create a plan to help you get your application in before the October 18^th  
3. If you think you might need care in the future, the time to plan is still RIGHT NOW. You can work to appropriately arrange your finances today so that when you apply for benefits down the road, you can qualify without a penalty.

 

If you are a wartime vet or spouse (or you care about someone who is), there’s no time to delay. Call our office at 301-220-4463, Monday-Friday, from the hours of 8:30 am to 5:30 pm and we’ll work diligently to complete any planning that you may need before the October 18^th deadline. 

 

P.S. I don’t usually say this—but, please SHARE this post with every veteran who you know and care about. Helping a Vet access the Aid & Attendance benefits they are rightfully entitled to for serving during a period of war can mean the difference between aging with dignity or becoming impoverished by the costs of long-term care. This is information that every older vet should know about!

Even Young Adults Need Estate Planning

Even Young Adults Need Estate Planning

Those in their 20s and 30s are strongly encouraged to create an estate plan. A lot can be accomplished in a few simple steps, says Wealth Advisor in the recent article, “Estate Planning Isn’t Only for the Old and Wealthy.”

First, people can draft a will to provide directions regarding what happens to their assets, such as who will inherit both financial and personal items. Virtual assets like social media accounts should also be included. You should make a list of usernames and passwords for all your accounts and be sure that a trusted relative or friend has access to it.

Another important part of estate planning is to designate the beneficiaries for all company-sponsored life insurance and 401(k) plans to avoid probate issues. You can also set up a payable-on-death account from your bank.

As part of estate planning, you should also name a healthcare proxy and a general durable power of attorney. These two documents allow your trusted agent to make medical and financial decisions, in the event you’re incapacitated. If you want to give your proxy specific instructions, create an advance directive, known as a living will.

As you work through these actions with your estate planning attorney, you’ll see that estate planning is not just for the old and wealthy. It can bring you peace of mind and provide clarity to your loved ones and family if you should pass away unexpectedly.

Reference: Wealth Advisor (December 20, 2018) “Estate Planning Isn’t Only for the Old and Wealthy”

Am I Too Young to Start Thinking About Estate Planning?!

Am I Too Young to Start Thinking About Estate Planning?

 Many people believe they’re too young to begin thinking about estate planning. Others say they don’t have significant enough assets to make the process of planning worthwhile.

 However, the truth is that everyone needs estate planning. If you have any assets, and you intend to give those assets to a loved one, you need to have a plan.

 Forbes’s article, “Reviewing Your Financial And Estate Planning Checklist,” examines some important topics in estate planning.

 The first topic is a durable power of attorney for property, finances and health care. This document allows you to designate a trusted individual to make decisions and take action on your behalf with matters relating to each of the three areas above.

In addition to the importance of having all powers of attorney readily available, in case you become incapable of making decisions, beneficiary designations should also be looked at frequently to update any changes to family situations, like birth or adoption, death, marriage or divorce.

Another topic to address is a living trust. A trust will give direction regarding where and how the assets are dispersed when you die. A great reason to use a living trust is that the assets in a trust do not pass through probate court, which can be an expensive and time-consuming process.

Another area is digital assets. It’s critical for your heirs to have access to digital files, passwords, and documents. This can be easy to overlook. Create a list of your digital assets, including social media accounts, online banking accounts and home utilities you manage online. Include all email and communications accounts, shopping accounts, photo and video sharing accounts, video gaming accounts, online storage accounts, and websites and blogs that you manage. This list should be clear and updated for your heirs to access.

If we fail to plan for these somewhat uncomfortable topics, the outcome will be stressful and expensive for our heirs.

Reference: Forbes (January 4, 2019) “Reviewing Your Financial And Estate Planning Checklist”

Why is This the Golden Age of Tax-Free Gift Giving?

There's a time limit on this opportunity for tax-free giving. It expires after the tax year 2025 (unless Congress alters the expiration date). The sooner you exploit this, the more you can give—plus, the more you give away, the smaller your estate gets. It means there is less chance that your estate will have to write a check to the IRS.

 The Street’s recent article, “This Is the Golden Age of Tax-Free Gift Giving,” says the federal government has taxed estates since 1924, and as recently as 2001, the threshold when taxes kicked in was $675,000. This exemption level from taxation has been increased ever since. However, a big increase came from the Tax Cuts and Jobs Act, which took effect in 2018. The Act doubled the exemption level and indexed it to inflation. Anything above the new limits is taxed at 40%. It’s $11.4 million for singles and $22.8 million for married couples in 2019.

Although the exemption for estates is sky-high for now, it never hurts to reduce your estate with gifts to your loved ones. While this is nice for them, it’s also good just-in-case planning. If you were to die in 2026, just after President Elizabeth Warren lowers the exemption to $100,000, your heirs would be pretty upset and would see some hefty estate taxes. However, right now, a spouse can get the entire estate tax-free, regardless of its size. Inheritances are also generally not taxable income for beneficiaries. There’s also the portability of the exemption level between spouses.

As far as the "annual exclusion," the tax-free gift you can give amounts to $15,000. While you can't carry over an unused portion to the next year, there is a multiplier effect for couples with several beneficiaries. For example, both spouses could each give the maximum to a child, or $30,000 total. In addition, they could then do the same thing for the child's own spouse, for another $30,000.

A smart gifting strategy is to place the gift in a trust, so the funds are protected from the beneficiary's creditors (even a former spouse). The givers can also maintain some control over the uses of the money.

For the very generous, the donor could put the proceeds into a "donor" trust (also known as a "grantor" trust), where he or she is responsible for any taxes on income that the gift generates.

However you look at it, right now is the golden age of estate planning and gift giving. Talk with your estate planning attorney to learn how you can make the most of it for your family.

Reference: The Street (February 7, 2019) “This Is the Golden Age of Tax-Free Gift Giving”

What Does the Tax Cuts and Jobs Act Mean for My Estate Plan?

What Does the Tax Cuts and Jobs Act Mean for My Estate Plan?

If you haven’t reexamined your estate plan in light of the changes in the Tax Cuts and Jobs Act, do so now, says The Kansas City Star in its article “Talk to estate attorney about impacts of Tax Cuts and Jobs Act.”

A big change in the tax law is the doubling of the federal estate tax exemption from $5.49 million per person in 2017 to $11.18 million per person in 2018 (or $22.36 million per couple). In 2019, the federal estate tax exemption is $11.4 million per person (or $22.8 million per couple).

You should review any wills or trusts drafted prior to the passing of the 2017 legislation. If the trusts use formulas tied to the federal estate tax exemption, then there could be unintended ramifications because of the new larger exemption amount.

You should also look at trusts drafted prior to 2011 when portability was introduced. This legislation allows for “portability” of the deceased spouse’s unused estate exemption. Therefore, the surviving spouse’s estate can now use any exemption amount that wasn’t used by the first deceased spouse’s estate.

The Tax Cuts and Jobs Act didn’t change the step-up of basis. However, the unintended effects of this “non-event” are potentially more significant now. When the decedent dies, the heir’s cost basis of many assets becomes the value of the asset on the date of their death. Thus, highly appreciated assets that avoided income taxes to the decedent, could also avoid or minimize income taxes to the heirs.

Maintaining the ability for assets to receive a step-up in basis is a more important part of estate planning now, because of the larger federal estate tax exemption. However, note that beneficiaries who inherit assets from a bypass or credit shelter trust upon the surviving spouse’s death don’t benefit from a “second” step-up of basis. Instead, the basis of the heir’s inheritance would be the original basis on the first spouse’s death.

As a result, bypass trusts are much less useful than in the past and could have negative income tax impacts for the heirs. This is particularly true, if the assets appreciated significantly after the first spouse’s death or if there was a relatively long amount of time between spouses’ deaths. If your current trust establishes a bypass trust at your death, you might want to ask your estate attorney about restructuring how the bypass trust is funded for the larger federal estate tax exemption.

If you haven’t looked at your estate planning documents with an estate attorney recently, do it in 2019.

Reference: The Kansas City Star (February 7, 2019) “Talk to estate attorney about impacts of Tax Cuts and Jobs Act”

What Are The New Rules for Veteran's Benefits?

Veterans rejected for disability benefits will have new options for appeals. This is because federal officials are implementing an overhaul of the review process, with the objective of significantly reducing wait times for complicated cases.

The Department of Veterans Affairs announced last month that it will implement new appeals modernization rules starting in mid-February. The changes have been in the works for more than 18 months since lawmakers passed sweeping reform legislation on the topic in the summer of 2017.

Veterans will now be provided with three streamlined options for their benefits appeals, reports the Military Times in the article “VA’s benefits appeals process will see a dramatic changeover next month.”

The VA is now hoping that the most difficult reviews can still be finished in less than a year in most cases. The target for cases that don’t go before the Board of Veterans Appeals is an average of about four months for a final decision.

A successful appeal can result in thousands of dollars in monthly benefits payouts for veterans who’ve previously been turned down, for what they believe are service-connected injuries and illnesses.

“(This) is the most significant reform in veterans’ appeals processing in a generation and promises to improve the timeliness and accuracy of decisions for our nation's veterans,” said House Veterans’ Affairs Committee Chairman Mark Takano, D-Calif.

Veterans groups primarily support the appeals changes, but some have expressed concerns about the new system limiting veterans’ options for future reviews, in favor of getting faster resolutions.

Parts of the new process were implemented as pilot programs at select sites in recent months. In the past, the cases involved a combination of all three options, with cases, reset and repeating steps with every new submission of case evidence.

With the first of the three new appeals processes, veterans can file a supplemental claim where they introduce new evidence in support of their case. The appeal is handled by specialists at a regional office, who make a final decision.

The second option allows veterans to request their cases be reviewed by a senior claim adjudicator, instead of the regional office. Those reviews are for clear errors or mistaken interpretations of a statute. If they find mistakes, they can require corrections for the cases.

The third option allows veterans to appeal directly to the Board of Veterans’ Appeals. Those cases are anticipated to take the longest to process, due to the legal prep work. Veterans can obtain a direct decision or request a hearing before the board.

Veterans with cases currently pending in the system can opt to go with the new processes or stay with the current system if they think it will be better for them.

Reference: Military Times (January 22, 2019) “VA’s benefits appeals process will see a dramatic changeover next month”

Can I Draft My Own Will?

 

A common question among people is “Can I write my own will?” or “Do I really need a lawyer to do my estate planning?”

 

The Frisky‘s recent article, “Why You Should Hire A Lawyer to Write Your Estate Plan,” says that writing your own estate plan can be a complicated thing—and one that a non-attorney may find very difficult.

 

It’s More Than a Will. Many people believe that a will and an estate plan are the same. This is not true. An estate plan is a legal strategy that prepares you for potential incapacity and eventual death. A will is a legal document that’s part of the estate plan.

 

Money, Time and Energy Savings. Creating your own estate plan will be more time-consuming than you may have thought. Hiring a lawyer to do this will cost you—but it will cost you more if you decide to do it on your own. Hiring a lawyer for your estate plan will save you time because he or she is trained in the law to do it the right way.

 

If you do finish your own estate plan and you realize that it really is a mess, you can hire a lawyer to do it over for you. However, calculate how much time, energy, and resources you’ve spent on making on your quick DIY estate plan. Work with an experienced estate planning attorney and create a sound estate plan.

 

It’s Complicated. If you don’t fully understand what you’re doing, estate planning can drive you nuts. That’s because every word you write is crucial. Everything you write counts and may be interpreted differently. The law in this area also changes all the time. Agencies in the federal government, the IRS and the courts are always creating new regulations and decisions. Your estate planning attorney monitors all of this makes sure your estate plan is in compliance and takes the best advantage of the current law.

 

Objectivity. Another thing your attorney adds to the mix—in addition to legal expertise—is objectivity. Your estate planning attorney will give you a clean, unbiased view of your current situation, along with a fair and honest assessment of your options.

 

Reference: The Frisky (February 6, 2019) “Why You Should Hire A Lawyer to Write Your Estate Plan”

Are You in the "Sandwich Generation"?

“Have you ever wondered if you are part of the sandwich generation?”

The “sandwich generation” is a generation of people, who are usually in their 30s and 40s. They are caring for their aging parents while supporting their own children. If this sounds like you, then this means you’ve got a lot to worry about. Even if you are not taking financial responsibility for your parents, you are dedicating time and energy, usually willingly.  However, that means there’s less of both for you, your family and your career.

The Press-Enterprise’s article, “3 tips for anyone in the sandwich generation,” offers the following tips to make the “sandwiching” easier on you and your family:

1. Talk About Money Issues. Discuss finances with your children and parents. Perhaps you could go with them to meet with their estate planning attorney. He or she can make sure your parents have all the proper estate planning documents, such as a will, trust, living wills and powers of attorney.

This legal professional will create a plan to lessen or avoid estate taxes and work to ensure that your life's savings and assets are protected from your beneficiaries' creditors after your death and that your legacy is assured.

Estate planning attorneys are accustomed to working with families and navigating the issues between adult children and their aging parents. There is little chance that yours is a unique situation.  It does not mean it is easy, but a skilled attorney will be able to help you and your family deal with whatever situation you face, with dignity and compassion.

2. Get (More) Help. You may get support or assistance to help your parents, your kids, or even yourself. Odds are good that your parents will be reluctant to accept help, so start the process yourself. This could involve hiring a housekeeper for yourself to free up some of your time for things that are more important.

This will give you more time, and your parents won’t feel you are using your finances to assist them. If you have friends and relatives that offer help, take them up on it. Don’t try to do everything yourself.

If your children are old enough, you can also get them involved. Children are surprisingly capable, and sometimes grandparents are more comfortable having grandchildren help with minor chores around the house, where their children’s own actions may seem intrusive.

3. Don’t Feel Guilty. It’s impossible to get to everything. Be sure to take it one day at a time and to take care of yourself.

Reference: (Riverside CA) Press-Enterprise (June 28, 2018) “3 tips for anyone in the sandwich generation”

 

Why You Need An Estate Plan

“Whether you are leaving a huge financial windfall behind for your offspring or a smaller monetary account, it is important to create an estate plan which allows greater control, privacy and security of your legacy.”

Estate planning can be thought of as the process of anticipating and arranging, during an individual’s life, for the management and disposal of his or her estate during the person’s life and after death, while minimizing gift, estate, and income tax. However, 55% of Americans don’t have a will, reports Wealth Advisor in the recent article, “The 3 Reasons Why People Do Estate Planning.”

When considering a legacy and to whom and what to leave behind, there are three reasons why people do estate planning: probate fees and tax reduction, asset protection and control and management.

Probate Fee and Tax Reduction. When a person has more than a certain level of assets, they may have to pay state and federal estate taxes, depending upon the value of the accounts and based on where they live (some states have estate taxes, while others don’t). An experienced estate planning attorney can help explain the laws and help you to make wise decisions as to whom, where, and when to designate your assets. Working with a legal professional who’s well-versed in estate planning, will help you to reduce probate fees and inheritance taxes.

Asset Protection. It’s critical to protect your assets, like safeguarding your assets from spend-down (the process of reducing assets to qualify for Medicaid) in a nursing home situation. That’s a great reason to be proactive and develop an estate plan.

Control and Management. This is a big reason why many families engage in estate planning. Properly done, it eliminates worries and ensures that your final wishes regarding asset distribution are carried out.

Estate planning also avoids any guessing and provides a detailed plan of who, what, where and when for your heirs during a trying time.

Reference: Wealth Advisor (May 29, 2018) “The 3 Reasons Why People Do Estate Planning”

Special Needs Trusts Protect Government Benefits and MUCH More

Unfortunately, many parents of children with special needs wait until their child turns 18 to consider creating a Special Needs Trust. Sometimes, they even wait until their child eventually needs government benefits like SSI or Medicaid. However, Special Needs Trusts do a lot more than just protect the beneficiary’s access to government benefits and should be created as soon as possible.  Below are a few reasons why.

A Special Needs Trust secures the child’s future

The best reason for creating a Special Needs Trust before your child turns 18 is the same reason that parents of children without special needs should have an estate plan – to ensure the stability and security of their family members if something unexpected happens to them. Creating a Special Needs Trust before a child needs it ensures that the Trust will be there during all of life’s transitions. If a parent of a child with disabilities dies unexpectedly and a Special Needs Trust is not established, the direct inheritance could make them ineligible for any government assistance.  The Trust would also allow someone else, called a Successor Trustee, to immediately step in and start helping your child financially without having to wait for the courts to get involved.

They can receive gifts from parents or grandparents

Parents may decide to establish a Special Needs Trust for their minor child so that the grandparents and other relatives can fund it with gifts. Also, older relatives who are planning on leaving an inheritance for the child with special needs can bequest the funds directly to the Trust. Having a Special Needs Trust guarantees that if the child needs government benefits in the future, he or she will not have large amounts of money in their name that could negatively impact eligibility.

Life insurance benefits can be protected

One way that parents sometimes ensure that their child will have money for future care is to purchase a life insurance policy where the payout goes into the child’s Special Needs Trust. The earlier the parents start funding the life insurance policy, the bigger the financial benefit for their child with special needs. This funding can start well before a child turns 18, so it makes sense to create a Special Needs Trust to hold the proceeds even if the child is not yet receiving government benefits.

You can create a care management plan

Special Needs Trusts can provide a care management plan as well as a structure for family involvement in the daily life of the person with special needs. In addition, professional special needs trustees can serve as resources for families that are looking for additional care options for their child.

Creating your child’s Special Needs Trust and keeping it updated can be a very effective planning strategy for reasons that go way beyond preserving government benefits. Even if the Trust is unfunded during the parent’s lives, having it can create a solid, stable foundation for the child if it is needed. If you have not yet created a Special Needs Trust for your child, call our <Insert city> office at <insert number> to set up a consultation today.

Can I Put That In My IRA/Qualified Plan?

“Here are five investments that cannot be used inside IRAs and other retirement plans.”

Traditional and Roth IRAs aren’t limited to the narrow selection of investments that are typically offered inside employer-sponsored retirement plans, like 401(k) or 403(b) plans. Most investments are permitted inside an IRA, including stocks, bonds, mutual funds, annuities, unit investment trusts (UITs), exchange-traded funds (ETFs) and even real estate.

Investopedia’s recent article, “5 Investments You Can't Hold In An IRA/Qualified Plan,” says that even qualified plans are allowed to hold almost any type of security, but mutual funds, annuities, and company stock are typically the three primary vehicles used in these plans. There are some limitations on the types of investments that can be held inside retirement accounts. Let’s look at them.

Life Insurance. No type of life insurance contract typically can be titled as an IRA or qualified plan or be held in such an account or plan. Qualified plans have one exception to this rule, known as the incidental benefit rule. It says that qualified plans can purchase a small amount of life insurance for a given plan participant. However, because the primary purpose of the plan is to provide retirement benefits, the amount of the death benefit must qualify as "incidental" compared to the plan balance.

Types of Derivative Positions. Any type of derivative trade that has an unlimited or undefined risk, like naked call writing or ratio spreads, is prohibited.

Antiques/Collectibles. Stamps, furniture, porcelain, antique silverware, baseball cards, comics, works of art, gems and jewelry and fine wine can’t be held in these accounts.

Real Estate for Personal Use. You can hold real estate directly inside an IRA, but the IRA owner can’t benefit directly from the property in any sense, such as receiving rental income or living in the property. Therefore, you can’t purchase your house with IRA or retirement plan money. Real estate can be held in an IRA, provided that the investments aren’t in your personal name. The real estate expenses and income must be paid and deposited into your IRA. The IRA also cannot purchase your primary residence or any other vacation home (providing an indirect benefit).

In addition, the IRA can’t buy or sell property already owned by you or any other disqualified person, for example, your spouse, children or their spouses, parents, grandparents, and great-grandparents, grandchildren and great-grandchildren. Note that many IRA custodians can’t facilitate the direct ownership of real estate or oil and gas interests, and those that do often charge annual administration fees that are much higher than usual fees.

Most Coins. As with all other types of collectibles, most coins made of gold or any other precious metal aren’t allowed.  However, there are some exceptions. Some allowed coins include American Eagle coins (proof and non-proof), American Gold Buffalo coins (non-proof), American Silver Eagle (proof and non-proof), Austrian Gold Philharmonics coins, and Canadian Maple Leaf coins. To be allowed to be held inside an IRA, the coins must be very pure in their mineral content and not seen as a collector's coin.

The list of investments that may be held in an IRA is far larger than the list of investments that are not permitted. However, you need to know what can and cannot be included, if you wish to venture away from what most people keep in their IRAs: mutual funds.

Reference: Investopedia (March 31, 2018) “5 Investments You Can't Hold In An IRA/Qualified Plan”