Kansas and Missouri Estate Planning

How do ABLE Accounts Work?

ABLE accounts are meant to help those with special needs.

Are you an American with special needs?

Do you have a family member with special needs?

If yes, you may be familiar with government assistance for food, housing, health care, and income.

Many benefits such as Medicaid and SNAP have financial eligibility requirements.

How can those with special needs become eligible for benefits without becoming destitute?

According to a recent nj.com article titled “ABLE accounts–A tax advantaged tool for special needs planning,” the Achieving a Better Life Experience Act (ABLE) may help.

What does it do?

It allows an individual who qualifies to set up an ABLE 529 account.

This allows the individual to save or invest to supplement government benefits.

Funds are contributed by the individual, family, or friends after-tax and can grow-tax free.

The funds must be then used for qualified expenses.

Is there a limit?

Yes.

You can only contribute $15,000 a year.

They are connected to the 529 education account for the individual so moneys contributed to one will impact the other.

If the individual has more than $100,000 in the account, SSI eligibility can be compromised.

If you are an ABLE account owner you can save an additional $12,140 from your earnings for retirement, if your employer does not have an employee sponsored retirement plan.

Another tool for special needs planning is a Special Needs Trust.

ABLE accounts are not meant to replace a Special Needs Trust.

Why?

ABLE accounts have greater restrictions and limitations with contributions and disbursements.

A Special Needs Trust may thus be more a desirable alternative, especially in the estate planning context.

What happens when to funds left in the ABLE account when the beneficiary dies?

The government will recover the funds to reimburse itself for any benefits provided during the lifetime of the recipient with special needs.

This will not be the result with a properly drafted Special Needs Trust.

Work with an experienced estate planning attorney to determine how and if an ABLE account can work for you or your loved one.

Reference: nj.com (April 20, 2019) “ABLE accounts – A tax advantaged tool for special needs planning”

How do I Coordinate My Estate Plan and 529 Plan?

529 plans can help with estate planning.

Saving for college is no small task.

In fact, it can be quite daunting.

One helpful tool for college savings is a 529 plan.

According to a recent The Cary Citizen article titled “529s and Estate Planning: What’s the Connection?,” these plans can also help with estate planning.

A 529 plan is an investment program for college savings.

State governments sponsor them.

One or more investment companies administer them.

What kind of investment options do they offer?

The portfolios often include mutual funds.

They are either conservative age-based allocations or predetermined allocations.

If age-based, they will adjust as you get closer to the individual attending college.

If predetermined, the allocations will remain the same.

What are the benefits?

The withdrawals from 529 plans are tax-free if used for qualified college expenses.

What if they are not qualified?

They are subject to income taxes and a 10 percent federal tax penalty.

What if you are contributing rather than the actual individual going to college?

You are eligible to contribute to a plan no matter your income or age.

You could decrease your taxable estate through making contributions.

How?

You can make up to $15,000 annually to a beneficiary.

Are you married?

If yes, then you can contribute up to $30,000 for a beneficiary or $30,000 if you are contributing jointly with a spouse.

These can be made without a federal gift tax applying.

What if you need to decrease your estate even more quickly?

You can make up to five years’ worth of gifts in a single year.

This comes out to $75,000 per beneficiary or $150,000 if married filing jointly.

The caveat?

You cannot make any gifts to a beneficiary you have maxed out for the next five years.

What if the beneficiary chooses to not attend college?

You can name a different beneficiary.

If you are interested in benefiting your estate plan, while providing for the education of a loved one, you can do both.

Whatever you do, work with an experienced estate planning attorney to help you determine how a college savings plan could work for your unique circumstances.

Reference: Cary (NC) Citizen (October 31, 2018) “529s and Estate Planning: What’s the Connection?”

When are College Savings a Medicaid "Gotcha"?

Saving for college and planning for Medicaid take forethought.

Are you saving for college tuition for a relative?

Might you require Medicaid in the foreseeable future?

If so, your generosity may create some challenges when it comes to qualifying for Medicaid.

According to a resent nj.com article titled “Will my college savings be counted for Medicaid?” your college savings will likely be counted as an asset for Medicaid.

There are a few exceptions.

The first involves when you funded the account.

If the "when" occurred more that 60 months ago, then you are beyond the Medicaid "lookback" period that penalizes gifts made within 60 months of a Medicaid application.

Another exception involves the type of account used for the college savings.

Did you place the funds in a 529 plan?

If yes, while they may not part of your taxable estate, such a "gift" will trigger a penalty period when it comes to your Medicaid application.

If the funds were invested in a trust account you created for future transfer to your grandchild, then they will be includable and counted by Medicaid.

Note: Medicaid will review any accounts under the name of anapplicant.

Although a 529 plan may show your name as a participant, the assets held in such plans are considered gifts.

As gifts, they are no longer considered your assets.

You can create another layer of protection by changing the participant on the account to the guardian of your grandchild rather than yourself.

This will sever the connection between your name and the account.

What if you add the name of your grandchild to one of your savings accounts?

This would most certainly be includable because it is still considered your asset rather than a gift.

As you can see, the rules regarding Medicaid can be confusing.

Work with an experienced elder law attorney for assistance in qualifying for Medicaid.

Reference: nj.com (September 19, 2018) “Will my college savings be counted for Medicaid?”

What New Regulations are Coming to ABLE and 529 Accounts?

Some regulation changes may affect you.

Laws and regulations evolve.

The Internal Revenue Service and Treasury Departments in particular like to make changes.

According to a recent Think Advisor article titled “IRS, Treasury to Issue 529 Plan Regs,” these departments recently made tax law changes and issued regulation affecting 529 plans and ABLE accounts.

Enter Notice 2018-58.

The IRS and The U.S. Treasury Department have not clarified the changes.

Until then, the Notice will be a guide to taxpayers, beneficiaries, and administrators of Achieving Better Life Experience and 529 programs.

What will the new regulations do?

In short, they will make the tax treatment of a special rule for 529 Plan beneficiaries, added under the PATH Act, simpler.

How so?

Let us say the student gets a refund on his or her tuition or another qualified expense.

The refund money will be tax-free, if it is recontributed to the 529 plan account within 60 days.

Do these refunds count against the contribution limits for the account?

No, they will not.

The 2017 tax law also changed rules regarding distributions from 529 plans.

The 529 plan can only be used to pay a total of $10,000 of tuition per beneficiary.

This is the same regardless of the number of contributing plans.

Tuition can be paid for education at a K-12 public, private, or religiously affiliated schools as well as for universities.

The third change involved both ABLE accounts and 529 plans.

What are the differences between these accounts?

529 plans are accounts used for qualified education expenses.

ABLE accounts are used to help those who became disabled before age 26 with disability-related expenses.

What does this regulation do?

The regulation deals with a law allowing funds from the 529 plan of a designated beneficiary to be rolled over to an ABLE account.

How so?

It says any contributions made to the ABLE account of the designated beneficiary and any rollovers from 529 plans cannot exceed the annual contribution limit for an ABLE account.

What is this limit?

It is $15,000 in 2018.

If you (or a loved one) have an ABLE account or a 529 plan, these rules will apply to you.

Be sure to plan accordingly.

Remember: “An ounce of prevention is worth a pound of cure.” When making your financial, tax and estate plans, do not go it alone. Be sure to engage competent professional counsel.

For more information about estate planning in Overland Park, KS (and throughout the rest of Kansas and Missouri), visit our estate planning website and be sure to subscribe to our complimentary estate planning e-newsletter while you are there.

Reference: Think Advisor (July 30, 2018) “IRS, Treasury to Issue 529 Plan Regs”

What are Some Practical Benefits of a 529 College Savings Plan?

Helping your children prepare for college is a worthwhile investment.

You want your children to succeed.

To do this, they need an education or training in a particular field.

Not all fields require a college degree.

When they do though, it can be expensive.

According to a recent Green Bay Press Gazette article titled “Benefits of 529 college savings plans keep giving,” a 529 plan can be a great option to save for this investment in education.

How does a 529 plan work?

The contributions you make to this plan can help you save more money.

The reason?

The money can grow tax-deferred, unlike many other options.

You can also choose your own investments.

You could also utilize a plan where investments are changed based on the age of your child and how near he or she is to college.

When the funds are used for qualified educational expenses, they are tax free.

States with this program may have unique rules.

For example, Wisconsin allows students to use the funds in other states and possibly at colleges abroad.

Wisconsin also allows funds to be used for K-12 education.

Grandparents can create a plan on behalf of their grandchildren.

These funds could be transferred to another grandchild should the original recipient not need the money due to scholarships or a change in life trajectory.

Using a 529 plan in your estate planning can help you set your family members up for success.

Remember: “An ounce of prevention is worth a pound of cure.” When making your financial, tax and estate plans, do not go it alone. Be sure to engage competent professional counsel.

For more information about estate planning in Overland Park, KS (and throughout the rest of Kansas and Missouri), visit our estate planning website and be sure to subscribe to our complimentary estate planning e-newsletter while you are there.

Reference: Green Bay Press Gazette (July 13, 2018) “Benefits of 529 college savings plans keep giving”

How Might the New Tax Law Affect You?

Taxes are changing.

Taxes.

It has been said by one wise wag that there are two things you should never watch while they are being made - sausages and tax laws!

Taxes can be confusing.

They can be more confusing when they change.

In fact, they already changed.

What does this mean for you?

According to the recent The Chicago Tribune article titled “What happens next with the Republican tax plan, month by month,” there are a few basic things you can expect.

What are they?

The new tax law went into effect.

As of January 1, the new tax laws are official.

What are some of the changes?

The 529 College Savings plan has been expanded.

How?

Before the new laws, the plan was limited to paying for college.

Now the plan can be used to pay for education from kindergarten through high school as well.

The deduction you can take on your mortgage decreased.

It dropped from $1 million to $750,000.

Do you own a business or stock?

Businesses now will pay lower tax rates.

This may help stock holders because businesses may begin to buy back stock with money tax savings.

Also, the estate tax threshold increased to more than $11 million per taxpayer.

The IRS will publish new tax rates.

This month, the IRS will publish the new tax rates.

Chances are you may have had too much withheld from your January paycheck.

Now, you will likely see a higher take home pay.

Nothing like a little more of your on jingle in your own pocket.

Alimony payments will change.

If you can prepay alimony before the end of the year, you should.

Why?

You will no longer be able to take a deduction in 2019.

The Obamacare individual mandate will end.

What does this mean?

The penalty fine for not having insurance is eliminated.

If you do not have insurance, you can keep a little extra from your taxes.

The alternative minimum tax (AMT) threshhold will increase.

That is a good thing.

You have a little time before this happens.

It will increase in April of 2019.

Individual tax cuts will expire in 2026.

This is quite a ways in the future.

Congress could choose to change this.

We will see.

Although there are comes changes, a few things remain the same.

You will still file taxes in April.

You should still consult with your tax advisor whenever there are changes to the tax law.

Remember: “An ounce of prevention is worth a pound of cure.” When making your financial, tax and estate plans, do not go it alone. Be sure to engage competent professional counsel.

For more information about estate planning in Overland Park, KS (and throughout the rest of Kansas and Missouri), visit our estate planning website and be sure to subscribe to our complimentary estate planning e-newsletter while you are there.

Reference: Chicago Tribune (December 23, 2017) “What happens next with the Republican tax plan, month by month”

How do 529 College Savings Plans Work?

529 plans are a great way to help your grandchildren pay for college.

What kind of gift do you want to provide for your grandchildren?

Would you like to give them money to use on whatever they fancy?

Do you trust them to make wise decisions?

Or would you rather bestow a gift to invest in their future?

Chances are you want to help your grandchildren develop their own talents.

According to a recent nj.com post titled “529 plan funding for a grandchild,” you can do this with a 529 college savings plan.

What is a 529 plan?

As a grandparent, you can open a 529 plan to help your grandchildren save for college.

Why not just use a savings account?

With a 529 plan, the account can grow tax-free if the funds are used for education.

Also, you receive more control.

How?

You retain ownership even though you are making monetary gifts.

Why is this important?

You control when distributions are made.

You can also change the beneficiary of the account.

How does that work?

If one grandchild does not need all of the money, you could allow another to use it.

What happens if I make withdrawals not for education? Say I need the money for a medical need?

You will owe taxes.

And there will be a penalty.

How much?

The penalty is 10 percent on the earnings from the withdrawal.

Are there specific financial benefits to you as the grandparent?

Yes.

The money contributed to a 529 plan will be removed from your taxable estate.

This could be quite beneficial.

It is, however, subject to the federal gift tax.

Nevertheless, you can currently exclude up to $14,000 per year per beneficiary from the gift tax.

Do you have to make annual contributions?

No.

Interesting, you can make a single contribution of up to five times the annual exclusion amount per beneficiary.

This adds up to about $70,000 per person.

The catch?

You would have to wait another five years before you could make an excluded contribution.

There is also a lifetime exclusion amount of $5.49 million (which is itself tied to the federal estate tax exemption of $5.49 million).

Using a 529 plan as an estate planning tool can be especially helpful when states have a lower estate tax limit than the federal exclusion.

You will also want to communicate your intentions with the parents of your grandchildren.

Why?

Some colleges consider 529 plans when determining whether an individual qualifies for financial aid, grants, student loans or work study programs.

You could unknowingly disqualify your grandchild.

Whatever you do, it should be thoroughly planned.

In the end, you should work with an experienced estate planning attorney to determine whether a 529 plan would be a good fit for you.

So, how do you find an "experienced" estate planning attorney?

First, ask around. Friends, family and other professional advisors are trustworthy sources.

Second, conduct an "organic" search on "Google" for "estate planning" near you (e.g., "Estate Planning Anytown MoKan").

Third, either way, verify! Check out the education, experience, ratings and client reviews of any attorney before you contact him or her.

How?

Two helpful online resources are just a mouse click away to assist with your due diligence:  Avvo.com and Lawyers.com.

Check any Avvo ratings, client ratings/testimonials and attorney endorsements on Avvo.com and any "peer ratings" by judges/other attorneys and any client ratings/testimonials on Lawyers.com.

In fact, I use both of these services to thoroughly vett attorneys before referring members of our "client" family for legal help in other areas of law or for matters in jurisdictions outside Kansas or Missouri.

Remember: “An ounce of prevention is worth a pound of cure.” When making your financial, tax and estate plans, do not go it alone. Be sure to engage competent professional counsel.

For more information about estate planning in Overland Park, KS (and throughout the rest of Kansas and Missouri), visit our estate planning website and be sure to subscribe to our complimentary estate planning e-newsletter while you are there.

Reference: nj.com (May 12, 2017) “529 plan funding for a grandchild”

Are Paying for College Tuition and Retirement Mutually Exclusive?

With wise planning, you can set your children and yourself up for success.

You want your kids to have a successful start to their careers.

However, you also want to be able to end yours eventually.

Can you do both?

According to a recent CNBC article titled “Saving for college and for retirement isn’t impossible,” saving early is key.

Let us consider a hypothetical situation.

If you currently have a newborn, sending this child to private university for four years will cost $455,585.

That is a ton of money.

The cost of public university?

$202,768.

Wow.

How might parents who are both 28 years old save for the education of their newborn child?

Read on.

When they started working at age 22, the couple began adding to their 401(k)s at 15 percent of their total income—a 12 percent deferral rate and 3 percent company match.

At the birth of their first child, they decrease the 401(k) contributions to 12.2 percent, using the rest to fund a 529 plan for their child.

When baby number two is born, the contributions decrease to 9.4 percent.

After the first child goes to college, retirement savings can be increased to 12.2 percent.

When the second child enters university, savings can go back to 15 percent until the couple retires at age 65.

Another good way to help with college?

Grandparent contributions.

Individually a grandparent can contribute up to $70,000 to a 529 plan—or $140,000 as a couple.

Doing this will help their grandchildren go to school, will enable their children to retire and will be beneficial to their own estate plan with tax-free gifts.

To accomplish these goals, it is best to work with a qualified financial advisor and an experienced estate planning attorney.

Remember: “An ounce of prevention is worth a pound of cure.” When making your financial, tax and estate plans, do not go it alone. Be sure to engage competent professional counsel.

For more information about estate planning in Overland Park, KS (and throughout the rest of Kansas and Missouri), visit our estate planning website and be sure to subscribe to our complimentary estate planning e-newsletter while you are there.

Reference: CNBC (November 7, 2016) “Saving for college and for retirement isn’t impossible”

How Can I Help My Grandchildren Pay for College?

Although you could just pay for their college outright, utilizing the 529 plan makes more sense.

Stay with me on this and I will explain.

When trying to pay for college everyone should follow this three-part plan from college financial service company Sallie Mae: set up a savings account, contribute to it regularly, and explore options with tax advantages—including 529 plans.

If you have never heard of a 529 plan, you are in good company.

In fact, according to a recent article in thestreet.com, some 75% of families know nothing about this useful financial tool despite college debt being a huge issue in academia, the media, and American households.

The article is titled "Most Americans Don't Know What a College 529 Plan Is – And That's a Problem."

No wonder people are so concerned about paying for college. They are ignorant of their options to do so.

What exactly is a 529 plan?

A 529 plan is used to pay qualified educational expenses at any U.S. and some foreign colleges.

This savings plan can be transferred from one generation to the next and will not expire.

What does this mean?

As a grandparent or parent, you can start saving for the "future" students in your life even before they are born.

What are things you need to consider?

Although you can purchase a 529 plan in any state, different states do have different college funding plans.

As a grandparent, you can superfund a 529 plan by donating five years of contributions—$70,000—at one time.

Although you may not be setting aside nearly that much money in a lumpsum, you can still help your grandchildren with college while benefitting your estate plan via lifetime gifting with this tax-deferred account.

Remember: “An ounce of prevention is worth a pound of cure.” When making your financial, tax and estate plans, do not go it alone. Be sure to engage competent professional counsel.

For more information about estate planning in Overland Park, KS (and throughout the rest of Kansas and Missouri), visit our estate planning website and be sure to subscribe to our complimentary estate planning e-newsletter while you are there.

Reference: thestreet.com (May 22, 2016) "Most Americans Don't Know What a College 529 Plan Is – And That's a Problem"

Planning for Estates Still Subject to Death Taxes

Likely you have been reading a lot about the new federal estate tax exemption at $5.43 million per taxpayer, or $10.86 million per couple. Virtually all of the articles say there is no need to worry about "death taxes" with an exemption that high.

Oh, really?

But what if your estate is still impacted, with a 40% tax rate on the amount in excess to boot?

Now, that is personal, yes?

So, what should you do?

According to a recent article in The Marietta Daily Journal, titled “Estate reduction ensuring wealth transfer to heirs,” you should get professional assistance!

And that means retaining the services of an experienced estate planning attorney.

The article explains further:

“While a financial adviser is helpful in planning asset transfers to heirs, an expert in estate tax law is key for ensuring documents are structured properly.”

To make matters even more challenging, estate and gift tax laws are subject to change.

Nothing is constant but change, after all.

Just when you thought it was safe to go into the water .... 

One easy tactic for affected wealthy families is gifting.

Did you know individuals can gift up to $14,000 per year, per individual without incurring a gift tax?

Did you know that amount doubles for spouses?

Even if you exceed that limit, all you do is file an informational Form 709 Gift Tax return.

Your estate tax exemption is reduced at death by the amount of the "taxable gift," but there is no out-of-pocket tax paid now or an any appreciation or income from the gifted assets thereafter on your personal tax return. 

Another play is to pay for medical care, insurance premiums, and education costs for anyone you wish.

Even better, these transfers do not count against the $14,000 limit.

Caveat: The "gift" must be paid directly to the institution or service provider to qualify. 

Have you heard about “power-funding” a 529 Plan College Savings Plan?

This is a real gem.

The Plans allow you to contribute a lump sum (up to $70,000 per beneficiary) and then elect to treat the contribution as if it were made over five years for gift tax purposes.

Those assets immediately leave your estate, along with any appreciation or income from the gifted assets thereafter on your personal tax return. 

Older heirs might do well with a Grantor Retained Annuity Trust (GRAT), and you definitely will need to work with an estate planning attorney to set this up. 

What does a GRAT do, you ask?

A GRAT allows you to transfer rapidly appreciating or income-producing property to heirs while retaining an interest in the property over a set term, from two to 20 years.

Translation: As the grantor, you are making an irrevocable, taxable gift to the beneficiaries, and the value of the gift is discounted by your retained interest. 

Taxes owed on the gift to a GRAT can be partially or fully offset by the grantor’s applicable lifetime gift tax exclusion amount. 

The trust pays the grantor a taxable income from the assets, based on an interest rate set by the IRS.

This payment of the income tax is an even further wealth transfer because your heirs need not pony up to pay the taxes.

The assets in the trust hopefully will grow at a higher rate than the annuity stream, and the excess growth will pass to the remainder beneficiaries without any gift taxes. 

As the article emphasizes, an experienced estate planning attorney can create strategies for your unique circumstances.

He or she will be there for you should there be any prospective changes in law, too.

Remember: “An ounce of prevention is worth a pound of cure.” When making your financial, tax and estate plans, do not go it alone. Be sure to engage competent professional counsel.

For more information about estate planning in Overland Park, KS (and throughout the rest of Kansas and Missouri) and to download free tools to help you organize your estate, visit my estate planning website. 

Reference: The Marietta Daily Journal (June 5, 2015) “Estate reduction ensuring wealth transfer to heirs”