Kansas and Missouri Estate 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 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”

What Should "Gen X" Know About Retirement Planning?

Retirement planning is not just something for Baby Boomers.

According to The Harvard Center, if you were born  anytime from 1965 to 1984, then you are a card carrying member of "Generation X," or "Gen X" for short. 

Did you know researchers at the Insured Retirement Institute (IRI) recently found a possible retirement knowledge gap when they conducted an online survey of 802 of your Gen X peers?

According to Think Advisor recent article titled “These 3 Threats Scare Gen Xers More Than Basic Retirement Costs: IRI,” the survey revealed some troubling news when it comes to Gen X retirement planning. To quote the survey analysists, “They’re (mostly) doing it wrong.”

So, what were some of the salient findings?

First, only 20% of Gen Xers have talked to a financial advisor.

Second, only one-third of Gen Xers have tried to figure out what they’d need to have saved to retire.

Drum roll, please.

And third, only 23% of the Gen Xers who have tried to save for retirement, have more than $250,000 in retirement savings.

Against this backdrop, hoowever, the research shows that roughly 58% of the Gen Xers are somewhat or very confident they will have enough cash to cover basic expenses in retirement.

While the survey did not segment most of the results by income or asset level, it did examine the use and failure to seek the counsel of a financial professional.

Participants with financial professionals appear to have a more comprehensive approach to their financial planning.

Of those working with a financial professional, some 82% of the Gen Xers responding confirmed discussing retirement planning and 61% said the advisors had discussed investing.

What did I find interesting?

Fully 87% of Gen Xers working with a financial advisor reported being confident about having enough income to cover their basic expenses in retirement, but only 58% of the entire group surveyed reported having such confidence.

Nevertheless, even the Gen Xers with advisors said they had grave doubts about their ability to handle other major financial challenges.

Here are some of the other findings of interest:

Covering long-term care (LTC) costs. 

Only 63% of the Gen Xers with advisors reported being "somewhat" or "very confident" about having enough money to pay their long-term care expenses.

Apparently, advisors have yet to address their Gen Xer clients with that concern.

In addition, only 9% had talked about planning for cognitive decline, like dementia or Alzheimer’s.

What about long-term care insurance?

Only 29% had talked to their clients about it.

Addressing LTC needs of Baby Boomer parents.

A little over half of the Gen Xers with advisors reported being "somewhat" or "very confident" when it comes to assisting with the LTC bills of their parents.

The survey did not ask Gen X respondents whether they had talked about this aspect of long-term care planning with their advisors.

Paying college bills for children.

Many experts in the field suggest that Gen Xers should prioritize their retirement planning and leave the college bills of their children second.

However, Gen X parents say the funds for the college education of their children must come from somewhere.

Only 51% of the Gen Xers with advisors said they were "somewhat" or "very confident" they will have enough money to defray the higher education expenses facing their children.

The big takeaway from this survey is that, regardless whether you are a Baby Boomer, Gen Xer, or even a Millennial, it is essential to have the advice and counsel of an experienced financial advisor.

Establish this relationship as soon as you begin participating in the economy.

If you need assistance finding an appropriate "financial advisor" instead of a "financial salesman," then ask your estate planning attorney for a referral. 

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 (March 24, 2018) “These 3 Threats Scare Gen Xers More Than Basic Retirement Costs: IRI”

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"

Section 529 Plans - College Savings Pixie Dust

If you have children or grandchildren who will college-bound one day, then today is the day to learn about the magic of Section 529. It is more than a number. Created in 1996, the amount of money invested in Section 529 Plans have gone from $5.75 billion (with a "b") to $244 billion in 2014.

That is a lot of higher edumacation brain fuel.

Okay, Kyle, what is a 529 Savings Plan?

In a nutshell, a 529 plan lets an individual contribute after-tax dollars designated for qualified higher-education expenses. These expenses include tuition and fees, books, room and board, computers, and supplies. The distributions of these funds for qualified higher-education expenses are not subject to federal income tax.

However, states may treat these disbursements differently.

As a result, 529 Plan investors need to understand the tax strategies that are available to them. 

Many plans allow you to invest as little as $25 per month, provided you are making regular contributions.

Most states offer residents an income-tax deduction for contributions to their 529 Plan (if you live in a state with no income tax, there obviously is no deduction).

But in some states that collect income taxes, state residents are not allowed any deductions for their 529 Plan contributions. 

A recent article in U.S. News & World Report, titled “The Tax Advantages of 529 Plans,” explains that the contributions to another state’s 529 Plan usually are not tax deductible.

A few states offer "tax parity" whereby account owners receive a deduction for 529 Plan contributions to any state’s program. Some states (Colorado, New Mexico, South Carolina, and West Virginia) offer a tax deduction up to the full amount of the annual plan contribution.

There are some other wrinkles regarding 529 Plans that come up. 

Moving to Another State. It is not uncommon for a person to start a 529 Plan in one state and then to move to a different state. This situation can create some tax implications, especially if it is a “direct-sold” plan. 

States with No Income Tax. Although there is no tax deduction "carrot" to encourage contributions, residents in states without a state income tax should still take advantage of the tax-free distribution feature of 529 Plans, according to the original article. After all, it is a chance to invest in the market, grow your investment, and enjoy those earnings tax-free when you use them for qualified educational expenses.  

Other Details. The tax-free distributions are still applicable if you have to change beneficiaries. For example, what if the original beneficiary earns a scholarship and does not need the money that you saved in the 529 Plan? Typically, in these situations, there are no taxes due when you change the plan beneficiary to another person in the family.  

The original article suggests that grandparents should take special note of the estate-planning benefits of 529 Plan contributions.

Since older generations often have a higher net worth than the generation with children still in school, grandparents can enjoy some great benefits. These contributions let wealthier taxpayers to take advantage of the gift-tax exclusion—money that may be annually gifted from one person to another with no federal gift tax. Be sure to ask your estate planning attorney about how this works.

Like most areas of estate planning and financial planning, great care needs to be taken to achieve the best outcomes.

I would confine your DIY projects to things like staining your deck.

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. 

Resource: U.S. News & World Report (December 22, 2014) “The Tax Advantages of 529 Plans”

Grandparents - Giving The Gift Of Higher Learning

It used to be normal for parents to pay for (or help pay for) the college education of their children, or for the children themselves to work their way through. However, the cost of a college education is now at an all-time high. Student loans must be paid back ... and can get out of hand quickly.

Consequently, post-secondary education costs are pinching both parents who are struggling to take care of their own needs (and save for their own retirement), and students who are trying to cash-flow a degree.

Fortunately, many grandparents are stepping to help. After all, they have already earned their wealth and may be in a better position than the parents to pay for college.

A recent Reuters article examined how grandparents can pay for their grandchildren's college education while getting a tax benefit for themselves. The article, titled “YOUR PRACTICE-Selling grandparents on the perks of 529 college savings plans” suggests a 529 college savings plan.

This unique account can be used to contribute more than the yearly gift tax exemption into an account that a grandchild can later use for educational expenses. The accounts are not perfect, as they could render a grandchild ineligible for financial aid. In Kansas, the state-administered 529 Plan is called Learning Quest, while in Missouri it is known as MOST.

Paying for college is difficult, but grandparents who want to do so have several options. A 529 plan is one of them, but in some cases a more traditional trust is a better option. The key is to talk to an estate planning attorney about your options, in conjunction with your financial advisor.

Different families have different needs. Your attorney-financial advisor team can help grandparents sort through the options to come up with the best solution for their needs. 

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: Reuters (June 24, 2014) “YOUR PRACTICE-Selling grandparents on the perks of 529 college savings plans”