What Do I Need to Know About ABLE Accounts? – Annapolis and Towson Estate Planning

Millions of Americans with disabilities and their families depend on public benefits to help provide income, health care, food and housing assistance. Eligibility for assistance through Supplemental Security Income, SNAP and Medicaid is based upon a resource test, so disabled individuals seeking benefits are typically limited to no more than $2,000 in savings or assets. This can present a difficult problem.

The Achieving a Better Life Experience Act (ABLE) was created as a way to create a tax-advantaged savings tool for individuals with disabilities and their families.

nj.com’s article, “ABLE accounts–A tax advantaged tool for special needs planning,” advises that when used correctly, this overlooked savings account may allow families to build a small nest egg, without affecting eligibility for public program benefits.

An ABLE 529 account is designed to be a savings or investment account to supplement public benefits. It can be a powerful strategy for individuals, who previously were unable to build supplemental funds outside of a trust for their needs. An ABLE account is funded with after-tax contributions that can grow tax-free, when used for a qualified disability expense. The account owner is also the beneficiary and contributions can be made from any person including the account beneficiary, friends, and family.

The ABLE account is available to individuals with significant disabilities, whose age of onset of disability was before they turned 26. A person could be over the age of 26 but must have had an age of onset before their 26th birthday.

Contributions are restricted to $15,000 per year. Because the ABLE account is connected to the 529 plan for education, the total contribution limit is based upon the individual state’s limit for 529 plans. Individuals can have up to $100,000 in an ABLE account, without impacting SSI eligibility. The first $100,000 also does not count toward the $2,000 resource restriction.

A frequently asked question is whether to use an ABLE account or a Special Needs Trust for planning purposes. ABLE are subject to certain limitations that make it impossible, or at least ill advised, to use them instead of a Special Needs Trust. Remember that ABLE accounts can only receive $15,000 in deposits each year, but, in most cases, Special Needs Trusts can receive much larger contributions in a year, once they are funded. This is an important difference for parents who want to leave more substantial assets to their child when they die but don’t want to jeopardize the child’s eligibility for critical services. In that situation, a Special Needs Trust may be more desirable.

When the beneficiary of the ABLE account passes away, any leftover funds in the account are typically reimbursed to the state to defray the costs of providing services during the beneficiary’s life. However, that’s different than a properly drafted Special Needs Trust.

In 2019, ABLE account owners who work but don’t have an employer-sponsored retirement account, can now save up to $12,140 in additional savings from their earnings.

Ask your estate planning attorney about possibly coordinating an ABLE account with a Special Needs Trust.

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

Sims & Campbell, LLC – Annapolis and Towson Estate Planning Attorneys

Big Mistakes Add Up Big Time for Retirement – Annapolis and Towson Estate Planning

Retirement is a theoretical event happening way off in the future — until you celebrate your 55th birthday, when it starts to become all too real. When that lightening bolt strikes, says The Street, some mistakes may become obvious, as described in the article “Avoid These Big Mistakes in Your Retirement Planning.”

The biggest, most obvious and perhaps least followed lesson: do as much of the planning in advance as possible. Don’t wait until you wake up on your first day of retirement to figure it out.

Here are the top four mistakes people make:

Overlooking the impact of healthcare costs. Inflation in healthcare is more than three times the Consumer Price Index’s annual increase. Medical inflation hit an average of 6.8% in 2018, and it’s not likely going down any time soon. Medicare covers hospitalization (Part A) and doctor visits (Part B) but it does not cover many other critical costs. You’ll need to pay for long-term care, vision, dental, co-pays and deductibles.

As we age, our healthcare costs go up. When you are in the early stages of retirement, active, busy and healthy, it rises around 5%. But as you age, if you are lucky enough to do so, your health insurance costs could leap by 15% annually.

Planning for Medicare is very important.  It is where many retirees make big mistakes. You’ll need Medigap insurance to cover areas that Medicare does not. You’ll also want Part D to cover prescriptions.

The bigger Medicare mistake is failing to enroll at age 65. If you miss it, you’ll have to pay a penalty just to get enrolled in the program. It’s not easy to figure it out, and the instruction book is 130 pages long. The website is also confusing. However, you have to do it and do it right.

Neglecting to save. Really save. It’s next to impossible if you are twenty-something, have enormous student loans and have not gotten your career on track, to even think about retirement. It’s not easy and it’s not the first thing younger people are thinking about. However, the sooner you start putting money away for retirement, the more time you have for the money to grow. If your company offers a retirement plan, start putting something away, even if it’s a small amount. Over time, that company retirement account will grow, your income will grow and you will be better positioned for retirement. Automatic deductions will make this more likely to happen. If your parents are nagging you about retirement, make them happy: sign up for the plan at work and go for the auto deductions. It’s one less thing for them — and you — to worry about.

Poor investments. People who take a do-it-yourself approach to their investment portfolio vary in levels of success. Some devote a lot of time to it, including educating themselves about industry sectors and market performance, and others follow the ‘brother-in-law’ school, which usually tanks. That’s when your brother-in-law boasts about how much money he made in a particular stock. However, he neglects to tell you about how many losses he’s taken along the way. A team approach of an educated investor with a professional financial advisor is a better way to go.

Thinking you know it all. Overconfidence has sunk many retirements. People who are highly successful in life think that career success will automatically translate into retirement and financial planning. It’s also very hard for these types of people to accept that there’s something they do not know and cannot control. It is even harder for them to ask for help.

Failing to plan includes the failure to work with an experienced estate planning attorney in creating an estate plan that addresses tax planning, incapacity, transferring wealth to the next generation and asset distribution. Just like early savings make a big difference, having an estate plan created early in your life and updating as you go through life will help protect you and your loved ones.

Reference: The Street (April 11, 2019) “Avoid These Big Mistakes in Your Retirement Planning.”

Sims & Campbell, LLC – Annapolis and Towson Estate Planning Attorneys

Why You Need a Plan for Long-Term Care – Annapolis and Towson Estate Planning

Boomers are more willing to plan their own funerals than to prepare for an extended stay in a nursing home. Both are inevitable events for most of us.

With more than 10,000 people celebrating their 65th birthday every day in America and the startling statistic that 70% of us will need long-term care at some point during our lifetimes, it would make sense that more of us would be planning for long-term care. And yet, boomers seem to be more comfortable making plans for a memorial service than they do for a nursing home visit. The cost of long-term care is big and it’s not covered by Medicare. Surprised? So are families when the bill comes.

The Motley Fool’s recent article, “Baby Boomers Are More Prepared for Death Than Life,” says most baby boomers are either unprepared or haven’t planned for a long-term care expense, according to a Bankers Life survey of 1,500 middle-income Americans aged 54 to 72. The results show that baby boomers were more likely to plan for their own death than to have a long-term care plan. About 81% made some kind of funeral arrangements for when they pass away, but just 32% have a plan for how they’ll get care in retirement. The lack of long-term care planning is a significant issue when you compound this with the harm that such a huge unexpected expense has on a person’s retirement savings, especially in cases where a nest egg is small to begin with.

The Department of Health and Human Services believes that the average total cost of care for a retiree is $138,000. However, 79% of the respondents said they have set no money aside for their retirement care needs. For those who do have long-term care savings, the median amount saved is a mere $40,000. Nonetheless, 67% of those surveyed said they know someone who required care in retirement and 36% said they can’t rely as much on friends or family for around-the-clock care. Given all these negative numbers, why aren’t more boomers better prepared? The article gives us three surprising reasons that contribute to this lack of awareness and lack in savings for long-term care:

  1. Overconfidence. Boomers may overestimate their ability to manage future long-term care costs. Three-fourths of those surveyed by Bankers Life said they were confident in their ability to handle future healthcare costs. A misplaced confidence could be why boomers used more effort and money to plan for their deaths. About half of the respondents had fewer than $5,000 saved in an emergency fund and 33% had fewer than $1,000 set aside for emergencies. With the high cost of long-term care and the collective weakness in emergency funds, boomers’ confidence in being able to manage long-term care costs appears unrealistic. These people may be relying on Social Security benefits and Medicare too much.
  2. Lack of basic Medicare understanding. Medicare covers only some long-term care expenses like skilled nursing care after a hospital stay, but there are limits. It also doesn’t pay for custodial or home healthcare. Most of those surveyed believe that Medicare will pay for a future healthcare event and 56% mistakenly identified Medicare as a source to pay for future long-term care.
  3. Not knowing where to get advice. The greatest obstacle to planning for care in retirement is a lack of trust. About a third of boomers surveyed said they need and want advice but don’t know whom to trust. Most seek the help of a family member (36%) and just only 7% ask a health professional. A lack of trust or willingness to seek professional help may lead boomers to either put off a decision or perhaps not fully understanding their planning options.

If you don’t have a long-term care insurance policy in place, the time to get started is now. If your retirement savings accounts can handle it, figure about $138,000 for a nursing home stay. Add in a long-term care insurance policy with premiums that you can manage as another layer of protection. It is better to have a small policy than none at all.

Reference: The Motley Fool (March 27, 2019) “Baby Boomers Are More Prepared for Death Than Life”

Sims & Campbell, LLC – Annapolis and Towson Estate Planning Attorneys

For Immediate Release

Contact: Jane Frankel Sims

410-828-7775

Contact: Frank Campbell

410-263-1667

Sims & Campbell Estates and Trusts

Frankel Sims Law and Holden & Campbell
Merge to Form Sims & Campbell

Firm will offer comprehensive Trusts & Estates services through offices in Towson and Annapolis

TOWSON, Md. (April 26,2019)  Frankel Sims Law and Holden & Campbell have jointly announced the merger of their firms to create a boutique Trusts & Estates law firm providing comprehensive services in the fields of Estate Planning, Estate Administration, Trust Administration and Charitable Giving. The combined firm will be named Sims & Campbell and have offices in Towson, Md. and Annapolis, Md.  Jane Frankel Sims and Frank Campbell will lead and hold equal ownership stakes in the firm.

Sims & Campbell will have 9 attorneys and 15 legal professionals that handle every facet of estate and wealth transfer planning, including wills, revocable living trusts, irrevocable trusts, estate and gift tax advice, and charitable giving strategies.  The firm will focus solely on Trusts & Estates but will serve a wide range of clients, from young families with modest resources to ultra-high net worth individuals.  This allows clients to remain with the firm as their level of wealth and the complexity of related estate and tax implications change over time. 

“By joining forces, we have expanded our footprint to conveniently serve clients in Maryland, D.C. and Virginia” said Jane Frankel Sims.  We are seeing some of the greatest wealth transfer in our country’s history, and we want to continue to be on the leading edge of helping our clients maintain and enhance their family’s wealth.  In addition, we aim to serve our clients for years to come, and the new firm structure will allow Sims & Campbell to thrive even after Frank and I have retired.”    

“Jane and I have always admired each other’s firms and recognized the need to provide even greater depth and breadth of focused expertise to help families amass and protect their wealth from generation to generation,” said Frank Campbell.  “Now we have even greater capabilities to make a real difference for our clients.” 

The Sims & Campbell Towson office is located at 500 York Road, on the corner of York Road and Pennsylvania Avenue in the heart of Towson.  The Annapolis office is currently located at 716 Melvin Avenue, and is moving to 181 Truman Parkway in August, 2019.  For more information, visit www.simscampbell.law.