May 2019 - K.T. Williams Law

New Retirement Account Rules: Are You Ready For A Change?

May 31, 2019/in Asset Preservation, Business/by KT Williams

The U.S. House of Representatives just passed a bill to change many rules about retirement accounts, such as Individual Retirement Accounts (IRAs). The bill now heads to the Senate for consideration. Although the Senate may change the bill, the retirement account rules will be changed sooner rather than later. There is simply too much support for change. Evidence of that can be found in the fact that the bill passed the U.S. House of Representatives on a 417 to 3 vote. That is an overwhelming margin. With so much support behind changing the rules, very little can stand in the way. So lets explore the proposed changes. They may not all make it into law, but reviewing them will give us a sense of the changes we may face.

Later Age For Taking Required Minimum Distributions (RMDs)

The law currently requires that a retirement account owner begin taking minimum distributions from their retirement account by the time they reach age 70 ½. Otherwise, severe penalties will be imposed.

Under the proposed law, an account owner can delay minimum distributions until they reach age 72. This will allow those who do not need distributions for their living expenses to keep their retirement accounts intact longer. As a result, it delays the income tax that must be paid when distributions begin. And it means the retirement accounts will not be as depleted at the owner’s death, so larger retirement accounts pass to beneficiaries. This proposed change may be a good one. But there are other proposed changes that offset it.

Mandatory Withdrawal of Inherited Retirement Account Balances: 10-Year Rule

The law currently allows the owner of an inherited retirement account to take distributions from the account in a variety of ways. With few exceptions, the owner must take distributions from the account each year. But rather than use the age of the deceased owner to determine the amount of each distribution, the age of the new owner is used to determine the amount of each distribution. Because the new owner is typically younger than the previous owner, the distributions and resulting tax burden are smaller than they would be if using the previous owner’s age.

Under the proposed law, the owner of an inherited retirement account must withdraw the full balance of the retirement account within 10 years of inheriting it. The effect of this change could be huge. For example, it will force the complete distribution of the account over a shorter span than under current law. This means a higher tax burden created more quickly, especially if the distributions from the retirement account push the account owner into a higher tax bracket. Additionally, if the inherited account owner planned to pass the account to their own beneficiaries, the account will not exist if the owner lives at least 10 years after inheriting it. And, after the full distribution, the funds remaining will be much smaller because of the higher taxes generated from the accelerated distribution schedule (10-year rule).

What Should You Expect?

You should expect change. With the eye of legislators aimed at retirement accounts, it is simply a matter of time before changes occur, and the changes are likely to be large. Although these proposed changes may not become law, changes are coming.

The best way to protect yourself from surprises and higher taxes is to be proactive. Evaluate your retirement accounts at least quarterly. And stay informed about how the retirement account laws affect you and how they will affect the beneficiaries of the accounts. Lower taxes and better protection for you and your family are just a few of the benefits you get from being actively involved with your Estate Planning/Elder Law Attorney, financial advisor, and accountant. Estate Planning/Elder Law attorneys, like me, along with your financial advisor and accountant are your financial team. We are here to help you each step of the way. Contact us. And let your friends know we are here to help them, too.

What is a UTMA?

May 17, 2019/in Estate Planning/by KT Williams

Near the end of each school year, around graduation time, many of us wonder what we’re going to do for family members who are celebrating a milestone. For some, this milestone may be a preschool graduation, a 5th or 8th grade graduation, or, perhaps, a high school graduation. We may wonder the same thing when celebrating a birthday or Christmas. Often, money and a witty card is the right choice, especially if the amount is small. But when the amount is not small, a transfer under the UTMA or Kentucky Uniform Transfers to Minor Act may be the best option.

What is a UTMA transfer?

The UTMA allows property of any kind to be set aside for the benefit of a minor. In Kentucky, a minor is anyone under 18. Whoever sets the property aside for a minor chooses the person who will be responsible for the property until the minor reaches 18. This person is called the custodian.

There are very few restrictions on who may serve as a custodian. But when choosing a custodian, it should be someone who is trustworthy. The custodian must manage the property and protect it for the benefit of the minor.
If the property is money deposited in a bank account, it should be titled by naming the custodian followed by “custodian for (name of minor) under the Kentucky Uniform Transfers to Minors Act.”

If the property set aside for the minor is real estate, a similar designation should be used. Simply put, the property must clearly identify that it is being held by the custodian for the benefit of a minor under the Kentucky Uniform Transfers to Minors Act. Occasionally, the UTMA abbreviation is used when the title does not have enough room for Kentucky Uniform Transfers to Minors Act.

There is No Maximum Size UTMA.

One of the characteristics of a UTMA that makes it appealing is that there is not a maximum or minimum amount that can be set aside for the minor. That means the property accumulating under the UTMA for a minor can become substantial over time.

When the minor reaches age 18, they are no longer a minor. So the property set aside for them will come under their control, and they may use it for anything they want.

Receiving the money at age 18 can be a double-edged sword. On the one hand, the beneficiary will have it available for expenses we might consider worthwhile: to pay for college, automobile repairs, or travel expenses or to start a business. However, many 18-year-olds are not responsible enough to make the best use of what they receive. Instead, they may blow it or use it in ways that are less than ideal.

Many people think that the custodian who controls the UTMA for the minor will control how it is used after the minor reaches age 18. That is not the case. The 18-year-old can do anything with the UTMA. So when a UTMA is created, there is a risk that the 18-year-old will not be mature enough to make wise decisions with it. Fortunately, there are ways to get similar benefits of a UTMA while being able to protect the property from unwise uses after the beneficiary reaches age 18. When we’re concerned about how the property will be used and when we want to be confident it is used wisely, a trust can give us comfort and assurance.

Using a Trust Rather Than UTMA.

While UTMA is a great option when we are not concerned about how a beneficiary will use the property we set aside for them, it is not the best if we want to make sure the property is used wisely. A trust is the best option when we want to be confident the property is properly managed and used. Nevertheless, for some, especially for those setting aside amounts that will not reach $15,000 by the time the minor reaches 18, the UTMA will serve them well.

SPECIAL NEEDS TRUST BASICS: When Should You Use A Special Needs Trust

May 6, 2019/in Asset Preservation, Estate Planning/by KT Williams

What Is A Special Needs Trust and Why Is It Important?

A Special Needs Trust provides financial and other assistance to someone without causing them to lose government benefits. Government benefits that a Special Needs Trust helps protect includes Medicaid, SSI (social security income), and low-income housing benefits, just to name a few. Also, a Special Needs Trust allows us to protect assets from nursing home costs when someone goes to a nursing home.

Strict guidelines must be met in order to receive many government benefits. These guidelines include limits on the amount of income and assets the individual may have. Unfortunately, government benefits may not be sufficient to cover all of an individual’s needs. So, family members – usually parents, grandparents and siblings – step in to help. But their help could lead to unintended consequences, such as a loss of SSI and Medicaid.

The loss of SSI and Medicaid is devastating. For many people with special needs, SSI is the sole source of income, and Medicaid is their only way to get much-needed healthcare and medications. And someone who receives government benefits has already experienced a challenging journey. Qualifying for benefits is difficult and stressful. No one wants to go through this long, difficult process again. Fortunately, a properly drafted Special Needs Trust avoids the risk of losing the benefits.

How Do You Create A Special Needs Trust?

Usually a parent or grandparent establishes a Special Needs Trust for a family member who has special needs. The trust helps and supports the family member without affecting their government benefits, including SSI and Medicaid.

The trust should be written by an attorney experienced with Special Needs Trusts and the government benefits involved. By carefully drafting the trust, the assets in the trust will not affect the government benefits, and distributions from the trust will provide an extra benefit. Although some people have expressed concern that the benefits available from a Special Needs Trust are limited, they are not. In fact, the benefits can be substantial and improve an individual’s quality of life.

This illustration will help. If someone has a child with special needs, such as autism, ADHD, Down syndrome, or some other challenge, a parent or grandparent can establish a Special Needs Trust. After it is established, anyone can contribute assets, such as money, bank accounts, property, real estate, and cash. The assets in the trust will be used to support the individual with special needs. After the individual dies, the assets remaining in the trust can be distributed to someone else, such as siblings, nieces or nephews, or even a charitable organization whose mission is to support those with a similar special need.

The government benefits will be lost if a Special Needs Trust is not used and the property is given directly to the individual receiving government benefits. We do not want that result. Obviously, giving assets directly to them is a bad idea. Instead, the assets should be placed in a Special Needs Trust. Structured this way, the individual receiving government benefits will not lose those benefits, yet they will receive support from the trust. And at the individual’s death, the assets in the trust will pass to whomever or whatever the person creating the trust thought best, including family members or people with a similar special need.

When Should You Create a Special Needs Trust?

You should create a Special Needs Trust as soon as you discover that you have a special needs family member who you want to help now or sometime in the future. Compared to waiting until years later, creating a Special Needs Trust soon will provide you with more flexibility and a greater opportunity to get the most benefit out of the trust. But, even if you have delayed in creating it, the benefits to having a Special Needs Trust far outweigh any drawbacks. Call us or schedule an appointment to see how a Special Needs Trust might fit in your life.

New Retirement Account Rules: Are You Ready For A Change?

What is a UTMA?

SPECIAL NEEDS TRUST BASICS: When Should You Use A Special Needs Trust

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