Authors Posts by Nancy Burner Esq., CELA

Nancy Burner Esq., CELA

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By Nancy Burner

Retirement can be an exciting new chapter in someone’s life, but it can also be stressful. The change of lifestyle and income source can lead to anxiety for many individuals reaching retirement. There may be a fear that there is not sufficient income to meet monthly needs or sufficient resources to last the remainder of his or her life.

The reality is that people are living longer and require stable income to meet their daily expenses. A person can maximize benefits and income while preserving assets for the next generation provided that the proper planning has been put into place.

One key strategy in planning for retirement income is maximizing your benefit under the Social Security system. Social Security income will play a major role in monthly income for many retired seniors and should not be overlooked or ignored. Knowing the appropriate time to start taking the benefit will impact the amount of income a person will receive.  “Full retirement age” will depend on when the individual was born.

For those born in 1954 or before, the full retirement age is 66 years old. For those born after 1954 but prior to 1960, the full retirement age gradually rises a few months at a time. For example, someone born in 1957 has a full retirement age of 66 years and 6 months. Anyone born in 1960 and later has a full retirement age of 67 years old.

Taking Social Security prior to the “full retirement age” can result in reduction penalties that could potentially cost the individual almost half of what might have been earned if the individual had waited. Once a person reaches “full retirement age,” it may be advantageous to wait a few years longer until 70 years old to begin collecting Social Security. Unfortunately, the only way to determine if waiting until age 70 is beneficial would be to know how long you are going to live.

Social Security Administration determines your benefit based on the average life expectancy. If the person outlives the average life expectancy, then it was a better choice to wait until 70 to begin the benefit. Nevertheless, no one knows how long they will live, but the reality is that people are living longer and it is essential to make sure you have sufficient income to support your daily needs regardless of how long you live.

It may be much easier said than done to wait to take Social Security. In a perfect world, everyone could wait until the perfect age to start taking Social Security in order to maximize their benefit. The reality may be that income is needed sooner than the ideal age. In this circumstance, there are several tactics that can be used in order to get income, but preserve your Social Security income and allow it to grow until you reach 70 years old.

It is essential to understand that a person may be entitled to Social Security benefits based on a spouse, ex-spouse, deceased spouse or deceased ex-spouse’s earning record. Once a person reaches “full retirement age,” but has not reached age 70, it may be advantageous to use a restricted application and apply only to claim a spousal (or ex-spousal) benefit and wait until 70 to collect your own benefit. This would enable you to start getting Social Security income, but preserve your benefit to allow for the possibility of a higher income. It is important to consult a professional in your area regarding different tactics that can be used to maximize your retirement benefits.

Retirement should be the time in your life where you can relax. The stress of not having enough income to meet necessary daily expenses can be avoided with having the proper plan in place to meet your income needs and give you peace of mind.

Nancy Burner, Esq. has practiced elder law and estate planning for 25 years. The opinions of columnists are their own. They do not speak for the paper.

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By Nancy Burner

With tax planning becoming less of an issue for the average client, the focus in estate planning has shifted to asset protection for intended beneficiaries. As attorneys, we often hear our clients tell us that they plan to leave everything equally to their children but that they are concerned that one (or more than one!) has creditor issues or are going through a divorce. How can they ensure that whatever they leave to this child will not have to be spent on his or her debts or given to his or her soon-to-be ex-spouse? The answer is with the use of a descendant’s trust.

Whether an estate plan includes a traditional last will and testament or a trust, planners should direct that any asset left to a child with potential creditors or divorces be left in a descendant’s trust, also commonly referred to as an inheritor’s trust. This is a trust written into the last will and testament or trust document that does not come into effect until after the death of the creator, which will protect the child’s inheritance from outside invaders, including creditors or divorcing spouses. To the extent that assets are left in the trust, creditors do not have access, and the assets are considered separate and apart from the marital estate.

Typically, the descendant’s trust provides that any income generated from an asset in the trust shall be paid to the beneficiary, and principal distributions can be made for health, education, maintenance and support if the child is his or her own trustee or for any reason if there is an independent trustee. An independent trustee is a person not related by blood or marriage to the beneficiary and is not subordinate to the beneficiary, i.e., does not work for the beneficiary.  However, your lawyer can customize the language to provide for you and your beneficiaries’ specific circumstances.

While a beneficiary can be his or her own trustee, if there is a concern about the child’s “questionable spending habits,” a trust creator can consider naming someone else to be trustee for him or her or naming a co-trustee to act with the child. This could be a sibling or another trusted individual.

It is important to remember that many assets are disposed of by beneficiary designation, such as retirement accounts and life insurance. This means that once you draft the descendant’s trust in your estate plan, you must designate the trust created for their benefit as the beneficiary for their share of your assets. This will ensure that the asset passes to their trust and not to them directly.

However, be cautious when designating a trust as the beneficiary of retirement assets. When an individual inherits a retirement account, he or she must begin taking minimum distributions according to his or her life expectancy, but the principal of the retirement account continues to grow tax deferred. When a trust is designated as a beneficiary, the IRS forces the account to be paid out over a five-year period since there is no individual on whom to calculate a life expectancy. In order to ensure that a trust can still get the “stretch-out” over the child’s life expectancy, there must be certain provisions included so that the trust can accept the retirement account. Accordingly, be sure to discuss any beneficiary designations with your estate planning attorney before executing same.

Whether your estate plan includes a simple will or a complicated trust-based plan, incorporating descendants trusts is an excellent way to safeguard assets for your intended beneficiaries.

Nancy Burner, Esq. has practiced elder law and estate planning for 25 years. The opinions of columnists are their own. They do not speak for the paper.