Amy & Dan Smith's Planning for Life: Tax Act Implications for Education Savings

In late December, 2017, the President signed new federal tax legislation that will change how 529 accounts can be used. Individual states may have variations. One of the most impactful changes is that tuition for primary and secondary education is now a qualified expense. Other changes include higher gifting limits and tax-free rollovers from 529 accounts to ABLE accounts.

Primary and Secondary School Expenses

As part of the act, the IRS code was amended to reflect that “qualified higher education expenses” will now include a reference to expenses for tuition in connection with enrollment or attendance at an elementary or secondary public, private or religious school. The changes made in the new tax program take effect after December 31, 2017 and there is no sun setting provision for this change.

The new legislation stipulates that the amount of cash distributions from all qualified tuition programs for a single beneficiary during any taxable year shall not exceed $10,000 for these expenses, incurred during that year. It merits noting that the rules for tax-free withdrawals for post-secondary education remain unlimited up to the amount of post-secondary qualified expenses incurred for the beneficiary.

At this time, individual states and program managers are in the process of reviewing the recent federal tax law changes and determining how best to incorporate them into their programs. Please consult with your tax advisor to best determine how each state may be treating the expenses associated with K-12 education.

Gifting Limits

In any given year, an individual can gift up to the annual gift tax exclusion amount to anyone without incurring gift tax consequences. Effective January 1, 2018, the exclusion amount increased to $15,000 from $14,000. And uniquely to 529 plans, an individual can accelerate the gifting by five years, thereby making an immediate contribution of $75,000. A married couple filing jointly can now make a split gift in the amount of $150,000 per beneficiary in 2018.

If a person makes the five- year election, the gift is ratably divided over five years; should the contributor dies, a prorated part of the gift is moved back into their estate. The five-year and/or split gift election is made on IRS form 709. Although a larger gift can be made, the amount exceeding the five-year election amount would reduce your Unified Lifetime Gift Tax Exemption. Contributions to a 529 plan account are considered completed gifts to the named beneficiary, but from a legal standpoint the owner always controls the account.

Rollover Provisions

The new legislation also allows for a tax-free rollover of a 529 account to an Achieving a Better Life Experience(ABLE) account. The rollover would need to take place prior to January 1, 2026, as this provision expires. ABLE accounts were created in 2014 to give individuals with disabilities and their families the opportunity to save for the future without limiting access to critical income, healthcare, food or housing assistance programs. Rollovers from 529 plans are still subject to annual contribution limits of $15,000 in 2018.

Certain conditions may apply. Earnings in 529 plans are not subject to federal tax, and in most cases, state tax, so long as you use withdrawals for eligible education expenses, such as tuition and room and board. However, if you withdraw money form a 529 plan and do not use it on an eligible education expense, you generally will be subject to income tax and an additional 10% federal tax penalty on earnings. Rules and laws governing 529 plans are varied and subject to change. As with other investments there are generally less fees and expenses associated with participation in a 529 plan. There si also risk that these plans may lose money or not perform well enough to cover college costs as anticipated. Most states offer their own 529 programs, which may provide advantages and benefits exclusively for their residents. Investors should consider before investing, whether the investor’s or the desired beneficiary’s home state offers state tax or other benefits only available for investments in such state’s 529 college savings plan. Such benefits include financial aid, scholarship funds, and protection from creditors. 529 plans outside their resident state may not provide the same tax benefits as those offered within their state. Please note, changes in tax laws or regulations may occur at any time and could substantially impact your situation. While familiar with the tax provisions of the issues presented herein, Raymond James Financial Advisors are not qualified to render advice on tax or legal matters. You should discuss any tax or legal matter with the appropriate professional.

From "Amy & Dan Smith's Planning for Life" column appearing monthly in the Blue Ridge Leader, Loudoun County, VA.

The foregoing article contains general legal information only and is not intended to convey legal advice.  For legal advice regarding estate planning, the reader should contact his/her lawyer.

Daniel D. Smith is a partner in the law firm of Smith & Pugh, PLC, 161 Fort Evans Road, NE, Suite 345, Leesburg, VA 20176. (Tel: 703-777-6084, www.smithpugh.com).

Amy V. Smith Wealth Management, LLC is an independent firm.  Amy V. Smith, CFP, CIMA offers securities through Raymond James Financial Services, Inc., member FINRA/SIPC.  Her office is located at 161 Fort Evans Road, NE, Suite 345, Leesburg, VA 20176.  (Tel: 703-669-5022, www.amysmithwealthmanagement.com). Any opinions are those of Amy and Dan Smith and not necessarily those of Raymond James.  Raymond James does not guarantee that the foregoing material is accurate or complete and does not provide legal advice.  Dan Smith is not affiliated with Raymond James.

Amy & Dan Smith's Planning for Life: Tax Cuts and Jobs Act

The Tax Cuts and Job Act legislation was signed into law on December 22, 2017. The Act makes extensive changes that affect both individuals and businesses. Some key provisions of the Act are discussed below. Most provisions are effective for 2018. Many individual tax provisions sunset and revert to pre-existing law after 2025. The corporate tax rates provision is made permanent.

Individual income tax rates

Pre-existing law: There were seven regular tax brackets: 10, 15, 25, 28, 33, 35, and 39.6 percent.

New law: There are seven tax brackets: 10, 12, 22, 24, 32, 35, and 37 percent. These provisions sunset and revert to pre-existing law after 2025.

Standard deduction, itemized deductions, and personal exemptions
Pre-existing law: In general, personal (and dependency) exemptions were available for you, your spouse, and your dependents. Personal exemptions were phased out for those with higher adjusted gross incomes.

You could generally choose to take the standard deduction or to itemize deductions. Additional standard deduction amounts were available if you were blind or age 65 and older.

Itemized deductions included deductions for medical expenses, state and local taxes, home mortgage interest, investment interest, charitable gifts, casualty and theft losses, job expenses and certain miscellaneous deductions, and other miscellaneous deductions. There was an overall limitation on itemized deductions based on the amount of your adjusted gross income.

New law: The standard deduction is significantly increased, and the additional standard deduction amounts for those over age 65 or blind are still available. The personal and dependency exemptions are no longer available.

Many itemized deductions are eliminated or restricted. The overall limitation on itemized deductions based on the amount of your adjusted gross income is eliminated.

The 10 percent of AGI floor for the deduction of medical expenses is reduced to 7.5 percent in 2017 and 2018 (for regular tax and alternative minimum tax.)

The deduction for state and local taxes is limited to $10,000. An individual cannot prepay 2018 income taxes in 2017 in order to avoid the dollar limitations in 2018.

The deduction for mortgage interest is still available, but the benefit is reduced for some individuals, and interest on home equity loans is no longer deductible.

The charitable deduction is still available but modified.

Child tax credit

Pre-existing law: The maximum child tax credit was $1,000. The child tax credit was phased out if rackets. child tax credit was refundable up to 15 percent of the amount of earned income in excess of $3,000 (the earned income threshold).

New law: The maximum child tax credit is increased to $2,000. A nonrefundable credit of $500 is available for qualifying dependents other than qualifying children. The maximum refundable amount of the credit is $1,400, indexed for inflation. The amount at which the credit begins to phase out is increased, and the earned income threshold is lowered to $2,500. The changes to the credit sunset and revert to pre-existing law after 2025.

Kiddie tax

Instead of taxing most unearned income of children at their parents’ tax rates (as under per-existing law), the Act taxes children’s unearned income using the trust and estate income tax brackets. This provision sunsets and reverts to pre-existing law after 2025.

Corporate tax rates

Under the Act, corporate income is taxed at a 21 percent rate. The corporate alternative minimum tax is repealed.
Special provisions for business income of individuals

Under the Act, an individual taxpayer can deduct 20 percent of domestic qualified business income (excludes compensation) from a partnership, S corporation, or sole proprietorship. The benefit of the deduction is phased out for specified service businesses with taxable income exceeding $157,500 ($315,000 for married filing jointly). The deduction is limited to the greater of (1) 50 percent of the W-2 wages of the taxpayer or (2) the sum of (a) 25 percent of the W-2 wages of the taxpayer, plus (b) 2.5 percent of the unadjusted basis immediately after acquisition of all qualified property (certain depreciable property). This limit does not apply if taxable income does not exceed $157,500 for married filing jointly. ($315,000 for married filing jointly), and the limit is phased in for taxable income above those thresholds. This provision sunsets and reverts to pre-existing law after 2025.

From "Amy & Dan Smith's Planning for Life" column appearing monthly in the Blue Ridge Leader, Loudoun County, VA.

The foregoing article contains general legal information only and is not intended to convey legal advice.  For legal advice regarding estate planning, the reader should contact his/her lawyer.

Daniel D. Smith is a partner in the law firm of Smith & Pugh, PLC, 161 Fort Evans Road, NE, Suite 345, Leesburg, VA 20176. (Tel: 703-777-6084, www.smithpugh.com).

Amy V. Smith Wealth Management, LLC is an independent firm.  Amy V. Smith, CFP, CIMA offers securities through Raymond James Financial Services, Inc., member FINRA/SIPC.  Her office is located at 161 Fort Evans Road, NE, Suite 345, Leesburg, VA 20176.  (Tel: 703-669-5022, www.amysmithwealthmanagement.com). Any opinions are those of Amy and Dan Smith and not necessarily those of Raymond James.  Raymond James does not guarantee that the foregoing material is accurate or complete and does not provide legal advice.  Dan Smith is not affiliated with Raymond James.

Amy & Dan Smith's Planning for Life: Executor, Administrator, Trustee: What's The Difference?

The Executor is the person appointed in a will to administer the estate of the decedent. Typically, after the death of the testator the Executor makes an appointment with the Probate Division of the Circuit Court and, after producing the original of the will and the death certificate, is sworn to uphold his/her responsibilities to administer the estate properly and honestly. This is called “qualification,” and the Executor is given a certificate which evidences his/her office. The Executor’s duties are explained by the Clerk of Court.

An Administrator is the title given to a person appointed to administer an estate where there is no will (an “intestate estate”). He/she has the same duties as the Executor except that the beneficiaries of such an estate are set forth by statute since there is no will.

Over recent years the term Personal Representative (or “PR”) has come into use as a generic term which applies to either the Executor or the Administrator. For convenience this article will use the term PR hereafter to apply to both positions.

The qualification of the PR is recorded in the permanent records of the Probate Division which are open to the public. Over recent years this has led to a practice among real estate agents to review the records regularly and to contact the named persons to solicit listings for real estate which may be in the estate. One such person told your writer recently that he makes around 60 calls per week just from the Fairfax County records alone.

Virginia has a system for overseeing the actions of the PR through the Commissioner of Accounts who is appointed by the Circuit Court. After an initial meeting with the Clerk of the Probate Division, the PR will be dealing with the Commissioner. The inventory and accounting will be filed in the Commissioner’s office.

The office of the Commissioner of Accounts is usually very helpful to the lay person who is encountering responsibilities as PR. Regular “how to” seminars are provided free of charge, and staff is usually good about answering questions. Sometimes, however, it is wise to consult with an attorney as, for example, when creditors of the estate are involved or there are conflicts among beneficiaries. If the estate is insolvent (ie, more debt than assets), the PR should consult with counsel because paying one creditor ahead of others may constitute a “preference” for which the PR could be personally liable.

The PR must be careful to keep insurance coverage over the assets in the estate to prevent loss during administration. This can be problematic where there is unoccupied residential real estate.

A Trustee is the person(s) appointed to administer a trust. A trust may be established in a will (a “testamentary trust”), in which case it comes into existence at the death of the testator, or during lifetime (a “living trust” or an “inter vivos trust”). If the trust is established in a will, the nominated trustee must be qualified by the Probate Division of the Circuit Court just as a PR. The Trustee and the PR can be the same person(s). Depending on the terms of the will, the Trustee may or may not be required to file an inventory and accountings with the Commissioner as required of the PR.

Paradoxically, the Settlor(s) and the Trustee(s) of a living trust are usually the same people, so the parties are agreeing with themselves. The Trustee of a living trust does not need to qualify. Unlike a will it is not required to be recorded, so it provides a measure of privacy. The living trust is a time-tested, effective estate planning device.

From "Amy & Dan Smith's Planning for Life" column appearing monthly in the Blue Ridge Leader, Loudoun County, VA.

The foregoing article contains general legal information only and is not intended to convey legal advice.  For legal advice regarding estate planning, the reader should contact his/her lawyer.

Daniel D. Smith is a partner in the law firm of Smith & Pugh, PLC, 161 Fort Evans Road, NE, Suite 345, Leesburg, VA 20176. (Tel: 703-777-6084, www.smithpugh.com).

Amy V. Smith Wealth Management, LLC is an independent firm.  Amy V. Smith, CFP, CIMA offers securities through Raymond James Financial Services, Inc., member FINRA/SIPC.  Her office is located at 161 Fort Evans Road, NE, Suite 345, Leesburg, VA 20176.  (Tel: 703-669-5022, www.amysmithwealthmanagement.com). Any opinions are those of Amy and Dan Smith and not necessarily those of Raymond James.  Raymond James does not guarantee that the foregoing material is accurate or complete and does not provide legal advice.  Dan Smith is not affiliated with Raymond James.

Tackle Year-End Deadlines and Look Ahead to 2018

With happy holidays come distracting deadlines. Our gift to you: wrapping them up in this year-end guide. Now’s the time to talk to your advisor about taking advantage of tax-deferred growth opportunities, tax-advantaged investments and charitable-giving opportunities, among other strategies. And before the ball drops in Times Square, set your financial goals for 2018.

Fall 2017 Market Closures
Thursday, November 23: Thanksgiving Day
Monday, December 25: Christmas Day

Planning To-Do’s

Discuss year-end planning: Ask your advisor to coordinate with your tax advisor and attorney to address year-end financial and tax planning.

Adjust your coverage: Prepare your documents for Medicare open enrollment, if eligible.

Check cost of living: The Social Security Administration typically announces next year’s cost-of-living adjustment in October. Keep an eye out for this important information.

Consider retirement: New retirement plan contribution limits come from the IRS. Plan to adjust contributions appropriately.

Review your portfolio: Many mutual funds make taxable distributions toward the end of the year. You may want to consider balancing your realized capital gains with losses where appropriate. If invested in mutual funds, don’t forget about important capital gains distributions dates that typically fall in mid-December.

Heed donation deadlines: Remember year-end gift and charitable contributions deadlines. Be sure to allow enough time to complete donations, and keep tax limitations in mind if you plan to give tax-exempt gifts to relatives or friends this year.

Plan to harvest tax losses: Review and implement year-end tax planning decisions for the upcoming tax season. Consider rebalancing at the same time for tax efficiency.

Keep calm and consult on: You’re likely to pick up investment tips around the holiday party punchbowl. No matter the source, take the cautious path: Consult your advisor before acting.

Set financial goals for 2018: Reassess retirement savings and work with your advisor to make adjustments, if needed.

From "Amy & Dan Smith's Planning for Life" column appearing monthly in the Blue Ridge Leader, Loudoun County, VA.

The foregoing article contains general legal information only and is not intended to convey legal advice.  For legal advice regarding estate planning, the reader should contact his/her lawyer.

Daniel D. Smith is a partner in the law firm of Smith & Pugh, PLC, 161 Fort Evans Road, NE, Suite 345, Leesburg, VA 20176. (Tel: 703-777-6084, www.smithpugh.com).

Amy V. Smith Wealth Management, LLC is an independent firm.  Amy V. Smith, CFP, CIMA offers securities through Raymond James Financial Services, Inc., member FINRA/SIPC.  Her office is located at 161 Fort Evans Road, NE, Suite 345, Leesburg, VA 20176.  (Tel: 703-669-5022, www.amysmithwealthmanagement.com). Any opinions are those of Amy and Dan Smith and not necessarily those of Raymond James.  Raymond James does not guarantee that the foregoing material is accurate or complete and does not provide legal advice.  Dan Smith is not affiliated with Raymond James.

Amy & Dan Smith's Planning for Life: Funeral Arrangements - Organ Donation - Cremation

Some of the stress of saying goodbye to a loved one can be relieved through advance planning for final wishes. Communication of those wishes is important. The instructions for the funeral service and ceremony for disposal of remains should, if detailed, be reduced to writing. There are online resources for recording that information, but an informal writing is usually sufficient. Reliance upon a will or a living trust for communication of such detail may not be wise as often the will or trust is not consulted until after the decedent is laid to rest. However, if an elaborate or unusually expensive event is desired, such provisions should be set forth in the will or trust so that the executor or trustee can cover the expense. If the costs are considered unusual for a person of the station of life of the decedent, the Commissioner of Accounts may not approve the expense as an allowable estate deduction. For example, a client may want a destination gathering of family and friends as a celebration of life after his demise. The expenses for such can be authorized in the will or trust.

After death, someone must be recognized as having the authority to make the many decisions which are required to be made. The Virginia Code specifically provides for the appointment of an agent to make arrangements for the funeral and disposition of remains in a signed and notarized writing. This appointment may be a separate writing or contained in another document such as an advance medical directive. Funeral homes welcome such an appointment! Otherwise, the law requires that “next-of-kin” make the decisions. This can be problematic in identifying the appropriate people and especially when relatives are not in agreement. The next-of-kin would be the decedent’s surviving spouse, if any; then, in order, the adult children, the parents, the adult siblings, and the adult nieces and nephews of the decedent. Court action may be required to resolve disagreement among the “next-of-kin.”

Organ donation is accomplished by registering online at DonatelifeVirginia.org or signifying your intention when your driver’s license is renewed. Your driver’s license will have a heart icon showing beneath your picture if you registered when renewing your license. An agent under an advance medical directive can make an organ donation for the principal unless the directive specifically prohibits the gift. The custom in Virginia seems to be that the next-of-kin can prevent the donation even though the decedent had authorized it and even though the Virginia Code appears not allow the decedent’s election to be overturned.

Cremation may be requested in a will or otherwise indicated by the decedent prior to death. However, the practice is that the remains will not be cremated without the consent of the agent, if one has been appointed, or, if not, the next-of-kin regardless of the expressed desire of the decedent. Before cremation of remains, the medical examiner must give permission and there must a visual identification of the decedent by the agent or next-of-kin.

A note of interest to those readers who may be eligible, or who have loved ones who qualify, for burial in Arlington National Cemetery: in the absence of a surviving spouse, the oldest child of the decedent must authorize funeral arrangements.

From "Amy & Dan Smith's Planning for Life" column appearing monthly in the Blue Ridge Leader, Loudoun County, VA.

The foregoing article contains general legal information only and is not intended to convey legal advice.  For legal advice regarding estate planning, the reader should contact his/her lawyer.

Daniel D. Smith is a partner in the law firm of Smith & Pugh, PLC, 161 Fort Evans Road, NE, Suite 345, Leesburg, VA 20176. (Tel: 703-777-6084, www.smithpugh.com).

Amy V. Smith Wealth Management, LLC is an independent firm.  Amy V. Smith, CFP, CIMA offers securities through Raymond James Financial Services, Inc., member FINRA/SIPC.  Her office is located at 161 Fort Evans Road, NE, Suite 345, Leesburg, VA 20176.  (Tel: 703-669-5022, www.amysmithwealthmanagement.com). Any opinions are those of Amy and Dan Smith and not necessarily those of Raymond James.  Raymond James does not guarantee that the foregoing material is accurate or complete and does not provide legal advice.  Dan Smith is not affiliated with Raymond James.

Creating the Financial Plan for Those with Dementia

To help guide you through the process, researchers at the Massachusetts Institute of Technology AgeLab developed a five-topic framework to discuss financial planning and Alzheimer’s disease.

These five topics cover distinct financial-management issues and caregiving plans. Ideally, you will have these conversations with your loved one and that person’s financial advisor in the mild decline state of Alzheimer’s, or even before the diagnosis. If the disease has progressed beyond this period, you – or the designated power of attorney – may need to have these discussions solely with the advisor. It is important for your and the advisor to understand the source and destination of your loved one’s finances so you can help when the individual may no longer be able to communicate his or her wishes.

Assets
The first thing to do when meeting with a financial advisor is to ensure he or she has a complete view of your loved one’s assets and how they are managed. The advisor should also clearly understand your loved one’s real estate situation, especially with respect to home ownership.

Many older adults incorrectly believe Medicare will cover their long-term care expenses. In reality, Medicare covers care in a skilled nursing facility only for the first 100 days, so people often need Medicaid to cover long-term care costs.

Income and Insurance
After reviewing assets, the focus should shift to your loved one’s income status and insurance policies. You and the advisor should work with your loved one to identify all existing income sources, including benefits, where more income could be generated – such as disability payments, Social Security, annuities, and pensions – and how these payments could be affected by other changes in family circumstances such as the death of a spouse.

Also, review your loved one’s insurance plans to ensure they fit current and future needs and discuss whether additional policies should be considered to fill in coverage gaps.

Intentions
It is imperative to understand your loved one’s wishes and how to ensure they are fulfilled. This can involve legal arrangements that people with dementia can make with their families.

These arrangements include where your loved one wants to live as the disease progresses, how the person wants care to be managed and delivered, and how the individual wants to ensure his or her finances will be safe.

It is difficult for most people to think about disease progression, but talking about this early after diagnosis, in the mild stage of cognitive decline, can help you and other family members learn your loved one’s wishes and help reduce stress later.

Banking Administration
As your loved one’s financial skills erode, he or she will need more help managing day-to-day financial affairs, including tracking expenses and paying bills. Though you may have taken over these responsibilities, you should allow the financial advisor to help ensure your loved one’s banking and fiscal responsibilities are being met, both practically (e.g., bills are being paid on time) and legally.

Care Management
Finally, you and your loved one must discuss how to finance and facilitate care, especially when the disease progresses and caregiving demands intensify. You should talk with your loved one about his or her preference for long-term care (e.g., in-home care, nursing care, assisted living, etc.) and how to pay for it.

Your loved one may be involved in these decisions in the mild stage of cognitive decline; however, you may need to work directly with the advisor fi the disease has advanced to the point where the person can no longer participate in discussions.

Being a caregiver can be overwhelming, and the stress associated with this critical role can make it difficult to take action.

Transamerica’s Caregiver’s Guide to Financial Planning in the Shadow of Dementia, written in collaboration with the MIT AgeLab, was created to help you feel confident when making decisions for, or with, a loved one living with dementia. Work with your financial advisor before taking final action.

From "Amy & Dan Smith's Planning for Life" column appearing monthly in the Blue Ridge Leader, Loudoun County, VA.

The foregoing article contains general legal information only and is not intended to convey legal advice.  For legal advice regarding estate planning, the reader should contact his/her lawyer.

Daniel D. Smith is a partner in the law firm of Smith & Pugh, PLC, 161 Fort Evans Road, NE, Suite 345, Leesburg, VA 20176. (Tel: 703-777-6084, www.smithpugh.com).

Amy V. Smith Wealth Management, LLC is an independent firm.  Amy V. Smith, CFP, CIMA offers securities through Raymond James Financial Services, Inc., member FINRA/SIPC.  Her office is located at 161 Fort Evans Road, NE, Suite 345, Leesburg, VA 20176.  (Tel: 703-669-5022, www.amysmithwealthmanagement.com). Any opinions are those of Amy and Dan Smith and not necessarily those of Raymond James.  Raymond James does not guarantee that the foregoing material is accurate or complete and does not provide legal advice.  Dan Smith is not affiliated with Raymond James.

Amy & Dan Smith's Planning for Life: You Can't Retire From Taxes

Your Income Will Affect The Outcome

At first (perhaps second and third) glance, everything about Social Security seems complicated. There are myriad ways to determine when to file and how in order to maximize your household benefits. Then you have to calculate what you’ll owe in federal income tax. Help from your advisor and a knowledgeable accountant will help with the specifics, but here are some guidelines to help you better understand your tax obligations in retirement.

The Conditions
You’ll generally have to pay your regular federal income tax rate on your Social Security benefits if you have other sources of income (e.g., wages, self-employment, interest, dividends and other taxable income that is reported on your tax return). This includes income from retirement accounts such as your 401(k) or pension, but doesn’t include Roth IRA’s because you’ve already paid taxes on that money. If Social Security is your only source of income, then it’s quite likely you won’t have to pay taxes or even file a tax return. The rest of us, though, will have to pay Uncle Sam something. The good news is that no one pays federal income tax on more than 85 percent of his or her benefits. That means everyone gets at least 15 percent of their benefits free of federal income tax. And if you’re under the threshold outlined below, your benefits won’t be taxed at all. The IRS uses something called combined income (sometimes called provisional income) to determine what amount is subject to taxation. Here’s the formula:

Adjusted Gross Income +Nontaxable Interest+1/2 Of Social Security Benefits = Combined Income
Here’s where it gets more complicated, and professional help comes in handy. You’ll note that the chart says “up to,” but what does that mean? If you’re in the 50 percent camp, the amount you include in your taxable income will be the lesser of either 1) half of your annual benefits or 2) half of the difference between your combined income and the IRS threshold. Things get more complex for those paying taxes on 85 percent of their benefits. The IRS offers both a worksheet in Publication 915 (irs.gov/pub/irs-pdf/p915.pdf) and specialized software to help retirees calculate their Social Security tax liability.

Bottom Line
Very few of us enjoy paying taxes, but when it comes to retirement, it’s a sign that you’re not entirely dependent on Social Security as your only source of income. Know, too, that if you owe, you can make estimated quarterly tax payments or choose to have federal taxes withheld using IRS Form W-4V. Talk to your advisor and accountant about how to pay your federal-and possibly state-income taxes without disrupting your financial plan.

Changes in tax laws or regulations may occur at any time and could substantially impact your situation. You should discuss any tax or legal matters with the appropriate professional.

From "Amy & Dan Smith's Planning for Life" column appearing monthly in the Blue Ridge Leader, Loudoun County, VA.

The foregoing article contains general legal information only and is not intended to convey legal advice.  For legal advice regarding estate planning, the reader should contact his/her lawyer.

Daniel D. Smith is a partner in the law firm of Smith & Pugh, PLC, 161 Fort Evans Road, NE, Suite 345, Leesburg, VA 20176. (Tel: 703-777-6084, www.smithpugh.com).

Amy V. Smith Wealth Management, LLC is an independent firm.  Amy V. Smith, CFP, CIMA offers securities through Raymond James Financial Services, Inc., member FINRA/SIPC.  Her office is located at 161 Fort Evans Road, NE, Suite 345, Leesburg, VA 20176.  (Tel: 703-669-5022, www.amysmithwealthmanagement.com). Any opinions are those of Amy and Dan Smith and not necessarily those of Raymond James.  Raymond James does not guarantee that the foregoing material is accurate or complete and does not provide legal advice.  Dan Smith is not affiliated with Raymond James.

 

Amy & Dan Smith's Planning for Life: Misconceptions about 529 Plans

Just like the kids you’re saving college funds for, 529 plans are often misunderstood. Read on to learn 529 plans are more flexible than you may think. They can be set up by anyone, for anyone, and used for a variety of education costs at all kinds of institutions, not just typical four-year colleges.

Myth: Only parents can establish a 529 account for a child
Reality: Anyone can open and contribute to an account for any beneficiary-no age limits or family connections necessary. Often, grandparents open 529 accounts to help fund college for grandchildren (with the added bonus that their assets won’t be factored into financial aid calculations and they may often benefit from reduced taxes on their estate).

Myth: Once the child is in college, he or she has control of the 529 account.
Reality: The account owner has-and maintains-control of the assets as long as the account exists.

Myth: Contributions to a 529 plan will limit financial aid opportunities.
Reality: While 529 assets can have an effect, it isn’t as significant as the impact of some other educational savings tools. Since 529 assets are under control of the account owner (not the beneficiary), they’re assessed at a maximum rate of 5.64 percent when determining expected family contribution (part of the financial aid formula). In comparison, investment assets in the student’s name, such as UTMA/UGMA accounts, are assessed at 20 percent.

Myth: I have to invest in the plan sponsored by the state where I live.
Reality: You can invest in any state’s 529 plan, but look at what your state’s plan offers first since some provide state tax breaks and other benefits to residents. Plans offered by other states may not provide these same benefits.

Myth: If I invest in a 529 plan, the beneficiary is limited to attending a public, four-year university.
Reality: Funds can be used for qualified expenses at eligible institutions in the U.S. and even some abroad, including private or public colleges, universities, and technical or vocational schools that qualify for federal financial aid. Check the department of education’s website (fafsa.ed.gov) and click School Code search to find qualifying institutions.

Myth: If it turns out the beneficiary doesn’t go to college or receives a scholarship, all the money I’ve invested is lost.
Reality: Since the owner – not the beneficiary- controls the account, you can change who receives the funds to any eligible family member. Another, although less attractive, option is to take a nonqualified withdrawal. Earnings are then subject to the usual taxes and a 10 percent penalty (penalty waived in the instance of a scholarship).

Myth: I can’t participate in a 529 plan because my income is too high.
Reality: Anyone can invest. There is actually no income limit to establish or contribute to a 529 plan.

Earnings in 529 plans are not subject to federal tax and in most case, state tax, so long as you use withdrawals for eligible college expenses, such as tuition, room and board. However, if you withdraw form a 529 plan and do not use it on an eligible college expenses, you generally will be subject to income tax and an additional 10 percent federal tax penalty on earnings. Changes in tax laws or regulations may occur at any time and could substantially impact your situation. You should discuss any tax or legal matters with the appropriate professional. 

From "Amy & Dan Smith's Planning for Life" column appearing monthly in the Blue Ridge Leader, Loudoun County, VA.

The foregoing article contains general legal information only and is not intended to convey legal advice.  For legal advice regarding estate planning, the reader should contact his/her lawyer.

Daniel D. Smith is a partner in the law firm of Smith & Pugh, PLC, 161 Fort Evans Road, NE, Suite 345, Leesburg, VA 20176. (Tel: 703-777-6084, www.smithpugh.com).

Amy V. Smith Wealth Management, LLC is an independent firm.  Amy V. Smith, CFP, CIMA offers securities through Raymond James Financial Services, Inc., member FINRA/SIPC.  Her office is located at 161 Fort Evans Road, NE, Suite 345, Leesburg, VA 20176.  (Tel: 703-669-5022, www.amysmithwealthmanagement.com). Any opinions are those of Amy and Dan Smith and not necessarily those of Raymond James.  Raymond James does not guarantee that the foregoing material is accurate or complete and does not provide legal advice.  Dan Smith is not affiliated with Raymond James.

Amy & Dan Smith's Planning for Life: Choosing a Fiduciary

The choice of an executor or trustee is very important and will likely have long range consequences. Family wounds can linger for years from a mistake or unwise conduct of the person in charge of the estate or trust.

An executor is appointed in the will. His/her job is to identify and the collect the assets of the estate, pay the expenses of administration and the debts of the decedent, and then distribute the balance of estate assets as directed in the will. In the course of his duties, he will normally provide two reports to the Commissioner of Accounts: An inventory of estate assets and an accounting showing what he did with the estate assets, including the final distribution to the estate beneficiaries. In Virginia, the executor takes an oath to perform faithfully the duties of his office and signs a pledge (bond) to that effect.

The job of the trustee will depend on the terms of the trust. In a typical living trust used to avoid probate, the trustee may perform a function similar to an executor. That is, after the death of grantor of the trust, he will identify and collect the assets of the trust, pay expenses and debts, and distribute the balance of trust assets to the beneficiaries designated in the trust. While he has a duty to report to the trust beneficiaries, he usually is not required to report to the court or to the Commissioner of Accounts. The job of the trustee in this case is similar to that of the executor: it is temporary and administrative in nature.

A trust, however, may involve more than administration of assets after the death of the grantor. For example, trusts may be established in a will or living trust for the benefit of the children of the decedent. Such trusts may last until the beneficiary reaches a certain age or the trust could be established for the life of the beneficiary. In such case the responsibilities of the trustee are for a period of years and often involve the exercise of discretion. If the trust authorizes the trustee to distribute for the “health, support, maintenance and education” (commonly used language) of the beneficiary, the trustee must decide whether the particular needs of the beneficiary rise to the level where a distribution would be appropriate.

The selection of a trustee for an on-going trust where discretion is required should be given careful consideration. Often grantors will look to one child to be trustee for the trusts of one or more of their other children. While family knowledge is an important factor in selecting a trustee, thought should be given to the impact on the relationship between siblings if one is in charge of the funds available to another.

If the trust is of some duration, a sequence of successor trustees should be established in the document if possible. If not, a mechanism should be provided for appointing successor trustees such as selection by the serving trustee; that is, the appointment can be done while the trustee is serving so that the successor is named in case of death or disability of the serving trustee. Also, the beneficiary(ies) can be authorized to select a successor.

In some cases, it is wise to have a “trust advisor.” This is a person whose role is passive but who monitors the actions of the trustee. For example, if the trust beneficiary is young or otherwise vulnerable, the trustee could be required to submit annual reports to the trust advisor.

An advantage of having family members serve in fiduciary capacities is that they will often waive their right to fees. This is especially important where the estate or trust account is relatively small. A fiduciary is entitled to pay from the estate or trust for professional investment advice, tax preparation and legal advice when needed.

From "Amy & Dan Smith's Planning for Life" column appearing monthly in the Blue Ridge Leader, Loudoun County, VA.

The foregoing article contains general legal information only and is not intended to convey legal advice.  For legal advice regarding estate planning, the reader should contact his/her lawyer.

Daniel D. Smith is a partner in the law firm of Smith & Pugh, PLC, 161 Fort Evans Road, NE, Suite 345, Leesburg, VA 20176. (Tel: 703-777-6084, www.smithpugh.com).

Amy V. Smith Wealth Management, LLC is an independent firm.  Amy V. Smith, CFP, CIMA offers securities through Raymond James Financial Services, Inc., member FINRA/SIPC.  Her office is located at 161 Fort Evans Road, NE, Suite 345, Leesburg, VA 20176.  (Tel: 703-669-5022, www.amysmithwealthmanagement.com). Any opinions are those of Amy and Dan Smith and not necessarily those of Raymond James.  Raymond James does not guarantee that the foregoing material is accurate or complete and does not provide legal advice.  Dan Smith is not affiliated with Raymond James.

Amy & Dan Smith's Planning for Life: Famous Estate Blunders and How To Avoid Them

These celebrities’ tales are a strong reminder to review your estate plan before it’s too late.

There’s a calm comfort that comes with estate planning: a sense that your family will be taken care of after you pass away (hopefully at a ripe old age). Sadly, it doesn’t always happen that way. Skipping regular estate plan reviews can lead to forgotten details, and these can create confusion and havoc for your family or suck them into a time-consuming court case to iron everything out. Unfortunately, that was the case for these high-profile individuals and their loved ones.

I Got You Babe (And Babe): Back in 1998, after Sonny Bono’s untimely death in a skiing accident, we learned he never wrote a will. And a man claiming to be an illegitimate son attempted to get part of the Bono estate, as did ex-wife Cher, with whom he shared royalties on music they made together. His blended family became a public spectacle at a time of grief and uncertainty.

Avoiding the Oops: Resolve to write a will as soon as possible, and keep your beneficiaries updated. In our opinion, everyone over 18 needs an estate plan that includes a comprehensive will (at the very least) and properly documents your wishes. Remember, life can be unpredictable, especially if you have a complex professional or personal life.

The Girl Without a Ring: Stieg Larson, author of The Girl with the Dragon Tattoo, was devoted to his girlfriend of 32 years. When the Swedish author died without a will, his entire estate was divided between his father and brother in accordance with Swedish law. His beloved was left out, legally speaking.

Avoiding the Oops: Resolve to learn how estate laws affect nontraditional relationships. Learn and understand the laws that govern transfer of property in your chosen state or country, so you can protect the interests of those you love. And don’t presume others will honor your wishes without a written directive. Beyond writing a will, asset titling is especially important when you’re in a “nontraditional” relationship. Legally, your partner may not have the same rights a spouse would.

The Injustice of It All: Former Supreme Court Justice Warren Burger presided over his own will, penning a brief 176-word declaration. But the poorly executed document left his family with more than $450,000 in estate taxes and court fees that could have been avoided.

Avoiding the Oops: Trust a qualified estate planning professional to help you write your will and other estate planning documents. To find one, ask for a referral or visit the American Academy of Estate Planning Attorneys or the National Network of Estate Planning Attorneys. Most of us have limited expertise when it comes to complicated tax and estate planning, and even though dedicated software can help you create the necessary documents, it’s still a good idea to have an estate planning attorney review what you have.

No Laughing Matter: Dark Knight actor Heath Ledger drafted a will naming his siblings and his parents as beneficiaries. Sadly, he didn’t update it after the birth of his daughter, Matilda. When he passed away unexpectedly, there was great confusion about who were the rightful heirs of his estate, and the difficulties played out publicly.

Avoiding the Oops: Resolve to review your plan any time your life changes. Remember that every life event –births, adoptions, disability, deaths, marriages, divorces, even moving-should trigger a review and update your estate documents. If any of these events occur in the life of a beloved beneficiary, take note. That requires another look, too.

Learning from these celebrities’ experiences can help you avoid estate blunders of your own. Resolve to review your documents regularly and put new ones in place when appropriate. Don’t forget to take into account any changes that could impact your plan, including changes in family, personal interests, wealth and tax law. And talk to your financial and estate planning professionals – you may not recognize a change, but your advisors might.

From "Amy & Dan Smith's Planning for Life" column appearing monthly in the Blue Ridge Leader, Loudoun County, VA.

The foregoing article contains general legal information only and is not intended to convey legal advice.  For legal advice regarding estate planning, the reader should contact his/her lawyer.

Daniel D. Smith is a partner in the law firm of Smith & Pugh, PLC, 161 Fort Evans Road, NE, Suite 345, Leesburg, VA 20176. (Tel: 703-777-6084, www.smithpugh.com).

Amy V. Smith Wealth Management, LLC is an independent firm.  Amy V. Smith, CFP, CIMA offers securities through Raymond James Financial Services, Inc., member FINRA/SIPC.  Her office is located at 161 Fort Evans Road, NE, Suite 345, Leesburg, VA 20176.  (Tel: 703-669-5022, www.amysmithwealthmanagement.com). Any opinions are those of Amy and Dan Smith and not necessarily those of Raymond James.  Raymond James does not guarantee that the foregoing material is accurate or complete and does not provide legal advice.  Dan Smith is not affiliated with Raymond James.