SSA Updates Social Security Taxable Wage Base for 2018

By Joshua A. Diveley

In October, the Social Security Administration (SSA) announced an adjustment to the Social Security taxable wage base to take effect in January based on an increase in average wages. Based on the wage data Social Security had as of October 13, 2017, the Social Security taxable wage base was set to increase to $128,700 in 2018, from $127,200 in 2017. Based on newly released data obtained by SSA, the new Social Security taxable wage base for 2018 is $128,400.

This lower taxable amount is due to corrected W2s provided to Social Security in late October 2017 by a national payroll service provider. Approximately 500,000 corrections for W2s from 2016 were received by SSA and resulted in the downward adjustment for 2018.

For more information about the updated 2018 taxable maximum amount, please visit www.socialsecurity.gov/oact/COLA/cbb.html

 

© 2017 Vandenack Weaver LLC
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PLANNING FOR MENTAL DECLINE

by Monte L. Schatz

When the topic of estate planning comes to mind, most individuals think about the distribution of their assets at death.   The increased longevity of our population requires equal attention to diminished cognitive skills caused by dementia or other diseases that affect normal cognitive functioning.

Dementia is a syndrome in which there is deterioration in memory, thinking, behavior and the ability to perform everyday activities.  An estimated 5.5 million Americans of all ages have Alzheimer’s disease.  One in 10 people age 65 and older has Alzheimer’s dementia.  The average survival time for people diagnosed with dementia is about four and a half years, new research shows. Those diagnosed before age 70 typically live for a decade or longer.  The time frame from mild cognitive decline to the onset of dementia averages seven years.   Typically, when an individual is in the moderately severe cognitive decline, assistance may be required for daily activities and management of the person’s financial affairs.

The difficulties that families encounter is determining when the person no longer can manage their own affairs or maintain his or her own physical well-being.  The ultimate question of capacity is a legal determination and in some cases a judicial determination, not a clinical finding. A clinical assessment stands as strong evidence to which the lawyer must apply judgment considering all the factors in the case at hand.  While psychologists and other health professionals may use different terms than lawyers, conceptually the clinical model of capacity has striking similarities to the legal model.

The best estate planning approach is to take proactive legal steps ahead of mental decline to assure adequate personal and financial care and to minimize unnecessary legal costs or litigation expenses.  The legal tools available to circumvent legal capacity issues include:

  • A will drafted in advance of cognitive decline to minimize heirs contesting an estate.
  • A living trust should be considered to assure proper management of assets and continuity of financial management by a trustee for the incapacitated person’s benefit.
  • A durable power of attorney for financial matters designating a trusted and financially responsible individual to manage assets upon the onset of mental incapacity.
  • A health care power of attorney or directive that provides for a designated person to make health decisions in the event of incapacity.
  • A living will that outlines, in advance, the wishes of a person who receives artificial life sustaining treatment.

Thoughtful estate planning in advance of mental decline can help avoid expensive court alternatives that can include court conservatorships or guardianships during life and/or estate litigation after the person’s death.  More importantly, well designed advanced planning minimizes the possibility of disputes among heirs that may disrupt family relationships.

© 2017 Vandenack Weaver LLC
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Maximizing Social Security Benefits

By Monte Schatz

Changes in legislation always require an adjustment period and time for understanding.  The Social Security Administration approved legislation in October 2016, effective January 2, 2017.  Their changes affected six major areas: payments, tax cap, earnings limit, maximum benefit, double claims, and suspended payments.

  1. Payments. The payments change is a 0.3% increase which although modest amounts to an average of $5 per retired claimant per month. This change also affects the maximum possible benefit for retirees, increasing by $48 per month.
  2. Tax Cap. The tax cap increase changes the amount of income, upon which the 6.2% earnings tax applies, from $118,500 to $127,200. This increase results in an average additional $45 of tax withholding monthly if you earn more than $127,200 annually. There are no changes to the withholding amounts if you make less than the previous limit.
  3. Earnings Limit. The earnings limit is affected by two major changes.
    • The first is an increase in the allowed amount for those receiving benefits but not yet at full retirement age (65 and younger) from $15,720 to $16,920. The $1200 annual increase allows a worker to earn this additional amount annually, before being subject to decreased monthly social payments.
    • The second earnings limit change reduces the payment withholding to $1 for every $3 earned in excess of $16,920.  Previously, payment withholding was assessed on $1 for every $2 limit of earnings in excess of the full retirement age limit
  4. Maximum Earnings. The earnings the reduction of payment withholding will be  particularly beneficial for those who elect to defer receiving benefits at full retirement age (66 years of age and older). Benefits for those who elect to wait until full retirement age increases by $3000 annually to a limit of $44,880.
  5. Double Claim. The double claim adjustment seeks to close a previous loophole which allowed individuals to claim spousal payments at an early age and then claim individual payments after reaching full eligibility age. This change removes the ability to elect a different payment option for married retirees and automatically entitles the recipient to the higher of the two at the time they elect to receive.
  6. Suspension Procedure. Finally, the changes to the suspension procedure prevents an individual from filing for retirement and then suspending receipt of benefits. This previously allowed a recipient to suspend their benefits until they reached the full benefit age while still collecting allowing their spouse or dependent to benefit at the reduced level. Other than an exception for divorced spouses, if the entitled recipient elects to suspend benefits, all related family entitlement will be suspended for the same period.

With these changes, it is important to understand the impact on individual retirement planning. The most significant long term change is the increase in earnings limit, expected to impact twelve million wage earners.  If your income exceeds the previous limit you are now subject to a tax on more of your earnings, although this tax is nominal it does affect retirement planning.  With a decrease in available net earnings, if earning more than $118,500 a careful review of planned retirement investment amounts is necessary for your own personal portfolio.

The other significant change is the combination of suspension payments and double claim rules.  A best practice to maximize social security benefits for retirement is to wait to claim until full benefit age is reached and not just retirement age.  This practice continues to be the more prudent decision if health and ability restrictions do not limit your capacity for earning.  The new wait and suspend changes, your monthly total benefits will be higher but you will not be able to double dip meaning you cannot have one wage earner and one benefit recipient in the same household.  A careful review of financial status and evaluation of ability to wait and receive both payments at the higher amount instead of both at a reduced amount is a beneficial practice for retirement future.

© 2017 Vandenack Weaver LLC
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New Nebraska Law for Accessing Digital Assets of Deceased

On April 13, Nebraska passed legislation for handling digital assets for those that die or become unable to manage their own assets. LB 829 authorizes four types of individuals to manage the digital assets, similar to how they would manage tangible property, for the deceased or incapacitated. This law follows the Revised Uniform Fiduciary Access to Digital Assets Act, as finalized by the Uniform Law Commission in 2015.

Prior to this law, managing the digital accounts of the deceased was difficult and time consuming, especially in situations where the fiduciary does not have the passwords for the deceased. This new law works in conjunction with Nebraska probate, guardianship, trust, and powers of attorney laws. For executors or administrators of deceased individual estates, court-appointed guardians or conservators, agents appointed by a power of attorney, or a trustee, they will now have a legal basis for accessing digital assets.

When a fiduciary is in a situation needing to access the deceased digital assets, the law creates a tiered system for access. Generally, if the digital asset has an online portal maintained by a third party that allows the user to grant access to another, those rules take priority. However, failure to use such an option or if no tool exists, the new statutory power granted to the fiduciary will apply.

© 2016 Vandenack Williams LLC
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Using Intra-Family Loans to Transfer Wealth

Intra-family Loans can be a great opportunity for families to give their children or relatives additional funds, or if a relative is looking to make a significant purchase, a relative can borrow from a member of the family at a much better rate than going to a financial institution. Most individuals are familiar with the idea of making gifts to their children or relatives of an amount below the annual gift exclusion of $14,000, but those seeking to make transfers to their family that exceed the annual exclusion should be considering intra-family loans because of current low interest rates.

If making such a loan, the loan should be properly documented and interest must be charged and paid. If these requirements are not met, the Internal Revenue Service (“IRS”) may recharacterize the loan as a gift. If treated as a gift, the loan will reduce the lender’s gift and estate tax exemption or may cause the gift to be taxed at the current gift tax rate of 40%. It is recommended that the loan be documented with a promissory note and a fixed payment schedule. An interest rate equal to or above the Applicable Federal Rate (AFR) must be charge on the loan. The AFR will depend on the length of the loan. For loans with an annual compounding interest, the January interest rates are as follows: short-term (< 3 years): .56%; mid-term (3-9 years): 1.68%; and long-term (> 9 years): 2.61%. The recommended length and structure for repayment of the loan will likely depend on the AFR at the time of the loan, the financial needs of the lender, and the funds available to the borrower.

As an example of the effectiveness of such a loan, Parent makes a loan to Child for $500,000 and Child invest such funds with an annual return of 5%. If the loan is for a term of 9 years with a balloon payment at the end of such time, the applicable January mid-term rate would be 1.68%. At the end of the 9 year period, Child would have $775,664. The payment due on the loan would be $580,885. Child nets $194,779. Parent would be required to report the amount of interest, $80,885, as interest income.

While current rates remain low, it is likely that the rates will increase over the course of 2016. If you want additional information or would like to take advantage of the current interest rates, contact the attorneys at Vandenack Williams LLC.

© 2015 Vandenack Williams LLC
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Alimony Award Greater than Monthly Income

The Nebraska Supreme Court has upheld a district court’s determination that a 95 year old man should pay $3,302.60 a month in alimony; an amount greater than his monthly income. Of note is that the wife required special nursing home care, costing substantially more than the income she received from social security and various other sources. The monthly deficient from the wife’s nursing care matched the amount her former husband was order to pay as alimony.

A trial court has substantial discretion to determine the amount of alimony due in a specific situation. The court will evaluate the duration of the marriage, the history and contributions to the marriage, and the ability of the person receiving funds to be gainfully employed. Once a trial court makes a decision, it will be difficult to have it changed by an appellate court unless the award is truly egregious or in violation of a law.

In this case, the husband sought the divorce once the wife had expensive medical needs. Although the alimony payment is greater than the husband’s monthly income, the court cited substantial agricultural property acquired by the husband prior to marriage which could be sold to pay the monthly alimony. This ruling suggests that in specific instances, a court will evaluate the total assets of the divorcing couple, including non-marital assets, when determining alimony payments. The Court’s decision could have substantial impact on couples divorcing due to irreconcilable differences and also those obtaining a divorce in an attempt to protect the assets of one spouse from being depleted for the care of the other.

© 2015 Houghton Vandenack Williams

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Probate Code Amended To Re-Allocate Costs Associated With Being Appointed To Care For a Minor

In May, the Nebraska Legislature amended the probate code to allow a court to provide reasonable fees and costs associated with being appointed to care for a minor. Legislative Bill 422 covers the fees and costs of an attorney, guardian ad litem, physician, or visitor as appointed by the court. Importantly, the payments will come from the estate of the minor or the county itself and awarded at the discretion of the court.

This law came forward as part of a Nebraska Bar Association effort and was a recommendation by the Supreme Court’s Guardianship and Conservatorship Commission. A similar provision had previously been enacted for situations when a person is incapacitated and when a person is to be protected, both situations requiring a court appointment.

The law and legislative notes may be found at the following link: http://www.nebraskalegislature.gov/bills/view_bill.php?DocumentID=24813

© 2015 Houghton Vandenack Williams

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Are There Any Lifetime Planning Options Available to Me to Reduce My Exposure to Estate Taxes?

A Video FAQ with Mary E. Vandenack.

There are a variety of techniques that can be used to reduce your exposure to estate tax. A really simple one is an annual exclusion. Every year you can make a gift to any individual for up to a certain amount–that amount changes from year to year. You can also make lifetime gifts to your heirs/beneficiaries that are going to add up to the maximum amount you can pass during your lifetime. Next you want to go ahead and set up a trust or consider other lifetime planning strategies. There are a variety of trust techniques that will allow you to reduce your exposure to estate taxes. There are also some newer techniques that just using portability in your estate plan that can minimize your exposure to estate taxes.

© 2014 Parsonage Vandenack Williams LLC

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What Does a Proper Estate Plan Include?

A Video FAQ with Mary E. Vandenack.

A proper estate plan should include your goals, they should be incorporated into the plan. Some examples of those goals may be to take care of yourself and your spouse, if you have one, for life. If you have a disabled child, you are going to want to make sure your disabled child is taken care of. If you have minor children, you should be considering your minor children. After that, you are going to want to look at how you want assets disposed of. Do you want to keep things in trust for the life of your children, do you want distributions over a period of time or are they able to manage significant distributions at one point in time? The next thing you should look at is minimizing estate taxes or income taxes in terms of distributing your estate.

© 2014 Parsonage Vandenack Williams LLC

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Estate Planning under 2010 Tax Relief Act

Estate Planning Under the Tax Relief Act of 2010

            In the final hours of 2010, Congress passed the Tax Relief Act of 2010.  As part of that act, the estate tax continues for two more years with an exemption level of $5 million and a maximum tax rate of 35%.

            The key issue is that the extension is only for two years.  The possibilities as of January 1, 2013 include (a) possible total repeal; (b) the 2011 and 2012 rules become permanent; (c) we have an ultimate sunset and return to the $1 million exemption level.  Personally, I am making no predictions on this round. 

            Planning in 2011 creates both opportunities and pitfalls.  Key planning opportunities are as follows:

            $5 million exemption for estate and gift taxes.  For 2011 and 2012, we return to a unified credit for estate and gift taxes. Any donor (or later decedent) can transfer up to $5,000,000 to his or her heirs gift and estate tax free.    

            For those individuals with assets well in excess of $5,000,000, the law presents an opportunity to consider aggressive lifetime gifts. The caveat of many advisors is a concern as to what will happen if there is a return to the $1 million dollar level.  For those with an estate in the vicinity of the exemption amount, consideration must be given to whether there will be more benefit from a step-up in basis, which results with an at death transfer, than there will be from a lifetime gift.

            With respect to any estate plan, the higher exemption amount creates the opportunity to focus more on desired disposition of assets rather than avoiding estate taxes.  Income tax planning becomes a more significant factor than estate tax planning.

            Portability of exemption.  The law allows the executor of a deceased spouse’s estate to transfer any unused exemption to the surviving spouse. That is, if the first spouse to die has an estate of $2 million dollars, such spouse’s unused exemption will be $3 million dollars. That exemption can be passed to the surviving spouse, who then has an $8 million dollar exemption.

            While some commentators view the portability of the exemption as a panacea and eliminating the need for trusts, my view is that the portability simply offers added flexibility but has limited usefulness in estate plans of those who have been married more than once and/or have children from various marriages.  Even in the cases of first marriages, the available unused exemption is limited to the unused exemption of the most recent deceased spouse.  Thus, if the surviving spouse remarries and is predeceased by her new spouse, the available transferred unused exemption will be that of the later spouse.

            My recommendation.   For the next two years, I am not recommending dramatic changes to estate plans. I do recommend review. Most should review current disposition structure and consider whether there are any short term planning opportunities under the law as it exists for two years.