While your stockings were hung by the chimney with care, the SECURE Act (Setting Every Community Up for Retirement Enhancement) was quietly signed into law by President Trump on December 20, 2019. Congress tacked language on to the end of the annual spending bill in 2019 that forced Representatives and Senators to either vote for the law or vote for a government shutdown. In short, a distinct threat to American savers was promptly swept under the proverbial rug.

The SECURE Act is the most extensive retirement act since the Pension Protection Act of 2006.

The Act itself is the latest attempt to both plug the hole in the pension deficit and grab more taxpayer money. The Act is a jumble of exceptions and rules, so it presents a puzzling bind for the investor and estate planner.

A little history may be helpful.

Over the past 100 years, politicians have replaced personal savings, family obligations, and private charities with federally-managed transfer systems to support the elderly. Social Security and Medicare are primarily funded by taxes of young workers. Today’s Social Security system gives workers no choice or control over their financial future. Most middle-class workers have no ownership of their benefits, and Social Security benefits are not inheritable. Add to this a woeful lack of financial education and you can see why the SECURE act was easy to pass.

Anyone paying attention knows that Social Security is not sustainable and that the solvency of these programs has been a concern for awhile now. The government’s creation of the Pension Protection Act of 2006 monitoring IRA and 401k plan savings was the first attempt to control those monies via taxation to cover the growing deficit.

In 2018, the system’s trustees pegged the official Social Security “insolvency” date at 2033. Unfortunately, for those under age 51, we are now a year closer to that date than we were a year ago. Unless something changes dramatically between now and then, current law will require benefits to be slashed by 21% at that point.[i]

Consider the latest figures:

      1. Gex X and late Boomers will swell the retirement rolls 116% by 2040, while the number of workers supporting them will grow just 22%. Lack of savings and ill-preparedness for retirement make these groups more susceptible.
      2. Without reform, the combined cost of Social Security and Medicare is expected to rise from 13.8% of taxable wages today to 24.2% by 2040. Add the projected spending on Part B of Medicare and the total projected costs of the two programs grows to 30% of wages by 2040.[ii]
      3. There is a four trillion dollar federal pension deficit to contend with [iii], and the government will not be able to pay these future benefits with current levels of taxation. Fourteen years after the Pension Protection Act, the federal government could, in principle, confiscate up to of ⅓ your IRA portfolio at the time of your death via the SECURE Act.

What changes with the SECURE Act?

      1. Eliminates the age limit for making traditional IRA contributions.
      2. Increases the RMD age from age 70 ½ to age 72 for all retirement accounts subject to Required Minimum Distributions (RMDs).
      3. Allows penalty-free withdrawals for birth or adoption, but the distribution is still taxable.
      4. Eliminates the “Stretch IRA” by mandating inherited retirement accounts be withdrawn and taxes paid within ten years. (“Inherited retirement accounts” refers to those where the beneficiary is not a spouse, sibling, or special needs child of the original owner of the retirement account.)
      5. Encourages employer-based plans to offer annuities in their program by providing liability protection for providing annuities. The provision provides a safe harbor for employer liability protection. The employer is still required to do due diligence as a fiduciary when selecting an insurance company and the annuity option. The employer is not required to choose the lowest cost contract.
      6. Allows Taxable non-tuition fellowship and stipend payments to be treated as compensation to qualify for an IRA or Roth IRA contribution.

How to Protect Your Assets Now

The change that will affect your estate plan and your kids the most is the end of the “lifetime stretch” for inherited retirement accounts (item #4 above). Per the SECURE Act, money left in an inherited retirement account must all be drawn out within ten years. This is a major tax grab by the government, but doesn’t mean that well-made plans will no longer work.

Tools like trusts that protect retirement assets for your kids still work, but only if they are made with options and discretion that allow your kids to deal with the unknowns of the future. A trust that allows varying distributions for beneficiaries gives trustees discretion to give or take in ways that will give the most benefit, and allows for oversight by a director or protector who can make changes to the framework of the trust itself, is the safest for your children and their future.

SECURE Act in Action

Let’s consider a 70-year-old widow, who has $700,000 in IRAs that she and her deceased husband built up over a lifetime of working. It’s not a fortune, but she’s lucky because she has a decent pension combined with Social Security that cover her needs. She will have to start withdrawing from the IRAs at age 72 now, but she will only take the minimum because she doesn’t need more, and she wants to save it for her four daughters.

Because she’s planning for the long term, she’s investing it and getting an average of 8% return. If she lives to her statistically-expected age of 85, she will leave behind just under $1.2 million in tax-deferred retirement accounts to be divided between the four daughters. There are a few possible outcomes for the daughters with the $300,000 they each inherit:

Scenario 1 – a daughter may have large unpayable debts (medical bills, credit debt, etc). If there is no trust to protect her, this inheritance will be choked by debts and garnished by creditors, leaving the daughter not only with no inheritance but a crippling tax debt ($105,000 each if they are taxed at 35%).

Scenario 2 – the daughters take all their money right away, pay the tax, leaving them with just $195,000 each out of the original $300,000. They pay off some bills, buy some “must-have” items, go on a fun vacation, and after ten years the money is all gone. You might say that they never expected the inheritance anyway, so what does it matter that it’s all gone.

Scenario 3 – the daughters wants to do the smart thing. They leave the money in the IRA and don’t spend it all on things right away. They are fortunate not to have others coming after them for the money. However, they are not tax experts. After mom is gone, and without any advisers or trustees for a trust, they makes some bad decisions about when to take out money, or don’t plan for the taxes well. After ten years they still ends up with some money, but much less than they could have had.

Scenario 4 – the daughters have a trust in place that protects them from the risks of the world. They have an adviser in place assigned by mom in the trust to ensure that they get the most benefit out of their inheritance. They may receive equal payments over ten years so that over those ten years each has received almost $470,000 from the original $300,000. They may leave it all in the trust for the maximum ten years, each withdrawing almost $650,000 in the tenth year, or they may receive more some years, and less or none other years, depending on their income and tax situation. Thanks to mom’s plan that includes an adviser, their inheritance has grown significantly.

The government will still come along by the tenth year to take their cut of whatever the daughters inherit. But with the right plan and legal tools in place, they can make the most of their inheritance before that happens.

Life is about making the best of the situations we’re given, and having no plan is like burying your money in the ground. You can be sure it is there, but you can also be sure it has never achieved what it could. The SECURE Act is not a reason to give up but a reason to explore the options available. The Carrier Law team can help set your family up for success, contact us today to get started.

[i] https://www.cato.org/publications/commentary/americas-entitlement-crisis-just-keeps-growing

[ii] https://www.cato.org/research/social-securitys-financial-crisis

[iii] https://knowledge.wharton.upenn.edu/article/the-time-bomb-inside-public-pension-plans

bill bereza carrier law attorney   by Bill Bereza, Associate Attorney

Many people are into do-it-yourself or DIY projects for every aspect of their lives. While DIY home improvement projects are great, should you DIY your legal documents?

Some online sites will let you create a will or a power of attorney for health care or financial documents, while other sites allow you to create a trust. These online forms make it easy for you to DIY your legal documents, simply answer questions and pay with your credit card at the end. Super easy and legal in all 50 states, right? Wrong.

Unfortunately, the average American does not always understand the difference is between a trust, a will, and a financial power of attorney document. For example, some people incorrectly believe that a will avoids probate court or some people believe they need a revocable trust when an irrevocable trust is better for their needs.

The use of these online, DIY websites allow this misinformation to continue, especially because users believe they will receive expert care while also saving money. This is a false sense of security.  Prices are misleading and an online service can’t create the same documents – tailored to your needs – and provide you with legal advice that a trusted and accredited attorney can.

Here are 7 issues you could run into when using a DIY legal forms site:

  1. The choice between multiple forms without an informed perspective on what form is the best fit for you.
  2.  A templated form that is not tailored to your financial and estate planning needs.
  3.  A website that will not review your answers and will not help you if something is incorrect.
  4.  Disclosure statements that state they are not a law firm, or a substitute for an attorney or law firm, and that they cannot provide any kind of advice, explanation, opinion, or recommendation about possible legal rights,  remedies, defenses, options, selection of forms or strategies
  5.  Laws are state-specific and there is no way to confirm that the form you have selected is accepted in your state.
  6.  Websites may provide you with basic forms – but not a comprehensive estate plan that meets your needs.
  7.  Incorrect documents and/or improper drafting of documents can cost you thousands of dollars, resulting in much more expense than doing it right the first time.

An experienced estate planning law firm, such as Carrier Law, will ask the right questions, find out your needs and design a plan that is tailored to you.  Not just filling in a blank form.

Here are 3 huge benefits of using an experienced estate planning attorney:

  1.  They will think of things that you have not. It is their job to cover all the bases and ask enough questions to make good recommendations.
  2.  The attorney will be trained and experienced in providing you with good legal advice as to why or why not a document is appropriate, and if appropriate, how it should be drafted.
  3.  The attorney will guide you in selecting your agents: Attorney-In-fact, Patient Advocate, Trustee, Guardian, Conservator, as well as designing a distribution plan for your assets upon your passing.

Preparing your estate plan needs to be done right, and your mistakes will not likely be caught until after you die, and then it is often too late to fix them. The team at Carrier Law is not only expertly trained but cares for you and your loved ones in a way an online form cannot. We work with you to create a plan that will protect your assets fully and give you peace of mind.

You owe it to yourself and your loved ones to consult with our team of attorneys. Schedule an appointment or give us a call to learn more and get started. We look forward to helping you create a secure and protected future.

On a child’s 18th birthday, they become a legal adult and their parents no longer have natural parental rights. This means that access to the child’s health, financial, and educational records will cease, and the parents no longer have the right to make medical or financial decisions on their behalf.

Whether your child is getting ready to graduate from high school, enlist in the military or attend college, you should consider three essential estate planning documents if they are 18 or older.

These documents will help you set up successful, legally-bound form of communication and access for your young adult.

Document 1: HCPOA

A Health Care Power of Attorney (HCPOA) document designates Medical Patient Advocates who can make medical decisions on your behalf if you are unable to make those decisions on your own. A common misconception is that a HCPOA is only relevant when dealing with end-of-life scenarios. However, a HCPOA can be used when anyone, 18 and over, is deemed incompetent or incapacitated in some way by two treating physicians.

With a HCPOA, the Patient Advocate (you as the parent) can access the patient’s (your child’s) medical records, speak to doctors about health status, consent to or refuse treatment, and make medication decisions.

In addition to providing powers over physical health decisions, a properly drafted HCPOA will also include mental health provisions. If your child has a mental health emergency, a HCPOA could give you the authority to initiate the proper evaluations and consent to treatment.

The HPCOA does have some limitations, which makes a HIPAA Release extremely important.

Document 2: HIPAA Release

A Health Insurance Portability and Accountability Act Release (HIPAA) is meant to act independent of the HCPOA, and even if the child is competent. HIPAA is a federal privacy law that exists in order to protect your personal health information. The HIPAA form is your way of providing permission to health care and insurance providers to release your protected health care information to specified individuals. Without this release, health care providers are only authorized to release information to the patient.

A HIPAA Release is effective immediately upon signing. While a HIPAA Release does not give you the authority to make medical treatment decisions on behalf of another person, it does give you immediate access to a patient’s medical records.

Document 3: FPOA

A Financial Power of Attorney (FPOA) document grants you power over your child’s finances and can be useful in a variety of circumstances, including: the authority to open accounts, close accounts, write checks, make deposits, file tax returns, and access any digital assets (online accounts, social media accounts).

A FPOA can be drafted so that it’s effective immediately upon signing. Making it effective immediately allows you to seamlessly jump in and act without delay and without the added step of getting signatures from two doctors showing that your son or daughter is not competent.

A FPOA could come in handy if your child is studying abroad and you need to pay their bills while they are gone or if you are presented with every parent’s favorite question, “Can I have some more money?” A FPOA will give you access to any accounts your child has open so you can pay their bills or monitor their spending habits, and it will allow you to easily deposit money into their account, if needed.

A FPOA is also essential in the event of an emergency. If your child ends up in the hospital, you’ll need to pay their rent and keep their other accounts current while they are unable to do so.

Additional document if attending higher education: FERPA

Finally, if your child is attending a college or university, they should also sign a Family Educational Rights and Privacy Act (FERPA) Waiver. FERPA is a federal law that protects a student’s privacy by restricting access to student education records. Once a child is 18 years old, the school must have the student’s written consent on file prior to disclosing any educational records to the parent, even if the parent is footing the tuition bill.

A FERPA release allows the child to give their parents (or any named individual) unfiltered access to all educational records, including information on course selection, grades, attendance, account balances, billing records, and financial aid information. The child also has the ability to pick and choose which records their parents can request. For instance, a child may allow their parent to request billing records and account details, but deny them access to their grades.

Get the Essentials for Young Adults package from Carrier Law

When a child turns 18 your unrestricted access to their grades, tuition information and health care records comes to an end, even if they are still covered under your health insurance plan or if you are paying the college tuition. Creating a comprehensive young adult estate plan will protect both you and your child from unnecessary stress and your child from financial and medical uncertainty. Schedule a free appointment to get started!

Are you concerned about your memory?

Carrier Law is partnering with the Alzheimer’s Alliance at Michigan State University to offer FREE memory screenings.

A memory screening is conducted by a trained memory screening administrator and can help determine if further evaluation is needed. A screening cannot diagnose a disease and is not recommended for persons already under a physician’s care for dementia or Alzheimer’s disease.

The screening is free, confidential, and takes approximately 45 minutes. We will be offering memory screenings by appointment from 11:00am-2:00pm on the dates listed.

Tuesday: March 10
Tuesday: April 14
Tuesday: May 12
Tuesday: June 9
Tuesday: July 14
Tuesday: August 11
Tuesday: September 8
Tuesday: October 13
Tuesday: November 10
Tuesday: December 8

4965 E Beltline Ave NE
Grand Rapids, MI 49525

To make an appointment, contact Christin Carpenter at (616) 234-2844 or carpe374@msu.edu.