A family member’s death and the grief we feel is difficult to endure, especially if the death is sudden and shocking. But sometimes we know in advance a person’s life will soon end.
“Expecting a death doesn’t minimize grief,” says Leizer Gewirtzman1, CPA, ChSNC, who is a Special Care Planner2 with Lee, Nolan and Koroghlian, LLC3 in Saddle Brook, New Jersey, a general agency of Massachusetts Mutual Life Insurance Company (MassMutual). “However, it allows time to review finances and plan ahead. It can help you manage the transition.”
Effects on income
Do you and your spouse each have income (through employment, social security retirement, or disability benefits)? Does your child with special needs receive government benefits? How will your
household income and expenses be affected if one of you dies? Consider the challenges you may face. Now’s the time to create or review a family financial strategy.
Social security benefits (based on a spouse’s, a parent’s, or an individual’s personal work record) for you and your family members may help. Learn what social security offers and what you may qualify to receive. “When a person dies,” explains Gewirtzman, “his or her spouse and children may qualify for monthly survivor benefits. Additionally, if you have an adult child with special needs and can show the child was disabled prior to age 22, that child may also qualify for Social Security Disabled Children’s Disability Benefit (formally known as Disabled Adult Child Benefit or DAC). Talk to a representative at your local Social Security office for more information.4
“Take time to review life insurance policies you may have,” suggests Gewirtzman. “If you have life insurance coverage on the family member whose death is expected, determine how the death benefit is paid out. Most policies offer a lump sum payment, but many people don’t realize some insurance companies offer the option of leaving the benefit in a beneficiary account with a guaranteed interest rate, which may be higher than what you might earn in a savings account (Interest earned is taxable). You can then regularly withdraw a certain amount to help with monthly expenses, make withdrawals only occasionally as you want or need, or withdraw the full remaining balance.” If you have such a policy, call your agent or a representative of the insurance company to learn more.
Issues regarding estate settlement
Do you live in a common law property or a community property state5? Your state’s laws regarding ownership of property and debts will determine your legal obligations when your spouse dies. Talk to your tax advisor, estate attorney, and/or financial professional, such as a Special Care Planner, to find out what steps you should take now to minimize your financial burden.
“Give some thought to who the executor of the estate will be,” says Gewirtzman. “You may want to handle this yourself, though this will be an emotional time for you, and naming a responsible, trusted individual as executor may better suit your needs.” The executor (or administrator) settles the deceased’s financial matters, which can range from simple to complicated, depending on a person’s financial situation, personal wealth, and debt.
“Pre-planning could simplify estate settlement,” says Gewirtzman, “Creating a will is a good first step. If a person dies without one (dies intestate), the court appoints an administrator to settle the estate, which may not be in your best interest.” Estate settlements will vary by state when a person dies intestate. A portion of the assets may be awarded to the spouse with the rest divided equally among the children, if any. “In this case, a child with special needs who inherits assets could jeopardize eligibility to receive certain government benefits,” explains Gewirtzman.
This is also a good time to learn more about the federal tax filings you (or the executor) will be required to make – primarily, the decedent’s last income tax return, the estate’s income tax return, and the estate’s tax return. “The current law allows a person to exempt up to $5.43 million from estate tax liability,” says Gewirtzman. “What many people don’t know is that this exemption is portable, meaning the exemption amount allowed for a recently deceased person can be transferred to a spouse. The spouse will then be eligible to exempt up to $10.86 million dollars from estate taxation.” An accountant or the executor/administrator must file a timely estate tax return even if no estate taxes are due to enable the exemption amount to be portable.
If you have a special needs trust for a family member with special needs and that family member is the one whose death is expected, consider these two things. First, if the trust was to be funded at a later date (such as with proceeds from a life insurance policy), meet with your legal and financial experts to change any related documents since the trust will not be needed. Second, if the trust is already funded, determine what type of trust you’ve established and how funds will be distributed after your family member’s death. “There are first party (or person), third party, and pooled trusts, and each has unique rules.” explains Gewirtzman. “Medicaid may require repayment before funds are distributed from a first party trust. A pooled trust may keep funds for use by other trust beneficiaries. It’s smart to review the rules of your trust with your legal advisor and know if or how funds will be distributed.”
Other issues to consider
Credit cards – Depending on the State of residency when a person dies, credit card accounts for which the person is the sole owner may be closed. If other individuals are named as additional cardholders with credit privileges on those accounts, they may no longer be able to use those accounts. “Review your credit card accounts to determine how you’ll be affected,” says Gewirtzman. “If you’re a joint owner on accounts, get your name removed so you aren’t liable for the debt. Individuals may benefit by having their own accounts and building their own good credit history.”
Taxation – Our tax system is progressive, meaning that our income is broken into segments with each progressively higher segment taxed at a progressively higher tax rates. But the segments and tax rates for married individuals and single/widowed individuals are structured differently. For example, currently married couples pay 10% on the first $18,450 of taxable income in 2015 while a single/widowed person pays 10% on the first $9,225. “Ultimately, a single person could pay more in taxes. Take this into account and adjust the withholding amount from your paycheck to avoid surprises at tax time,” suggests Gewirtzman.
Co-signed loans – When a borrower dies, the co-signer on the loan is liable for payment. Review any loans you may have (personal, auto, student, etc.) so you’ll know how you’ll be affected. If you’re leasing a vehicle, read your contract to determine how it might be affected. Beneficiary designations – Meet with your financial professional to review any accounts and policies that require a named beneficiary. Taxation rules may vary depending on who’s named. For example, with a qualified retirement account the rules may be more lenient if a spouse rather than a child is named, and less lenient if a trust is named. Additionally, an inheritance may cause a child with special needs to jeopardize his or her current or future eligibility for certain government benefits. “When it comes to your legacy,” says Gewirtzman, “take time to review everything. Carefully decide which assets go to which person.”
Utility bills – Are any utility bills, rewards memberships, retail shopping memberships, or similar accounts in the name of the family member expected to die? “Change ownership or add a surviving family member’s name now,” says Gewirtzman. “You don’t want to find out later that you can’t, for example, cancel or add a premium channel on your current cable account because it’s not your account.”
Talk with advisors who can help
You have a wealth of professionals you can turn to for help, whether you’ve already been working with them to create a financial strategy or not – an accountant, your banker, attorneys skilled in estate planning and in serving the special needs community, and financial professionals such as Special Care Planners. It’s important to know that even when you’re under emotional strain, these advisors can help you understand your options so you can make the informed choices.
The information provided is not written or intended as specific tax or legal advice. MassMutual, its employees and representatives are not authorized to give tax or legal advice. Individuals are encouraged to seek advice from their own tax or legal counsel. Individuals involved in the estate planning process should work with an estate planning team, including their own personal legal or tax counsel.
1 www.massmutual.com/connect-with-us/agencies/lee-nolan–koroghlian-llc/leizer-gewirtzman
Gewirtzman has an office in New City, New York, and currently serves clients in New York and New Jersey.
2 The Special Care Planner, a title used by MassMutual financial professionals, who have received advanced training and information in estate and tax planning concepts, special needs trusts, government programs, and the emotional dynamics of working with people with disabilities and other special needs and their families. The certificate program was offered by The American College in Bryn Mawr, PA, exclusively for MassMutual financial professionals. Additionally, a designation of Chartered Special Needs Consultant (ChSNC), which evolved from the certificate program, is now offered through the American College for financial professionals. MassMutual financial professionals who have completed the certificate program, or received the ChSNC designation can use the Special Care Planner title.
3 www.leenolan.com
4 This article is provided for your general information. Please rely on the facts you receive directly from the Social Security Administration’s website or its representatives as your most accurate source. Visit www.ssa.gov or call 1-800-772-1213.
5 As of June 2015, Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin are community property states. Learn more about community and common law property at http://family.findlaw.com/marriage/whats-mine-is-mine-what-s-yours-is-mine-who-owns-what-in.html.
* The Special Care Planner, a title used by MassMutual financial professionals, who have received advanced training and information in estate and tax planning concepts, special needs trusts, government programs, and the emotional dynamics of working with people with disabilities and other special needs and their families. The certificate program was offered by The American College in Bryn Mawr, PA, exclusively for MassMutual financial professionals. Additionally, a designation of Chartered Special Needs Consultant (ChSNC), which evolved from the certificate program, is now offered through the American College for financial professionals. MassMutual financial professionals who have completed the certificate program, or received the ChSNC designation can use the Special Care Planner title.
A Special Care Planner through MassMutual’s SpecialCareSM program can assist parents in drafting Letters of Intent and can help make a difference in the quality of life for an individual with special needs, their caregiver and other family members. Through SpecialCare you will learn valuable financial strategies, identify financial strategy solutions, access vital information, and meet certified specialists who will work with you and your professional advisors – your banker, accountant or financial planner, lawyer, social workers and health care providers – to review your financial picture and offer options to fit the needs of each situation. For more details, visit MassMutual’s website at http://www.MassMutual.com/specialcare, or call 1-(800)-272-2216.
About MassMutual
Founded in 1851, MassMutual is a leading mutual “http://www.massmutual.com” life insurance company that is run for the benefit of its members and participating policyholders. The company has a long history of “http://www.massmutual.com/aboutmassmutual/financialinfo/strength” financial strength and strong performance, and although dividends are not guaranteed, MassMutual has paid dividends to eligible participating policyholders consistently since the 1860s. With “http://www.massmutual.com/productssolutions/individualsfamilies/producttype/lifeinsurance/wholelife” whole life insurance as its foundation, MassMutual provides products to help meet the financial needs of clients, such as “http://www.massmutual.com/productssolutions/individualsfamilies/producttype/lifeinsurance” life insurance, “http://www.massmutual.com/productssolutions/individualsfamilies/producttype/disabilityincome” disability income insurance, “http://www. massmutual.com/productssolutions/individualsfamilies/producttype/longtermcare” long term care insurance, “http://www.massmutual.com/retire/plansponsors” retirement/401(k) plan services, and “http://www.massmutual.com/productssolutions/individualsfamilies/producttype/annuities” annuities. In addition, the company’s strong and growing network of financial professionals helps clients make good financial decisions for the long-term. MassMutual Financial Group is a marketing name for Massachusetts Mutual Life Insurance Company (MassMutual) and its affiliated companies and sales representatives. MassMutual is headquartered in Springfield, Massachusetts and its major affiliates include: Babson Capital Management LLC; Baring Asset Management Limited; Cornerstone Real Estate Advisers LLC; The First Mercantile Trust Company; MassMutual International LLC; MML Investors Services, LLC, Member “http://www.finra.org/” FINRA and “http://www.sipc.org/” SIPC; OppenheimerFunds, Inc.; and The MassMutual Trust Company, FSB.
The information provided is not written or intended as specific tax or legal advice. MassMutual, its employees and representatives are not authorized to give tax or legal advice. Individuals are encouraged to seek advice from their own tax or legal counsel. Individuals involved in the estate planning process should work with an estate planning team, including their own personal legal or tax counsel.
