Our Estate Planning Frequently Asked Questions
Our estate planning clients have a lot of important questions. We share the answers to some of the more common questions we get in these FAQs.
- Page 1
How does the CARES Act affect changes imposed by the SECURE Act?
There is very little that the COVID-19 pandemic hasn’t touched since first disrupting our daily lives in March of 2020. Work, school, healthcare, restaurants, retail businesses, government agencies, mail delivery, and much more have been affected by shutdowns and interruptions of services. Ohio responded swiftly and drastically, possibly saving us from a much worse outcome. Needless to say, we are not out of the woods yet, but as the initial panic subsides for many of us, we might be looking at the future a little differently and wondering what we should do about retirement and estate planning.
For people with Independent Retirement Accounts (IRAs), changes that went into effect in January of 2020 and COVID-related exceptions to those changes might be a source of confusion. We take a look at two recent federal acts that address retirement savings accounts: the SECURE Act and the CARES Act.
What Did the SECURE Act Change?
The Setting Every Community Up for Retirement Enhancement (SECURE) Act was passed by Congress in 2019 to overhaul the retirement savings system in the U.S. Under the Act, which went into effect in January of 2020, people with IRAs and 401k plans no longer have to start withdrawing from the account at age 70½. Instead, they can wait until they turn 72. This gives them 18 more months to earn interest and put off paying income tax.
Another significant change has to do with how beneficiaries other than a spouse can receive funds after the death of the account holder. While beneficiaries used to be able to withdraw money over the course of their lifetime, they now have to empty the account within ten years. If there are significant funds in the account, the beneficiaries could owe substantial income tax, and they could be pushed into a higher tax bracket. This change means that some IRA holders should meet with an estate planning attorney or financial advisor to discuss changing how their IRA is distributed. This is an especially good time to meet with an advisor about your IRA because the government’s COVID-19 aid package, the CARES Act, also impacts these accounts.
What Does the CARES Act Say About Retirement Accounts?
The Coronavirus Aid, Relief, and Economic Security (CARES) Act was passed in March to help Americans affected by the coronavirus pandemic. Along with providing stimulus checks to many taxpayers, the Act also loosens up some of the restrictions that are normally in place for accessing retirement funds. Under the CARES Act, if you have contracted the coronavirus or lost income or childcare because of it, you may be eligible to:
- Take a penalty-free distribution up to $100,000 of your retirement savings, even if you are younger than 59½.
- Borrow $100,000 or 100% of your vested account balance (whichever is less) from a qualified retirement plan during the 180-day period beginning on March 27, 2020. You will have three years to pay this back without penalty.
These options could provide people who have money tied up in an IRA an opportunity to invest in a family business or redistribute funds in a way that helps them now and protects their heirs in the future. Everybody’s situation is unique, and in our constantly changing world, it’s hard to know what you should do without talking to an expert about your specific situation.
What Should You Do Now If You Have an IRA or 401k?
Given the changes that went into effect in January under the SECURE Act and the opportunities provided by the CARES Act, now is a better time than ever to meet with estate planning attorney Ed Littlejohn to review your plan and find out how you can make the most of these new laws. Along with ensuring that you have all of the necessary and important estate planning documents in place, Ed will help you understand how the recent legislation could help you and your family during this uncertain time—and for many years to come. Call our office or fill out the contact form on this page to get started today.
Why do you recommend a healthcare power of attorney over a living will?
A well-meaning family member or even your doctor may advise you to create a living will to document your wishes for your care if you are unable to make treatment decisions for yourself. However, while a living will is a legally binding document that will be respected by caregivers if you become incapacitated, the estate planning attorneys at Littlejohn Law recommend that you instead draft a healthcare power of attorney.
Why Is a Healthcare Power of Attorney Better Than a Living Will?
A living will declaration is a simple document that is often available as a free, fill-in-the-blank form. In Ohio, a living will does the following:
- Documents your wish that life-sustaining treatment be either administered or withheld if you are unable to make informed medical decisions. If you indicate that you want treatment to be withheld, this document effectively serves as a Do Not Resuscitate (DNR) order.
- Indicates if you wish to donate your organs.
- Provides the names of people you would like to be contacted in the event of your death.
Under Ohio law, a living will declaration is applicable only to individuals in a terminal condition or a permanently unconscious state.
What this document cannot do is take into account the specific circumstances of your illness or incapacity. A healthcare power of attorney, on the other hand, is a much more flexible option. With this document, you designate a trusted person, known as the agent, to make healthcare decisions on your behalf. The advantages of this option include the following:
- Your agent can assess your current situation and, in consultation with medical professionals, make decisions about your care.
- You do not have to be in a terminal condition or permanent unconsciousness in order for your agent to make decisions.
- You can make your wishes known and give additional instructions regarding organ donation, end-of-life care, and more in the healthcare power of attorney document.
Healthcare powers of attorney allow for better decisions to be made on your behalf and are most effective when you discuss and update your wishes with your agent when you are healthy.
Talk to Our Team About Your Options
Regardless of your age or the current condition of your health, we recommend including a healthcare power of attorney in your comprehensive estate plan. When we meet to discuss your plan, we will be happy to explain the limitations of a living will and the benefits of a healthcare power of attorney. Fill out the form on this page or call our office to talk to a member of our team today. It's never the wrong time to think about your estate plan!
Ohio Valley Law Firm answers Frequently Asked Questions about Trusts.
Q: How much time will be devoted as Trustee?
In general, Trustees have limited daily involvement when it comes to Trust. Most of the time devoted by a Trustee arises when a beneficiary decides to receive withdrawals or a grantor wants to add an asset to the Trust. Other than that a Trustee is generally on call or waiting until someone needs something.
Q: Once a Trust is established do we need an Attorney to move assets?
No, a good estate planning attorney will sit-down with the Trustees and explain to them their duties and responsibilities as a Trustee. Once the Trustee gets the idea of how it works the Trustee can handle the day-to-day aspects of the Trust, if any are required. In this situation, your estate planning attorney will only be used in cases of emergencies or when the Trustee has no idea what to do.
Q: What if the 5 year look-back changes, will I be grandfathered in with my assets?
The 5 year look-back is exactly what it is a 5 year look back. In essence, the government will look-back to the last 5 years to determine what assets that you had. But there is no-grandfathering if the law changes.
Q: Can I downsize and get a smaller house? And if so does the 5 year look-back start again?
Yes, you can get a new house. But remember once your assets are in the Trust, they are owned by the Trust. Therefore, the Trustee would have to decide to get a new house for you. The 5 year look-back would not start again because you are not buying a new house or taking possession of a new asset, but rather it is the Trust by way of the Trustees that are doing so.
Q: Can the Trustee get sued for something that’s wrong with my house when they decide to sell it?
In general, courts will not hold a Trustee liable for something that they did not know. However, if the Trustee actively participated in the concealment or some sort of fraudulent activity then the Trustee could be held responsible.