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Six Social Security Changes Taking Effect on January 1, 2021

The Social Security Administration (SSA) publishes upcoming changes to its social security program every October that take effect on January 1 of the next year. These changes can make a difference in how you plan for or live during your retirement years. It is good practice to create what is known as a “my Social Security” account with the SSA here by clicking the “Create Your Account Today” button. Your account is an online gateway that provides interactive content and secure access to many online social security services. Your account allows you to check your social security statement, verify your earnings as reported, estimate your future benefits, change your address, and more. All of this information is relevant to you, whether you are retired or not.

The first notable change for the year 2021 is that beneficiaries will receive a 1.3 percent cost-of-living adjustment (COLA) increase to their monthly benefits. This annual adjustment to your benefit is designed to keep pace with inflation based on the CPI-W provided by the Bureau of Labor Statistics. The increase matches the same amount as the CPI-W if it increases more than .1 percent year to year between last years, and this year’s third quarter. In 2019 the COLA increase was 2.8 percent, while 2020 saw 1.6 percent. For the year 2021, the average social security recipient will receive an additional 20 dollars per month.

The maximum taxable earnings rate rose from 137,700 dollars to 142,800 dollars. The rate of social security tax that employees are required to pay remains at 6.2 percent. Note that the employer matches this payment unless you are self-employed, where the rate is 12.4 percent. The change is the income cap taxable amount, which has increased to 142,800 dollars. As this taxable amount increases, so does the SSA’s maximum earnings amount to calculate retirement benefits. Maximum earnings increase the longer you hold out to receive your benefits. Recipients can max out their payments at age 70 rather than the regular full retirement age, with a 32 percent increase.

The age of full retirement continues to rise. The earliest you can take your benefits is age 62; however, claiming your social security before full retirement age results in a permanently reduced payout. In 2021, if you turn 62, your full retirement age will be age 66 and ten months. Unless there are changes to the current law, anyone born in 1960 or later will reach full retirement age at 67. Benefit increases continue until the age of 70, at which point there is no incentive to delay receiving your social security benefit.

There is an increase in 2021 to the amount of money working social security recipients can earn before benefit reduction. The SSA can temporarily withhold all or part of your benefits if you are working while receiving social security. In 2021 before your full retirement age, you will be able to earn up to 18,960 dollars. You will have one dollar deducted from your benefits for every two dollars that exceed this allowable earnings amount. The 2021 annual limit is an increase of 720 dollars over the 2020 limit.

If you reach your full retirement age in 2021, you may earn up to 50,520 dollars, up from last year’s 48,600 dollars. However, for every 3 dollar earnings over the limit, your benefits will be reduced by one dollar. This situation only applies to money earnings in the months before hitting the full retirement age. At full retirement age, no benefits will be withheld for continuing to work.

There is also a small rise in disability benefits in 2021 for the nearly ten million Americans receiving these benefits. Legally blind recipients can receive a maximum of 2,190 dollars a month, which is an increase of 80 dollars, while non-blind recipients will have a maximum benefit increase of 50 dollars a month to 1,310 dollars.

Finally, the credit earning threshold is increasing by 60 dollars from 2020. If you were born in 1929 and beyond, you must earn a minimum of 40 credits (max of four per year) over your working life to qualify for social security benefits. This increase means for the year 2021; it will take 1,470 dollars in earnings per credit. The credit number required for disability still depends on your age and at what age you became disabled.

Planning for retirement is more complex and challenging than ever before. While all of these numbers are accurate from the SSA today, looking ahead to the year, 2035 could see a dramatic shift in your benefits unless Congress intervenes to protect social security. In the most recent Social Security and Medicare Boards of Trustees annual report, projections are that both social security and disability trust funds will be depleted by 2035. If this happens, beneficiaries will receive about 75 percent of their scheduled benefits in 2035 until at least the year 2093.

There is a lot to consider regarding social security benefits and your retirement. Payouts, rules, and percentages are always changing, which is why having a my Social Security is so beneficial for you. The tools available allow you to try different retirement scenarios and see how it will impact your bottom line of benefits. Accurately keeping up with all of the changes is a daunting task. It is very helpful to contact an elder law attorney specializing in a wide range of legal matters that affect older or disabled adults, including social security benefits and other important issues. We would be happy to help you with any questions, and welcome the opportunity to meet with you.

When is Disinheriting a Child a Mistake?

Most parents choose to treat their children equally when it comes to inheriting property or money. But sometimes, parents intentionally choose to not leave anything to a child, and the reasons for doing so may vary. One reason could be that a child who is more financially successful than the others and the parent doesn’t feel it’s necessary to leave anything. Another reason may be a desire to prevent a child with special needs from losing government benefits. Or a parent may not want to leave an inheritance to an irresponsible or drug-dependent child for fear the inheritance will be wasted.

The Effects of Disinheriting a Child

Regardless of the reason, disinheriting a child can negatively affect that child’s relationship with his or her siblings. The courts are full of siblings who sue each other over inheritances but even if they don’t sue, it is highly unlikely they will be a close family unit. Money aside, there is symbolic meaning to receiving something from a parent’s estate.

Disinheriting a child for what may seem to be a valid reason may actually be completely unnecessary. For example:

  • A child who appears to be more successful financially may have trouble behind the scenes. The child may not be as well of as he or she appears. Finances can change, marriages can collapse, and people can become ill. And unless specific provision is made for them, grandchildren from this child will also be disinherited.
  • A spouse, child, sibling, parent or other loved one who is physically, mentally or developmentally disabled—from birth, illness, injury or even substance abuse—may be entitled to government benefits now or in the future. And if that loved one is receiving government benefits that are needs-based, please know you do not have to disinherit this person. A special needs trust can be carefully designed to supplement and not jeopardize benefits provided by local, state, federal or private agencies.
  • A child who is irresponsible with money or is under the influence of drugs or alcohol may not be the ideal candidate to receive an inheritance of any size in a lump sum. Instead of disinheriting the child, you can establish a trust and give the trustee discretion in providing or withholding financial assistance. You can dictate any requirements you want the child to meet before receiving funds, and you can choose who the trustee is who will make sure that child receives funds under the appropriate circumstances.

How we choose to include our children in our estate plans has lasting effects, both positive and negative. Choosing not to disinherit a child who has caused grief and heartache sends a message of love and forgiveness, while disinheriting a child, even for what seems to be good cause, can convey a lack of love, anger and resentment.

If you have previously disinherited a child and you have since reconciled, update your plan immediately. If you wish to disinherit a child, it may be wise to tell that child and explain the reasons why. Doing so may help deter the child from blaming siblings later and may prevent a costly court battle.

Regardless of your desires about how you want to leave an inheritance to your children, grandchildren or other loved ones, we can help. Give us a call to schedule time for a private conversation about your wishes, and we will make sure your wishes are properly documented.

Who Should Make Financial Decisions for You?

Who should you trust to manage your financial well being when you are no longer able to do so? A power of attorney (POA), otherwise known as an agent to your principal, has the legal authority to represent and make decisions on your behalf. What characteristics should you look for when designating a power of attorney? No matter what type of power of attorney you seek to arrange, your potential agent must be a person you deem to be trustworthy and honorable to conduct your affairs in your best interest.

Often the principal who designates the POA may prefer to choose a family member such as a spouse or adult child. If a family member is unable or unwilling to act when needed you can name a trusted friend or retain professional representation to ensure your interests are well looked after.  Some people choose to have co-agents or name a secondary agent in the event another might pre-decease you.

Stipulations regarding the selection of a POA are minimal. Your chosen power of attorney must meet two legal thresholds; be an adult and not be incapacitated.  There are no special qualifications regarding financial acumen or legal knowledge, and in fact, integrity is considered the most important attribute when selecting your agent.

Some questions to consider beyond your basic level of trust with this person(s) include:

  • How does this person manage their own legal and financial responsibilities? Are they financially responsible? Do they lead a steady life? Are they good at making decisions under pressure?

 

  • Will the person you select charge you a fee for their service? Generally, family members will not but, if you choose professional representation such as a financial planner or an attorney, there is usually a fee associated with their expertise and service.

 

  • Is the person you want to represent you willing to do so? Becoming an agent is a big responsibility to accept, and for many reasons, the person you want may not agree to serve as your agent.

Your power of attorney agent can have broad or limited legal authority to make decisions and transactions on your behalf about your property, finances, and medical care. The agent’s power is derived through your permissions, and if you are dissatisfied with your agent, you can terminate the POA/agent relationship and create a new one. Your power of attorney must comply with state law. When you work with us, we will make sure yours complies with all applicable laws.

There are a few misconceptions about the power of attorney. The first is you can create a POA on your behalf after you are incapacitated. You cannot as it is too late. For your power of attorney to be valid, your agent must be appointed before you become incapacitated through illness or disability. If you do not have your POA agent legally in place and are unable to manage your affairs, it may become necessary for a court to appoint someone to act on your behalf. People appointed to represent your interests in this manner are referred to as guardians, conservators, or committees, depending on your local state law. To avoid someone making decisions for you who you may not have chosen, it is imperative to have the proper power of attorney legally in place before you become incapacitated.

Another misconception is that your POA agent can make whatever financial decision they want to about your estate and that all power of attorney documents are the same. Your selected agent, by law, has an overriding obligation known as a fiduciary obligation to make decisions in your best interests. This responsibility is why it is imperative to choose a trustworthy agent as it can help avoid challenges to and litigation of your estate. You must have full confidence in the actions your agent will take on your behalf. You can appoint different agents for different POA document functions. We can help you figure out which powers should be given to particular agents. For example, you may want a different agent to handle real estate transactions on your behalf.

Selecting an agent and preparing a financial power of attorney is an important part of your overall plan. We would be happy to help you and welcome your call.

Passing on Family Values as Part of Your Family’s Inheritance

Successfully addressing and legally formalizing inheritance of family values and assets can be challenging, especially if parents wait too long to begin instilling family values. Undoubtedly the best time to teach and empower your children as eventual inheritors of your family legacy is during childhood, then continuing throughout adulthood. Waiting until your later stages in life to discuss family values as a guide to handling inherited worth is often ill-received as grown adult children prefer not to feel parented anymore, particularly when they are raising children of their own.

There is value in the spiritual, intellectual, and human capital of rising generations, and it is incumbent upon older generations to embrace this notion and work with their heirs rather than dictating to them their ideas about how to facilitate better outcomes. While the directions taken by newer generations will likely differ and can sometimes be downright frightening than that of their elders, there can still be a deep sense of service and responsibility to family values and stewardship of inherited wealth. Allow your children to exert their influence over the family enterprise early on in life and make adjustments that create synergy, connection, and like-mindedness.

If this description of a somewhat ideal family system does not resemble yours, take heart. Most families do not conform to perfect standards of interaction. The more affluent a family is, the higher the failure rate to disperse assets without severe fallout. The Williams Group conducted a 20-year study and determined there is a 70 percent failure rate that includes rapid asset depletion and disintegration of family relationships during and after inheritance. Establishing inheritable trusts can provide real benefits. Benefits include avoiding probate, reducing time to handle estate matters, privacy protection, the elimination or reduction of the estate tax, and can be effective pre-nuptial planning. A parent who wants to control outcomes should focus on these benefits of the trust instead of trying to legislate their future adult children’s behavior.

It is imperative not to allow your values and legacy to become weaponized within the family system. A sure-fire way to inspire conflict is via “dead hand control,” meaning trying to control lives from the grave. Most often, if you put excessive trust restraints on adult children, they will act accordingly to your perception that they are not adult enough to handle wealth. Instead, consider enrolling them in a few classes about managing wealth. Spark an interest in them to learn how you have created wealth, the mechanisms you used, and what their future endeavors may look like long after you are gone. Formally educate your children about finances, the earlier the better, and instead of talking about who gets what the conversation can shift to the mechanics of managing wealth. This tactic resets the context of the issue and aligns purpose and intended long term outcomes.

Estate planners try to encourage trust choices that lead to flexibility. If a beneficiary is genuinely incapable of making the right decisions, a trustee can be appointed to make distributions in the beneficiary’s best interest. This trustee discretionary power of money management can help a well-funded trust survive for generations.

You can also write a letter of wishes or provide a statement of intent to your children. Though these are not legally binding, it gives you a platform to remind them of family values and your desire for these values to be maintained for future family generations. This type of letter is an opportunity for you to convey your vision for how your wealth can bring growth and chance for fulfillment to beneficiaries.

Prosperity should positively shape lives. Family trust beneficiaries hopefully already have a self-driven life that includes purpose, responsible behavior, and a basic understanding of personal finance. If you worry your children may squander inheritable assets, create the opportunity for them to succeed through classes that teach them about managing legacy family values and wealth. Address your concerns legally and directly through a detailed trust that can help but not overly constrain them to achieve what you envision they can become. Start an honest conversation early on, but remember it is never too late to make good choices and create positive family value influences for the coming generations. A well-known Ann Landers quote sums it up neatly, “In the final analysis it is not what you do for your children but what you have taught them to do for themselves that will make them successful human beings” – a worthy goal of any family value system.

If you are interested in establishing a trust to pass wealth on to your children, we can help. We can also guide families on how to pass on family values in a meaningful way. We look forward to the opportunity to work with you.