373 North L Street, Livermore, CA 94551

Changes to ABLE Savings Accounts You Should Know

If you have a loved one with disabilities, you may be familiar with “ABLE” accounts. Authorized by Congress in 2014 under the Achieving a Better Life Experience Act, ABLE accounts are tax-advantaged savings accounts. They’re similar to 529 education savings plans, whose funds can be used to pay for certain qualifying expenses of disabled individuals. As a result of the Tax Cuts and Jobs Act (TCJA), there are several new changes that affect ABLE accounts.

What You Should Know

A 529 account can now roll over to an ABLE account

However, the ABLE account must be for the same beneficiary as the 529 account or for a member of the same family. Previously, families funding a 529 account for a child whose disability manifested later in life would suffer a tax penalty. This was because funds were withdrawn from the 529 account to cover medical expenses, not allowable education expenses.  Now those same funds, through the use of the rollover, can be made available for the beneficiary’s disability-related expenses. There are limits on how much can be rolled over, so discuss any 529 plan changes with your tax professional.

A beneficiary of an ABLE account can now contribute their personal earned income to their own account.

The maximum amount a beneficiary can contribute is equal to the annual federal poverty level for a one-person home. In 2019 this is $12,490.00 for the continental US and the District of Columbia. These contributions, however, are separate and apart from contributions to the ABLE account by other individuals. So not including contributions by family members, friends, estates, trusts, etc. Further, a working beneficiary is ineligible to personally contribute to the ABLE account if their employer contributes to a workplace retirement plan on his or her behalf.

Beneficiaries who contribute to their own ABLE account may be eligible for the Saver’s Credit.

This is as opposed to others who contribute to the account. Up to $2,000 of the contributions made by ABLE account beneficiaries may be eligible for this credit.  This may help lower any income tax owed by the beneficiary. It also may increase any refund the beneficiary receives. There are, however, additional requirements that need to be met. Always check with a tax professional to determine what credits are available to beneficiaries who contribute to their own accounts.

Know Your Options

It is important to know that ABLE accounts, as well as special needs trusts, have an underlying purpose. They are to supplement, not replace, the benefits and services provided by government programs like Medicaid and Supplemental Security Income (SSI). If you or a loved one have a disability, contact us for help through the process of creating a plan works for your family.

Filed under Legal Services

5 Tragic Mistakes People Make When Leaving Assets to Their Pets

A pet trust is an excellent way to make sure your beloved pet will receive proper care after you pass on. The problem, of course, is that you won’t actually be there to see that your wishes are carried out. It’s critical to set up a pet trust correctly to ensure there are no loopholes or unforeseen situations that could make your plans go awry.

Here are 5 tragic mistakes people often make when leaving their assets to their pets:

1. Appropriating More Than the Pet Could Ever Need

The gossip stories about such-and-such celebrity who left his or her entire fortune to a pet are the exception rather than the rule. Leaving millions of dollars, houses, and cars to your pet is not only unreasonable, but it’s more likely to be contested in court by family members who might feel neglected. To avoid this pitfall, leave a reasonable sum of money that will give your pet the same quality of life that she enjoys now.

2. Providing Vague or Unenforceable Instructions

Too many pets don’t receive the care their owners intended because they weren’t specific enough in their instructions or because they did not use a trust to make the instructions legally binding. Luckily, a pet trust can clarify your instructions and make them legally valid.

If you leave money to a caretaker without a pet trust in place, hoping it will be used for the pet’s care, nothing stops the caretaker from living very well on the pet’s money. But when your pet trust designates how much the caretaker receives and how much goes to pet care, you’ve provided a legal structure to protect your pet. Be as specific about your wishes as you’d like. You can include anything from how much is to be spent on grooming to veterinary care. You can even include detailed care instructions, such as how often the dog should be walked.

3. Failing to Keep Information Updated

John sets up a pet trust for his dog Sadie, but what happens if Sadie passes away? If John gets a new dog and names her Gypsy, but he doesn’t update this information before he dies, Gypsy could easily wind up in a shelter or euthanized because she’s not mentioned in the trust. This is a common yet tragic mistake that can be easily avoided. By performing regular reviews with your estate planning attorney, you ensure that your estate plan works for your entire family.

4. Not Having a Contingency Plan

You might have a trusted friend or loved one designated as a caretaker in your pet trust. But what happens if that person is unable or unwilling to take that role when the time comes? If you haven’t named a contingent caretaker, your pet might not receive the care you intended. Always have a “Plan B” in place, and spell it out in the trust.

5. Not Engaging a Professional to Help

Too many people make the mistake of trying to set up a pet trust themselves. Don’t assume that a form downloaded from a do-it-yourself legal website will automatically work in your circumstances. Only an experienced estate planning attorney should help create a trust to ensure that everything works the way you want.

When attempting to leave assets to your pet, the good news is that with professional help, all these mistakes are preventable. Talk with us today about your options. We can set up a new pet trust or add a pet trust to your current estate plan. We’re here to help.

Filed under Estate Planning Tips