Why Won’t My Power of Attorney Work?

Powers of attorney are critical estate planning tools, but there are some instances they don’t work, such as with SSA and the IRS.

Powers of Attorney (POAs) are excellent and often overlooked estate planning documents.  They name an agent to act on your behalf if you cannot do so yourself, such as due to incapacity.  However, there are some instances where traditional POAs won’t work.  The IRS and the Social Security Administration (SSA) are two examples of entities that don’t recognize traditional POAs. Forbes’s recent article entitled “Two Times When Your Power of Attorney Isn’t Going to Work” explains why.

The IRS says that you must use Form 2848, “Power of Attorney and Declaration of Representative” to allow anyone to act on your behalf. This form requires you to state the tax matters and years for which the agent is authorized to act. That’s different from a traditional POA for financial matters, which usually has blanket statements allowing the agent to take any or a broad range of actions on your behalf in certain matters.  For this reason, we often include language in our POAs to create a Form 2848 specifically to deal with the IRS.

A married couple that files joint tax returns must also have each spouse separately complete and sign a form. There is no joint form.

Technically, the IRS might accept other POAs as the instructions to Form 2848 indicate this. However, the POA must meet the requirements of Form 2848 to be accepted as a substitute. That can be a tall order.

The Social Security Administration is similar. It says on its web site that it doesn’t recognize POAs. When you need someone to manage your Social Security benefits, you contact the SSA and make an advance designation of a representative payee.

A 2018 law created this feature that lets you name one or more individuals to manage your Social Security benefits. The Social Security Administration must usually work with the named individual or individuals. You can rank up to three people as advance designees. Therefore, if the first one isn’t available or is unable to perform the role, the SSA will move to the next person on your list.

Someone who already is receiving Social Security benefits can designate an advance designee at any point, and a person claiming benefits for the first time can name the designee during the claiming process. The designation can be made using your “my Social Security” account on the Social Security web site or by contacting the Social Security Administration by phone (800-772-1213) or at the local field office. A designee can also be named through the mail by using Form SSA-4547 – Advance Designation of Representative Payee.

Representative payees generally must be individuals, but it also can be a social service agency, nursing home, or one of a number of other organizations recognized by the SSA to serve as payees. If you don’t name any representatives, the SSA will name a representative payee for you, if it decides you need help managing your money. A relative or friend can apply to be representative payees, or the SSA can make the selection.

These are two very common scenarios where a POA may not work, though there are others.  Aside from the obvious cases of badly prepared or defective POAs, the Veterans Administration has their own representative system as well. But, careful planning and the advice of competent counsel can help tremendously by preparing a POA that can address as many scenarios and contingencies as possible.  Counsel can also help you identify tools outside of the POA that can assist with financial management such as trusts.  Also, before addressing your POA it might be helpful to get an idea as to the types of POAs and issues to consider with them, which you can find here.  https://www.galliganmanning.com/what-is-the-right-kind-of-financial-power-of-attorney-for-you/

If you encounter problems using your power of attorney, consult with a lawyer who can help you navigate the system you are coping with and can advise you on how to take action for your loved one.

Reference: Forbes (Jan. 28, 2021) “Two Times When Your Power Of Attorney Isn’t Going To Work”

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Three Retirement Myths to Avoid

 There are three common retirement myths relating to retirement age, medical coverage and social security that clients often suffer from.

While you’re busy planning to retire, chances are good you’ll run into more than a few retirement myths, things that people who otherwise seem sincere and sensible are certain of. However, don’t get waylaid because any one of these retirement myths could do real harm to your plans for an enjoyable retirement. That’s the lesson from a recent article titled “Let’s Leave These 3 Retirement Myths in 2020’s Dust” from Auburn.pub.

You can keep working as long as you want. It’s easy to say this when you are healthy and have a secure job but counting on a delayed retirement strategy leaves you open to many pitfalls, especially with the effect COVID-19 has had on the workplace. Nearly 40% of current retirees report having retired earlier than planned, according to a study from the Aegon Center for Longevity and Retirement. Job losses and health issues are the reasons most people gave for their change of plans. A mere 15% of those surveyed who left the workplace before they had planned on retiring, said they did so because their finances made it possible.

Decades before you plan to retire, you should have a clear understanding of how much of a nest egg you need to retire, while living comfortably during your senior years—which may last for one, two, three or even four decades. If your current plan is far from hitting that target, don’t expect working longer to make up for the shortfall. You might have no control over when you retire, so saving as much as you can right now to prepare is the best defense.

Medicare will cover all of your medical care. A common retirement myth is that Medicare will cover all of your medical costs and consequently retirees under plan for their needs.  Medicare will cover some of costs, but it doesn’t pay for everything. Original Medicare (Parts A and B) covers hospital visits and outpatient care but doesn’t cover vision and dental care. It also doesn’t cover prescription drug costs. Most people do not budget enough in their retirement income plans to cover the costs of medical care, from wellness visits to long term care.   Clients often insist they can afford or don’t believe they will need long term care expenses,  but often are mistaken.  You can see this article for a flavor of those issues.  https://www.galliganmanning.com/can-i-afford-in-home-elderly-care/   Medicare Advantage plans can provide more extensive coverage, but they often come with higher premiums. The average out-of-pocket healthcare cost for most people is $300,000 throughout retirement.

Social Security may disappear.  A final retirement myth is that social security will cover or mostly cover a retirees needs.  Nearly 90% of Americans depend upon Social Security to fund at least a part of their retirement, according to a Gallup poll, making this federal program a lifeline for Americans. Social Security does have some financial challenges. Since the early 1980s, the program took in more money in payroll taxes than it paid out in benefits, and the surplus went into a trust fund. However, the enormous number of Baby Boomers retiring made 2020, saw the first year the program paid out more money than it took in.

To compensate, it has had to make up the difference with withdrawals from the trust funds. As the number of retirees continues to rise, the surplus may be depleted by 2034. At that point, the Social Security Administration will rely on payroll taxes for retiree benefits. Assuming Congress doesn’t find a solution before 2034, benefits may be reduced or severely impacted.

Saving for retirement is challenging but focusing on the facts will help you remain focused on retirement goals, and not ghost stories. Your retirement planning should also include preparing and maintaining your estate plan.  This is an excellent time to sit with your financial advisor to determine whether your retirement planning is safe from these three myths.

Reference: Auburn.pub (Dec. 13, 2020) “Let’s Leave These 3 Retirement Myths in 2020’s Dust”

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When to Take Social Security?

Kiplinger’s recent article entitled “Waiting to File for Social Security Benefits Is Hard, but Payoff Is Sweet” asks you to imagine if, when you were a child, your mom baked your favorite pie and made you an offer. She could serve you a piece of pie right then and let you eat it. Alternatively, if you waited until after dinner, you’d get a bigger slice. Or, if you could wait until bedtime, your piece would be even larger. And not just that day, but for the rest of your life.

Every time you had pie for dessert, the size of your piece would be based on the decision you made that one day.

There are many justifications for taking the smaller piece of pie right away, when offered. Many people want to begin their retirement as soon as possible, and they want or need the Social Security income to do so. Some want to claim their benefits and invest the money to further grow their nest egg. Many people are concerned that the Social Security trust fund will be depleted before they get their share.  Others are concerned about health and whether they will receive Social Security for very long. Finally, there are some who just aren’t aware of how much bigger their monthly payment could be if they waited.

While you can get your benefits as early as 62, that choice, can mean a permanent reduction in benefits of up to 30% less than what you could receive by filing at your full retirement age (FRA). Retirees who file after their FRA receive a delayed retirement credit of 8% per year until they turn 70.

Admittedly, eight years (from 62 to 70) is a long time to wait to tap into this significant income stream. Most seniors would jump at the chance for more money, particularly as many baby boomers face these challenges that could put even the best-laid income plans to the test in retirement:

Longevity. The longer you live, the greater the chance that your savings will have to endure multiple financial storms, such as increased taxes, inflation and costly health care issues as you get older. The Social Security Administration estimates that the average 62-year-old woman born in 1958 can expect to live another 23½ years, and a man with the same birthdate can expect to live another 20⅔ years. That’s a long time to have to make your money last. However, if you maximize your Social Security benefits by earning delayed retirement credits, you’ll always have that guaranteed income.

Low interest rates. In the current low-interest environment, the return on “safe” investments, such as CDs, bonds, and money market accounts, won’t protect you from inflation. Thus, one of the best investments that retirees can make right now isn’t really an investment at all, but rather it’s growing their Social Security payments by delaying to take them.

Continuing to work.  Many seniors are continuing to work  well past traditional retirement ages to make ends meet.  Taking Social Security while still working may result in devastating tax losses.  It may make sense to delay Social Security until completely retired.

Decline in employer pensions. The retirement savings system in the United States traditionally has been built on three pillars: Social Security, a workplace pension and individual savings. However, over the past two decades, many employers have stopped offering pensions. As a result, the full responsibility for retirement investing has been shifting to employees with defined contribution plans. However, 40.2% of older Americans now depend on Social Security alone for income in retirement. Only 6.8% receive income from a defined benefit pension, a defined contribution plan, and Social Security. Fidelity Investments also reports that the median 401(k) balance in the first half of 2019 was $62,000 for savers in the 60 to 69 age group.

Ask an elder law attorney who practices in Social Security matters to help you make some calculations to determine your “break-even” age, which is when you’d come out ahead by waiting instead of claiming early. If you haven’t already, sign up with the Social Security Administration to get an estimate of your retirement benefits at 62, 67, and 70, using their online benefits calculator.  You may also consider speaking with a financial advisor who can evaluate opportunities to earn greater income with money in hand with earlier Social Security.

If your objective is to land the biggest possible piece of pie — and you can manage it — waiting is the name of the game.

Reference: Kiplinger (Oct. 21, 2020) “Waiting to File for Social Security Benefits Is Hard, but Payoff Is Sweet”

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